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
April
27, 2010
Date of
Report (Date of earliest event reported)
Discovery
Laboratories, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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000-26422
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94-3171943
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
Number)
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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:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01.
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Entry into a Material
Definitive Agreement.
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Payment Agreement and Loan
Amendment and Promissory Note
On April 27, 2010, Discovery
Laboratories, Inc. (the “Company”) entered into a Payment Agreement and Loan
Amendment (the “Payment Agreement and Loan Amendment”) with PharmaBio
Development Inc. (“PharmaBio”), a former strategic investing subsidiary of
Quintiles Transnational Corp. (“Quintiles”), to restructure
the Company’s debt of approximately $10.6 million payable to PharmaBio on April
28, 2010 by (a) satisfying in cash a portion of the outstanding principal and
all accrued interest of approximately $6.6 million ($4.5 million principal and
$2.1 million accrued interest) and (b) amending the Company’s loan agreement
with PharmaBio to extend the maturity date for the remaining $4 million owed to
PharmaBio.
In connection with the restructuring,
PharmaBio will submit the existing loan promissory note with the face value of
$8.5 million to the Company for cancellation and the Company will simultaneously
issue and deliver a replacement promissory note (the “Promissory Note”) to
PharmaBio for $4 million, $2 million of which will become due and payable on
July 30, 2010 and the remaining $2 million of which will become due and payable
on September 30, 2010. No further interest will accrue on the $4
million owed to PharmaBio so long as the Company makes each of the principal
payments on or before the respective due dates. The Company has agreed to
maintain at least $10 million in cash and cash equivalents until payment of the
first $2 million owed to PharmaBio, and $8 million in cash and cash equivalents
thereafter, until the payment of the remaining portion of the loan after which
the Company’s financial covenants will terminate and the loan to PharmaBio will
be satisfied in full.
Pursuant to the Payment Agreement and
Loan Amendment, the following outstanding warrants to purchase shares of common
stock, par value $0.001 per share, of the Company (“Common Stock”) issued to
PharmaBio in connection with the loan prior to the Payment Agreement and Loan
Amendment and a prior offering will be cancelled: a warrant to purchase 850,000
shares of Common Stock, at $7.19 per share expiring on November 3, 2014, a
warrant to purchase 1,500,000 shares of Common Stock at $3.58 per share expiring
on October 26, 2013 and a warrant to purchase 43,612 shares of the Company’s
Common Stock at $6.875 per share expiring on September 19, 2010.
Pursuant to the Payment Agreement and
Loan Amendment, the Company and PharmaBio have also agreed to negotiate in good
faith to enter into a strategic alliance or collaborative arrangement under
which PharmaBio would provide funding for a research collaboration between
Quintiles and the Company relating to the possible research and development, and
commercialization of two of the Company’s drug product candidates, Surfaxin LS™
and Aerosurf®, for the prevention and treatment of respiratory distress syndrome
(RDS) in premature infants. Upon execution of Payment Agreement and Loan
Amendment, the parties will promptly negotiate, in good faith, the terms
thereof; provided, however, that neither party will have any obligation to enter
into any such alliance or arrangement except to the extent that it, in its sole
discretion, agrees to enter into definitive documents
therefor. PharmaBio’s willingness to enter into any such alliance or
arrangement will depend on the Company’s funding requirements, PharmaBio’s
available investment capital, and the risk-reward profile of the investment
terms offered by the Company as compared to PharmaBio’s other investment
opportunities. Accordingly, there can be no assurances that any such
arrangement will be entered into.
Securities Purchase
Agreement and the Related Offering
On
April 27, 2010, the Company also entered into a Securities Purchase
Agreement with PharmaBio, as the sole purchaser, related to an offering of
4,052,312 shares of Common Stock and warrants to purchase an
aggregate of 2,026,156 shares of Common Stock (“Warrants”). The
shares of Common Stock and Warrants are being sold as units (“Units”), with each
Unit consisting of (i) one share of Common Stock, and (ii) one-half of a Warrant
to purchase a share of Common Stock at an offering price of $0.5429 per Unit
(the “Offering”). The offering price per Unit was calculated based on
the greater of (a) the volume-weighted average sale price (“VWAP”) per share of
the Common Stock on The Nasdaq Global Market for the 20 trading days ending on
April 27, 2010 and (b) the last reported closing price of $0.5205 per share of
the Common Stock on The Nasdaq Global Market on such date.
2
The
Warrants to be issued in the Offering generally will be exercisable beginning
181 days after the date of issuance for a period of five years from the original
date of issuance at an exercise price of $0.7058 per share, which represents a
30% premium to the VWAP. The exercise price and number of shares of
Common Stock issuable on exercise of the Warrants will be subject to adjustment
in the event of any stock split, reverse stock split, stock dividend,
recapitalization, reorganization or similar transaction. The exercise
price and the amount and/or type of property to be issued upon exercise of the
Warrants will also be subject to adjustment if the Company engages in a
“Fundamental Transaction” (as defined in the Warrant).
The Offering is expected to close on
April 30, 2010, subject to the satisfaction of customary closing conditions.
Gross proceeds to the Company from the Offering are $2.2 million and the net
proceeds to the Company are expected to be approximately $2.1 million, after
deducting estimated expenses payable by the Company associated with the
Offering. The Offering is being made pursuant to a prospectus
supplement dated April 28, 2010 and an accompanying prospectus dated June 18,
2008 pursuant to the Company’s existing shelf registration statement on Form S-3
(File No. 333-151654), which was filed with the Securities and Exchange
Commission (the “Commission”) on June 13, 2008 and declared effective by the
Commission on June 18, 2008.
The Securities Purchase Agreement
contains customary representations, warranties, and agreements by the Company,
and customary conditions to closing.
The agreements and instruments that
have been attached as hereto as exhibits are intended to provide investors and
security holders with information regarding their terms and are not intended to
provide any other factual information about the Company. The representations,
warranties and covenants contained therein were made only for purposes of such
agreements and instruments and as of specific dates, were solely for the benefit
of the parties thereto, and may be subject to limitations agreed upon by the
contracting parties, including being qualified by confidential disclosures
exchanged between the parties in connection with their execution.
A copy of the Payment Agreement and
Loan Amendment and the Promissory Note issued by the Company are filed herewith
as Exhibits 1.1 and 1.2. A copy of the Securities Purchase Agreement
and the form of Warrant Agreement to be issued in connection with the Offering
are filed herewith as Exhibits 1.3 and 4.1 and are incorporated herein by
reference. The foregoing description of the Payment Agreement and Loan
Amendment, the Promissory Note, the Offering by the Company and the
documentation related thereto does not purport to be complete and is qualified
in its entirety by reference to such Exhibits. A copy of the opinion of
Sonnenschein Nath & Rosenthal LLP relating to the legality of the issuance
and sale of the securities in the Offering is attached as Exhibit 5.1
hereto.
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Item
9.01.
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Financial Statements
and Exhibits.
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(d)
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Exhibits
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1.1
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Payment
Agreement and Loan Amendment dated April 27, 2010 by and between Discovery
Laboratories, Inc. and PharmaBio Development
Inc.
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1.2
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Promissory
Note dated April 27, 2010
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1.3
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Securities
Purchase Agreement dated April 27, 2010 by and between Discovery
Laboratories, Inc. and PharmaBio Development
Inc.
