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
October
25, 2006
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
of
incorporation)
|
(Commission
File Number)
|
(IRS
Employer
Identification
Number)
|
2600
Kelly Road, Suite 100
Warrington,
Pennsylvania 18976
(Address
of principal executive offices)
(215)
488-9300
(Registrant’s
telephone number, including area code)
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[
] Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[
] Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[
] Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
[
] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01. Entry
into a Material Definitive Agreement.
On
October 25, 2006, Discovery Laboratories, Inc. (the “Company”) and PharmaBio
Development Inc. d/b/a NovaQuest (“PharmaBio”) entered into a Second Amended and
Restated Loan Agreement (the “Loan Agreement”), a Second Amended and Restated
Security Agreement (the “Security Agreement”) and a Warrant Agreement (the
“Warrant Agreement”) (collectively, the “PharmaBio Transaction”) in order to
restructure PharmaBio’s existing $8.5 million loan to the Company. The maturity
date of the loan has been extended by 40 months, from December 31, 2006 to
April
30, 2010. Beginning October 1, 2006, interest shall accrue at the prime lending
rate of Wachovia Bank, N.A., subject to change when and as such rate changes,
compounded annually and shall be payable on the maturity date. The Company
may
repay the loan, in whole or in part, at any time without prepayment penalty
or
premium.
Pursuant
to the Loan Agreement, the Company has issued to PharmaBio a Second Amended
and
Restated Promissory Note (the “Note”), which replaces and supersedes the Note
dated as of December 10, 2001, which was amended and restated as of November
3,
2004. The Company’s obligations to PharmaBio under the Note, the Loan Agreement
and the Security Agreement are secured by an interest in substantially all
of
the assets of the Company, subject to limited exceptions set forth in the
Security Agreement (the “Collateral”).
On
the
same date the Company and General Electric Capital Corporation (“GECC”) entered
into an Amendment No. 5 and Consent (the “Amendment”) to the Master Security
Agreement dated December 20, 2002 between the Company and GECC. Under the
Amendment, GECC consented to the PharmaBio Transaction and, in consideration
of
the consent and other amendments to the Master Security Agreement, the Company
granted to GECC a security interest in the Collateral. In connection therewith,
PharmaBio, GECC and the Company entered into an Intercreditor Agreement pursuant
to which GECC agreed to subordinate its security interest in the Collateral
to
the security interest of PharmaBio.
On
October 26, 2006, the Company issued a press release announcing the
restructuring, which is filed as Exhibit 99.1 to this report and is incorporated
herein by reference.
The
foregoing description of the transaction does not purport to be complete and
is
qualified in its entirety by reference to the agreements filed as exhibits
to
this report and incorporated herein by reference. The agreements have been
filed
in order to provide investors and the Company’s stockholders with information
regarding their terms and in accordance with applicable rules and regulations
of
the Securities and Exchange Commission. Pursuant to the Loan Agreement, the
Security Agreement and the Warrant Agreement, each of the Company and PharmaBio
made customary representations, warranties and covenants and agreed to indemnify
each other for certain losses arising out of breaches of such representations,
warranties, covenants and other specified matters. The representations,
warranties and covenants were made by the parties to and solely for the benefit
of each other and any expressly intended third party beneficiaries in the
context of all of the terms and conditions of the agreements and in the context
of the specific relationship between the parties. Accordingly, investors and
stockholders should not rely on the representations, warranties and covenants.
Furthermore, investors and stockholders
should not rely on the representations, warranties and covenants as
characterizations of the actual state of facts or continuing intentions of
the
parties, since they were only made as of the date of the agreements. Information
concerning the subject matter of such representations, warranties and covenants
may change after the date of the agreements, which subsequent information may
or
may not be fully reflected in the Company’s reports or other filings with the
Securities and Exchange Commission.
2
Item
3.02. Unregistered
Sales of Equity Securities.
On
October 25, 2006, in consideration of the PharmaBio Transaction described in
Item 1.01, the Company and PharmaBio entered into the Warrant Agreement whereby
PharmaBio has the right to purchase 1,500,000 shares of the Company’s common
stock, par value $0.001 per share, at an exercise price equal to $3.5813 per
share. The warrants have a seven-year term and shall be exercisable for cash,
the cancellation of a portion of the Company’s indebtedness under the Loan
Agreement or a combination of the foregoing in an amount equal to the aggregate
purchase price for the shares being purchased upon any exercise. Under the
Warrant Agreement, the Company has agreed to file a registration statement
with
the Securities and Exchange Commission within 45 days of October 25, 2006 with
respect to the resale of the shares issuable upon exercise of the warrant.
The
warrant was issued to PharmaBio in a private transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In
connection with the issuance of the warrant, the Company expects to recognize
deferred financing costs as an intangible asset of approximately $1.9 million,
to be amortized to interest expense ratably over the extended term of the
loan.
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits
|
4.1
|
Second
Amended and Restated Promissory Note, dated as of October 25, 2006,
issued
to PharmaBio Development Inc.
|
|
4.2
|
Warrant
Agreement, dated as of October 25, 2006, by and between and Discovery
Laboratories, Inc. and PharmaBio Development
Inc.
|
|
10.1
|
Second
Amended and Restated Loan Agreement, dated as of December 10, 2001,
amended and restated as of October 25, 2006, by and between Discovery
Laboratories, Inc. and PharmaBio Development
Inc.
|
|
10.2
|
Second
Amended and Restated Security Agreement, dated as of December 10,
2001,
amended and restated as of October 25, 2006, by and between Discovery
Laboratories, Inc. and PharmaBio Development
Inc.
|
3
|
10.3
|
Amendment
No. 5 and Consent, dated October 25, 2006, to the Master Security
Agreement between General Electric Capital Corporation and Discovery
Laboratories, Inc.
|
| 99.1 | Press Release dated October 26, 2006. |
Cautionary
Note Regarding Forward-looking Statements:
To
the
extent that statements in this Current Report on Form 8-K 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 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 Current
Report are subject to certain risks and uncertainties that could cause actual
results to differ materially from the statements made. Such 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.
4
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.
|
||
| |
|
|
| Date: October 26, 2006 | By: | /s/ Robert J. Capetola |
|
Robert J. Capetola, Ph.D. |
||
| President and Chief Executive Officer | ||
5
INDEX
TO EXHIBITS
| Exhibit No. | Description | |
| 4.1 | Second Amended and Restated Promissory Note, dated as of October 25, 2006, issued to PharmaBio Development Inc. | |
| 4.2 | Warrant Agreement, dated as of October 25, 2006, by and between and Discovery Laboratories, Inc. and PharmaBio Development Inc. | |
| 10.1 | Second Amended and Restated Loan Agreement, dated as of December 10, 2001, amended and restated as of October 25, 2006, by and between Discovery Laboratories, Inc. and PharmaBio Development Inc. | |
| 10.2 | Second Amended and Restated Security Agreement, dated as of December 10, 2001, amended and restated as of October 25, 2006, by and between Discovery Laboratories, Inc. and PharmaBio Development Inc. | |
| 10.3 | Amendment No. 5 and Consent, dated October 25, 2006, to the Master Security Agreement between General Electric Capital Corporation and Discovery Laboratories, Inc. | |
| 99.1 | Press Release dated October 26, 2006. |
Exhibit
4.1
EXECUTION
COPY
SECOND
AMENDED AND RESTATED
PROMISSORY
NOTE
| $8,500,000 |
October
25, 2006
|
FOR
VALUE
RECEIVED, DISCOVERY LABORATORIES, INC., a Delaware corporation (“Borrower”),
hereby promises to pay
to the
order of PHARMABIO DEVELOPMENT INC., a North Carolina corporation, d/b/a
NovaQuest (“Lender”),
in
lawful money of the United States of America in immediately available funds,
the
lesser of (i) the principal sum of Eight Million, Five Hundred Thousand Dollars
($8,500,000) and (ii) the aggregate unpaid principal amount of the Loan (as
defined in the Loan Agreement referred to below) made by Lender to Borrower
pursuant to the Loan Agreement (as defined below), together with interest
accrued thereon. Interest shall accrue and compound on the unpaid principal
amount of the Loan at the rates and in the manner provided in the Loan
Agreement. Payment of the principal amount of this Note and accrued interest
on
this Note shall be made at the times and in the manner provided in the Loan
Agreement.
This
Note
is made and dated as of December 10, 2001, as amended and restated as of
November 3, 2004, and further amended and restated of the date set forth
above.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Loan Agreement.
This
Note
is the Note referenced in the Second Amended and Restated Loan Agreement
between
Borrower and Lender dated as of December 10, 2001, as amended and restated
as of November 3, 2004, and amended and restated as of the date hereof (as
same
may be amended from time to time, the “Loan
Agreement”),
and
is entitled to the benefits of, and subject to the restrictions provided
under,
the Loan Agreement. The Loan Agreement, among other things, provides that
this
Note is secured by, and Borrower has granted a security interest in, certain
of
its assets as set forth in the Second Amended and Restated Security Agreement
between Borrower and Lender dated as of the date hereof.
In
case
an Event of Default shall occur and be continuing and not cured prior to
the
expiration of any applicable cure or grace periods set forth in the Loan
Agreement, the unpaid principal amount of, and accrued interest on, this
Note
may be declared to be due and payable in the manner and with the effect provided
in the Loan Agreement.
Borrower
hereby waives presentment, demand, notice, protest and all other demands
and
notices in connection with the delivery, acceptance, performance and enforcement
of this Note.
This
Note
may be voluntarily prepaid, in whole or in part, on the terms and conditions
set
forth in the Loan Agreement. Provided that all obligations under the Loan
Agreement have been irrevocably paid in full, the Lender shall, at the request
of Borrower, promptly, and in no event later than ten (10) Business Days
after
notice from Borrower, cancel and return this Note to Borrower.
This
Note
shall be governed by and construed in accordance with the law of the State
of
Delaware without regard to the conflicts of law rules of such
state.
Lender
and Borrower agree that disputes relating to this Note shall be subject to
the
provisions of the Loan Agreement entitled “Internal Review” and “Arbitration”
set forth in Sections 8.14 and 8.15 thereof, respectively.
IN
WITNESS WHEREOF, Borrower has caused this Note to be duly executed by its
duly
authorized officer, as of the date first above written.
| DISCOVERY LABORATORIES, INC. | ||
| |
|
|
| By: | /s/ John Cooper | |
|
Name: John Cooper |
||
|
Title:
Executive
Vice President and Chief
Financial Officer
|
||
2
Exhibit
4.2
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933 OR ANY APPLICABLE STATE SECURITIES OR “BLUE-SKY” LAWS AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER SUCH ACT OR UNDER SUCH LAWS, OR PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION.
WARRANT
AGREEMENT
This
WARRANT AGREEMENT is dated and entered into as of October
25, 2006,
by and
between DISCOVERY LABORATORIES, INC., a Delaware corporation (the “Company”),
and PHARMABIO DEVELOPMENT INC., a North Carolina corporation, doing business
as
NovaQuest (“NovaQuest”). Capitalized terms herein that are not otherwise defined
shall have the respective meanings set forth in the Loan Agreement (as defined
below).
WHEREAS,
the Company and NovaQuest, have entered into the
Amended
and Restated Loan Agreement dated
as of
December 10, 2001, and amended and restated
as of
the date hereof (as amended, the “Loan Agreement”), and other agreements dated
as of the date hereof; and
WHEREAS,
the Company desires to grant to NovaQuest the rights set forth in this Warrant
Agreement;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, the parties, intending to be legally bound,
agree
as follows:
1. The
Warrant.
The
Company hereby agrees to issue and sell to NovaQuest, its designees or assigns
(the “Holder”) up to One Million Five Hundred Thousand (1,500,000) shares (the
“Warrant Shares”) of the Company’s
common stock, par value $0.001 per share (“Common Stock”), at an exercise price
equal
to
Three Dollars
and Fifty-Eight and Thirteen One-Hundredths Cents ($3.5813) per share (the
“Exercise Price”) (such
Exercise Price having been calculated as follows: the average of the
volume-weighted average price (VWAP) (as reported by Bloomberg, L.P.) for the
ten (10) trading days prior to the date hereof, multiplied by 130%),
and
upon the terms and conditions set forth herein.
The
Exercise Price and the number of Warrant Shares purchasable upon exercise of
this Warrant Agreement
are
subject to adjustment from time to time as provided in Section 4 of this Warrant
Agreement.
2. Expiration
Date.
This
Warrant Agreement, and the Holder’s right to purchase any of the Warrant Shares,
will expire at 5:00 p.m. Eastern Time on the seventh anniversary of the date
of
this Warrant Agreement (the “Expiration Date”).
1
3. Exercise
of this Warrant Agreement.
The
Holder may exercise this Warrant Agreement at any time from and after the date
hereof and prior to the Expiration Date, in whole or in part, as adjusted from
time to time as provided in Section 4 of this Warrant Agreement, by: (a) the
surrender of this Warrant Agreement, with the Exercise Form substantially in
the
form attached hereto as Annex A properly completed and executed, at the
principal office of the Company on a Business Day (as defined below), and (b)
upon payment by (i) the delivery on a Business Day of a certified check or
official bank check or wire transfer of immediately available funds, payable
to
the order of the Company, (ii) cancellation of an amount of indebtedness of
the
Company under the Loan Agreement,
or (iii)
a combination of (i) and (ii), in an amount equal to the aggregate purchase
price for the Warrant Shares being purchased upon such exercise. Upon receipt
thereof by the Company, the Holder will be deemed to be the holder of record
of
the Warrant Shares issuable upon such exercise as of the close of business
on
the date of such receipt by the Company, and the Company will promptly execute
or cause to be executed and delivered to the Holder a certificate or
certificates representing the aggregate number of Warrant Shares specified
in
the Exercise Form. If this Warrant Agreement is exercised only in part, the
Company will, at the time of delivery of said stock certificate or certificates,
deliver to the Holder a new Warrant Agreement of like tenor evidencing the
right
of the Holder to purchase the remaining Warrant Shares then covered by this
Warrant Agreement. Upon exercise of this Warrant Agreement and payment of the
purchase price by the Holder, all Warrant Shares deliverable and issued
hereunder will be duly authorized, duly and validly issued and outstanding,
fully paid and nonassessable, and free from taxes, liens or charges. “Business
Day” shall mean any day other than a Saturday, Sunday or legal holiday on which
banks in North Carolina and New York are open for the conduct of their banking
business.
4. Certain
Adjustments.
The
Exercise Price at which Warrant Shares may be purchased and the number of
Warrant Shares to be purchased upon exercise of this Warrant Agreement are
subject to change or adjustment from time to time as follows:
(a) Merger,
Sale of Assets, etc.
If at
any time while this Warrant Agreement, or any portion hereof, is outstanding
and
unexpired there shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), (ii) a merger or consolidation of the Company with or into another
corporation or entity in which the Company is not the surviving entity, or
a
share exchange or reverse triangular merger in which the Company is the
surviving entity but the shares of the Company’s capital stock outstanding
immediately prior to the merger or share exchange are exchanged or converted
by
virtue of the merger or share exchange into other property, whether in the
form
of securities, cash, or otherwise,
or (iii)
a sale, lease, license or other transfer of all or substantially all of the
Company’s properties or assets to any other person or entity, then, as a part of
such reorganization, merger, consolidation, exchange or transfer, lawful
provision shall be made so that the Holder shall thereafter be entitled to
receive upon exercise of this Warrant Agreement, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares of stock or other securities or property resulting from such
reorganization, merger, consolidation, exchange or transfer that a holder of
the
shares deliverable upon exercise of this Warrant Agreement would have been
entitled to receive in such reorganization, merger, consolidation, exchange
or
transfer if this Warrant Agreement had been exercised immediately before the
record date of (or the date of, if no record date is fixed) such reorganization,
merger, consolidation, exchange or transfer, all subject to further adjustment
as provided in this Section 4. The foregoing provisions of this Section
4(a) shall similarly apply to successive reorganizations, consolidations,
mergers, exchanges and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant
Agreement. If the per-share consideration payable to the Holder hereof for
shares in connection with any such transaction is in a form other than cash
or
marketable securities, then the value of such consideration shall be reasonably
determined in good faith by the Company’s Board of Directors. In all events,
appropriate adjustment (as reasonably determined in good faith by the Company’s
Board of Directors) shall be made in the application of the provisions of this
Warrant Agreement with respect to the rights and interests of the Holder after
the transaction, to the end that the provisions of this Warrant Agreement shall
be applicable after that event, as near as reasonably may be, in relation to
any
shares or other property deliverable after that event upon exercise of this
Warrant Agreement.
2
(b) Reclassification,
etc.
If the
Company, at any time while this Warrant Agreement, or any portion hereof,
remains outstanding and unexpired, by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of securities
of any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as the Holder would
have
received if this Warrant Agreement had been exercised in full immediately prior
to such reclassification or other change or immediately prior to the record
date
with respect thereto and the Exercise Price therefor shall be appropriately
adjusted, all subject to further adjustment as provided in this Section 4.
The
foregoing provisions of this Section 4(b) shall similarly apply to successive
reclassifications or other changes.
(c) Split,
Subdivision or Combination of Shares.
If the
Company, at any time while this Warrant Agreement, or any portion hereof,
remains outstanding and unexpired, shall split, subdivide or combine the
securities as to which purchase rights under this Warrant Agreement exist,
into
a different number of securities of the same class, the Exercise Price for
such
securities shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination. Upon
each
adjustment in the Exercise Price pursuant to this subsection, the number of
shares of such securities purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Exercise Price by a
fraction, the numerator of which shall be the Exercise Price immediately prior
to such adjustment and the denominator of which shall be the Exercise Price
immediately thereafter.
(d) Adjustments
for Dividends in Stock or Other Securities or Property.
If
while this Warrant Agreement, or any portion hereof, remains outstanding and
unexpired, the holders of the securities as to which purchase rights under
this
Warrant Agreement exist at the time shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) by way of dividend, then
and
in each case, this Warrant Agreement shall represent the right to acquire,
in
addition to the number of shares of the security receivable upon exercise of
this Warrant Agreement and, in addition, without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities or property (other than cash) that such holder would hold on the
date
of such exercise had it been the holder of record of the security receivable
upon exercise of this Warrant Agreement on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock or other
securities or property (other than cash) available by or to it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 4.
3
(e) Certificate
as to Adjustments.
