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
Date of Report (Date of earliest event reported): June 16, 1998
Discovery Laboratories, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
000-26422 94-3171943
(Commission File Number) (I.R.S. Employer Identification No.)
3359 Durham Road, Doylestown, Pennsylvania 18901
(Address of Principal Executive Offices) (Zip Code)
(215) 794-3064
(Registrant's Telephone Number, Including Area Code)
509 Madison Avenue, Suite 1406, New York, NY 10022
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On June 16, 1998 (the "Effective Date"), Discovery
Laboratories, Inc. ("Discovery") acquired Acute Therapeutics, Inc. ("ATI"), a
Delaware corporation, a majority owned subsidiary of Discovery, pursuant to an
Agreement and Plan of Merger dated as of March 5, 1998, as amended by Amendment
No. 1 thereto dated as of May 1, 1998, among Discovery, ATI Acquisition Corp.
(the "Merger Subsidiary") and ATI (the "Merger Agreement"). Pursuant to the
Merger Agreement, the Merger Subsidiary was merged with and into ATI on the
Effective Date (the "Merger"). As a result of the Merger, ATI became a
wholly-owned subsidiary of Discovery. Approximately 1,033,500 shares of Common
Stock of Discovery and 2,039 shares of Series C Preferred Stock of Discovery
were issued to the minority stockholders of ATI in exchange for all of the
issued and outstanding shares of capital stock held by all minority stockholders
of ATI. In addition, Discovery has agreed to assume certain unexpired and
unexercised options to acquire Common Stock of ATI, and to issue upon exercise
thereof a certain number of shares of the Common Stock of Discovery, as
appropriately adjusted pursuant to the terms of the Merger Agreement.
ATI is currently engaged in the development of hospital-based
pharmaceuticals. Discovery currently intends to operate ATI as a wholly-owned
subsidiary and to continue ATI's business substantially in the manner conducted
by ATI immediately prior to the Merger.
The foregoing description of the Merger Agreement does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement.
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<PAGE>
Item 7. Financial Statements and Exhibits.
Pursuant to B.3. of the General Instructions to Form 8-K, an
additional report of the information need not be made if substantially the same
information as required by this form has been previously made (as defined in
Rule 12b-2 of the Securities and Exchange Act of 1934, as amended). The
financial position and results of operations of ATI have been presented in the
past in the historical filings of Discovery. Accordingly, there are no further
financial statements to be presented in this Form 8-K.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Discovery Laboratories, Inc.
(Registrant)
By: /s/ Robert J. Capetola
Name: Robert J. Capetola
Title: President and Chief Executive Officer
Dated: July 15, 1998
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit Number Description
2.1 Agreement and Plan of Merger, dated as of March 5, 1998, by and
among Discovery, the Merger Subsidiary and ATI.
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated as of
May 1, 1998, by and among Discovery, the Merger Subsidiary and ATI.
3.1 Certificate of Designation of Series C Preferred Stock of Discovery, dated
as of June 16, 1998.
4.1 Stock Exchange Agreement, dated as of June 16, 1998, by
and between Discovery and Johnson & Johnson Development
Corporation.
4.2 Registration Rights Agreement, dated as of June 16,
1998, by and among Discovery, Johnson & Johnson
Development Corporation and The Scripps
Research Institute.
10.1 Employment Agreement, dated as of June 16, 1998, between Discovery
and Robert J. Capetola, Ph.D.
99.1 Press Release issued June 17, 1998.
</TABLE>
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<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
among
DISCOVERY LABORATORIES, INC.
ATI ACQUISITION CORP.
AND
ACUTE THERAPEUTICS, INC.
March 5, 1998
March 5, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S><C>
ARTICLE 1 THE MERGER.................................................................................. 2
Section 1.1 The Merger.................................................................. 2
Section 1.2 Closing and Effective Time.................................................. 2
Section 1.3 Directors and Officers of the Surviving Corporation......................... 2
Section 1.4 Certificate of Incorporation................................................ 2
Section 1.5 Bylaws...................................................................... 2
Section 1.6 Effect of the Merger........................................................ 2
ARTICLE 2 CONVERSION OR EXCHANGE OF SECURITIES........................................................ 3
Section 2.1 Conversion of Capital Stock................................................. 3
Section 2.3 Payment for Common Shares; Surrender of Certificates........................ 4
Section 2.4 Appraisal Rights............................................................ 5
Section 2.5 Seller Option Plan.......................................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER.................................................... 6
Section 3.1 Organization................................................................ 6
Section 3.2 Capitalization.............................................................. 6
Section 3.3 Authorization; Validity of Agreement; Necessary Action...................... 7
Section 3.4 Consents and Approvals; No Violations....................................... 7
Section 3.5 [RESERVED].................................................................. 8
Section 3.6 Absence of Certain Changes.................................................. 8
Section 3.7 No Undisclosed Liabilities.................................................. 9
Section 3.8 Litigation.................................................................. 9
Section 3.9 No Default; Compliance with Applicable Laws................................. 9
Section 3.10 Intellectual Property....................................................... 9
Section 3.11 Tax Returns and Payments.................................................... 10
Section 3.12 Certificate of Incorporation and Bylaws..................................... 10
Section 3.13 Title to Property........................................................... 10
Section 3.14 Employee Benefits and Contracts............................................. 11
Section 3.15 Employment; Labor Matters................................................... 12
Section 3.16 Brokers..................................................................... 12
Section 3.17 Environmental Laws.......................................................... 12
Section 3.18 Insurance................................................................... 13
Section 3.19 Contracts and Commitments................................................... 13
Section 3.20 Interests of Officers and Directors......................................... 14
Section 3.21 Questionable Payments....................................................... 14
Section 3.22 Certain Tax Matters......................................................... 14
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March 5, 1998
<PAGE>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND
ACQUISITION SUBSIDIARY............................................................... 15
Section 4.1 Organization................................................................ 15
Section 4.2 Capitalization.............................................................. 15
Section 4.3 Authorization; Validity of Agreement; Necessary Action...................... 16
Section 4.4 Consents and Approvals; No Violations....................................... 17
Section 4.5 SEC Reports and Financial Statements........................................ 17
Section 4.6 Absence of Certain Changes.................................................. 18
Section 4.7 No Undisclosed Liabilities.................................................. 19
Section 4.8 Litigation.................................................................. 19
Section 4.9 No Default; Compliance with Applicable Laws................................. 19
Section 4.10 Intellectual Property....................................................... 20
Section 4.11 Tax Returns and Payments.................................................... 20
Section 4.12 Certificate of Incorporation and Bylaws..................................... 21
Section 4.13 Title to Property........................................................... 21
Section 4.14 Employee Benefits and Contracts............................................. 21
Section 4.15 Employment; Labor Matters................................................... 22
Section 4.16 Brokers..................................................................... 23
Section 4.17 Environmental Laws.......................................................... 23
Section 4.18 Insurance................................................................... 23
Section 4.19 Contracts and Commitments................................................... 23
Section 4.20 Interests of Officers and Directors......................................... 24
Section 4.21 Questionable Payments....................................................... 24
Section 4.22 Certain Tax Matters......................................................... 25
Section 4.23 No Prior Activities......................................................... 25
ARTICLE 5 COVENANTS................................................................................... 25
Section 5.1 Interim Operations of Seller and Buyer...................................... 25
Section 5.2 Access; Confidentiality..................................................... 27