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4.1
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Form
of Warrant Agreement
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5.1
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Opinion
of Sonnenschein Nath & Rosenthal
LLP
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23.1
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Consent
of Sonnenschein Nath & Rosenthal LLP (included in its opinion filed as
Exhibit 5.1 hereto)
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3
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.
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Discovery
Laboratories, Inc.
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By:
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/s/ W. Thomas Amick
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Name: W.
Thomas Amick
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Title:
Chief Executive Officer
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Date:
April 28, 2010
4
EXHIBIT
1.1
PAYMENT AGREEMENT AND LOAN
AMENDMENT
PAYMENT
AGREEMENT AND LOAN AMENDMENT dated as of April 27, 2010 (this “Agreement”), by and
between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Company”), and
PHARMABIO DEVELOPMENT INC., a North Carolina corporation (“Lender”).
A. The
Lender has advanced to Borrower an aggregate principal amount of $8,500,000
under the terms of that certain Second Amended and Restated Loan Agreement dated
as of October 25, 2006 (the “Loan
Agreement”). Capitalized terms used but not defined in this
Agreement shall have the meanings ascribed to them in the Loan
Agreement.
B. Pursuant
to the Loan Agreement, the Lender is the holder of that certain Second Amended
and Restated Promissory Note dated October 25, 2006, issued by the Company in
the principal amount of $8,500,000 (the “Note”).
C. Annex A sets forth
the agreed amount of principal, interest, premium and other amounts owing, if
any, as of the date hereof, pursuant to the Loan Agreement as evidenced by the
Note.
D. As
set forth on Annex
A, as of the date hereof, the outstanding indebtedness under the Loan
Agreement (including the outstanding principal, plus accrued interest in the
amount of $2,067,017 as of the date hereof equals $10,567,017) (the “Outstanding
Balance”).
E. As
set forth on Annex
A, and subject to fulfillment of the terms and conditions set forth
below, the Lender and the Company have agreed (a) that the Company will
repay $6,567,017 of the Outstanding Balance in cash (the “Cash Amount”) on
April 28, 2010, and (b) to extend the Maturity Date of the remaining
Outstanding Balance of $4,000,000 (the “Remaining Balance”)
and to amend certain other provisions of the Loan Agreement on the terms set
forth below.
NOW,
THEREFORE, in consideration of the mutual covenants and undertakings herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows
Section
1. Partial Repayment of Loan;
Amendment of Loan Documents.
(a) Subject
to and upon the terms and conditions of this Agreement, the Company shall repay
the Cash Amount on April 28, 2010, via wire transfer of immediately available
funds. The Remaining Balance shall remain outstanding and shall be
repaid, as follows: (i) $2,000,000 shall be repaid on July 30, 2010, and
(ii) $2,000,000, together with all accrued interest, if any, shall be
repaid on September 30, 2010.
(b) The
Company’s obligation to pay the Remaining Balance shall be evidenced by a new
promissory note (the “Note”) duly executed
and delivered by the Company in the form of Exhibit A attached
hereto as of the date hereof.
(c) On
the date hereof, the Lender and the Company hereby agree to the following
amendments to the Loan Agreement:
(i)
The first sentence of Section 2.03 of the Loan
Agreement is hereby deleted in its entirety.
(ii) The
first sentence of Section 2.04(a) of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
“Borrower
shall pay the aggregate outstanding principal amount of the Loan and all accrued
interest, if any, as follows: (i) $2,000,000 of the outstanding principal
amount shall be repaid on or before July 30, 2010, and (ii) the remaining
$2,000,000 principal amount, together with all accrued interest, if any, shall
be repaid on or before September 30, 2010 (the “Maturity Date”),
unless any such amount becomes due and payable sooner pursuant to the provisions
of this Agreement.”
(iii) The
first sentence of Section 2.04(b) of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
“Interest
on the Loan shall accrue beginning April 28, 2010, and be payable at a rate per
annum (the “Base Rate”) equal to
the Prime Rate in effect from time to time, or, if less, the maximum rate
permitted by law. Notwithstanding the preceding sentence, provided
that if Borrower pays the aggregate outstanding principal amount of the Loan on
each of the dates set forth in Section 2.04(a), then the interest rate on the
Loan will be 0%.
(iv) Article
VI of the Loan Agreement is hereby amended and supplemented to add a new Section
6.11 at the end thereof:
6.11 Maintenance of Cash
Balance. The Borrower hereby agrees to maintain a Cash Balance
(as defined below) of (a) at least $10,000,000 until the Borrower makes the
first repayment of $2,000,000 in accordance with Section 2.04(a)(i), and
(b) at least $8,000,000 until the Maturity Date. For purposes of
this Agreement, the term “Cash Balance” means
the value of the Borrower’s cash and cash equivalents that are not subject to
any lien, pledge, charge or encumbrance of any kind (other than Permitted Liens
and the Lender’s security interest under the Loan Documents) as determined by
the Borrower in a manner consistent with past practices used in preparing the
Borrower’s financial statements filed from time to time with the
SEC. Within ten (10) days of each calendar month-end, the Borrower
shall provide Lender with a certificate, in a form satisfactory to Lender,
executed by the Borrower’s Chief Financial Officer containing (i) a statement to
the effect that the Chief Financial Officer has made the examination necessary
to confirm compliance with this Section 6.11 and (ii) a computation in
reasonable detail of the Borrower’s Cash Balance as of such calendar
month-end.
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(v) Section
7.01(c) of the Loan Agreement is hereby deleted in its entirety and is replaced
with the following:
“Borrower
shall fail to perform or observe any term, covenant or agreement contained in
this Agreement required to be performed or observed by Borrower (other than
Section 6.02, 6.03, 6.04, or 6.11) and such failure to perform or observe such
term, covenant or agreement has a Material Adverse Effect and is not cured
within thirty (30) days after receipt of notice thereof by
Borrower;”.
(vi) Section
7.01(d) of the Loan Agreement is hereby deleted in its entirety and is replaced
with the following:
“Borrower
shall fail to perform or observe the provisions of Section 6.02, 6.03, 6.04, or
6.11, except, in the case of Section 6.04, if an Event of Default is based on a
tax lien, judgment lien or materialman’s lien, such lien shall continue without
discharge or stay for a period of sixty (60) days;”.
(vii) Section
8.14 of the Loan Agreement is hereby amended and supplemented to add a new
sentence at the end thereof:
“For the
avoidance of doubt, the failure of Borrower to make any payment when due under
Section 2.04(a) shall not constitute a Dispute subject to the procedures in
Sections 8.14 or 8.15, and Lender immediately may pursue any and all rights,
powers, or remedies now or hereafter existing at law or in equity or by statute
or otherwise available under the Loan Documents.
(d) Upon
the Closing, the Warrant Agreements dated June 20, 2003, November 3, 2004 and
October 25, 2006 (collectively, the “Warrant Agreements”)
exercisable for 43,612 shares of Common Stock, par value, $.001 per share, of
the Company (“Common
Stock”), 850,000 shares of Common Stock, and 1,500,000 shares of Common
Stock, respectively, shall be cancelled, and all of the Company’s obligations
represented thereby shall be discharged. After the date hereof, the
Company shall take reasonable steps to terminate, amend or supplement , as the
Company and its counsel deem appropriate, the registration statements on Form
S-3 filed with the Securities and Exchange Commission on August 11, 2003,
December 15, 2004, and December 7, 2006 that cover the resale of the shares
specified in the Warrant Agreements.