Upon
the occurrence of each adjustment pursuant to this Section 4, the Company at
its
expense shall promptly compute such adjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant Agreement a certificate signed
by its Chief Financial Officer setting forth such adjustment and showing in
detail the event requiring the adjustment, the amount of such adjustment, the
method by which such adjustment was calculated, the Exercise Price at the time
in effect, and the number of shares and the amount, if any, of the property
that
at the time would be received upon the exercise of this Warrant Agreement,
together with the facts upon which such adjustment is based. The Company shall,
upon the reasonable written request of any such Holder, furnish or cause to
be
furnished to such Holder a like certificate setting forth: (i) all such previous
adjustments; (ii) the Exercise Price at the time in effect; and (iii) the number
of shares and the amount, if any, of other property that at the time would
be
received upon the exercise of this Warrant Agreement.
(f) No
Impairment.
The
Company will not, by amendment of its certificate of incorporation or through
any reorganization, recapitalization, reclassification, transfer of assets,
consolidation, merger, business combination, dissolution, issuance or sale
of
securities or any other voluntary action, avoid or seek to avoid the intent
of
this Section 4 or the observance or performance of any of the terms to be
observed or performed by the Company under this Section 4 or the other terms
of
this Warrant Agreement, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of
the holder of this Warrant Agreement against impairment. In case any event
shall
occur as to which the other provisions of this Section 4 are not strictly
applicable but as to which the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant Agreement in accordance
with the essential intent and principles hereof, then, in each such case, the
Board of Directors of the Company shall in good faith determine the adjustment,
if any, on a basis consistent with the purchase rights represented by this
Warrant Agreement. Upon such determination, the Company will promptly deliver
a
copy thereof to the Holder and shall make the adjustments described
therein.
(g) No
Adjustment.
No
adjustment in the Exercise 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 4(g) are not required to be
made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4 shall be made to the nearest cent or
to
the nearest 1/100th
of a
share, as the case may be.
5. Fractional
Shares.
Upon
the exercise of this Warrant Agreement, fractional shares may be issued by
the
Company, but the Company may, in lieu of issuing such fractional shares, pay
a
sum in cash equal to the excess of the fair market value of such fractional
share (determined in such reasonable manner as may be prescribed by the Board
of
Directors of the Company in its discretion) over the proportional part of the
per share purchase price represented by such fractional share.
4
6. Notices
of Certain Events.
In
case:
(a)
the
Company shall take a record of the holders of its Common Stock (or other stock
or securities at the time receivable upon the exercise of this Warrant
Agreement) for the purpose of entitling them to receive any dividend or other
distribution, or stock subdivision or combination, or any right to subscribe
for
or purchase any shares of stock of any class or any other securities, or to
receive any other right;
or
(b)
of
any reorganization or recapitalization of the Company, any reclassification
of
the capital stock of the Company, any consolidation, merger, share exchange
or
other business combination of the Company with or into another corporation
or
entity, or any sale, lease, license or other transfer of all or substantially
all of the assets of the Company to another corporation or entity;
or
(c)
of
any voluntary dissolution, liquidation or winding-up of the Company,
then,
and
in each such case, the Company will cause written notice thereof to be delivered
to the Holder specifying, as the case may be, (i) the date on which a record
is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right or (ii) the
date on which such reorganization, recapitalization, reclassification,
consolidation, merger, share exchange, business combination, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any
is
to be fixed, as of which the holders of record of Common Stock (or such stock
or
securities at the time receivable upon the exercise of this Warrant Agreement)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, consolidation, merger,
share
exchange, business combination, transfer, dissolution, liquidation or
winding-up. Such notice shall be delivered at least fifteen (15) Business Days
prior to the date required to be specified therein pursuant to this Section
6(c).
7. Reservation
of Shares; Listing.
(a) The
Company will at all times until the date of exercise of this Warrant Agreement
in full (the “Exercise Date”) reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the exercise of this Warrant
Agreement, such number of its duly authorized shares of capital stock for which
this Warrant Agreement is exercisable, and such number of shares of any stock
into which such stock is convertible, if applicable, as will from time to time
be sufficient to effect the exercise of this Warrant Agreement. The Company
will
from time to time take all steps necessary to amend its certificate of
incorporation to provide at all times prior to the Exercise Date sufficient
reserves of shares of capital stock issuable upon exercise of this Warrant
Agreement and the conversion of such stock, if applicable. If the number of
authorized but unissued shares of capital stock shall not be sufficient to
effect the exercise the entire amount of this Warrant Agreement on the Exercise
Date or the conversion of such stock, if applicable, then in addition to such
other remedies as shall be available to the Holder, the Company shall take
all
such corporate action as is necessary to increase its authorized but unissued
shares of capital stock to such number of shares as shall be sufficient for
such
purposes.
5
(b) The
Company will at all times use its best efforts to keep the Warrant Shares
authorized for listing on the NASDAQ
Global Select Market, NASDAQ Global Market (formerly the NASDAQ National Market)
or the NASDAQ Capital Market (formerly the NASDAQ Small Cap Market),
or any
national securities exchange on which its Common Stock is traded.
8. No
Rights as Stockholder; Limitation of Liability.
This
Warrant Agreement, as distinct from the shares for which this Warrant Agreement
is exercisable, will not entitle the Holder to any of the rights of a
stockholder of the Company, including without limitation 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. No provision of this Warrant Agreement,
prior
to the exercise of this Warrant Agreement, and no mere enumeration herein of
the
rights or privileges of the Holder, will give rise to any liability of the
Holder for the purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.
9. Transfer
Restriction.
Neither
this Warrant Agreement nor the securities issuable upon exercise hereof have
been registered under
the
Securities Act of 1933,
as
amended (the
“Securities Act”), or the securities or
“blue
sky” laws
of
any state. Neither this Warrant Agreement nor
the
securities issuable upon exercise hereof nor any interest or participation
herein or therein may be sold, assigned, pledged, hypothecated, encumbered
or in
any other manner transferred or disposed of except in compliance with the
Securities Act and the securities laws of each relevant state. Notwithstanding
anything
in this
Warrant Agreement to the contrary,
the
Holder
may
pledge the
Warrant Agreement and the Warrant Shares
in
connection with bona fide loan transactions in which the
Holder
or its
affiliate is the borrower,
provided
that no such pledge shall occur knowingly, after reasonable investigation and
inquiry, to any person or entity which actively sells, distributes, markets,
develops, or produces a pharmaceutical product or device which directly competes
with the Product.
10. Registration
Rights.
(a) Required
Registration.
Not
later than forty-five (45) days following the date hereof (the “Filing Date”),
the Company shall prepare and file with the Securities and Exchange Commission
(“SEC”) a registration statement on Form S-3 (except if the Company is not then
eligible to use Form S-3, in which case such registration statement shall be
on
another appropriate form) (the “Registration Statement”) covering the resale of
all of the Registrable Securities (as defined below) in an offering to be made
on a continuous basis pursuant to Rule 415 of the Securities Act. The Company
shall use its commercially reasonable best efforts to cause such registration
statement to become effective as soon as practicable and in any event not later
than ninety (90) days following the date hereof and remain effective for the
period specified in Section 10(d) below. Subject to any modifications that
are
responsive to comments, rules or regulations of the SEC, the Registration
Statement will include a Plan of Distribution, which shall be no more
restrictive than that included in the Company’s registration statement on Form
S-3, SEC File No. 333-121297. For purposes of this Agreement, the term
“Registrable Securities” means the Warrant Shares, together with any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to any Registrable Securities.
Until such time as the Registration Statement is effective, the Company shall
not grant any registration rights or other rights to register securities under
the Securities Act that are senior to the rights of the Holder under this
Section 10(a) or that have the effect of delaying a sale or limiting the number
of securities which may be sold by the Holder pursuant to the Registration
Statement or otherwise adversely affect the rights of the Holder under this
Section 10(a); provided, however, that the foregoing shall not affect any
pre-existing rights granted to any persons or entities.
6
(b) Registration
Expenses.
The
Company shall pay all Registration Expenses (as defined below) in connection
with any registration, qualification or compliance hereunder. At any time during
the ninety (90) days following the effective date of the Registration Statement
(and provided that the Registration Statement has not been withdrawn, suspended
or otherwise become not effective), the Company may present to the Holder an
accounting of its reasonable “Registration
Expenses
and,
within thirty (30) days thereafter, the Holder shall reimburse the Company
for
such expenses up to an aggregate amount not to exceed Twenty Thousand Dollars
($20,000). “Registration Expenses” shall mean all expenses incurred by the
Company in complying with the registration provisions herein described,
including without limitation all registration, qualification, notification
and
filing fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, and blue sky fees and expenses.
(c) Holder
Review of Registration Statement.
Upon
request received by the Company from the Holder within a reasonable time in
advance, the Company shall, on or prior to the third trading day prior to the
filing of the Registration Statement or any related prospectus or any amendment
or supplement thereto, (i) furnish to the Holder copies of all such documents
proposed to be filed (including documents incorporated or deemed incorporated
by
reference to the extent requested by such person), which documents will be
subject to the review of the Holder, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
(d) Certain
Company Obligations During Effectiveness of Registration
Statement.
From
the date of effectiveness of the Registration Statement, the Company will use
its best efforts to: (i) keep such registration effective until the earlier
of
(A) such date as all of the Registrable Securities have been resold or (B)
such
date as all Registrable Securities may be sold pursuant to Rule 144(k) (or
any
successor rule) (collectively, the “Effectiveness Period”); (ii) promptly
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of
the
Securities Act with respect to the disposition of all securities covered by
the
Registration Statement; (iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as the Holder from time to time may reasonably request; (iv) cause
the Registrable Securities to be quoted or listed on each stock market or stock
exchange on which the Common Stock of the Company is then quoted or listed;
(v)
provide a transfer agent and registrar for all securities registered pursuant
to
the Registration Statement and a CUSIP number for all such securities; (vi)
avoid the issuance of, or, if issued, promptly notify the Holder and obtain
the
withdrawal of, any order suspending the effectiveness of a Registration
Statement; (vii) promptly notify the Holder of the issuance by the SEC 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; (viii) promptly notify the Holder of the occurrence of any
event or passage of time that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or any statement made
in
the Registration Statement or prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, prospectus or other
documents so that, in the case of the Registration Statement or the prospectus,
as the case may be, it will not contain any untrue statement of a material
fact
or omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which they
were
made, not misleading; (ix) promptly furnish to the Holder, without charge,
at
least one conformed copy of the Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the extent
requested by such person, and all exhibits to the extent requested by such
person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the SEC, provided, that if
such
documents are available on the Internet free of charge, then the Company instead
may satisfy the requirement of this Section 10(d)(ix) by promptly notifying
the
Holder of the availability
of such
documents (other than periodic financial statements, reports of quarterly
conference calls and press releases);
and (x)
file the documents required of the Company and otherwise use its best efforts
to
maintain any required blue sky clearance in North Carolina and such other states
of the United States specified in writing by the Holder; provided, however,
that
the Company shall not be required to qualify to do business in any state in
which it is not now so qualified or has not so consented.
7
(e) Suspension
of Use of Prospectus.
The
Holder hereby acknowledges that there may occasionally be times when the Company
must suspend the use of the prospectus forming a part of the Registration
Statement until such time as an amendment to the Registration Statement has
been
filed by the Company and declared effective by the SEC or until the Company
has
amended or supplemented such prospectus. The Holder hereby covenants that it
will not sell any securities pursuant to said prospectus during the period
commencing at the time at which the Company gives the Holder notice of the
suspension of the use of said prospectus and ending at the time the Company
gives the Holder notice that Holder thereafter may effect sales pursuant to
said
prospectus. Notwithstanding anything herein to the contrary, the Company shall
not suspend use of the prospectus forming a part of the Registration Statement
by the Holder unless in the good faith opinion of the Company (after
consultation with its counsel) or its counsel such suspension is required by
the
federal securities laws, including without limitation, the rules and regulations
promulgated thereunder; provided, however, that in the event that such
suspension is required by the need for an amendment or supplement to the
Registration Statement or the prospectus forming a part thereof, the Company
shall use its best efforts to file as soon as practicable such required
amendments or supplements as shall be necessary for the disposition of the
Registrable Securities to recommence.
(f) Holder
Information for Registration Statement.
As a
condition to the inclusion of its Registrable Securities, the Holder shall
furnish to the Company such information regarding the Holder and the
distribution proposed by the Holder as the Company may reasonably request in
order to comply with any applicable law or regulation in connection with any
registration, qualification or compliance referred to in this Section
10.
8
(g) Indemnification
and Contribution.
(1)
To
the extent permitted by applicable law, the Company will indemnify and hold
harmless each seller of Registrable Securities that were registered pursuant
to
the Registration Statement, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of Section 5 of the Securities Act, against
any
losses, claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act
or
other applicable federal or state securities or “blue sky” laws, to the extent
that such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, and will reimburse each such seller,
each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however,
that
the Company will not be liable, to any such indemnitee if and to the extent
that
any such loss, claim, damage or liability arises out of or is based upon an
(i)
untrue statement or alleged untrue statement or omission or alleged omission
so
made in conformity with information furnished by or on behalf of such indemnitee
in writing specifically for use in such registration statement or prospectus
or
(ii) such untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary or earlier effective prospectus and
corrected in a final or amended prospectus, and such holder of Registrable
Securities failed to deliver a copy of the final or amended prospectus at or
prior to the confirmation of the sale of the Registrable Securities to the
buyer
of such Registrable Securities; provided,
further,
that
the indemnity agreement contained in this Section 10(g)(1) shall not apply
to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, provided that such consent shall not be
required if the settlement shall include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
of
the Company from all liability in respect of such claim or
litigation.
9
(2) To
the
extent permitted by applicable law, each seller of Registrable Securities that
were registered pursuant to the Registration Statement, severally and not
jointly, will indemnify and hold harmless the Company, each person, if any,
who
controls the Company within the meaning of Section 15 of the Securities Act,
each officer of the Company who signs the Registration Statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages
or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Securities Act
or
other applicable federal or state securities or “blue sky” laws, to the extent
that such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or
defending any such loss, claim, damage, liability or action; provided,
however,
that
such seller will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by or on behalf of such
seller specifically for use in such registration statement or prospectus, and
provided,
further,
that
the indemnity agreement contained in this Section 10(g)(2) shall not apply
to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such seller, which consent
shall not be unreasonably withheld, provided that such consent shall not be
required if the settlement shall include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
of
such seller from all liability in respect of such claim or litigation;
provided,
further,
that
the liability of each seller hereunder shall be limited to the net proceeds
received for the account of such seller from the sale of Registrable Securities
covered by such registration statement.
(3) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission to so notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 10(g) and shall only relieve it from any liability
which
it may have to such indemnified party under this Section 10(g) if and to the
extent the indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 10(g) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however,
that,
if the defendants in any such action include both the indemnified party and
the
indemnifying party, and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it that are different from
or
additional to those available to the indemnifying party or if the interests
of
the indemnified party reasonably may be deemed to conflict with the interests
of
the indemnifying party, the indemnified party shall have the right to select
a
separate counsel and to assume and undertake such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred; provided, further,
that
the Company shall not have any reimbursement obligation for the expenses and
fees of more than one such separate counsel for all indemnitees.
10
(4) In
order
to provide for just and equitable contribution to joint liability under the
Securities Act in any case in which either (i) any holder of Registrable
Securities exercising rights under this Agreement, or any controlling person
of
any such holder, makes a claim for indemnification pursuant to this Section
10(g) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not
be
enforced in such case notwithstanding the fact that this Section 10(g) provides
for indemnification in such case, or (ii) contribution under the Securities
Act
may be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
10(g); then, and in each such case, the Company and such holder will contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate
to
reflect the relative fault of the indemnifying party on the one hand and of
the
indemnified party on the other, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and
the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided,
however,
that,
in any such case, (A) no such holder will be required to contribute any amount
in excess of the public offering price of all such Registrable Securities
offered by it pursuant to such registration statement; and (B) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
or
entity who was not guilty of such fraudulent misrepresentation.
11. Rule
144 Reporting.
With a
view to making available the benefits of certain rules and regulations of the
SEC that may permit the sale of securities to the public without registration,
the Company agrees to use
commercially
reasonable
best
efforts to make and keep public information regarding the Company
available as contemplated by Rule 144 under the Securities Act and file with
the
SEC in a timely manner all reports and other documents required to be
filed
by the Company under the Securities Act and the Securities Exchange Act of
1934,
as
amended (the “Exchange Act”),
and
furnish a
written
report to the Holder upon written request as to the Company’s compliance with
the reporting requirements of Rule 144 and of the Securities Act and the
Exchange Act.
12. SEC
and Other Information.
So long
as this Warrant Agreement is in effect, the Company shall, upon written
request,
provide to the Holder,
within
three
(3) Business Days of
receipt of such written request,
a copy
of any publicly available forms, reports or other documents filed
by the
Company
with the
SEC if such documents are not available on the Internet free of charge. If
for
any reason at any time the Company is not required to file annual, quarterly
and
other periodic reports with the SEC pursuant to the terms of the Exchange Act,
then the Company shall make available at no charge to the Holder financial
statements no later than the time they would be filed with the SEC if the
Company was required to file such annual, quarterly and other periodic
reports.
11
13. Additional
Provisions.
(a) The
Holder represents, by accepting this Warrant Agreement, that it understands
that
this Warrant Agreement and any securities obtainable upon exercise of this
Warrant Agreement 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 Agreement. The Holder understands that it must bear the economic risk
of
its investment in this Warrant Agreement and any securities obtainable upon
exercise of this Warrant Agreement for an indefinite period of time, as this
Warrant Agreement 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 Agreement, or any portion
hereof, and any such securities will not be sold, transferred, assigned,
hypothecated or otherwise disposed of unless (i) a registration statement with
respect to such transfer is effective under the Securities 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 Securities Act.
(c) 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 this
Warrant Agreement or the exercise of this Warrant Agreement 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 11(c) shall
alter, amend or change the Holder’s reliance on the representations, covenants
or warranties contained herein.
(d) 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.
(e) The
Holder represents that it is an “accredited investor” within the meaning of
Regulation D promulgated under the Act. Such Holder is acquiring this Warrant
Agreement 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.
12
(f) 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.
(g) 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.
(h) The
Holder agrees and acknowledges that the representations and warranties made
by
the Holder in this Section 13 shall be deemed also to be made at the time of
the
exercise of this Warrant Agreement.
(i) Nothing
in this Section 13 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.
14. Miscellaneous.
(a) Amendments
and Waivers.
This
Warrant Agreement and any provision hereof may be amended, changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
(b) Successors
and Assigns.
