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
November
22, 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:
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o 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
November 22, 2006, Discovery Laboratories, Inc. (the “Company”) entered into a
Securities Purchase Agreement (the “Purchase Agreement”) and a Registration
Rights Agreement (“Registration Rights Agreement”) with one
selected institutional investor (“Investor”), whereby the Company will issue to
the Investor (i) 4,629,630 shares (the “Shares”) of its common stock, par value
$0.001 per share, at a price per share of $2.16 for an aggregate purchase price
of $10,000,000, and (ii) a Warrant to purchase up to 2,314,815 shares of common
stock (the “Warrant Shares”) at an exercise price of $3.18 per share. The
closing for the purchase of the Shares occurred concurrently with the execution
of the Purchase Agreement on November 22, 2006. The Warrant has a five-year
term
and shall be exercisable for cash or, in the event that the registration
statement is not available for the resale of the Warrant Shares, on a cashless
basis.
Pursuant
to the Registration Rights Agreement, the Company has agreed to file a
registration statement with the Securities and Exchange Commission (the
“Commission”) within 30 days of November 22, 2006 with respect to the resale of
the Warrant Shares.
The
Company also entered into a related Engagement Letter dated November 21, 2006,
with Jefferies & Co., Inc. (“Jefferies”), who is acting as exclusive
placement agent for the offering. Pursuant to the Engagement Letter, the Company
has agreed to pay Jefferies a fee of 5% of the gross proceeds resulting from
the
offering.
The
Company expects the net proceeds from this offering to be approximately
$9,400,000 after deducting the estimated underwriting discount (5%) and the
estimated offering expenses ($100,000). The Company currently anticipates using
the net proceeds from the offering primarily for:
| · |
Regulatory,
clinical and manufacturing activities intended to gain U.S. Food
and Drug
Administration (FDA) regulatory approval for the Company’s lead drug
product candidate, Surfaxin®
for the prevention of Respiratory Distress Syndrome (RDS) in premature
infants. Included are activities to support submitting a complete
response
to the second FDA Approvable Letter (which focused on the Chemistry,
Manufacturing and Controls section of the Company’s new drug
application).
|
| · |
Further
development activities of Surfaxin to include novel formulations
of
Surfaxin and to address additional respiratory diseases and conditions
afflicting neonatal and pediatric patients;
and
|
| · |
Development
of Aerosurf™, the Company’s proprietary surfactant replacement therapy in
aerosolized form administered through nasal continuous positive airway
pressure to potentially obviate the need for endotracheal intubation
and
conventional mechanical ventilation for the prevention of RDS in
premature
infants.
|
Pending
the application of the net proceeds, the Company expects to invest the proceeds
in short-term, interest-bearing instruments or other investment-grade
securities.
2
The
description of the terms and conditions of the Purchase Agreement and the rights
and obligations of the Company and the Investor in connection therewith are
qualified by reference in their entirety to the definitive terms and conditions
of the Purchase Agreement and the Registration Rights Agreement, forms of which
are attached hereto as Exhibit 10.1.
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 Purchase Agreement and
the
Registration Rights Agreement 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 Commission. Pursuant
to
each of the Purchase Agreement and Registration Rights Agreement, each of the
Company and the Investor 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
Commission.
Item
3.02 Unregistered
Sales of Equity Securities.
The
description of the offering set forth in Item 1.01 is incorporated herein by
reference. The Shares and the Warrant were issued to the Investor in a private
transaction exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended.
Item
9.01. Financial
Statements and Exhibits.
|
(d)
|
Exhibits
|
|
4.1
|
Warrant,
dated November 22, 2006.
|
|
10.1
|
Securities
Purchase Agreement, dated as of November 22,
2006.
|
|
10.2
|
Registration
Rights Agreement, dated as of November 22,
2006.
|
|
99.1
|
Press
Release, dated November 22, 2006
|
3
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. | ||
| |
|
|
| By: | /s/ Robert J. Capetola | |
|
Robert J. Capetola, Ph.D. |
||
| President and Chief Executive Officer | ||
Date:
November 22, 2006
5
Exhibit
4.1
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
(WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND REASONABLY ACCEPTABLE TO
THE
COMPANY), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
DISCOVERY
LABORATORIES, INC.
Warrant
To Purchase Common Stock
Number
of
Shares of Common Stock:
2,314,815
Date
of
Issuance: November 22, 2006 ("Issuance
Date")
Discovery
Laboratories, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CAPITAL
VENTURES INTERNATIONAL,
the
registered holder hereof or its permitted assigns (the "Holder"),
is
entitled, subject to the terms set forth below, to purchase from the Company,
at
the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "Warrant"),
at
any time or times on or after the Issuance Date, but not after 11:59 p.m.,
New
York time, on the Expiration Date (as defined below) 2,314,815 (the
"Warrant
Share Total")
fully
paid nonassessable shares of Common Stock (as defined below) (the
"Warrant
Shares").
Except as otherwise defined herein, capitalized terms in this Warrant shall
have
the meanings set forth in Section 15. This Warrant is the Warrant to purchase
Common Stock issued pursuant to Section 1 of that certain Securities Purchase
Agreement, dated as of November 22, 2006 (the "Subscription
Date"),
by
and among the Company and the Holder (the "Buyer")
referred to therein (the "Securities
Purchase Agreement").
1. EXERCISE
OF WARRANT.
(a) Mechanics
of Exercise.
Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by the
Holder on any day on or after the Issuance Date, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as
Exhibit
A
(the
"Exercise
Notice"),
of
the Holder's election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the
"Aggregate
Exercise Price")
in
cash or by wire transfer of immediately available funds or (B) by notifying
the
Company that this Warrant is being exercised pursuant to a Cashless Exercise
(as
defined in Section 1(d)). The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares. On or before the first (1st)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the "Exercise
Delivery Documents"),
the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company's transfer
agent (the "Transfer
Agent").
On or
before the third (3rd)
Business Day following the date on which the Company has received all of the
Exercise Delivery Documents (the "Share
Delivery Date"),
the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC")
Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account
with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company's
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company of a Cashless
Exercise referred to in Section 1(d), the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the
date
of delivery of the certificates evidencing such Warrant Shares. If this Warrant
is submitted in connection with any exercise pursuant to this Section 1(a)
and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Warrant
(in
accordance with Section 7(d)) representing the right to purchase the number
of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant
is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to
be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.
(b) Exercise
Price.
For
purposes of this Warrant, "Exercise
Price"
means
$3.18, subject to adjustment as provided herein.
(c) [Intentionally
Omitted]
2
(d) Cashless
Exercise.
Notwithstanding
anything contained herein to the contrary, if at any time following the
Effectiveness Deadline (as defined in the Registration Rights Agreement) a
Registration Statement (as defined in the Registration Rights Agreement)
covering the Warrant Shares that are the subject of an Exercise Notice (the
"Unavailable
Warrant Shares")
is not
available for the resale of such Unavailable Warrant Shares, the Holder may,
in
its sole discretion, exercise this Warrant in whole or in part and, in lieu
of
making the cash payment otherwise contemplated to be made to the Company upon
such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless
Exercise"):
Net
Number = (A
x
B) - (A x C)
B
For
purposes of the foregoing formula:
A=
the
total number of shares with respect to which this Warrant is then being
exercised.
B=
the
arithmetic average of the Weighted Average Prices of the shares of Common Stock
(as reported by Bloomberg) for the five (5) consecutive Trading Days ending
on
the date immediately preceding the date of the Exercise Notice.
C=
the
Exercise Price then in effect for the applicable Warrant Shares at the time
of
such exercise.
(e) Disputes.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.
(f) Limitations
on Exercises.
(1) Beneficial
Ownership.
This
Warrant shall not be exercisable, and the Holder shall not have the right to
exercise this Warrant until a date not less than 61 days following the date
that
the Holder provides the Company with written notice that this Warrant shall
now
be currently exercisable. This Warrant shall not be exercisable, and the Holder
shall not have the right to exercise this Warrant, to the extent that after
giving effect to such exercise, such Person (together with such Person's
affiliates) would beneficially own in excess of 9.99% of the shares of Common
Stock outstanding immediately after giving effect to such exercise. For purposes
of the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by such Person and its affiliates shall include the number
of
shares of Common Stock issuable upon exercise of this Warrant with respect
to
which the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such Person
and its affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set forth
in
the preceding sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. For purposes of this Warrant, in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB, Current Report on Form 8-K
or
other public filing with the Securities and Exchange Commission, as the case
may
be, (2) a more recent public announcement by the Company or (3) any other notice
by the Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding. For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one Business Day confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock
shall
be determined after giving effect to the exercise of securities of the Company,
including this Warrant, by the Holder and its affiliates since the date as
of
which such number of outstanding shares of Common Stock was reported. To the
extent that the limitation contained in this Section 1(f) applies, the
submission of an exercise Notice by the Holder shall be deemed to be the
Holder’s representation that this Warrant is exercisable pursuant to the terms
hereof and the Company shall be entitled to rely on such representation without
making any further inquiry as to whether this Section 1(f) applies. In no event
shall any exercise of this Warrant in breach of this Section 1(f) be deemed
to
be a violation by the Company of this Warrant. By written notice to the Company,
the Holder may from time to time increase or decrease the Maximum Percentage
to
any other percentage not in excess of 9.99% specified in such notice; provided
that any such increase or decrease will not be effective until the sixty-first
(61st)
day
after such notice is delivered to the Company.
3
(2) Principal
Market Regulation.
The
Company shall not be obligated to issue any shares of Common Stock upon exercise
of this Warrant and the Buyer shall not be entitled to receive any shares of
Common Stock if the issuance of such shares of Common Stock would exceed that
number of shares of Common Stock which the Company may issue upon exercise
of
this Warrant or otherwise without breaching the Company's obligations under
the
rules or regulations of any applicable Eligible Market (the "Exchange
Cap"),
except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules
of
the Eligible Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the Company
that
such approval is not required, which opinion shall be reasonably satisfactory
to
the Holder. In the event that the Company is prohibited from issuing any Warrant
Shares for which an Exercise Notice has been received as a result of the
operation of this Section 1(f)(2), the Company shall pay cash in exchange for
cancellation of such Warrant Shares, at a price per Warrant Share equal to
the
difference between the Weighted Average Price and the Exercise Price as of
the
date of the attempted exercise.
4
(g) Insufficient
Authorized Shares.
If at
any time while any of the Warrants remain outstanding the Company does not
have
a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon exercise of the Warrants
at
least a number of shares of Common Stock equal to 100% (the "Required
Reserve Amount")
of the
number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants then outstanding (an "Authorized
Share Failure"),
then
the Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow
the
Company to reserve the Required Reserve Amount for the Warrants then
outstanding. Without limiting the generality of the foregoing sentence, as
soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit
its
stockholders' approval of such increase in authorized shares of Common Stock
and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.
2. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The
Exercise Price and the number of Warrant Shares shall be adjusted from time
to
time as follows:
(a) Adjustment
upon Subdivision or Combination of Common Stock.
If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of
its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased.
If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(a) shall become effective at the close
of
business on the date the subdivision or combination becomes
effective.
5
(b) Other
Events.
If any
event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
so
as to protect the rights of the Holder; provided that no such adjustment
pursuant to this Section 2(b) will increase the Exercise Price or decrease
the
number of Warrant Shares as otherwise determined pursuant to this Section
2.
3. RIGHTS
UPON DISTRIBUTION OF ASSETS.
If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by
way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way
of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"),
at
any time after the issuance of this Warrant, then, in each such
case:
(a) any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the
close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Weighted
Average Price of the shares of Common Stock on the Trading Day immediately
preceding such record date minus the value of the Distribution (as determined
in
good faith by the Company's Board of Directors) applicable to one share of
shares of Common Stock, and (ii) the denominator shall be the Weighted Average
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date; and
(b) the
number of Warrant Shares shall be increased to a number of shares equal to
the
number of shares of Common Stock obtainable immediately prior to the close
of
business on the record date fixed for the determination of holders of shares
of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided
that in the event that the Distribution is of shares of Common Stock (or common
stock) ("Other
Shares of Common Stock")
of a
company whose common shares are traded on a national securities exchange or
a
national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in
the
number of Warrant Shares, the terms of which shall be identical to those of
this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (b).