(e) In
consideration of the mutual covenants and undertakings herein contained, from
and after the date hereof, the Company and the Lender hereby agree to negotiate
in good faith to enter into a strategic alliance or collaborative arrangement
under which Lender would provide funding for a research collaboration between
Quintiles Transnational Corp. (“Quintiles”) and the Company relating to the
possible research and development, and commercialization of two of the Company’s
drug product candidates, Surfaxin LS™ and Aerosurf®, for the
prevention and treatment of respiratory distress syndrome (RDS) in premature
infants. The Company acknowledges and agrees that the Lender intends to receive
advice and assistance from Quintiles regarding the research, development, and
commercialization services and associated budget that would be required for
Surfaxin LS™ and Aerosurf®. Upon
execution of this Agreement, the parties will promptly negotiate, in good faith,
the terms of such strategic alliance or collaborative arrangement; provided,
however, that neither party shall have any obligation to enter into any such
alliance or arrangement except to the extent that it, in its sole discretion,
agrees to enter into definitive documents therefor. Without limiting
the foregoing, the Company acknowledges that the Lender’s willingness to make
such a strategic investment will depend on the Company’s funding requirements,
the Lender’s available investment capital, and the risk-reward profile of the
investment terms offered by the Company as compared to the Lender’s other
investment opportunities. Nothing in this Section 1(e) requires
either the Company or the Lender to negotiate such transaction for any specified
period of time.
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(f) This
Agreement is a document executed pursuant to the Loan Agreement and shall
(unless otherwise expressly indicated therein) be construed, administered or
applied in accordance with the terms and provisions thereof. Whenever
the Loan Agreement and the other Loan Documents are referred to in instruments,
agreements or other documents, it shall be deemed to mean the Loan Agreement and
the Loan Documents as modified by this Agreement. Except as hereby
amended, the Loan Documents shall continue in full force and
effect.
Section
2. Closing. The
closing of the transactions contemplated by this Agreement (the “Closing”) shall take
place at 10:00 a.m. on April 28, 2010 (the “Closing
Date”). The Closing shall be held at the offices of the
Company, 2600 Kelly Road, Suite 100, Warrington, Pennsylvania. At the
Closing, (a) the Lender shall surrender the Note to the Company for
cancellation and shall deliver all documentation related thereto, and whatever
documents of assignment, conveyance and transfer may be necessary or desirable
with respect thereto, (b) the Lender shall surrender the Warrant Agreements
to the Company for cancellation and shall deliver all documentation related
thereto, and whatever documents of assignment, conveyance and transfer may be
necessary or desirable with respect thereto, (c) the Company shall deliver
the Cash Amount to the Lender via wire transfer of immediately available funds,
and (d) the Company shall deliver the new Note evidencing the Remaining
Balance in the form attached hereto as Exhibit A, duly
executed by an authorized officer of Company. The parties shall also
execute and deliver appropriate cross-receipts for the deliveries effected in
connection with the Closing.
Section
3. Conditions to
Closing.
(a) Conditions to Closing of the
Company. The
Company’s obligations at the Closing are subject to: (i) the receipt by the
Company of the existing Note and the Warrant Agreements and the other
documentation related thereto, and whatever documents of assignment, conveyance
and transfer may be necessary or desirable with respect thereto, and (ii) the
accuracy as of the Closing of the representations and warranties made by the
Lender and the fulfillment of those undertakings of the Lender to be fulfilled
prior to the Closing Date.
(b) Conditions to Closing of the
Lender. The
Lender’s obligations at the Closing are subject to: (i) the receipt
by Lender of the Cash Amount and the new Note, and (ii) the accuracy as of the
Closing of the representations and warranties made by the Company and the
fulfillment of those undertakings of the Company to be fulfilled prior to the
Closing Date.
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Section
4. Representations of
Lender. The
Lender hereby represents, warrants and agrees that:
(a)
The Lender has full power and authority to enter into, execute, deliver and
perform this Agreement and all other agreements and instruments to be executed
by the Lender in connection herewith. All of such actions have been
duly authorized by all necessary corporate action on the part of the Lender and
no further approval or authorization by Lender’s shareholders or any other
persons or entities are necessary to authorize such actions. This
Agreement constitutes the legal, valid and binding obligation of the Lender
enforceable against the Lender in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
laws and subject to general principles of equity.
(b) As
of the Closing, the Lender is the sole legal owner of the Note and the Warrant
Agreements. The Note and the Warrant Agreements are free and clear of
any mortgage, lien, pledge, charge, security interest, encumbrance, title
retention agreement, option, equity or similar adverse claim
thereto. The Lender has not, in whole or in part, given any person or
entity any transfer order, power of attorney or other authority of any nature
whatsoever with respect to such Note and Warrant Agreements which has not been
revoked or which is otherwise outstanding and effective as of the
Closing. No action is pending or, to the Lender’s knowledge,
threatened, which would contest the Lender’s ownership of, or right to transfer,
such Note and Warrant Agreements.
(c) The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby will not result:
(i)
in a breach of any of the
terms and provisions of or constitute a default under Lender’s articles of
incorporation or bylaws, or any indenture, mortgage, deed or trust, or other
agreement or instrument to which the Lender is a party; or
(ii) in
a violation of or default under any state or federal statute or any of the rules
or regulations applicable to the Lender of any court or of any federal and state
regulatory body or administrative agency.
Section
5. Representations of
Company. The
Company hereby represents, warrants and agrees that:
(a) The
Company has full power and authority to enter into, execute, deliver and perform
this Agreement and all other agreements and instruments to be executed by the
Company in connection herewith. All of such actions have been duly
authorized by all necessary corporate action on the part of the Company and no
further approval or authorization by the Company’s stockholders or any other
persons or entities are necessary to authorize such actions. This
Agreement constitutes, and when issued at Closing the new Note will constitute,
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with their respective terms except as such enforcement may
be limited by bankruptcy, insolvency, reorganization or other laws and subject
to general principles of equity.
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(b) The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby will not result:
(i)
in a breach of any of the
terms and provisions of or constitute a default under the Company’s certificate
of incorporation or bylaws;
(ii) in
the creation of any lien, charge, security interest or encumbrance upon any
assets of the Company pursuant to the terms or provisions of, or will not
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under any
indenture, mortgage, deed or trust, or other agreement or instrument to which
the Company is a party; or
(iii) in
a violation of or default under any state or federal statute or any of the rules
or regulations applicable to the Company of any court or of any federal and
state regulatory body or administrative agency.
(c) The
Company has, and will have on the Closing Date, a Cash Balance (as defined in
Section 6.11 of the Loan Agreement as hereby amended) of at least
$10,000,000.
(d) No
Event of Default (as defined in the Loan Agreement) (i) has occurred and is
continuing as of the date hereof, nor (ii) will have occurred and be continuing
as of the Closing Date.
Section
6. Survival. Notwithstanding
any investigation made by any party to this Agreement, all agreements,
representations and warranties made by the Company and the Lender herein will
survive the execution of this Agreement.
Section
7. Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument. The exchange of copies of this Agreement or amendments
thereto and of signature pages by facsimile transmission or by email
transmission in portable document format, or similar format, shall constitute
effective execution and delivery of such instrument(s) as to the parties and may
be used in lieu of the original Agreement or amendment for all
purposes. Signatures of the parties transmitted by facsimile or by
email transmission in portable document format, or similar format, shall be
deemed to be original signatures for all purposes.