Section 5.3 Additional Agreements....................................................... 27
Section 5.4 Consents and Approvals; HSR Act............................................. 28
Section 5.5 Exclusivity................................................................. 28
Section 5.6 Publicity................................................................... 28
Section 5.7 Notification of Certain Matters............................................. 28
Section 5.8 Indemnification............................................................. 29
Section 5.9 Approval of Stockholders.................................................... 29
Section 5.10 Buyer Proxy Statement....................................................... 30
Section 5.11 Seller Information Statement................................................ 30
Section 5.12 Tax Treatment............................................................... 31
Section 5.13 Form S-8.................................................................... 31
Section 5.14 Reservation of Buyer Common Stock........................................... 31
Section 5.15 Consolidation of Operations................................................. 31
Section 5.16 Consolidation of Board of Directors......................................... 32
Section 5.17 Incentive Bonus Payments.................................................... 32
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March 5, 1998
<PAGE>
ARTICLE 6 CONDITIONS.................................................................................. 32
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.................. 32
Section 6.2 Additional Conditions to Obligations of Seller.............................. 33
Section 6.3 Additional Conditions to Obligations of Buyer and Acquisition
Subsidiary.................................................................. 34
ARTICLE 7 TERMINATION................................................................................. 35
Section 7.1 Termination................................................................. 35
Section 7.2 Effect of Termination....................................................... 36
ARTICLE 8 MISCELLANEOUS............................................................................... 36
Section 8.1 Fees and Expenses........................................................... 36
Section 8.2 Amendment and Modification.................................................. 36
Section 8.3 Nonsurvival of Representations and Warranties............................... 36
Section 8.4 Notices..................................................................... 37
Section 8.5 Interpretation.............................................................. 38
Section 8.6 Counterparts................................................................ 38
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership................................................................... 38
Section 8.8 Severability................................................................ 38
Section 8.9 Governing Law............................................................... 38
Section 8.10 Assignment.................................................................. 39
</TABLE>
Exhibit A - Form of Capetola Employment Agreement
Exhibit B - Form of Key Executive Employment Agreement
Exhibit C - Form of Option Agreement for 338,500 Shares
Exhibit D - Form of Option Agreement for 175,000 Shares
Exhibit E - Form of Option Agreement for 160,000 Shares
Exhibit F - Form of Registration Rights Agreement
Exhibit G - Form of Investment Agreement
Exhibit H - Form of Lock-up Agreement
Exhibit I - Form of Buyer 1998 Stock Option Plan
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March 5, 1998
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated March 5, 1998, by and among
Discovery Laboratories, Inc., a Delaware corporation ("Buyer" or "Discovery"),
ATI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Buyer ("Acquisition Subsidiary"), and Acute Therapeutics, Inc., a Delaware
corporation ("Seller" or "Acute").
RECITALS:
WHEREAS, upon and subject to the terms and conditions of this
Agreement, Acquisition Subsidiary will merge with and into Seller (the "Merger")
and Seller will become a wholly-owned subsidiary of Buyer;
WHEREAS, the Boards of Directors of Seller and Buyer have each
determined that it is in the best interests of their respective stockholders for
Buyer to acquire Seller upon the terms and subject to the conditions set forth
herein; and
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of Seller and Buyer have each approved this Agreement and the Merger
of Acquisition Subsidiary with and into Seller in accordance with the Delaware
General Corporation Law ("DGCL"), and upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the Board of Directors of Seller has resolved to recommend
approval of this Agreement and the Merger to the holders of shares of Seller's
Common Stock, $0.001 par value per share (the "Common Shares") and the holder of
shares of Seller's Series A Preferred Stock, $0.001 par value per share (the
"Series A Acute Preferred Shares");
WHEREAS, for federal income tax purposes it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Seller, Buyer and Acquisition Subsidiary hereby agree as follows:
March 5, 1998
<PAGE>
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof), Seller and
Acquisition Subsidiary shall consummate the Merger pursuant to which Acquisition
Subsidiary shall be merged with and into Seller in accordance with Section 251
of the DGCL, the separate corporate existence of Acquisition Subsidiary shall
cease, and Seller shall continue as the surviving corporation in the Merger
(Seller is sometimes referred to as the "Surviving Corporation").
Section 1.2 Closing and Effective Time. The closing of the Merger (the
"Closing") shall take place (i) at 10:00 a.m., New York time, on a date to be
specified by the parties, which shall be no later than the fifth business day
after satisfaction or waiver of all of the conditions set forth in Article 6
hereof, at the offices of Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th
Floor, New York, NY 10019 or (ii) at such other time and place as Buyer and
Seller shall agree (the "Closing Date"). Immediately after completion of the
Closing, the parties shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") executed in accordance with
the relevant provisions of the DGCL and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at the
time when the Certificate of Merger has been duly filed with the Delaware
Secretary of State, or such time as is agreed upon by the parties and specified
in the Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time." The date of the Effective Time is hereinafter referred to as
the "Effective Date."
Section 1.3 Directors and Officers of the Surviving Corporation. The
directors and officers of Seller at the Effective Time shall be the initial
directors and officers, respectively, of the Surviving Corporation.
Section 1.4 Certificate of Incorporation. The certificate of
incorporation of Acquisition Subsidiary in effect at the Effective Time shall be
the certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
Section 1.5 Bylaws. The bylaws of Acquisition Subsidiary in effect at
the Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
Section 1.6 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Seller and Acquisition Subsidiary shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Seller and Acquisition Subsidiary shall
become the debts, liabilities and duties of the Surviving Corporation.
2
March 5, 1998
<PAGE>
ARTICLE 2
CONVERSION OR EXCHANGE OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Buyer, Acquisition
Subsidiary, Seller, or the holders of any Common Shares or Series A Acute
Preferred Shares or Series B Acute Preferred Shares (as herein defined) or any
shares of capital stock of Acquisition Subsidiary:
(a) Acquisition Subsidiary Capital Stock. Each issued and outstanding
share of capital stock of Acquisition Subsidiary shall be converted into and
become one fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Series A Acute Preferred Shares.
All Common Shares that are owned by Seller and all Series A Acute Preferred
Shares that are owned by Buyer shall be cancelled and extinguished without any
conversion thereof and no consideration shall be delivered in exchange therefor.
(c) Conversion of Common Shares. Each issued and outstanding Common
Share (other than Common Shares to be canceled in accordance with Section 2.1(b)
and any dissenting Common Shares which are held by stockholders exercising
appraisal rights pursuant to the DGCL ("Dissenting Stockholders")) shall by
virtue of the Merger and without any action on the part of the holder thereof,
be automatically converted into the right to receive, upon surrender of the
certificate formerly representing such Common Share (the "Common Share
Certificate") in the manner provided in Section 2.3 below, 3.91 shares of Common
Stock, $.001 par value of Buyer ("Buyer Common Stock"). The number of shares of
Buyer Common Stock into which each Common Share will be automatically converted
is referred to as the "Conversion Ratio." All such Common Shares, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such Common Shares shall cease to have any rights with respect
thereto, except the right to receive the merger consideration therefor upon the
surrender of such certificate in accordance with Section 2.3, or, in the case of
Dissenting Stockholders, the right, if any, to receive payment from the
Surviving Corporation of the fair value of such Common Shares as determined in
accordance with the DGCL. No fractional shares of Buyer Common Stock shall be
issued and, in lieu thereof, a cash payment shall be made pursuant to Section
2.3(c).