6
4. PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase
Rights.
In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the "Purchase
Rights"),
then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations on
the
exercise of this Warrant) immediately before the date on which a record is
taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock
are
to be determined for the grant, issue or sale of such Purchase
Rights.
(b) Fundamental
Transactions.
The
Company shall not enter into or be party to a Fundamental Transaction unless
the
Successor Entity assumes in writing all of the obligations of the Company under
this Warrant and the other Transaction Documents in accordance with the
provisions of this Section (4)(b) pursuant to written agreements in form and
substance reasonably satisfactory to the Holder and reasonably approved by
the
Holder prior to such Fundamental Transaction, including agreements to deliver
to
each holder of Warrants in exchange for such Warrants a security of the
Successor Entity evidenced by a written instrument substantially similar in
form
and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected
by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to
any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and satisfactory to the Holder. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under
this
Warrant with the same effect as if such Successor Entity had been named as
the
Company herein. Upon consummation of the Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued
upon
exercise of this Warrant at
any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or
other
securities, cash, assets or other property) purchasable
upon the exercise of the Warrant prior to such Fundamental Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been converted immediately prior to such
Fundamental Transaction, as adjusted in accordance with the provisions of this
Warrant.
In
addition to and not in substitution for any other rights hereunder and except
as
otherwise provided in Section 4(c) below, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock
are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a "Corporate
Event"),
the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this Warrant
at
any
time after the consummation of the Fundamental Transaction but
prior
to the Expiration Date,
in lieu
of the shares of the Common Stock (or
other
securities, cash, assets or other property) purchasable
upon the exercise of the Warrant prior to such Fundamental
Transaction,
such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had the Warrant been exercised immediately prior to such Fundamental
Transaction. Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Holder. The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise
of
this Warrant.
7
(c) Notwithstanding
and without limiting the foregoing, in the event of a Fundamental Transaction
where the consideration consists of all or substantially all cash, at the
request of the Holder delivered before the 90th day after such Fundamental
Transaction, the remaining unexercised portion of this Warrant on the date
of
such Fundamental Transaction (as assumed and/or replaced by the Successor Entity
as provided in Section 4(b) above) shall be exercisable for the capital stock
of
the Successor Entity (and not just for the cash consideration payable in respect
of the shares of Common Stock in the Fundamental Transaction) and the exercise
price and number of shares issuable upon the exercise thereof shall be equitably
adjusted to provide the Holder with a warrant of equivalent value to the Warrant
held by the Holder immediately prior to the closing of Fundamental
Transaction.
5. NONCIRCUMVENTION.
The
Company hereby covenants and agrees that the Company will not, by amendment
of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue
or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at
all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as this Warrant is
outstanding, take all action necessary to reserve and keep available out of
its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of this Warrant, the number of shares of Common Stock
as
shall from time to time be necessary to effect the exercise of this Warrant
then
outstanding (without regard to any limitations on exercise).
6. WARRANT
HOLDER NOT DEEMED A STOCKHOLDER.
Except
as otherwise specifically provided herein, the Holder, solely in such Person's
capacity as a holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give
or
withhold consent to any corporate action (whether any reorganization, issue
of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed
as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.
8
7. REISSUANCE
OF WARRANTS.
(a) Transfer
of Warrant.
If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Warrant (in accordance with Section 7(d)), registered as
the
Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.
(b) Lost,
Stolen or Mutilated Warrant.
Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder
to
the Company in customary form and, in the case of mutilation, upon surrender
and
cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (in accordance with Section 7(d)) representing the right
to
purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable
for Multiple Warrants.
This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance
with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as
is
designated by the Holder at the time of such surrender; provided, however,
that
no Warrants for fractional shares of Common Stock shall be given.
(d) Issuance
of New Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms
of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right
to
purchase the Warrant Shares then underlying this Warrant (or in the case of
a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant
Shares designated by the Holder which, when added to the number of shares of
Common Stock underlying the other new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such
new Warrant which is the same as the Issuance Date, and (iv) shall have the
same
rights and conditions as this Warrant.
9
8. NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f)
of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
9. AMENDMENT
AND WAIVER.
Except
as expressly provided herein, neither this Warrant nor any term hereof may
be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
10. GOVERNING
LAW.
This
Warrant shall be governed by and construed and enforced in accor-dance with,
and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the
State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than
the
State of New York.
11. CONSTRUCTION;
HEADINGS.
This
Warrant shall be deemed to be jointly drafted by the Company and all the Buyers
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.
12. DISPUTE
RESOLUTION.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute,
as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination
of
the Exercise Price to an independent, reputable investment bank selected by
the
Company and approved by the Holder or (b) the disputed arithmetic calculation
of
the Warrant Shares to the Company's independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company
and
the Holder of the results no later than ten Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's
or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
10
13. REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder
right
to pursue actual damages for any failure by the Company to comply with the
terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at
law
for any such breach may be inadequate. The Company therefore agrees that, in
the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f)
of
the Securities Purchase Agreement.
15. CERTAIN
DEFINITIONS.
For
purposes of this Warrant, the following terms shall have the following
meanings:
(a)
"Approved
Stock Plan"
means
any employee benefit plan which has been approved by the Board of Directors
of
the Company, pursuant to which the Company's securities may be issued to any
employee, consultant, officer or director for services provided to the
Company.
(b) "Bloomberg"
means
Bloomberg Financial Markets.
(c) "Business
Day"
means
any day other than Saturday, Sunday or other day on which commercial banks
in
The City of New York are authorized or required by law to remain
closed.
(d) "Common
Stock"
means
(i) the Company's shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.
(e) "Common
Stock Deemed Outstanding"
means,
at any given time, the number of shares of Common Stock actually outstanding
at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of
the
Company or issuable upon exercise of this Warrant.
11
(f) "Convertible
Securities"
means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.
(g) "Eligible
Market"
means
the Principal Market, The New York Stock Exchange, Inc., the American Stock
Exchange, The NASDAQ Global Select Market or The NASDAQ Capital
Market.
(h)
"Excluded
Securities"
means
any Common Stock issued or issuable: (i) in connection with any Approved Stock
Plan; (ii) upon the exercise of the Warrants; (iii) in connection with any
strategic acquisition or transaction by the Company, whether through an
acquisition of stock or a merger of any business, assets or technologies the
primary purpose of which is not to raise equity capital; (iv) upon warrants
(exercisable for not more than 500,000 shares in the aggregate) issued to a
bank
or other financial institution in connection with a bona fide non-convertible
loan, equipment leasing or indebtedness transaction and (v) upon exercise of
any
Options or Convertible Securities which are outstanding on the day immediately
preceding the Subscription Date, provided that the terms of such Options or
Convertible Securities are not amended, modified or changed on or after the
Subscription Date.
(i) "Expiration
Date"
means
the date sixty (60) months after the Issuance Date] or, if such date falls
on a
day other than a Business Day or on which trading does not take place on the
Principal Market (a "Holiday"),
the
next date that is not a Holiday…
(j) "Fundamental
Transaction"
means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make
a
purchase, tender or exchange offer that is accepted by the holders of more
than
the 50% of the outstanding shares of Common Stock (not including any shares
of
Common Stock held by the Person or Persons making or party to, or associated
or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making
or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any "person"
or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of
the
Exchange Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.
12
(k) "Options"
means
any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.
(l) "Parent
Entity"
of a
Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent
Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.
(m) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization, any other entity and
a
government or any department or agency thereof.
(n) "Principal
Market"
means
The Nasdaq Global Market.
(o)
"Registration
Rights Agreement"
means
that certain registration rights agreement by and among the Company and the
Buyers.
(p) "Successor
Entity"
means
the Person (or, if so elected by the Holder, the Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or the Person (or,
if so
elected by the Holder, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.
(q) "Trading
Day"
means
any day on which the Common Stock are traded on the Principal Market, or, if
the
Principal Market is not the principal trading market for the Common Stock,
then
on the principal securities exchange or securities market on which the Common
Stock are then traded; provided that "Trading Day" shall not include any day
on
which the Common Stock are scheduled to trade on such exchange or market for
less than 4.5 hours or any day that the Common Stock are suspended from trading
during the final hour of trading on such exchange or market (or if such exchange
or market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York
time).
(r) "Weighted
Average Price"
means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as
reported by Bloomberg through its "Volume at Price" function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or,
if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and
the
lowest closing ask price of any of the market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated
for
such security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of the such security, then such
dispute shall be resolved pursuant to Section 12 with the term "Weighted Average
Price" being substituted for the term "Exercise Price." All such determinations
shall be appropriately adjusted for any share dividend, share split or other
similar transaction during such period.
[Signature
Page Follows]
13
IN
WITNESS WHEREOF,
the
Company has caused this Warrant to Purchase Common Stock to be duly executed
as
of the Issuance Date set out above.
| DISCOVERY LABORATORIES, INC. | ||
| |
|
|
| By: | /s/ John Cooper | |
|
Name: John Cooper Title: Executive
Vice President & CFO
|
||
EXHIBIT
A
EXERCISE
NOTICE
TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT
TO PURCHASE COMMON STOCK
DISCOVERY
LABORATORIES, INC.
The
undersigned holder hereby exercises the right to purchase _________________
of
the shares of Common Stock ("Warrant
Shares")
of
Discovery Laboratories, Inc., a Delaware corporation (the "Company"),
evidenced by the attached Warrant to Purchase Common Stock (the "Warrant").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
1.
Form
of Exercise Price. The Holder intends that payment of the Exercise Price shall
be made as:
____________ a
"Cash
Exercise"
with
respect to _________________ Warrant Shares; and/or
____________ a
"Cashless
Exercise"
with
respect to _______________ Warrant Shares.
2.
Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.
3.
Delivery of Warrant Shares. The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant.
Date:
_______________ __, ______
_____________________________
Name
of
Registered Holder
By:
_____________________________
Name:
Title:
ACKNOWLEDGMENT
The
Company hereby acknowledges this Exercise Notice and hereby directs [Transfer
Agent]
to issue
the above indicated number of shares of Common Stock in accordance with the
Transfer Agent Instructions dated November [__], 2006 from the Company and
acknowledged and agreed to by [Transfer
Agent].
DISCOVERY
LABORATORIES, INC.
By:_________________________________
Name:
Title:
Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT
(the
"Agreement"),
dated
as of November 22 2006, by and among Discovery Laboratories, Inc., a Delaware
corporation, with headquarters located at 2600 Kelly Road, Suite 100,
Warrington, PA 18976 (the "Company")
and
Capital Ventures International, a Cayman Islands company (the "Buyer").
WHEREAS:
A. The
Company and the Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended (the "1933
Act"),
and
Rule 506 of Regulation D ("Regulation
D")
as
promulgated by the United States Securities and Exchange Commission (the
"SEC")
under
the 1933 Act.
B. The
Buyer
wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, 4,629,630 shares (the “Common
Shares”)
of the
Common Stock, par value $0.001 per share, of the Company (the "Common
Stock")
(ii) a
warrant to acquire up to 2,314,815 additional shares of Common Stock, in
substantially the form attached hereto as Exhibit
A
(as
exercised, collectively, the "Warrant
Shares").
C. Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in
the
form attached hereto as Exhibit
B
(the
"Registration
Rights Agreement")
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Common Shares, and the Warrant Shares under the 1933 Act
and
the rules and regulations promulgated thereunder, and applicable state
securities laws.
D. The
Common Shares, the Warrant and the Warrant Shares collectively are referred
to
herein as the "Securities".
