SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JULY 8, 2004
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
On July 8, 2004, Discovery Laboratories, Inc. (the "Registrant"), issued a
press release to announce the completion of a Committed Equity Financing
Facility Arrangement ("CEFF") with Kingsbridge Capital Limited ("Kingsbridge")
pursuant to which Kingsbridge has committed to finance up to $75 million of
capital to support the Registrant's future growth. The CEFF is embodied in a
Common Stock Purchase Agreement filed herewith as Exhibit 10.1 and a
Registration Rights Agreement filed herewith as Exhibit 10.2. Subject to certain
limitations, from time to time under the CEFF, the Registrant can require
Kingsbridge to purchase newly-issued shares of the Registrant's common stock,
par value $.001 per share (the "Common Stock"), over the course of a 15-trading
day period. Subject to limited exceptions, on each trading day of each such
financing period, Kingsbridge is required to purchase shares of Common Stock for
an aggregate purchase price equal to 1/15 of the applicable financing amount.
The Registrant has the right to determine the exact timing, amount and price of
any and all financings under the CEFF, subject to certain conditions and
limitations. The CEFF allows the Registrant to raise capital as required, at the
time, price and in amounts deemed suitable to the Registrant, during the
three-year period following the effectiveness of the registration statement to
be filed by the Registrant with the Securities and Exchange Commission ("SEC").
In connection with the CEFF, the Registrant issued to Kingsbridge a
warrant, a copy of which is filed herewith as Exhibit 4.1, to purchase up to
375,000 shares of Common Stock at an exercise price equal to $12.0744 per share
(the "Warrant"). The Warrant may not be exercised if and to the extent that the
shares to be issued to Kingsbridge upon such exercise, when aggregated with
other shares of Common Stock beneficially owned, or deemed beneficially owned,
by Kingsbridge, would cause Kingsbridge to own more than 9.9% of the outstanding
shares of Common Stock on the date of such exercise. The Warrant is exercisable
for five years commencing on January 7, 2005. The warrant must be exercised for
cash, except in limited circumstances.
Pursuant to the CEFF, the Registrant may access up to and including $18.75
million per 15-day financing period. The Registrant is not obligated to utilize
any of the $75 million available under the CEFF and there are no minimum
commitment or minimum use penalties. The Registrant may not access the CEFF
unless and until the SEC declares effective the registration statement to be
filed by the Registrant covering the resale of the shares of Common Stock
issuable in connection with the CEFF and the shares of Common Stock underlying
the Warrant. Each draw down will be priced over a 15-trading day financing
period with the Registrant controlling the minimum acceptable purchase price for
any shares to be issued to Kingsbridge during that time. The purchase price for
the shares of Common Stock pursuant to the CEFF shall reflect discounts ranging
from 6% to 10% of the average market price of the Common Stock during the
applicable financing period, with the reduced discounts applying if the price of
the Common Stock is equal to $9.01 or more. However, Kingsbridge shall not be
required to purchase any shares of Common Stock on any day of a financing period
if and to the extent that such purchase would cause Kingsbridge to purchase a
number of shares of Common Stock which, when aggregated with other shares of
Common Stock then beneficially owned, or deemed beneficially owned, by
Kingsbridge, would result in Kingsbridge owning more than 9.9% of the
outstanding shares of Common Stock on such day. There must be at least five
trading days between individual financing periods, and individual financing are
limited to certain maximum amounts depending on the then current market
capitalization of the Registrant.
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The CEFF does not contain any restrictions on the Registrant's operating
activities, automatic pricing resets or minimum market volume restrictions nor
prohibit the Registrant from conducting additional debt or equity financings,
including PIPEs, shelf offerings, secondary offerings or any other fixed
future-priced securities. Throughout the term of the CEFF, Kingsbridge is
restricted from engaging in any transaction intended to reduce its economic risk
of owning shares of the Registrant's common stock including, without limitation,
the purchase of any option or contract to sell, selling "short" or "short
against the box", or otherwise entering into any other security transaction the
purpose of which is to hedge its risk of ownership of the Common Stock.
The description of the terms and conditions of the CEFF and the Warrant
and the rights and obligations of the Registrant and Kingsbridge in connection
therewith are qualified by reference in their entirety to the definitive terms
and conditions of the Common Stock Purchase Agreement, the Registration Rights
Agreement and the Warrant, forms of which are filed as exhibits to this Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits:
4.1 Class B Investor Warrant
10.1 Common Stock Purchase Agreement
10.2 Registration Rights Agreement
99.1 Press Release dated July 8, 2004
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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: July 8, 2004
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EXHIBIT 4.1
Execution Copy
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. NEITHER SUCH WARRANTS NOR SUCH
SECURITIES MAY BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT
SUCH REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE AS MAY
BE SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER
SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
DISCOVERY LABORATORIES, INC.
CLASS B INVESTOR WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
FOR VALUE RECEIVED, DISCOVERY LABORATORIES, INC., a Delaware corporation
(the "COMPANY"), hereby certifies that KINGSBRIDGE CAPITAL LIMITED
("KINGSBRIDGE"), its designees or its permitted assigns is entitled to purchase
from the Company, at any time or from time to time commencing on January 7,
2005, and prior to 5:00 P.M., New York City time, on January 6, 2010, up to
Three Hundred Seventy-Five Thousand (375,000) fully paid and non-assessable
shares of Common Stock (subject to adjustment), $.001 par value per share, of
the Company for $12.0744 per share (subject to adjustment as provided herein)
and an aggregate purchase price equal to $4,527,900. (Hereinafter, (i) said
common stock, $.001 par value per share, of the Company, is referred to as the
"COMMON STOCK," (ii) the shares of Common Stock purchasable hereunder or under
any other Warrant (as hereinafter defined) are referred to as the "WARRANT
SHARES," (iii) the aggregate purchase price payable for all of the Warrant
Shares purchasable hereunder is referred to as the "AGGREGATE WARRANT PRICE,"
(iv) the price payable for each of the Warrant Shares is referred to as the "PER
SHARE WARRANT PRICE," (v) this Warrant and all warrants hereafter issued in
exchange or substitution for this warrant or such similar warrants are referred
to as the "WARRANTS," and (vi) the holder of this Warrant is referred to as the
"HOLDER" and the holder of this Warrant and all other Warrants and Warrant
Shares are referred to as the "HOLDERS".
By acceptance of this Warrant, the Holder agrees to comply with all
applicable provisions of this Warrant, the Common Stock Purchase Agreement
entered into between Kingsbridge and the Company (the "PURCHASE AGREEMENT") and
the Registration Rights Agreement entered into between Kingsbridge and the
Company (the "REGISTRATION RIGHTS AGREEMENT"), to the same extent as if it were
a party thereto.
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1. EXERCISE OF WARRANT. (a) This Warrant may be exercised in whole at any
time, or in part from time to time, commencing on January 7, 2005, and prior to
5:00 P.M., New York City time, on January 6, 2010, by the Holder by:
(i) the surrender of this Warrant (with the subscription form at the
end hereof duly executed) at the address set forth in Section 9(a) hereof,
together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part, with payment
for the Warrant Shares made by certified or official bank check payable to the
order of the Company; or
(ii) the surrender of this Warrant (with the cashless exercise form
at the end hereof duly executed) (a "CASHLESS EXERCISE") at the address set
forth in Section 10(a) hereof; provided, that a Cashless Exercise may only be
effected by the Holder and the Company during an Ineffective Period or a
Blackout Period (as such terms are defined in the Registration Rights Agreement)
and where the Holder may not sell all the Warrant Shares to be issued in
connection with such Cashless Exercise in a single transaction pursuant to Rule
144 promulgated under the Securities Act of 1934 as of the date of such Cashless
Exercise. In the event of a Cashless Exercise in accordance with this Section
1(a), Holder shall exchange this Warrant for that number of Warrant Shares
subject to such Cashless Exercise multiplied by a fraction, the numerator of
which shall be the difference between (A) the "Current Market Price," which is
defined as the closing sale price of the Common Stock on the Trading Day (as
defined in the Purchase Agreement) prior to the date of such surrender or, in
case no such reported sales take place on such Trading Day, the average of the
last reported bid and asked prices of the Common Stock on such Trading Day, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on any such exchange, the representative closing sale price of the Common Stock
as reported by Nasdaq, or other similar organization if Nasdaq is no longer
reporting such information, or, if the Common Stock is not reported on Nasdaq,
the high per share sale price for the Common Stock in the over-the-counter
market as reported by the National Quotation Bureau or similar organization, or
if not so available, the fair market value of the Common Stock as determined in
good faith by the Board of Directors of the Company (the "BOARD") and (B) the
Per Share Exercise Price, and the denominator of which shall be the Current
Market Price. For purposes of any computation under this Section 1(a), the
Current Market Price shall be based on the Trading Day immediately prior to the
Cashless Exercise. The "Closing Sales Price" shall be the reported per share
closing sales price, regular way, of the Common Stock on the Nasdaq SmallCap
Market (or on the Nasdaq National Market or a national securities exchange, as
the case may be) at 4:00 PM New York Time on the applicable Trading Day. If, at
any time after July 7, 2006, a registration statement on Form S-1 under the
Securities Act of 1933 (the "ACT") or such other form as deemed appropriate by
counsel to the Company for the registration for the resale by the Holder of (x)
the shares of Common Stock of the Company that may be purchased under the
Purchase Agreement, (y) the Warrant Shares or (z) any securities issued or
issuable with respect to any of the foregoing by way of exchange, stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise, has been declared
effective by the Commission and remains effective, the Company may permit or
require the Holder to effect a Cashless Exercise in connection with the exercise
of this Warrant.
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(b) If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of Common Stock and the Holder is entitled to
receive a new Warrant covering the Warrant Shares that have not been exercised
and setting forth the proportionate part of the Aggregate Warrant Price
applicable to such Warrant Shares.
(c) Upon surrender of this Warrant, the Company will (i) issue a
certificate or certificates in the name of the Holder, or its nominee, for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of Common Stock to which the Holder shall be entitled, pay to the Holder
cash in an amount equal to the fair value of such fractional share (determined
in such reasonable manner as the Board shall determine) and (ii) deliver the
other securities and properties receivable upon the exercise of this Warrant, or
the proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of this Warrant.
(d) The Holder may not exercise this Warrant such that the number of
Warrant Shares to be received pursuant to such exercise aggregated with all
other shares of Common Stock then owned by the Holder beneficially or deemed
beneficially owned by the Holder would result in the Holder owning more than
9.9% of all of such Common Stock as would be outstanding on such Exercise Date,
as determined in accordance with Section 13(d) of the Exchange Act of 1934 and
the rules and regulations promulgated thereunder.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees and
covenants that, prior to the expiration of this Warrant, the Company shall at
all times (i) have authorized and in reserve, and shall keep available, solely
for issuance and delivery upon the exercise of this Warrant, the shares of
Common Stock and other securities and properties receivable upon the exercise of
this Warrant and shall be validly issued and non-assessable, free and clear of
all restrictions on sale or transfer, other than under Federal or state
securities or blue sky laws, and free and clear of all preemptive rights and
rights of first refusal and (ii) use its best efforts to keep the Warrant Shares
authorized for listing on the Nasdaq National Market, the SmallCap Market or any
national securities exchange on which the Common Stock is traded.
3. PROTECTION AGAINST DILUTION. (a) If the Company, at any time while this
Warrant is unexpired and not exercised in full, (i) reclassifies or changes its
Common Stock (other than a change in par value or as a result of a subdivision
or combination of Common Stock issuable upon exercise of the Warrant) or (ii)
consolidates, merges or effects a mandatory share exchange with or into another
corporation (other than a merger or mandatory share exchange with another
corporation in which the Company is a continuing corporation and that does not
result in any reclassification or change, other than a change in par value or as
a result of a subdivision or combination of Common Stock issuable upon exercise
of the Warrant) at any time while this Warrant is unexpired and not exercised in
full, then in any such event the Company, or such successor or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefore, amend this Warrant or issue a new Warrant providing
that the Holder shall have rights not less favorable to the Holder than those
then applicable to this Warrant and to receive upon exercise under such
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amendment of this Warrant or new Warrant, in lieu of each share of Common Stock
theretofore issuable upon exercise of the Warrant hereunder, the kind and amount
of shares of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger or mandatory share exchange by
the holder of one share of Common Stock issuable upon exercise of the Warrant
had the Warrant been exercised immediately prior to such reclassification,
change, consolidation, merger or mandatory share exchange. Such amended Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3. The provisions of
this Section 3(a) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, mandatory share exchanges and sales and
transfers.
(b) If the Company, at any time while this Warrant is unexpired and not
exercised in full, shall subdivide its Common Stock, the Per Share Warrant Price
shall be proportionately reduced as of the effective date of such subdivision,
or, if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as of such record date, whichever is earlier. If the
Company, at any time while this Warrant is unexpired and not exercised in full,
shall combine its Common Stock, the Per Share Warrant Price shall be
proportionately increased as of the effective date of such combination, or, if
the Company shall take a record of holders of its Common Stock for the purpose
of so combining, as of such record date, whichever is earlier.
(c) If the Company, at any time while this Warrant is unexpired and not
exercised in full, shall pay a dividend or make a distribution on the
outstanding shares of Common Stock in shares of its Common Stock, then, as of
the effective date of payment of such dividend or distribution, the number and
kind of shares of Common Stock receivable upon exercise of this Warrant shall be
proportionately adjusted so that the Holder shall thereafter be entitled to
receive the aggregate number of shares of Common Stock which, if such Warrant
had been exercised immediately prior to such time, it would have owned upon such
exercise and been entitled to receive by virtue of such dividend or
distribution. The provisions of this Section 3(c) shall not apply under any of
the circumstances for which an adjustment is provided in Sections 3(a) or 3(b).
(d) No adjustment in the Per Share Warrant Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
share of Common Stock; provided, however, that any adjustments which by reason
of this Section 3(d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; provided, further, however, the
Company shall be entitled to make such reductions in the Per Share Warrant
Price, in addition to those required by this Section 3, as it in its discretion
shall deem to be advisable in order that any stock dividend, subdivision of
shares or distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(e) Upon the expiration of any rights, options, warrants or conversion
privileges with respect to the issuance of which an adjustment to the Per Share
Warrant Price had been made, if such shall not have been exercised, the number
of Warrant Shares purchasable upon exercise of this Warrant, to the extent this
Warrant has not then been exercised, shall, upon such expiration, be readjusted
and shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
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on the basis of (A) the fact that Common Stock, if any, actually issued or sold
upon the exercise of such rights, options, warrants or conversion privileges and
(B) the fact that such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for the issuance, sale
or grant of all such rights, options, warrants or conversion privileges whether
or not exercised; provided, however, that no such readjustment shall have the
effect of decreasing the number of Warrant Shares purchasable upon exercise of
this Warrant by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrants
or conversion privileges.
4. FULLY PAID STOCK; TAXES. The Warrant Shares delivered upon the exercise
of this Warrant shall at the time of such delivery, be duly authorized, validly
issued and outstanding, fully paid and non-assessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value, if any, per Warrant
Share is at all times equal to or less than the then Per Share Warrant Price.
The Company shall pay all documentary, stamp or similar taxes and other similar
governmental charges that may be imposed with respect to the issuance or
delivery of any Warrant Shares (other than income taxes); provided, however,
that if the Warrant Shares are to be delivered in a name other than the name of
the Holder, no such delivery shall be made unless the person requesting the same
has paid to the Company the amount of transfer taxes or charges incident
thereto, if any.
5. INVESTMENT INTENT; LIMITED TRANSFERABILITY. (a) The Holder represents,
by accepting this Warrant, that it understands that this Warrant and any
securities obtainable upon exercise of this Warrant have not been registered for
sale under Federal or state securities or blue sky laws and are being offered
and sold to the Holder pursuant to one or more exemptions from the registration
requirements of such securities laws. In the absence of an effective
registration of such securities or an exemption therefrom, any certificates for
such securities shall bear a legend substantially similar to the legend set
forth on the first page of this Warrant. The Holder understands that it must
bear the economic risk of its investment in this Warrant and any securities
obtainable upon exercise of this Warrant for an indefinite period of time, as
this Warrant and such securities have not been registered under Federal or state
securities or blue sky laws and therefore cannot be sold unless subsequently
registered under such laws, unless an exemption from such registration is
available.