This
Warrant Agreement is binding upon, and inures to the benefit of, the parties
and
their respective successors and assigns, provided that the Holder shall not
assign or transfer any or all of its rights under this Warrant Agreement,
knowingly, after reasonable investigation and inquiry, to any person or entity
which actively sells, distributes, markets, develops, or produces a
pharmaceutical product or device which directly competes with the Product.
Any
assignment or attempted assignment in violation of this Section 14(b) shall
be
null and void.
(c) Loss,
Theft, Destruction or Mutilation.
Upon
receipt by the Company of evidence reasonably satisfactory to it that this
Warrant Agreement has been lost, stolen, destroyed or mutilated, and in the
case
of any lost, stolen or destroyed Warrant Agreement, an indemnity reasonably
satisfactory to the Company, or in the case of a mutilated Warrant Agreement,
upon surrender and cancellation hereof, the Company will execute and deliver
in
the name of the registered holder of this Warrant Agreement, in exchange and
substitution for the Warrant Agreement so lost, stolen, destroyed or mutilated,
a new Warrant Agreement of like tenor and amount.
(d) Warrant
Exchangeable for Different Denominations.
This
Warrant Agreement is exchangeable, upon the surrender hereof by the Holder
at
the principal office of the Company for new Warrant Agreements of like tenor
representing in the aggregate the right to purchase the number of shares which
may be purchased hereunder, each of such new Warrant Agreements to represent
the
right to purchase such number of Warrant Shares as shall be designated by said
Holder hereof at the time of such surrender.
13
(e) Law
Governing.
This
Warrant Agreement will be governed by, and construed and enforced in accordance
with, the internal laws of the State of Delaware. The Holder and the Company
waive their respective rights to a jury trial with respect to any action, claim,
or other proceeding arising out of any dispute in connection with this Warrant
Agreement, any rights or obligations hereunder, or the performance of such
rights and obligations. The Holder and the Company agree that disputes relating
to this Warrant Agreement shall be subject to the provisions of the Loan
Agreement entitled “Internal Review” and “Arbitration” set forth in Sections
8.14 and
8.15
thereof,
respectively, after modifying such Sections so that any references to “Loan
Documents” or the “Agreement” shall mean this Warrant Agreement and any
references to the “Borrower” or “Lender” shall mean the Company or the Holder,
respectively.
(f) Entire
Agreement.
This
Warrant Agreement constitutes the full and entire understanding and agreement
among the parties with regard to the subject matter of this Warrant Agreement,
and supersedes all prior agreements, understandings, inducements or conditions,
express or implied, oral or written, with respect to the subject matter of
this
Warrant Agreement.
(g) Notices.
Unless
otherwise provided herein, all notices, requests, demands and other
communications required or permitted under this Warrant Agreement shall be
in
writing and will be deemed to have been duly made and received: (i) upon
personal delivery; (ii) three (3) Business Days after deposit with the United
States Post Office, by registered or certified mail or by first class mail,
postage prepaid, addressed as set forth below; or (iii) one (1) Business Day
after deposit with a nationally recognized, overnight courier (for next business
day delivery), shipping prepaid, addressed as set forth below:
| (i) |
If
to the Company, then to:
|
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
Pennsylvania 18976-3622
Attn:
Chief Executive Officer and General Counsel
with
a
copy to (which shall not constitute notice):
Dickstein
Shapiro Morin & Oshinsky LLP
1177
Avenue of the Americas
New
York,
NY 10036-2714
Attn:
Ira
L. Kotel
| (ii) |
If
to NovaQuest, then to:
|
PharmaBio
Development Inc. (d/b/a NovaQuest)
4709
Creekstone Drive
Riverbirch
Building
Suite
200
Durham,
NC 27703
Attn:
President
14
with
a
copy to (which shall not constitute notice):
PharmaBio
Development Inc. (d/b/a NovaQuest)
4709
Creekstone Drive
Riverbirch
Building
Suite
200
Durham,
NC 27703
Attn:
General Counsel
Either
party may change the address to which communications are to be sent by giving
five (5) Business Days’ advance notice of such change of address to the other
party in conformity with the provisions of this Section 14(g).
(h) Execution;
Counterparts.
This
Warrant Agreement may be executed in counterparts, each of which will be deemed
to be an original, and all of which will together constitute one and the same
instrument. The exchange of copies of this Warrant Agreement or amendments
thereto and of signature pages by facsimile transmission or by email
transmission in portable digital format, or similar format, shall constitute
effective execution and delivery of such instrument(s) as to the parties and
may
be used in lieu of the original Warrant Agreement or amendment for all purposes.
Signatures of the parties transmitted by facsimile or by email transmission
in
portable digital format, or similar format, shall be deemed to be their original
signatures for all purposes.
[Rest
of page intentionally left blank; signatures on following
page]
15
[Signature
Page to Warrant Agreement]
IN
WITNESS WHEREOF, the parties have caused this Warrant Agreement to be duly
executed and delivered as of the day and year first written above.
| DISCOVERY LABORATORIES, INC. | |
| By: /s/ John G. Cooper | |
| Name: John G. Cooper | |
|
Title: Executive Vice President and Chief Financial Officer
|
|
| PHARMABIO DEVELOPMENT INC. | |
| (d/b/a NovaQuest) | |
| By: /s/ Tom Perkins | |
| Name: Tom Perkins | |
|
Title: Senior Vice President, Corporate
Development
|
16
ANNEX
A
EXERCISE
FORM
TO
BE
EXECUTED BY THE REGISTERED HOLDER
TO
EXERCISE THE ATTACHED WARRANT AGREEMENT OF
DISCOVERY
LABORATORIES, INC.
17
SUBSCRIPTION
The
undersigned, ___________________, pursuant to the provisions of the foregoing
Warrant Agreement, hereby elects to exercise such Warrant Agreement by agreeing
to subscribe for and purchase ____________________ shares (the “Warrant Shares”)
of Common Stock, par value $0.001 per share, of Discovery Laboratories, Inc.
(the “Company”), and hereby (i) makes payment of $___________ by certified or
official bank check in payment of the exercise price therefor, and (ii) agrees
to cancel indebtedness of the Company under the Loan Agreement in an amount
equal to $___________.
As
a
condition to this subscription, the undersigned hereby represents and warrants
to the Company that the representations and warranties of Section 13 of the
Warrant Agreement 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 the Warrant Agreement is subject to the
terms and conditions contained in Sections 4, 9 and 13 of the Warrant
Agreement.
| Dated:_______________________________ | Signature: | _______________________________ |
| Address: | _______________________________ | |
| _______________________________ |
ASSIGNMENT
FOR
VALUE
RECEIVED _______________ hereby sells, assigns and transfers unto
____________________ the foregoing Warrant Agreement and all rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer said Warrant Agreement 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 13 of the Warrant
Agreement are true and correct as of the date hereof as if they had been made
by
such assignee on such date.
| 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 Agreement, and a proportionate part of said Warrant Agreement
and the rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant Agreement
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 13 of the Warrant Agreement are true
and correct as of the date hereof as if they had been made by such assignee
on
such date.
| Dated:_______________________________ | Signature: | _______________________________ |
| Address: | _______________________________ | |
| _______________________________ |
18
Exhibit
10.1
SECOND
AMENDED AND RESTATED
LOAN
AGREEMENT
THIS
LOAN
AGREEMENT (this “Agreement”)
is
dated as of December 10, 2001, and amended and restated as of October 25, 2006
(the “Restatement
Date”),
by
and between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Borrower”),
and
PHARMABIO DEVELOPMENT INC., a North Carolina corporation, d/b/a NovaQuest
(“Lender”).
WHEREAS,
Borrower and Lender entered into the
Loan
Agreement dated
as
of
December
10, 2001 (the “Original
Date”),
as
amended by the Amended and Restated Loan Agreement (the “Amended
and Restated Loan Agreement”)
dated
as of November 3, 2004;
WHEREAS,
Lender has advanced to Borrower an aggregate principal amount of Eight Million,
Five Hundred Thousand Dollars ($8,500,000) under the terms of the Amended and
Restated Loan Agreement, all of which, together with accrued interest in the
amount of $222,652.78 as of September 30, 2006, remains outstanding and payable
to Lender as of the Restatement Date (such principal and interest, the
“Loan”);
WHEREAS,
Borrower and Lender wish to amend and restate the Amended and Restated Loan
Agreement in its entirety as set forth in this Agreement; and
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged by the parties, the parties hereby amend and
restate the Amended and Restated Loan Agreement
in its
entirety
and
hereby agree as follows:
ARTICLE
I
DEFINITIONS
1.01 Definitions.
Capitalized terms used but not defined in the text of this Agreement shall
have
the meanings ascribed to them on Exhibit
A
attached
hereto and incorporated herein by reference.
ARTICLE
II
AMOUNT
AND TERMS OF LOAN
2.01 Term
Loan.
(a) Subject
to and upon the terms and conditions set forth herein, Lender agrees to continue
to make the Loan available to Borrower as of the Restatement Date. Borrower
acknowledges that the Loan satisfies Lender’s obligation to make available loans
or advances, and Lender has no obligation under the terms of this Agreement
to
make any additional future loans or advances to Borrower.
1
2.02
[Intentionally Omitted.]
2.03 Note.
Borrower’s obligation to pay the principal of, and interest on, the Loan made by
Lender shall be evidenced by a single promissory note (the “Note”)
duly
executed and delivered by Borrower in the form of Exhibit
B
attached
hereto dated as of the Original Date and amended and restated as of the
Restatement Date. Any prepayments made by Borrower to Lender shall be recorded
by Lender and shall be endorsed on the grid attached to the Note.
2.04
Repayment;
Interest; Prepayments.
(a) Borrower
shall pay the aggregate outstanding principal amount of the Loan and all accrued
interest on or before April 30, 2010 (the “Maturity
Date”),
unless
any such
amount becomes
due and
payable sooner pursuant to the provisions of this Agreement. Borrower may prepay
all or a portion of the Loan at any time and from time to time
without
penalty, on the following terms and conditions: (i) Borrower shall give Lender
at least three (3) Business Days’ prior notice of its intent to prepay and of
the amount of the prepayment and (ii) each prepayment shall not be less than
$250,000. Any prepayments shall be credited first to accrued and unpaid interest
and then to principal.
(b) Interest
on the Loan shall accrue beginning October 1, 2006, and be payable at a rate
per
annum (the “Base
Rate”)
equal
to the Prime Rate in effect from time to time, or, if less, the maximum rate
permitted by law. Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. All
interest shall compound annually and be payable on the Maturity Date.
(c) The
outstanding principal amount of the Loan and any accrued interest thereon that
are not paid when due shall accrue interest on a daily basis at the lesser
of
(i) three percent (3.00%) in excess of the Base Rate, or (ii) the maximum rate
permitted by law, such accrual beginning on the date payment is due and
continuing until the date payment is made in full. All
such
interest shall compound as set forth in Section 2.04(b).
(d) All
payments of principal and interest described above shall be made to Lender
in
lawful money of the United States of America in immediately available
funds.
ARTICLE
III
CONDITIONS
PRECEDENT
3.01 Conditions
Precedent to this
Agreement.
The
obligation of Lender to execute
and
deliver
this
Agreement
to
Borrower
is
subject to the conditions precedent that Lender shall have received from
Borrower each
of the
following documents on the Restatement Date:
(a) The
Note
duly executed by Borrower;
(b) A
Security
Agreement in a
form
acceptable to the parties (the “Security
Agreement”),
the
related financing statement and one or more appropriate instruments to be
recorded with the United States Patent and Trademark Office, each in
a
form
acceptable to the parties, in each case duly executed by Borrower;
2
(c) A
Warrant
Agreement in a form acceptable to the parties and dated as of the Restatement
Date (the “Warrant”),
duly
executed by Borrower;
(d) Copies
of
resolutions of the Board of Directors of Borrower approving this Agreement,
the
Note, the Security Agreement, the Warrant and any other documents required
or
necessary to consummate the transactions contemplated in this Agreement
(the Agreement, the Note, and the Security Agreement (including any amendment,
modification, extension, refinancing, or restructuring thereof) shall be
referred to, collectively, as the “Loan
Documents”;
the
Loan Documents and the Warrant shall be referred to, collectively, as the
“Transaction
Documents”),
certified by an appropriate officer of Borrower;
(e) A
certificate of the appropriate officers of Borrower certifying (i) that the
representations and warranties contained in Article IV are true and correct
in
all material respects,
(ii)
that
Borrower has performed, satisfied and complied with, in all material respects,
all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with on or prior to the date of this
Agreement,
and
(iii)
that no
event has occurred and is continuing, which constitutes an Event of Default
or
would
constitute an Event of Default but for the requirement that notice be given
or
time elapse or both;
(f) A
certificate of good standing (or comparable document) regarding Borrower from
the State of Delaware; and
(g) A
subordination agreement in a form acceptable to Lender and executed by Borrower
and General Electric Capital Corporation.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES
OF
BORROWER
For
purposes of this Agreement and the Security Agreement, with respect to Borrower,
all references to “knowledge”, “knowingly” and similar words should be construed
to
refer
to the knowledge of the executive officers of Borrower (including the Chief
Executive Officer, Chief Financial Officer, General Counsel, and Executive
Vice
Presidents or any comparable officer),
after
reasonable investigation and inquiry. Borrower
represents,
warrants
and
covenants
to
Lender,
as of
the Restatement Date,
as
follows:
4.01 Corporate
Status.
Borrower is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and Borrower is qualified to do
business as a foreign corporation in each jurisdiction in which qualification
is
required, except where failure to so qualify will not violate any provision
of
the organizational documents of Borrower, and would not have a material adverse
effect on the financial condition, properties, business or results of operations
of Borrower (a “Material
Adverse Effect”).
Except for Acute Therapeutics, Inc., a wholly owned subsidiary of Borrower
that
is presently inactive
and has
no material assets (“ATI”),
Borrower does not own or control, directly or indirectly, any interest in any
other corporation, partnership, limited liability company,
association, or other business entity. Except
as
set forth in the SEC Reports, Borrower
is not a participant in any joint venture, partnership, or similar
arrangement. Borrower has all requisite corporate power and authority to carry
on its business as now conducted.
3
4.02 Issuance,
Sale and Delivery of the Securities.
The
Warrant
is,
and
the
Warrant Shares, when issued and paid for pursuant to the terms of the Warrant,
will be,
duly and
validly authorized, duly issued and outstanding, fully paid, nonassessable
and
free and clear of all pledges, liens, encumbrances and restrictions (other
than
restrictions arising under federal or state securities or “blue sky” laws). The
issuance of the Warrant is
not,
and
the
issuance of
the
Warrant Shares by Borrower (hereinafter such securities are sometimes
collectively referred to as the “Securities”)
will
not
be,
subject
to any preemptive or other similar rights. No further approval or authority
of
the stockholders or the Board of Directors of Borrower
will be
required for the issuance and sale of the Securities to be sold by Borrower
as
contemplated herein.
4.03 Due
Execution, Delivery and Performance of the Agreements.
Borrower has full legal right, corporate power and authority to enter into
the
Transaction Documents and to perform the transactions contemplated under the
Transaction Documents. The
Transaction Documents have been duly authorized, executed and delivered by
Borrower. Except
as
set forth herein, the
making
and performance of the Transaction Documents by Borrower and the consummation
of
the transactions contemplated therein will not result in the creation of any
lien, charge, security interest or encumbrance upon any assets of Borrower
pursuant to the terms
or
provisions of, or will not conflict with, result in the breach or violation
of,
or constitute, either by itself or upon notice or the passage of time or both,
a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which Borrower is a party or by which
Borrower or its properties may be bound or affected and in each case which
would
have a Material Adverse Effect or violate any statute or any authorization,
judgment, decree, order, rule or regulation of any court or any regulatory
body,
administrative
agency or other governmental body, applicable to Borrower or any of its
properties. Except
for any required notifications or qualifications under the federal and state
securities or “blue sky” laws and regulations with respect to the issuance of
the Warrant, the Warrant Shares and the Note, no
consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body, or any other party, is
required for the execution and delivery of the Transaction Documents or the
consummation in the U.S. of the transactions contemplated thereby.
The Transaction Documents constitute valid and binding obligations of Borrower,
enforceable in
the
U.S. in
accordance with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors’ rights generally and as to
limitations on the enforcement of the remedy of specific performance and other
equitable remedies.
4.04 Financial
Statements and Reports.
Unless
available on the Internet free of charge, Borrower has made available to Lender
true and complete copies of the SEC Reports. As of their respective filing
dates, the SEC Reports were prepared in all material respects in accordance
with
the requirements of the Securities Act or the Exchange Act, as the case may
be,
and the rules and regulations of the SEC promulgated thereunder applicable
to
such SEC Reports. The SEC Reports, when read as a whole, do not contain any
untrue statements of a material fact and do not omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of Borrower included
in
the SEC Reports have been prepared in accordance with United States generally
accepted accounting principles (“GAAP”)
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present, in all material respects, the financial
position of Borrower as at the dates thereof and the results of its operations
and cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments and any other
adjustments described in such financial statements. Since January 1, 2006,
Borrower has filed with the SEC on a timely basis, or received a valid extension
of such time of filing, all forms, reports and documents required to be filed
by
it under the Exchange Act.
4
4.05 No
Defaults.
Except
as to defaults, violations and breaches which individually or in the aggregate
would not have a Material Adverse Effect, Borrower is not in violation or
default of any provision of its certificate of incorporation or bylaws, or
other
organizational documents, or in breach of or default with respect to any
provision of any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which it
is
a party or by which it or any of its properties are bound; and there does not
exist any state of fact which, with notice or lapse of time or both, would
constitute an event of default or default on the part of Borrower as defined
in
such documents, except such defaults which individually or in the aggregate
would not have a Material Adverse Effect.
4.06 Contracts.
(a)
The
contracts and agreements of Borrower described in the SEC Reports and in
Schedule
3(e)(ii)
and
Schedule
3(e)(iii)
of the
Security Agreement, including without limitation Borrower’s licenses
and
options
for licenses, are in full force and effect as of the Restatement Date and
Borrower is not, nor to Borrower’s knowledge is any other party, in breach of or
default under any of such contracts or agreements which would have a Material
Adverse Effect, except such contracts or agreements as may have expired in
accordance with their terms. All such contracts and agreements constitute valid
and binding obligations of Borrower, enforceable in accordance with their
respective terms except as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors’ rights generally and as to limitations on the
enforcement of the remedy of specific performance and other equitable
remedies.