NOW,
THEREFORE,
the
Company and the Buyer hereby agree as follows:
|
1.
|
PURCHASE
AND SALE OF COMMON SHARES AND
WARRANT
|
(a) Purchase
of Common Shares and Warrant.
Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and
7
below, the Company shall issue and sell to the Buyer, and the Buyer agrees
to
purchase from the Company on the Closing Date (as defined below), the number
of
Common Shares, along
with the Warrant to acquire up to that number of Warrant Shares as is set forth
above (the "Closing").
The
Closing shall occur on the Closing Date at the offices of Dickstein Shapiro
LLP
at 1177 Avenue of the Americas, 47th Floor, New York, NY 10036-2714, or at
such
other location as may be mutually agreed upon by the parties
(b) Purchase
Price.
The
purchase price for the Common Shares and related Warrant to be purchased by
the
Buyer at the Closing shall be $10,000,000 (the "Purchase
Price").
(c) Closing
Date.
The
date and time of the Closing (the "Closing
Date")
shall
be 10:00 a.m., New York City Time, on the date hereof (or such other date and
time as is mutually agreed to by the Company and the Buyer).
(d) Form
of Payment.
On the
Closing Date, (i) the Buyer shall pay its respective Purchase Price to the
Company for the Common Shares and Warrant to be issued and sold to the Buyer
at
the Closing, by wire transfer of immediately available funds in accordance
with
the Company's written wire instructions, and (ii) the Company shall deliver
to the Buyer (A) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in Section 2(h)
hereof), evidencing the number of Common Shares the Buyer is purchasing and
(B)
a Warrant pursuant to which the Buyer shall have the right to acquire the number
of Warrant Shares, in all cases duly executed on behalf of the Company and
registered in the name of the Buyer.
2. BUYER'S
REPRESENTATIONS, WARRANTIES AND COVENANTS.
The
Buyer
represents and warrants that:
(a) Organization
and Qualification.
Buyer
is duly organized and validly existing in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authorization to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5), the Warrant and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents").
(b) No
Public Sale or Distribution.
The
Buyer is (i) acquiring the Common Shares and the Warrant and (ii) upon exercise
of the Warrant will acquire the Warrant Shares issuable upon exercise thereof,
in the ordinary course of business for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act
and
the Buyer does not have a present arrangement to effect any distribution of
the
Securities to or through any person or entity; provided,
however,
that by
making the representations herein, the Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
(c) Accredited
Investor Status.
The
Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D. Buyer hereby represents that (i) Buyer was contacted regarding
the
sale of the Securities by the Agent (as defined below) or the Company (or an
authorized agent or representative thereof) with whom Buyer had a prior
substantial pre-existing relationship and (ii) no Securities were offered or
sold to it by means of any form of general solicitation or general advertising,
and in connection therewith, Buyer did not: (X) 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 (Y) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising. Buyer is not itself a “broker” or a
“dealer” as defined in the Securities Exchange Act of 1934, as amended (the
"1934
Act")
and is
not an “affiliate” of the Company as defined in Rule 405 promulgated under the
Securities Act.
2
(d) Reliance
on Exemptions.
The
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the
Securities.
(e) Information.
The
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by the Buyer.
The Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by the Buyer or its advisors, if any, or its
representatives shall modify, amend or affect the Buyer's right to rely on
the
Company's representations and warranties contained herein. The Buyer understands
that its investment in the Securities involves a high degree of risk and is
able
to afford a complete loss of such investment. The Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
The Buyer has not relied on any information or advice furnished by or on behalf
of the Agent in connection with the transactions contemplated
hereby.
(f) No
Governmental Review.
The
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(g) Transfer
or Resale.
The
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933
Act
or any state securities laws, and may not be offered for sale, sold, assigned
or
transferred unless (A) subsequently registered thereunder, (B) the Buyer shall
have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) the Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended,
(or a successor rule thereto) (collectively, "Rule
144");
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(r)) through whom the sale is made)
may
be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules
and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act
or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. Notwithstanding the foregoing, the Securities may be
pledged in connection with a bona fide margin account or other loan secured
by
the Securities and such pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Buyer effecting
a pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document, including, without limitation, this Section
2(g); provided, that in order to make any sale, transfer or assignment of
Securities, the Buyer and its pledgee makes such disposition in accordance
with
or pursuant to a registration statement or an exemption under the 1933
Act.
3
(h) Legends.
The
Buyer understands that the certificates or other instruments representing the
Common Shares and the Warrant and, until such time as the resale of the Common
Shares and the Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Warrant Shares, except as set forth below, shall bear any
legend as required by the "blue sky" laws of any state and a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
[NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
(i) Validity;
Enforcement.
This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of the Buyer and shall constitute
the legal, valid and binding obligations of the Buyer enforceable against the
Buyer in accordance with their respective terms, except
as
rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, except
as
such enforceability may be limited by general principles of equity,
including as to limitations on the enforcement of the remedy of specific
performance and other equitable remedies (regardless of whether such
enforceability is considered in a proceeding in equity or at law),
or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' and contracting parties’ rights and remedies. The persons
signing on behalf of Buyer hereby warrant and represent that they have the
authority to execute and deliver this Agreement on behalf of Buyer.
4
(j) No
Conflicts.
The
execution, delivery and performance by the Buyer of this Agreement and the
Registration Rights Agreement and the consummation by the Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of the Buyer or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Buyer is a party, or (iii) result in a violation of
any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to the Buyer, except in the case of clauses (ii)
and
(iii) above, for such conflicts, defaults, rights or violations which would
not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of the Buyer to perform its obligations
hereunder.
(k) Residency.
The
Buyer is a resident of the Cayman Islands.
(l)
Illegal Transactions.
The
Buyer has not,
directly or indirectly, and no Person acting on behalf of or pursuant to any
understanding with the Buyer, has engaged in any transactions in the securities
of the Company (including, without limitation, any Short Sales involving any
of
the Company’s securities) since the time that the Buyer was first contacted by
the Company or the Agent regarding the investment in the Company contemplated
by
this Agreement. The Buyer covenants that neither it nor any Person acting on
its
behalf or pursuant to any understanding with the Buyer will engage, directly
or
indirectly, in any transactions in the securities of the Company (including
Short Sales) prior to the time the transactions contemplated by this Agreement
are publicly disclosed. “Short
Sales” include,
without limitation, all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act and all types of direct and indirect
stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps,
derivatives and similar arrangements (including on a total return basis), and
sales and other transactions through non-U.S. broker-dealers or foreign
regulated brokers.
(m) No
Brokers.
Buyer
represents and warrants that it has not “engaged,” “consented to” or
“authorized” any broker, finder or intermediary to act on its behalf, directly
or indirectly, as a broker, finder or intermediary in connection with the
transactions contemplated by this Agreement. Buyer agrees to indemnify and
hold
harmless the Company from and against all fees, commissions or other payments
owing to any such person or firm acting on behalf of Buyer. Buyer acknowledges
that the Agent is acting as placement agent of the Company in connection with
the Offering and will be compensated by the Company for acting in such
capacity.
(n) Reliance
on Representations.
The
Buyer acknowledges that the Company and its counsel are entitled to rely on
the
representations and warranties made herein and otherwise requested by the
Company for use in preparation of the Registration Statement to be filed by
the
Company pursuant to Registration Rights Agreement. All such information shall
be
true, correct and complete as of the date of this Agreement, the Closing Date
and the filing date for any such Registration Statement. The Buyer will notify
the Company of any change in any such information until such time as the Company
is no longer required to keep the Registration Statement effective.
5
(o) Pre-existing
Registration Rights.
The
Buyer acknowledges that holders of 500,000 shares of the Company’s Common Stock
that have been previously issued by the Company, or are issuable by the Company
upon the exercise of certain warrants, may have certain “piggyback” and or
“demand” registration rights and may elect to exercise such rights in connection
with any registration statement to be filed by the Company pursuant to the
Registration Rights Agreement, and that the exercise of any such rights, and
the
performance by the Company of its obligations in connection therewith shall
not
be a violation of the terms of this Agreement and the Registration Rights
Agreement.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to the Buyer that:
(a) Organization
and Qualification.
Each of
the Company and its "Subsidiaries"
(which
for purposes of this Agreement means any entity (i) in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest and (ii) which has operations and material assets) are corporations
duly organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power and authorization to own their properties and to carry on their business
as now being conducted. Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
have
a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect"
means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents; provided, however, that changes relating to (i) the
economy in general, (ii) the Company’s industry in general or (iii) the
Company’s working capital and liquidity shall not in itself be deemed to arise
to a Material Adverse Effect. The
Company has no subsidiaries other than its presently inactive subsidiary, Acute
Therapeutics, Inc., which has been inactive from the date of its
inception.
(b) Authorization;
Enforcement; Validity.
The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Registration Rights Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5), the
Warrant and each of the other agreements entered into by the parties hereto
in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction
Documents")
and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Common Shares and the Warrant
and the reservation for issuance and the issuance of the Warrant Shares issuable
upon exercise of the Warrant have been duly authorized by the Company's Board
of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders. This Agreement and the other
Transaction Documents have been duly executed and delivered by the Company,
and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except
as
rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, except
as
such enforceability may be limited by general principles of equity,
including as to limitations on the enforcement of the remedy of specific
performance and other equitable remedies (regardless of whether such
enforceability is considered in a proceeding in equity or at law),
or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' and contracting parties’ rights and remedies.
6
(c) Issuance
of Securities.
The
Common Shares and the Warrant are duly authorized and, upon issuance in
accordance with the terms hereof and receipt by the Company of the Purchase
Price therefor, shall be validly issued and free from all taxes, liens and
charges (other
than arising under federal or state securities or “blue sky” laws and
regulations) with
respect to the issue thereof and the Common Shares shall be fully paid and
nonassessable with the holders being entitled to all rights accorded to a holder
of Common Stock. As of the Closing Date, the Company shall have duly authorized
and reserved for issuance a number of shares of Common Stock which equals the
number of Warrant Shares. The Company shall, so long as any portion of the
Warrant is outstanding, take all action necessary to reserve and keep available
out of its authorized and unissued Capital Stock, solely for the purpose of
effecting the exercise of the Warrant, 100% of the number of shares of Common
Stock issuable upon exercise of the Warrant (subject to reduction from time
to
time for Common Stock issued upon exercise of the Warrant). Upon exercise in
accordance with the Warrant, the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof (other
than arising under federal or state securities or “blue sky” laws and
regulations),
with
the holders being entitled to all rights accorded to a holder of Common Stock.
Subject
to the accuracy of the representations and warranties of Buyer contained in
Section 2 of this Agreement, issuance
by the Company of the Securities
contemplated by this Agreement are exempt from the registration requirements
of
the 1933 Act.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby
and
thereby (including, without limitation, the issuance of the Common Shares and
Warrant and reservation for issuance and issuance of the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation (as defined
below) or Bylaws (as defined below) of the Company or any of its Subsidiaries
or
(ii) conflict with, or constitute a default (or an event which with notice
or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market)
applicable to the Company or any of its Subsidiaries or by which any property
or
asset of the Company or any of its Subsidiaries is bound or affected, except
in
the case of clauses (ii) and (ii), above, for such matters
which, either individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect.
7
(e) Consents.
Except
for
the filing of a Notice of Additional Listing with NASDAQ (which the Company
will
file with NASDAQ no later than the Closing Date), registration of the Common
Shares and the Warrant Shares issuable upon exercise of the Warrant under the
Securities Act, the listing of the Common Shares and the Warrant Shares on
the
Nasdaq Global Market and such consents, notifications, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state securities or “blue sky” laws in connection
with the purchase of the Securities by Buyer,
the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by
the
Transaction Documents, in each case in accordance with the terms hereof or
thereof. The Company and its Subsidiaries are unaware of any facts or
circumstances that might prevent the Company from obtaining or effecting any
of
the registration, application or filings pursuant to the preceding sentence.