(b) The Holder agrees and acknowledges that this Warrant, or any portion
thereof, and any such securities will not be sold or otherwise transferred
unless (i) a registration statement with respect to such transfer is effective
under the Act and any applicable state securities or blue sky laws or (ii) such
sale or transfer is made pursuant to one or more exemptions from the Act.
(c) The Holder agrees and acknowledges that in addition to the limitations
set forth in the Registration Rights Agreement with respect to Registrable
Securities, this Warrant may not be sold, transferred, assigned or hypothecated
by the Holder except in compliance with the provisions of the Act and the
applicable state securities or blue sky laws, and is so transferable only upon
the books of the Company which it shall cause to be maintained for such purpose.
The Company may treat the registered Holder of this Warrant as it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
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permit any Holder of a Warrant or its duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of Warrants. All Warrants issued
upon the transfer or assignment of this Warrant will be dated the same date as
this Warrant, and all rights of the holder thereof shall be identical to those
of the Holder.
(d) The Holder represents that it 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 terms and conditions of the
Warrants or the exercise of the Warrants and the finance operations and business
of the Company and (ii) the opportunity to request such additional information
which the Company possesses or can acquire without unreasonable effort or
expense. Nothing contained in this Section 5(d) shall alter, amend or change
Holder's reliance on the representations, covenants or warranties contained
herein.
(e) The Holder represents that it did not (i) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio, whether
closed circuit, or generally available; or (ii) attend any seminar, meeting or
investor or other conference whose attendees were, to such Holder's knowledge,
invited by any general solicitation or general advertising.
(f) The Holder represents that it is an "accredited investor" within the
meaning of Regulation D promulgated under the Act. Such Holder is acquiring the
Warrants for its own account and not with a present view to, or for sale in
connection with, any distribution thereof in violation of the registration
requirements of the Act, without prejudice, however, to such Holder's right,
subject to the provisions of the Purchase Agreement, the Registration Rights
Agreement and this Warrant, at all times to sell or otherwise dispose of all or
any part of the Warrants and Warrant Shares.
(g) The Holder represents that it, either by reason of the Holder's
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 sophistication, knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment in the Company and the capacity to protect the Holder's interests in
connection with the transactions contemplated by this Warrant, the Purchase
Agreement and the Registration Rights Agreement.
(h) The Holder represents that it has the ability to bear the economic
risks of its investment for an indefinite period of time and could afford a
complete loss of its investment.
(i) The Holder agrees and acknowledges that the representations made by
the Holder in this Section 5 are conditions to the exercise of the Warrant.
(j) Nothing in this Section 5 shall affect in any way the Holder's
obligations under any agreement to comply with all applicable securities laws
upon resale of the Warrant Shares.
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6. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. HOLDER NOT STOCKHOLDER. This Warrant does not confer upon the Holder
any right to vote on or consent to or receive notice as a stockholder of the
Company, as such, in respect of any matters whatsoever, nor any other rights or
liabilities as a stockholder, prior to the exercise hereof; this Warrant does,
however, require certain notices to Holders as set forth herein.
8. NOTICES OF RECORD DATE, ETC. If the Company shall propose at any time
to effect or to establish (i) a record date for the holders of the Common Stock
for the purpose of entitling them to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares or stock
of any class or any other securities or to receive any other right or (ii) any
voluntary or involuntary dissolution, liquidation or dissolution of the Company,
then notice of any such proposed action shall be mailed to the Holders not less
than 10 days prior to such event.
9. NOTICES. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid or (iv)
transmitted by hand delivery, telegram or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Discovery Laboratories, Inc.
350 South Main Street
Suite 307
Doylestown, Pennsylvania 18901
Telephone: (215) 340-4699
Facsimile: (215) 340-3940
Attention: Chief Financial Officer and General Counsel
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with a copy (which shall not constitute notice) to:
Dickstein Shapiro Morin & Oshinsky LLP
1177 Avenue of the Americas, 41st Floor
New York, NY 10036-2714
Telephone: (212) 835-1400
Facsimile: (212) 997-9880
Attention: Ira L. Kotel
if to the Holder, at such address as the Holder has designated in writing to
the Company.
10. ASSIGNMENT. Assuming the conditions of Sections 5(b) and 5(c) have
been satisfied, the Holder may sell, transfer, assign, pledge or otherwise
dispose of this Warrant (each of the foregoing, a "Transfer"), in whole or in
part, but only to an Affiliate of the Holder. The Holder shall deliver a written
notice to Company, substantially in the form of the Assignment attached hereto,
indicating the person or persons to whom the Warrant shall be Transferred and
the respective number of warrants to be Transferred to each assignee. The
Company shall effect the Transfer within 10 days, and shall deliver to the
Transferee(s) designated by the Holder a Warrant or Warrants of like tenor and
terms for the appropriate number of shares. In connection with and as a
condition of any such proposed Transfer, the Company may request the Holder to
provide an opinion of counsel to the Holder in form and substance reasonably
satisfactory to the Company to the effect that the proposed Transfer complies
with all applicable federal and state securities laws.
11. HEADINGS. The headings of this Warrant have been inserted as a matter
of convenience and shall not affect the construction hereof.
12. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law thereof.
13. AMENDMENT, WAIVER, ETC. Except as expressly provided herein, neither
this Warrant nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed this 7th day of July, 2004.
DISCOVERY LABORATORIES, INC.
By: /s/ John G. Cooper
----------------------------------------
Name: John G. Cooper
Title: Executive Vice President and
Chief Financial Officer
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SUBSCRIPTION
The undersigned, ___________________, pursuant to the provisions of
the foregoing Warrant, hereby elects to exercise such Warrant by agreeing to
subscribe for and purchase ____________________ shares (the "Warrant Shares") of
Common Stock, par value $.001 per share, of Discovery Laboratories, Inc. (the
"Company"), and hereby makes payment of $___________ by certified or official
bank check in payment of the exercise price therefor.
As a condition to this subscription, the undersigned hereby
represents and warrants to the Company that the representations and warranties
of Section 5 of the Warrant are true and correct as of the date hereof as if
they had been made on such date with respect to the Warrant Shares. The
undersigned further acknowledges that the sale, transfer, assignment or
hypothecation of the Warrant Shares to be issued upon exercise of this Warrant
is subject to the terms and conditions contained in Sections 1 and 5 of this
Warrant.
Dated: Signature:
--------------- --------------------
Address:
----------------------
----------------------
CASHLESS EXERCISE
The undersigned, ___________________, pursuant to the provisions of
the foregoing Warrant, hereby elects to exercise such Warrant by agreeing to
subscribe for and purchase ____________________ shares (the "Warrant Shares") of
Common Stock, par value $.001 per share, of Discovery Laboratories, Inc. (the
"Company"), pursuant to the Cashless Exercise provisions of the Warrant.
As a condition to this subscription, the undersigned hereby
represents and warrants to the Company that the representations and warranties
of Section 5 of the Warrant are true and correct as of the date hereof as if
they had been made on such date with respect to the Warrant Shares. The
undersigned further acknowledges that the sale, transfer, assignment or
hypothecation of the Warrant Shares to be issued upon exercise of this Warrant
is subject to the terms and conditions contained in Sections 1 and 5 of this
Warrant.
Dated: Signature:
--------------- --------------------
Address:
----------------------
14
ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby sells, assigns and
transfers unto ____________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
Discovery Laboratories, Inc. (the "Company"). As a condition to this assignment,
the Holder acknowledges that its assignee must deliver a written instrument to
the Company that the representations and warranties of Section 5 of the Warrant
are true and correct as of the date hereof as if they had been made by such
assignee on such date with respect to the Warrants.
Dated: Signature:
--------------- --------------------
Address:
----------------------
----------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby assigns and transfers unto
____________________ the right to purchase _______ shares of the Common Stock,
par value $.001 per share, of Discovery Laboratories, Inc. (the "Company"), as
set forth in the foregoing Warrant, and a proportionate part of said Warrant and
the rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant on the
books of the Company. As a condition to this assignment, the Holder acknowledges
that its assignee must deliver a written instrument to the Company that the
representations and warranties of Section 5 of the Warrant are true and correct
as of the date hereof as if they had been made by such assignee on such date
with respect to the Warrants.
Dated: Signature:
--------------- --------------------
Address:
----------------------
----------------------
15
EXHIBIT 10.1
EXECUTION COPY
COMMON STOCK PURCHASE AGREEMENT
BY AND BETWEEN
KINGSBRIDGE CAPITAL LIMITED
AND
DISCOVERY LABORATORIES, INC.
DATED AS OF JULY 7, 2004
16
ARTICLE I DEFINITIONS
Section 1.02. "Blackout Amount"............................................1
Section 1.03. "Bloomberg"..................................................1
Section 1.04. "Charter"....................................................1
Section 1.05. "Closing Date"...............................................2
Section 1.06. "Commission".................................................2
Section 1.07. "Commission Documents".......................................2
Section 1.08. "Commitment Period"..........................................2
Section 1.09. "Common Stock"...............................................2
Section 1.10. "Control"....................................................2
Section 1.11. "Condition Satisfaction Date"................................2
Section 1.12. "Damages"....................................................2
Section 1.13. "Draw Down"..................................................2
Section 1.14. "Draw Down Amount"...........................................2
Section 1.15. "Draw Down Discount Price"...................................2
Section 1.16. "Draw Down Notice"...........................................2
Section 1.17. "Draw Down Pricing Period"...................................3
Section 1.18. "Effective Date".............................................3
Section 1.19. "Exchange Act"...............................................3
Section 1.20. "Knowledge"..................................................3
Section 1.21. "Legend".....................................................3
Section 1.22. "Make Whole Amount"..........................................3
Section 1.23. "Market Capitalization"......................................3
Section 1.24. "Material Adverse Effect"....................................3
Section 1.25. "Maximum Commitment Amount"..................................3
Section 1.26. "Maximum Draw Down Amount"...................................3
Section 1.27. "NASD".......................................................3
Section 1.28. "Other Financing"............................................3
Section 1.29. "Permitted Transaction"......................................3
Section 1.30. "Person".....................................................4
Section 1.31. "Principal Market"...........................................4
Section 1.32. "Prohibited Transaction".....................................4
Section 1.33. "Prospectus".................................................4
Section 1.34. "Registrable Securities".....................................4
17
Section 1.35. "Registration Rights Agreement"..............................4
Section 1.36. "Registration Statement".....................................4
Section 1.37. "Regulation D"...............................................4
Section 1.38. "Section 4(2)"...............................................4
Section 1.39. "Securities Act".............................................4
Section 1.40. "Settlement Date"............................................4
Section 1.41. "Shares".....................................................5
Section 1.42. "Threshold Price"............................................5
Section 1.43. "Trading Day"................................................5
Section 1.44. "Underwriter"................................................5
Section 1.45. "VWAP".......................................................5
Section 1.46. "Warrant"....................................................5
Section 1.47. "Warrant Shares".............................................5
ARTICLE II PURCHASE AND SALE OF COMMON STOCK............................5
Section 2.01. Purchase and Sale of Stock...................................5
Section 2.02. Closing......................................................5
Section 2.03. Warrant......................................................6
ARTICLE III DRAW DOWN TERMS..............................................6
Section 3.01. Draw Down Notice.............................................6
Section 3.02. Number of Shares.............................................6
Section 3.03. Limitation on Draw Downs.....................................6
Section 3.04. Trading Cushion..............................................6
Section 3.05. Expiration of Draw Downs.....................................6
Section 3.06. Settlement...................................................6
Section 3.07. Delivery of Shares; Payment of Draw Down Amount..............7
Section 3.08. Threshold Price..............................................7
Section 3.09. Other Issuances..............................................7
Section 3.10. Failure to Deliver Shares....................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................8
Section 4.01. Organization, Good Standing and Power........................8
Section 4.02. Authorization; Enforcement...................................8
Section 4.03. Capitalization...............................................8
Section 4.04. Issuance of Shares...........................................9
Section 4.05. No Conflicts.................................................9
18
Section 4.06. Commission Documents, Financial Statements..................10
Section 4.07. No Material Adverse Change..................................10
Section 4.08. No Undisclosed Liabilities..................................11
Section 4.09. No Undisclosed Events or Circumstances......................11
Section 4.10. Actions Pending.............................................11
Section 4.11. Compliance with Law.........................................11
Section 4.12. Certain Fees................................................11
Section 4.13. Disclosure..................................................11
Section 4.14. Material Non-Public Information.............................12
Section 4.15. Exemption from Registration; Valid Issuances................12
Section 4.16. No General Solicitation or Advertising in Regard to
this Transaction............................................12
Section 4.17. No Integrated Offering......................................12
ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR...13
Section 5.01. Organization and Standing of the Investor...................13
Section 5.02. Authorization and Power.....................................13
Section 5.03. No Conflicts................................................13
Section 5.04. Financial Capability; Accredited Investor...................14
Section 5.05. Information.................................................14
Section 5.06. Selling Restrictions........................................14
Section 5.07. Statutory Underwriter Status................................15
Section 5.08. Compliance with Insider Trading Rules.......................15
ARTICLE VI COVENANTS OF THE COMPANY....................................15
Section 6.01. Securities..................................................15
Section 6.02. Reservation of Common Stock.................................15
Section 6.03. Registration and Listing....................................15
Section 6.04. Registration Statement......................................16
Section 6.05. Compliance with Laws........................................16
Section 6.06. Reporting Requirements......................................16
Section 6.07. Other Financing.............................................16
Section 6.08. Prohibited Transactions.....................................17
Section 6.09. Corporate Existence.........................................17
Section 6.10. Non-Disclosure of Non-Public Information....................17
Section 6.11. Notice of Certain Events Affecting Registration;
Suspension of Right to Request a Draw Down..................17
Section 6.12. Amendments to the Registration Statement....................18
Section 6.13. Prospectus Delivery.........................................18
19
ARTICLE VII CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT
A DRAW DOWN.................................................18
Section 7.01. Accuracy of the Company's Representations and Warranties....18
Section 7.02. Performance by the Company..................................19
Section 7.03. Compliance with Law.........................................19
Section 7.04. Effective Registration Statement............................19
Section 7.05. No Knowledge................................................19
Section 7.06. No Suspension...............................................19
Section 7.07. No Injunction...............................................19
Section 7.08. No Proceedings or Litigation................................19
Section 7.09. Section 16 Limitation.......................................19
Section 7.10. Sufficient Shares Registered for Resale.....................20
Section 7.11. Warrant.....................................................20
Section 7.12. Opinion of Counsel..........................................20
ARTICLE VIII LEGENDS.....................................................20
Section 8.01. Legends.....................................................20
Section 8.02. No Other Legend or Stock Transfer Restrictions..............21
ARTICLE IX TERMINATION.................................................22
Section 9.01. Term........................................................22
Section 9.02. Other Termination...........................................22
ARTICLE X INDEMNIFICATION.............................................23
Section 10.01. Indemnification.............................................23
Section 10.02. Notification of Claims for Indemnification..................24
ARTICLE XI ARBITRATION.................................................25
Section 11.01. Arbitration.................................................25
Section 11.02. Board of Arbitration........................................26
Section 11.03. Counterclaims...............................................26
Section 11.04. Procedures..................................................26
ARTICLE XII MISCELLANEOUS...............................................27
Section 12.01. Fees and Expenses...........................................27
Section 12.02. Reporting Entity for the Common Stock.......................27
Section 12.03. Acknowledgement Regarding the Investor's Purchase of
Shares......................................................28
Section 12.04. Brokerage...................................................28
Section 12.05. Notices.....................................................28
20
Section 12.06. Assignment..................................................29
Section 12.07. Amendment; No Waiver........................................29
Section 12.08. Entire Agreement............................................29
Section 12.09. Severability................................................30
Section 12.10. Title and Subtitles.........................................30
Section 12.11. Counterparts................................................30
Section 12.12. Choice of Law...............................................30
Section 12.13. Specific Enforcement, Consent to Jurisdiction...............30
Section 12.14. Survival....................................................31
Section 12.15. Publicity...................................................31
Section 12.16. Further Assurances..........................................31
21
This COMMON STOCK PURCHASE AGREEMENT is entered into as of the 7th day of
July, 2004 (this "Agreement"), by and between Kingsbridge Capital Limited, an
entity organized and existing under the laws of the British Virgin Islands (the
"Investor"), and DISCOVERY LABORATORIES, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions and limitations set forth herein, the Company may issue and sell to
the Investor, from time to time, and the Investor shall purchase from the
Company, up to $75 million of shares of Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933 and the rules and regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemptions from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments in Common Stock to be made hereunder; and
WHEREAS, the parties hereto are concurrently entering into a Registration
Rights Agreement in the form of Exhibit A hereto (the "Registration Rights
Agreement") pursuant to which the Company intends to register the Common Stock
issued and sold to the Investor under this Agreement and under the Warrant (as
defined below), upon the terms and subject to the conditions and limitations set
forth therein; and
WHEREAS, in consideration for the Investor's execution and delivery of,
and its performance of its obligations under, this Agreement, the Company is
concurrently issuing to the Investor a Warrant in the form of Exhibit B hereto
(the "Warrant") pursuant to which the Investor may purchase from the Company up
to 375,000 shares of Common Stock, upon the terms and subject to the conditions
set forth therein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. "Affiliate" shall mean, as to the party specified, any
Person which directly or indirectly Controls, is Controlled by or is under
common Control with, such party.