(b)
Without limiting the generality of Section 4.06(a), Borrower makes the following
representations and warranties in this Section 4.06(b) regarding (i) the
Sublicense Agreement dated October 28, 1996 (as in effect on the Restatement
Date, the “Sublicense”)
among
Johnson & Johnson and Ortho Pharmaceutical Corporation, as licensors
(collectively, “Licensor”),
and
ATI,
as
licensee, and (ii) the Research Funding and Option Agreement dated March 1,
2000
(the “Research
Agreement”)
between the Scripps Research Institute and Borrower:
(1) Borrower
is the successor to
ATI
under
the
Sublicense.
5
(2) The
Sublicense is in full force and effect, and Borrower is not, nor to Borrower’s
knowledge is the Licensor, in breach or default under the Sublicense in any
material respect or in any manner that would permit a party to terminate the
Sublicense. To Borrower’s knowledge, no event or condition exists or has
occurred which would permit a party to terminate the Sublicense.
The Sublicense is a valid and binding agreement, enforceable in accordance
with
its terms
except
as such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of creditors’
rights generally and as to limitations on the enforcement of the remedy of
specific performance and other equitable remedies.
Borrower has not received any notice or other communication from the Licensor
under the Sublicense regarding any actual, alleged or potential violation,
breach, default or termination of the Sublicense or any material change in
the
rights of Borrower under the Sublicense.
(3) To
Borrower’s knowledge,
(x)
the
representations and warranties of the Licensor
under
Section 12 of the Sublicense are true and correct and (y) the Scripps Agreement
(as defined in the Sublicense) is in full force and effect.
(4) Borrower
has achieved all milestones required to be achieved under the Sublicense by
the
dates required thereunder (including without limitation under Section 6.2 of
the
Sublicense), taking into account any valid and binding extensions obtained
by
Borrower.
(5) The
Research Agreement is not a material contract of Borrower with respect to its
financial condition, results of operations, prospects, or products. Borrower
has
not exercised any option under the Research Agreement.
4.07 No
Actions.
Except
as set forth on Schedule 4.07, there are no legal or governmental actions,
suits, proceedings, arbitrations or investigations pending or, to Borrower’s
knowledge, threatened,
to which
Borrower is or may be a party or of which property owned, leased or licensed
by
Borrower is or may be the subject, or related to environmental or discrimination
matters, which actions, suits, proceedings or investigations, individually
or in
the aggregate, might prevent or might reasonably be expected to have a material
adverse effect on the transactions contemplated by this Agreement or result
in a
material adverse change in the financial condition, properties, business, or
results of operations of Borrower (a “Material
Adverse Change”);
and
no labor disturbance by the employees of Borrower exists or is imminent, to
Borrower’s knowledge, which might reasonably be expected to have a Material
Adverse Effect. Borrower is not a party to or subject to the provisions of
any
material injunction, judgment, decree or order of any court, regulatory body
administrative agency or other governmental body.
4.08 Properties.
Borrower has good and marketable title to all the properties and assets
reflected as owned by it in the SEC Reports, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except Permitted Liens. Borrower
holds
its leased properties under valid and binding leases. Borrower owns, leases
or
licenses all such properties necessary for the conduct of its business (as
described in the SEC Reports).
6
4.09 No
Material
Change.
Except
as disclosed in the SEC Reports, since June 30, 2006:
(i)
Borrower has not incurred any material liabilities or obligations,
indirect,
or
contingent, or entered into any material
verbal
or written agreement or other transaction which is not in the ordinary course
of
business or which could reasonably be expected to result in a material reduction
in the future earnings of Borrower; (ii) Borrower has not sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity not covered by insurance; (iii) Borrower
has not paid or declared any dividends or other distributions with respect
to
its capital stock and Borrower is not in default in the payment of principal
or
interest on any outstanding debt obligations; (iv) except as disclosed in the
SEC Reports and on Schedule 4.09, there has not been any change in the capital
stock of Borrower, other than options issued pursuant to employee equity
incentive plans or purchase plans approved by Borrower’s Board of Directors
(including the issuance of capital stock under Borrower’s 401(k) Plan), or
indebtedness material to Borrower; and (v) except for the operating losses
and
negative cash flow Borrower has continued to incur, there has not been any
Material Adverse Change.
4.10 Intellectual
Property.
(a)
Borrower
owns or has obtained valid rights to use the Intellectual Property necessary
for
the conduct of Borrower’s business (as described in the SEC
Reports).
(b)
To
Borrower’s knowledge: (i) there are no third parties who have any ownership
rights to any Intellectual Property that is owned by, or has been licensed
to,
Borrower for the product indications described in the SEC Reports that would
preclude Borrower from conducting its business (as described in the SEC
Reports), except for the ownership rights of the owners of the Intellectual
Property licensed or optioned by Borrower; (ii) there are currently no sales
of
any products that would constitute an infringement by third parties of any
Intellectual Property owned, licensed or optioned by Borrower; (iii) there
is no
pending or threatened action, suit, proceeding or claim by others challenging
the rights of Borrower in or to any Intellectual Property owned, licensed or
optioned by Borrower; (iv) there is no pending or threatened action, suit,
proceeding or claim by others challenging the validity or scope of any
Intellectual Property owned, licensed or optioned by Borrower; (v) there is
no
pending or threatened action, suit, proceeding or claim by others that Borrower
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary right of others; and (vi) Borrower is not subject to any
judgment, order, writ, injunction or decree of any court or any Federal, state,
local, foreign or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator, and Borrower
has not entered into or is a party to any contract which restricts or impairs
the use of any such Intellectual Property in a manner which would have a
Material Adverse Effect.
4.11 Compliance.
Borrower has been and is in compliance
with,
in
all
material respects,
all
applicable laws, rules, regulations and orders,
in
respect
of the
conduct of its business and the ownership of its properties, including without
limitation with respect to the FFDCA, environmental issues,
and
taxes and other governmental charges.
7
4.12 Taxes.
Borrower has filed all federal, state, local and foreign income and other tax
returns required to be filed by it and has paid or accrued all taxes shown
as
due thereon, and, except as set forth on Schedule 4.12, Borrower has no
knowledge of a tax deficiency which has been or might be asserted or threatened
against it.
4.13 Insurance.
Borrower maintains insurance with sound and reputable insurance companies of
the
types and in the amounts that Borrower reasonably believes is adequate for
its
business, including, but not limited to, insurance covering all real and
personal property owned or leased by Borrower against all risks customarily
insured against by similarly situated companies, all of which insurance is
in
full force and effect.
4.14 No
Undisclosed Liabilities.
(a)
Neither
Borrower 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 Borrower or any subsidiary (including the notes thereto) in
accordance with GAAP and are not disclosed in the SEC Reports other than those
incurred in the ordinary course of Borrower’s or its subsidiaries’ respective
businesses since June 30, 2006, and which, individually or in the aggregate,
do
not or would not have a Material Adverse Effect.
(b) Set
forth
on Schedule
6.03(e)
attached
hereto is a true and complete list and description of all Debt of Borrower
and
its subsidiaries outstanding on the Restatement Date.
(c) Set
forth
on Schedule
6.04(i) attached
hereto is a true and complete list and description of all Liens of Borrower
and
its subsidiaries outstanding on the Restatement Date, other
than Liens existing under Sections 6.04(a), 6.04(b), 6.04(c), 6.04(g) or
6.04(h).
4.15 No
Undisclosed Events or Circumstances.
To
Borrower’s knowledge, no event or circumstance has occurred or exists with
respect to Borrower 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 Borrower 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.
4.16 Disclosure.
To
Borrower’s knowledge, as of the Restatement Date, the Transaction Documents
contain no 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.
4.17 Material
Non-Public Information.
Except
for this Agreement and the transactions contemplated hereby, neither Borrower
nor its agents have disclosed to Lender any material non-public information
that, according to applicable law, rule or regulation, should have been
disclosed publicly by Borrower prior to the Restatement Date but which has
not
been so disclosed.
8
4.18 Fixed
Assets.
Set
forth on Schedule
4.18
attached
hereto is a true and complete list and description, including the book value,
of
all material fixed assets of Borrower.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF LENDER
Lender
represents and warrants to Borrower, as of the Restatement Date as
follows:
5.01 Corporate
Status.
Lender
is a corporation duly organized, validly existing and in good standing under
the
laws of the State of North Carolina. Lender has all requisite corporate power
and authority to carry on its business as now conducted.
5.02 Due
Execution, Delivery and Performance of Agreement.
Lender
and its Affiliates have full legal right, corporate power and authority to
enter
into the Transaction Documents and to perform the transactions contemplated
thereunder. This Agreement has been duly authorized, executed and delivered
by
Lender. This Agreement constitutes the valid and binding obligation of Lender
enforceable in accordance with its terms.
5.03 Investment.
Lender
is acquiring the Note, the Warrant and the Warrant Shares for Lender’s own
account, and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Lender acknowledges having access to the SEC Reports. Lender has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of Borrower concerning the
business affairs and financial condition of Borrower and (ii) the opportunity
to
request such additional documents and information which Borrower possesses
or
can acquire without unreasonable effort or expense and has had access to and
has
acquired sufficient information about Borrower to reach an informed and
knowledgeable decision to acquire the Securities to be purchased hereunder.
Lender, either by reason of its own business or financial experience or the
business or financial experience of its professional advisors (who are
unaffiliated with and who are not compensated by Borrower or any Affiliate,
finder or selling agent of Borrower, directly or indirectly), has such business
and financial experience as is required to give it the capacity to utilize
the
information received, to evaluate the risks involved in purchasing such
securities, to make an informed decision about purchasing the Securities and
is
able to bear the risks of an investment in the Securities. Lender is able to
bear the economic risk of holding the Securities for an indefinite period of
time and can afford a complete loss of its investment. Lender is not a “broker”
or a “dealer” as defined in the Exchange Act and is not an “affiliate” of
Borrower as defined in Rule 405 promulgated under the Securities
Act.
5.04 Accredited
Investor.
Lender
is an “accredited investor” within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act.
9
5.05 Note,
the Warrant and the Warrant Shares Not Registered.
Lender
understands that the Note, the Warrant and the Warrant Shares are not registered
under the Securities Act or registered or qualified under any state securities
or “blue sky” laws in reliance on specific exemptions therefrom. Lender
acknowledges and agrees that it shall not directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) the Note, the Warrant and the Warrant
Shares, except in compliance with the Securities Act and state securities or
“blue sky” laws and the rules and regulations promulgated thereunder and with
this Agreement and the Warrant. Lender understands that unless and until the
Warrant and the Warrant Shares have been registered for resale by Borrower
or
Lender in compliance with applicable securities laws, the certificates
evidencing the Warrant and the Warrant Shares will be imprinted with a legend
(in accordance with Section 5.06) that prohibits the transfer of the Warrant
and
the Warrant Shares unless (a) such transaction is registered or such
registration is not required or (b) if the transfer is pursuant to an
exemption from registration, upon the reasonable request of Borrower, an opinion
of counsel reasonably satisfactory to Borrower is obtained to the effect that
the transaction is not required to be registered or is so exempt.
Notwithstanding anything in this Agreement to the contrary, Lender may pledge
the Note, the Warrant, and the Warrant Shares in connection with bona fide
loan
transactions in which Lender or its Affiliate is the borrower, provided that
no
such pledge shall occur
knowingly,
after
reasonable investigation and inquiry,
to any
person or entity which actively sells, distributes, markets, develops, or
produces a pharmaceutical product or device which directly competes with the
Product.
5.06 Legend.
To the
extent applicable, each certificate evidencing the Warrant and the Warrant
Shares, shall be endorsed with the legend substantially in the form set forth
below:
|
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED
OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACT OR UNDER SUCH
LAWS,
OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION.”
|
ARTICLE
VI
COVENANTS
OF BORROWER
So
long
as any or all of the Loan or other obligations of Borrower under the Loan
Documents shall remain unpaid, Borrower shall comply with the following
covenants:
6.01 Compliance
with Laws.
Borrower shall
comply,
and cause
each
of
its subsidiaries to comply,
in all material respects with all applicable laws, rules, regulations and
orders, in respect of the conduct of its business and the ownership of its
properties, including without limitation with respect to the FFDCA,
environmental issues, and taxes and other governmental changes, where the
failure to so comply would have a Material Adverse Effect.
6.02 Transfers
of Assets.
Borrower shall not, and shall not permit any of its subsidiaries to, sell,
convey, transfer, lease, license,
assign
or
otherwise dispose of (whether in one transaction or in a series of transactions)
(a) all or substantially all of its assets or properties (whether now owned
or
hereafter acquired) to any entity or person, (b) without Lender’s written
consent (which consent shall not be unreasonably withheld), any material assets,
properties or rights relating to the Product,
or (c)
any of its assets or properties except
in the
ordinary course of business and, in the case of this clause (c), so long as
such
action is not likely to have
a
Material Adverse Effect or a material adverse effect on Lender’s
rights
hereunder.
10
6.03 Debt.
Borrower shall not create or incur or allow to be created, incurred or exist,
or
permit any of its subsidiaries to create or incur or allow to be created,
incurred or exist, any Debt, except
each
of
the following forms of Debt, individually and not in the aggregate:
(a)
accounts
payable incurred or created in the ordinary course of Borrower’s
business;
(b)
Debt
incurred or created in the ordinary course of Borrower’s business and which does
not exceed $5,000,000
in
the
aggregate
(which
shall not include any Debt described in clauses (c)
and
(d));
(c) Debt
incurred or created solely for the purpose of financing the acquisition of
property (other than real property), leasehold improvements and equipment for
use in Borrower’s business and which does not exceed $15,000,000
in the
aggregate;
(d)
Debt
which is junior and subordinate in right of payment to Borrower’s obligations to
Lender under the Loan Documents (“Junior
Debt”)
so
long as, prior to the creation of such Junior Debt, unless
such Junior Debt is described in clauses (a) through (c) above, Lender
has consented in writing to such Junior Debt (such consent not to be
unreasonably
withheld), and Lender and the holder of such Junior Debt have entered into
a
subordination agreement in form and substance reasonably satisfactory to Lender
providing for the subordination of the Junior Debt to the obligations of
Borrower under the Loan Documents; and
(e) Debt
existing on the Restatement Date and set forth on Schedule
6.03(e)
attached
hereto. For the avoidance of doubt, Schedule
6.03(e)
includes
a true and complete list and description of all Debt of Borrower existing on
the
Restatement Date, regardless of whether any such Debt is permitted by clauses
(a) through (d) above.
6.04 Liens,
Etc.
Borrower shall not create or incur or allow to be created, incurred or exist,
or
permit any of its subsidiaries to create or incur or allow to be created,
incurred or exist, any Lien upon or with respect to any of Borrower’s or its
subsidiaries’ assets or properties, except each of the following (collectively,
“Permitted
Liens”):
(a)
Liens
for
taxes, assessments or other governmental charges in the ordinary course of
business and for which no interest, late charge or penalty is attaching or
which
are being contested in good faith by appropriate proceedings;
(b)
Liens,
not delinquent, created by statute in connection with worker’s compensation,
unemployment insurance, social security and similar statutory
obligations;
(c)
Liens
of
mechanics, materialmen, carriers, warehousemen or other like statutory or common
law liens securing obligations incurred in good faith in the ordinary course
of
business that are not due and payable or which are being contested in good
faith; provided that Borrower has set aside reserves reasonable under the
circumstances for any such liens being contested in good faith;
11
(d) Purchase
money Liens upon property and equipment of Borrower acquired for use in
Borrower’s business, securing the purchase price thereof or securing Debt
incurred solely for the purpose of financing the acquisition thereof, and all
of
which Liens in the aggregate do not secure Debt in excess of $15,000,000 at
any
time outstanding;
(e)
Liens
securing capital lease obligations under which the lessor’s
recourse is limited to the leased property;
(f) Liens
securing indebtedness which is junior and subordinate in right of payment to
Borrower’s obligations to Lender under the Loan Documents (“Junior
Liens”)
so
long as, prior to the creation of such Junior Liens,
unless
such Junior Liens are described in clauses (a) through (e) above,
Lender
has consented in writing to
such
Junior Liens (such consent not to be unreasonably withheld), and Lender and
the
holder of such Junior Liens have entered into a subordination agreement in
form
and substance reasonably satisfactory to Lender providing for the subordination
of the indebtedness secured by the Junior Liens to the obligations of Borrower
under the Loan Documents;
(g)
any
rights reserved to or vested in any municipality or public authority to control
or regulate the use of the real property used and occupied by Borrower in any
manner; easements, rights-of-way, servitudes, restrictions and other defects,
encumbrances and irregularities in title to the real property used and occupied
by Borrower which could not, individually or in the aggregate, materially and
adversely affect the condition or operation of such real property; rights of
landlords under real property leases; so long as, in any case under this clause
(g), any lienholder’s recourse is limited to the related real
property;
(h) statutory
purchase-money Liens, including without limitation under Article 2 of the
Uniform Commercial Code securing obligations related to the acquisition of
goods
and services incurred in good faith in the ordinary course of business that
are
not due and payable or which are being contested in good faith; provided that
Borrower has set aside reserves reasonable under the circumstances for any
such
liens being contested in good faith; and
(i)
Liens, other than Liens existing under clauses (a) through (c) and (g) and
(h)
above, existing on the Restatement Date and set forth on Schedule
6.04(i) attached
hereto; provided,
however,
that no
such Liens may be modified, extended, or otherwise amended in any way that
adversely affects, including by reason of delay, the perfection or priority
of
Borrower’s security interest in the Collateral unless Lender has consented to
such amendment in writing. For the avoidance of doubt, Schedule
6.04(i)
includes
a true and complete list and description of all Liens of Borrower existing
on
the Restatement Date, other than Liens existing under clauses (a) through (c)
and (g) and (h) above, regardless of whether any such Lien is permitted by
clauses (d) through (f) above.
12
6.05 Corporate
Existence; Business.
Borrower will (i) maintain and preserve in full force and effect its corporate
existence, and
(ii)
continue to engage in the business in which it is engaged on the Restatement
Date.
6.06 Exchange
Act Registration.
Borrower will cause
the
Common
Stock to
continue to be registered under Section 12(g) of the Exchange Act, will comply
in all material respects with its reporting and filing obligations under the
Exchange Act,
and will
not take any action or file any documents to terminate or suspend such
registration or terminate or suspend its reporting or filing obligations under
the Exchange Act.
6.07 SEC
and Other Information.