Section
8. Notices. All
notices, requests, consents and other communications hereunder will be in
writing, will be mailed (a) if within the domestic United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile or (b) if delivered from outside the
United States, by International Federal Express or facsimile, and (c) will be
deemed given (i) if delivered by first-class registered or certified mail
domestic, three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one business day after so mailed, (iii) if
delivered by International Federal Express, two business days after so mailed
and (iv) if delivered by facsimile, upon electronic confirmation of receipt and
will be delivered and addressed as follows (or to such other address or
addresses as may have been furnished by notice to the other
party):
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if to the
Company, to:
Discovery
Laboratories, Inc.
2600
Kelly Road
Warrington,
PA 18976
Attention: Legal
Department
Facsimile: (215)
488-9301
with copies
to:
Sonnenschein
Nath & Rosenthal LLP
Two World
Financial Center, 47th
Floor
New York,
NY 10281
Attention: Ira
L. Kotel, Esq.
Ph.:
(212) 768-6700
Facsimile:
(212) 768-6800
if to the
Lender, to:
PharmaBio
Development Inc.
c/o
Quintiles Transnational Corp.
4820 Emperor Blvd
Durham, NC 27703
Attn: President
Facsimile: (919)
998-2090
with copies
to:
Smith, Anderson, Blount,
Dorsett,
Mitchell &
Jernigan, L.L.P.
2500 Wachovia Capitol
Center
Raleigh, NC 27601
Attn: Christopher B.
Capel
Facsimile: (919)
821-6800.
Section
9. Applicable
Law. This
Agreement will be governed by, and construed in accordance with, the internal
laws of the State of Delaware, as applied to contracts made and to be performed
entirely within such State, without giving effect to the principles of conflicts
of law that would require the application of the laws of any other
jurisdiction.
Section
10. No Implied Rights or
Remedies. Except
as otherwise expressly provided herein, nothing herein expressed or implied is
intended or shall be construed to confer upon or to give any person, other than
the Company and the Lender, any rights or remedies under or by reason of this
Agreement.
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Section
11. No Waiver. No
failure on the part of any of the parties to this Agreement to exercise, no
delay in exercising and no course of dealing with respect to, any right or
remedy under this Agreement will operate as a waiver thereof. No
single or partial exercise of any right or remedy under this Agreement will
preclude any other further exercise thereof or the exercise of any other right
or remedy.
Section
12. Headings. The
headings in this Agreement are inserted for convenience of reference only and
shall not be a part of or control or affect the meaning of this
Agreement.
Section
13. Successors and
Assigns. This
Agreement is subject to the restrictions on assignment set forth in Section 8.05
of the Loan Agreement. This Agreement and all of its provisions shall
be binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns, heirs and legal representatives.
Section
14. Severability. If
any provision of this Agreement shall be invalid or unenforceable, the other
provisions of this Agreement shall continue in full force, and the validity and
enforceability of such other provisions shall not be adversely
affected.
[Remainder
of page intentionally blank]
- 8
- -
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
|
PHARMABIO
DEVELOPMENT INC.
|
||
|
By:
|
/s/ John L. Bradley, Jr.
|
|
|
Name:
|
John
L. Bradley, Jr.
|
|
|
Title:
|
Vice
President
|
|
|
DISCOVERY
LABORATORIES, INC.
|
||
|
By:
|
/s/ W. Thomas Amick
|
|
|
Name:
|
W.
Thomas Amick
|
|
|
Title:
|
Chairman
& CEO
|
|
Annex A
Agreed Loan
Calculations
|
As of April 28,
2010:
|
||||
|
Outstanding
principal (A):
|
$ | 8,500,000.00 | ||
|
Accrued
Interest (B):
|
$ | 2,067,017.00 | ||
|
OUTSTANDING
BALANCE (A+B):
|
$ | 10,567,017.00 | ||
Exhibit
A
Form of Promissory
Note
See
Exhibit 1.2 to Form 8-K
EXHIBIT
1.2
THIRD
AMENDED AND RESTATED
PROMISSORY
NOTE
|
$4,000,000
|
April
28, 2010
|
FOR VALUE
RECEIVED, DISCOVERY LABORATORIES, INC., a Delaware corporation (“Borrower”), hereby
promises to pay to the order of PHARMABIO DEVELOPMENT INC., a North Carolina
corporation (“Lender”), in lawful
money of the United States of America in immediately available funds, the lesser
of (i) the principal sum of Four Million Dollars ($4,000,000) and (ii) the
aggregate unpaid principal amount of the Loan (as defined in the Loan Agreement
referred to below) made by Lender to Borrower pursuant to the Loan Agreement (as
defined below), together with interest accrued thereon. Interest
shall accrue and compound on the unpaid principal amount of the Loan at the
rates and in the manner provided in the Loan Agreement. Payment of
the principal amount of this Note and accrued interest on this Note shall be
made at the times and in the manner provided in the Loan Agreement.
This Note
is made and dated as of December 10, 2001, as amended and restated as of
November 3, 2004, further amended and restated as of October 25, 2006, and
further amended and restated as of the date set forth
above. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Loan Agreement.
This Note
is the Note referenced in the Second Amended and Restated Loan Agreement between
Borrower and Lender dated as of December 10, 2001, as amended and restated
as of November 3, 2004, further amended and restated as of October 25, 2006, and
further amended as of the date hereof pursuant to the Payment Agreement and Loan
Amendment between Borrower and Lender dated as of April 27, 2010 (as same may be
amended from time to time, the “Loan Agreement”), and
is entitled to the benefits of, and subject to the restrictions provided under,
the Loan Agreement. The Loan Agreement, among other things, provides
that this Note is secured by, and Borrower has granted a security interest in,
certain of its assets as set forth in the Second Amended and Restated Security
Agreement between Borrower and Lender dated as of October 25, 2006.
In case
an Event of Default shall occur and be continuing and not cured prior to the
expiration of any applicable cure or grace periods set forth in the Loan
Agreement, the unpaid principal amount of, and accrued interest on, this Note
may be declared to be due and payable in the manner and with the effect provided
in the Loan Agreement.
Borrower
hereby waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance and enforcement
of this Note.
This Note
may be voluntarily prepaid, in whole or in part, on the terms and conditions set
forth in the Loan Agreement. Provided that all obligations under the
Loan Agreement have been irrevocably paid in full, the Lender shall, at the
request of Borrower, promptly, and in no event later than ten (10) Business Days
after notice from Borrower, cancel and return this Note to
Borrower.
This Note
shall be governed by and construed in accordance with the law of the State of
Delaware without regard to the conflicts of law rules of such
state.
Lender
and Borrower agree that disputes relating to this Note shall be subject to the
provisions of the Loan Agreement entitled “Internal Review” and “Arbitration”
set forth in Sections 8.14 and 8.15 thereof, respectively.
IN
WITNESS WHEREOF, Borrower has caused this Note to be duly executed by its duly
authorized officer, as of the date first above written.
|
DISCOVERY
LABORATORIES, INC.
|
|
|
By:
|
/s/ John Cooper
|
|
Name:
|
John
Cooper
|
|
Title:
|
Executive
Vice President and
|
|
Chief
Financial Officer
|
|
- 2
- -
EXHIBIT
1.3
SECURITIES PURCHASE
AGREEMENT
SECURITIES
PURCHASE AGREEMENT dated as of April 27, 2010 (this “Agreement”), by and
between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Company”), and
PHARMABIO DEVELOPMENT INC., a North Carolina corporation (“Investor”).
The
Investor hereby confirms its agreement with the Company as follows:
1.