Section 1.02. "Blackout Amount" shall have the meaning assigned to such
term in the Registration Rights Agreement.
Section 1.03. "Bloomberg" means the interactive financial information
network operated by Bloomberg L.P.
Section 1.04. "Charter" shall have the meaning assigned to such term in
Section 4.03 hereof.
22
Section 1.05. "Closing Date" means the date on which this Agreement is
executed and delivered by the Company and the Investor.
Section 1.06. "Commission" means the United States Securities and Exchange
Commission.
Section 1.07. "Commission Documents" shall have the meaning assigned to
such term in Section 4.06 hereof.
Section 1.08. "Commitment Period" means the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investor shall have purchased Shares pursuant to this Agreement for an
aggregate purchase price equal to the Maximum Commitment Amount, (y) the date
this Agreement is terminated pursuant to Article IX hereof and (z) the date
occurring 36 months from the Effective Date.
Section 1.09. "Common Stock" means the common stock of the Company, par
value $0.001 per share.
Section 1.10. "Control" (including the terms "Controlling," "Controlled
by" and "under common Control with") means the possession, direct or indirect,
of the power, either individually or with others, to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise as set forth in Rule
405 promulgated under the Securities Act.
Section 1.11. "Condition Satisfaction Date" shall have the meaning
assigned to such term in Article VII hereof.
Section 1.12. "Damages" means any loss, claim, damage, liability, cost and
expense (including, without limitation, reasonable attorneys' fees and expenses
and reasonable costs and expenses of expert witnesses and investigation).
Section 1.13. "Draw Down" shall have the meaning assigned to such term in
Section 3.01 hereof.
Section 1.14. "Draw Down Amount" means the actual amount of a Draw Down
paid to the Company.
Section 1.15. "Draw Down Discount Price" means (i) 90% of the VWAP on any
Trading Day during the Draw Down Pricing Period when the VWAP equals to or
exceeds $5.00 but is less than or equal to $9.00, (ii) 92% of the VWAP on any
Trading Day during the Draw Down Pricing Period when the VWAP exceeds $9.00 but
is less than or equal to $14.00 and (iii) 94% of the VWAP on any Trading Day
during the Draw Down Pricing Period when the VWAP exceeds $14.00.
Section 1.16. "Draw Down Notice" shall have the meaning assigned to such
term in Section 3.01 hereof.
23
Section 1.17. "Draw Down Pricing Period" shall mean, with respect to each
Draw Down, a period of fifteen (15) consecutive Trading Days beginning on the
first Trading Day specified in a Draw Down Notice.
Section 1.18. "Effective Date" means the first Trading Day immediately
following the date on which the Registration Statement is declared effective by
the Commission.
Section 1.19. "Exchange Act" means the federal Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.20. "Knowledge" means the actual knowledge of the Company's
Chief Executive Officer, Chief Financial Officer or any Senior or Executive Vice
President.
Section 1.21. "Legend" shall have the meaning specified in Section 8.1.
Section 1.22. "Make Whole Amount" shall have the meaning specified in
Section 3.10.
Section 1.23. "Market Capitalization" means, as of any Trading Day, the
product of (i) the closing sale price of the Common Stock as reported by
Bloomberg using the AQR function and (ii) the number of outstanding shares of
Common Stock of the Company as reported by Bloomberg using the DES function.
Section 1.24. "Material Adverse Effect" means any effect on the business,
operations, properties or financial condition of the Company and its
consolidated subsidiaries that is material and adverse to the Company and such
subsidiaries, taken as a whole, and/or any condition, circumstance or situation
that would prohibit or otherwise interfere with the ability of the Company to
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrant in any material respect; provided, that none of the
following shall constitute a "Material Adverse Effect": (i) the effects of
conditions or events that are generally applicable to the capital, financial,
banking, currency, biotechnology or pharmaceutical markets; (ii) any changes or
effects resulting from the announcement or consummation of the transactions
contemplated by this Agreement, including, without limitation, any changes or
effects associated with any particular Draw Down; and (iii) changes in the
market price of the Common Stock.
Section 1.25. "Maximum Commitment Amount" means $75 million in aggregate
Draw Down Amounts.
Section 1.26. "Maximum Draw Down Amount" means 4.9% of the Company's
Market Capitalization at the time of the Draw Down; provided, however, that such
amount shall not exceed $18.75 million in respect of any Draw Down.
Section 1.27. "NASD" means the National Association of Securities Dealers,
Inc.
Section 1.28. "Other Financing" shall have the meaning assigned to such
term in Section 6.07 hereof.
24
Section 1.29. "Permitted Transaction" shall have the meaning assigned to
such term in Section 6.07 hereof.
Section 1.30. "Person" means any individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including any government or political subdivision or an agency or
instrumentality thereof.
Section 1.31. "Principal Market" means the National Market or the SmallCap
Market of the National Association of Securities Dealers, Inc. Automated
Quotation Service, the American Stock Exchange or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock.
Section 1.32. "Prohibited Transaction" shall have the meaning assigned to
such term in Section 6.08 hereof.
Section 1.33. "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, as supplemented from time to
time.
Section 1.34. "Registrable Securities" means (i) the Shares, (ii) the
Warrant Shares and (iii) any securities issued or issuable with respect to any
of the Shares or Warrant Shares by way of exchange, stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued, such securities shall cease to be
Registrable Securities when (w) the Registration Statement has been declared
effective by the Commission and such Registrable Securities have been disposed
of pursuant to the Registration Statement, (x) such Registrable Securities may
be sold under the applicable conditions of Rule 144 (or any similar provision
then in force) promulgated under the Securities Act ("Rule 144"), (y) such time
as such Registrable Securities have been otherwise transferred to holders who
may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (z) in the opinion of counsel to
the Company (which may be internal counsel), such Registrable Securities may be
sold without registration and without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.35. "Registration Rights Agreement" shall have the meaning set
forth in the recitals of this Agreement.
Section 1.36. "Registration Statement" shall have the meaning assigned to
such term in the Registration Rights Agreement.
Section 1.37. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.38. "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
25
Section 1.39. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.40. "Settlement Date" shall have the meaning assigned to such
term in Section 3.06 hereof.
Section 1.41. "Shares" means the shares of Common Stock that are and/or
may be purchased hereunder.
Section 1.42. "Threshold Price" means the lowest "Draw Down Discount
Price" (as specified by the Company in a Draw Down Notice) at which the Company
will agree to sell Shares during the applicable Draw Down Pricing Period, which
price shall not be less than $5.00 per share.
Section 1.43. "Trading Day" means any day other than a Saturday or a
Sunday on which the Principal Market is open for trading in equity securities.
Section 1.44. "Underwriter" shall mean any underwriter (other than the
Investor, to the extent it is deemed to be a statutory underwriter)
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement.
Section 1.45. "VWAP" means the volume weighted average price per share
(the aggregate sales price of all trades of Common Stock during each Trading Day
divided by the total number of shares of Common Stock traded during such Trading
Day) of the Common Stock during any Trading Day as reported by Bloomberg using
the AQR function.
Section 1.46. "Warrant" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.47. "Warrant Shares" means the shares of Common Stock issuable
to the Investor upon exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.01. Purchase and Sale of Stock. Upon the terms and subject to
the conditions and limitations set forth in this Agreement, the Company shall
issue and sell to the Investor, and the Investor shall purchase from the
Company, a number of shares of Common Stock with an aggregate purchase price (in
Draw Down Amounts) equal to up to the Maximum Commitment Amount, consisting of
Draw Downs in accordance with Article III hereof.
Section 2.02. Closing. In consideration of, subject to and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Company agrees to issue and sell to the Investor, and the
Investor agrees to purchase from the Company, that number of the Shares to be
issued in connection with each Draw Down. The closing of the execution and
delivery of this Agreement (the "Closing") shall take place at the offices of
Clifford Chance US LLP, 31 West 52nd Street, New York, NY 10019 at 2:00 p.m.
local time on July 7, 2004, or at such other time and place or on such date as
the Investor and the Company may agree upon (the "Closing Date"). Each party
shall deliver all documents, instruments and writings required to be delivered
by such party pursuant to this Agreement at or prior to the Closing.
26
Section 2.03. Warrant. On the Closing Date, the Company shall issue and
deliver the Warrant to the Investor.
ARTICLE III
DRAW DOWN TERMS
Subject to the satisfaction of the conditions hereinafter set forth in
this Agreement, the parties agree as follows:
Section 3.01. Draw Down Notice. The Company, may, in its sole discretion,
issue one or more Draw Down Notices with respect to Draw Downs (each, a "Draw
Down") during the Commitment Period, which Draw Downs the Investor will be
obligated to accept. The Company shall inform the Investor via facsimile
transmission in accordance with Section 12.04, with a copy to the Investor's
counsel, as to the Draw Down Amount the Company wishes to exercise before
commencement of trading on the first Trading Day of any Draw Down Pricing Period
(the "Draw Down Notice"). In addition to the Draw Down Amount, each Draw Down
Notice shall specify the Threshold Price in respect of the applicable Draw Down
and shall designate the first Trading Day of the Draw Down Pricing Period. In no
event shall any Draw Down Amount exceed the Maximum Draw Down Amount. Each Draw
Down Notice shall be accompanied by a certificate, signed by the Chief Executive
Officer or Chief Financial Officer dated as of the date of such Draw Down
Notice, in the form of Exhibit C hereof.
Section 3.02. Number of Shares. The number of Shares to be issued in
connection with each Draw Down shall be equal to the sum of one fifteenth
(1/15th) of such Draw Down Amount divided by the applicable Draw Down Discount
Price for each Trading Day of the Draw Down Pricing Period for which the Draw
Down Discount Price equals or exceeds the Threshold Price.
Section 3.03. Limitation on Draw Downs. Only one Draw Down shall be
permitted for each Draw Down Pricing Period.
Section 3.04. Trading Cushion. Unless the parties agree otherwise in
writing, there shall be a minimum of five (5) Trading Days between the
expiration of any Draw Down Pricing Period and the beginning of the next
succeeding Draw Down Pricing Period.
Section 3.05. Expiration of Draw Downs. Each Draw Down will expire on the
last Trading Day of each Draw Down Pricing Period.
Section 3.06. Settlement. The number of Shares purchased by the Investor
with respect to each Draw Down shall be determined and settled on a periodic
basis in respect of the applicable Draw Down Pricing Period. Settlement in
respect of each determination shall be made at the Company's sole discretion,
but in any event, not later than the third Trading Day after the fifth, tenth
and fifteenth Trading Day of the Draw Down Pricing Period. Each date on which
settlement of the purchase and sale of Shares occurs hereunder being referred to
as a "Settlement Date." The Investor shall provide the Company with delivery
instructions for the Shares to be issued at each Settlement Date at least two
(2) Trading Days in advance of such Settlement Date (except to the extent
previously provided). The number of Shares actually issued shall be rounded to
the nearest whole number of Shares.
27
Section 3.07. Delivery of Shares; Payment of Draw Down Amount. On each
Settlement Date, the Company shall deliver the Shares purchased by the Investor
to the Investor or its designees via book-entry through the Depositary Trust
Company to an account designated by the Investor in accordance with Section 3.06
upon receipt of payment therefor from the Investor to the Company's designated
account by wire transfer of immediately available funds.
Section 3.08. Threshold Price. For each Trading Day during a Draw Down
Pricing Period that the Draw Down Discount Price is less than the Threshold
Price, no Shares shall be purchased or sold in respect of such Trading Day, the
total amount of the Draw Down Amount in respect of such Draw Down Pricing Period
shall be reduced by one fifteenth (1/15th) and the amount of the Draw Down
Amount not so purchased or sold shall continue to be available in future Draw
Downs and as part of the Maximum Commitment Amount. If trading in the Common
Stock is suspended for any reason for more than three (3) consecutive or
non-consecutive hours during any Trading Day during a Draw Down Pricing Period,
the Draw Down Discount Price shall be deemed to be less than the Threshold Price
for that Trading Day.
Section 3.09. Other Issuances. If during any Draw Down Pricing Period, the
Company shall issue any shares of Common Stock in connection with a Prohibited
Transaction without the prior written consent of the Investor, then the
applicable Draw Down Notice shall be deemed null and void and the Investor shall
promptly return to the Company any and all Shares transferred to the Investor in
respect of any Settlement Date(s) during such Draw Down Pricing Period and the
Company shall promptly thereafter pay to the Investor by wire transfer of
immediately available funds to an account designated by the Investor that
portion of the applicable Draw Down Amount paid to the Company in respect of
such Settlement Date(s).
Section 3.10. Failure to Deliver Shares. If on any Settlement Date, the
Company fails to deliver the Shares to be purchased by the Investor, and such
failure is not cured within ten (10) Trading Days following the date on which
the Investor delivered payment for such Shares, the Company shall pay to the
Investor on demand in cash by wire transfer of immediately available funds to an
account designated by the Investor the "Make Whole Amount;" provided, however,
that in the event that the Company is prevented from delivering Shares in
respect of any such Settlement Date in a timely manner by any fact or
circumstance that is reasonably within the control of, or directly attributable
to, the Investor, then such ten (10) Trading Day period shall be automatically
extended until such time as such fact or circumstance is cured. As used herein,
the Make Whole Amount shall be an amount equal to the sum of (i) the Draw Down
Amount actually paid by the Investor in respect of such Shares plus (ii) an
amount equal to the actual loss suffered by the Investor in respect of sales to
subsequent purchasers, pursuant to transactions entered into before the
Settlement Date, of the Shares that were required to be delivered by the
Company, which shall be based upon documentation reasonably satisfactory to the
Company demonstrating the difference (if greater than zero) between (A) the
price per share paid by the Investor to purchase such number of shares of Common
Stock necessary for the Investor to meet its share delivery obligations to such
subsequent purchasers minus (B) the average Draw Down Discount Price during the
28
applicable Draw Down Pricing Period. In the event that the Make Whole Amount is
not paid within two (2) Trading Days following a demand therefor from the
Investor, the Make Whole Amount shall accrue interest compounded daily at a rate
of five percent (5%) per annum up to and including the date on which the Make
Whole Amount is actually paid. Notwithstanding anything to the contrary set
forth in this Agreement, in the event that the Company pays the Make Whole
Amount (plus interest, if applicable) in respect of any Settlement Date in
accordance with this Section 3.10, such payment shall be the Investor's sole
remedy in respect of the Company's failure to deliver Shares in respect of such
Settlement Date, the Company shall not be obligated to deliver such Shares and
the Company shall not be deemed to be in breach of its obligations to the
Investor in connection with the failure by the Company to deliver Shares to the
Investor on a Settlement Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the following representations and warranties to
the Investor:
Section 4.01. Organization, Good Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all the corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Except as set forth in the Commission Documents (as defined below),
as of the Closing Date, the Company does not own more than fifty percent (50%)
of the outstanding capital stock of or Control any other business entity, other
than any wholly-owned subsidiary that is not "significant" within the meaning of
Regulation S-X promulgated by the Commission. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify or
be in good standing would not have a Material Adverse Effect.