(a) Upon written
request,
Borrower will provide to Lender,
within
three
(3) Business Days of
receipt of such written request,
a copy
of any publicly available forms, reports or other documents filed
by
Borrower
with the
SEC if such documents
are not
available on the Internet free of charge. If for any reason at any time Borrower
is not required to file annual, quarterly and other periodic reports with the
SEC pursuant to the terms of the Exchange Act, then Borrower shall make
available at no charge to Lender financial statements no later than the time
they would be filed with the SEC if Borrower was required to file such annual,
quarterly and other periodic reports. Any audited consolidated financial
statements and unaudited interim financial statements prepared pursuant to
the
preceding sentence shall be prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
during the periods involved, and shall fairly present in all material respects
the financial position of Borrower as of the dates thereof and the results
of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited interim financial statements, to normal year-end audit
adjustments).
(b)
Borrower
will
permit officers and designated representatives of Lender,
at
reasonable times and intervals during
normal business hours, and upon reasonable prior notice, to
visit
and inspect, under guidance of officers of Borrower
and in
accordance with Borrower’s quality and standard operating procedures,
any of
the properties of Borrower, and to examine the Collateral and the books of
record and account of Borrower and discuss the affairs, finances and accounts
of
Borrower with, and be advised as to the same by, Borrower’s officers;
provided,
that
(i)
so
long as Lender shall not have any reasonable basis for insecurity with respect
to Borrower, the Loan or the Collateral, such visitations and inspections shall
not occur more than twice in any fiscal year of Borrower, and (ii) Lender
shall, in
accordance with the Confidentiality and Non-Disclosure Agreement, dated July
11,
2006, between Lender and Borrower (the “Confidentiality
Agreement”),
cause
its
Affiliates and representatives to, treat
all
nonpublic
information made available
to
it
in
strict confidence and disclose such
information
only on a need-to-know basis to Affiliates, subcontractors and employees who
are
under a written obligation to maintain the confidentiality of the
information.
Lender
shall
be
responsible for any disclosure of such information by its Affiliates,
subcontractors and employees.
6.08 Notice
of Certain Events.
Promptly, and in any event within five (5) Business Days after an executive
officer of Borrower obtains knowledge thereof, Borrower will notify Lender
of
(a) the occurrence of an Event of Default, (b) any litigation, governmental
proceeding or investigation or other event that is likely to materially and
adversely affect the financial condition, properties, business,
or
results of operations of Borrower,
or (c)
any Change of Control.
13
6.09 Compliance
with Certain Agreements.
Borrower shall perform and fulfill all of its obligations under the Sublicense
as necessary to maintain Borrower’s rights in such agreement in full force and
effect in all material respects. Borrower shall provide written notice to Lender
within five (5) Business Days of Borrower’s receipt of any notice from any other
parties to the Sublicense proposing or threatening to terminate any such
agreement.
6.10 Insurance.
Borrower shall maintain in full force and effect insurance with sound and
reputable insurance companies of the types and in the amounts that Borrower
reasonably believes is adequate for its business, including, but not limited
to,
insurance covering all real and personal property owned or leased by Borrower
against all risks customarily insured against by similarly situated
companies.
ARTICLE
VII
EVENTS
OF
DEFAULT
7.01 Events
of Default.
The
occurrence of each of the following events shall be considered an event of
default (each an “Event
of Default”):
(a) Borrower
shall fail to pay all principal and interest due under this Agreement on or
before the Maturity Date;
(b) Any
representation or warranty made by Borrower under this Agreement or any other
Transaction Document shall prove to have been incorrect or untrue when made
or
deemed made and such incorrect or untrue representation or warranty has a
Material Adverse Effect;
(c) Borrower
shall fail to perform or observe any term, covenant or agreement contained
in
this Agreement required to be performed or observed by Borrower (other than
Section 6.02, 6.03 or 6.04) and such failure to perform or observe such term,
covenant or agreement has a Material Adverse Effect and is not cured within
thirty (30) days after receipt of notice thereof by Borrower;
(d) Borrower
shall fail to perform or observe the provisions of Section 6.02, 6.03 or 6.04,
except, in the case of Section 6.04, if an Event of Default is based on a tax
lien, judgment lien or materialman’s lien, such lien shall continue without
discharge or stay for a period of sixty (60) days;
(e) One
or
more judgments, decrees or orders for the payment of money shall be entered
against Borrower or any of its subsidiaries involving in the aggregate a
liability of $300,000 or more in excess of any applicable insurance proceeds
(or, in the case of shareholder class actions, $600,000 or more), and any such
judgment, decree or order shall continue without discharge or stay for a period
of sixty (60) days;
14
(f) Borrower
shall (i) commence a voluntary case under the federal bankruptcy laws (as now
or
hereafter in effect), (ii) file a petition seeking to take advantage of any
other laws relating to bankruptcy, insolvency, reorganization, winding up or
composition for adjustment of debts, (iii) consent to or fail to contest in
a
timely manner any petition filed against it in an involuntary case under such
bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest
in a timely and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee, or liquidator of itself or of
a
substantial part of its property, (v) admit in writing its inability to pay
its
debts as they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of
authorizing or effecting any of the foregoing;
(g) A
case or
other proceeding shall be commenced against Borrower or any of its subsidiaries
in any court of competent jurisdiction seeking (i) relief under the federal
bankruptcy laws (as now or hereafter in effect) or under any other laws relating
to bankruptcy, insolvency, reorganization, winding up or adjustment of debts,
or
(ii) the appointment of a trustee, receiver, custodian, liquidator or the like
for Borrower or any of its subsidiaries or for all or any substantial part
of
their respective assets, and such case or proceeding shall continue without
dismissal or stay for a period of sixty (60) consecutive days, or an order
granting the relief requested in such case or proceeding (including, but not
limited to, an order for relief under such federal bankruptcy laws) shall be
entered;
(h) A
Change
of Control shall occur; provided,
however, that a Change of Control, as defined in clauses (ii) and (iii) of
the
definition of Change of Control, shall not be an Event of Default if Lender
shall have consented to such Change of Control in writing (such consent not
to
be unreasonably withheld
and
taking into account, without limitation, the business strategy and adequacy
of
collateral for the Loan following such Change of Control);
(i) Borrower
or any of its subsidiaries shall default in the performance or observance of
any
agreement or instrument relating to any Debt, or any other event shall occur
or
condition exist, and the effect of such default, event or condition is to cause
or permit the holder of any such Debt to cause any such Debt to become due
prior
to its stated maturity;
(j) Borrower
shall fail to perform or observe any term, covenant or agreement under the
Security Agreement in any material respect, or the Security Agreement or any
material provision thereof shall cease to be in full force and
effect;
(k) There
shall have been a Material Adverse Change (other than with respect to matters
relating to general economic conditions on Borrower’s industry as a whole)
which, taken as a whole, materially adversely affects Borrower’s ability to
satisfy its obligations under the Loan Documents; provided,
however,
that in
no event shall a Material Adverse Change be deemed to have occurred by virtue
of
the incurrence by Borrower or its Affiliates of any debt or other obligations
permitted by this Agreement;
(l) the
Common Stock shall not be listed or quoted on an Eligible Market;
15
(m) The
Sublicense shall have been terminated or expired, or cease to be in full force
and effect for the benefit of Borrower;
(n) Borrower
shall withdraw, terminate, or abandon the NDA to market the Product for the
indication prevention of respiratory distress syndrome in premature infants
(RDS);
(o) The
Product Launch Date for the indication prevention of RDS shall not have occurred
within one hundred eighty (180) days after the related FDA Approval
Date;
(p) Following
the Product Launch Date, Borrower shall withdraw the Product for the indication
prevention of RDS from the market; or
(q) Borrower
shall receive a Not Approvable Letter.
7.02 Effect
of Event of Default.
If any
Event of Default shall occur and be continuing, then Lender (i) may, by notice
to Borrower, declare the Loan to be terminated, whereupon the same shall
forthwith terminate, (ii) may, by notice to Borrower, declare the Note, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Note, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by Borrower, and (iii) exercise any rights or remedies under the Security
Agreement; provided,
however,
that if
an Event of Default specified in Section
7.01(f)
or
(g) shall occur, (A) the Loan shall automatically be terminated and (B) the
Note, all such interest and all such amounts shall automatically become and
be
due and payable, without presentment, demand, protest or any notice of any
kind,
all of which are hereby expressly waived by Borrower.
ARTICLE
VIII
MISCELLANEOUS
8.01 Amendments.
No
amendment or waiver of any provision of this Agreement or the Note, nor consent
to any departure by Borrower therefrom, shall in any event be effective unless
the same shall be in writing and signed by Borrower and Lender, and then such
waiver or consent shall be effective only in the specific instance and for
the
specific purpose for which given.
8.02 Notices.
All
notices and other communications provided for hereunder shall be in writing,
shall specifically refer to this Agreement, shall be addressed to the receiving
party’s address set forth below or to such other address as a party may
designate by notice hereunder, and shall be deemed to have been sufficiently
given for all purposes if (i) mailed by first class certified or registered
mail, postage prepaid, (ii) sent by nationally recognized overnight courier
for
next Business Day delivery, (iii) personally delivered,
or (iv)
made by telecopy or facsimile transmission with confirmed receipt.
| If to Borrower: |
Discovery
Laboratories, Inc.
|
2600
Kelly Road, Suite 100
Warrington,
PA 18976
Attn:
Chief Executive Officer and General Counsel
Facsimile:
(215) 488-9301
16
| with a copy to: |
Dickstein
Shapiro LLP
|
1177
Avenue of the Americas
New
York,
NY 10036-2714
Attn:
Ira
L. Kotel
Facsimile:
(212) 277-6501
| If to Lender: |
PharmaBio
Development Inc. d/b/a NovaQuest
|
4709
Creekstone Drive
Riverbirch
Bldg., Suite 200
Durham,
NC 27703
Attn:
President
Facsimile:
(919) 998-2090
| with a copy to: |
Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P.
|
2500
Wachovia Capitol Center
Raleigh,
NC 27601
Attn:
Christopher B. Capel
Facsimile:
(919) 821-6800
8.03 No
Waiver; Remedies.
No
failure on the part of Lender to exercise, and no delay in exercising, any
right
hereunder or under the Notes shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by
law.
8.04 Attorneys’
Fees.
In the
event that any dispute among the parties to the Loan Documents should result
in
litigation, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses enforcing any right of such
prevailing party under or with respect to the Loan Documents, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expense of appeals.
8.05 Binding
Effect; Assignment.
This
Agreement shall be binding upon and inure to the benefit of Borrower and Lender
and their respective successors and permitted assigns, provided that (a)
Borrower shall not assign or transfer any or all of its rights or obligations
under any of the Loan Documents, and (b) so long as no Event of Default shall
have occurred, Lender shall not assign or transfer any or all of its rights
or
obligations under the Loan Documents, provided,
however,
that
the foregoing shall not limit Lender’s right to assign or transfer the right to
receive money or proceeds under the Loan Documents or any comparable arrangement
so long as Lender remains the party to the Loan Documents and provided that
Borrower shall continue to deal solely and directly with Lender in connection
with Lender’s rights and obligations under the Loan Documents. Lender shall not
assign or transfer any or all of its rights or obligations under the Warrant
or
the Warrant Shares knowingly, after reasonable investigation and inquiry, to
any
person or entity which actively sells, distributes, markets, develops, or
produces a pharmaceutical product or device which directly competes with the
Product. Notwithstanding the foregoing, Lender may assign any or all of its
rights or obligations under any of the Loan Documents to an Affiliate of Lender,
provided, that any such Affiliate shall agree in writing to be subject to the
foregoing limitations. Any assignment or attempted assignment in violation
of
this Section 8.05 shall be null and void.
17
8.06 Severability.
To the
extent any provision of this Agreement is prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
8.07 Entire
Agreement.
This
Agreement, the other Transaction Documents and the Confidentiality Agreement
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter thereof and supersede all prior oral or written
agreements and understandings relating to the subject matter thereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the Transaction Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of the
Transaction Documents. If any provision contained in this Agreement shall be
deemed to conflict with any provision of any of the other Transaction Documents,
then the provision contained in this Agreement shall be controlling.
8.08 Further
Action.
Each
party shall, without further consideration, take such further action and execute
and deliver such further documents as may be reasonably requested by the other
party in order to carry out the provisions and purposes of the Transaction
Documents.
8.09 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed to be an original and all of which, when taken together, shall constitute
one and the same instrument. This Agreement may be executed and delivered by
telecopy or facsimile transmission and any execution by such means shall be
deemed an original.
8.10 Publicity.
Except
as otherwise required by applicable law or by obligations pursuant to any
listing agreement with or rules of any securities exchange or automated
quotation system, each party shall, and shall cause its respective Affiliates
to, not, issue any press release or make any other public statement relating
to,
connected with or arising out of this Agreement or the matters contained herein
without the other parties’ prior written approval of the contents and the manner
of presentation and publication thereof (which approval shall not be
unreasonably withheld or delayed).
8.11 Termination
by Borrower.
At such
time that the Loan and accrued interest have irrevocably been paid in full
and
Borrower has satisfied all of its obligations under the Loan Documents, Lender
shall, at the request and expense of Borrower, promptly, and in no event later
than ten (10) Business Days thereafter, make, execute, endorse, acknowledge,
file and/or deliver to Borrower any and all agreements, certificates,
instruments or other documents, and take all other action, as reasonably
requested by Borrower to terminate this Agreement.
18
8.12 Disclaimer.
Neither
Lender nor Borrower, nor any of such party’s Affiliates, directors, officers,
employees, subcontractors or agents shall have, under any legal theory
(including, but not limited to, contract, negligence and tort liability), any
liability to any other party hereto for any loss of opportunity or goodwill,
or
any type of special, incidental, indirect or consequential damage or loss,
in
connection with or arising out of this Agreement.
8.13 Governing
Law.
This
Agreement, including, without limitation, the interpretation, performance,
enforcement, breach or termination thereof and any remedies relating thereto,
shall be governed by and construed in accordance with the laws of the State
of
Delaware, United States of America, as applied to agreements executed and
performed entirely in the State of Delaware, without regard to conflicts of
law
rules.
8.14 Internal
Review.
In the
event that a dispute, difference, claim, action, demand, request, investigation,
controversy, threat, discovery request or request for testimony or information
or other question arises pertaining to any matters which arise under, out of,
in
connection with, or in relation to this Agreement (a “Dispute”)
and
either party so requests in writing, prior to the initiation of any formal
legal
action, the Dispute will be submitted to the Chief Executive Officers of
Borrower and Lender. For all Disputes referred to the Chief Executive Officers,
the Chief Executive Officers shall use their good faith efforts to meet at
least
two times in person and to resolve the Dispute within ten (10) days after such
referral.
8.15 Arbitration.
(a)
If
the
parties are unable to resolve any Dispute under Section 8.14,
then
either party may require the matter to be settled by final and binding
arbitration by sending written notice of such election to the other party
clearly marked “Arbitration Demand”. Thereupon
such Dispute shall be arbitrated in accordance with the terms and conditions
of
this Section 8.15.
Notwithstanding
the
foregoing, either party may apply to a court of competent jurisdiction for
a
temporary restraining order, a preliminary injunction, or other equitable relief
to preserve the status quo or prevent irreparable harm.
(b)
The
arbitration panel will be composed of three arbitrators, one of whom will be
chosen by Borrower, one by Lender, and the third by the two so chosen. If both
or either of Borrower or Lender fails to choose an arbitrator or arbitrators
within
fourteen
(14)
days
after receiving notice of commencement of arbitration, or if the two arbitrators
fail to choose a third arbitrator within fourteen
(14)
days
after their appointment, the American Arbitration Association shall, upon the
request of both or either of the parties to the
arbitration, appoint the arbitrator or arbitrators required to complete the
panel. The arbitrators shall have reasonable experience in the matter under
dispute. The decision of the arbitrators shall be final and binding on the
parties, and specific performance giving effect to the decision of the
arbitrators may be ordered by any court of competent jurisdiction.
(c)
Nothing
contained herein shall operate to prevent either party from asserting
counterclaim(s) in any arbitration commenced in accordance with this
agreement, and any such party need not comply with the procedural provisions
of
this Section 8.15
in
order to
assert such counterclaim(s).
19
(d)
The
arbitration shall be filed with the office of the American Arbitration
Association (“AAA”)
located in Wilmington, Delaware or such other AAA office as the parties may
agree upon (without any obligation to so agree). The arbitration shall be
conducted pursuant to the Commercial Arbitration Rules of AAA as in effect
at
the time of the arbitration hearing, such arbitration to be completed in a
sixty
(60) day period. In addition, the following rules and procedures shall apply
to
the arbitration:
(i)
The
arbitrators shall have the sole authority to decide whether or not any Dispute
between the parties is arbitrable and whether the party presenting the issues
to
be arbitrated has satisfied the conditions precedent to such party’s right to
commence arbitration as required by this Section
8.15.
(ii)
The
decision of the arbitrators, which shall be in writing and state the findings
the facts and conclusions of law upon which the decision is based, shall be
final and binding upon the parties, who shall forthwith comply after receipt
thereof. Judgment upon the award rendered by the arbitrator may be entered
by
any competent court. Each party submits itself to the jurisdiction of any such
court, but only for the entry and enforcement to judgment with respect to the
decision of the arbitrators hereunder.
(iii)
The
arbitrators shall have the power to grant all legal and equitable remedies
(including, without limitation, specific performance) and award compensatory
damages provided by applicable law, but shall not have the power or authority
to
award punitive damages. No party shall seek punitive damages in relation to
any
matter under, arising out of, or in connection with or relating to this
Agreement in any other forum.
(iv)
The
parties shall bear their own costs
in
preparing for and participating in the resolution of any Dispute pursuant to
this Section 8.15,
and
the
costs of the arbitrator(s) shall be equally divided between the parties;
provided,
however,
that
each party shall bear the costs incurred in connection with any Dispute brought
by such party that the arbitrators determine to have been brought in bad
faith.
(e)
Except as provided in the last sentence of Section
8.15(a),
the
provisions of this Section 8.15
shall be
a complete defense to any suit, action or proceeding instituted in any federal,
state or local court or before any administrative tribunal with respect to
any
Dispute arising with regard to this Agreement. Any party commencing a lawsuit
in
violation of this Section 8.15
shall
pay the costs of the other party, including, without limitation,
reasonable attorney’s fees and defense costs.
[Rest
of page intentionally left blank; signatures on following
page]
20
[Signature
page to
Second Amended and Restated
Loan
Agreement]
IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective duly
authorized officers, as of the date first above written.
| BORROWER: | |
| DISCOVERY LABORATORIES, INC. | |
| By: /s/ John G. Cooper | |
| Name: John G. Cooper | |
| Title: Executive Vice President and Chief Financial Officer | |
| LENDER: | |
| PHARMABIO DEVELOPMENT INC. | |
| d/b/a NOVAQUEST | |
| By: /s/ Tom Perkins | |
| Name: Tom Perkins | |
| Title: Senior Vice President, Corporate Development |
21
EXHIBIT
A
DEFINITIONS
“Affiliate”
shall mean, as to any person or entity, any corporation or business entity
controlled by, controlling or under common control with such party or entity.