Except for such matters
that, either individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect, the
Company is not in violation of the listing requirements of the Principal Market
and has no knowledge of any facts that would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.
(f) Acknowledgment
Regarding Buyer's Purchase of Securities.
The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that the Buyer is not (i)
an
officer or director of the Company, (ii) an "affiliate" of the Company (as
defined in Rule 144) or (iii) to the Knowledge of the Company (defined below),
a
"beneficial owner" of more than 10% of the Common Stock (as defined for purposes
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"1934
Act")).
The
Company further acknowledges that the Buyer is not acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby,
and
any advice given by the Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to the Buyer's purchase of the
Securities. The Company further represents to the Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives. For the purposes
of this Agreement, the term “Knowledge of the Company” shall mean the knowledge,
after due inquiry, of the President and Chief Executive Officer, the Chief
Financial Officer, the Executive Vice President and General Counsel and any
other Executive Vice Presidents or persons holding comparable positions in
the
Company.
(g) No
General Solicitation; Placement Agent's Fees.
Neither
the Company, nor any of its affiliates, nor, to the Knowledge of the Company,
any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities. The Company shall be
responsible for the payment of any placement agent's fees, financial advisory
fees, or brokers' commissions for any placement agent, financial advisor or
broker engaged by the Company or its affiliates or acting on behalf of the
Company relating to or arising out of the transactions contemplated hereby.
The
Company shall pay, and hold the Buyer harmless against, any fees, commissions
or
other payments or related expense (including, without limitation, attorney's
fees and out-of-pocket expenses) arising in connection with any such claim.
The
Company has engaged Jefferies & Co. as placement agent in connection with
the sale of the Securities (the "Agent").
Other
than the Agent, the Company has not engaged any placement agent or other agent
in connection with the sale of the Securities.
8
(h) No
Integrated Offering.
None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting
on
their behalf has taken any action to sell, offer for sale or solicit offers
to
buy any securities of the Company which would require registration of any of
the
Securities under Section 5 of the 1933 Act, unless such offer, issuance or
sale
was or shall be within the exemptions of Section 4 of the 1933 Act. The
Company
has offered securities for sale only to “accredited investors” within the
meaning of Rule 501 under the Securities Act. The Company is not required to
obtain stockholder approval of the transactions contemplated by this Agreement
under the listing or maintenance requirements of the Primary Market. None of
the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps that would require registration of any
of
the Securities under the 1933 Act or cause the offering of the Securities to
be
integrated with other offerings, for purposes of the 1933 Act or the
requirements of the Principal Market.
(i) Application
of Takeover Protections; Rights Agreement.
The
Company and its board of directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the State of Delaware which is or could become applicable to
the
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and the Buyer's
ownership of the Securities.
(j) SEC
Documents; Financial Statements.
During
the two years prior to the date hereof, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof or prior to the date of the
Closing, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC
Documents").
As of
their respective dates, the SEC Documents complied in all material respects
with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
Company’s Subsidiary is not required to file any reports or other documents with
the SEC. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects
with
applicable accounting requirements and the published rules and regulations
of
the SEC with respect thereto. Such financial statements have been prepared
in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company 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 statements, to normal year-end audit
adjustments). With respect to the transactions contemplated by this Agreement,
none of the information referred to in Section 2(d) of this Agreement provided
by or on behalf of the Company to the Buyer which is not included in the SEC
Documents contains any untrue statement of a material fact or omits to state
any
material fact necessary in order to make the statements therein, in the light
of
the circumstance under which they are or were made, not misleading.
9
(k) Absence
of Certain Changes.
Except
as disclosed in the
SEC
Documents and Schedule
3(k),
since
September 30, 2006, there has been no material adverse change and no material
adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company
or
its Subsidiaries. Except as disclosed in the SEC Documents and Schedule
3(k),
since
September 30, 2006, the Company has not (i) declared or paid any dividends,
(ii)
sold any assets, individually or in the aggregate, in excess of $500,000 outside
of the ordinary course of business or (iii) had capital expenditures,
individually or in the aggregate, in excess of $500,000. The Company has not
taken any steps to seek protection pursuant to any bankruptcy law nor does
the
Company have any knowledge or reason to believe that its creditors intend to
initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact
which would reasonably lead a creditor to do so.
(l) No
Undisclosed Events, Liabilities, Developments or Circumstances.
Except
for the transactions contemplated by this Agreement, no material event,
liability, development or circumstance has occurred or exists with respect
to
the Company or its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by
the
Company of its Common Stock and which has not been publicly
announced.
(m) Conduct
of Business; Regulatory Permits.
Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under the Certificate of Incorporation or Bylaws or their organizational charter
or bylaws, respectively. To the Knowledge of the Company, neither the Company
nor any Subsidiary is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing, to the
Knowledge of the Company, the Company is not in violation in any material
respect of any of the rules, regulations or requirements of the Principal Market
and the Company has no Knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Since December 31, 2005, (i) the Common Stock
has been designated for quotation or listed on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) except as disclosed in Schedule
3(m),
the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the violation of a Nasdaq Marketplace Rule or the
suspension or delisting of the Common Stock from the Principal Market. The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where
the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and, to the
Knowledge of the Company, neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of
any such certificate, authorization or permit.
10
(n) Foreign
Corrupt Practices.
To the
Knowledge of the Company, neither the Company, nor any of its Subsidiaries,
nor
any director, officer, agent, employee or other Person acting on behalf of
the
Company or any of its Subsidiaries has, in the course of its actions for, or
on
behalf of, the Company knowingly and intentionally (i) used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the
U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to
any foreign or domestic government official or employee.
(o) Sarbanes-Oxley
Act.
The
Company is in compliance with all applicable provisions of the Sarbanes-Oxley
Act of 2002 that are effective as of the date hereof, and all applicable rules
and regulations promulgated by the SEC thereunder that are effective as of
the
date hereof, except where such noncompliance would not reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect.
(p) Transactions
With Affiliates.
Except
as set forth in the SEC Documents, none of the officers, directors or employees
of the Company is presently a party to any transaction with the Company or
any
of its Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real
or personal property to or from, or otherwise requiring payments to or from
any
such officer, director or employee or, to the Knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
(q) Equity
Capitalization.
As of
November 16, 2006, the authorized capital stock of the Company consists of
180
million shares of Common Stock and 5 million shares of Preferred Stock, of
which
(i) 64,949,901 shares are issued and outstanding, 11,207,822 shares are reserved
for issuance pursuant to the Company's stock option (of which 9,472,786 relate
to outstanding options), 4,210,203 shares are reserved for issuance pursuant
to
securities (other than the aforementioned options and the Warrant) exercisable
or exchangeable for, or convertible into, shares of Common Stock, and 362,972
shares are reserved for issuance pursuant to the Company’s 401(k) Plan. All such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule
3(q)
or as
described in or contemplated by the SEC Documents: (i) none of the Company's
capital stock is subject to preemptive rights or any other similar rights or
any
liens or encumbrances suffered or permitted by the Company; (ii) there are
no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of
the
Company or any of its Subsidiaries, or contracts, commitments, understandings
or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of
the
Company or any of its Subsidiaries; (iii) except for Indebtedness of the
Company incurred in the ordinary course of business of the Company, which in
the
aggregate would not reasonably be expected to have a Material Adverse Effect,
there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing material
Indebtedness of the Company or any of its Subsidiaries or by which the Company
or any of its Subsidiaries is or may become bound; (iv) except for
financing statements related to Indebtedness of the Company described in the
SEC
Documents, there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) there are no material agreements
or
arrangements under which the Company or any of its Subsidiaries is obligated
to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement); (vi) there are no outstanding securities
or instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance
of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no material liabilities or
obligations required to be disclosed in the SEC Documents but not so disclosed
in the SEC Documents, other than those incurred in the ordinary course of the
Company's or its Subsidiaries' respective businesses and which, individually
or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
11
(r) Indebtedness
and Other Contracts.
Except
as disclosed in or contemplated by the SEC Documents or on Schedule
3(r),
neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness
(as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to result in
a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) "Indebtedness"
of any
Person means, without duplication (A) all indebtedness for borrowed money,
(B)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services (including, without limitation, "capital leases" in
accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect
to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the
event of default are limited to repossession or sale of such property), (F)
all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent
Obligation"
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
12
(s) Absence
of Litigation.
Except
as described in the SEC Documents, there are no actions, suits, proceedings,
inquiries or investigations before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or,
to
the Knowledge of the Company, threatened against or affecting the Company,
the
Common Stock or any of its Subsidiaries or any of the Company's or the Company's
Subsidiary's officers or directors, whether of a civil or criminal nature or
otherwise, which, individually or in the aggregate, might reasonably be expected
to have a Material Adverse Effect.
(t) Insurance.
The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company
nor
any Subsidiary has received any notice or obtained any Knowledge of
circumstances indicating that they will not be able to renew their existing
insurance coverage (modified to the extent deemed prudent and customary by
the
management of the Company) as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that is commercially reasonable and not reasonably likely
to
result in a Material Adverse Effect.
(u) Employee
Relations.
The
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer of the Company (as defined in Rule 501(f) of
the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
No
executive officer of the Company, to the Knowledge of the Company, is, or is
now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any restrictive covenant to which the Company
and
such executive are parties, and, to the Knowledge of the Company, the continued
employment of each such executive officer does not subject the Company or any
of
its Subsidiaries to any liability with respect to any of the foregoing matters.
The Company and its Subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
13
(v) Title.
Except
as described in or contemplated by the SEC Documents, the Company and its
Subsidiaries have good and marketable title to all personal property owned
by
them which is material to their respective business, in each case free and
clear
of all liens, encumbrances and defects except such as do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and any of its Subsidiaries. Any
real
property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries. The Company owns no real property.
(w) Intellectual
Property Rights.
The
Company owns or licenses all the proprietary rights ("Intellectual
Property Rights")
which
are necessary for the business of the Company as now conducted. The Company
does
not have any Knowledge of any infringement by the Company or its Subsidiaries
of
Intellectual Property Rights of others. To the Knowledge of the Company, there
is no claim, action or proceeding being made, brought or threatened against
the
Company or any of its Subsidiaries regarding its Intellectual Property Rights.
The Company has no Knowledge of any facts or circumstances which might give
rise
to any of the foregoing infringements or claims, actions or proceedings. The
Company and its Subsidiaries have taken commercially reasonable measures to
protect the secrecy, confidentiality and value of all of their Intellectual
Property Rights.
(x) Environmental
Laws.
To the
Knowledge of the Company, the Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to
so
comply could be reasonably expected to have, individually or in the aggregate,
a
Material Adverse Effect. The term "Environmental
Laws"
means
all federal, state or local laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, "Hazardous
Materials") into
the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
14
(y) Tax
Status.
The
Company and each of its Subsidiaries (i) has made or timely filed all federal
and material state income and other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes
and
other governmental assessments and charges that are material in amount, shown
or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of any taxes payable for periods subsequent
to the periods to which such returns, reports or declarations apply. To the
Knowledge of the Company, there are no unpaid taxes in any material amount
claimed to be due and payable by the taxing authority of any jurisdiction and
no
factual basis for any such claim.
(z) Internal
Accounting and Disclosure Controls.
The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles (GAAP)
and to maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization and (iv)
the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 1934 Act) that are designed to ensure
that information required to be disclosed by the Company in the reports that
it
files or submits under the 1934 Act (i) is recorded, processed, summarized
and
reported, within the time periods specified in the rules and forms of the SEC,
and (ii) is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure.
(aa) Form
S-3 Eligibility.
The
Company is eligible to register the Common Shares and the Warrant Shares for
resale by the Buyer using Form S-3 promulgated under the 1933 Act.
(bb) Off
Balance Sheet Arrangements.