Section 2.2 Exchange of Series B Acute Preferred Shares. Each issued
and outstanding Share of Seller's Series B Preferred Stock, $0.001 par value per
share (the "Series B Acute Preferred Shares") shall, at the Closing, be
exchanged for one share of Series A Preferred Stock, $0.001 par value per share
of Buyer (the "Discovery Preferred Shares"), pursuant to an exchange agreement
between Buyer and Johnson & Johnson Development Corporation ("JJDC")(the
"Exchange Agreement") in form and substance reasonably acceptable to Buyer and
Seller.
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March 5, 1998
<PAGE>
Section 2.3 Payment for Common Shares; Surrender of Certificates
(a) Letter of Transmittal. As soon as practicable after the Effective
Time, Buyer will send to each record holder of Common Shares at the Effective
Time a letter of transmittal and other appropriate materials for use in
surrendering Common Share Certificates to Buyer's transfer agent, who shall be
appointed exchange agent with respect to the Merger (the "Exchange Agent").
(b) Payment Procedures. Promptly after the Effective Time, Buyer shall
request that the Exchange Agent distribute to each former holder of Common
Shares, upon surrender to the Exchange Agent of one or more Common Share
Certificates for cancellation together with a duly executed and properly
completed letter of transmittal, the shares of Buyer Common Stock receivable by
such holder in accordance with the provisions of Section 2.1(c). If Buyer Common
Stock is to be delivered to a person other than the person in whose name a
Common Share Certificate is so registered, the Common Share Certificate is so
surrendered shall be properly endorsed, with signatures guaranteed, or otherwise
in proper form for transfer, and the person requesting such payment shall pay
any transfer or other taxes required by reason of the delivery to a person other
than the registered holder of such Common Share Certificate surrendered, or such
person shall establish to the satisfaction of Buyer that such tax has been paid
or is not applicable. No interest shall be paid on any consideration payable in
the Merger to former holders of Common Shares.
(c) No Fractional Shares.
(i) No fractional shares of Buyer Common Stock shall be
issued as a result of the Merger. In lieu of the
issuance of fractional shares, cash adjustments will
be paid to the former holder of Common Shares in
respect of any fraction of a share of Buyer Common
Stock which would otherwise be issuable under this
Agreement. Such cash adjustment shall be equal to an
amount determined by multiplying (A) the fractional
share of Buyer Common Stock to which the holder of
Seller Common Stock would be otherwise entitled under
Section 2.1(c) (after aggregating all shares of Buyer
Common Stock to which such holder is entitled), by
(B) the average closing price of shares of Buyer
Common Stock on The Nasdaq Small Cap Market for the
twenty trading days immediately preceding the
Effective Date.
(ii) As soon as practicable after the determination of the
amount of cash, if any, to be paid to former holders
of Common Shares with respect to any fractional share
interests of Buyer Common Stock, the Exchange Agent
shall promptly pay such amounts to such former
holders of Common Shares subject to and in accordance
with the terms of this Section 2.3. Buyer will make
available to the Exchange Agent the cash necessary
for this purpose.
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March 5, 1998
<PAGE>
Section 2.4 Appraisal Rights. Notwithstanding any other provision of
this Agreement to the contrary, including but without limitation Section 6.3(f),
Common Shares held by a holder who has not voted such Common Shares in favor of
the approval of this Agreement and the Merger or consented thereto in writing
and with respect to which appraisal rights shall have been demanded and
perfected in accordance with Section 262 of the DGCL (the "Dissenting Common
Shares") and as of the Effective Time not withdrawn shall not be converted into
the right to receive the consideration payable pursuant to Section 2.1(c) at or
after the Effective Time, but such Common Shares shall become the right to
receive such consideration as may be determined to be due to holders of
Dissenting Common Shares pursuant to the laws of the State of Delaware unless
and until the holder of such Dissenting Common Shares withdraws his or her
demand for such appraisal or becomes ineligible for such appraisal. If a holder
of Dissenting Common Shares shall withdraw his or her demand for such appraisal
or shall become ineligible for such appraisal (through failure to perfect or
otherwise), then, as of the Effective Time or the occurrence of such event,
whichever last occurs, such holder's Dissenting Common Shares shall
automatically be converted into and represent the right to receive the merger
consideration as provided in Section 2.1(c). Seller shall give Buyer (i) prompt
written notice of any demands for appraisal of Common Shares received by Seller
and (ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. Seller shall not, without prior
written consent of Buyer, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
Section 2.5 Seller Option Plan.
(a) Assumption of Options. Each outstanding option to purchase Common
Shares issued to employees, non-employee directors and consultants of Seller
pursuant to Seller's 1996 Stock Option/Stock Issuance Plan, as amended (the
"Seller Option Plan"), except for options to purchase 44,800 Common Shares
granted on October 10, 1996, as listed on Schedule 2.5 hereto which shall
terminate on the Closing, whether vested or unvested (each a "Stock Option"),
shall remain outstanding after the Effective Time and shall be assumed by Buyer.
The parties intend that Buyer's assumption of the Stock Options shall be treated
as "assuming a stock option in a transaction to which Section 424(a) applies"
within the meaning of Section 424 of the Code and this subsection (a) shall be
interpreted and applied consistent with such intent. Each Stock Option assumed
by Buyer shall be exercisable upon the same terms and conditions as under the
Seller Option Plan and applicable option agreement issued thereunder, except
that (i) such option shall be exercisable for that number of shares of Buyer
Common Stock equal to the number of Common Shares for which such option was
exercisable times the Conversion Ratio, and (ii) the exercise price of such
option shall be equal to the exercise price of such option divided by the
Conversion Ratio. The number of shares of Buyer Common Stock subject to an
option assumed by Buyer shall be rounded to the nearest whole number (with .5
rounded up) and the exercise price thereof shall be rounded up to the nearest
whole cent.
(b) Notice. As soon as practicable after the Effective Time, Buyer
shall deliver to the holders of Stock Options appropriate notices setting forth
such holders' rights pursuant to the Buyer Option Plan (as defined in Section
4.2 hereof). The agreements evidencing the grants
5
March 5, 1998
<PAGE>
of such Stock Options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.5 after giving effect to
the Merger).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller represents and warrants to Buyer and Acquisition Subsidiary as
follows:
Section 3.1 Organization.
(a) Except as set forth in Section 3.1 of the disclosure schedule
delivered to Buyer on or before the date hereof (the "Seller Disclosure
Schedule"), Seller is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has the requisite corporate power and
authority and any necessary governmental authority to own, operate or lease the
properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted, and, except as set forth in Section 3.1
of the Seller Disclosure Schedule, is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased or the nature of its activities
makes such qualification necessary, except for such failure which, when taken
together with all other such failures, would not have a Seller Material Adverse
Effect (as defined below in Section 3.1(b)). Seller does not own or control any
subsidiary.
(b) The term "Seller Material Adverse Effect" means any individual
material adverse effect, or adverse effects which in the aggregate (whether or
not related and whether or not any individual effect is material) have a
material adverse effect, on the business, operations, properties (including
intangible properties), condition (financial or otherwise), assets or
liabilities of Seller or could reasonably be expected to prevent or materially
delay the consummation of the Merger.
Section 3.2 Capitalization.