For this purpose, “control” shall mean direct or indirect beneficial ownership
of at least fifty percent (50%) of the voting stock or income interest in such
corporation or other business entity.
“ATI”
shall have the meaning set forth in Section 4.01.
“Business
Day” shall mean any day other than a Saturday, Sunday or legal holiday on which
banks in North Carolina and New York are open for the conduct of their banking
business.
“Change
of Control” shall mean the occurrence of any of the following events: (i) the
acquisition, whether directly or indirectly, by any person or entity, including
a “group” as defined in Section 13(d)(3) of the Exchange Act, of fifty percent
(50%) or more of the Common Stock; (ii) Borrower shall merge or consolidate
(or
engage in any other share exchange, acquisition or business combination
transaction) with or into another corporation or other entity, with the effect
that the persons who were the shareholders of Borrower immediately prior to
the
effective time of such transaction hold less than fifty-one percent (51%) of
the
combined voting power of the outstanding equity securities of the surviving,
continuing or acquiring entity in such transaction; (iii) Borrower shall sell,
convey, transfer, lease, license, assign or otherwise transfer or dispose of
(whether in one transaction or a series of transactions) all or substantially
all of its assets or properties (whether now owned or hereafter acquired) to
any
person or entity, or permit any of its subsidiaries to do so; or (iv) at any
time during any calendar year, fifty percent (50%) or more of the members of
the
full Board of Directors of Borrower shall have resigned or been removed or
replaced. The determination of “combined voting power” shall be based on the
aggregate number of votes that are attributable to outstanding securities
entitled to vote in the election of directors, general partners, managers or
persons performing analogous functions to directors of the entity in question,
without regard to contractual arrangements or rights accruing in special
circumstances.
“Collateral”
shall have the meaning set forth in the Security Agreement.
“Common
Stock” shall mean the common stock, par value $0.001 per share, of
Borrower.
“Debt”
shall mean (i) indebtedness for borrowed money, (ii) obligations evidenced
by
bonds, debentures, notes or other similar instruments, (iii) obligations to
pay
the deferred purchase price of property or services, (iv) obligations as lessee
under leases which shall have been or should be, in accordance with GAAP,
recorded as capital leases, and (v) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clauses
(i) through (iv) above; provided,
however,
Debt
shall not include any Debt of Borrower under this Agreement.
1
“Eligible
Market” means any national securities exchange, the NASDAQ Global Select Market,
the NASDAQ Global Market or the NASDAQ Capital Market.
“Event
of
Default” shall have the meaning set forth in Section 7.01.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.
“FDA”
shall mean the United States Food and Drug Administration or its
successor.
“FDA
Approval Date” shall mean the first date on which the FDA approves an
application to market the Product.
“FFDCA”
shall mean the United States Federal Food, Drug and Cosmetic Act, as amended
from time to time, and all regulations promulgated thereunder.
“Intellectual
Property” shall have the meaning set forth in the Security
Agreement.
“Liens”
shall mean any lien, security interest, mortgage, pledge, encumbrance, charge
or
claim.
“Loan”
shall have the meaning set forth in Section 2.01(a).
“Loan
Documents” shall have the meaning set forth in Section 3.01(d).
“Material
Adverse Change” shall have the meaning set forth in Section 4.07.
“Material
Adverse Effect” shall have the meaning set forth in Section 4.01.
“Maturity
Date” shall have the meaning set forth in Section 2.04(a).
“NDA”
shall mean a “new drug application” as such term is used under the
FFDCA.
“Not
Approvable Letter” shall mean a letter from the FDA pursuant to 21 CFR 314.120
with respect to the NDA for the Product that has been filed with the FDA prior
to the date hereof, for the indication prevention of
respiratory distress syndrome in premature infants (RDS).
“Note”
shall have the meaning set forth in Section 2.04.
“Permitted
Lien” shall have the meaning set forth in Section 6.04.
“Prime
Rate” shall mean the rate which Wachovia Bank, N.A. (or its successor) announces
from time to time as its prime lending rate, the Prime Rate to change when
and
as such prime lending rate changes.
“Product”
shall mean the product currently known as Surfaxin, as such name may change
from
time to time, for any and all formulations and delivery mechanisms, and for
any
and all indications.
2
“Product
Launch Date” shall mean the first date on which the Product is shipped in the
United States for commercial sale.
“SEC”
shall
mean the United
States
Securities and Exchange Commission.
“SEC
Reports” shall mean Borrower’s most recently filed Annual Report on Form
10-K
and the Proxy Statement filed in connection with Borrower’s most recent annual
meeting of stockholders and all Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K filed by Borrower after
January 1, 2006.
“Securities”
shall have the meaning set forth in Section 4.02.
“Securities
Act” shall mean the Securities Act of 1933, as amended.
“Security
Agreement” shall have the meaning set forth in Section 3.01(b).
“Sublicense”
shall have the meaning set forth in Section 4.06(b).
“Transaction
Documents” shall have the meaning set forth in Section 3.01(d).
“Warrant”
shall have the meaning set forth in Section 3.01(c).
“Warrant
Shares” shall mean the shares issuable by Borrower upon the exercise of the
Warrant.
3
EXHIBIT
B
FORM
OF
NOTE
Schedules
Exhibit
10.2
SECOND
AMENDED AND RESTATED
SECURITY
AGREEMENT
THIS
SECURITY AGREEMENT (this “Agreement”)
is
dated as of December 10, 2001, and amended and restated as of October 25, 2006
(the “Restatement
Date”),
by
and between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Borrower”),
and
PHARMABIO DEVELOPMENT INC., a North Carolina corporation, d/b/a NovaQuest
(“Lender”).
WHEREAS,
Borrower and Lender previously entered into that certain Security Agreement
dated as of December 10, 2001 (the “Original
Security Agreement”),
and
amended and restated by the Amended and Restated Security Agreement dated as
of
November 3, 2004 (the “Amended
and Restated Security Agreement”);
WHEREAS,
Borrower and Lender wish to amend and restate the Amended and Restated Agreement
in its entirety as set forth in this Agreement;
WHEREAS,
Borrower and Lender are parties to the Loan Agreement dated as of December
10,
2001, as amended and restated as of November 3, 2004, and further amended and
restated as of the date hereof (as amended, modified or supplemented from time
to time, the “Loan
Agreement”),
pursuant to which, among other things, Borrower is delivering to Lender the
Note
(as defined in the Loan Agreement); and
WHEREAS,
it is a condition precedent to the performance of Lender under the Loan
Agreement that Borrower enter into this Agreement;
NOW,
THEREFORE, in consideration of the benefits to Borrower, and for other good
and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereby amend and restate the Amended and Restated
Security Agreement in its entirety and hereby agree as follows:
1. Definitions.
The
following terms, as used in this Agreement, shall have the following
meanings:
“Cash
Proceeds”; “Certificated Securities”; “Chattel Paper”; “Consumer Goods”;
“Commercial Tort Claims”; “Commodity Accounts”; “Commodity Contracts”; “Deposit
Accounts”; “Documents”; “Electronic Chattel Paper”; “Equipment”; “Financial
Assets”; “Fixtures”; “General Intangibles”; “Goods”; “Instruments”; “Inventory”;
“Investment Property”; “Letter-of-Credit Rights”; “Letters-of-Credit”;
“Negotiable Instruments”; “Noncash Proceeds”; “Payment Intangibles”; Promissory
Notes”; Securities”; Securities Accounts”; “Securities Entitlements”; Software”;
“Tangible Chattel Paper” and “Uncertificated Securities” shall each have the
meaning set forth in the UCC.
1
“Collateral”
shall mean all right, title and interest of Borrower in, to and under any and
all of the following, whether now existing or hereafter existing or acquired
from time to time: (i) any and all Certificated Securities, Chattel Paper,
Consumer Goods, Contracts, Contract Rights, Commercial Tort Claims, Commodity
Accounts, Commodity Contracts, Data, Deposit Accounts, Documents, Electronic
Chattel Paper, Equipment, Financial Assets, Fixtures, General Intangibles,
Goods, Instruments, Intellectual Property, Inventory, Investment Property,
Letter-of-Credit Rights, Letters-of-Credit, Marketing Materials, monies,
Negotiable Instruments, Payment Intangibles, Promissory Notes, Product
Registrations, Receivables, Records, Securities, Securities Accounts, Securities
Entitlements, Software, Tangible Chattel Paper and Uncertificated Securities;
(ii) to the extent not covered by clause (i) of this definition, all other
personal property, whether tangible or intangible, and (iii) any and all
Proceeds, including Cash Proceeds and Noncash Proceeds, of any and all of the
foregoing;
provided,
however,
for the
purposes of this Agreement, the term “Collateral” shall not include, and
Borrower shall not be deemed to have granted a security interest in, any of
Borrower’s rights or interests in (i) any property or equipment acquired by
Borrower pursuant to transactions described in Sections 6.04(d) and 6.04(e)
of
the Loan Agreement; provided, that immediately upon the lapse or termination
of
any Permitted Lien on such property or equipment, the Collateral shall include,
and Borrower shall be deemed to have granted a security interest in, all such
property and equipment, or (ii) any license Contract or agreement to which
Borrower is a party or any of its rights or interests thereunder to the extent,
but only to the extent, that such a grant would, under the terms of such
license, Contract or agreement or otherwise, result in a breach of the terms
of,
or constitute a default under any license, Contract or agreement to which
Borrower is a party (other than to the extent that any such term would be
rendered ineffective pursuant to the UCC or any other applicable law (including
the Bankruptcy Code, 11 U.S.C. Sec. 362(a)) or principles of equity); provided,
that immediately upon the ineffectiveness, lapse or termination of any such
provision, the Collateral shall include, and Borrower shall be deemed to have
granted a security interest in, all such rights and interests as if such
provision had never been in effect.
“Contracts”
shall mean all contracts, agreements, commitments, understandings and
arrangements (including without limitation the Sublicense and any other license
agreement) between Borrower and one or more other parties, or under or with
respect to which Borrower has rights, including, without limitation, those
listed on Schedule
3(e)(ii)
and
Schedule
3(e)(iii)
attached
hereto.
“Contract
Rights” shall mean all rights of Borrower (including, without limitation, all
rights to payment or property) under any Contract.
“Copyrights”
shall mean, collectively, all copyrights (whether such copyrights are statutory
or common law, whether established or registered in the United States or any
other country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished) and all copyright
registrations and applications, and in each case, whether now owned or hereafter
created or acquired, together with any and all (i) rights and privileges
arising under applicable law with respect to the use of such copyrights,
(ii) reissues, renewals, continuations and extensions thereof, (iii)
income, fees, royalties, damages, claims and payments now or hereafter due
or
payable with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) rights
corresponding thereto throughout the world and (v) rights to sue for past,
present or future infringements thereof.
2
“Data”
shall mean any and all preclinical, clinical and manufacturing data or results
and other similar data.
“Governmental
Authority” means any federal, state, local or foreign court or governmental
agency, authority, instrumentality or regulatory body, including any central
bank.
“IND”
shall mean an “investigational new drug application,” as such term is defined
under the FFDCA.
“Intellectual
Property” shall mean all intellectual property, proprietary rights and similar
property or rights of every kind and nature now owned or hereafter acquired,
including, without limitation, Patents,
Trademarks, Copyrights, domain names, trade
secrets and trade secret rights, inventions, designs, confidential or
proprietary technical and business information, Know-How, show-how or other
data
or information, software and databases and all embodiments or fixations thereof
and related documentation, registrations and franchises, and all additions,
improvements and accessions to, and books and records describing or used in
connection with, any of the foregoing; provided, however, that “Intellectual
Property” shall not include any “shrink-wrap” or “off-the-shelf” software,
operating programs and “office suites” used by Borrower in its internal
operations and which is generally commercially available.
“Know-How”
shall mean all know-how and other information, including, without limitation,
ideas, discoveries, inventions, data, techniques, specifications, processes,
procedures, manufacturing and technical information, results from experiments
and tests, instructions, methods, formulae, designs, plans, sketches, records,
confidential analyses, interpretations of information, and trade secrets, or
any
similar items, in any media form, whether or not tangible, including, without
limitation, any paper or electronic form.
“Marketing
Materials” shall mean marketing materials, advertising materials, training
materials, product data, price lists, mailing lists, sales materials, market
information (e.g., customer, sales and competitor data), promotional materials,
artwork for the production of packaging components, and other materials, and
in
each case whether now existing or owned or hereafter arising or
acquired.
“Obligations”
shall mean all indebtedness, obligations and liabilities of Borrower to Lender
arising under or in connection with the Note (as defined in the Loan Agreement)
and under or in connection with each of the Loan Agreement and this Agreement,
including any amendment, modification, extension, refinancing or restructuring
thereof.
“Patents”
shall mean all of the following whether now owned or hereafter acquired:
(a) all patents of the United States or any other country, all
registrations and recordings thereof, and all applications for patents of the
United States or any other country, including registrations, recordings and
pending applications in the United States Patent and Trademark Office or any
other country, including, without limitation, those listed on Schedule
3(e)(i)
attached
hereto, (b) all reissues, continuations, divisions, continuations-in-part,
renewals or extensions thereof, and the inventions disclosed or claimed therein,
including the right to make, use or sell the inventions disclosed or claimed
therein and (c) all income, fees, royalties, damages, claims and payments now
or
hereafter due or payable with respect thereto, including, without limitation,
damages and payments for past, present or future infringements
thereof.
3
“Proceeds”
shall mean, collectively, all “proceeds,” as such term is defined in the UCC,
and in any event shall include, without limitation, any consideration received
from the sale, exchange, license, lease or other disposition of any asset or
property that constitutes Collateral, any value received as a consequence of
the
possession of any Collateral and any payment received from any insurer or other
person or entity as a result of the destruction, loss, theft, damage or other
involuntary conversion of whatever nature of any asset or property that
constitutes Collateral, and shall include (a) any claim against any third
party for (and the right to sue and recover for and the rights to damages or
profits due or accrued arising out of or in connection with) (i) past,
present or future infringement of any Patent now or hereafter owned,
(ii) past, present or future infringement or dilution of any Trademark now
or hereafter owned or injury to the goodwill associated with or symbolized
by
any Trademark now or hereafter owned, (iii) past, present or future infringement
of any Copyright now or hereafter owned and (b) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral.
“Product”
shall mean the product currently known as Surfaxin, as such name may change
from
time to time, for any and all formulations and delivery mechanisms, and for
any
and all indications.
“Product
Registration” means with respect to any country, the registrations, permits,
licenses, consents, authorizations and other approvals and pending applications
and requests therefor, required by applicable Governmental Authorities
relating
to the
marketing, sale, distribution, pricing and reimbursement of any products in
such
country, including, without limitation, INDs and NDAs, marketing authorizations,
and any supplements or amendments to any of the foregoing, and any other
equivalent of the foregoing, in each case whether now existing or owned or
hereafter arising or acquired, and including all filings and files with respect
thereto, including, without limitation, all documents referred to in the
complete regulatory chronology for any product registration, and including,
without limitation, those listed on Schedule
3(e)(v)
attached
hereto.
“Receivable”
shall mean any “account” as such term is defined in the UCC, and, in any event,
shall include, but shall not be limited to, all of Borrower’s rights to payment
for goods sold, leased or licensed or services performed by Borrower, whether
now in existence or arising from time to time hereafter, including, without
limitation, rights evidenced by an account, note, contract, security agreement,
chattel paper or other evidence of indebtedness or security, together with
(a)
all security pledged, assigned, hypothecated or granted to or held by Borrower
to secure the foregoing, (b) all of Borrower’s right, title and interest in and
to any goods, the sale of which gave rise thereto, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, (d) all
powers of attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith, (e) all books, records, ledger cards
and invoices relating thereto, (f) all evidences of the filing of financing
statements and other statements and the registration of other instruments in
connection therewith and amendments thereto, notices to other creditors or
secured parties, and certificates from filing or other registration officers,
(g) all credit information, reports and memoranda relating thereto and (h)
all
other writings related in any way to the foregoing.
4
“Records”
shall mean records, documents and files, including files pertaining to Product
Registrations, Intellectual Property, drug master files, correspondence with
the
FDA and other Governmental Authorities, validation documents and data, market
studies, sales histories
and
quality control histories, accounting records, sales records,
suppliers
lists, price lists, forecasts,
market studies,
customer service and inquiry or complaint records, laboratory notebooks, quality
assurance/control procedures and records, product and raw material
specifications, regulatory compliance filings and other regulatory records,
product operation manuals and instructions, standard operating procedures and
written medical records,
and in
each case whether now existing or owned or hereafter arising or acquired, in
any
media form, whether or not tangible, including, without limitation, any paper
or
electronic form; provided,
that,
notwithstanding any provision in this Agreement to the contrary, Borrower shall
not deliver to Lender any Records the delivery of which would violate applicable
patient privacy laws or contractual provisions or written policies or protocols
governing the conduct of clinical trials.
“Sublicense”
shall mean the Sublicense Agreement dated October 28, 1996, between Johnson
& Johnson and Ortho Pharmaceutical Corporation, as licensors, and Borrower
(as successor to Acute Therapeutics, Inc.), as licensee (including any
amendment, restatement, replacement, etc., thereof).
“Trademarks”
shall mean all of the following whether now owned or hereafter acquired:
(a) all trademarks, service marks, trade names, corporate names, company
names, business names, fictitious business names,
trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, all registrations and recordings thereof,
and all registration and recording applications filed in connection therewith,
including registrations and registration applications in the United States
Patent and Trademark Office, any State of the United States or any similar
offices in any other country or any political subdivision thereof, and all
extensions or renewals thereof, including, without limitation, those listed
on
Schedule
3(e)(iv)
attached
hereto, (b) all income, fees, royalties, damages, claims and payments now or
hereafter due or payable with respect thereto, including, without limitation,
damages and payments for past, present or future infringements thereof,
(c) all goodwill associated therewith or symbolized thereby, and
(d) all other assets, rights and interests that uniquely reflect or embody
such goodwill.
“UCC”
shall mean the Uniform Commercial Code as in effect on the date hereof and
as in
effect from time to time in the State of Delaware.
All
capitalized terms not expressly defined herein shall have the meanings set
forth
in the Loan Agreement.
2. Grant
of Security Interests.