There
is no transaction, arrangement, or other relationship between the Company and
an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed
and
that would be reasonably likely to have a Material Adverse Effect.
(cc) Manipulation
of Price.
The
Company has not, and, to the Knowledge of the Company, no one acting on its
behalf has, (i) taken, directly or indirectly, any action designed to cause
or
to result in the stabilization or manipulation of the price of any security
of
the Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or paid any compensation for soliciting purchases
of,
any of the Securities, other than the Agents' placement of the Securities,
or
(iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(dd) Transfer
Taxes.
On the
Closing Date, all stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the sale and transfer
of
the Securities to be sold to the Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes
will
be or will have been complied with.
15
(ee) Disclosure.
The
Company confirms that, with the exception of the transactions contemplated
by
this Agreement, neither it nor, to the Knowledge of the Company, any other
Person acting on its behalf has provided the Buyer or its agents or counsel
with
any information that constitutes material, nonpublic information. The Company
understands and confirms that the Buyer will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided by the Company to the Buyer regarding the Company, its
business and the transactions contemplated hereby, including the Schedules
to
this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state
any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. To the
Knowledge of the Company, no event or circumstance has occurred or information
exists with respect to the Company or any Subsidiary or either of its or their
respective business, properties, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under
the
Exchange Act of 1934, as amended, are being incorporated into an effective
registration statement filed by the Company under the 1933 Act). The Company
acknowledges and agrees that the Buyer does not make and has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in the Transaction
Documents.
(ff) Acknowledgement
Regarding Buyer's Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
but subject to compliance by the Buyer with applicable law, it is understood
and
acknowledged by the Company (i) that the Buyer has not been asked to agree,
nor
has the Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that
past
or future open market or other transactions by the Buyer, including, without
limitation, short sales or "derivative" transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company's publicly-traded securities; (iii) that the
Buyer, and counter parties in "derivative" transactions to which the Buyer
is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iv) that the Buyer shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges
that
(a) the Buyer may engage in hedging activities at various times during the
period that the Securities are outstanding and (b) such hedging activities
(if
any) could reduce the value of the existing stockholders' equity interests
in
the Company at and after the time that the hedging activities are being
conducted.
(gg) No
Implied Representations.
All of
the Company’s representations and warranties are contained in this Agreement,
and no other representations or warranties by the Company shall be
implied.
16
4. COVENANTS.
(a) Best
Efforts.
Each
party shall use its best efforts timely to satisfy each of the covenants and
the
conditions to be satisfied by it as provided in Sections 5, 6 and 7 of this
Agreement.
(b) Form
D
and Blue Sky.
The
Company agrees to file a Form D with respect to the Securities as required
under
Regulation D and to provide a copy thereof to the Buyer promptly after such
filing. The Company, on or before the Closing Date, shall take such action
as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyer at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of
the
states of the United States (or to obtain an exemption from such qualification),
and shall provide evidence of any such action so taken to the Buyer on or prior
to the Closing Date. The Company shall make all filings and reports relating
to
the offer and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States only in such jurisdictions
as
Buyer shall reasonably request following the Closing Date.
(c) Reporting
Status.
Until
the date which is the later of the date on which (i) the Investor (as
defined in the Registration Rights Agreement) shall have sold all the Common
Shares and Warrant Shares and
the
Warrant is no longer outstanding or (ii) the Company is no longer obligated
under the Registration Rights Agreement to maintain the registration statement
filed thereunder (the "Reporting
Period"),
the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
(d) Use
of
Proceeds.
The
Company will use substantially all of the proceeds from the sale of the
Securities for purposes set forth in the Registration Statement to be filed
by
the Company pursuant to the Registration Rights Agreement but in no event for
(i) the repayment of any outstanding Indebtedness of the Company or any of
its
Subsidiaries or (ii) the redemption or repurchase of any of its or its
Subsidiaries' equity securities.
(e) Financial
Information.
The
Company agrees to send the following to each Investor during the Reporting
Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, and (ii) to the extent not filed with the SEC
through EDGAR, copies of any notices and other information made available or
given to the stockholders of the Company generally, contemporaneously with
the
making available or giving thereof to the stockholders. As used herein,
"Business
Day"
means
any day other than Saturday, Sunday or other day on which the Primary Market
or
commercial banks in The City of New York are authorized or required by law
to
remain closed.
(f) Listing.
The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Registrable Securities from time to time issuable under the
terms
of the Transaction Documents. The Company shall maintain the Common Stock's
authorization for listing on the Principal Market. Neither the Company nor
any
of its Subsidiaries shall take any action which would be reasonably expected
to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
17
(g) Fees.
Subject
to Section 8 below, at the Closing the Company shall pay an expense allowance
to
the Buyer or its designee(s) in an amount equal to $15,000 (reduced by the
amount of any deposit heretofore paid) to cover the costs, fees and expenses
incurred in connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereunder, which amount shall be
withheld by Buyer from the Purchase Price at the Closing. The Company shall
be
responsible for the payment of any fees or commissions due to any placement
agent, financial advisor, or broker engaged by Buyer relating to or arising
out
of the transactions contemplated hereby, including, without limitation, any
fees
payable to the Agent.
(h) Pledge
of Securities.
The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with
a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to
be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(g) of this Agreement; provided that an Investor and its pledgee shall
be required to comply with the provisions of Section 2(g) of this Agreement in
order to effect a sale, transfer or assignment of Securities to such pledgee.
The Company hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by an Investor.
(i) Disclosure
of Transactions and Other Material Information.
The
Company shall, on or before 8:30 a.m., New York City Time, no later than
the first Business Day after the date of this Agreement, issue a press release
(the "Press
Release")
disclosing the material terms of the transactions contemplated hereby. The
Company shall provide the Buyer an advance copy of the Press Release and agrees
to consider comments that the Buyer may provide but shall nevertheless be
entitled to make such disclosure as it deems appropriate to meet its disclosure
obligations under the 34 Act. On
or
before 8:30 a.m., New York City Time, no later than the third Business Day
following the Closing Date, the Company shall file a Current Report on Form
8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act, and attaching the material
Transaction Documents (including, without limitation, this Agreement (without
the schedules), the form of Warrant and the Registration Rights Agreement)
as
exhibits to such filing (including all attachments, the "8-K
Filing").
From
and after the issuance of the Press Release, the Buyer shall not be in
possession of any material, nonpublic information received from the Company,
any
of its Subsidiaries or any of its respective officers, directors, employees
or
agents, that is not disclosed in the Press Release. The Company shall not,
and
shall cause each of its Subsidiaries and each of their respective officers,
directors, employees and agents, not to, provide the Buyer with any material,
nonpublic information regarding the Company or any of its Subsidiaries from
and
after the filing of the Press Release without the express written consent of
the
Buyer pursuant to a Confidentiality and Nondisclosure Agreement.
18
(j) Reservation
of Shares.
The
Company shall at all times have authorized, and reserved for the purpose of
issuance, from and after the Closing Date, the number of shares of Common Stock
issuable upon exercise of the Warrant being issued at the Closing (reduced
from
time to time by the number of shares of Common Stock that shall have been
previously exercised under the Warrant) in conformity with
Section 3(c).
(k) Conduct
of Business.
The
Company shall use commercially reasonable efforts to conduct its business to
avoid violations of any law, ordinance or regulation of any governmental entity,
except where such violations would not, either individually or in the aggregate,
be reasonably expected to result in a Material Adverse Effect.
(l) Additional
Issuances of Securities.
(i)For
purposes of this Section 4(m), the following definitions shall
apply.
"Convertible
Securities"
means
any stock or securities (other than Options) convertible into or exercisable
or
exchangeable for shares of Common
Stock.
"Options"
means
any rights, warrants or options to subscribe for or purchase shares of
Common
Stock or
Convertible Securities.
"Common
Stock Equivalents"
means,
collectively, Options and Convertible Securities.
(ii)From
the
date hereof until the date that is the later of (A) seventy-five (75) days
from
the Closing Date and (b) the Effective Date (as defined in the Registration
Rights Agreement) (the "Trigger
Date"),
other
than in respect of the shares described on Schedule 4(m), the Company will
not,
directly or indirectly, file any registration statement with the SEC other
than
the Registration statement (as defined in the Registration Rights Agreement).
From the date hereof until the Trigger Date, the Company will not, other than
with respect to the transactions described on Schedule 4(m), directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose
of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries' equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "Subsequent
Placement").
19
5. TRANSFER
RESTRICTIONS; TRANSFER AGENT INSTRUCTIONS.
(a) Transfer
Restrictions.
The
legend set forth in Section 2(h) shall be removed and the Company shall issue
a
certificate without such legend or any other legend to the holder of the
applicable Securities upon which the legend is stamped, if (i) such Securities
are registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that such sale,
assignment or transfer of such Securities may be made without registration
under
the applicable requirements of the 1933 Act, or (iii) such holder provides
the
Company with reasonable assurance (in form acceptable to the Company) that
such
Securities can be sold, assigned or transferred pursuant to Rule
144.
The
Company shall use commercially reasonable efforts to cause Company Counsel
(as
defined below) to issue the legal opinion included in the Irrevocable Transfer
Agent Instructions to the Company’s transfer agent within five business days of
the Effective Date. Following the Effective Date or at such earlier time as
a
legend is no longer required for certain Securities, the Company will no later
than five Business Days following the delivery by the Buyer to the Company
or
the Company’s transfer agent of a legended certificate representing such
Securities, instruct its transfer agent to deliver to the Buyer a certificate
representing such Securities that is free from all restrictive and other
legends. The Company shall pay all transfer agent and related fees in connection
with such issuance and provided
that the Transfer Agent is participating in The Depository Trust Company
("DTC")
Fast
Automated Securities Transfer Program, upon the request of the Buyer, deliver
such shares to the Buyer's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system. Following
the Effective Date and upon the delivery to the Buyer of any certificate
representing Securities that is free from all restrictive and other legends,
the
Buyer agrees that any sale of such Securities shall be made pursuant to the
Registration Statement and in accordance with the plan of distribution described
therein or pursuant to an available exemption from the registration requirements
of the 1933 Act. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in Section 2(h).
(b) Transfer
Agent Instructions.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at DTC, registered in the name of the Buyer or
its
respective nominee(s), for the Warrant Shares in
such
amounts as specified from time to time by the Buyer to the Company upon exercise
of the Warrant (and payment in full for the Warrant Shares) in the form of
Exhibit
C
attached
hereto (the "Irrevocable
Transfer Agent Instructions").
The
Company represents and warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(g) hereof, will be given by the Company
to its transfer agent with respect to the Securities, and that the Securities
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the other Transaction
Documents.
(c) Breach.
The
Company acknowledges that a breach by it of its obligations under this Section
5
will cause irreparable harm to the Buyer. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5
will
be inadequate and agrees, in the event of a breach or threatened breach by
the
Company of the provisions of this Section 5, that the Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
20
6. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Common Shares and
the
related Warrant to the Buyer at the Closing is subject to the satisfaction,
at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Buyer with prior
written notice thereof:
(a)
The
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
(b)
The
Buyer shall have delivered to the Company the Purchase Price, less the amounts
withheld pursuant to Section 4(g), for the Common Shares and the related Warrant
being purchased by the Buyer at the Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(c) The
representations and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as
of a
specific date), and the Buyer shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Buyer at
or
prior to the Closing Date.
7. CONDITIONS
TO BUYER'S OBLIGATION TO PURCHASE.
The
obligation of the Buyer to purchase the Common Shares and the related Warrant
at
the Closing is subject to the satisfaction, at or before the Closing Date,
of
each of the following conditions, provided that these conditions are for the
Buyer's sole benefit and may be waived by the Buyer at any time in its sole
discretion by providing the Company with prior written notice
thereof:
(a) The
Company shall have executed and delivered to the Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (in such amounts as the Buyer
shall request) and
the
related Warrant (in such amounts as the Buyer shall request) being purchased
by
the Buyer at the Closing pursuant to this Agreement.