Offering and sale of the
Units. (a) The Company has authorized
the sale and issuance (the “Unit Purchase”) to
the Investor of 4,052,312 units (the “Units”), with each
Unit consisting of (i) one share (the “Share,” and
collectively, the Shares”) of its
common stock, par value $.001 per share (“Common Stock”), and
(ii) one-half of a warrant (the “Warrant,” and
collectively, the “Warrants”) to
purchase a share of Common Stock in substantially the form attached hereto as
Exhibit A. Each whole Warrant will represent the right to purchase
one share of Common Stock at an exercise price of $0.7058 per share
of Common Stock. Units will not be issued or certificated. The Shares and
Warrants are immediately separable and will be issued separately. The shares of
Common Stock issuable upon exercise of the Warrants are referred to herein as
the “Warrant
Shares” and, together with the Units, the Shares and the Warrants, are
referred to herein as the “Securities”).
(b)
The offering and sale of the Units (the “Offering”) are being
made pursuant to (a) an effective Registration Statement on Form S-3, No.
333-151654 (the “Registration
Statement”) filed by the Company with the Securities and Exchange
Commission (the “Commission”),
including the Prospectus contained therein (the “Base Prospectus”),
(b) if applicable, certain “free writing prospectuses” (as that term is defined
in Rule 405 under the Securities Act of 1933, as amended (the “Act”)), that have
been or will be filed, if required, with the Commission and delivered to the
Investor on or prior to the date hereof (the “Free Writing
Prospectus”), containing certain supplemental information regarding the
Units, the terms of the Offering and the Company and (c) a Prospectus
Supplement (the “Prospectus
Supplement” and, together with the Base Prospectus, the “Prospectus”)
containing only certain supplemental information regarding the Units and terms
of the Offering that will be filed with the Commission and delivered to the
Investor prior to the Closing (or made available to the Investor prior to the
Closing by the filing by the Company of an electronic version thereof with the
Commission).
2.
Closing. The
closing of the issuance and sale of the Units (the “Closing”) shall take
place at 10:00 a.m. on April 30, 2010 (the “Closing
Date”). The Closing shall be held at the offices of the
Company, 2600 Kelly Road, Suite 100, Warrington, Pennsylvania. At the Closing,
(a) the Investor shall cause to be delivered to the Company via wire transfer of
immediately available funds the purchase price of $2.2 million for the Units
(the “Purchase
Price”) to an account specified to the Investor by the Company at least
one business day prior to the Closing, (b) the Company shall cause the
Company’s transfer agent (the “Transfer Agent”) to
credit the Shares to which the Investor is entitled to the Investor’s balance
account (through Merrill Lynch) with Depositary Trust Corporation through its
Deposit/Withdrawal At Custodian (DWAC) system as indicated on Exhibit B, and
(c) the Company shall cause the executed Warrants to be delivered to the
Investor, registered in the name of the Investor or, if so indicated on Exhibit B, in the
name of a nominee designated by the Investor.
3.
Conditions to Closing of the
Company. The
Company’s obligations at the Closing are subject to: (i) the receipt by the
Company of the Purchase Price, and (ii) the accuracy as of the Closing of the
representations and warranties made by the Investor and the fulfillment of those
undertakings of the Investor to be fulfilled prior to the Closing
Date.
4.
Conditions to Closing of the
Investor. The
Investor’s obligations at the Closing are subject to: (i) the closing of
the transactions contemplated by that certain Payment Agreement and Loan
Amendment between the Company and the Investor dated April 27, 2010 (the “Loan Amendment”);(ii)
the absence of any “Event of Default” under that certain Second Amended and
Restated Loan Agreement between the Company and the Investor dated October 25,
2006, as amended; and (iii) the accuracy as of the Closing of the
representations and warranties made by the Company and the fulfillment of those
undertakings of the Company to be fulfilled prior to the Closing
Date.
5.
Representations of
Investor. The
Investor hereby represents, warrants and agrees that:
(a) The
Investor has full power and authority to enter into, execute, deliver and
perform this Agreement and all other agreements and instruments to be executed
by the Investor in connection herewith. All of such actions have been
duly authorized by all necessary corporate action on the part of the Investor
and no further approval or authorization by Investor’s shareholders or any other
persons or entities are necessary to take such actions. This
Agreement constitutes the legal, valid and binding obligation of the Investor
enforceable against the Investor in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
laws and subject to general principles of equity.
(b) The
Investor has legally available and sufficient funds to pay the Purchase Price at
Closing.
(c) The
execution and delivery of this Agreement, the consummation of the Unit Purchase
and all of the other transactions contemplated hereby will not
result:
(i) in
a breach of any of the terms and provisions of or constitute a default under
Investor’s articles of incorporation or bylaws, or any indenture, mortgage, deed
or trust, or other agreement or instrument to which the Investor is a party;
or
(ii) in
a violation of or default under any state or federal statute or any of the rules
or regulations applicable to the Investor of any court or of any federal and
state regulatory body or administrative agency.
(d) The
Investor has received (or otherwise had made available to it by the filing by
the Company of an electronic version thereof with the Commission) the
Prospectus, which is a part of the Registration Statement, the documents
incorporated by reference therein, and the Free Writing Prospectus and the
information set forth in the quarterly earnings press release set forth in
Exhibit C (collectively, the “Disclosure Package”),
prior to or in connection with the execution of this Agreement. The
Investor acknowledges that, prior to the execution of this Agreement, the
Investor has also received certain additional information regarding the Offering
(the “Offering
Information”) by any means permitted under the Act, including the
Prospectus Supplement, a Free Writing Prospectus and oral
communications. In connection with its decision to purchase the
Shares, the Investor has received, and is not relying upon anything other than,
the Disclosure Package and the documents incorporated by reference therein and
the Offering Information.
- 2
- -
(e) The
Investor (i) is knowledgeable, sophisticated and experienced in making, and is
qualified to make decisions with respect to, investments in shares presenting an
investment decision like that involved in the purchase of the Units, including
investments in securities issued by the Company and investments in comparable
companies, and (ii) has provided the required information on Exhibit B and such
information is the true and correct as of the date hereof and will be true and
correct as of the Closing Date. The Investor can afford the financial risk of an
investment in shares of Company Common Stock.
(f) Except
as set forth below, (i) the Investor has had no position, office or other
material undisclosed relationship within the past three years with the Company
or persons known to it to be affiliates of the Company, (ii) the Investor is not
a member of the Financial Industry Regulatory Authority, Inc. or an Associated
Person (as such term is defined under the NASD Membership and Registration Rules
Section 1011) as of the Closing, and (iii) neither the Investor nor any group of
investors (as identified in a public filing made with the Commission) of which
the Investor is a part in connection with the Offering of the Shares, acquired,
or obtained the right to acquire, 20% or more of the Common Stock (or securities
convertible into or exercisable for Common Stock) or the voting power of the
Company on a post-transaction basis.
(g) The
Investor understands that nothing in this Agreement, the Prospectus, the
Disclosure Package, the Offering Information or any other materials presented to
the Investor in connection with the transactions contemplated by this Agreement
constitutes legal, tax or investment advice. The Investor has
consulted such legal, tax and investment advisors and made such investigation as
it, in its sole discretion, has deemed necessary or appropriate in connection
with its purchase of the Securities.
