WARRANT AGREEMENT
Exhibit
4.2
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933 OR ANY APPLICABLE STATE SECURITIES OR “BLUE-SKY” LAWS AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER SUCH ACT OR UNDER SUCH LAWS, OR PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION.
This
WARRANT AGREEMENT is dated and entered into as of October
25, 2006,
by and
between DISCOVERY LABORATORIES, INC., a Delaware corporation (the “Company”),
and PHARMABIO DEVELOPMENT INC., a North Carolina corporation, doing business
as
NovaQuest (“NovaQuest”). Capitalized terms herein that are not otherwise defined
shall have the respective meanings set forth in the Loan Agreement (as defined
below).
WHEREAS,
the Company and NovaQuest, have entered into the
Amended
and Restated Loan Agreement dated
as of
December 10, 2001, and amended and restated
as of
the date hereof (as amended, the “Loan Agreement”), and other agreements dated
as of the date hereof; and
WHEREAS,
the Company desires to grant to NovaQuest the rights set forth in this Warrant
Agreement;
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, the parties, intending to be legally bound,
agree
as follows:
1. The
Warrant.
The
Company hereby agrees to issue and sell to NovaQuest, its designees or assigns
(the “Holder”) up to One Million Five Hundred Thousand (1,500,000) shares (the
“Warrant Shares”) of the Company’s
common stock, par value $0.001 per share (“Common Stock”), at an exercise price
equal
to
Three Dollars
and Fifty-Eight and Thirteen One-Hundredths Cents ($3.5813) per share (the
“Exercise Price”) (such
Exercise Price having been calculated as follows: the average of the
volume-weighted average price (VWAP) (as reported by Bloomberg, L.P.) for the
ten (10) trading days prior to the date hereof, multiplied by 130%),
and
upon the terms and conditions set forth herein.
The
Exercise Price and the number of Warrant Shares purchasable upon exercise of
this Warrant Agreement
are
subject to adjustment from time to time as provided in Section 4 of this Warrant
Agreement.
2. Expiration
Date.
This
Warrant Agreement, and the Holder’s right to purchase any of the Warrant Shares,
will expire at 5:00 p.m. Eastern Time on the seventh anniversary of the date
of
this Warrant Agreement (the “Expiration Date”).
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3. Exercise
of this Warrant Agreement.
The
Holder may exercise this Warrant Agreement at any time from and after the date
hereof and prior to the Expiration Date, in whole or in part, as adjusted from
time to time as provided in Section 4 of this Warrant Agreement, by: (a) the
surrender of this Warrant Agreement, with the Exercise Form substantially in
the
form attached hereto as Annex A properly completed and executed, at the
principal office of the Company on a Business Day (as defined below), and (b)
upon payment by (i) the delivery on a Business Day of a certified check or
official bank check or wire transfer of immediately available funds, payable
to
the order of the Company, (ii) cancellation of an amount of indebtedness of
the
Company under the Loan Agreement,
or (iii)
a combination of (i) and (ii), in an amount equal to the aggregate purchase
price for the Warrant Shares being purchased upon such exercise. Upon receipt
thereof by the Company, the Holder will be deemed to be the holder of record
of
the Warrant Shares issuable upon such exercise as of the close of business
on
the date of such receipt by the Company, and the Company will promptly execute
or cause to be executed and delivered to the Holder a certificate or
certificates representing the aggregate number of Warrant Shares specified
in
the Exercise Form. If this Warrant Agreement is exercised only in part, the
Company will, at the time of delivery of said stock certificate or certificates,
deliver to the Holder a new Warrant Agreement of like tenor evidencing the
right
of the Holder to purchase the remaining Warrant Shares then covered by this
Warrant Agreement. Upon exercise of this Warrant Agreement and payment of the
purchase price by the Holder, all Warrant Shares deliverable and issued
hereunder will be duly authorized, duly and validly issued and outstanding,
fully paid and nonassessable, and free from taxes, liens or charges. “Business
Day” shall mean any day other than a Saturday, Sunday or legal holiday on which
banks in North Carolina and New York are open for the conduct of their banking
business.
4. Certain
Adjustments.
The
Exercise Price at which Warrant Shares may be purchased and the number of
Warrant Shares to be purchased upon exercise of this Warrant Agreement are
subject to change or adjustment from time to time as follows:
(a) Merger,
Sale of Assets, etc.