(b) The
Company shall have delivered to the Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit
C
attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(c)
The
Common Stock (I) shall be listed on the Principal Market and (II) shall not
have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Closing Date, either (A) in
writing by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.
21
(d) The
Company shall have delivered to the Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board
of
Directors in a form reasonably acceptable to the Buyer, (ii) the Certificate
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit
E.
(e)
The
representations and warranties of the Company shall be true and correct as
of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date)
and
the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Buyer shall have received a certificate, executed by the
Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by the Buyer
in the form attached hereto as Exhibit
F.
(f) The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Common Shares and the
Warrant.
(g) The
Company shall have delivered to the Buyer such other documents relating to
the
transactions contemplated by this Agreement as the Buyer or its counsel may
reasonably request.
8. TERMINATION.
In
the
event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) days from the date hereof due to the Company's or the Buyer's
failure to satisfy the conditions set forth in Sections 6 and 7 above (and
the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party.
9. MISCELLANEOUS.
(a) Governing
Law; Jurisdiction; Jury Trial.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and federal courts sitting in The City of New York, Borough of
Manhattan for
the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that
the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to
such
party at the address for such notices to it under this Agreement and agrees
that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
22
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
(c) Headings.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement; Amendments.
This
Agreement supersedes all other prior oral or written agreements between the
Buyer, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended other than by an instrument in writing signed
by
the Company and the Buyer. No provision hereof may be waived other than by
an
instrument in writing signed by the party against whom enforcement is sought.
No
such amendment shall be effective to the extent that it applies to less than
all
of the holders of the Common Shares then outstanding.
(f) Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service,
in
each case properly addressed to the party to receive the same. The addresses
and
facsimile numbers for such communications shall be:
23
If
to the
Company:
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976
Telephone: (215)
488-9300
Facsimile: (215)
488-9301
Attention: John
G.
Cooper, CFO
with
a
copy to (which shall not constitute notice):
Dickstein
Shapiro LLP
1177
Avenue of the Americas
New
York,
NY 10036-2714
Telephone: (212)
277-6686
Facsimile: (212)
277-6501
Attn:
Ira
L. Kotel
If
to the
Transfer Agent:
Continental
Stock Transfer & Trust Company
Attn.:
Bill Seegraber
17
Battery Place, 8th Floor
New
York,
NY 10004
Telephone:
(212)
509-4000
Facsimile:
(212)
509-4000
If
to the
Buyer:
Capital
Ventures International
c/o
Heights Capital Management, Inc.
101
California Street, Suite 3250
San
Francisco, CA 94111
Telephone: (415)
403-6500
Facsimile: (415)
403-6525
Attention: Martin
Kobinger
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided
by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.
24
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns.
(h) No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except that the Agent may
rely upon the representations and warranties contained in Sections 2 and 3
hereof.
(i) Survival.
Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyer contained in Sections 2 and 3, the agreements
and
covenants set forth in Sections 4, 5 and 9 shall survive the Closing and the
delivery and exercise of Securities, as applicable.
(j) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(k) Indemnification.
In
consideration of the Buyer's execution and delivery of the Transaction Documents
and acquiring the Securities thereunder and in addition to all of the Company's
other obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless the Buyer, any affiliate of Buyer and
each
of their respective partners, members, officers, directors, employees and
investors and any of the foregoing Persons' accounting and legal representatives
retained in connection with the transactions contemplated by this Agreement
(collectively, the "Indemnitees")
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified
Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, or (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or
any certificate, instrument or document contemplated hereby or thereby To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment
and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
25
(m) Remedies.
The
Buyer shall have all rights and remedies set forth in the Transaction Documents
and all rights and remedies which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically to recover damages by reason of any breach
of
any provision of this Agreement and to exercise all other rights granted by
law.
(n) Payment
Set Aside.
To the
extent that the Company makes a payment or payments to the Buyer hereunder
or
pursuant to any of the other Transaction Documents or the Buyer enforces or
exercises its rights hereunder or thereunder, and such payment or payments
or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any
law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
[Signature
Page Follows]
26
IN
WITNESS WHEREOF,
the
Buyer and the Company have caused its respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
| COMPANY: | ||
| DISCOVERY LABORATORIES, INC. | ||
| |
|
|
| By: |
/s/
John Cooper
|
|
|
Name: John Cooper Title: Executive Vice President & CFO |
||
IN
WITNESS WHEREOF,
the
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.
| BUYER: | ||
| CAPITAL VENTURES INTERNATIONAL | ||
| BY: Heights Capital Management, Inc., its authorized signatory | ||
| |
|
|
| By: |
/s/
Martin Kobinger
|
|
|
Name: Martin Kobinger Title: Investment Manager |
||
Exhibit
10.2
REGISTRATION
RIGHTS AGREEMENT
REGISTRATION
RIGHTS AGREEMENT
(this
"Agreement"),
dated
as of November 22, 2006, by and among Discovery Laboratories, Inc., a Delaware
corporation, with headquarters located at 2600 Kelly Road, Suite 100,
Warrington, PA 18976 (the "Company"),
and
Capital Ventures International, a Cayman Islands company (the "Buyer").
WHEREAS:
A. In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the "Securities
Purchase Agreement"),
the
Company has agreed, upon the terms and subject to the conditions set forth
in
the Securities Purchase Agreement, to issue and sell to the Buyer (i) shares
(the "Common
Shares")
of the
Company's common stock, par value $0.001 per share (the "Common
Stock")
and
(ii) a warrant (the "Warrant"),
which
will be exercisable to purchase shares of Common Stock (as exercised
collectively, the "Warrant
Shares").
B. To
induce
the Buyer to execute and deliver the Securities Purchase Agreement, the Company
has agreed to provide certain registration rights under the Securities Act
of
1933, as amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the "1933
Act"),
and
applicable state securities laws.
NOW,
THEREFORE,
in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the Company and the Buyer hereby agree as
follows:
1. Definitions.
Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
a. "Business
Day"
means
any day other than Saturday, Sunday or any other day on which commercial banks
in the City of New York are authorized or required by law to remain
closed.
b. "Closing
Date"
shall
have the meaning set forth in the Securities Purchase Agreement.
c. "Effective
Date"
means
the date the Registration Statement has been declared effective by the
SEC.
d. "Effectiveness
Deadline"
means
the date (i) in the event that the Registration Statement is not subject to
a
full review by the SEC, ninety (90) calendar days after the Closing Date or
(ii)
in the event that the Registration Statement is subject to a full review by
the
SEC, one-hundred and twenty (120) calendar days after the Closing
Date.
e. "Filing
Deadline"
means
the date that is thirty (30) calendar days after the Closing Date.
f. "Investor"
means
the Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions
of
this Agreement in accordance with Section 9 and any transferee or assignee
thereof to whom a transferee or assignee assigns its rights under this Agreement
and who agrees to become bound by the provisions of this Agreement in accordance
with Section 9.
g. "Person"
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
h. "register,"
"registered,"
and
"registration"
refer
to a registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant
to
Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.
i. "Registrable
Securities"
means
(i) the Common Shares, (ii) the Warrant Shares issued or issuable upon
exercise of the Warrants, and (iii) any shares of capital stock of the Company
issued or issuable with respect to the Common Shares, the Warrant Shares and
the
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
exercises of the Warrant.
j. "Registration
Statement"
means a
registration statement or registration statements of the Company filed under
the
1933 Act covering resale of 100% of the Registrable Securities.
k. "Required
Holders"
means
the holders of at least a majority of the Registrable Securities.
l. "Rule
415"
means
Rule 415 promulgated under the 1933 Act or any successor rule providing for
offering securities on a continuous or delayed basis.
m. "SEC"
means
the United States Securities and Exchange Commission.
2. Registration.
a. Mandatory
Registration.
The
Company shall prepare, and, as soon as practicable but in no event later than
the Filing Deadline, file with the SEC the Registration Statement on Form S-3
covering the resale of the Registrable Securities. In the event that Form S-3
is
unavailable for such a registration, the Company shall use such other form
as is
available for such a registration on another appropriate form reasonably
acceptable to the Required Holders, subject to the provisions of Section 2(d).
The Registration Statement shall contain (except if otherwise agreed with the
Required Holders) the "Selling
Stockholder"
and
"Plan
of Distribution"
sections in substantially the form attached hereto as Exhibit
B.
The
Company shall use its best efforts to have the Registration Statement declared
effective by the SEC as soon as practicable, but in no event later than the
Effectiveness Deadline. By 9:30 am on the Business Day following the Effective
Date, the Company shall file with the SEC in accordance with Rule 424 under
the
1933 Act the final prospectus to be used in connection with sales pursuant
to
such Registration Statement.
2
b. Exclusivity
of Registrable Securities.
In no
event shall the Company include any securities other than Registrable Securities
on any Registration Statement without the prior written consent of the
Holder.
c. Ineligibility
for Form S-3.
In the
event that Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the resale
of the Registrable Securities on another appropriate form reasonably acceptable
to the Required Holders and (ii) undertake to register the Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the Registration Statement then
in
effect until such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the SEC.
d. Sufficient
Number of Shares Registered.
In the
event that at any time the number of shares available under a Registration
Statement filed pursuant to Section 2(a) is insufficient to cover all of the
Registrable Securities required to be covered by such Registration Statement,
the Company shall amend the applicable Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable),
or
both, so as to cover all of the Registrable Securities. The Company shall use
its best efforts to cause such amendment and/or new Registration Statement
to
become effective as soon as practicable following the filing thereof.
e. Registration
and Related Defaults.
Should
an
Event (as defined below) occur, then upon the occurrence of such Event, and
on
every monthly anniversary thereof until the applicable Event is cured, as
partial relief for the damages suffered therefrom by the Buyer (which remedy
shall not be exclusive of any other remedies available under this Agreement,
at
law or in equity), the Company shall pay to the Buyer an amount in cash, as
liquidated damages and not as a penalty, equal to 1.0% (the “Percentage”)
of the
aggregate purchase price paid by the Buyer for the Securities; provided that
if
the Event shall continue, beginning with the first month following such Event,
the Percentage shall be increased to 1.5%. The payments to which the Buyer
shall
be entitled pursuant to this Section 2(e) are referred to herein as
"Event
Payments".
In the
event the Company fails to make Event Payments in a timely manner, such Event
Payments shall bear interest at the rate of 1.0% per month until paid in full.
In
no
event shall the aggregate Event Payments required to be paid hereunder exceed
7%
of the aggregate purchase price payable for the Registrable Securities.
For
such
purposes, each of the following shall constitute an “Event”:
(i) the
Registration Statement is not filed on or prior to the Filing Date;
(ii) the
Registration Statement is not declared effective on or prior to the
Effectiveness Deadline;
3
(iii) except
(A) as provided for in Section 3(r), (B) if the Company is involved in
a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act,
or
(C) a merger or consolidation of the Company or a sale of more than
one-half of the assets of the Company in one or a series of related
transactions, unless following such transaction or series of transactions,
the
holders of the Company's securities prior to the first such transaction continue
to hold at least 50% of the voting rights and equity interests of the surviving
entity or acquirer (clauses (B) and (C), collectively, the "Excluded
Events"),
after
the Effective Date, the Buyer is not permitted to sell Registrable Securities
under the Registration Statement (or a subsequent Registration Statement filed
in replacement thereof) for any reason (other than the fault of such Buyer)
for
any period in excess of the Applicable Grace Period (as defined in Section
3q);
(iv) except
as
a result of the Excluded Events, the Common Stock is not listed or quoted,
or is
suspended from trading, on the Principal Market (as defined in the Warrant)
for
a period of three Trading Days (which need not be consecutive Trading Days)
during the Registration Period;
or
(v) the
Company fails to have available a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock available to issue Warrant
Shares upon any exercise of the Warrant or, except as a result of the Excluded
Events, during the Registration Period, any Common Shares or Warrant Shares
are
not listed on the
Principal Market.