Section 4.02. Authorization; Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement and the
Warrant and to issue the Shares, the Warrant and the Warrant Shares as of their
respective dates of issuance; (ii) the execution and delivery of this Agreement
and the Registration Rights Agreement, and the execution, issuance and delivery
of the Warrant, by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required (other than as contemplated by
Section 6.05); and (iii) each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered, and the Warrant has been duly
executed, issued and delivered, by the Company and constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
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Section 4.03. Capitalization. The authorized capital stock of the Company
and the shares thereof issued and outstanding as of December 31, 2003, are set
forth on a Schedule previously delivered to the Investor. All of the outstanding
shares of the Common Stock have been duly and validly authorized and issued, and
are fully paid and non-assessable. Except as set forth in this Agreement or in
the Commission Documents or as previously disclosed to the Investor in writing,
as of the date hereof, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for or
giving any right to subscribe for, any shares of capital stock of the Company.
Except as set forth in this Agreement or in the Commission Documents or as
previously disclosed to the Investor in writing, as of the date hereof, there
are no contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of the capital stock
of the Company or options, securities or rights convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. Except as previously disclosed to the Investor in writing or in the
Commission Documents, as of the date hereof, the Company is not a party to any
agreement granting registration rights to any Person with respect to any of its
equity securities. Except as previously disclosed to the Investor in writing or
in the Commission Documents, as of the Closing Date, the Company is not a party
to, and it has no Knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of the Company. The offer and sale of all
capital stock, convertible securities, rights, warrants or options of the
Company issued during the twenty-four month period immediately prior to the date
hereof complied with all applicable federal and state securities laws, and to
the Knowledge of the Company, no stockholder has a right of rescission or
damages with respect thereto that could reasonably be expected to have a
Material Adverse Effect. The Company has furnished or made available to the
Investor true and correct copies of the Company's Restated Certificate of
Incorporation, as amended and in effect on the date hereof (the "Charter"), and
the Company's Bylaws, as amended and in effect on the date hereof (the
"Bylaws").
Section 4.04. Issuance of Shares. The Shares and the Warrant have been,
and the Warrant Shares will be, duly authorized by all necessary corporate
action and, when issued and paid for in accordance with the terms of this
Agreement, the Registration Rights Agreement and the Warrant, the Shares and the
Warrant Shares shall be validly issued and outstanding, fully paid and
non-assessable, and the Investor shall be entitled to all rights accorded to a
holder of shares of Common Stock as long as, and to the extent that, the
Investor still owns any Shares.
Section 4.05. No Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Warrant and any other
document or instrument contemplated hereby or thereby, by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not, except to an extent that would not have, individually or in the
aggregate, a Material Adverse Effect: (i) violate any provision of the Charter
or Bylaws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party; (iii)
create or impose a lien, charge or encumbrance on any property of the Company
under any agreement or any commitment to which the Company is a party or by
which the Company is bound or by which any of its respective properties or
30
assets are bound; or (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities or blue sky laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries are bound or affected. The Company is not required under
federal, state or local law, rule or regulation to obtain any material consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement or the
Warrant, or issue and sell the Shares or the Warrant Shares in accordance with
the terms hereof and thereof (other than any filings that may be required to be
made by the Company with the Commission, the NASD/Nasdaq or state securities
commissions subsequent to the Closing, and, any registration statement
(including any amendment or supplement thereto) which may be filed pursuant
hereto); provided, that for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.06. Commission Documents, Financial Statements. The Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including materials filed pursuant
to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing, including
filings incorporated by reference therein, being referred to herein as the
"Commission Documents"). Except as previously disclosed to the Investor in
writing, the Company has maintained all requirements for the continued listing
or quotation of its Common Stock, and such Common Stock is currently listed or
quoted on a Principal Market. The Company has made available to the Investor, or
otherwise has made available on its website, true and complete copies of the
Commission Documents filed with the Commission since December 31, 2002, and
prior to the Closing Date. As of the date hereof, the Company has not provided
to the Investor any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement. As of its date, the Company's Annual Report on Form 10-K for the
year ended December 31, 2003, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder applicable to such document, and, as of its date, after
giving effect to the information disclosed and incorporated by reference
therein, such Form 10-K did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the Commission Documents filed with the
Commission since December 31, 2002, complied as to form and substance in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
31
Section 4.07. No Material Adverse Change. Except as disclosed in the
Commission Documents, since March 31, 2004, no event or series of events has or
have occurred that would, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 4.08. No Undisclosed Liabilities. Neither the Company nor any of
its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) that would be required to be disclosed on a balance sheet of the
Company or any subsidiary (including the notes thereto) in conformity with GAAP
and are not disclosed in the Commission Documents, other than those incurred in
the ordinary course of the Company's or its subsidiaries respective businesses
since December 31, 2003, and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company.
Section 4.09. No Undisclosed Events or Circumstances. To the Knowledge of
the Company, no event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company.
Section 4.10. Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the Knowledge of the Company,
threatened, against the Company or any subsidiary which questions the validity
of this Agreement or the transactions contemplated hereby or any action taken or
to be taken pursuant hereto or thereto. Except as set forth in the Commission
Documents or on Schedule 4.10, there is no action, suit, claim, investigation or
proceeding pending or, to the Knowledge of the Company, threatened, against or
involving the Company, any subsidiary of the Company or any of their respective
properties or assets that could be reasonably expected to have a Material
Adverse Effect on the Company. Except as set forth in the Commission Documents
or on Schedule 4.10, no judgment, order, writ, injunction or decree or award has
been issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which might result in a Material Adverse
Effect.
Section 4.11. Compliance with Law. The businesses of the Company and its
subsidiaries have been and are presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or such that would
not reasonably be expected to cause a Material Adverse Effect. Except as set
forth in the Commission Documents, the Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals (collectively, "Consents") necessary for the
conduct of its business as now being conducted by it, except for such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, the failure to possess which, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect and no Consent contains a restriction on the Company or its subsidiaries
that could reasonably be expected to have a Material Adverse Effect.
32
Section 4.12. Certain Fees. Except as expressly set forth in this
Agreement, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any of its subsidiaries in respect of the transactions
contemplated by this Agreement.
Section 4.13. Disclosure. To the best of the Company's Knowledge, as of
their respective dates, neither this Agreement nor the Schedules hereto nor the
Registration Statement or the Warrant (as any of the foregoing may have been
amended or supplemented after the date hereof) contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which
they were made herein or therein, not misleading.
Section 4.14. Material Non-Public Information. As of the date hereof,
except for this Agreement and the transactions contemplated hereby, neither the
Company nor its agents have disclosed to the Investor any material non-public
information that, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company prior to the date hereof but which has
not been so disclosed.
Section 4.15. Exemption from Registration; Valid Issuances. The issuance
and sale of the Shares, the Warrant and the Warrant Shares in accordance with
the terms, conditions and limitations of, and on the basis of the
representations and warranties set forth in, this Agreement, the Warrant and the
Registration Rights Agreement may be properly issued pursuant to Section 4(2),
Regulation D and/or any other applicable federal and state securities or blue
sky laws and regulations. Neither the sales of the Shares, the Warrant or the
Warrant Shares pursuant to, nor the Company's performance of its obligations
under, this Agreement, the Registration Rights Agreement or the Warrant, as
applicable, shall (i) result in the creation or imposition of any liens,
charges, claims or other encumbrances upon the Shares, the Warrant Shares or any
of the assets of the Company or (ii) except as previously disclosed to the
Investor in writing, entitle the holders of any outstanding shares of capital
stock of the Company to preemptive or other rights to subscribe to or acquire
the shares of Common Stock or other securities of the Company.
Section 4.16. No General Solicitation or Advertising in Regard to this
Transaction. As of the date hereof, neither the Company nor any of its
Affiliates or any person acting on its or their behalf (i) has conducted any
general solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to any of the Shares, the Warrant or the
Warrant Shares or (ii) has made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Shares under the Securities Act.
Section 4.17. No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement and employee benefit
plans, under circumstances that would require registration under the Securities
Act of the Shares issuable hereunder with any other offers or sales of
securities of the Company.
33
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR
The Investor hereby makes the following representations, warranties and
covenants to the Company:
Section 5.01. Organization and Standing of the Investor. The Investor is a
company duly organized, validly existing and in good standing under the laws of
the British Virgin Islands.
Section 5.02. Authorization and Power. The Investor has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement and the Warrant and to purchase or
otherwise receive the Shares, the Warrant and the Warrant Shares in accordance
with the terms hereof. The execution, delivery and performance of this Agreement
by Investor and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action, and no further
consent or authorization of the Investor, its Board of Directors or stockholders
is required. This Agreement has been duly executed and delivered by the Investor
and constitutes a valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of creditor's rights and remedies or by
other equitable principles of general application.
Section 5.03. No Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Warrant and any other
document or instrument contemplated hereby, by the Investor and the consummation
of the transactions contemplated thereby do not (i) violate any provision of the
Investor's charter documents or bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Investor is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Investor under any agreement or any
commitment to which the Investor is a party or by which the Investor is bound or
by which any of its respective properties or assets are bound or (iv) result in
a violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Investor or by which any property or asset of the
Investor are bound or affected, except in all cases, for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, prohibit or otherwise interfere
with the ability of the Investor to enter into and perform its obligations under
this Agreement in any material respect. The Investor is not required under
federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or to purchase the Shares or the Warrant in
accordance with the terms hereof; provided, that for purposes of the
representation made in this sentence, the Investor is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.
34
Section 5.04. Financial Capability; Accredited Investor. The Investor has
the financial capability to perform all of its obligations under this Agreement,
including the capability to purchase the Shares, the Warrant and the Warrant
Shares in accordance with the terms hereof. The Investor is an "Accredited
Investor" as defined in Rule 501 of Regulation D. The Investor is aware of the
Company's business affairs and financial condition and has had sufficient access
to and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares, the Warrant and the
Warrant Shares. The Investor 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 the Shares, the Warrant and the
Warrant Shares, to make an informed decision about purchasing the Shares, the
Warrant and the Warrant Shares and to protect its own interests in connection
with the purchase of the Shares, the Warrant and the Warrant Shares and is able
to bear the risks of an investment in the Shares, the Warrant and the Warrant
Shares. The Investor is not an Affiliate of the Company.
Section 5.05. Information. The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Shares, the Warrant and the Warrant Shares which have been requested by the
Investor. The Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. The Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Shares, the
Warrant and the Warrant Shares. The Investor understands that it (and not the
Company) shall be responsible for its own tax liabilities that may arise as a
result of this investment or the transactions contemplated by this Agreement.
Section 5.06. Selling Restrictions. The Investor covenants that during the
Commitment Period, neither the Investor nor any of its Affiliates nor any entity
managed by the Investor (i) will ever, through related parties or otherwise, (X)
purchase, trade, offer, pledge, sell, contract to sell or to purchase or sell or
"short" or "short against the box" (as those terms are generally understood in
the securities markets), or otherwise dispose of or acquire, any derivative
securities of the Company or options in respect of such securities, including,
but not limited to, by way of option or equity swap transactions in or with
respect to the Company's Common Stock or any other derivative security
transaction or (Y) upon receipt by the Investor of any Draw Down Notice from the
Company, sell or contract to sell any shares of Common Stock (other than any
shares of Common Stock purchased by the Investor pursuant to any Draw Down
Notice under this Agreement) until the end of the Draw Down Pricing Period set
forth in such Draw Down Notice or (ii) will ever, through related parties or
otherwise, engage in any transaction intended to reduce the economic risk of
ownership of shares of Common Stock (including, without limitation, the purchase
of any option or contract to sell) that would, directly or indirectly, have an
effect substantially equivalent to selling short such shares of Common Stock
that are subject to, underlie or may be deliverable in satisfaction of such
transaction or otherwise may be reasonably be expected to adversely affect the
market price of the Common Stock. For the sake of clarity, the Investor shall
have the right at any time, including during any Draw Down Pricing Period, to
sell any shares of Common Stock purchased by the Investor pursuant to any Draw
Down Notice under this Agreement.
35
Section 5.07. Statutory Underwriter Status. The Investor acknowledges and
agrees that, pursuant to the Commission's current interpretations of the
Securities Act, the Investor will be disclosed as an "underwriter" within the
meaning of the Securities Act in the Registration Statement (and any amendments
or supplements thereto) and in any Prospectus contained therein to the extent
required by applicable law.
Section 5.08. Compliance with Insider Trading Rules. The Investor
acknowledges and agrees that it is aware, and that it will advise each of its
Affiliates and representatives that is provided any confidential information of
the Company, that the United States securities laws and regulations provide that
any person who has received directly or indirectly from an issuer such as the
Company material, non-public information is prohibited from purchasing or
selling securities of such issuer or from communicating such information to any
other person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell such securities. The Investor further
agrees not to provide any Person with material, nonpublic information received
from the Company or its representatives, including any relative, associate or
other individual who intends to, or may, (a) trade securities with respect to
the Company which is the subject of such information or (b) otherwise directly
or indirectly benefit from such information.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants to the Investor as follows, which covenants are for
the sole benefit of the Investor and its permitted assignees (as defined
herein):
Section 6.01. Securities. The Company shall notify the Commission and the
Principal Market, if and as applicable, in accordance with their rules and
regulations, of the transactions contemplated by this Agreement, and shall use
commercially reasonable efforts to take all other necessary action and
proceedings as may be required and permitted by applicable law, rule or
regulation, for the legal and valid issuance of the Shares and the Warrant
Shares, if any, to the Investor.
Section 6.02. Reservation of Common Stock. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights and other similar contractual rights of
stockholders, shares of Common Stock for the purpose of enabling the Company to
satisfy any obligation to issue the Shares in connection with all Draw Downs
contemplated hereunder and the Warrant Shares. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.
Section 6.03. Registration and Listing. During the Commitment Period, the
Company shall use commercially reasonable efforts: (i) to take all action
necessary to cause its Common Stock to continue to be registered under Section
12(b) or 12(g) of the Exchange Act; (ii) to comply in all material respects with
its reporting and filing obligations under the Exchange Act; and (iii) to
prevent the termination or suspension such registration, or the termination or
suspension of its reporting and filing obligations under the Exchange Act or
Securities Act (except as expressly permitted herein). The Company shall use
commercially reasonable efforts necessary to maintain the listing and trading of
its Common Stock and the listing of the Shares purchased by Investor hereunder
on a Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
applicable Principal Market.
36
Section 6.04. Registration Statement. Without the prior written consent of
the Investor, the Registration Statement shall be used solely in connection with
the transactions between the Company and the Investor contemplated hereby.
Section 6.05. Compliance with Laws.
(a) The Company shall, and cause each subsidiary to, comply, in all
material respects, with all applicable laws, rules, regulations and orders, the
noncompliance with which could reasonably be expected to have a Material Adverse
Effect.
(b) Without the consent of its stockholders in accordance with the
rules of the applicable Principal Market, the Company will not be obligated to
issue, and the Investor will not be obligated to purchase, any Shares which
would result in the issuance under this Agreement of Shares representing more
than the applicable percentage under the rules of the applicable Principal
Market that would require stockholder approval of the issuance thereof.
Section 6.06. Reporting Requirements. Unless otherwise available to the
public by way of the Commission's Electronic Document Gathering, Analysis, and
Retrieval system ("EDGAR"), upon reasonable written request of the Investor
during the Commitment Period, the Company shall furnish copies of the following
to the Investor within three Trading Days of such request (but not sooner than
filed with or submitted to the Commission):
(a) Quarterly Reports on Form 10-Q;
(b) Annual Reports on Form 10-K;
(c) Periodic Reports on Form 8-K; and
(d) any other documents publicly furnished or submitted to the
Commission.
Section 6.07. Other Financing. The Company may, without the prior written
consent of the Investor, (i) establish stock option or award plans or agreements
(for directors, employees, consultants and/or advisors), and issue securities
thereunder, and amend such plans or agreements, including increasing the number
of shares available thereunder, (ii) use equity securities to finance, or
otherwise in connection with, the acquisition of one or more other companies,
equipment, technologies or lines of business, (iii) issue shares of Common Stock
and/or preferred stock in connection with the Company's option or award plans,
stock purchase plans, rights plans, warrants or options, (iv) issue shares of
Common Stock and/or Preferred Stock in connection with the acquisition of
products, licenses, equipment or other assets and strategic alliances or
partnerships or joint ventures (the primary purpose of which is not to raise
equity capital); (v) issue shares of Common and/or Preferred Stock to
consultants and/or advisors as consideration for services rendered, (vi) issue
and sell equity or debt or hybrid securities in a public offering, (vii) issue
and sell equity or debt or hybrid securities in a private placement (other than
in connection with any Prohibited Transaction), (viii) issue equity securities
to equipment lessors, equipment vendors, banks or similar lending institutions
in connection with leases or loans, or in connection with strategic commercial
37
or licensing transactions, (ix) issue securities in connection with any stock
split, stock dividend, recapitalization, reclassification or similar event by
the Company, (x) issue shares of Common Stock to the Investor under any other
agreement entered into between the Investor and the Company and (xi) enter into
any other transaction that is not a Prohibited Transaction (each a "Permitted
Transaction"). The Company shall use commercially reasonable efforts to notify
the Investor in writing prior to the consummation of any material Permitted
Transaction described in clauses (vi), (vii) or (ix) above.