(h) Since
10 days before the date hereof, the Investor has not disclosed any information
regarding the Offering to any third parties (other than its legal, accounting
and other advisors) and has not engaged in any purchases or sales involving the
securities of the Company (including, without limitation, any Short Sales (as
defined below) involving the Company’s securities). The Investor
covenants that it will not engage in any purchases or sales in the securities of
the Company (including Short Sales) prior to the time that the transactions
contemplated by this Agreement are publicly disclosed. The Investor
agrees that it will not cover any short position in the Common Stock if doing so
would be in violation of applicable securities laws. For purposes
hereof, “Short
Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act of 1934, as amended
(the “Exchange
Act”), whether or not against the box, and all types of direct and
indirect stock pledges, forward sales contracts, options, puts, calls, short
sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the
Exchange Act) and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign regulated
brokers.
- 3
- -
6.
Representations of the
Company. The
Company hereby represents, warrants and agrees that:
(a) The
Company has full power and authority to enter into, execute, deliver and perform
this Agreement and all other agreements and instruments to be executed by the
Company in connection herewith. All of such actions have been duly
authorized by all necessary corporate action on the part of the Company and no
further approval or authorization by the Company’s stockholders or any other
persons or entities are necessary to take such actions. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
laws and subject to general principles of equity.
(b) The
execution and delivery of this Agreement, the consummation of the Unit Purchase
and all of the other transactions contemplated hereby will not
result:
(i) in
a breach of any of the terms and provisions of or constitute a default under the
Company’s certificate of incorporation or bylaws;
(ii) in
the creation of any lien, charge, security interest or encumbrance upon any
assets of the Company pursuant to the terms or provisions of, or will not
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under any
indenture, mortgage, deed or trust, or other agreement or instrument to which
the Company is a party; or
(iii) in
a violation of or default under any state or federal statute or any of the rules
or regulations applicable to the Company of any court or of any federal and
state regulatory body or administrative agency.
(c) Except
for (i) applicable filings, if any, with the Commission pursuant to the Exchange
Act and the Securities Act, (ii) filings with The Nasdaq Global Market in
connection with the listing of the Shares, and (iii) filings, if any, under
state securities or “blue sky” laws, no consent, authorization or order of, or
filing or registration with, any governmental authority is required to be
obtained or made by the Company for the execution, delivery and performance of
this Agreement or the consummation of the Unit Purchase and all of the other
transactions contemplated hereby.
(d) The
Shares and the Warrants to be issued and sold by the Company to the Investor
hereunder have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein will be duly and validly issued,
fully paid and non-assessable. The Warrant Shares have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
in the Warrants, will be duly and validly issued, fully paid and non-assessable.
The Company has reserved a reasonably adequate number of authorized but unissued
shares of Common Stock for issuance upon exercise of the Warrants and such
shares shall remain so reserved (subject to reduction from time to time for
Common Stock issued upon the exercise of the Warrants), as long as the Warrants
are exercisable.
(e) The
Company has complied in all material respects with all applicable Laws,
including securities laws, in connection with the offer, issuance and sale of
the Shares hereunder.
- 4
- -
(f) The
Registration Statement has been declared effective by the Commission and there
is no stop order suspending the effectiveness of the Registration
Statement. The Company meets the requirements for the use of Form S-3
under the Act. The Registration Statement in the form in which it
became effective and also in such form as it may be when any post-effective
amendment thereto became effective and the Base Prospectus and any supplement or
amendment thereto, including the Prospectus Supplement relating to the Shares,
when filed with the Commission under Rule 424(b) under the Act, complied as to
form with the provisions of the Act and did not at any such times contain an
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 light of
the circumstances under which they were made, not misleading. The
Commission has not issued any order preventing or suspending the use of any
Prospectus.
(g) As
of the Closing Date, the Registration Statement as supplemented by any
post-effective amendment thereto and any prospectus supplements, including the
Prospectus Supplement relating to the Shares, will not contain an 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 light of the
circumstances under which they were made, not misleading.
7.
Survival. Notwithstanding
any investigation made by any party to this Agreement, all agreements,
representations and warranties made by the Company and the Investor herein will
survive the execution of this Agreement and the delivery to the Investor of the
Shares.
8.
Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument. The exchange of copies of this Agreement or amendments thereto and
of signature pages by facsimile transmission or by email transmission in
portable document format, or similar format, shall constitute effective
execution and delivery of such instrument(s) as to the parties and may be used
in lieu of the original Agreement or amendment for all
purposes. Signatures of the parties transmitted by facsimile or by
email transmission in portable document format, or similar format, shall be
deemed to be original signatures for all purposes.
9.
Notices. All
notices, requests, consents and other communications hereunder will be in
writing, will be mailed (a) if within the domestic United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile or (b) if delivered from outside the
United States, by International Federal Express or facsimile, and (c) will be
deemed given (i) if delivered by first-class registered or certified mail
domestic, three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one business day after so mailed, (iii) if
delivered by International Federal Express, two business days after so mailed
and (iv) if delivered by facsimile, upon electronic confirmation of receipt and
will be delivered and addressed as follows (or to such other address or
addresses as may have been furnished by notice to the other party):
- 5
- -
if to the
Company, to:
Discovery
Laboratories, Inc.
2600
Kelly Road
Warrington,
PA 18976
Attention: Legal
Department
Facsimile: 215-488-9301
with copies
to:
Sonnenschein
Nath & Rosenthal LLP
Two World
Financial Center, 47th
Floor
New York,
NY 10281
Attention: Ira
L. Kotel, Esq.
Ph.:
212.768.6700
Fax:
212.768.6800
if to the
Investor, to:
PharmaBio
Development Inc.
c/o
Quintiles Transnational Corp.
4820
Emperor Blvd
Durham,
NC 27703
Attn: President
Facsimile: (919)
998-2090
with
copies to:
Smith,
Anderson, Blount, Dorsett,
Mitchell
& Jernigan, L.L.P.
2500
Wachovia Capitol Center
Raleigh,
NC 27601
Attn:
Christopher B. Capel
Facsimile:
(919) 821-6800.
10. Applicable
Law. This
Agreement will be governed by, and construed in accordance with, the internal
laws of the State of Delaware, as applied to contracts made and to be performed
entirely within such State, without giving effect to the principles of conflicts
of law that would require the application of the laws of any other
jurisdiction.
11. No Implied Rights or
Remedies. Except
as otherwise expressly provided herein, nothing herein expressed or implied is
intended or shall be construed to confer upon or to give any person, other than
the Company and the Investor, any rights or remedies under or by reason of this
Agreement.
- 6
- -
12. No Waiver. No
failure on the part of any of the parties to this Agreement to exercise, no
delay in exercising and no course of dealing with respect to, any right or
remedy under this Agreement will operate as a waiver thereof. No
single or partial exercise of any right or remedy under this Agreement will
preclude any other further exercise thereof or the exercise of any other right
or remedy.
13. Headings. The
headings in this Agreement are inserted for convenience of reference only and
shall not be a part of or control or affect the meaning of this
Agreement.
14. Successors and
Assigns. This
Agreement may not be assigned without the written consent of all of its parties;
provided, however, that Investor may at any time following the Closing assign or
transfer any of its rights or obligations under this Agreement to an
affiliate. This Agreement and all of its provisions shall be binding
upon and inure to the benefit of the parties and their respective successors,
permitted assigns, heirs and legal representatives.
15. Severability. If
any provision of this Agreement shall be invalid or unenforceable, the other
provisions of this Agreement shall continue in full force, and the validity and
enforceability of such other provisions shall not be adversely
affected.