If at
any time while this Warrant Agreement, or any portion hereof, is outstanding
and
unexpired there shall be (i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), (ii) a merger or consolidation of the Company with or into another
corporation or entity in which the Company is not the surviving entity, or
a
share exchange or reverse triangular merger in which the Company is the
surviving entity but the shares of the Company’s capital stock outstanding
immediately prior to the merger or share exchange are exchanged or converted
by
virtue of the merger or share exchange into other property, whether in the
form
of securities, cash, or otherwise,
or (iii)
a sale, lease, license or other transfer of all or substantially all of the
Company’s properties or assets to any other person or entity, then, as a part of
such reorganization, merger, consolidation, exchange or transfer, lawful
provision shall be made so that the Holder shall thereafter be entitled to
receive upon exercise of this Warrant Agreement, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares of stock or other securities or property resulting from such
reorganization, merger, consolidation, exchange or transfer that a holder of
the
shares deliverable upon exercise of this Warrant Agreement would have been
entitled to receive in such reorganization, merger, consolidation, exchange
or
transfer if this Warrant Agreement had been exercised immediately before the
record date of (or the date of, if no record date is fixed) such reorganization,
merger, consolidation, exchange or transfer, all subject to further adjustment
as provided in this Section 4. The foregoing provisions of this Section
4(a) shall similarly apply to successive reorganizations, consolidations,
mergers, exchanges and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant
Agreement. If the per-share consideration payable to the Holder hereof for
shares in connection with any such transaction is in a form other than cash
or
marketable securities, then the value of such consideration shall be reasonably
determined in good faith by the Company’s Board of Directors. In all events,
appropriate adjustment (as reasonably determined in good faith by the Company’s
Board of Directors) shall be made in the application of the provisions of this
Warrant Agreement with respect to the rights and interests of the Holder after
the transaction, to the end that the provisions of this Warrant Agreement shall
be applicable after that event, as near as reasonably may be, in relation to
any
shares or other property deliverable after that event upon exercise of this
Warrant Agreement.
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(b) Reclassification,
etc.
If the
Company, at any time while this Warrant Agreement, or any portion hereof,
remains outstanding and unexpired, by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of securities
of any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as the Holder would
have
received if this Warrant Agreement had been exercised in full immediately prior
to such reclassification or other change or immediately prior to the record
date
with respect thereto and the Exercise Price therefor shall be appropriately
adjusted, all subject to further adjustment as provided in this Section 4.
The
foregoing provisions of this Section 4(b) shall similarly apply to successive
reclassifications or other changes.
(c) Split,
Subdivision or Combination of Shares.
If the
Company, at any time while this Warrant Agreement, or any portion hereof,
remains outstanding and unexpired, shall split, subdivide or combine the
securities as to which purchase rights under this Warrant Agreement exist,
into
a different number of securities of the same class, the Exercise Price for
such
securities shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination. Upon
each
adjustment in the Exercise Price pursuant to this subsection, the number of
shares of such securities purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Exercise Price by a
fraction, the numerator of which shall be the Exercise Price immediately prior
to such adjustment and the denominator of which shall be the Exercise Price
immediately thereafter.
(d) Adjustments
for Dividends in Stock or Other Securities or Property.
If
while this Warrant Agreement, or any portion hereof, remains outstanding and
unexpired, the holders of the securities as to which purchase rights under
this
Warrant Agreement exist at the time shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) by way of dividend, then
and
in each case, this Warrant Agreement shall represent the right to acquire,
in
addition to the number of shares of the security receivable upon exercise of
this Warrant Agreement and, in addition, without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities or property (other than cash) that such holder would hold on the
date
of such exercise had it been the holder of record of the security receivable
upon exercise of this Warrant Agreement on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock or other
securities or property (other than cash) available by or to it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 4.
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(e) Certificate
as to Adjustments.
Upon
the occurrence of each adjustment pursuant to this Section 4, the Company at
its
expense shall promptly compute such adjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant Agreement a certificate signed
by its Chief Financial Officer setting forth such adjustment and showing in
detail the event requiring the adjustment, the amount of such adjustment, the
method by which such adjustment was calculated, the Exercise Price at the time
in effect, and the number of shares and the amount, if any, of the property
that
at the time would be received upon the exercise of this Warrant Agreement,
together with the facts upon which such adjustment is based. The Company shall,
upon the reasonable written request of any such Holder, furnish or cause to
be
furnished to such Holder a like certificate setting forth: (i) all such previous
adjustments; (ii) the Exercise Price at the time in effect; and (iii) the number
of shares and the amount, if any, of other property that at the time would
be
received upon the exercise of this Warrant Agreement.
(f) No
Impairment.