Section 6.08. Prohibited Transactions. During the term of this Agreement,
the Company shall not enter into any Prohibited Transaction without the prior
written consent of the Investor, which consent may be withheld at the sole
discretion of the Investor; provided, however, that the Investor agrees that it
will grant such consent if it determines in its sole discretion, acting in good
faith, that the Prohibited Transaction is not reasonably likely to materially
interfere with its rights and obligations under this Agreement For the purposes
of this Agreement, the term "Prohibited Transaction" shall refer to the issuance
by the Company of any "future priced securities," which shall be deemed to mean
the issuance of shares of Common Stock or securities of any type whatsoever that
are, or may become, convertible or exchangeable into shares of Common Stock
where the purchase, conversion or exchange price for such Common Stock is
determined using any floating or otherwise adjustable discount to the market
price of the Common Stock, including, without limitation, pursuant to any equity
line or other financing that is substantially similar to the financing provided
under this Agreement; provided, however, that nothing in this Section 6.08 shall
prohibit the Company from issuing any securities of any type that are, or may
become, convertible or exchangeable into shares of Common Stock with a fixed or
determined purchase, conversion or exchange price (and which may be accompanied
by anti-dilution provisions), which price may be at a discount to the market
price of Common Stock.
Section 6.09. Corporate Existence. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company;
provided, however, that nothing in this Agreement shall be deemed to prohibit
the Company from engaging in any merger, consolidation, sale of all or
substantially all of its assets or similar transaction with another Person
pursuant to which such other Person is the surviving entity in the transaction.
Section 6.10. Non-Disclosure of Non-Public Information. Except as set
forth in Section 6.11 and 6.12, none of the Company, its officers, directors,
employees nor agents shall disclose material non-public information to the
Investor, its advisors or representatives.
Section 6.11. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. Notwithstanding the provisions of Section 6.10,
the Company shall immediately notify the Investor upon the occurrence of any of
the following events in respect of the Registration Statement or the Prospectus
related to the offer, issuance and sale of the Shares and the Warrant Shares
hereunder: (i) receipt of any request for additional information by the
Commission or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to the Registration Statement or the Prospectus; (ii) the issuance
by the Commission or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; or (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company shall not request a Draw Down during the continuation of
any of the foregoing events.
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Section 6.12. Amendments to the Registration Statement. Notwithstanding
the provisions set forth in Section 6.10, if the Registration Statement is
declared effective by the Commission, the Company shall not (i) file any
amendment to the Registration Statement or make any amendment or supplement to
the Prospectus of which the Investor shall not previously have been advised or
to which the Investor shall reasonably object after being so advised or (ii) so
long as, in the reasonable opinion of counsel for the Investor, a Prospectus is
required to be delivered in connection with sales of the Shares by the Investor,
file any information, documents or reports pursuant to the Exchange Act without
delivering a copy of such information, documents or reports to the Investor
promptly following such filing unless such information, documents or reports are
available by way of EDGAR.
Section 6.13. Prospectus Delivery. From time to time for such period as in
the opinion of counsel for the Investor a prospectus is required by the
Securities Act to be delivered in connection with sales by the Investor, the
Company will expeditiously deliver to the Investor, without charge, as many
copies of the Prospectus (and of any amendment or supplement thereto) as the
Investor may reasonably request. The Company consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Securities Act and state securities laws in connection with
the offering and sale of the Shares and the Warrant Shares and for such period
of time thereafter as the Prospectus is required by the Securities Act to be
delivered in connection with sales of the Shares and the Warrant Shares.
ARTICLE VII
CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO ACCEPT A DRAW DOWN
The obligation of the Investor hereunder to accept a Draw Down Notice and to
acquire and pay for the Shares in accordance therewith is subject to the
satisfaction or waiver, at each Condition Satisfaction Date, of each of the
conditions set forth below. The conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion. As used in
this Agreement, the term "Condition Satisfaction Date" shall mean, with respect
to each Draw Down, the date on which the applicable Draw Down Notice is
delivered to the Investor and each Settlement Date in respect of the applicable
Draw Down Pricing Period.
Section 7.01. Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company in this Agreement
shall be true and correct in all material respects as though made on and as of
such Condition Satisfaction Date, except for such representations and warranties
that are expressly made as of a particular date.
Section 7.02. Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration Rights
Agreement and the Warrant required to be performed, satisfied or complied with
by the Company as of or prior to the applicable Condition Satisfaction Date.
39
Section 7.03. Compliance with Law. The Company shall have complied in all
material respects with all applicable federal, state and local governmental
laws, rules, regulations and ordinances in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
Section 7.04. Effective Registration Statement. Upon the terms and subject
to the conditions and limitations set forth in the Registration Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective and (i) neither the Company nor the Investor shall have
received notice that the Commission has issued or intends to issue a stop order
with respect to the Registration Statement or that the Commission otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
Commission's concerns have been addressed and the Investor is reasonably
satisfied that the Commission no longer is considering or intends to take such
action), and (ii) no other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or the Prospectus shall exist.
Section 7.05. No Knowledge. The Company shall have no Knowledge of any
event more likely than not to have the effect of causing the Registration
Statement with respect to the resale of the Registrable Securities by the
Investor to be suspended or otherwise ineffective (which event is more likely
than not to occur within fifteen (15) Trading Days following the Trading Day on
which a Draw Down Notice is delivered).
Section 7.06. No Suspension. Trading in the Common Stock shall not have
been suspended by the Commission or the applicable Principal Market and trading
in securities generally as reported on the applicable Principal Market shall not
have been suspended or limited.
Section 7.07. No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 7.08. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
Affiliates of the Company or any subsidiary seeking to enjoin, prevent or change
the transactions contemplated by this Agreement.
Section 7.09. Section 16 Limitation. On each Settlement Date, the number
of Shares then to be purchased by the Investor shall not exceed the number of
such shares that, when aggregated with all other Registrable Securities then
owned by the Investor beneficially or deemed beneficially owned by the Investor,
would result in the Investor owning more than 9.9% of all of such Common Stock
as would be outstanding on such Settlement Date, as determined in accordance
with Section 16 of the Exchange Act. For purposes of this Section 7.09, in the
event that the amount of Common Stock outstanding as determined in accordance
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with Section 16 of the Exchange Act and the regulations promulgated thereunder
is greater on a Settlement Date than on the date upon which the Draw Down Notice
associated with such Settlement Date is given, the amount of Common Stock
outstanding on such Settlement Date shall govern for purposes of determining
whether the Investor, when aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant Shares, would own more than 9.9%
of the Common Stock following such Settlement Date.
Section 7.10. Sufficient Shares Registered for Resale. The Company shall
have sufficient Shares, calculated using the closing trade price of the Common
Stock as of the Trading Day immediately preceding such Draw Down Notice,
registered under the Registration Statement to issue and sell the Shares
purchased in connection with each Draw Down Notice.
Section 7.11. Warrant. The Warrant shall have been duly executed,
delivered and issued to the Investor, and the Company shall not be in default in
any material respect under any of the provisions thereof, provided that any
refusal by or failure of the Company to issue and deliver Warrant Shares in
respect of any exercise (in whole or in part) thereof shall be deemed to be
material for the purposes of this Section 7.11.
Section 7.12. Opinion of Counsel. The Investor shall have received an
opinion of counsel to the Company, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Investor and its counsel substantially
in the form attached hereto as Exhibit D.
ARTICLE VIII
LEGENDS
Section 8.01. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH
IN A COMMON STOCK PURCHASE AGREEMENT BETWEEN DISCOVERY
LABORATORIES, INC., AND KINGSBRIDGE CAPITAL LIMITED DATED AS
OF JULY 7, 2004. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM
THE COMPANY'S EXECUTIVE OFFICES.
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As soon as practicable after the execution and delivery hereof, but in any event
within five (5) Trading Days thereafter, the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions, with a copy to the Investor. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor, unless an opinion of Investor's counsel is reasonably
required by the transfer agent or the Company:
(a) At any time after the Closing Date to the extent accompanied by
a notice requesting the issuance of certificates free of the Legend; provided,
that (i) the Company is reasonably able to confirm to the transfer agent that
the Registration Statement shall then be effective and (ii) if reasonably
requested by the transfer agent the Investor confirms to the transfer agent that
the Investor has complied with the prospectus delivery requirement under the
Securities Act.
(b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that (i) the
Investor is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act and there is no requirement for the Investor to deliver a
prospectus or (ii) the Investor has sold, pledged or otherwise transferred or
agreed to sell, pledge or otherwise transfer such Registrable Securities in a
manner other than pursuant to an effective registration statement, to a
transferee who shall upon such transfer be entitled to freely tradable
securities.
Section 8.02. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.01 has been or shall be placed on the
share certificates representing the Common Stock issued to the Investor and no
instructions or "stop transfer orders," so called "stock transfer restrictions,"
or other restrictions have been or shall be given to the Company's transfer
agent with respect thereto other than as expressly set forth in this Article
VIII.
ARTICLE IX
TERMINATION
Section 9.01. Term. Unless otherwise terminated in accordance with Section
9.02 below, this Agreement shall terminate upon the expiration of the Commitment
Period.
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Section 9.02. Other Termination.
(a) The Investor may terminate this Agreement upon (x) one (1) day's
notice if the Company enters into any Prohibited Transaction as set forth in
Section 6.08 without the Investor's prior written consent, or (y) one (1) day's
notice within ten (10) Trading Days after the Investor obtains actual knowledge
that an event resulting in a Material Adverse Effect has occurred; provided,
however, that the Investor shall be deemed to possess such actual knowledge
within five (5) Trading Days after such event has been publicly disclosed by the
Company in accordance with its periodic reporting requirements under the
Exchange Act.
(b) The Investor may terminate this Agreement upon one (1) day's
notice to the Company at any time in the event that the Registration Statement
is not declared effective in accordance with the Registration Rights Agreement.
(c) The Company may terminate this Agreement upon one (1) day's
notice; provided, however, that the Company shall not terminate this Agreement
pursuant to this Section 9.02(c) during any Draw Down Pricing Period; provided,
further, that in the event of any termination of this Agreement by the Company
hereunder, so long as the Investor owns Shares purchased hereunder and/or
Warrant Shares, unless all of such shares of Common Stock may be resold by the
Investor without registration and without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act, the Company shall not suspend or withdraw the Registration
Statement or otherwise cause the Registration Statement to become ineffective,
or voluntarily delist the Common Stock from the applicable Principal Market,
without listing the Common Stock on another Principal Market.
(d) Each of the parties hereto may terminate this Agreement upon one
(1) day's notice if the other party has breached a material representation,
warranty or covenant to this Agreement and such breach is not remedied within
ten (10) Trading Days after notice of such breach is delivered to the breaching
party.
(e) The obligation of the Investor to purchase shares of Common
Stock shall terminate permanently in the event that there shall occur any stop
order or suspension of effectiveness of the Registration Statement for an
aggregate of thirty (30) calendar days during the Commitment Period.
(f) In the event of termination by the Company or the Investor,
written notice thereof shall forthwith be given to the other party and the
transactions contemplated by this Agreement shall be terminated without further
action by either party. If this Agreement is terminated as provided in Section
9.01 or 9.02 herein, this Agreement shall become void and of no further force
and effect, except as provided in Section 12.14. Nothing in this Section 9.03
shall be deemed to release the Company or the Investor from any liability for
any breach under this Agreement or to impair the rights of the Company and the
Investor to compel specific performance by the other party of its obligations
under this Agreement.
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ARTICLE X
INDEMNIFICATION
Section 10.01. Indemnification.
(a) Except as otherwise provided in this Article X, unless disputed
as set forth in Section 10.02, the Company agrees to indemnify, defend and hold
harmless the Investor and its Affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and Controlling
persons (each, an "Investor Indemnified Party"), to the fullest extent permitted
by law from and against any and all Damages directly resulting from or directly
arising out of any breach of any representation or warranty, covenant or
agreement by the Company in this Agreement, the Registration Rights Agreement or
the Warrant; provided, however, that the Company shall not be liable under this
Article X to an Investor Indemnified Party to the extent that such Damages
resulted or arose from the breach by an Investor Indemnified Party of any
representation, warranty, covenant or agreement of an Investor Indemnified Party
contained in this Agreement, the Registration Rights Agreement or the Warrant or
the gross negligence, recklessness, willful misconduct or bad faith of an
Investor Indemnified Party. The parties intend that any Damages subject to
indemnification pursuant to this Article X will be net of insurance proceeds
(which the Investor Indemnified Party agrees to use commercially reasonable
efforts to recover). Accordingly, the amount which the Company is required to
pay to any Investor Indemnified Party hereunder (a "Company Indemnity Payment")
will be reduced by any insurance proceeds actually recovered by or on behalf of
any Investor Indemnified Party in reduction of the related Damages. In addition,
if an Investor Indemnified Party receives a Company Indemnity Payment required
by this Article X in respect of any Damages and subsequently receives any such
insurance proceeds, then the Investor Indemnified Party will pay to the Company
an amount equal to the Company Indemnity Payment received less the amount of the
Company Indemnity Payment that would have been due if the insurance proceeds had
been received, realized or recovered before the Company Indemnity Payment was
made.
(b) Except as otherwise provided in this Article X, unless disputed
as set forth in Section 10.02, the Investor agrees to indemnify, defend and hold
harmless the Company and its subsidiaries and Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members and
Controlling persons (each, a "Company Indemnified Party"), to the fullest extent
permitted by law from and against any and all Damages directly resulting from or
arising out of any breach of any representation or warranty, covenant or
agreement by the Investor in this Agreement, the Registration Right Agreement or
the Warrant; provided, however, that the Investor shall not be liable under this
Article X to a Company Indemnified Party to the extent that such Damages
resulted or arose from the breach by a Company Indemnified Party of any
representation, warranty, covenant or agreement of a Company Indemnified Party
contained in this Agreement, the Registration Right Agreement or the Warrant or
gross negligence, recklessness, willful misconduct or bad faith of a Company
Indemnified Party. The parties intend that any Damages subject to
indemnification pursuant to this Article X will be net of insurance proceeds
(which the Company agrees to use commercially reasonable efforts to recover).
Accordingly, the amount which the Investor is required to pay to any Company
Indemnified Party hereunder (an "Investor Indemnity Payment") will be reduced by
any insurance proceeds theretofore actually recovered by or on behalf of any
Company Indemnified Party in reduction of the related Damages. In addition, if a
Company Indemnified Party receives a Investor Indemnity Payment required by this
Article X in respect of any Damages and subsequently receives insurance such
proceeds, then the Company Indemnified Party will pay to the Investor an amount
equal to the Investor Indemnity Payment received less the amount of the Investor
Indemnity Payment that would have been due if the insurance proceeds had been
received, realized or recovered before the Investor Indemnity Payment was made.
44
Section 10.02. Notification of Claims for Indemnification. Each party
entitled to indemnification under this Article X (an "Indemnified Party") shall,
promptly after the receipt of notice of the commencement of any claim against
such Indemnified Party in respect of which indemnity may be sought from the
party obligated to indemnify such Indemnified Party under this Article X (the
"Indemnifying Party"), notify the Indemnifying Party in writing of the
commencement thereof. Any such notice shall describe the claim in reasonable
detail. The failure of any Indemnified Party to so notify the Indemnifying Party
of any such action shall not relieve the Indemnifying Party from any liability
which it may have to such Indemnified Party (a) other than pursuant to this
Article X or (b) under this Article X unless, and only to the extent that, such
failure results in the Indemnifying Party's forfeiture of substantive rights or
defenses or the Indemnifying Party is prejudiced by such delay. The procedures
listed below shall govern the procedures for the handling of indemnification
claims.