(a) Capitalization. The authorized capital stock of Seller consists of
2,000,000 Common Shares, par value $0.001 per share and 1,000,000 shares of
Preferred Stock, $0.001 par value per share, of which 600,000 shares are
designated Series A Acute Preferred Shares and 2,200 shares are designated
Series B Acute Preferred Shares. The outstanding Series A Acute Preferred Shares
are convertible into 600,000 shares of Common Shares at the conversion price in
effect with respect thereto. The Series B Acute Preferred Shares are not
convertible. As of December 31, 1997, (i) 202,000 Common Shares were issued and
outstanding, (ii) 600,000 Series A Acute Preferred Shares were issued and
outstanding and were convertible into 600,000 Common Shares, (iii) 2,039 Series
B Acute Preferred Shares were issued and outstanding and held by JJDC, (iv) no
shares of Common Stock were held in the treasury of Seller, and (v) 202,300
Common Shares were reserved for issuance upon exercise of outstanding
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March 5, 1998
<PAGE>
options under the Seller Option Plan. Section 3.2 of the Seller Disclosure
Schedule sets forth a true and correct list as of December 31, 1997 of all
holders of options to purchase Common Shares, the number of such options
outstanding as of such date and the exercise price per option. All of the
outstanding shares of Common Shares have been duly authorized and validly issued
and are fully paid and nonassessable and free of preemptive rights. Except as
set forth in this Section 3.2 and in Section 3.2 of the Seller Disclosure
Schedule, there are no other options, warrants or other rights, convertible
debt, agreements, arrangements or commitments of any character obligating Seller
to issue or sell any shares of capital stock of or other equity interests in
Seller. Seller is not obligated to redeem, repurchase or otherwise reacquire any
of its capital stock or other securities.
(b) Seller does not directly or indirectly own or have a right to
acquire an equity interest in any corporation, partnership, joint venture or
other business association or entity.
Section 3.3 Authorization; Validity of Agreement; Necessary Action.
Seller has full corporate power and authority to execute and deliver this
Agreement, all agreements to which Seller is or will be a party that are
exhibits to this Agreement and the Management Agreement of even date herewith
between Buyer and Seller (the "Management Agreement") and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller of this Agreement and such other agreements and the
consummation of the Merger and of the other transactions contemplated hereby and
thereby, have been duly authorized by the Board of Directors of Seller and no
other corporate or stockholder action on the part of Seller is necessary to
authorize the execution and delivery by Seller of this Agreement and such other
agreements and the consummation of the transactions contemplated hereby and
thereby (other than the approval of this Agreement and the Merger by the holders
of a majority of the outstanding shares of Seller capital stock entitled to vote
with respect thereto). This Agreement and such other agreements have been duly
executed and delivered by Seller and, assuming due and valid authorization,
execution and delivery hereof by the other parties thereto are valid and binding
obligations of Seller, enforceable against Seller in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals under the agreements set
forth in Section 3.4 of the Seller Disclosure Schedule and the filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934 (the "Exchange
Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), state securities or blue sky laws, the DGCL and the filing and
recordation of a Certificate of Merger under the DGCL, neither the execution,
delivery or performance of this Agreement by Seller nor the consummation by
Seller of the transactions contemplated hereby nor compliance by Seller with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or the bylaws of Seller, (ii)
require any filing with, or permit, authorization, consent or approval of any
court, arbitration tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency, domestic or foreign (a
"Governmental Entity") on the part of Seller, (iii) require the
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March 5, 1998
<PAGE>
consent of any person under, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Seller is a party or by which Seller or any of its properties or assets may be
bound (the "Seller Specified Agreements"), the lack of which consent, or which
violation, breach or default, individually or in the aggregate, could reasonably
be expected to have a Seller Material Adverse Effect or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Seller, any
of its subsidiaries or any of their properties or assets.
Section 3.5 [RESERVED]
Section 3.6 Absence of Certain Changes. Since December 31, 1997,
except as contemplated by this Agreement, there has not been:
(a) any Seller Material Adverse Effect;
(b) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any of the material assets of Seller;
(c) any issuance, redemption or acquisition of capital stock by Seller
or any declaration or payment of any dividend or other distribution in cash,
stock or property with respect to capital stock;
(d) any stock split, reverse stock split, combination, reclassification
or other similar action with respect to capital stock;
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(f) any acquisition or disposition of rights (pursuant to license,
sublicense or otherwise) under or with respect to any patent, copyright,
trademark, tradename or other intellectual property right or registration
thereof or application therefor;
(g) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any material asset of Seller; or
(h) any change by Seller in accounting principles or methods except
insofar as may have been required by a change in generally accepted accounting
principles and disclosed in the Buyer Financial Statements (as defined in
Section 4.5 below).
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Except as set forth in Section 3.6 of the Seller Disclosure Schedule,
since December 31, 1997 Seller has conducted its business only in the ordinary
course and in a manner consistent with past practice and has not made any
material change in the conduct of its business or operations. Except as set
forth in Section 3.6 of the Seller Disclosure Schedule, no person has or will
have the right to receive any severance, bonus, other payment, increase or
change in benefits or vesting of stock options, shares or other benefits as a
result of any of the transactions contemplated by this Agreement.
Section 3.7 No Undisclosed Liabilities. Except as set forth in Section
3.7 of the Seller Disclosure Schedule, and except as reflected in the Buyer
Financial Statements, Seller has no liabilities of any nature (whether accrued,
absolute, contingent or otherwise), except those liabilities incurred in the
ordinary course of business which could not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect.
Section 3.8 Litigation. Except as disclosed in Section 3.8 of the
Seller Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Seller, threatened against Seller.
Except as disclosed in Section 3.8 of the Seller Disclosure Schedule, Seller is
not subject to any outstanding order, writ, injunction or decree.
Section 3.9 No Default; Compliance with Applicable Laws. The business
of Seller is not being conducted in default or violation of any term, condition
or provision of (i) its certificate of incorporation or bylaws, (ii) any Seller
Specified Agreement or (iii) any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to Seller, excluding from the foregoing clauses (ii) and (iii),
defaults or violations which could not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect. As of the date
of this Agreement, no investigation or review by any Governmental Entity or
other entity with respect to Seller is pending or, to the knowledge of Seller,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Seller has in effect all Federal, state, local
and foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Seller Permits") necessary
for it to own, lease or operate its properties and assets and to carry on its
business as now conducted, and there has occurred no default under any such
Seller Permit.
Section 3.10 Intellectual Property. Except as set forth in Section 3.10
of the Seller Disclosure Schedule, or as could not reasonably be expected to
have, individually or in the aggregate, a Seller Material Adverse Effect, Seller
owns or possesses adequate licenses or other valid rights to use all patents,
trademarks, trade names, copyrights, service marks, trade secrets, know-how and
other proprietary rights and information used or held for use in connection with
the business of Seller as currently conducted, and Seller is unaware of any
assertion or claim challenging the validity of any of the foregoing. Section
3.10 of the Seller Disclosure Schedule lists all material licenses, sublicenses
and other agreements to which Seller is a party and pursuant to which (i) any
third party is authorized to use any intellectual property right of Seller
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and (ii) Seller is authorized to use any intellectual property rights (other
than pursuant to shrink- wrap licenses and other software licenses) of a third
party, true and correct copies of which have been provided to Buyer and
Acquisition Subsidiary. The conduct of the business of Seller as currently
conducted does not conflict in any way with any patent, license, trademark, or
copyright of any third party. To the knowledge of Seller, there are no
infringements of any proprietary rights owned by or licensed by or to Seller
that could reasonably be expected to have, individually or in the aggregate, a
Seller Material Adverse Effect. Seller has taken reasonable security measures to
protect the confidentiality of its trade secrets. Except as set forth in Section
3.10 of the Seller Disclosure Schedule, all current and past employees or
consultants of Seller, who, either alone or in concert with others, developed,
invented, discovered, derived, programmed or designed such trade secrets, or who
have or had access to information disclosing such trade secrets, have entered
into confidentiality and non-disclosure agreements with Seller (the "Seller
Trade Secret Agreements"). Any exception which has been taken to the Trade
Secrets Agreements (for example an employee or consultant excluding a prior
invention) is described in Section 3.10 of the Seller Disclosure Schedule,
including the exception taken and the employee taking such exception. To the
knowledge of Seller, neither Seller, nor its employees or its consultants have
caused any of Seller's trade secrets to become part of the public knowledge or
literature, nor has Seller, its employees or consultants permitted any such
trade secrets to be used, divulged or appropriated for the benefit of persons to
the material detriment of Seller.