The
Company will not, by amendment of its certificate of incorporation or through
any reorganization, recapitalization, reclassification, transfer of assets,
consolidation, merger, business combination, dissolution, issuance or sale
of
securities or any other voluntary action, avoid or seek to avoid the intent
of
this Section 4 or the observance or performance of any of the terms to be
observed or performed by the Company under this Section 4 or the other terms
of
this Warrant Agreement, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of
the holder of this Warrant Agreement against impairment. In case any event
shall
occur as to which the other provisions of this Section 4 are not strictly
applicable but as to which the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant Agreement in accordance
with the essential intent and principles hereof, then, in each such case, the
Board of Directors of the Company shall in good faith determine the adjustment,
if any, on a basis consistent with the purchase rights represented by this
Warrant Agreement. Upon such determination, the Company will promptly deliver
a
copy thereof to the Holder and shall make the adjustments described
therein.
(g) No
Adjustment.
No
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least
$0.05
per
share of
Common Stock; provided,
however,
that
any adjustments which by reason of this Section 4(g) are not required to be
made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4 shall be made to the nearest cent or
to
the nearest 1/100th
of a
share, as the case may be.
5. Fractional
Shares.
Upon
the exercise of this Warrant Agreement, fractional shares may be issued by
the
Company, but the Company may, in lieu of issuing such fractional shares, pay
a
sum in cash equal to the excess of the fair market value of such fractional
share (determined in such reasonable manner as may be prescribed by the Board
of
Directors of the Company in its discretion) over the proportional part of the
per share purchase price represented by such fractional share.
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6. Notices
of Certain Events.
In
case:
(a)
the
Company shall take a record of the holders of its Common Stock (or other stock
or securities at the time receivable upon the exercise of this Warrant
Agreement) for the purpose of entitling them to receive any dividend or other
distribution, or stock subdivision or combination, or any right to subscribe
for
or purchase any shares of stock of any class or any other securities, or to
receive any other right;
or
(b)
of
any reorganization or recapitalization of the Company, any reclassification
of
the capital stock of the Company, any consolidation, merger, share exchange
or
other business combination of the Company with or into another corporation
or
entity, or any sale, lease, license or other transfer of all or substantially
all of the assets of the Company to another corporation or entity;
or
(c)
of
any voluntary dissolution, liquidation or winding-up of the Company,
then,
and
in each such case, the Company will cause written notice thereof to be delivered
to the Holder specifying, as the case may be, (i) the date on which a record
is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right or (ii) the
date on which such reorganization, recapitalization, reclassification,
consolidation, merger, share exchange, business combination, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any
is
to be fixed, as of which the holders of record of Common Stock (or such stock
or
securities at the time receivable upon the exercise of this Warrant Agreement)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, consolidation, merger,
share
exchange, business combination, transfer, dissolution, liquidation or
winding-up. Such notice shall be delivered at least fifteen (15) Business Days
prior to the date required to be specified therein pursuant to this Section
6(c).
7. Reservation
of Shares; Listing.
(a) The
Company will at all times until the date of exercise of this Warrant Agreement
in full (the “Exercise Date”) reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the exercise of this Warrant
Agreement, such number of its duly authorized shares of capital stock for which
this Warrant Agreement is exercisable, and such number of shares of any stock
into which such stock is convertible, if applicable, as will from time to time
be sufficient to effect the exercise of this Warrant Agreement. The Company
will
from time to time take all steps necessary to amend its certificate of
incorporation to provide at all times prior to the Exercise Date sufficient
reserves of shares of capital stock issuable upon exercise of this Warrant
Agreement and the conversion of such stock, if applicable. If the number of
authorized but unissued shares of capital stock shall not be sufficient to
effect the exercise the entire amount of this Warrant Agreement on the Exercise
Date or the conversion of such stock, if applicable, then in addition to such
other remedies as shall be available to the Holder, the Company shall take
all
such corporate action as is necessary to increase its authorized but unissued
shares of capital stock to such number of shares as shall be sufficient for
such
purposes.
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(b) The
Company will at all times use its best efforts to keep the Warrant Shares
authorized for listing on the NASDAQ
Global Select Market, NASDAQ Global Market (formerly the NASDAQ National Market)
or the NASDAQ Capital Market (formerly the NASDAQ Small Cap Market),
or any
national securities exchange on which its Common Stock is traded.
8. No
Rights as Stockholder; Limitation of Liability.
This
Warrant Agreement, as distinct from the shares for which this Warrant Agreement
is exercisable, will not entitle the Holder to any of the rights of a
stockholder of the Company, including without limitation any right to vote
on or
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever. No provision of this Warrant Agreement,
prior
to the exercise of this Warrant Agreement, and no mere enumeration herein of
the
rights or privileges of the Holder, will give rise to any liability of the
Holder for the purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.
9. Transfer
Restriction.