(a) Any claim for indemnification for Damages that do not result
from a Third Party Claim as defined in the following paragraph, shall be
asserted by written notice given by the Indemnified Party to the Indemnifying
Party. Such Indemnifying Party shall have a period of thirty (30) days after the
receipt of such notice within which to respond thereto. If such Indemnifying
Party does not respond within such thirty (30) day period, such Indemnifying
Party shall be deemed to have refused to accept responsibility to make payment
as set forth in Section 10.01. If such Indemnifying Party does not respond
within such thirty (30) day period or rejects such claim in whole or in part,
the Indemnified Party shall be free to pursue such remedies as specified in this
Agreement, including the dispute resolution provisions set forth in Section
10.03 below.
(b) If an Indemnified Party shall receive notice or otherwise learn
of the assertion by a person or entity not a party to this Agreement of any
threatened legal action or claim (collectively a "Third Party Claim"), with
respect to which an Indemnifying Party may be obligated to provide
indemnification, the Indemnified Party shall give such Indemnifying Party
written notice thereof within twenty (20) days after becoming aware of such
Third Party Claim.
(c) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise) at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an Indemnified Party (or sooner if the nature
of such Third Party Claim so requires), the Indemnifying Party shall notify the
Indemnified Party whether the Indemnifying Party will assume responsibility for
defending such Third Party Claim, which election shall specify any reservations
or exceptions. If such Indemnifying Party does not respond within such thirty
(30) day period or rejects such claim in whole or in part, the Indemnified Party
shall be free to pursue such remedies as specified in this Agreement, including
the dispute resolution provisions set forth in Section 10.03 below. In case any
such Third Party Claim shall be brought against any Indemnified Party, and it
shall notify the Indemnifying Party of the commencement thereof, the
45
Indemnifying Party shall be entitled to assume the defense thereof at its own
expense, with counsel satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own expense,
retain separate counsel to participate in such defense at its own expense.
Notwithstanding the foregoing, in any Third Party Claim in which both the
Indemnifying Party, on the one hand, and an Indemnified Party, on the other
hand, are, or are reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel and to control its own defense
of such claim if, in the reasonable opinion of counsel to such Indemnified
Party, either (x) one or more significant defenses are available to the
Indemnified Party that are not available to the Indemnifying Party or (y) a
conflict or potential conflict exists between the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable; provided, however, that in such circumstances
the Indemnifying Party (i) shall not be liable for the fees and expenses of more
than one counsel to all Indemnified Parties and (ii) shall reimburse the
Indemnified Parties for such reasonable fees and expenses of such counsel
incurred in any such Third Party Claim, as such expenses are incurred, provided
that the Indemnified Parties agree to repay such amounts if it is ultimately
determined that the Indemnifying Party was not obligated to provide
indemnification under this Article X. The Indemnifying Party agrees that it will
not, without the prior written consent of the Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim relating to the matters contemplated hereby (if any Indemnified Party is a
party thereto or has been actually threatened to be made a party thereto) unless
such settlement, compromise or consent includes an unconditional release of such
Indemnified Party from all liability arising or that may arise out of such
claim. The Indemnifying Party shall not be liable for any settlement of any
claim effected against an Indemnified Party without the Indemnifying Party's
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. The rights accorded to an Indemnified Party hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise (subject, however, to the provisions of Section
10.03 below); provided, however, that notwithstanding the foregoing or anything
to the contrary contained in this Agreement, nothing in this Article X (other
than Section 10.03) shall restrict or limit any rights that any Indemnified
Party may have to seek equitable relief.
ARTICLE XI
ARBITRATION
Section 11.01. Arbitration. Any dispute under this Agreement, the
Registration Rights Agreement or the Warrant shall be submitted to arbitration
(including, without limitation, pursuant to this Article X) by sending written
notice of such election to the other party or parties clearly marked
"Arbitration Demand". Thereupon such dispute shall be arbitrated in accordance
with the terms and conditions of this Article XI. Notwithstanding the foregoing,
either party, subject to the terms, conditions and provisions of Section 12.12,
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.
Section 11.02. Board of Arbitration. Each of the Company and the Investor
shall select one (1) member of the Board of Arbitration and the third member
shall be selected by mutual agreement of the other members, or if the other
members fail to reach agreement on a third member within twenty (20) days after
their selection, such third member shall thereafter be selected by the American
Arbitration Association upon application made to it for such purpose by either
party to this Agreement.
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Section 11.03. Counterclaims. 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 Article XI in order to assert such
counterclaim(s).
Section 11.04. Procedures. 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 60-day period. In addition, the following
rules and procedures shall apply to the arbitration:
(a) The Board of Arbitration shall meet on consecutive business days
in the city in which the arbitration was filed, and shall reach and render a
decision (concurred in by a majority of the members of the Board of Arbitration)
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. In connection with
rendering its decisions, the Board of Arbitration shall adopt and follow such
rules and procedures as a majority of the members of the Board of Arbitration
deems necessary or appropriate. To the extent practical, decisions of the Board
of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to the parties
hereto that are involved in such arbitration. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the Indemnified
Party and the Indemnifying Party and entitled to be enforced to the fullest
extent permitted by law and entered in any court of competent jurisdiction. 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 arbitrator
hereunder.
(b) The Board of Arbitration 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
Article XI.
(c) The Board of Arbitration 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.
(d) Each party to any arbitration shall bear its own expense in
relation thereto, including but not limited to such party's attorneys' fees, if
any, and the expenses and fees of the Board of Arbitration shall be paid
initially one-half by each of the Company and the Investor, but then apportioned
between the Company and the Investor in the same proportion as the portion of
47
the related claim determined by the Board of Arbitration to be payable to the
injured party bears to the portion of such claim determined not to be so
payable; provided, however, that each party shall bear the costs incurred in
connection with any dispute brought by such party that the Board of Arbitration
determines to have been brought in bad faith.
(e) Except as provided in the last sentence of Section 11.01, the
provisions of this Article XI 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 Article XI shall
pay the costs of the other party, including, without limitation, reasonable
attorney's fees and defense costs.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Fees and Expenses. The Company shall be solely responsible
for (i) all reasonable attorneys fees and expenses incurred by the Investor in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant up to an aggregate
maximum of $40,000, (ii) all reasonable fees and expenses incurred by the
Investor in connection with any amendments, modifications or waivers of this
Agreement or incurred in connection with the Investor's enforcement of this
Agreement, including, without limitation, all reasonable attorneys fees and
expenses, (iii) all reasonable due diligence expenses incurred by the Investor
during the term of this Agreement up to aggregate maximum amount of $7,500 per
calendar quarter; provided, however, that the payments set forth in this clause
(iii) shall not apply if the Company sells shares of Common Stock to the
Investor with an aggregate purchase price equal to at least $10,000,000;
provided, further, that upon the Company selling shares of Common Stock to the
Investor with an aggregate purchase price equal to at least $10,000,000, the
Investor shall promptly refund to the Company any amounts that were actually
paid to the Investor prior to such date, and (iv) all stamp or other similar
taxes and duties, if any, levied in connection with issuance of the Shares
pursuant hereto; provided, however, that in each of the above instances the
Investor shall provide customary supporting invoices or similar documentation in
reasonable detail describing such expenses. The Investor shall reimburse all
reasonable due diligence expenses incurred by the Company in connection with
this transaction prior to the date of this Agreement.
Section 12.02. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 12.03. Acknowledgement Regarding the Investor's Purchase of Shares
The Investor is acting solely in the capacity of an arm's length investor with
respect to this Agreement and the transactions contemplated hereby. The Investor
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
48
contemplated hereby and any advice given by the Investor or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Investor's purchase of the
Shares and may not be relied upon by the Company for any reason; provided,
however, that the Company may rely upon the express representations and
warranties given by the Investor under this Agreement.
Section 12.04. Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investor, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any Persons claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 12.05. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid or (iv) transmitted by hand delivery, telegram or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Discovery Laboratories, Inc.
350 South Main Street
Suite 307
Doylestown, Pennsylvania 18901
Telephone: (215) 340-4699
Facsimile: (215) 340-3940
Attention: Chief Financial Officer and General Counsel
49
with a copy (which shall not constitute notice) to:
Dickstein Shapiro Morin & Oshinsky LLP
1177 Avenue of the Americas, 41st Floor
New York, NY 10036-2714
Telephone: (212) 835-1400
Facsimile: (212) 997-9880
Attention: Ira L. Kotel
if to the Investor:
Kingsbridge Capital Limited
c/o Kingsbridge Corporate Services Limited
Main Street
Kilcullen, County Kildare
Republic of Ireland
Telephone: 011-353-45-481-811
Facsimile: 011-353-45-482-003
Attention: Adam Gurney, Managing Director
with a copy (which shall not constitute notice) to:
Keith M. Andruschak, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10019
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 12.06. Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
Person.
Section 12.07. Amendment; No Waiver. No party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.
Section 12.08. Entire Agreement. This Agreement, the Registration Rights
Agreement and the Warrant set forth the entire agreement and understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written, relating to the subject matter hereof.
50
Section 12.09. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided, that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 12.10. Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 12.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 12.12. Choice of Law. This Agreement shall be construed under the
laws of the State of New York.
Section 12.13. Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Without prejudice to the terms, conditions and provisions of
Article XI, the Company and the Investor irrevocably submits to the jurisdiction
of the United States District Court and other courts of the United States
sitting in the State of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Investor
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section shall
affect or limit any right to serve process in any other manner permitted by law.
The prevailing party in any litigation in connection with this Agreement shall
be entitled to recover from the other party all costs and expenses, including,
without limitation, reasonable attorney's fees, incurred by such party in
connection with any such litigation.
Section 12.14. Survival. The representations and warranties of the Company
and the Investor contained in Articles IV and V and the covenants contained in
Article V and Article VI shall survive the execution and delivery hereof and the
Closing until the termination of this Agreement, and the agreements and
covenants set forth in Article IX and Article X of this Agreement shall survive
the execution and delivery hereof and the Closing hereunder.
51
Section 12.15. Publicity. Promptly after the execution of this Agreement,
each party may issue a press release or otherwise make a public statement or
announcement, including but not limited to, the (i) filing of a Current Report
on Form 8-K with respect to this Agreement or the transactions contemplated
hereby or the existence of this Agreement and (ii) and the filing of any
agreements or other documents as attached exhibits to a form 8-K, 10-Q, 10-K or
any other Form filed by the Company with the Commission with respect to this
Agreement or the transactions contemplated hereby; provided, that prior to
issuing any such press release, making any such public statement or
announcement, the party wishing to make such release, statement or announcement
consults and cooperates in good faith with the other party in order to formulate
such press release, public statement or announcement in form and substance
reasonably acceptable to both parties.
Section 12.16. Further Assurances. From and after the date of this
Agreement, upon the request of the Investor or the Company, each of the Company
and the Investor shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
[Remainder of this page intentionally left blank]
52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officer as of the date first
written.
KINGSBRIDGE CAPITAL LIMITED
By: /s/ Valetine O'Donoghue
----------------------------------------------
Name: Valentine O'Donoghue
Title: Director
DISCOVERY LABORATORIES, INC.
By: /s/ John G. Cooper
----------------------------------------------
Name: John G. Cooper
Title: Executive Vice President and
Chief Financial Officer
53
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 7,
2004 (the "Effective Date"), is by and between DISCOVERY LABORATORIES, INC. (the
"Company"), and KINGSBRIDGE CAPITAL LIMITED (the "Investor").
WHEREAS, the Company and the Investor have entered into that certain
Common Stock Purchase Agreement, dated as of the Effective Date hereof (the
"Purchase Agreement"), pursuant to which the Company may issue to the Investor,
from time to time, up to $75 million worth of shares of Common Stock as provided
for therein;
WHEREAS, pursuant to the terms of, and in partial consideration for the
Investor entering into, the Purchase Agreement, the Company has issued to the
Investor a warrant, exercisable from time to time within five (5) years
following the six-month anniversary of the date of issuance (the "Warrant") for
the purchase of an aggregate of up to 375,000 shares of Common Stock at a price
specified in such Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Purchase Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the Registrable Securities (as defined in the Purchase Agreement) as set forth
herein;
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrant and in the
Purchase Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, intending to be legally bound
hereby, the parties hereto agree as follows (capitalized terms used herein and
not defined herein shall have the respective meanings ascribed to them in the
Purchase Agreement):
ARTICLE I
REGISTRATION RIGHTS
Section 1.1. REGISTRATION STATEMENT.
(a) Filing of the Registration Statement. Upon the terms and subject
to the conditions set forth in this Agreement, the Company shall file with the
Commission, within forty-five (45) calendar days after the Effective Date, a
registration statement on Form S-3 under the Securities Act or such other form
as deemed appropriate by counsel to the Company for the registration for the
resale by the Investor of the Registrable Securities (the "Registration
Statement"). For purposes of this Agreement, the "Filing Date" shall refer to
the date on which the Company files the Registration Statement.
54
(b) Effectiveness of the Registration Statement. The Company shall
use commercially reasonable efforts (i) to have the Registration Statement
declared effective by the Commission as soon as reasonably practicable, but in
any event no later than forty-five (45) calendar days after the Filing Date, or
ninety (90) calendar days after the Filing Date in the event that the Commission
reviews the Registration Statement, following the date that the Registration
Statement is filed and (ii) to ensure that the Registration Statement remains in
effect throughout the term of this Agreement as set forth in Section 4.2,
subject to the terms and conditions of this Agreement.
(c) Regulatory Disapproval. The contemplated effective date for the
Registration Statement as described in Section 1.1(b) shall be extended without
default or liquidated damages hereunder or under the Purchase Agreement in the
event that the Company's failure to obtain the effectiveness of the Registration
Statement on a timely basis results from (i) the failure of the Investor to
provide the Company with information requested by the Company and necessary to
complete the Registration Statement by the Filing Date, (ii) the Commission's
disapproval of the structure of the transactions contemplated by the Purchase
Agreement, (iii) the Commission failing to respond within a customary time
period to the filing of the Registration Statement or any post filing
communications from the Company, or (iv) events or circumstances that are not in
any way attributable to the Company; provided, that the Company has complied and
continues to comply with its obligation to use commercially reasonable efforts
to cause the Registration Statement to become effective. In the event of clause
(ii) above, the parties agree to cooperate with one another in good faith to
arrive at a resolution acceptable to the Commission.
(d) Failure to Maintain Effectiveness of Registration Statement. In
the event the Company fails to maintain the effectiveness of the Registration
Statement throughout the period set forth in Section 4.2, other than temporary
suspensions as set forth in Section 1.1(e) or 2.1(n), and the Investor holds any
Registrable Securities at any time during the period of such ineffectiveness (an
"Ineffective Period"), the Company shall pay to the Investor in immediately
available funds into an account designated by the Investor an amount (which
shall in no event exceed $2.5 million) equal to the product of (x) the total
number of Registrable Securities issued to the Investor under the Purchase
Agreement and owned by the Investor at any time during such Ineffective Period
and (y) the result, if greater than zero, obtained by subtracting the VWAP on
the Trading Day immediately following the last day of such Ineffective Period
from the VWAP on the Trading Day immediately preceding the day on which any such
Ineffective Period began; provided, however, that the foregoing payments shall
not apply in respect of Registrable Securities that (i) are otherwise freely
tradable by the Investor, including, but not limited to, under Rule 144
promulgated under the Securities Act (as such rule may be amended from time to
time, "Rule 144") or (ii) the Company offers to repurchase from the Investor for
a per share purchase price equal to the VWAP on the Trading Day immediately
preceding the day on which any such Ineffective Period began.