Section 3.11 Tax Returns and Payments. Except as set forth in Section
3.11 of the Seller Disclosure Schedule, all tax returns and reports with respect
to Seller required by law to be filed under the laws of any jurisdiction,
domestic or foreign, have been duly and timely filed and all taxes, fees or
other governmental charges of any nature which were required to have been paid
have been paid or provided for. Seller has no knowledge of any unpaid taxes or
any actual or threatened assessment of deficiency or additional tax or other
governmental charge or a basis for such a claim against Seller. Seller has no
knowledge of any tax audit of Seller by any taxing or other authority in
connection with any of its fiscal years; Seller has no knowledge of any such
audit currently pending or threatened, and Seller has no knowledge of any tax
liens on any of the properties of Seller.
Section 3.12 Certificate of Incorporation and Bylaws. Seller has
heretofore furnished to Buyer and Acquisition Subsidiary a complete and correct
copy of the certificate of incorporation and the bylaws, each as amended to the
date hereof, of Seller. Such certificate of incorporation and bylaws are in full
force and effect. Seller is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
Section 3.13 Title to Property.
(a) Seller has good and marketable title, or valid leasehold rights in
the case of leased property, to all real property and all personal property
purported to be owned or leased by it, free and clear of all material liens,
security interests, claims, encumbrances and charges, excluding (i) immaterial
liens for fees, taxes, levies, imposts, duties or governmental tax of any
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kind which are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof, (ii) immaterial
liens for mechanics, materialmen, laborers, employees, suppliers or other liens
arising by operation of law for sums which are not yet delinquent or are being
contested in good faith by appropriate proceedings, (iii) purchase money liens
on office, computer and related equipment and supplies incurred in the ordinary
course of business, and (iv) liens or defects in title or leasehold rights that,
individually or in the aggregate, could not reasonably be expected to have a
Seller Material Adverse Effect.
(b) Consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
Seller is a lessee, except for breaches or defaults which, individually, or in
the aggregate, could not reasonably be expected to have a Seller Material
Adverse Effect.
Section 3.14 Employee Benefits and Contracts.
(a) Section 3.14 of the Seller Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) maintained by Seller. Each of
such employee benefit plans complies in all material respects with applicable
requirements of ERISA or the Code of 1986 and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA) has occurred with
respect to any such plan, and no termination, if it has occurred or were to
occur before the Effective Date, would present a risk of liability to any
Governmental Entity or other persons that would have a Seller Material Adverse
Effect.
(b) Seller has never maintained an employee benefit plan
subject to Section 412 of the Code or Title IV of ERISA. Each employee benefit
plan of Seller intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
confirming such qualification. Seller has never had an obligation to contribute
to a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA. There are
no unfunded obligations under any employee benefit plan of Seller providing
benefits after termination of employment to any employee or former employee,
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980(B) of the Code. Each employee benefit plan of Seller may be amended
or terminated by Seller without the consent or approval of any other person.
There is no employee benefit plan, stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, or severance benefit plan of
Seller, any of the benefits of which will be increased or the vesting of the
benefits under which will be accelerated by the occurrence of any of the
transactions contemplated by this Agreement or the benefits under which will be
calculated on the basis of the transactions contemplated by this Agreement.
(c) Seller is not obligated to make any parachute payment, as
defined in Section 280G(b)(2) of the Code, nor will any parachute payment be
deemed to have occurred as a result of or arising out of any of the transactions
contemplated by this Agreement. Seller
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has no contract, agreement, obligation or arrangement with any employee or other
person, any of the benefits of which will be increased or the vesting of the
benefits under which will be accelerated by any change of control of Seller or
the occurrence of any of the transactions contemplated by this Agreement or the
benefits under which will be calculated on the basis of the transactions
contemplated by this Agreement.
Section 3.15 Employment; Labor Matters.
(a) Seller has delivered to Buyer true, complete and correct copies of
all employment agreements and all consulting agreements to which Seller is a
party.
(b) Except as set forth in Section 3.15 of the Seller Disclosure
Schedule (i) Seller is not a party to any outstanding employment agreements or
contracts with directors, officers, employees or consultants; (ii) Seller is not
a party to any agreement, policy or practice that requires it to pay termination
or severance pay to employees (other than as required by law); and (iii) Seller
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Seller, nor does Seller know of any
activities or proceedings of any labor union to organize any such employees.
Section 3.16 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Seller.
Section 3.17 Environmental Laws. Except as could not reasonably be
expected to have, individually or in the aggregate, a Seller Material Adverse
Effect: (i) Seller is in compliance with all applicable Environmental Laws (as
defined below); (ii) all past noncompliance, if any, of Seller with
Environmental Laws or Environmental Permits (as defined below) has been resolved
without any pending, ongoing or future obligation, cost or liability; and (iii)
Seller has not released or transported a Hazardous Material (as defined below),
in violation of any Environmental Law.
For purposes of this Agreement:
(a) "Environmental Law" shall mean any law and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof.
(b) "Environmental Permit" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
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(c) "Hazardous Material" shall mean any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
government authority, any state or the United State Government.
Section 3.18 Insurance. Section 3.18 of the Seller Disclosure
Schedule sets forth a true and complete list of all insurance policies in force
at the date hereof, with respect to the assets, properties or operations of
Seller. True and complete copies of all such insurance policies have been made
available to Buyer and Acquisition Subsidiary by Seller. Such policies are in
full force and effect.
Section 3.19 Contracts and Commitments.
(a) Except as disclosed in Section 3.10, 3.15 or 3.19 of the Seller
Disclosure Schedule, Seller is not a party or subject to:
(i) any plan, contract or arrangement, written or oral, which
requires aggregate payments by Seller in excess of $50,000 per year or
which provides for bonuses, pensions, deferred compensation, severance
pay or benefits, retirement payments, profit-sharing, or the like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iii) any lease for real or personal property in which the
amount of payments which Seller is required to make on an annual basis
exceeds $50,000;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or
the consummation of the transactions contemplated hereby or thereby;
(v) except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness in excess of $50,000 incurred in the acquisition of
companies or other entities or indebtedness in excess of $50,000 for
borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, indemnification or
otherwise;
(vi) any contract containing covenants purporting to limit
Seller's freedom to compete in any line of business or in any
geographic area or with any third party,
(vii) any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of
$50,000; or
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(viii) any other agreement, contract or commitment which is
material to Seller taken as a whole.