Neither
this Warrant Agreement nor the securities issuable upon exercise hereof have
been registered under
the
Securities Act of 1933,
as
amended (the
“Securities Act”), or the securities or
“blue
sky” laws
of
any state. Neither this Warrant Agreement nor
the
securities issuable upon exercise hereof nor any interest or participation
herein or therein may be sold, assigned, pledged, hypothecated, encumbered
or in
any other manner transferred or disposed of except in compliance with the
Securities Act and the securities laws of each relevant state. Notwithstanding
anything
in this
Warrant Agreement to the contrary,
the
Holder
may
pledge the
Warrant Agreement and the Warrant Shares
in
connection with bona fide loan transactions in which the
Holder
or its
affiliate is the borrower,
provided
that no such pledge shall occur knowingly, after reasonable investigation and
inquiry, to any person or entity which actively sells, distributes, markets,
develops, or produces a pharmaceutical product or device which directly competes
with the Product.
10. Registration
Rights.
(a) Required
Registration.
Not
later than forty-five (45) days following the date hereof (the “Filing Date”),
the Company shall prepare and file with the Securities and Exchange Commission
(“SEC”) a registration statement on Form S-3 (except if the Company is not then
eligible to use Form S-3, in which case such registration statement shall be
on
another appropriate form) (the “Registration Statement”) covering the resale of
all of the Registrable Securities (as defined below) in an offering to be made
on a continuous basis pursuant to Rule 415 of the Securities Act. The Company
shall use its commercially reasonable best efforts to cause such registration
statement to become effective as soon as practicable and in any event not later
than ninety (90) days following the date hereof and remain effective for the
period specified in Section 10(d) below. Subject to any modifications that
are
responsive to comments, rules or regulations of the SEC, the Registration
Statement will include a Plan of Distribution, which shall be no more
restrictive than that included in the Company’s registration statement on Form
S-3, SEC File No. 333-121297. For purposes of this Agreement, the term
“Registrable Securities” means the Warrant Shares, together with any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to any Registrable Securities.
Until such time as the Registration Statement is effective, the Company shall
not grant any registration rights or other rights to register securities under
the Securities Act that are senior to the rights of the Holder under this
Section 10(a) or that have the effect of delaying a sale or limiting the number
of securities which may be sold by the Holder pursuant to the Registration
Statement or otherwise adversely affect the rights of the Holder under this
Section 10(a); provided, however, that the foregoing shall not affect any
pre-existing rights granted to any persons or entities.
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(b) Registration
Expenses.
The
Company shall pay all Registration Expenses (as defined below) in connection
with any registration, qualification or compliance hereunder. At any time during
the ninety (90) days following the effective date of the Registration Statement
(and provided that the Registration Statement has not been withdrawn, suspended
or otherwise become not effective), the Company may present to the Holder an
accounting of its reasonable “Registration
Expenses
and,
within thirty (30) days thereafter, the Holder shall reimburse the Company
for
such expenses up to an aggregate amount not to exceed Twenty Thousand Dollars
($20,000). “Registration Expenses” shall mean all expenses incurred by the
Company in complying with the registration provisions herein described,
including without limitation all registration, qualification, notification
and
filing fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, and blue sky fees and expenses.
(c) Holder
Review of Registration Statement.
Upon
request received by the Company from the Holder within a reasonable time in
advance, the Company shall, on or prior to the third trading day prior to the
filing of the Registration Statement or any related prospectus or any amendment
or supplement thereto, (i) furnish to the Holder copies of all such documents
proposed to be filed (including documents incorporated or deemed incorporated
by
reference to the extent requested by such person), which documents will be
subject to the review of the Holder, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
(d) Certain
Company Obligations During Effectiveness of Registration
Statement.
From
the date of effectiveness of the Registration Statement, the Company will use
its best efforts to: (i) keep such registration effective until the earlier
of
(A) such date as all of the Registrable Securities have been resold or (B)
such
date as all Registrable Securities may be sold pursuant to Rule 144(k) (or
any
successor rule) (collectively, the “Effectiveness Period”); (ii) promptly
prepare and file with the SEC such amendments and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to comply with the provisions of
the
Securities Act with respect to the disposition of all securities covered by
the
Registration Statement; (iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as the Holder from time to time may reasonably request; (iv) cause
the Registrable Securities to be quoted or listed on each stock market or stock
exchange on which the Common Stock of the Company is then quoted or listed;
(v)
provide a transfer agent and registrar for all securities registered pursuant
to
the Registration Statement and a CUSIP number for all such securities; (vi)
avoid the issuance of, or, if issued, promptly notify the Holder and obtain
the
withdrawal of, any order suspending the effectiveness of a Registration
Statement; (vii) promptly notify the Holder of the issuance by the SEC or any
other federal or state governmental authority of any stop order suspending
the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (viii) promptly notify the Holder of the occurrence of any
event or passage of time that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or any statement made
in
the Registration Statement or prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, prospectus or other
documents so that, in the case of the Registration Statement or the prospectus,
as the case may be, it will not contain any untrue statement of a material
fact
or omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which they
were
made, not misleading; (ix) promptly furnish to the Holder, without charge,
at
least one conformed copy of the Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference to the extent
requested by such person, and all exhibits to the extent requested by such
person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the SEC, provided, that if
such
documents are available on the Internet free of charge, then the Company instead
may satisfy the requirement of this Section 10(d)(ix) by promptly notifying
the
Holder of the availability
of such
documents (other than periodic financial statements, reports of quarterly
conference calls and press releases);
and (x)
file the documents required of the Company and otherwise use its best efforts
to
maintain any required blue sky clearance in North Carolina and such other states
of the United States specified in writing by the Holder; provided, however,
that
the Company shall not be required to qualify to do business in any state in
which it is not now so qualified or has not so consented.