3. Related
Obligations.
At
such
time as the Company is obligated to file a Registration Statement with the
SEC
pursuant to Section 2(a), 2(d) or 2(e), the Company will use its best efforts
to
effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:
a. The
Company shall submit to the SEC, within two (2) Business Days after the Company
learns that no review of a particular Registration Statement will be made by
the
staff of the SEC or that the staff has no further comments on a particular
Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
two (2) Business Days after the submission of such request. The
Company shall keep each Registration Statement effective pursuant to Rule 415
at
all times until the earlier of (i) the date as of which the Investors may sell
all of the Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated
under
the 1933 Act (without Cashless Exercise of the Warrants) or (ii) the date on
which the Investors shall have sold all of the Registrable Securities covered
by
such Registration Statement (the "Registration
Period").
The
Company shall ensure that each Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain
any
untrue statement of a material fact or omit to state a material fact required
to
be stated therein, or necessary to make the statements therein (in the case
of
prospectuses, in the light of the circumstances in which they were made) not
misleading.
4
b. The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and
the
prospectus used in connection with such Registration Statement, which prospectus
is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may
be
necessary to keep such Registration Statement effective at all times during
the
Registration Period, and, during such period, comply with the provisions of
the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth
in
such Registration Statement. In the case of amendments and supplements to a
Registration Statement which are required to be filed pursuant to this Agreement
(including pursuant to this Section 3(b)) by reason of the Company filing a
report on Form 10-Q, Form 10-QSB, Form 10-K, Form 10-KSB or any analogous report
under the Securities Exchange Act of 1934, as amended (the "1934
Act"),
the
Company shall have incorporated such report by reference into such Registration
Statement, if applicable, or shall file such amendments or supplements with
the
SEC on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement such Registration
Statement.
c. The
Company shall permit the Buyer to review and comment upon the “Selling
Stockholders” and “Plan of Distribution” sections of the Registration Statement
or any related Prospectus or amendment or supplement thereto and any risk factor
contained in such document that addresses specifically the transactions
contemplated under the Securities Purchase Agreement, as proposed to be filed;
(i) in the case of a Registration Statement, not less than three (3) Business
Days prior to its filing with the SEC and (ii) in the case of any amendments
and
supplements to a Registration Statement (except for reports or other filings
made pursuant to the 1934 Act), within a reasonable number of days prior to
their filing with the SEC; provided that, the failure of any Investor or its
counsel to respond to such proposed documents within two business days after
receipt thereof shall be deemed approval of same; and provided, further, that
no
such review and comment shall inhibit the Company from filing the Registration
Statement or otherwise from complying with its obligations under this Agreement
or under the 1933 Act or 1934 Act. The Company shall furnish to the Buyer,
without charge, upon the Buyer’s request (i) copies of any correspondence from
the SEC or the staff of the SEC to the Company or its representatives relating
to the “Selling Stockholders” and “Plan of Distribution” sections of the
Registration Statement and (ii) such number of copies of the Registration
Statement, any amendment(s) thereto, and prospectuses as may be required by
the
1933 Act and such other documents as the Buyer may reasonably
request.
d. The
Company shall furnish to each Investor, without charge and upon such Investor’s
request, such number of copies of the Registration Statement, any amendment(s)
thereto, and prospectuses as may be required by the 1933 Act and such other
documents as such Investor may reasonably request. from time to time in order
to
facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The
Company shall use its best efforts to (i) register and qualify, unless an
exemption from registration and qualification applies, the resale by Investors
of the Registrable Securities covered by a Registration Statement under such
other securities or "blue sky" laws of all applicable jurisdictions in the
United States, (ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such registrations
and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary
to
maintain such registrations and qualifications in effect at all times during
the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided,
however,
that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent
to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company
of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt
of
notice of the initiation or threatening of any proceeding for such
purpose.
5
f. The
Company shall notify each Investor in writing of the happening of any event,
as
promptly as practicable after becoming aware of such event, as a result of
which
the prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein,
in
the light of the circumstances under which they were made, not misleading
(provided that in no event shall such notice contain any material, nonpublic
information), and, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission. The Company shall also promptly notify each Investor in writing (i)
when a prospectus or any prospectus supplement or post-effective amendment
has
been filed, and when a Registration Statement or any post-effective amendment
has become effective (notification of such effectiveness shall be delivered
to
each Investor by facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or supplements
to
a Registration Statement or related prospectus or related information, and
(iii)
of the Company's reasonable determination that a post-effective amendment to
a
Registration Statement would be appropriate.
g. The
Company shall use its best efforts to prevent the issuance of any stop order
or
other suspension of effectiveness of a Registration Statement, or the suspension
of the qualification of any of the Registrable Securities for sale in any
jurisdiction and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible moment and
to
notify each Investor who holds Registrable Securities being sold of the issuance
of such order and the resolution thereof or its receipt of notice of the
initiation or threat of any proceeding for such purpose.
h. The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent jurisdiction
or (iv) such information has been made generally available to the public other
than by disclosure in violation of this Agreement. If the Company becomes
legally compelled (by subpoena, civil or criminal investigative demand or
similar process) to make any disclosure that is prohibited or otherwise
constrained by this Agreement, the Company shall give prompt written notice
to
such Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
6
i. The
Company shall use its best efforts either to (i) cause all of the Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation and
quotation of all of the Registrable Securities covered by a Registration
Statement on The NASDAQ Global Market. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this Section
3(i).
j. The
Company shall cooperate with the Investors who hold Registrable Securities
being
offered and, to the extent applicable, facilitate the timely preparation and
delivery of certificates (bearing any applicable restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered
in
such names as the Investors may request.
k. The
Company shall use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration
hereunder.
l. If
requested by an Investor, the Company shall (i) as soon as practicable
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) as soon as practicable make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters
to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) as soon as practicable, supplement or make amendments to any Registration
Statement if reasonably requested by an Investor holding any Registrable
Securities.
m. The
Company shall use its best efforts to cause the Registrable Securities covered
by a Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
n. The
Company shall make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with, and in the
manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of a Registration Statement.
7
o. The
Company shall otherwise use its best efforts to comply with all applicable
rules
and regulations of the SEC in connection with any registration
hereunder.
p. Within
two (2) Business Days after a Registration Statement which covers Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall
cause legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit
A.
q. Notwithstanding
anything to the contrary herein, at any time after the Effective Date, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "Grace
Period");
provided, that the Company shall promptly (i) notify the Investors in writing
of
the existence of material, non-public information giving rise to a Grace Period
(provided that in each notice the Company will not disclose the content of
such
material, non-public information to the Investors) and the date on which the
Grace Period will begin, and (ii) notify the Investors in writing of the date
on
which the Grace Period ends; and, provided further, that no Grace Period shall
exceed twenty (20) consecutive days or an aggregate of sixty (60) days during
any three hundred sixty five (365) day period (an "Allowable
Grace Period").
For
purposes of determining the length of a Grace Period above, the Grace Period
shall begin on and include the date the Investors receive the notice referred
to
in clause (i) and shall end on and include the later of the date the Investors
receive the notice referred to in clause (ii) and the date referred to in such
notice. The provisions of Section 3(g) hereof shall not be applicable during
the
period of any Allowable Grace Period. Upon expiration of the Grace Period,
the
Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, non-public
information is no longer applicable. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of
the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the applicable
Registration Statement (unless an exemption from such prospectus delivery
requirement exists), prior to the Investor's receipt of the notice of a Grace
Period and for which the Investor has not yet settled.
4. Obligations
of the Investors.
a. At
least
five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of
the
information the Company requires from each such Investor if such Investor elects
to have any of such Investor's Registrable Securities included in such
Registration Statement. It shall be a condition precedent to the obligations
of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the
effectiveness of the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company
may
reasonably request.
8
b. Each
Investor, by such Investor's acceptance of the Registrable Securities, agrees
to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any Registration Statement hereunder, unless
such Investor has notified the Company in writing of such Investor's election
to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
c. Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause
its
transfer agent to deliver unlegended shares of Common Stock to a transferee
of
an Investor in accordance with the terms of the Securities Purchase Agreement
in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt
of
a notice from the Company of the happening of any event of the kind described
in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.
d. Each
Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it or an exemption therefrom
in
connection with sales of Registrable
Securities pursuant to the Registration Statement.
5. Expenses
of Registration.
All
reasonable expenses, other than underwriting discounts and commissions incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements
of
counsel for the Company, shall be paid by the Company. .
6. Indemnification.
In
the
event any Registrable Securities are included in a Registration Statement under
this Agreement:
9
a. To
the
fullest extent permitted by law, the Company will, and hereby does, indemnify,
hold harmless and defend each Investor, the directors, officers, members,
partners, employees, agents, representatives of, and each Person, if any, who
controls any Investor within the meaning of the 1933 Act or the 1934 Act (each,
an "Indemnified
Person"),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, reasonable attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "Claims")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified
Damages"),
to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out
of
or are based upon: (i) any untrue statement or alleged untrue statement of
a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction
in
which Registrable Securities are offered ("Blue
Sky Filing"),
or
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in
any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,
if
the Company files any amendment thereof or supplement thereto with the SEC)
or
the omission or alleged omission to state therein any material fact necessary
to
make the statements made therein, in the light of the circumstances under which
the statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations").
Subject to Section 6(c), the Company shall reimburse the Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
for or on behalf of the Investor expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(d) and (ii) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent
of
the Company, which consent shall not be unreasonably withheld or delayed. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer
of
the Registrable Securities by the Investors pursuant to Section 9.
b. In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls
the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified
Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by
such
Investor expressly for use in connection with such Registration Statement;
and,
subject to Section 6(c), such Investor will reimburse any legal or other
expenses reasonably incurred by an Indemnified Party in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) and the agreement with respect to
contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld
or
delayed; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as
does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made
by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
10
c. Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section
6
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person
or
Indemnified Party shall, if a Claim in respect thereof is to be made against
any
indemnifying party under this Section 6, deliver to the indemnifying party
a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party
so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as
the
case may be; provided,
however,
that an
Indemnified Person or Indemnified Party shall have the right to retain its
own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party,
the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and
any
other party represented by such counsel in such proceeding. In the case of
an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a
majority in
interest of the Registrable Securities included in the Registration Statement
to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or Claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent; provided,
however,
that
the indemnifying party shall not unreasonably withhold, delay or condition
its
consent. No indemnifying party shall, without the prior written consent of
the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation, and such settlement shall not include
any
admission as to fault on the part of the Indemnified Party. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter
for
which indemnification has been made. The failure to deliver written notice
to
the indemnifying party within a reasonable time of the commencement of any
such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
11
d. The
indemnification required by this Section 6 shall be made by periodic payments
of
the amount thereof during the course of the investigation or defense, as and
when bills are received or Indemnified Damages are incurred.
e. The
indemnity agreements contained herein shall be in addition to (i) any cause
of
action or similar right of the Indemnified Party or Indemnified Person against
the indemnifying party or others, and (ii) any liabilities the indemnifying
party may be subject to pursuant to the law.
7. Contribution.
To
the
extent any indemnification by an indemnifying party is prohibited or limited
by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided,
however,
that:
(i) no Person involved in the sale of Registrable Securities, which Person
is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of
the 1933 Act) in connection with such sale, shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller
of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant
to
such Registration Statement.
8. Reports
Under the 1934 Act.
With
a
view to making available to the Investors the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that
may
at any time permit the Investors to sell securities of the Company to the public
without registration ("Rule
144"),
the
Company agrees to:
a. make
and
keep public information available, as those terms are understood and defined
in
Rule 144;
b. file
with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and
c. furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has
complied with the reporting requirements of Rule 144, the 1933 Act and the
1934
Act, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company and (iii) such
other information as may be reasonably requested to permit the Investors to
sell
such securities pursuant to Rule 144 without registration.