(b) Except as disclosed in Section 3.19 of the Seller Disclosure
Schedule, each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in Section 3.19 of the Seller Disclosure Schedule is valid and binding on
Seller and the other party(ies) thereto, is in full force and effect, and
neither Seller, nor to the knowledge of Seller any other party thereto, has
breached any material provision of, or is in material default under the terms
of, any such agreement, contract, mortgage, indenture, plan, lease, instrument,
permit, concession, franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon Seller which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any current business practice of Seller,
any acquisition of property by Seller or the conduct of business by Seller as
currently conducted or as proposed to be conducted by Seller.
Section 3.20 Interests of Officers and Directors. To Seller's
knowledge, except as set forth in Section 3.20 of the Seller Disclosure
Schedule, no officer or director of Seller has had, either directly or
indirectly, a material interest in: (i) any person or entity which purchases
from or sells, licenses or furnishes to Seller any goods, property rights or
services; (ii) except for the employment or consulting contracts listed in
Section 3.15 of the Seller Disclosure Schedule, any contract or agreement to
which Seller is a party or by which it may be bound or affected; or (iii) any
property, real or personal, tangible or intangible, used in or pertaining to its
business.
Section 3.21 Questionable Payments. Neither Seller nor to its knowledge
any director, officer, agent or other employee of Seller has: (i) made any
payments or provided services or other favors in the United States of America or
in any foreign country in order to obtain preferential treatment or
consideration by any Governmental Entity with respect to any aspect of the
business of Seller; or (ii) made any political contributions which would not be
lawful under the laws of the United States or the foreign country in which such
payments were made. Neither Seller nor to its knowledge any director, officer,
agent or other employee of Seller has been the subject of any inquiry or
investigation by any Governmental Entity in connection with payments or benefits
or other favors to or for the benefit of any governmental or armed services
official, agent, representative or employee with respect to any aspect of the
business of Seller or with respect to any political contribution.
Section 3.22 Certain Tax Matters. Neither Seller nor, to the knowledge
of Seller, any of its affiliates has taken or agreed to take any action that
could be expected to prevent the Merger from constituting a transaction
qualifying under Section 368 of the Code. Seller is not aware of any agreement,
plan or other circumstances that could reasonably be expected to prevent the
Merger from so qualifying under Section 368 of the Code.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND ACQUISITION SUBSIDIARY
Buyer and Acquisition Subsidiary represent and warrant to Seller as
follows:
Section 4.1 Organization.
(a) Except as set forth in Section 4.1 of the disclosure schedule
delivered to Seller on or before the date hereof (the "Buyer Disclosure
Schedule"), each of Buyer and Acquisition Subsidiary (which is the only
subsidiary of Buyer other than Seller) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental authority to own, operate or lease the properties that it
purports to own, operate or lease and to carry on its business as it is now
being conducted, and, except as set forth in Section 4.1 of the Buyer Disclosure
Schedule, is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
operated or leased or the nature of its activities makes such qualification
necessary, except for such failure which, when taken together with all other
such failures, would not have a Buyer Material Adverse Effect (as defined below
in Section 4.1(b)).
(b) The term "Buyer Material Adverse Effect" means any individual
material adverse effect, or adverse effects which in the aggregate (whether or
not related and whether or not any individual effect is material) have a
material adverse effect, on the business, operations, properties (including
intangible properties), condition (financial or otherwise), assets or
liabilities of Buyer and its subsidiaries taken as a whole or that could
reasonably be expected to prevent or materially delay the consummation of the
Merger.
(c) For purposes of this Article 4 and Article 5, Acute shall not be
considered to be a subsidiary of Buyer.
Section 4.2 Capitalization.
(a) Capitalization. The authorized capital stock of Buyer consists of
20,000,000 shares of Buyer Common Stock, par value $0.001 per share, and
5,000,000 shares of Preferred Stock, par value $0.001 per share, of which
2,420,282 are designated Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). As of December 31, 1997, (i) 3,176,065 shares of Buyer Common
Stock were issued and outstanding, (ii) 2,200,256 shares of Series B Preferred
Stock were issued and outstanding and were convertible into 3,424,980 shares of
Buyer Common Stock, (iii) 115,491 shares of Buyer Common Stock were held in the
treasury of the Buyer, (iv) 253,535 shares of Buyer Common Stock were reserved
for issuance upon exercise of outstanding options issued under the 1996 Stock
Option Plan of Discovery Laboratories, Inc., a former Delaware corporation ("Old
Discovery") and outside such plan and assumed by Buyer,
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(v) an aggregate of 116,162 shares of Buyer Common Stock were reserved for
issuance under stock options granted pursuant to Buyer's 1993 and 1995 Stock
Option Plans (the "Buyer Option Plans"), (vi) an aggregate of 2,297 shares of
Buyer Common Stock were reserved for issuance under stock options granted by
Buyer outside the Buyer Option Plans, (vii) an aggregate of 2,055,624 shares of
Buyer Common Stock were reserved for issuance under outstanding warrants as more
fully described in Section 4.2 of the Buyer Disclosure Schedule, (viii) 342,499
shares of Buyer Common Stock were reserved for issuance upon conversion of the
220,026 shares of Series B Preferred Stock issuable upon the exercise of
outstanding warrants, and (ix) 173,333 shares of Buyer Common Stock were
reserved for issuance upon exercise of Buyer's outstanding unit purchase option
(including warrants issuable upon the exercise of such unit purchase option).
Section 4.2 of the Buyer Disclosure Schedule sets forth a true and correct list
as of December 31, 1997 of all holders of options to purchase shares of Buyer
Common Stock, the number of such options outstanding as of such date and the
exercise price per option. All of the outstanding shares of Buyer Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as set forth in this Section
4.2 and Section 4.2 of the Buyer Disclosure Schedule, there are no other
options, warrants or other rights, convertible debt, agreements, arrangements or
commitments of any character obligating Buyer or Acquisition Subsidiary to issue
or sell any shares of capital stock of or other equity interests in Buyer or
Acquisition Subsidiary other than Buyer's obligation to reset the conversion
price applicable to the Series B Preferred Stock under the circumstances
described in Buyer's Restated Certificate of Incorporation. Buyer is not
obligated to redeem, repurchase or otherwise reacquire any of its capital stock
or other securities.
(b) Except as set forth in Section 4.2 of the Buyer Disclosure
Schedule, all of the outstanding shares of the capital stock of Acquisition
Subsidiary are beneficially owned by Buyer, directly or indirectly, and all such
shares have been duly authorized, validly issued and are fully paid and
nonassessable and are owned by either Buyer or one of its subsidiaries free and
clear of all liens, security interests, charges, claims or encumbrances of any
nature whatsoever. There are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of Acquisition Subsidiary. Except as set forth in Section 4.2 of the Buyer
Disclosure Schedule, Buyer does not directly or indirectly own or have a right
to acquire an equity interest in any corporation, partnership, joint venture or
other business association or entity.
Section 4.3 Authorization; Validity of Agreement; Necessary Action.