(e) Deferral or Suspension During a Blackout Period. If in the good
faith judgment of the Company, following consultation with legal counsel (which
may be internal counsel), it would be detrimental to the Company or its
stockholders for the Registration Statement to be filed or for resales of
Registrable Securities to be made pursuant to the Registration Statement due to
(i) the existence of a material development or potential material development
involving the Company that the Company would be obligated to disclose in the
Registration Statement, which disclosure would be premature or otherwise
inadvisable at such time or would have a Material Adverse Effect on the Company
55
or its stockholders or (ii) a proposed filing of or use of an existing
registration statement in connection with a Company-initiated registration of
any class of its equity securities, which, in the good faith judgment of the
Company, would adversely effect or require premature disclosure of the filing or
use of such Company-initiated registration (notice thereof, a "Blackout
Notice"), the Company shall have the right to (A) immediately defer such filing
for a period of not more than sixty (60) days beyond the date on which the
Registration Statement was otherwise required hereunder to be filed or (B)
suspend use of the Registration Statement by the Investor for a period of not
more than thirty (30) days (any such deferral or suspension period, a "Blackout
Period"). The Investor acknowledges that it would be seriously detrimental to
the Company and its stockholders for the Registration Statement to be filed or
used, or remain in effect, during a Blackout Period and therefore essential to
defer such filing, or suspend the use or the effectiveness thereof, during such
Blackout Period and agrees to cease any disposition of the Registrable
Securities during such Blackout Period. The Company may not utilize any of its
rights under this Section 1.1(e) to defer the filing of a Registration Statement
(or suspend its use or effectiveness) more than six (6) times in any twelve (12)
month period. In the event that, within fifteen (15) Trading Days following any
Settlement Date, the Company gives a Blackout Notice to the Investor and the
VWAP on the Trading Day immediately preceding such Blackout Period ("Old VWAP")
is greater than the VWAP on the first Trading Day following such Blackout Period
on which the Investor may sell its Registrable Securities pursuant to an
effective Registration Statement ("New VWAP"), then the Company shall pay to the
Investor, by wire transfer of immediately available funds to an account
designated by the Investor, the "Blackout Amount." For the purposes of this
Agreement, Blackout Amount means a percentage equal to: (1) seventy-five percent
(75%) if such Blackout Notice is delivered prior to the fifth (5th) Trading Day
following such Settlement Date; (2) fifty percent (50%) if such Blackout Notice
is delivered on or after the fifth (5th) Trading Day following such Settlement
Date, but prior to the tenth (10th) Trading Day following such Settlement Date;
(3) twenty-five percent (25%) if such Blackout Notice is delivered on or after
the tenth (10th) Trading Day following such Settlement Date, but prior to the
fifteenth (15th) Trading Day following such Settlement Date; and (4) zero
percent (0%) thereafter of: the product of (i) the number of Registrable
Securities purchased by the Investor pursuant to the most recent Draw Down and
actually held by the Investor immediately prior to the Blackout Period and (ii)
the result obtained by subtracting the New VWAP from the Old VWAP; provided,
however, that (i) no Blackout Amount in respect of any Blackout Period shall
exceed $2.5 million, (ii) no Blackout Amount shall be payable under this Section
1.1(e) in the event that the Registrable Securities are eligible for resale
under Rule 144 during the Blackout Period and (iii) no Blackout Amount shall be
payable under this Section 1.1(e) in the event that the Company offers to
repurchase from the Investor for a per share purchase price equal to the VWAP on
the Trading Day immediately preceding the day on which any such Ineffective
Period began.
(f) Liquidated Damages. (1) The Company and the Investor hereto
acknowledge and agree that the amounts payable under Sections 1.1(d) and 1.1(e)
and the Blackout Shares deliverable under Section 1.1(e) above shall constitute
liquidated damages and not penalties. The parties further acknowledge that (i)
the amount of loss or damages likely to be incurred by the Investor is incapable
or is difficult to precisely estimate, (ii) the amounts specified in such
subsections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred in connection with
any failure by the Company to obtain or maintain the effectiveness of the
56
Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost
of litigation regarding the question of actual damages and (iv) the Company and
the Investor are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.
(g) The Company and the Investor agree and acknowledge that the
amounts payable under Sections 1.1(d) and 1.1(e), as applicable, constitute the
Investor's sole remedy with respect to the Company's failure to maintain the
effectiveness for the Registration Statement or for any deferral or suspension
of the Registration Statement during a Blackout Period as discussed in such
Sections. The Investor further agrees and acknowledges that assuming the payment
of any amount by the Company, as set forth in such Sections, the Company's
failure to maintain the effectiveness of the Registration Statement or for any
deferral or suspension of the Registration Statement during a Blackout Period,
as applicable, shall not constitute a material breach or default of any
obligation of the Company to the Investor.
(h) Additional Registration Statements. In the event and to the
extent that the Registration Statement fails to register a sufficient amount of
Common Stock necessary for the Company to issue and sell to the Investor and the
Investor to purchase from the Company all of the Registrable Securities to be
issued, sold and purchased under the Purchase Agreement and the Warrant, the
Company shall prepare and file with the Commission an additional registration
statement or statements in order to effectuate the purpose of this Agreement,
the Purchase Agreement and the Warrant.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1. FILINGS; INFORMATION. The Company shall use commercially reasonable
efforts to effect the registration with respect to the sale of the Registrable
Securities by the Investor in accordance with the intended methods of
disposition thereof. Without limiting the foregoing, the Company in each such
case will use commercially reasonable efforts to perform the following acts as
expeditiously as possible, but in no event later than the deadline, if any,
prescribed therefor in this Agreement:
(a) Subject to Section 1.1(e), the Company shall: (i) prepare and
file with the Commission the Registration Statement; (ii) use commercially
reasonable efforts to cause such filed Registration Statement to become and to
remain effective (pursuant to Rule 415 under the Securities Act or otherwise);
(iii) prepare and file with the Commission such amendments and supplements to
the Registration Statement and the Prospectus used in connection therewith (the
"Prospectus")as may be necessary to keep such Registration Statement effective
for the time period prescribed by Section 4.2 and in order to effectuate the
purpose of this Agreement, the Purchase Agreement and the Warrant; and (iv)
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Investor set forth in
such Registration Statement; provided, however, that the Investor shall be
responsible for the delivery of the Prospectus to the Persons to whom the
Investor sells the Registrable Securities, and the Investor agrees to dispose of
Registrable Securities in compliance with the plan of distribution described in
the Registration Statement and otherwise in compliance with applicable federal
and state securities or blue sky laws and regulations.
57
(b) If so requested by the Investor, or if the Investor determines
to engage an underwriter (other than the Investor) in connection with the
offering of any Registrable Securities (an "Underwritten Offering"), a managing
underwriter or underwriters, the Company shall (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, and the Investor agrees should be included
therein and (ii) make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 2.1(b)(ii) that would, in
the opinion of counsel for the Company, violate applicable law.
(c) In the event of an Underwritten Offering: (A) the Company shall
enter into such reasonable agreements and take all such other reasonable actions
in connection therewith (including those reasonably requested by the managing
underwriters, if any) in order to expedite or facilitate the disposition of such
Registrable Securities, and in such connection, the Company shall: (i) make such
representations and warranties to the Investor and the underwriters with respect
to the business of the Company (including with respect to businesses or assets
acquired or to be acquired by the Company), and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, substance (subject to such exceptions
as the Company may disclose) and scope as are customarily made by issuers to
underwriters in underwritten offerings, and confirm such representations and
warranties if and when requested; (ii) consent to indemnification provisions and
procedures in the underwriting agreement no less favorable to the Investor and
the underwriters than those set forth herein (or such other provisions and
procedures acceptable to the Company, the Investor and the managing
underwriters); and (iii) deliver such documents and certificates as may be
reasonably requested by the Investor, its counsel and the managing underwriters,
if any, to evidence the continued validity of their representations and
warranties made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the applicable underwriting agreement, this
Agreement, the Purchase Agreement or the Warrant.
(B) The Investor will enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering, and will take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless the Investor has notified the Company in writing
of its election to exclude all of its Registrable Securities from such
Registration Statement; provided, however, that the Investor shall consult with
the Company prior to any such Underwritten Offering and defer such offering for
a reasonable period upon the commercially reasonable request of the Company.
58
(C) The Investor may not participate in any underwriting
distribution hereunder unless it (i) agrees to sell its Registrable Securities
on the basis provided in any underwriting agreements, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting agreements and (iii) agrees to pay all underwriting discounts and
commissions and other fees and expenses of investment bankers and any manager or
managers of such underwriting, and legal expenses of the underwriter, applicable
with respect to its Registrable Securities.
(d) As early as practical prior to filing the Registration Statement
or Prospectus, or any amendment or supplement thereto (excluding amendments
deemed to result from the filing of documents incorporated by reference
therein), the Company shall deliver to the Investor and to counsel representing
the Investor, in accordance with the notice provisions of Section 4.8, copies of
the Registration Statement and the Prospectus, together with exhibits thereto,
which documents will be subject to review by the Investor and such counsel, and
thereafter deliver to the Investor and such counsel, in accordance with the
notice provisions of Section 4.8, such number of copies of the Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the Prospectus (including each preliminary prospectus) and
such other documents or information as the Investor or counsel may reasonably
request in order to facilitate the disposition of the Registrable Securities.
(e) The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to the Investor such number of conformed copies of
the Registration Statement and of each amendment and supplement thereto (in each
case including all exhibits and documents incorporated by reference), such
number of copies of the Prospectus (including each preliminary prospectus and
any summary prospectus) and any other prospectus filed under Rule 424
promulgated under the Securities Act relating to the Investor's Registrable
Securities, and such other documents, as such seller may reasonably request to
facilitate the disposition of its Registrable Securities.
(f) After the filing of the Registration Statement, the Company
shall promptly notify the Investor of any stop order issued or threatened by the
Commission in connection therewith and take all commercially reasonable actions
required to prevent the entry of such stop order or to remove it if entered.
(g) The Company shall use commercially reasonable efforts to (i)
register or qualify the Registrable Securities under such other securities or
blue sky laws and regulations of each jurisdiction in the United States as the
Investor may reasonably (in light of its intended plan of distribution) request
and (ii) cause the Registrable Securities to be registered with or approved by
such other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other customary acts and things that may be reasonably necessary or
advisable to enable the Investor to consummate the disposition of the
Registrable Securities; provided, however, that the Company will not be required
to qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 2.1(g), subject itself to
taxation in any such jurisdiction, consent or subject itself to general service
of process in any such jurisdiction, change any existing business practices,
benefit plans or outstanding securities or amend or otherwise modify the Charter
or Bylaws.
59
(h) In the event of an Underwritten Offering, the Company shall
enter into customary agreements and take such other actions as are reasonably
required in order to expedite the disposition of such Registrable Securities.
(i) The Company shall make available to the Investor (and will
deliver to Investor's counsel), (A) subject to restrictions imposed by the
United States federal government or any agency or instrumentality thereof,
copies of all public correspondence between the Commission and the Company
concerning the Registration Statement and will also make available for
inspection by the Investor and any attorney, accountant or other professional
retained by the Investor (collectively, the "Inspectors"), (B) upon reasonable
advance notice during normal business hours all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers and employees to
supply all information reasonably requested by any Inspectors in connection with
the Registration Statement; provided, however, that any such Inspectors must
agree in writing for the benefit of the Company not to use or disclose any such
Records except as provided in this Section 2.1(i). Any and all Records that the
Company determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall be treated as confidential and not be
disclosed by the Inspectors unless the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other judicial or governmental process; provided, however, that
prior to any disclosure or release pursuant to the immediately preceding clause,
the Inspectors shall provide the Company with prompt notice of any such request
or requirement so that the Company may seek an appropriate protective order or
waive such Inspectors' obligation not to disclose such Records; and, provided,
further, that if failing the entry of a protective order or the waiver by the
Company permitting the disclosure or release of such Records, the Inspectors,
upon advice of counsel, are compelled to disclose such Records, the Inspectors
may disclose that portion of the Records that counsel has advised the Inspectors
that the Inspectors are compelled to disclose; provided, however, that upon any
such required disclosure, such Inspector shall use his or her best efforts to
obtain reasonable assurances that confidential treatment will be afforded such
information. The Investor agrees that information obtained by it solely as a
result of such inspections (not including any information obtained from a third
party who, insofar as is known to the Investor after reasonable inquiry, is not
prohibited from providing such information by a contractual, legal or fiduciary
obligation to the Company) shall be deemed confidential and shall not be used
for any purposes other than as indicated above or by it as the basis for any
market transactions in the securities of the Company or its affiliates unless
and until such information is made generally available to the public. The
Investor further agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense but with the assistance of the
relevant Inspectors, to undertake appropriate action to prevent disclosure of
the Records deemed confidential.
(j) In the event of an Underwritten Offering of the resale of
Registrable Securities pursuant to the Registration Statement, then to the
extent required by the managing underwriters and reasonably necessary to effect
a sale of Registrable Securities in accordance with prevailing business
practices at the time of any such underwritten sale of Registrable Securities
pursuant to a Registration Statement, the Company shall deliver to the Investor
a signed counterpart, addressed to the Investor, of (1) an opinion or opinions
of counsel to the Company and (2) a comfort letter or comfort letters from the
Company's independent public accountants, each in customary form and covering
such matters of the type customarily covered by opinions or comfort letters, as
the case may be, as the Investor therefor reasonably requests.
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(k) The Company shall otherwise comply with all applicable rules and
regulations of the Commission, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(l) The Company shall appoint a transfer agent and registrar for all
of the Registrable Securities covered by such Registration Statement not later
than the effective date of such Registration Statement.
(m) The Investor shall cooperate with the Company, as reasonably
requested by the Company, in connection with the preparation and filing of any
Registration Statement hereunder. The Company may require the Investor to
promptly furnish in writing to the Company such information as may be required
in connection with such registration including, without limitation, all such
information as may be requested by the Commission or the NASD or any state
securities commission and all such information regarding the Investor, the
Registrable Securities held by the Investor and the intended method of
disposition of the Registrable Securities. The Investor agrees to provide such
information requested in connection with such registration within five (5)
business days after receiving such written request and the Company shall not be
responsible for any delays in obtaining or maintaining the effectiveness of the
Registration Statement caused by the Investor's failure to timely provide such
information.
(n) Upon receipt of a Blackout Notice from the Company, the Investor
shall immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until (i) the
Company advises the Investor that the Blackout Period has terminated and (ii)
the Investor receives copies of a supplemented or amended prospectus, if
necessary. If so directed by the Company, the Investor will deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession (other than
a limited number of file copies) of the prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.
(o) If the Investor determines to engage in an Underwritten
Offering, the Investor will enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering, and will take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities. The Investor shall consult with the Company prior to any
Underwritten Offering and shall defer such Underwritten Offering for a
reasonable period upon the commercially reasonable request of the Company.
(o) The Investor shall not take any action with respect to any
distribution deemed to be made pursuant to the Registration Statement, which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
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Section 2.2. REGISTRATION EXPENSES. The Company shall pay all registration
expenses incurred in connection with the Registration Statement (the
"Registration Expenses"), including, without limitation: (i) all registration,
filing, securities exchange listing and fees required by the NASD; (ii) all
registration, filing, qualification and other fees and expenses of compliance
with applicable state securities or blue sky laws and regulations (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities); (iii) all word processing,
duplicating, printing, messenger and delivery expenses; (iv) the Company's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties); (v) the fees
and expenses incurred by the Company in connection with the listing of the
Registrable Securities; (vi) reasonable fees and disbursements of counsel for
the Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any special
audits or comfort letters or costs associated with the delivery by independent
certified public accountants of such special audit(s) or comfort letter(s)
requested pursuant to Section 2.1(k) hereof); (vii) the fees and expenses of any
special experts retained by the Company in connection with such registration and
amendments and supplements to the Registration Statement and Prospectus; (viii)
all reasonable fees and expenses of counsel for the Investor to the extent
incurred in connection with the review, and assistance in preparation, of the
Registration Statement, correspondence with the Commission and amendments and
supplements to the Registration Statement and Prospectus (but only to the extent
such activities were conducted at the request of the Company or its counsel);
(ix) ongoing due diligence expenses of the Investor equal to $7,500 per calendar
quarter payable on the last day of each calendar quarter during the term of this
Agreement; provided, however, that the payments set forth in this clause (ix)
shall no longer apply for calendar quarters ending after the Company has issued
and sold shares of Common Stock to the Investor for an aggregate in Draw Down
Amounts equal to or greater than $10,000,000; and (x) premiums and other costs
of the Company for policies of insurance against liabilities arising out of any
public offering of the Registrable Securities being registered. Any fees and
disbursements of underwriters, broker-dealers or investment bankers, including
without limitation underwriting fees, discounts, transfer taxes or commissions,
and any other fees or expenses, including legal fees and expenses (other than
those described above) if any, attributable to the sale of Registrable
Securities, shall be payable by the Investor.