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(e) Suspension
of Use of Prospectus.
The
Holder hereby acknowledges that there may occasionally be times when the Company
must suspend the use of the prospectus forming a part of the Registration
Statement until such time as an amendment to the Registration Statement has
been
filed by the Company and declared effective by the SEC or until the Company
has
amended or supplemented such prospectus. The Holder hereby covenants that it
will not sell any securities pursuant to said prospectus during the period
commencing at the time at which the Company gives the Holder notice of the
suspension of the use of said prospectus and ending at the time the Company
gives the Holder notice that Holder thereafter may effect sales pursuant to
said
prospectus. Notwithstanding anything herein to the contrary, the Company shall
not suspend use of the prospectus forming a part of the Registration Statement
by the Holder unless in the good faith opinion of the Company (after
consultation with its counsel) or its counsel such suspension is required by
the
federal securities laws, including without limitation, the rules and regulations
promulgated thereunder; provided, however, that in the event that such
suspension is required by the need for an amendment or supplement to the
Registration Statement or the prospectus forming a part thereof, the Company
shall use its best efforts to file as soon as practicable such required
amendments or supplements as shall be necessary for the disposition of the
Registrable Securities to recommence.
(f) Holder
Information for Registration Statement.
As a
condition to the inclusion of its Registrable Securities, the Holder shall
furnish to the Company such information regarding the Holder and the
distribution proposed by the Holder as the Company may reasonably request in
order to comply with any applicable law or regulation in connection with any
registration, qualification or compliance referred to in this Section
10.
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(g) Indemnification
and Contribution.
(1)
To
the extent permitted by applicable law, the Company will indemnify and hold
harmless each seller of Registrable Securities that were registered pursuant
to
the Registration Statement, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of Section 5 of the Securities Act, against
any
losses, claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act
or
other applicable federal or state securities or “blue sky” laws, to the extent
that such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, and will reimburse each such seller,
each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however,
that
the Company will not be liable, to any such indemnitee if and to the extent
that
any such loss, claim, damage or liability arises out of or is based upon an
(i)
untrue statement or alleged untrue statement or omission or alleged omission
so
made in conformity with information furnished by or on behalf of such indemnitee
in writing specifically for use in such registration statement or prospectus
or
(ii) such untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary or earlier effective prospectus and
corrected in a final or amended prospectus, and such holder of Registrable
Securities failed to deliver a copy of the final or amended prospectus at or
prior to the confirmation of the sale of the Registrable Securities to the
buyer
of such Registrable Securities; provided,
further,
that
the indemnity agreement contained in this Section 10(g)(1) shall not apply
to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, provided that such consent shall not be
required if the settlement shall include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
of
the Company from all liability in respect of such claim or
litigation.
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(2) To
the
extent permitted by applicable law, each seller of Registrable Securities that
were registered pursuant to the Registration Statement, severally and not
jointly, will indemnify and hold harmless the Company, each person, if any,
who
controls the Company within the meaning of Section 15 of the Securities Act,
each officer of the Company who signs the Registration Statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages
or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Securities Act
or
other applicable federal or state securities or “blue sky” laws, to the extent
that such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission
to
state therein a material fact required to be stated therein or necessary to
make
the statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or
defending any such loss, claim, damage, liability or action; provided,
however,
that
such seller will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by or on behalf of such
seller specifically for use in such registration statement or prospectus, and
provided,
further,
that
the indemnity agreement contained in this Section 10(g)(2) shall not apply
to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such seller, which consent
shall not be unreasonably withheld, provided that such consent shall not be
required if the settlement shall include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release
of
such seller from all liability in respect of such claim or litigation;
provided,
further,
that
the liability of each seller hereunder shall be limited to the net proceeds
received for the account of such seller from the sale of Registrable Securities
covered by such registration statement.