Each of Buyer and Acquisition Subsidiary has full corporate power and authority
to execute and deliver this Agreement and all agreements to which Buyer and
Acquisition Subsidiary is or will be a party that are exhibits to this
Agreement, including the Employment Agreements (as defined in Section 6.2
herein), and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Buyer and Acquisition Subsidiary of this
Agreement, and the consummation of the Merger and of the other transactions
contemplated hereby and thereby, have been duly authorized by the Boards of
Directors of Buyer and Acquisition Subsidiary, as the case may be, and no other
corporate or stockholder action on the part of Buyer and Acquisition Subsidiary
is necessary to authorize the execution and delivery by Buyer
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or Acquisition Subsidiary of this Agreement and the consummation of the
transactions contemplated hereby and thereby (other than the approval of this
Agreement and the Merger by the holders of a majority of the outstanding shares
(on an as-converted basis) of Buyer capital stock entitled to vote with respect
thereto). This Agreement has been duly executed and delivered by Buyer and
Acquisition Subsidiary and assuming due and valid authorization, execution and
delivery hereof by Seller, is a valid and binding obligation of Buyer and
Acquisition Subsidiary, as the case may be, enforceable against Buyer and
Acquisition Subsidiary in accordance with their respective terms.
Section 4.4 Consents and Approvals; No Violations. Except for the
filings or the consents, authorizations or approvals under the agreements set
forth in Section 4.4 of the Buyer Disclosure Schedule and the filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the HSR Act, state securities or
blue sky laws, the DGCL and the filing and recordation of a Certificate of
Merger under the DGCL, neither the execution, delivery or performance of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby nor compliance by Buyer with any of the provisions hereof
will (i) conflict with or result in any breach of any provision of the
certificate of incorporation or the bylaws of Buyer or Acquisition Subsidiary,
(ii) require any filing with, or permit, authorization, consent or approval of,
a Governmental Entity, on the part of Buyer or Acquisition Subsidiary, (iii)
require the consent of any person under, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Buyer or Acquisition Subsidiary is a party or by which any of them or
any of their properties or assets may be bound (the "Buyer Specified
Agreements"), the lack of which consent, or which violation, breach or default,
individually or in the aggregate, could reasonably be expected to have a Buyer
Material Adverse Effect, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer, Acquisition Subsidiary or any
of their properties or assets.
Section 4.5 SEC Reports and Financial Statements.
(a) Buyer has timely filed with the Securities and Exchange Commission
(the "SEC"), and has delivered to Seller, true and complete copies of, all
forms, reports, schedules, statements and other documents required to be filed
by it since January 1, 1996, under the Securities Act of 1933, as amended, or
the Exchange Act (collectively, the "SEC Documents"). Except as set forth in
Section 4.5 of the Buyer Disclosure Schedule, the SEC Documents (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, including without limitation the applicable
accounting requirements thereunder and the published rules and regulations of
the SEC with respect thereto, (ii) when filed, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and (iii)
taken as a whole, do not contain any
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untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Acquisition Subsidiary is not required to file any statements or reports with
the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
(b) Except as set forth in Section 4.5 of the Buyer Disclosure
Schedule, the consolidated financial statements of Buyer contained in the SEC
Documents (the "Buyer Financial Statements"), have been prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the financial position and the results of
operations and cash flows (and changes in financial position, if any) of Buyer
and Acquisition Subsidiary as of the respective dates and for the respective
periods thereof, except that the unaudited interim quarterly financial
statements were or are subject to normal and recurring year-end adjustments
which were or are not expected to be material in amount and did not or may not
have included footnote disclosure that would otherwise be required by GAAP.
Except as set forth in Section 4.5 of the Buyer Disclosure Schedule, Buyer is
not aware of any facts or circumstances which would require Buyer to amend or
restate any of the SEC Documents, including without limitation the financial
information included therein.
Section 4.6 Absence of Certain Changes. Since December 31, 1997, except
as contemplated by this Agreement or set forth in Section 4.6 of the Buyer
Disclosure Schedule, there has not been:
(a) any Buyer Material Adverse Effect;
(b) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any of the material assets of Buyer or Acquisition
Subsidiary;
(c) any issuance, redemption or acquisition of capital stock by Buyer
or Acquisition Subsidiary or any declaration or payment of any dividend or other
distribution in cash, stock or property with respect to capital stock;
(d) any stock split, reverse stock split, combination, reclassification
or other similar action with respect to capital stock;
(e) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(f) any acquisition or disposition of rights (pursuant to license,
sublicense or otherwise) under or with respect to any patent, copyright,
trademark, tradename or other intellectual property right or registration
thereof or application therefor;
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(g) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any material asset of Buyer or Acquisition Subsidiary; or
(h) any change by Buyer in accounting principles or methods except
insofar as may have been required by a change in generally accepted accounting
principles and disclosed in the SEC Documents.
Except as set forth in Section 4.6 of the Buyer Disclosure Schedule,
since December 31, 1997, Buyer and its subsidiaries have conducted their
business only in the ordinary course and in a manner consistent with past
practice and have not made any material change in the conduct of the business or
operations of Buyer and Acquisition Subsidiary taken as a whole. Except as set
forth in Section 4.14(b) of the Buyer Disclosure Schedule, no person has or will
have the right to receive any severance, bonus, other payment, increase or
change in benefits or vesting of stock options, shares or other benefits as a
result of any of the transactions contemplated by this Agreement.
Section 4.7 No Undisclosed Liabilities. Except as set forth in Section
4.7 of the Buyer Disclosure Schedule, and except as reflected in the Buyer
Financial Statements contained in the SEC Documents, Buyer and Acquisition
Subsidiary have no liabilities of any nature (whether accrued, absolute,
contingent or otherwise), except those liabilities incurred in the ordinary
course of business which could not, individually or in the aggregate, reasonably
be expected to have a Buyer Material Adverse Effect.
Section 4.8 Litigation. Except as disclosed in the SEC Documents or in
Section 4.8 of the Buyer Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of Buyer, threatened
against Buyer. Except as disclosed in the SEC Documents or in Section 4.8 of the
Buyer Disclosure Schedule, neither Buyer nor Acquisition Subsidiary is subject
to any outstanding order, writ, injunction or decree.
Section 4.9 No Default; Compliance with Applicable Laws. Except as
disclosed in Section 4.9 of the Buyer Disclosure Schedule, the business of each
of Buyer and Acquisition Subsidiary is not being conducted in default or
violation of any term, condition or provision of (i) its certificate of
incorporation or bylaws, (ii) any Buyer Specified Agreement or (iii) any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to Buyer or Acquisition
Subsidiary, excluding from the foregoing clauses (ii) and (iii), defaults or
violations which could not, individually or in the aggregate, reasonably be
expected to have a Buyer Material Adverse Effect. Except as disclosed in Section
4.9 of the Buyer Disclosure Schedule, as of the date of this Agreement, no
investigation or review by any Governmental Entity or other entity with respect
to Buyer or Acquisition Subsidiary is pending or, to the knowledge of Buyer,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same. Each of Buyer and Acquisition Subsidiary has in
effect all Federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Buyer Permits") necessary for it to
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own, lease or operate its properties and assets and to carry on its business as
now conducted, and there has occurred no default under any such Buyer Permit.