16. Press Release; Legal
Fees. (a) The
Company and the Investor agree that the Company shall, prior to the opening of
the financial markets in New York City on the business day immediately after the
date hereof, (i) issue a press release announcing the Offering, and (ii) file a
Current Report on Form 8-K with the Commission, including a form of this
Agreement.
(b) The
Company shall reimburse the Investor for the reasonable documented fees,
disbursements and expenses of counsel to the Investor related to the Loan
Amendment and the Offering in an amount not to exceed $30,000.
[Remainder
of page intentionally blank]
- 7
- -
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
|
PHARMABIO
DEVELOPMENT INC.
|
|||
|
By:
|
/s/ John L. Bradley, Jr.
|
||
|
Name:
|
John
L. Bradley, Jr.
|
||
|
Title:
|
Vice
President
|
||
|
DISCOVERY
LABORATORIES, INC.
|
|||
|
By:
|
/s/ W. Thomas Amick
|
||
|
Name:
|
W.
Thomas Amick
|
||
|
Title:
|
Chairman
& CEO
|
||
[Signature
Page to Securities Purchase Agreement]
Exhibit
A
Form of
Warrant
See
Exhibit 4.1 to Form 8-K
Exhibit
B
|
1.
|
The
exact name that your Shares and Warrants are to be registered
in. You may use a nominee name if
appropriate:
|
|
2.
|
The
relationship between the Investor and the registered holder listed in
response to item 1 above:
|
|
3.
|
The
mailing address of the registered holder listed in response to item 1
above:
|
|
4.
|
The
Tax Identification Number of the registered holder listed in the response
to item 1 above:
|
|
5.
|
Name
of DTC Participant (broker-dealer at which the account or accounts to be
credited with the Shares are
maintained):
|
|
6.
|
DTC
Participant Number:
|
|
7.
|
Name
of Account at DTC Participant being credited with the
Shares:
|
|
8.
|
Account
Number at DTC Participant being credited with the
Shares:
|
EXHIBIT 4.1
DISCOVERY
LABORATORIES, INC.
FORM
OF WARRANT TO PURCHASE COMMON STOCK
Warrant
No.:
Number of
Shares of Common Stock: 2,026,156
Date of
Issuance: [April 30], 2010 (“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, PharmaBio Development Inc., a North Carolina corporation, 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
181st day after the date hereof (the
“Exercisability
Date”) , but not after 11:59 p.m., New York
time, on the Expiration Date (as defined below), 2,026,156 (Two Million,
Twenty-Six Thousand, One Hundred and Fifty-Six) 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 (this “Warrant”) issued pursuant to
(i) Section 2(c) of that certain Securities Purchase
Agreement (the “Securities Purchase
Agreement”), dated as of April 27, 2010 (the
“Pricing
Date”), by and between the Company and
PharmaBio Development Inc. and (ii) the Company’s Registration Statement on Form
S-3 (File number 333-151654) (the “Registration
Statement”).
1. EXERCISE
OF WARRANT.
(a) Mechanics
of Exercise. Subject to the terms and conditions hereof, this Warrant
may be exercised by the Holder on any day on or after the Exercisability 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) provided the
conditions for cashless exercise set forth in Section
1(d) are satisfied, 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) (collectively, the “Exercise Delivery Documents”),
the Company shall transmit by facsimile or electronic mail an acknowledgment of
receipt of the Exercise Delivery Documents to the Holder and Continental Stock
Transfer & Trust Company (the Company’s “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 Warrant Shares 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 At Custodian (“DWAC”) system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program or the Holder does not request delivery of the Warrant Shares
via DWAC, 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 Warrant Shares to
which the Holder is entitled pursuant to such exercise. Upon delivery
of the Exercise Delivery Documents, 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 such Warrant
Shares are credited to the Holder’s DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be. 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 down 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 $0.7058,
subject to adjustment as provided herein.
(c) Company’s
Failure to Timely Deliver Securities. If the Company shall fail for
any reason or for no reason to issue to the Holder within three (3) Business
Days of receipt of the Exercise Delivery Documents in compliance with the terms
of this Section 1, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock
on the Company’s share register or to credit the Holder’s balance account with
DTC for such number of shares of Common Stock to which the Holder is entitled
upon the Holder’s exercise of this Warrant, and if on or after such Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a “Buy-In”), then the Company
shall, within three (3) Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Warrant
Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise.
(d) Cashless
Exercise.
Notwithstanding anything contained herein to the contrary,
if a registration statement covering the Warrant Shares that are the
subject of the Exercise Notice (the “Unavailable Warrant
Shares”), and an exemption from registration are not available
for the resale of such Unavailable Warrant Shares, the Holder may 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 Closing Sale Prices of the shares of Common
Stock for the five (5) consecutive Trading Days ending on the Trading Day
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.
|
For sake
of clarity, in the event that neither a registration statement or an exemption
from registration is available, there is no circumstance that requires the
Company to effect a net cash settlement of the Warrants.
(e) Rule
144. For purposes of Rule 144(d) promulgated under the Securities
Act, as in effect on the date hereof, it is intended that the Warrant Shares
issued in a Cashless Exercise shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Securities Purchase Agreement.
(f) 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 all such
disputes shall be resolved pursuant to Section 12.
(g) Beneficial
Ownership. The Company shall not effect the exercise of this Warrant,
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% (the “Maximum Percentage”) 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-Q, 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. To the extent that the limitation contained in
this Section 1(g) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder) and of which a portion of this Warrant is exercisable shall be in the
sole discretion of a Holder, and the submission of an Exercise Notice shall be
deemed to be each Holder’s determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder) and of which portion of
this Warrant is exercisable, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination. For any reason at any time,
upon the written or oral request of the Holder, the Company shall within two (2)
Business Days confirm 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 conversion or 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. 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
(i) any such increase will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to the Holder. The provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms
of this Section 1(g) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation.
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 Pricing Date subdivides (by any stock split, stock
dividend, recapitalization, reorganization, scheme, arrangement 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 Pricing Date combines (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement 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.
(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 all 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 Closing Bid
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 Common
Stock, and (ii) the denominator shall be the Closing Bid 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 shares of common stock 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).
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 this Warrant in
accordance with the provisions of this Section (4)(b) , 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, 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. If holders of Common Stock are given
any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. The provisions of
this Section 4 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.
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,
100% of the number of shares of Common Stock issuable upon 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.
7. REISSUANCE
OF WARRANTS.
(a)
Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company together with a written assignment
of this Warrant in the form attached hereto as Exhibit
B duly executed by the Holder or its agent or attorney, whereupon the
Company will forthwith, subject to compliance with any applicable securities
laws, 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.
8. NOTICES. 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 therefor. Whenever notice is required to be
given under this Warrant, unless otherwise provided herein, such notice shall be
given in writing, will be mailed (a) if within the domestic United States by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, or by facsimile or (b) if delivered from
outside the United States, by International Federal Express or facsimile, and
(c) will be deemed given (i) if delivered by first-class registered or certified
mail domestic, three business days after so mailed, (ii) if delivered by
nationally recognized overnight carrier, one business day after so mailed, (iii)
if delivered by International Federal Express, two business days after so mailed
and (iv) if delivered by facsimile, upon electronic confirmation of receipt, and
will be delivered and addressed as follows:
(a)
if to the Company, to:
Discovery
Laboratories, Inc.