(3) Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission to so notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 10(g) and shall only relieve it from any liability
which
it may have to such indemnified party under this Section 10(g) if and to the
extent the indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 10(g) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however,
that,
if the defendants in any such action include both the indemnified party and
the
indemnifying party, and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it that are different from
or
additional to those available to the indemnifying party or if the interests
of
the indemnified party reasonably may be deemed to conflict with the interests
of
the indemnifying party, the indemnified party shall have the right to select
a
separate counsel and to assume and undertake such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred; provided, further,
that
the Company shall not have any reimbursement obligation for the expenses and
fees of more than one such separate counsel for all indemnitees.
10
(4) In
order
to provide for just and equitable contribution to joint liability under the
Securities Act in any case in which either (i) any holder of Registrable
Securities exercising rights under this Agreement, or any controlling person
of
any such holder, makes a claim for indemnification pursuant to this Section
10(g) but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not
be
enforced in such case notwithstanding the fact that this Section 10(g) provides
for indemnification in such case, or (ii) contribution under the Securities
Act
may be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
10(g); then, and in each such case, the Company and such holder will contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate
to
reflect the relative fault of the indemnifying party on the one hand and of
the
indemnified party on the other, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and
the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission; provided,
however,
that,
in any such case, (A) no such holder will be required to contribute any amount
in excess of the public offering price of all such Registrable Securities
offered by it pursuant to such registration statement; and (B) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
or
entity who was not guilty of such fraudulent misrepresentation.
11. Rule
144 Reporting.
With a
view to making available the benefits of certain rules and regulations of the
SEC that may permit the sale of securities to the public without registration,
the Company agrees to use
commercially
reasonable
best
efforts to make and keep public information regarding the Company
available as contemplated by Rule 144 under the Securities Act and file with
the
SEC in a timely manner all reports and other documents required to be
filed
by the Company under the Securities Act and the Securities Exchange Act of
1934,
as
amended (the “Exchange Act”),
and
furnish a
written
report to the Holder upon written request as to the Company’s compliance with
the reporting requirements of Rule 144 and of the Securities Act and the
Exchange Act.
12. SEC
and Other Information.
So long
as this Warrant Agreement is in effect, the Company shall, upon written
request,
provide to the Holder,
within
three
(3) Business Days of
receipt of such written request,
a copy
of any publicly available forms, reports or other documents filed
by the
Company
with the
SEC if such documents are not available on the Internet free of charge. If
for
any reason at any time the Company is not required to file annual, quarterly
and
other periodic reports with the SEC pursuant to the terms of the Exchange Act,
then the Company shall make available at no charge to the Holder financial
statements no later than the time they would be filed with the SEC if the
Company was required to file such annual, quarterly and other periodic
reports.
11
13. Additional
Provisions.
(a) The
Holder represents, by accepting this Warrant Agreement, that it understands
that
this Warrant Agreement and any securities obtainable upon exercise of this
Warrant Agreement have not been registered for sale under federal or state
securities or “blue sky” laws and are being offered and sold to the Holder
pursuant to one or more exemptions from the registration requirements of such
securities laws. In the absence of an effective registration of such securities
or an exemption therefrom, any certificates for such securities shall bear
a
legend substantially similar to the legend set forth on the first page of this
Warrant Agreement. The Holder understands that it must bear the economic risk
of
its investment in this Warrant Agreement and any securities obtainable upon
exercise of this Warrant Agreement for an indefinite period of time, as this
Warrant Agreement and such securities have not been registered under federal
or
state securities or blue sky laws and therefore cannot be sold unless
subsequently registered under such laws, unless an exemption from such
registration is available.
(b) The
Holder agrees and acknowledges that this Warrant Agreement, or any portion
hereof, and any such securities will not be sold, transferred, assigned,
hypothecated or otherwise disposed of unless (i) a registration statement with
respect to such transfer is effective under the Securities Act and any
applicable state securities or blue sky laws or (ii) such sale or transfer
is
made pursuant to one or more exemptions from the Securities Act.
(c) The
Holder represents that it has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of this
Warrant Agreement or the exercise of this Warrant Agreement and the finance
operations and business of the Company and (ii) the opportunity to request
such
additional information which the Company possesses or can acquire without
unreasonable effort or expense. Nothing contained in this Section 11(c) shall
alter, amend or change the Holder’s reliance on the representations, covenants
or warranties contained herein.
(d) The
Holder represents that it did not (i) receive or review any advertisement,
article, notice or other communication published in a newspaper or magazine
or
similar media or broadcast over television or radio, whether closed circuit,
or
generally available; or (ii) attend any seminar, meeting or investor or other
conference whose attendees were, to such Holder’s knowledge, invited by any
general solicitation or general advertising.