12
9. Assignment
of Registration Rights.
The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights and a copy of such agreement is furnished to
the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act or applicable state securities laws; (iv) at
or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements
of
the Securities Purchase Agreement.
10. Amendment
of Registration Rights.
Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder.
Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to
the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend
or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. Miscellaneous.
a. A
Person
is deemed to be a holder of Registrable Securities whenever such Person owns
or
is deemed to own of record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company shall act upon the
basis
of instructions, notice or election received from the such record owner of
such
Registrable Securities.
b. Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) Business Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
13
If
to the
Company:
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976
Telephone: (215)
488-9300
Facsimile: (215)
488-9301
Attention: John
G.
Cooper, CFO
with
a
copy to:
Dickstein
Shapiro LLP
1177
Avenue of the Americas
New
York,
NY 10036-2714
Telephone: (212)
277-6686
Facsimile: (212)
277-6501
Attn:
Ira
L. Kotel
If
to
Buyer:
Capital
Ventures International
c/o
Heights Capital Management, Inc.
101
California Street, Suite 3250
San
Francisco, CA 94111
Telephone: (415)
403-6500
Facsimile: (415)
403-6525
Attention: Martin
Kobinger
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated
by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided
by a
courier or overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
c. Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as
a
waiver thereof.
d. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
14
e. This
Agreement, the other Transaction Documents (as defined in the Securities
Purchase Agreement) and the instruments referenced herein and therein constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This
Agreement, the other Transaction Documents and the instruments referenced herein
and therein supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
f. Subject
to the requirements of Section 9, this Agreement shall inure to the benefit
of
and be binding upon the permitted successors and assigns of each of the parties
hereto.
g. The
headings in this Agreement are for convenience of reference only and shall
not
limit or otherwise affect the meaning hereof.
h. This
Agreement may be executed in identical counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same agreement.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
i. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
15
j. All
consents and other determinations required to be made by the Investors pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Required Holders.
k. The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent and no rules of strict construction
will
be applied against any party.
l. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
m. The
obligations of each Investor hereunder are several and not joint with the
obligations of any other Investor, and no provision of this Agreement is
intended to confer any obligations on any Investor vis-à-vis any other Investor.
Nothing contained herein, and no action taken by any Investor pursuant hereto,
shall be deemed to constitute the Investors as a partnership, an association,
a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated herein.
*
* * * *
*
16
IN
WITNESS WHEREOF,
the
Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.
|
COMPANY:
|
||
| DISCOVERY LABORATORIES, INC. | ||
| |
|
|
| By: |
/s/
John Cooper
|
|
|
Name: John
Cooper
Title: Executive
Vice President & CFO
|
||
|
BUYER:
|
||
|
CAPITAL
VENTURES INTERNATIONAL
|
||
| By:
Heights Capital Management, Inc.,
its
authorized signatory
|
||
| |
|
|
| By: |
/s/
Martin Kobinger
|
|
|
Name:
Martin Kobinger
Title: Investment
Manager
|
||
17
EXHIBIT
A
FORM
OF NOTICE OF EFFECTIVENESS
OF
REGISTRATION STATEMENT
[ ]
[ ]
[ ]
Attention:
[
]
Re: Discovery
Laboratories, Inc.
Ladies
and Gentlemen:
[We
are][I am] counsel to Discovery Laboratories, Inc., a Delaware corporation
(the
"Company"),
and
have represented the Company in connection with that certain Securities Purchase
Agreement (the "Securities
Purchase Agreement")
entered into by and among the Company and the buyer named therein (collectively,
the "Holder")
pursuant to which the Company issued to the Holder shares (the “Common
Shares”)
of the
Company's common stock, $0.001 par value per share (the "Common
Stock")
and a
warrant exercisable for shares of Common Stock (the "Warrant").
Pursuant to the Securities Purchase Agreement, the Company also has entered
into
a Registration Rights Agreement with the Holder (the "Registration
Rights Agreement")
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon exercise of the Warrants,
under the Securities Act of 1933, as amended (the "1933
Act").
In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 200_, the Company filed a Registration Statement
on Form S-3 (File No. 333-_____________) (the "Registration
Statement")
with
the Securities and Exchange Commission (the "SEC")
relating to the Registrable Securities which names each of the Holders as a
selling stockholder thereunder.
In
connection with the foregoing, [we][I] advise you that a member of the SEC's
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at
[ENTER
TIME OF EFFECTIVENESS]
on
[ENTER
DATE OF EFFECTIVENESS]
and
[we][I] have no knowledge, after telephonic inquiry of a member of the SEC's
staff, that any stop order suspending its effectiveness has been issued or
that
any proceedings for that purpose are pending before, or threatened by, the
SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
This
letter shall serve as our standing instruction to you that the shares of Common
Stock are freely transferable by the Holder pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holder
as
contemplated by the Company's Irrevocable Transfer Agent Instructions dated
November __, 2006, provided at the time of such reissuance, the Company has
not
otherwise notified you that the Registration Statement is unavailable for the
resale of the Registrable Securities.
1
| Very truly yours, | ||
| [ISSUER'S COUNSEL] | ||
| |
|
|
| By: | ||
|
|
||
CC:
Capital
Ventures International
2
EXHIBIT
B
SELLING
STOCKHOLDER
The
shares of common stock being offered by the selling stockholder are those
previously issued to the Selling Stockholder and those issuable to the Selling
Stockholder upon exercise of the warrants. For additional information regarding
the issuances of common stock and the warrants, see "Private Placement of Common
Shares and Warrants" above. We are registering the shares of common stock in
order to permit the selling stockholder to offer the shares for resale from
time
to time. Except for the ownership of the shares of common stock and the
warrants, the selling stockholder have not had any material relationship with
us
within the past three years.
The
table
below lists the selling stockholder and other information regarding the
beneficial ownership of the shares of common stock by the selling stockholder.
The second column lists the number of shares of common stock beneficially owned
by the selling shareholder, based on its ownership of the shares of common
stock
and the warrants, as of ________, 2006, assuming exercise of the warrants held
by the selling stockholder on that date, without regard to any limitations
on
exercise.
The
third
column lists the shares of common stock being offered by this prospectus by
the
selling stockholder.
In
accordance with the terms of registration rights agreements with the holder
of
the shares of common stock and the warrants, this prospectus generally covers
the resale of that number of shares of common stock equal to the number of
shares of common stock issued and the shares of common stock issuable upon
exercise of the related warrants, determined as if the outstanding warrants
were
exercised, as applicable, in full, in each case, as of the trading day
immediately preceding the date this registration statement was initially filed
with the SEC. The fourth column assumes the sale of all of the shares offered
by
the selling stockholder pursuant to this prospectus.
Under
the
terms of the warrants, a selling shareholder may not exercise the warrants,
to
the extent such exercise would cause such selling shareholder, together with
its
affiliates, to beneficially own a number of shares of common stock which would
exceed 9.99% of our then outstanding shares of common stock following such
exercise, excluding for purposes of such determination shares of common stock
issuable upon exercise of the warrants which have not been exercised. The number
of shares in the second column does not reflect this limitation. The selling
stockholder may sell all, some or none of their shares in this offering. See
"Plan of Distribution."
B-1
|
Name
of Selling Shareholder
|
Number
of Shares Owned
Prior
to Offering
|
Maximum
Number of Shares
to
be Sold Pursuant to this
Prospectus
|
Number
of Shares Owned
After
Offering
|
[Footnotes]
B-2
PLAN
OF DISTRIBUTION
We
are
registering the shares of common stock previously issued and the shares of
common stock issuable upon exercise of the warrants to permit the resale of
these shares of common stock by the holders of the common stock and warrants
from time to time after the date of this prospectus. We will not receive any
of
the proceeds from the sale by the selling stockholder of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register
the shares of common stock.
The
selling stockholder may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholder will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,
| · |
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
| · |
in
the over-the-counter market;
|
| · |
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
| · |
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately
negotiated transactions;
|
| · |
short
sales;
|
| · |
sales
pursuant to Rule 144;
|
B-3
| · |
broker-dealers
may agree with the selling securityholders to sell a specified number
of
such shares at a stipulated price per
share;
|
| · |
a
combination of any such methods of sale;
and
|
| · |
any
other method permitted pursuant to applicable
law.
|
If
the
selling stockholder effects such transactions by selling shares of common stock
to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholder or commissions from
purchasers of the shares of common stock for whom they may act as agent or
to
whom they may sell as principal (which discounts, concessions or commissions
as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales
of
the shares of common stock or otherwise, the selling stockholder may enter
into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholder may also sell shares of common stock short
and
deliver shares of common stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales.
The
selling stockholder may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.
The
selling stockholder may pledge or grant a security interest in some or all
of
the warrants or shares of common stock owned by them and, if they default in
the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling stockholder to include the pledgee, transferee
or
other successors in interest as selling stockholders under this prospectus.
The
selling stockholder also may transfer and donate the shares of common stock
in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The
selling stockholder and any broker-dealer participating in the distribution
of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of
the
shares of common stock is made, a prospectus supplement, if required, will
be
distributed which will set forth the aggregate amount of shares of common stock
being offered and the terms of the offering, including the name or names of
any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholder and any discounts,
commissions or concessions allowed or reallowed or paid to
broker-dealers.
Under
the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition,
in
some states the shares of common stock may not be sold unless such shares have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
B-4
There
can
be no assurance that any selling shareholder will sell any or all of the shares
of common stock registered pursuant to the shelf registration statement, of
which this prospectus forms a part.
The
selling stockholder and any other person participating in such distribution
will
be subject to applicable provisions of the Securities Exchange Act of 1934,
as
amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholder and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We
will
pay all expenses of the registration of the shares of common stock pursuant
to
the registration rights agreement, estimated to be
$[ ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that a selling
shareholder will pay all underwriting discounts and selling commissions, if
any.
We will indemnify the selling stockholder against liabilities, including some
liabilities under the Securities Act, in accordance with the registration rights
agreements, or the selling stockholder will be entitled to contribution. We
may
be indemnified by the selling stockholder against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling shareholder specifically for use
in
this prospectus, in accordance with the related registration rights agreements,
or we may be entitled to contribution.
Once
sold
under the shelf registration statement, of which this prospectus forms a part,
the shares of common stock will be freely tradable in the hands of persons
other
than our affiliates.
B-5
Exhibit
99.1
Discovery
Labs Completes $10.0 Million
Private
Financing
Warrington,
PA — November 22, 2006 — Discovery Laboratories, Inc. (Nasdaq: DSCO),
announced
today that it has completed the sale of securities in a private placement
to one
selected institutional investor for gross proceeds of $10.0 million. Under
the
terms of the financing, Discovery sold approximately 4.6 million newly-issued
shares of its common stock at a price of $2.16 per share and issued a warrant
with a five-year term exercisable for approximately 2.3 million shares of
common
stock at an exercise price of $3.18 per share. The purchase price per share
for
the shares of common stock represents a 5% discount to the average of the
volume
weighted average price of the common stock for the five trading days preceding
the execution of the definitive purchase agreement (5-day VWAP) and the exercise
price of the warrant represents a 40% premium over the 5-day VWAP.
The
securities sold have not been registered under the Securities Act of 1933
and
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements of the Securities
Act of
1933. In connection with the private placement, Discovery has agreed to prepare
a registration statement for the resale of the newly-issued shares and the
shares underlying the warrant and to file the registration statement with
the
Securities and Exchange Commission within 30 days of the closing. Jefferies
& Company, Inc. acted as the placement agent for this
transaction.
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.
To
the extent that statements in this press release are not strictly historical,
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
including, without limitation, the
risk that Discovery will not be able to raise necessary additional
capital.
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.
For
more information, please visit our corporate website at www.Discoverylabs.com.
Company
Contact:
Lisa
Caperelli, Investor Relations
215-488-9413