ARTICLE III
INDEMNIFICATION
Section 3.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Investor, its partners, affiliates, officers, directors,
employees and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively, the "Controlling Persons"), from
and against any Damages, joint or several, and any action or proceeding in
respect thereof to which the Investor, its partners, affiliates, officers,
directors, employees and duly authorized agents, and any Controlling Person, may
become subject under the Securities Act or otherwise, as incurred, insofar as
such Damages (or actions or proceedings in respect thereof) arise out of, or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, or in any preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement relating to the
Registrable Securities or (ii) any omission or alleged omission to state therein
62
a material fact required to be stated therein or necessary to make the
statements therein under the circumstances not misleading, and shall reimburse
the Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents, and each such Controlling Person, for any legal and other
expenses reasonably incurred by the Investor, its partners, affiliates,
officers, directors, employees and duly authorized agents, or any such
Controlling Person, as incurred, in investigating or defending or preparing to
defend against any such Damages or actions or proceedings; provided, however,
that the Company shall not be liable to the extent that any such Damages arise
out of the Investor's (or any other indemnified Person's) failure to send or
give a copy of the final prospectus or supplement (as then amended or
supplemented) to the persons asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if such
statement or omission was corrected in such final prospectus or supplement;
provided, further, that the Company shall not be liable to the extent that any
such Damages arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, or any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Investor or
any other person who participates as an underwriter in the offering or sale of
such securities, in either case, specifically stating that it is for use in the
preparation thereof. In connection with any Registration Statement with respect
to which the Investor is participating, such Investor will indemnify and hold
harmless, to the same extent and in the same manner as set forth in the
preceding paragraph, the Company, each of its directors, officers, each Person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (each a "Company Indemnified
Person") against any Damages to which any Company Indemnified Person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Damages arise out of or are based upon any (a)(i)untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement, or
in any preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement relating to the Registrable Securities or (ii) omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein under the circumstances not misleading
in reliance upon and in conformity with written information furnished to the
Company by the Investor or on behalf of the Investor expressly for use in
connection with such Registration Statement or other document or (b) any failure
by the Investor to comply with prospectus delivery requirements of the
Securities Act, the Exchange Act or any other law or legal requirement
applicable to sales under the Registration Statement.
Section 3.2. CONDUCT OF INDEMNIFICATION PROCEEDINGS. All claims for
indemnification under Section 3.1 shall be asserted and resolved in accordance
with the provisions of Section 10.02 and 10.03 of the Purchase Agreement.
Section 3.3. ADDITIONAL INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article 3 (with appropriate
modifications) shall be given by the Company with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act. The
provisions of this Article III shall be in addition to any other rights to
indemnification, contribution or other remedies which an Indemnified Party or a
Company Indemnified Person may have pursuant to law, equity, contract or
otherwise.
63
Section 3.4. CONTRIBUTION. To the extent that any indemnification provided for
herein is prohibited or limited by law, the indemnifying party will make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under this Article III to the fullest extent permitted by law. However,
(a) no contribution will be make under circumstances where maker of such
contribution would not have been required to indemnify the indemnified party
under the fault standards set forth in this Article III, (b) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who is not guilty of such fraudulent misrepresentation, and (c)
contribution (together with any indemnification obligations under this
Agreement) by any seller of Registrable Securities will be limited in amount of
proceeds received by such seller from the sale of such Registrable Securities.
ARTICLE IV
MISCELLANEOUS
Section 4.1. NO OUTSTANDING REGISTRATION RIGHTS. Except as otherwise disclosed
in accordance with the Purchase Agreement or in the Commission Documents, the
Company represents and warrants to the Investor that there is not in effect on
the date hereof any agreement by the Company pursuant to which any holders of
securities of the Company have a right to cause the Company to register or
qualify such securities under the Securities Act or any state securities or blue
sky laws and regulations of any jurisdiction.
Section 4.2. TERM. The registration rights provided to the Investor hereunder,
and the Company's obligation to keep the Registration Statement effective, shall
terminate at the earlier of (i) such time that is two years following the
termination of the Purchase Agreement, (ii) such time as all Registrable
Securities have been issued and have ceased to be Registrable Securities and
(iii) upon the consummation by the Company of an "Excluded Merger or Sale" (as
defined in the Purchase Agreement). Notwithstanding the foregoing, paragraphs
(c) and (d) of Section 1.1, Article III, Section 4.8 and Section 4.9 shall
survive the termination of this Agreement.
Section 4.3. RULE 144. The Company will, at its expense, promptly take such
action as the Investor may reasonably request to enable the Investor to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 or any similar rule or
regulation hereafter adopted by the Commission; provided, that the Investor may
not make any such request more than once during any calendar quarter during the
term of this Agreement. If at any time the Company is not required to file such
reports, it will, at its expense, forthwith upon the written request of the
Investor, make available adequate current public information with respect to the
Company within the meaning of paragraph (c)(2) of Rule 144 or such other
information as necessary to permit sales pursuant to Rule 144. Upon the request
of the Investor, the Company will deliver to the Investor a written statement,
signed by the Company's principal financial officer, as to whether it has
complied with such requirements.
Section 4.4. CERTIFICATE. The Company will, at its expense, forthwith upon the
reasonable request of the Investor but not more than once in any calendar
quarter, deliver to the Investor, a certificate signed by the Company's
principal financial officer, stating (a) the Company's name, address and
64
telephone number (including area code), (b) the Company's Internal Revenue
Service identification number, (c) the Company's Commission file number, (d) the
number of shares of each class of Stock outstanding as shown by the most recent
report or statement published by the Company and (e) whether the Company has
filed the reports required to be filed under the Exchange Act for a period of at
least ninety (90) days prior to the date of such certificate and in addition has
filed the most recent annual report required to be filed thereunder.
Section 4.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement may be
waived, provided that such waiver is set forth in a writing executed by both
parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the Investor. No course
of dealing between or among any Person having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any person under or by reason of this
Agreement.
Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The Investor may
assign its rights under this Agreement to any subsequent holder of the
Registrable Securities (unless sold pursuant to an effective registration
statement or in accordance with Rule 144 under the Securities Act), provided
that the Company shall have the right to require any holder of Registrable
Securities to execute a counterpart of this Agreement as a condition to such
holder's claim to any rights hereunder. The Company may assign this Agreement at
any time in connection with a sale or acquisition of the Company, whether by
merger, consolidation, sale of all or substantially all of the Company's assets
or similar transaction, without the consent of the Investor or other subsequent
holders of Registrable Securities; provided, that the successor or acquiring
Person or entity agrees in writing to assume all of the Company's rights and
obligations under this Agreement. This Agreement, together with the Purchase
Agreement and the Warrant sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.
Section 4.7. SEVERABILITY. In the event that any provision of this Agreement
becomes, or is declared by a court of competent jurisdiction to be, illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party
hereto.
Section 4.8. NOTICES. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder shall be given in
accordance with Section 12.04 of the Purchase Agreement.
Section 4.9. GOVERNING LAW; DISPUTE RESOLUTION. This Agreement shall be
construed under the laws of the State of New York. Any dispute arising out of or
relating to this Agreement shall be resolved by means of arbitration pursuant to
the provisions of Article XI of the Purchase Agreement.
65
Section 4.10. SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. (a) The Company and
the Investor acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity.
(b) The Company and the Investor irrevocably submit to the
jurisdiction of the United States District Court and other courts of the United
States sitting in the State of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) hereby waive,
and agree not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Investor
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section shall
affect or limit any right to serve process in any other manner permitted by law.
The prevailing party in any litigation in connection with this Agreement shall
be entitled to recover from the other party all costs and expenses, including,
without limitation, reasonable attorney's fees, incurred by such party in
connection with any such litigation.
Section 4.11 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
Section 4.12. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
Section 4.13. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
Section 4.14. ABSENCE OF PRESUMPTION. This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
KINGSBRIDGE CAPITAL LIMITED
By: /s/ Valetine O'Donoghue
----------------------------------------------
Name: Valentine O'Donoghue
Title: Director
DISCOVERY LABORATORIES, INC.
By: /s/ John G. Cooper
----------------------------------------------
Name: John G. Cooper
Title: Executive Vice President and
Chief Financial Officer
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EXHIBIT 99.1
DISCOVERY LABORATORIES SECURES $75 MILLION COMMITTED EQUITY FINANCING
FACILITY
Management will discuss additional details during conference call on July
9th at 10:30 AM EDT - see details below
DOYLESTOWN, PA -- JULY 8, 2004 -- DISCOVERY LABORATORIES, INC. (NASDAQ: DSCO),
has entered into a Committed Equity Financing Facility Agreement (CEFF) with
Kingsbridge Capital Limited in which Kingsbridge has committed to finance up to
$75 million of capital to support Discovery's future growth. The Agreement
requires Kingsbridge to purchase newly-issued shares of Discovery common stock.
Discovery will ultimately determine the exact timing, amount and price of any
CEFF financings, subject to certain conditions. Kingsbridge is a private
investment group, which operates as a closed fund, managing substantial assets
for its principal. The CEFF allows Discovery to raise capital as required, at
the time, price and in amounts deemed suitable to the Company, during a
three-year period once the registration statement is filed by Discovery and
declared effective by the Securities and Exchange Commission.
John G. Cooper, Executive Vice President and Chief Financial Officer of
Discovery commented, "The CEFF gives us enormous flexibility to raise adequate
amounts of capital when needed. Our financing strategy, particularly in light of
current market conditions, does not include an immediate requirement for
additional equity capital. With this innovative financing structure now in
place, we have an ability to finance the Company at times when we believe the
appropriate value is reflected in our stock price. Normally, such value accrues
after the achievement of key milestones. In addition, I feel this CEFF offers a
favorable cost of capital, with discounts and associated expenses less than
those seen generally in PIPEs or secondary offerings. Discovery can still
participate in traditional financing structures if we feel it is beneficial to
do so. This CEFF, together with our ability to avail ourselves of other
traditional financing structures, allows us to make financing decisions that we
believe will be in the best interest of Discovery and its shareholders. The $75
million available from the CEFF, coupled with our existing cash balances and
amounts available under credit facilities provides the Company with over $120
million of potential financial resources."
Adam Gurney, Managing Director of Kingsbridge, stated, "We are excited by
Discovery's Surfactant Replacement Therapy pipeline, which we believe is of
great medical potential. Discovery has several milestones expected to be
announced in 2004 and 2005 - each potentially a significant value-creating
opportunity for healthcare, Discovery and its investors. Kingsbridge is very
pleased to be working with Discovery as it builds the first potential surfactant
product pipeline for respiratory medicine and executes its transition to a
commercial company with the potential FDA approval of Surfaxin(R) for RDS."
Certain details of the Committed Equity Financing facility are as follows:
o For a period of three years, Discovery can access up to $75 million
dollars from Kingsbridge in exchange for newly-issued shares of
Discovery's common stock. Discovery may access the capital after the SEC
declares effective the registration statement to be filed by Discovery
covering the resale of the shares of common stock issuable in connection
with the CEFF and the shares of common stock underlying the warrant
discussed below.
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o Capital may be accessed under the CEFF in tranches of up to $18.75
million, subject to certain conditions. Each tranche will be priced during
the 15-day financing period with Discovery controlling the minimum
acceptable purchase price for any shares to be issued to Kingsbridge
during that time. Kingsbridge shall purchase shares of common stock
pursuant to the CEFF at discounts ranging from 6% to 10% of the average
market price of the common stock during the financing period, with the
reduced discounts applying if the price of the common stock is equal to
$9.01 or more.
o Discovery is not obligated to utilize any of the $75 million available
under the CEFF and there are no minimum commitment or minimum use
penalties. The CEFF agreement does not contain any restrictions on
Discovery's operating activities, automatic pricing resets or minimum
market volume restrictions.
o The agreement does not prohibit Discovery from conducting additional debt
or equity financings, including PIPEs, shelf offerings, secondary
offerings or any other fixed future-priced securities.
o Throughout the term of the CEFF, Kingsbridge is restricted from engaging
in any transaction intended to reduce its economic risk of owning shares
of Discovery common stock including, without limitation, the purchase of
any option or contract to sell, selling "short" or "short against the
box", or otherwise entering into any other security transaction the
purpose of which is to hedge its risk of ownership of the common stock.
o In connection with the CEFF, Discovery issued a warrant to Kingsbridge to
purchase up to 375,000 shares of common stock at an exercise price of
$12.0744 per share. The exercise term of the warrant is five years
beginning with the 6-month anniversary of the closing date of the
agreement. The warrant must be exercised for cash, except in limited
circumstances.
Mr. Cooper continued, "Kingsbridge is a highly-respected investment group with
an extensive network of contacts within the financial community. They have been
a shareholder of Discovery for the past two years. The financial and legal terms
of this financing structure is the product of substantial deal and market
analysis by Discovery and Kingsbridge. Both parties feel that this process has
resulted in a well thought out and innovative financing vehicle."
Discovery will be hosting a conference call on Friday, July 9th at 10:30 AM EDT.
Management will provide more details on the Committed Equity Financing Facility.
The call in number is 800-665-0669. This audio webcast will be available to
shareholders and interested parties through a live broadcast on the Internet at
HTTP://WWW.IRCONNECT.COM/PRIMECAST/DSCO/438/INDEX.HTML and
WWW.DISCOVERYLABS.COM. It is recommended that participants log onto one of these
sites at least 15 minutes prior to the call. The Internet broadcast will be
available for up to 30 days after the call at both website addresses.
69
The securities issuable in connection with the CEFF and upon the exercise of the
warrant issued to Kingsbridge have not been registered under the Securities Act
of 1933 and may not be offered or sold in the United States absent registration.
Discovery has agreed to file, no later than August 23, 2004, a registration
statement for the resale of the shares of common stock issuable in connection
with the CEFF and the shares of common stock underlying the warrant.
ABOUT DISCOVERY LABORATORIES
Discovery Laboratories, Inc. is a biopharmaceutical company developing its
proprietary surfactant technology as Surfactant Replacement Therapies for
respiratory diseases. Surfactants are compositions produced naturally in the
lungs and essential for breathing. Discovery's technology produces an engineered
version of natural human lung surfactant that is designed to closely mimic the
essential properties of human lung surfactant. Discovery believes that through
its technology, pulmonary surfactants have the potential, for the first time, to
be developed into a series of respiratory therapies for critical care and other
hospitalized patients where there are few or no approved therapies available.
Discovery has filed a New Drug Application with the FDA for clearance to market
Surfaxin, the Company's lead product, for the prevention of Respiratory Distress
Syndrome in premature infants. Discovery is currently conducting a Phase 2
clinical trial for Acute Respiratory Distress Syndrome in adults, Phase 3 and
Phase 2 clinical trials for Meconium Aspiration Syndrome in full-term infants.
With aerosolized surfactant formulations, Discovery is preparing to initiate a
Phase 2 trial for asthma (development name DSC-104) and a Phase 2 trial for
Respiratory Dysfunction in premature infants.
More information about Discovery is available on the Company's Web site at
www.DiscoveryLabs.com.
To the extent that statements in this press release are not strictly historical,
including statements as to business strategy, outlook, objectives, future
milestones, plans, intentions, goals, future financial conditions, future
collaboration agreements, the success of the Company's product development,
events conditioned on stockholder or other approval, or otherwise as to future
events, such statements are forward-looking, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements contained in this release are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the statements made. Among the factors which could affect the Company's
actual results and could cause results to differ from those contained in the
forward-looking statements contained herein are the risk that financial
conditions may change, risks relating to the progress of the Company's research
and development, the risk that the Company will not be able to raise additional
capital or enter into additional collaboration agreements (including strategic
alliances for our aerosol and Surfactant Replacement Therapies), risk of delay
in the Company's preparation and filing of applications for regulatory approval,
risk of delay in the FDA's or other health regulatory authorities' approval of
any applications filed by the Company, risks that any such regulatory authority
will not approve the marketing and sale of a drug product even after acceptance
of an application filed by the Company for any such drug product, risks relating
to the ability of the Company's third party contract manufacturers to provide
the Company with adequate supplies of drug substance and drug products for
completion of any of the Company's clinical studies, other risks relating to the
lack of adequate supplies of drug substance and drug product for completion of
70
any of the Company's clinical studies, and risks relating to the development of
competing therapies and/or technologies by other companies. Companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in advanced clinical trials, even after obtaining promising earlier trial
results. Data obtained from tests are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. Those associated risks
and others are further described in the Company's filings with the Securities
and Exchange Commission including the most recent reports on Forms 10-K, 10-Q
and 8-K, and any amendments thereto.
COMPANY CONTACTS:
John G. Cooper, EVP and CFO
Kori Beer, IR & Communications
215-340-4699
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