(e) The
Holder represents that it is an “accredited investor” within the meaning of
Regulation D promulgated under the Act. Such Holder is acquiring this Warrant
Agreement for its own account and not with a present view to, or for sale in
connection with, any distribution thereof in violation of the registration
requirements of the Act.
12
(f) The
Holder represents that it, either by reason of the Holder’s business or
financial experience or the business or financial experience of its professional
advisors (who are unaffiliated with and who are not compensated by the Company
or any affiliate, finder or selling agent of the Company, directly or
indirectly), has such sophistication, knowledge and experience in financial
and
business matters as to be capable of evaluating the merits and risks of its
investment in the Company.
(g) The
Holder represents that it has the ability to bear the economic risks of its
investment for an indefinite period of time and could afford a complete loss
of
its investment.
(h) The
Holder agrees and acknowledges that the representations and warranties made
by
the Holder in this Section 13 shall be deemed also to be made at the time of
the
exercise of this Warrant Agreement.
(i) Nothing
in this Section 13 shall affect in any way the Holder’s obligations under any
agreement to comply with all applicable securities laws upon resale of the
Warrant Shares.
14. Miscellaneous.
(a) Amendments
and Waivers.
This
Warrant Agreement and any provision hereof may be amended, changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
(b) Successors
and Assigns.
This
Warrant Agreement is binding upon, and inures to the benefit of, the parties
and
their respective successors and assigns, provided that the Holder shall not
assign or transfer any or all of its rights under this Warrant Agreement,
knowingly, after reasonable investigation and inquiry, to any person or entity
which actively sells, distributes, markets, develops, or produces a
pharmaceutical product or device which directly competes with the Product.
Any
assignment or attempted assignment in violation of this Section 14(b) shall
be
null and void.
(c) Loss,
Theft, Destruction or Mutilation.
Upon
receipt by the Company of evidence reasonably satisfactory to it that this
Warrant Agreement has been lost, stolen, destroyed or mutilated, and in the
case
of any lost, stolen or destroyed Warrant Agreement, an indemnity reasonably
satisfactory to the Company, or in the case of a mutilated Warrant Agreement,
upon surrender and cancellation hereof, the Company will execute and deliver
in
the name of the registered holder of this Warrant Agreement, in exchange and
substitution for the Warrant Agreement so lost, stolen, destroyed or mutilated,
a new Warrant Agreement of like tenor and amount.
(d) Warrant
Exchangeable for Different Denominations.
This
Warrant Agreement is exchangeable, upon the surrender hereof by the Holder
at
the principal office of the Company for new Warrant Agreements of like tenor
representing in the aggregate the right to purchase the number of shares which
may be purchased hereunder, each of such new Warrant Agreements to represent
the
right to purchase such number of Warrant Shares as shall be designated by said
Holder hereof at the time of such surrender.
13
(e) Law
Governing.
This
Warrant Agreement will be governed by, and construed and enforced in accordance
with, the internal laws of the State of Delaware. The Holder and the Company
waive their respective rights to a jury trial with respect to any action, claim,
or other proceeding arising out of any dispute in connection with this Warrant
Agreement, any rights or obligations hereunder, or the performance of such
rights and obligations. The Holder and the Company agree that disputes relating
to this Warrant Agreement shall be subject to the provisions of the Loan
Agreement entitled “Internal Review” and “Arbitration” set forth in Sections
8.14 and
8.15
thereof,
respectively, after modifying such Sections so that any references to “Loan
Documents” or the “Agreement” shall mean this Warrant Agreement and any
references to the “Borrower” or “Lender” shall mean the Company or the Holder,
respectively.
(f) Entire
Agreement.
This
Warrant Agreement constitutes the full and entire understanding and agreement
among the parties with regard to the subject matter of this Warrant Agreement,
and supersedes all prior agreements, understandings, inducements or conditions,
express or implied, oral or written, with respect to the subject matter of
this
Warrant Agreement.
(g) Notices.
Unless
otherwise provided herein, all notices, requests, demands and other
communications required or permitted under this Warrant Agreement shall be
in
writing and will be deemed to have been duly made and received: (i) upon
personal delivery; (ii) three (3) Business Days after deposit with the United
States Post Office, by registered or certified mail or by first class mail,
postage prepaid, addressed as set forth below; or (iii) one (1) Business Day
after deposit with a nationally recognized, overnight courier (for next business
day delivery), shipping prepaid, addressed as set forth below:
| (i) |
If
to the Company, then to:
|
Discovery
Laboratories, Inc.