2600
Kelly Road
Warrington,
Pennsylvania 18976
Attention: John
G. Cooper
Facsimile: 215-488-9301
with
copies to:
Sonnenschein
Nath & Rosenthal LLP
Two World
Financial Center
New York,
New York 10281
Attention: Ira
L. Kotel, Esq.
Facsimile: 212-768-6800
(b) if to the
Holder, to:
PharmaBio
Development Inc.
c/o
Quintiles Transnational Corp.
4820
Emperor Blvd
Durham,
NC 27703
Attn: President
Facsimile: (919)
998-2090
with
copies to:
Smith,
Anderson, Blount, Dorsett,
Mitchell
& Jernigan, L.L.P.
2500
Wachovia Capitol Center
Raleigh,
NC 27601
Attn:
Christopher B. Capel
Facsimile:
(919) 821-6800,
or to
Holder’s address on any Exercise Notice delivered to the Company in the form
attached as Exhibit A hereto, or at such other address or addresses as may have
been furnished to the Company in writing.
9.
AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended only with the written consent of the
Company and the Holder, and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only with the
written consent of the Holder.
10.
GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance 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 Delaware, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Delaware.
11.
CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and the Holder 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 or electronic mail within two (2) 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 (2) Business
Days submit via facsimile or electronic mail (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.
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, 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 to pursue actual damages for any
failure by the Company to comply with the terms of this Warrant.
14.
TRANSFER. Subject to compliance with any applicable securities
laws, this Warrant may be offered for sale, sold, transferred or assigned
without the consent of the Company.
15.
CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a)
“Bloomberg” means
Bloomberg Financial Markets.
(b)
“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.
(c)
“Change of Control”
means any Fundamental Transaction other than (A) any reorganization,
recapitalization or reclassification of the Common Stock, in which holders of
the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company.
(d)
“Closing Bid Price” and
“Closing Sale Price”
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or the last trade
price, respectively, of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as
determined by the Board of Directors of the Company in the exercise of its good
faith judgment. All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
(e)
“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.
(f)
RESERVED
(g)
“Convertible Securities”
means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for shares of Common
Stock.
(h)
“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.
(i)
“Expiration Date” means the date five (5) years following 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.
(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)
RESERVED
(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 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]
IN WITNESS WHEREOF, the
parties have caused this Warrant to Purchase Common Stock to be duly executed
and delivered as of the Issuance Date set out above.
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DISCOVERY
LABORATORIES, INC.
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By:
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Name:
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Title:
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PHARMABIO
DEVELOPMENT INC.
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By:
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Name:
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Title:
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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:
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a “Cash
Exercise” with respect to _________________ Warrant Shares;
and/or
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a
“Cashless Exercise” with respect to _______________ Warrant
Shares.
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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 __________ Warrant
Shares in the name of the undersigned holder or in the name of
______________________ in accordance with the terms of the Warrant to the
following DWAC Account Number or by physical delivery of a certificate
to:
_______________________________
_______________________________
_______________________________
Date:
_______________ __, ______
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Name
of Registered Holder
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By:
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Name:
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Title:
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ACKNOWLEDGMENT
The
Company hereby acknowledges this Exercise Notice and hereby directs Continental
Stock Transfer & Trust Company to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated
[ ], 2010 from the Company and acknowledged and agreed to
by Continental Stock Transfer & Trust Company.
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DISCOVERY
LABORATORIES, INC
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By:
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Name:
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Title:
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EXHIBIT
B
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this form
and supply required information.
Do not
use this form to exercise the warrant.)
FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
_______________________________________________
whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
_______
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Holder’s
Signature:
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Holder’s
Address:
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Signature
Guaranteed:
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NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
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Two
World Financial Center
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New
York, NY 10281-1008
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212.768.6700
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212.768.6800
fax
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www.sonnenschein.com
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April 28,
2010
EXHIBIT
5.1
Board of
Directors
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
Pennsylvania 18976-3622
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Re:
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Sale
of Common Stock and Warrants registered pursuant
to
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Registration
Statement on Form S-3 (File No. 333-151654)
Ladies
and Gentlemen:
In our
capacity as counsel to Discovery Laboratories, Inc., a Delaware corporation (the
“Company”), we have been
asked to render this opinion in connection with a registration statement on Form
S-3 (the “Registration
Statement”), heretofore filed by the Company with the Securities and
Exchange Commission (the “Commission”) under the
Securities Act of 1933, as amended (the “Act”), the prospectus
supplement filed pursuant to Rule 424(b) under the Act, dated as of April 28,
2010 (the “Prospectus
Supplement”), under which the following securities being sold by the
Company have been registered: (i) 4,052,312 shares (the “Shares”) of common stock, par
value $0.001 per share, of the Company (the “Common Stock”), (ii) warrants
to purchase 2,026,156 shares of Common Stock at an exercise price of $0.7058 per
share (each a “Warrant”
and collectively, the “Warrants”) and (iii)
2,026,156 shares (the “Warrant Shares”) of Common
Stock that are issuable upon exercise of the Warrants. The securities
are being sold as units (the “Units”) with each Unit being
comprised of (i) one Share and (ii) one-half of a Warrant.
We are
delivering this opinion to you at your request in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Act.
In
connection with rendering this opinion, we have examined and are familiar with
(i) the Company’s Amended and Restated Certificate of Incorporation, (ii) the
Company’s By-Laws, (iii) the Registration Statement, including the prospectus
contained therein, (iv) the Prospectus Supplement, (such prospectus and
Prospectus Supplement are collectively referred to herein as the “Prospectus”), (vi) corporate
proceedings of the Company relating to the Shares, the Warrants and the Warrant
Shares, and (v) such other instruments and documents as we have deemed relevant
under the circumstances.
Brussels Chicago Dallas Kansas
City Los
Angeles New
York Phoenix St.
Louis
San
Francisco Short
Hills,
N.J. Silicon
Valley Washington,
D.C. Zurich
April 28,
2010
Page
2
In making
the aforesaid examinations, we have assumed the genuineness of all signatures
and the conformity to original documents of all copies furnished to us as
original or photostatic copies. We have also assumed that the corporate records
furnished to us by the Company include all corporate proceedings taken by the
Company to date.
Based
upon the foregoing and subject to the assumptions and qualifications set forth
herein, we are of the opinion that:
1.
The Shares have been duly authorized by the Company
and, when issued in accordance with the terms set forth in the Registration
Statement and the Prospectus, will be validly issued, fully paid and
non-assessable.
2.
The Warrant Shares have been duly authorized by the Company and, when
issued in accordance with the terms set forth in the Registration Statement and
the Prospectus, and, when issued and paid for in accordance with the terms of
the Warrants, will be validly issued, fully paid and
non-assessable.
3. The
Warrants have been duly authorized by the Company and, when issued in accordance
with the terms set forth in the Registration Statement and the Prospectus, will
be validly issued.
The
foregoing opinion is limited to the laws of the United States of America and
Delaware corporate law (which includes the Delaware General Corporation Law and
applicable provisions of the Delaware constitution, as well as reported judicial
opinions interpreting same), and we do not purport to express any opinion on the
laws of any other jurisdiction.
We hereby
consent to the use of our opinion as an exhibit to the Registration Statement
and to the reference to this firm and this opinion under the heading “Legal
Matters” in the prospectus comprising a part of the Registration Statement and
any amendment thereto. In giving such consent, we do not hereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Act, or the rules and regulations of the Commission
thereunder.
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Very
truly yours,
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SONNENSCHEIN
NATH & ROSENTHAL LLP
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/s/
SONNENSCHEIN NATH & ROSENTHAL
LLP
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