As
security for the prompt and complete payment and performance of all of the
Obligations, Borrower does hereby pledge and hypothecate unto Lender, and does
hereby grant to Lender a continuing security interest of first priority (except
as otherwise provided in this Agreement and the Loan Agreement) in, all of
the
right, title, and interest of Borrower in, to, and under the Collateral. For
the
avoidance of doubt, the Collateral described in this Agreement includes the
Collateral as defined in the Amended and Restated Security Agreement (the
“Existing
Collateral”).
This
Agreement shall not constitute a novation and Borrower and Lender acknowledge
that it is the intent of the parties that Lender maintains a continuous
perfected first priority security interest in all Existing Collateral pursuant
to the Original Security Agreement, the Amended and Restated Security Agreement
and this Agreement.
5
3. Representations
and Warranties of Borrower.
Borrower represents and warrants to Lender, as of the Restatement Date, as
follows:
(a) The
execution and delivery by Borrower of this Agreement and the financing
statements described herein (collectively, the “Security
Documents”),
and
the performance of the terms and obligations therein, are within Borrower’s
corporate powers and have been duly authorized by all necessary corporate action
on the part of Borrower. The Security Documents have been duly executed and
delivered by Borrower and constitute valid and legally binding obligations
of
Borrower enforceable against Borrower in accordance with their terms except
as
such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of creditors’
rights generally and as to limitations on the enforcement of the remedy of
specific performance and other equitable remedies.
(b) Borrower
is the owner or licensee of the Collateral and has good, valid and marketable
title to the Collateral (or,
in
the case of leased or licensed property, sufficient rights therein to perform
its obligations under this Agreement),
free
and clear of all Liens except for those in favor of Lender and Permitted
Liens.
(c) Except
for the filing of financing statements with the State of Delaware and, only
in
the case of any Patent and Trademark matters, filings with the United States
Patent and Trademark Office (“PTO”)
and,
only in the case of any Copyright matters, filings with the United States
Copyright Office (“Copyright
Office”),
necessary to perfect the security interests created hereunder, no authorization,
approval, or other action by, and no notice to or filing with, any U.S.
Governmental Authority is required either for the grant by Borrower of the
security interest hereunder or for the execution, delivery, or performance
of
this Agreement by Borrower or, assuming compliance by Lender with the
requirements set forth in the UCC or imposed on Lender by the PTO or Copyright
Office with respect to attachment and perfection of security interests, for
the
perfection of such security interest or the exercise by Lender of its rights
hereunder to the Collateral located in the U.S., except for those elements
of
Collateral that constitute monies or Deposit Accounts. Upon the execution of
this Agreement and the completion of such filings in compliance with all
applicable legal requirements, Lender will have a perfected security interest
in
the Collateral located in the U.S. (other than those elements of Collateral
that
constitute monies or Deposit Accounts) prior to all other Liens except Permitted
Liens.
(d) Neither
the execution or delivery by Borrower of the Security Documents, nor the
performance of their respective terms and obligations, will: (i) violate
Borrower’s charter or bylaws; (ii) constitute a material breach or default under
any agreement or instrument to which Borrower is a party or by which Borrower
is
bound; (iii) violate any applicable law, rule or regulation; or (iv) violate
any
order, writ, injunction, decree or judgment of any court or governmental
authority applicable to or binding upon Borrower.
6
(e) Set
forth
on Schedule
3(e)(i)
attached
hereto is a true and complete list of all Patents owned by Borrower (including
patent/application number, jurisdiction, and brief description). Set forth
on
Schedule
3(e)(ii)
attached
hereto is a true and complete list of all Patents licensed by Borrower from
any
third party (including patent/application number, owner/licensor, jurisdiction,
and brief description) and a brief description of the license agreement. Set
forth on Schedule
3(e)(iii)
attached
hereto is a true and complete list of any Contracts or agreements to which
Borrower is a party and under which Borrower licenses any Patents, or other
Intellectual Property, to or from any third party, which is not set forth on
Schedule
3(e)(ii).
Set
forth on Schedule
3(e)(iv)
attached
hereto is a true and complete list of Trademarks owned by Borrower (including,
if applicable, trademark/application number, jurisdiction, and a brief
description). Set forth on Schedule
3(e)(v)
attached
hereto is a true and complete list of all material Product Registrations. On
each schedule prepared pursuant to this clause (e), items that constitute
Intellectual Property relating to the Product have been clearly identified
as
such.
(f) The
representations and warranties contained in Article IV of the Loan Agreement
are
true and correct in all material respects.
4. Transfer
of Collateral and Other Liens.
The
provisions of Sections 6.02 and 6.04 of the Loan Agreement are hereby
incorporated herein by reference.
5. Other
Financing Statements.
Borrower represents and warrants with Lender that, except for the financing
statements filed by Borrower in connection with the Original Security Agreement
and the Amended and Restated Security Agreement and as set forth on Schedule
5
attached
hereto, there exists no financing statement (or similar statement or instrument
of registration under the law of any jurisdiction) in the United States or,
to
Borrower’s knowledge, outside the United States covering or purporting to cover
any security interest of any kind in the Collateral. Borrower covenants to
Lender that it will not execute or authorize to be filed in any public office
any financing statement (or similar statement or instrument of registration
under the law of any jurisdiction), or file any amendment to any financing
statement listed on Schedule
5
not
permitted by the Loan Agreement, relating to the Collateral, as applicable,
except financing statements (or similar statements or instruments of
registration under the law of any jurisdiction) filed or to be filed in respect
of Permitted Liens and financing statements covering the security interests
granted to Lender by Borrower.
6. Further
Assurances.
(a) Borrower,
upon reasonable request of Lender, will promptly deliver and execute or cause
to
be delivered and executed, in form and content satisfactory to Lender, any
financing, continuation, termination, or security interest filing statements,
security agreement, assignment, or other document or instrument as Lender may
reasonably request in order to perfect, preserve, maintain, or continue the
perfection of Lender’s security interest in the Collateral, or its priority,
including without limitation any document or instrument necessary to record
Lender’s security interest in any state or county of any state, the United
States Patent and Trademark Office or the United States Copyright Office.
Borrower will pay the reasonable costs of filing any financing, continuation,
termination, or security interest filing statement, assignment or other document
or instrument as well as any recordation or transfer tax required by law to
be
paid in connection with the filing or recording thereof. Without limiting the
foregoing, Lender is hereby authorized to file one or more financing statements,
continuation statements, or other documents for the purpose of perfecting or
continuing the security interest granted by Borrower, without the signature
of
Borrower, and naming Borrower as debtor and Lender as secured party;
provided,
that
Lender shall provide copies of all such documents to Borrower. Lender
acknowledges that it has no present intention to file or record any security
interest financing statements or other documents or instruments in any
jurisdiction outside the United States and agrees to discuss any action
otherwise with Borrower prior to taking such action.
7
(b) Borrower
will, at its own expense, make, execute, endorse, acknowledge, file and/or
deliver to Lender from time to time such lists, descriptions and designations
of
its Collateral, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers
of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, as reasonably requested by
Lender or which is necessary to perfect, preserve or protect its security
interest in the Collateral.
(c) (i)
Upon
the irrevocable payment in full of all Obligations, the security interest of
Lender in the Collateral shall terminate. In connection with such termination,
Lender shall, at the request and expense of Borrower, promptly, and in no event
later than ten (10) Business Days thereafter, execute and deliver to Borrower
all UCC termination statements and similar documents that Borrower shall
reasonably request to evidence such termination or release,
including without limitation any document or instrument necessary to record
the
termination or release of Lender’s security interest in any state or county of
any state, the United States Patent and Trademark Office or the United States
Copyright Office.
Any
execution and delivery of UCC termination statements and similar documents
pursuant to this Section 6(c) shall be without recourse to or warranty by
Lender. If Lender shall fail to provide such documents within ten (10) Business
Days following payment of all Obligations, Borrower may file one or more UCC
termination statements in accordance with the UCC or other documents required
by
the PTO or Copyright Office to terminate the security interest granted by
Borrower to Lender under this Agreement, in each case naming Lender as secured
party; provided,
that
Borrower shall provide copies of all such documents to Lender.
(d) Borrower
agrees that it shall use its commercially reasonable best efforts to
negotiate terms of any future license, Contract or agreement to which it is
a
party, including without limitation any Collaboration Arrangement (as defined
in
Section 13(b)), that will not prohibit, or be breached by, the inclusion of
such
future license, Contract or agreement in the Collateral.
8
7. Additional
Agreements.
(a) Insurance.
Borrower shall maintain in full force and effect insurance with sound and
reputable insurance companies of the types and in the amounts that Borrower
reasonably believes is adequate for its business, including, but not limited
to,
insurance covering all real and personal property owned or leased by Borrower
against all risks customarily insured against by similarly situated
companies.
(b) Ownership
and Maintenance of the Collateral.
Borrower shall, subject to normal wear and tear, keep all tangible Collateral,
if any, in good condition. Borrower shall defend the Collateral against all
claims and demands of all persons at any time claiming any interest therein
adverse to Lender. Except for Permitted Liens, Borrower shall not make or permit
to be made an assignment for security, pledge, or hypothecation of any of the
Collateral or shall grant any other Lien in respect of the Collateral other
than
the security interest securing the Obligations. Notwithstanding the foregoing,
Borrower
may transfer or otherwise dispose of any of its assets or properties
in
the
ordinary course of business in any transaction permitted by the Loan
Agreement.
(c) Taxes.
Borrower shall pay as and when due and payable all taxes, levies, license fees,
assessments, and other impositions levied on the Collateral or any part thereof
for its use and operations, except for all taxes, levies, license fees,
assessments, and other impositions levied on the Collateral which are being
contested by Borrower in good faith.
(d) Litigation
and Proceedings.
Borrower shall commence and diligently prosecute in its own name, as the real
party in interest, for its own benefit, and at its own expense, such suits,
administrative proceedings, or other actions for infringement or other damages
as are necessary to protect the Collateral,
if
failure to prosecute such proceedings would have a
Material
Adverse Effect. Borrower shall provide to Lender any information with respect
thereto reasonably requested by Lender.
8. Power
of Attorney.
Borrower hereby appoints Lender as Borrower’s true and lawful attorney, with
full power of substitution, to do any or all of the following, in the name,
place, and stead of Borrower, as the case may be: (a) file an abstract of this
Agreement (or, if required by law or regulation, this Agreement) or any other
document describing Lender’s interest in the Collateral with any appropriate
governmental office (including, without limitation, the State of Delaware or
any
political subdivision thereof and the United States Patent and Trademark Office
or the United States Copyright Office); and (b) following an Event of Default
that has occurred and is continuing and not cured prior to the expiration of
any
applicable cure or grace periods set forth in the Loan Agreement, (i) endorse
Borrower’s name on all applications, documents, papers, and instruments
necessary for Lender to use or maintain the Collateral, as applicable; (ii)
ask,
demand, collect, sue for, recover, impound, receive, and give acquittance and
receipts for money due or to become due under or in respect of any of the
Collateral; (iii) file any claims or take any action or institute any
proceedings that Lender may deem necessary or desirable for the collection
of
any of the Collateral, or otherwise enforce Lender’s rights with respect to any
of the Collateral; (iv) assign, pledge, convey, or otherwise transfer title
in
or dispose of the Collateral, to any person; and (v) take any action and execute
any instrument that Lender may deem necessary or advisable to accomplish the
purposes of this Agreement.
9
9. Right
to Inspect.
Section
6.07(b) of the Loan Agreement is hereby incorporated by reference and made
a
part hereof (mutatis
mutandis).
10. Name
of Borrower, Place of Business, and Location of Collateral.
Borrower represents and warrants that its correct legal name is as specified
on
the signature lines of this Agreement, and each legal or trade name of Borrower
for the previous seven (7) years (if different from Borrower’s current legal
name) is as specified below the signature lines of this Agreement. Without
the
prior written notice to Lender of at least fifteen (15) Business Days, Borrower
will not change its name, change its state of incorporation, dissolve, merge,
or
consolidate with any other person; provided,
that
Borrower shall not be required to make any disclosure to Lender hereunder that
constitutes material non-public information. Borrower represents and warrants
that its state of incorporation is as specified in the preamble to this
Agreement and that the address of its chief executive office is as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining thereto will be located at Borrower’s chief executive office
specified below or at a location of Borrower set forth on Schedule 10. Borrower
may establish a new location for the Collateral or any part thereof, or the
books and records concerning the Collateral or any part thereof, only if (a)
it
shall have given to Lender prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as Lender may reasonably request, and (b) with respect
to
any such new location, it shall have taken all action necessary to be taken
by
Borrower to maintain the security interest of Lender in the Collateral intended
to be granted hereby at all times in full force and effect and, if such new
location is in the United States, fully perfected; provided,
that
Borrower shall not be required to make any disclosure to Lender hereunder that
constitutes material non-public information.
11. Rights
and Remedies upon Default.
(a) Borrower
agrees that, if any Event of Default (as defined in the Loan Agreement) shall
have occurred and is continuing and not cured prior to the expiration of any
applicable cure or grace periods set forth in the Loan Agreement, then and
in
every such case, Lender, in addition to any rights now or hereafter existing
under applicable law, and upon written notice to Borrower, shall have all rights
as a secured creditor under the UCC in all relevant jurisdictions and
may:
(i)
personally,
or by agents or attorneys, immediately take or retake possession of the
Collateral or any part thereof;
(ii)
instruct
the obligor or obligors on any agreement, instrument or other obligation
constituting the Collateral to make any payment required by the terms of such
agreement, instrument or obligation directly to Lender;
10
(iii)
sell,
assign or otherwise liquidate, or direct Borrower to sell, assign or otherwise
liquidate, any or all of the Collateral or any part thereof, and take possession
of the proceeds of any such sale or liquidation; and
(iv) take
possession of the Collateral or any part thereof by directing Borrower in
writing to deliver the same to Lender at any place or places designated by
Lender; it being understood that Borrower’s obligation so to deliver the
Collateral is of the essence of this Agreement and that, accordingly, upon
application to a court of equity having jurisdiction, Lender shall be entitled
to a decree requiring specific performance by Lender of said
obligation.
(b) In
the
event that an Event of Default has occurred and is continuing and not cured
prior to the expiration of any applicable cure or grace periods set forth in
the
Loan Agreement, Borrower shall pay on demand all reasonable costs and expenses,
including, without limitation, reasonable attorneys’ fees and expenses, incurred
by or on behalf of Lender (i) in enforcing the Obligations, and (ii) in
connection with the taking, holding, preparing for sale or other disposition,
selling, managing, collecting, or otherwise disposing of the Collateral. All
of
such costs and expenses (collectively, the “Liquidation
Costs”)
together with interest thereon at the interest rate specified in the Note,
from
the date of payment until repaid in full, shall be paid by Borrower to Lender
on
demand and shall constitute and become a part of the Obligations secured hereby.
Any proceeds of sale or other disposition of the Collateral will be applied
by
Lender to the payment of Liquidation Costs, and any balance of such proceeds
will be applied by Lender to the payment of the remaining Obligations in such
order and manner of application as Lender may determine. Borrower hereby grants
to Lender, as security for the full and punctual payment and performance of
the
Obligations, a continuing security interest in and lien on all now or hereafter
existing balances, credits, accounts, deposits, and all other sums credited
by,
maintained with, or due from Lender or any affiliate of Lender to Borrower;
and
regardless of the adequacy of any Collateral or other means of obtaining
repayment of the Obligations, Lender may at any time and without notice to
Borrower set off the whole or any portion or portions of any or all such
balances, credits, accounts, deposits, and other sums against any and all of
the
Obligations.
(c) If
the
sale or other disposition of the Collateral fails to satisfy in full the
Obligations, Borrower shall remain liable to Lender for any deficiency.
12. Remedies
Cumulative.
Each
right, power, and remedy of Lender as provided for in this Agreement or now
or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or now or hereafter existing at law
or
in equity or by statute or otherwise, and the exercise or beginning of the
exercise by Lender of any one or more of such rights, powers, or remedies shall
not preclude the simultaneous or later exercise by Lender of any or all such
other rights, powers, or remedies.
13. Amendments,
Etc.
(a) No
amendment or waiver of any provision of this Agreement, nor consent to any
departure by Borrower herefrom, shall in any event be effective unless the
same
shall be in writing and signed by Borrower and Lender, and then such waiver
or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
11
(b) In
the
event that Borrower believes that it is necessary to amend the terms of this
Agreement to facilitate a Collaboration Arrangement (as defined below) that
Borrower believes is in the best interests of Borrower, then Borrower may
present in writing to Lender for Lender’s consent (which consent shall not be
unreasonably withheld) (i) a summary of the material terms and conditions of
the
proposed Collaboration Arrangement and (ii) the form of the proposed amendment.
Lender shall respond to Borrower’s request as promptly as reasonably practicable
but in any event within fifteen (15) Business Days. “Collaboration Arrangement”
shall mean any future contract, agreement or other arrangement between Borrower
and any other party whereby Borrower grants or transfers any rights to such
party with respect to development or commercialization of the
Product,
or any
portion or component thereof, or any other similar, comparable, or related
contract, agreement, or arrangement.
14. Notices.
All
notices and other communications provided for hereunder shall be in writing,
shall specifically refer to this Agreement, shall be addressed to the receiving
party’s address set forth below or to such other address as a party may
designate by notice hereunder and shall be deemed to have been sufficiently
given for all purposes if (a) mailed by first class certified or registered
mail, postage prepaid, (b) sent by nationally recognized overnight courier
for
next business day delivery, (c) personally delivered, or (d) made by telecopy
or
facsimile transmission with confirmed receipt.
If
to
Lender:
PharmaBio
Development Inc.
4709
Creekstone Drive
Riverbirch
Bldg., Suite 200
Durham,
NC 27703
Attention:
President
Facsimile:
(919) 998-2090
with
a
copy to:
Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
2500
Wachovia Capitol Center
Raleigh,
NC 27601
Attention:
Christopher B. Capel
Facsimile:
(919) 821-6800
If
to
Borrower:
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976
Attn:
Chief Executive Officer and General Counsel
Facsimile:
(215) 488-9301
12
with
a
copy to:
Dickstein
Shapiro LLP
1177
Avenue of the Americas
New
York,
NY 10036-2714
Attention:
Ira L. Kotel
Facsimile:
(212) 277-6501
15. No
Waiver; Remedies.
No
failure on the part of Lender to exercise, and no delay in exercising, any
right
hereunder or under the Loan Agreement or the Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude
any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
16. Binding
Effect; Assignment.