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn:
Chief Executive Officer and General Counsel
with
a
copy to (which shall not constitute notice):
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇-▇▇▇▇
Attn:
▇▇▇
▇. ▇▇▇▇▇
| (ii) |
If
to NovaQuest, then to:
|
PharmaBio
Development Inc. (d/b/a NovaQuest)
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
President
14
with
a
copy to (which shall not constitute notice):
PharmaBio
Development Inc. (d/b/a NovaQuest)
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
General Counsel
Either
party may change the address to which communications are to be sent by giving
five (5) Business Days’ advance notice of such change of address to the other
party in conformity with the provisions of this Section 14(g).
(h) Execution;
Counterparts.
This
Warrant Agreement may be executed in counterparts, each of which will be deemed
to be an original, and all of which will together constitute one and the same
instrument. The exchange of copies of this Warrant Agreement or amendments
thereto and of signature pages by facsimile transmission or by email
transmission in portable digital format, or similar format, shall constitute
effective execution and delivery of such instrument(s) as to the parties and
may
be used in lieu of the original Warrant Agreement or amendment for all purposes.
Signatures of the parties transmitted by facsimile or by email transmission
in
portable digital format, or similar format, shall be deemed to be their original
signatures for all purposes.
[Rest
of page intentionally left blank; signatures on following
page]
15
[Signature
Page to Warrant Agreement]
IN
WITNESS WHEREOF, the parties have caused this Warrant Agreement to be duly
executed and delivered as of the day and year first written above.
| DISCOVERY LABORATORIES, INC. | |
| By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
| Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
|
Title: Executive Vice President and Chief Financial Officer
|
|
| PHARMABIO DEVELOPMENT INC. | |
| (d/b/a NovaQuest) | |
| By: /s/ ▇▇▇ ▇▇▇▇▇▇▇ | |
| Name: ▇▇▇ ▇▇▇▇▇▇▇ | |
|
Title: Senior Vice President, Corporate
Development
|
16
ANNEX
A
EXERCISE
FORM
TO
BE
EXECUTED BY THE REGISTERED HOLDER
TO
EXERCISE THE ATTACHED WARRANT AGREEMENT OF
DISCOVERY
LABORATORIES, INC.
17
SUBSCRIPTION
The
undersigned, ___________________, pursuant to the provisions of the foregoing
Warrant Agreement, hereby elects to exercise such Warrant Agreement by agreeing
to subscribe for and purchase ____________________ shares (the “Warrant Shares”)
of Common Stock, par value $0.001 per share, of Discovery Laboratories, Inc.
(the “Company”), and hereby (i) makes payment of $___________ by certified or
official bank check in payment of the exercise price therefor, and (ii) agrees
to cancel indebtedness of the Company under the Loan Agreement in an amount
equal to $___________.
As
a
condition to this subscription, the undersigned hereby represents and warrants
to the Company that the representations and warranties of Section 13 of the
Warrant Agreement are true and correct as of the date hereof as if they had
been
made on such date with respect to the Warrant Shares. The undersigned further
acknowledges that the sale, transfer, assignment or hypothecation of the Warrant
Shares to be issued upon exercise of the Warrant Agreement is subject to the
terms and conditions contained in Sections 4, 9 and 13 of the Warrant
Agreement.
| Dated:_______________________________ | Signature: | _______________________________ |
| Address: | _______________________________ | |
| _______________________________ |
ASSIGNMENT
FOR
VALUE
RECEIVED _______________ hereby sells, assigns and transfers unto
____________________ the foregoing Warrant Agreement and all rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer said Warrant Agreement on the books of Discovery
Laboratories, Inc. (the “Company”). As a condition to this assignment, the
Holder acknowledges that its assignee must deliver a written instrument to
the
Company that the representations and warranties of Section 13 of the Warrant
Agreement are true and correct as of the date hereof as if they had been made
by
such assignee on such date.
| Dated:_______________________________ | Signature: | _______________________________ |
| Address: | _______________________________ | |
| _______________________________ |
PARTIAL
ASSIGNMENT
FOR
VALUE
RECEIVED _______________ hereby assigns and transfers unto ____________________
the right to purchase _______ shares of the Common Stock, par value $.001 per
share, of Discovery Laboratories, Inc. (the “Company”), as set forth in the
foregoing Warrant Agreement, and a proportionate part of said Warrant Agreement
and the rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant Agreement
on the books of the Company. As a condition to this assignment, the Holder
acknowledges that its assignee must deliver a written instrument to the
Company that
the
representations and warranties of Section 13 of the Warrant Agreement are true
and correct as of the date hereof as if they had been made by such assignee
on
such date.
| Dated:_______________________________ | Signature: | _______________________________ |
| Address: | _______________________________ | |
| _______________________________ |
18