This
Agreement shall be binding upon and inure to the benefit of Borrower and Lender
and their respective successors and permitted assigns, provided that (i)
Borrower may not assign or transfer any or all of its rights or obligations
under the Security Documents, and (ii) Lender may not assign or transfer any
or
all of its rights or obligations under the Security Documents except in
connection with an assignment or transfer of the Loan Agreement pursuant to
the
terms of the Loan Agreement. Any assignment or attempted assignment in violation
of this Section 16 shall be null and void.
17. Severability.
To the
extent any provision of this Agreement is prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
18. Entire
Agreement.
This
Agreement and the other Loan Documents and Security Documents embody the entire
agreement and understanding between the parties hereto and supersede all prior
oral or written agreements and understandings relating to the subject matter
hereof. No statement, representation, warranty, covenant or agreement of any
kind not expressly set forth in the Loan Documents and Security Documents shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of the Loan Documents and Security Documents.
19. Further
Action.
Each
party shall, without further consideration, take such further action and execute
and deliver such further documents as may be reasonably requested by the other
party to carry out the purposes and provisions of the Security
Documents.
20. Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed to be an original and all of which, when taken together, shall constitute
one and the same instrument. This Agreement may be executed and delivered by
telecopy or facsimile transmission and any execution by such means shall be
deemed an original.
13
21. Governing
Law.
This
Agreement, including, without limitation, the interpretation, performance,
enforcement, breach or termination thereof and any remedies relating thereto,
shall be governed by and construed in accordance with the laws of the State
of
Delaware, United States of America, as applied to agreements executed and
performed entirely in the State of Delaware, without regard to conflicts of
law
rules.
22. Internal
Review.
Section
8.14 of the Loan Agreement is hereby incorporated by reference and made a part
hereof (mutatis
mutandis).
23. Arbitration.
Section
8.15 of the Loan Agreement is hereby incorporated by reference and made a part
hereof (mutatis
mutandis).
[Rest
of page intentionally left blank; signatures on following
page]
14
[Signature
page to
Second Amended and Restated
Security
Agreement]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective duly authorized officers, as of the date first
above written.
| BORROWER: | |
| DISCOVERY LABORATORIES, INC. | |
| By: /s/ John G Cooper | |
| Name: John G Cooper | |
| Title: Executive Vice President and Chief Financial Officer |
Address
of chief executive office of Borrower
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976
Attn:
Chief Executive Officer and General Counsel
| LENDER | |
| PHARMABIO DEVELOPMENT INC. | |
| d/b/a NOVAQUEST | |
| By: /s/ Tom Perkins | |
| Name: Tom Perkins | |
| Title: Senior Vice President, Corporate Development |
15
Schedules
16
Exhibit
10.3
EXECUTION
COPY
AMENDMENT
NO. 005 AND CONSENT
THIS
AMENDMENT NO. 005 AND CONSENT (“Amendment”) is made as of this 25th
day of October, 2006, between General Electric Capital Corporation (“Secured
Party”) and Discovery Laboratories, Inc. (“Debtor”), to that certain Master
Security Agreement dated as of December 20, 2002 (as
amended, modified, restated, supplemented or replaced from time to time, and
together with any schedules thereto, collectively, the “Agreement”).
The terms of this Amendment No. 005 are hereby incorporated into the Agreement
as though fully set forth therein.
Secured
Party and Debtor mutually desire to amend the Agreement as set forth below.
Section references below refer to the section numbers of the Agreement. Unless
otherwise defined herein, all capitalized terms herein shall have the respective
meanings assigned to such terms in the Agreement.
Background
The
Agreement requires that Debtor abide by certain covenants and warranties as
more
particularly set forth therein. Section 2 of the Agreement prohibits Debtor
from, among other things, granting any liens on the Collateral or its
Intellectual Property, except for Permitted Liens.
Prior
to
the date hereof, Debtor entered into a financing transaction with PharmaBio
Development Inc. dba NovaQuest (“ParmaBio”), pursuant to that certain Amended
and Restated Security Agreement dated December 10, 2001 (as amended and restated
as of November 3, 2004, the PharmaBio Agreement”). In connection with a
restructuring of its obligations under the PharmaBio Agreement, Debtor has
requested that Secured Party (i) consent to its providing PharmaBio additional
collateral, including a security interest in Debtor’s Intellectual Property,
(ii) agree to certain amendments to the Agreement, and (iii) enter into a
subordination
agreement with PharmaBio (the events set forth in the foregoing clauses (i),
(ii), and (iii) are, collectively, the “Event”). Secured
Party has agreed to consent to the Event on the terms and subject to the
conditions set forth herein.
In
consideration of the foregoing, the terms and conditions set forth in this
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor and Secured Party hereby
agree as follows:
I. Consent.
Debtor
has requested that Secured Party consent to the Event and Secured Party hereby
consents (the “Consent”) to the Event subject to the terms and conditions
described herein. Except for the Consent and the amendments to the Agreement
expressly set forth and referred to in this Amendment, the Agreement shall
remain unchanged and in full force and effect, and the Consent shall be limited
precisely and expressly as drafted and shall not be construed as a consent
to
the modification, amendment or supplementation of any other terms or provisions
of the Agreement. Nothing in the Consent is intended, or shall be construed,
to
constitute a novation or an accord and satisfaction of any of Debtor’s
indebtedness under or in connection with the Agreement or any other indebtedness
to Secured Party.
II. Amendments
to Agreement.
A. Creation
of Security Interest. Section
1
of the Agreement is hereby amended and restated in its entirety to read as
follows:
“(a) Debtor
hereby grants to Secured Party, its successors and assigns, a security interest
in and against all property listed on any collateral schedule now, previously
or
in the future annexed to or made a part of this Agreement (collectively,
"Collateral
Schedule"),
and in and against all additions, attachments, accessories and accessions to
such property, whether
now owned or hereafter acquired or arising, all
substitutions, replacements or exchanges therefor, and all insurance and/or
other proceeds thereof (all such property is individually and collectively
called the "Collateral").
This security interest is given to secure the payment and performance of all
debts, obligations and liabilities of any kind whatsoever of Debtor to Secured
Party, now existing or arising in the future, including but not limited to
the
payment and performance of certain Promissory Notes from time to time identified
on any Collateral Schedule (collectively "Notes"
and each a "Note"),
and any renewals, extensions and modifications of such debts, obligations and
liabilities (such Notes, debts, obligations and liabilities are called the
"Indebtedness").
(b) On
and as
of October 23, 2006, Debtor further grants to Secured Party, its successors
and
assigns, a security interest in and against all property, and
in and against all additions, attachments, accessories and accessions to such
property, whether
now owned or hereafter acquired or arising, all
substitutions, replacements or exchanges therefor, and all insurance and/or
other proceeds thereof, listed
on
Collateral Schedule No. 0001(the “Additional
Supplemental Collateral”)
and
made a part hereof. The Additional Supplemental Collateral shall for all
purposes constitute “Collateral” under the terms of the Agreement. This
security interest in the Additional Supplemental Collateral is given to secure
the payment and performance of all Indebtedness. In the event that PharmaBio
consents to Debtor entering into the licensing, sublicensing, partnering, or
other similar agreements, strategic alliances and collaborations for the
development, marketing and commercialization of the Product, or any portion
or
component thereof (a “Permitted
Event”),
Secured Party shall be deemed to have consented thereto to the extent of
PharmaBio’s consent, subject to the terms and conditions thereof and provided
that Secured Party’s security interest in and lien on the Additional
Supplemental Collateral shall continue to be in full force and effect. For
the
sake of clarity, Permitted Event shall not include any amendments to the
definition of Additional Supplemental Collateral or other modifications to
what
assets constitute Additional Supplemental Collateral (“Collateral
Modification”).
In the event that Debtor requests that Secured Party consent (not to be
unreasonably withheld) to a Collateral Modification, Debtor shall provide prior
written notice (“Notice”)
to Secured Lender of such Collateral Modification together with a description
thereof in reasonable detail. Secured Lender shall have five (5) business days
after Secured Party’s receipt of such Notice to object to such Collateral
Modification. In the event that Secured Lender fails to timely object in writing
to the Collateral Modification, Secured Party shall be deemed to have consented
to the Collateral Modification.
Subject to the foregoing and Section 3(g) of this Agreement, Secured Party’s
security interest in and lien on the Additional Supplemental Collateral shall
continue to be in full force and effect until the earlier of (i) Secured Party’s
consent under the terms hereof to the release thereof and (ii) all obligations
of Debtor to Secured Party, including, without limitation, the Indebtedness,
are
paid in full and all obligations of Secured Party under this Agreement are
terminated. In the event that Secured
Party consents to a release of its lien on any property that constitutes
Additional Supplemental Collateral or all
obligations of Debtor to Secured Party are paid in full
in
accordance with the terms hereof, Secured Party hereby agrees that it will,
at
Debtor’s expense (and in any event within 15 business days), file termination
statements and execute such other documents and acknowledgments that Debtor
may
reasonably request to effect such release. “Product”
shall mean the product currently known as Surfaxin, as such name may change
from
time to time, for any and all formulations and delivery mechanisms, and for
any
and all indications.”
2
B. Amendment
to Section 3.
Section 3 is hereby
amended to add a new Subsection 3(g) thereto immediately following Subsection
3(f) which shall read as follows:
“(g)
Upon
the occurrence of (i) receipt by Debtor of regulatory approval by the United
States Food and Drug Administration for the indication
of respiratory distress syndrome in
premature infants for the
Product, or (ii) such other events or conditions mutually acceptable to Secured
Lender and Debtor (collectively, “Milestones”),
and,
in
each case, provided that no default or event of default has occurred and is
continuing, Secured Party shall terminate its lien in the Supplemental
Collateral and Additional Supplemental Collateral (collectively, the
“Released
Collateral”).
In
the
event that (x) Secured Party and Debtor are unable to agree on mutually
acceptable Milestones and (y) Debtor elects to prepay all of the outstanding
Indebtedness while Secured Party holds a perfected security interest in the
Released Collateral, Debtor shall be entitled to prepay all of the outstanding
Indebtedness in full without prepayment penalty. Secured Party agrees that
any
waiver fee assessed in connection with determining the Milestones hereunder
shall not exceed $5,000. Secured Party hereby agrees that it will, upon (A)
satisfaction of the provisions set forth in Subsections (i) or (ii) hereof
or
(B) prepayment in full of the outstanding Indebtedness in accordance with this
Section 3(g), and at Debtor’s expense, promptly file (and in any event within 15
business days) termination statements and execute such other documents and
acknowledgments that Debtor may reasonably request to effect the termination
of
its lien on the Released Collateral.”
III. Acknowledgement
of Outstanding Indebtedness; Payment of Obligations; Limitation of
Availability.
|
(a)
|
Debtor
hereby acknowledges, confirms and agrees that, as of the close of
business
on the date hereof, Debtor is indebted to Secured Party in respect
of the
Indebtedness in the principal amount of $4,701,912, plus interest
accrued
and accruing thereon, fees, costs, expenses and other charges now
or
hereafter payable under the Agreement.
|
|
(b)
|
Debtor
understands, acknowledges and agrees that it shall continue to make
all
payments when and as due under the terms and conditions of the
Agreement.
|
3
|
(c)
|
Debtor
hereby acknowledges and agrees that Secured Party has no obligation
to
make any advances under the Agreement
or otherwise in
excess of $400,000 in the aggregate on or after the date of this
Amendment,
and that any
such advances shall be made at the sole discretion of Secured Party.
|
|
IV.
|
Reaffirmation
of Grants of Security Interests; Additional Supplemental Collateral
Schedule.
|
|
(a)
|
Debtor
hereby acknowledges, reaffirms and confirms its grants of security
interests in the Collateral under the Agreement or otherwise in favor
of
Secured Party, including without limitation, the Supplemental Collateral,
any Additional Collateral, and all equipment and other property
constituting Collateral, including all
substitutions, replacements or exchanges therefor, and all insurance
and/or other proceeds thereof, and
agrees that, notwithstanding the effectiveness of this Amendment
and the
consummation of the transactions contemplated hereby, such grants
of
security interests shall continue to be in full force and effect
and shall
accrue to the benefit of the Secured Party.
|
|
(b)
|
Collateral
Schedule No. 0001 attached hereto as Exhibit A is hereby annexed
to and
made a part of the Agreement and describes the Additional Supplemental
Collateral in which Debtor has granted Secured Party a security interest
in connection with the Indebtedness. The Additional Supplemental
Collateral shall for all purposes constitute “Collateral” under the terms
of the Agreement.
|
V. Fee
In
consideration of Secured Party’s agreement to grant the Consent and enter into
this Amendment, Debtor unconditionally agrees to pay to Secured Party a fee
(the
“Fee”)
equal
to Ten Thousand and No/100 Dollars ($10,000.00), which Fee shall (a) be deemed
earned and payable by Debtor on the date of the execution and delivery of this
Amendment by Debtor, and (b) constitute a portion of the Indebtedness secured
by
the Agreement.
EXCEPT
AS
EXPRESSLY AMENDED HEREBY, THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
IF THERE IS ANY CONFLICT BETWEEN THE PROVISIONS OF THE AGREEMENT AND THIS
AMENDMENT NO. 005, THEN THIS AMENDMENT NO. 005 SHALL CONTROL.
[SIGNATURE
PAGE FOLLOWS]
4
IN
WITNESS WHEREOF,
the parties hereto have executed this Amendment No.005 by signature of their
respective authorized representative set forth below.
| General Electric Capital Corporation | Discovery Laboratories, Inc. | |
| By: /s/ Diane Earle | By: /s/ John G. Cooper | |
| Name: Diane Earle | Name: John G. Cooper | |
| Title: Duly Authorized Signatory |
Title: Executive
Vice President and
Chief
Financial Officer
|
5
Exhibit
99.1
Discovery
Labs Restructures Loan Arrangement with Quintiles
Warrington,
PA - October 26, 2006, -- Discovery Laboratories, Inc.
(Nasdaq:DSCO),
today
announced the restructuring of its $8.5 million loan with PharmaBio Development,
Inc., the strategic partnering group of Quintiles Transnational Corp.
(Quintiles). Payment of the $8.5 million loan principal that was originally
due
December 31, 2006, has now been extended as a lump sum payment due on April
30,
2010.
John
G.
Cooper, Executive Vice President and Chief Financial Officer of Discovery
commented, “Restructuring this arrangement to long-term status is a key
component of our current financial strategy. Having this capital available
allows us to further progress our key Surfactant Replacement Therapy pipeline
programs, specifically Surfaxin®
and
Aerosurf™. Importantly, restructuring this obligation better positions us as we
evaluate strategic alternatives intended to enhance the future growth of the
Company.”
The
restructured loan provides that, in addition to the extended principal payment
term, interest payments that were previously paid quarterly will now accrue
annually and are payable at the loan’s maturing in April 2010. Additionally, the
loan’s interest rate has been reduced and Discovery may repay the loan, in whole
or in part, at any time.
In
connection with the restructuring, Discovery enhanced the loan’s collateral
pledge and issued a warrant to PharmaBio to purchase up to 1.5 million shares
of
Discovery common stock at an exercise price of $3.58 per share. PharmaBio may
exercise the warrant for cash or a reduction of the then outstanding loan
balance. The term of the warrant is 7 years. In connection with the issuance
of
the warrant, Discovery expects to recognize deferred financing costs as an
intangible asset of approximately $1.9 million, to be amortized to interest
expense ratably over the extended term of the loan.
Additional
information regarding the loan restructuring is contained on a Current Report
on
Form 8-K to be filed by Discovery with the Securities and Exchange
Commission.
About
Discovery Labs
Discovery
Laboratories, Inc. is a biotechnology company developing Surfactant Replacement
Therapies (SRT) for respiratory diseases. Surfactants are produced naturally
in
the lungs and are essential for breathing. Discovery’s technology produces a
precision-engineered surfactant that is designed to mimic the essential
properties of natural human lung surfactant. Discovery believes that its
proprietary SRT pipeline has the potential to advance respiratory medicine
and
address a variety of respiratory diseases affecting premature infants, children
and adults.
Discovery’s
lead product candidate, Surfaxin, is the subject of an Approvable Letter from
the FDA for the prevention of Respiratory Distress Syndrome in premature
infants. Surfaxin® is also being developed to address Bronchopulmonary Dysplasia
in premature infants. Aerosurf™, Discovery’s aerosolized SRT, is being developed
initially to treat premature infants suffering from
respiratory disorders and is intended to obviate the need for intubation and
conventional mechanical ventilation. Discovery’s SRT pipeline also includes
programs addressing Acute Lung Injury, Acute Respiratory Failure, Cystic
Fibrosis, Acute Respiratory Distress Syndrome, and other respiratory conditions.
For more information, please visit our corporate website 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 Discovery’s product development, events
conditioned on stockholder or other approval, or otherwise as to future events,
all such statements are forward-looking, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
These
forward-looking statements 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 Discovery’s actual results and could cause
results to differ from those contained in these forward-looking statements
are
the risk that financial conditions may change, risks relating to the progress
of
Discovery’s research and development, the risk that Discovery will not be able
to raise additional capital or enter into additional collaboration agreements
(including strategic alliances for aerosol and Surfactant Replacement
Therapies), the risk that Discovery will not be able to develop or otherwise
provide for a successful sales and marketing organization in a timely manner,
if
at all, the risk that approval by the FDA or other health regulatory authorities
of any applications filed by Discovery may be withheld, delayed and/or limited
by indications or other label limitations, the risk that any such regulatory
authority will not approve the marketing and sale of a drug product even after
acceptance of an application filed by Discovery for any such drug product,
risks
that the Chemistry, Manufacturing and Controls (CMC) section of
Discovery’s
New Drug Application will not satisfy the FDA, risk in the FDA or other
regulatory agency review process generally, risks relating to the ability of
Discovery or Discovery’s third party contract manufacturers and development
partners to manufacture or provide Discovery with adequate supplies of drug
substance, drug products and expertise for completion of any of Discovery’s
clinical studies, risks relating to drug manufacturing by Discovery, risks
relating to the integration of manufacturing operations into Discovery’s
existing operations, other risks relating to the lack of adequate supplies
of
drug substance and drug product for completion of any of Discovery’s clinical
studies, risks relating to the ability of Discovery and its collaborators to
develop, manufacture and successfully commercialize products that combine
Discovery’s drug products with innovative aerosolization technologies, risks
relating to the significant, time-consuming and costly research, development,
pre-clinical studies, clinical testing and regulatory approval for any products
that we may develop independently or in connection with Discovery’s
collaboration arrangements, 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 Discovery’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
Contact:
Lisa
Caperelli, Investor Relations
215-488-9413