Section 4.10 Intellectual Property. Except as set forth in Section 4.10
of the Buyer Disclosure Schedule, or as could not reasonably be expected to
have, individually or in the aggregate, a Buyer Material Adverse Effect, Buyer
and its subsidiaries own or possess adequate licenses or other valid rights to
use all patents, trademarks, trade names, copyrights, service marks, trade
secrets, know-how and other proprietary rights and information used or held for
use in connection with the business of Buyer and its subsidiaries as currently
conducted, and Buyer is unaware of any assertion or claim challenging the
validity of any of the foregoing. Section 4.10 of the Buyer Disclosure Schedule
lists all material licenses, sublicenses and other agreements to which the Buyer
or Acquisition Subsidiary is a party and pursuant to which (i) any third party
is authorized to use any intellectual property right of the Buyer or Acquisition
Subsidiary and (ii) Buyer or its subsidiaries are authorized to use any
intellectual property rights (other than pursuant to shrink-wrap licenses and
other software licenses) of a third party, true and correct copies of which have
been provided to Seller. Except as set forth in Section 4.10 of the Buyer
Disclosure Schedule, the conduct of the business of Buyer and its subsidiaries
as currently conducted does not conflict in any way with any patent, license or
copyright of any third party. To the knowledge of Buyer, except as set forth in
Section 4.10 of the Buyer Disclosure Schedule, there are no infringements of any
proprietary rights owned by or licensed by or to Buyer or Acquisition Subsidiary
that could reasonably be expected to have, individually or in the aggregate, a
Buyer Material Adverse Effect. Buyer has taken reasonable security measures to
protect the confidentiality of its trade secrets. All current and past employees
or consultants of Buyer, who, either alone or in concert with others, developed,
invented, discovered, derived, programmed or designed such trade secrets, or who
have or had access to information disclosing such trade secrets, have entered
into confidentiality and non-disclosure agreements with Buyer (the "Buyer Trade
Secret Agreements"). Any exception which has been taken to the Buyer Trade
Secrets Agreements (for example an employee or consultant excluding a prior
invention) is described in Section 4.10 of the Buyer Disclosure Schedule,
including the exception taken and the employee taking such exception. To the
knowledge of Buyer, neither Buyer, nor its employees or its consultants have
caused any of Buyer's trade secrets to become part of the public knowledge or
literature, nor has Buyer, its employees or consultants permitted any such trade
secrets to be used, divulged or appropriated for the benefit of persons to the
material detriment of Buyer.
Section 4.11 Tax Returns and Payments. All tax returns and reports with
respect to Buyer or Acquisition Subsidiary required by law to be filed under the
laws of any jurisdiction, domestic or foreign, have been duly and timely filed
and all taxes, fees or other governmental charges of any nature which were
required to have been paid have been paid or provided for. Buyer and Acquisition
Subsidiary have no knowledge of any unpaid taxes or any actual or threatened
assessment of deficiency or additional tax or other governmental charge or a
basis for such a claim against Buyer or Acquisition Subsidiary. Buyer and
Acquisition Subsidiary have no knowledge of any tax audit of Buyer or
Acquisition Subsidiary by any taxing or other authority in connection with any
of its fiscal years; Buyer and Acquisition Subsidiary have no
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knowledge of any such audit currently pending or threatened, and Buyer and
Acquisition Subsidiary have no knowledge of any tax liens on any of the
properties of Buyer or Acquisition Subsidiary.
Section 4.12 Certificate of Incorporation and Bylaws. Buyer and
Acquisition Subsidiary have heretofore furnished to Seller a complete and
correct copy of the certificate of incorporation and the bylaws, each as amended
to the date hereof, of Buyer and Acquisition Subsidiary. Such certificate of
incorporation and bylaws are in full force and effect. Neither Buyer nor
Acquisition Subsidiary is in violation of any of the provisions of its
certificate of incorporation.
Section 4.13 Title to Property.
(a) Except as disclosed in Section 4.13 to the Buyer Disclosure
Schedule, Buyer and Acquisition Subsidiary has good and marketable title, or
valid leasehold rights in the case of leased property, to all real property and
all personal property purported to be owned or leased by them, free and clear of
all material liens, security interests, claims, encumbrances and charges,
excluding (i) immaterial liens for fees, taxes, levies, imposts, duties or
governmental tax of any kind which are not yet delinquent or are being contested
in good faith by appropriate proceedings which suspend the collection thereof,
(ii) immaterial liens for mechanics, materialmen, laborers, employees, suppliers
or other liens arising by operation of law for sums which are not yet delinquent
or are being contested in good faith by appropriate proceedings, (iii) purchase
money liens on office, computer and related equipment and supplies incurred in
the ordinary course of business, and (iv) liens or defects in title or leasehold
rights that, individually or in the aggregate, could not reasonably be expected
to have a Buyer Material Adverse Effect.
(b) Except as set forth in Section 4.13(b) of the Buyer Disclosure
Schedule, consummation of the Merger will not result in any breach of or
constitute a default (or an event with which notice or lapse of time or both
would constitute a default) under, or give to others any rights of termination
or cancellation of, or require the consent of others under, any lease in which
Buyer or Acquisition Subsidiary is a lessee, except for breaches or defaults
which, individually or in the aggregate, could not reasonably be expected to
have a Buyer Material Adverse Effect.
Section 4.14 Employee Benefits and Contracts.
(a) Section 4.14 of the Buyer Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the ERISA) maintained by
Buyer and Acquisition Subsidiary. Each of such employee benefit plans complies
in all material respects with applicable requirements of ERISA or the Internal
Revenue Code of 1986, as amended (the "Code") and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA) has occurred with
respect to any such plan, and no termination, if it has occurred or were to
occur before the Effective Date, would present a risk of liability to any
Governmental Entity or other persons that would have a Buyer Material Adverse
Effect.
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(b) Buyer and Acquisition Subsidiary has never maintained an
employee benefit plan subject to Section 412 of the Code or Title IV of ERISA.
Each employee benefit plan of Buyer or Acquisition Subsidiary intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service confirming such
qualification. Neither Buyer nor Acquisition Subsidiary has ever had an
obligation to contribute to a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA. There are no unfunded obligations under any employee
benefit plan of Buyer or Acquisition Subsidiary providing benefits after
termination of employment to any employee or former employee, including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980(B)
of the Code. Each employee benefit plan of Buyer or Acquisition Subsidiary may
be amended or terminated by Buyer or Acquisition Subsidiary without the consent
or approval of any other person. There is no employee benefit plan, stock option
plan, stock appreciation right plan, restricted stock plan, stock purchase plan,
or severance benefit plan of Buyer or Acquisition Subsidiary, any of the
benefits of which will be increased or the vesting of the benefits under which
will be accelerated by the occurrence of any of the transactions contemplated by
this Agreement or the benefits under which will be calculated on the basis of
the transactions contemplated by this Agreement, except as set forth in Section
4.14(b) of the Buyer Disclosure Schedule.
(c) Neither Buyer nor Acquisition Subsidiary is obligated to
make any parachute payment, as defined in Section 280G(b)(2) of the Code, nor
will any parachute payment be deemed to have occurred as a result of or arising
out of any of the transactions contemplated by this Agreement. Neither Buyer nor
Acquisition Subsidiary has any contract, agreement, obligation or arrangement
with any employee or other person, any of the benefits of which will be
increased or the vesting of the benefits under which will be accelerated by any
change of control of Buyer or Acquisition Subsidiary or the occurrence of any of
the transactions contemplated by this Agreement or the benefits under which will
be calculated on the basis of the transactions contemplated by this Agreement
except as set forth in Section 4.14(b) of the Buyer Disclosure Schedule.
Section 4.15 Employment; Labor Matters.
(a) Buyer has delivered to Seller true, complete and correct copies of
all employment agreements and all consulting agreements to which Buyer or
Acquisition Subsidiary is a party.
(b) Except as set forth in Section 4.15 of the Buyer Disclosure
Schedule (i) neither Buyer nor Acquisition Subsidiary is a party to any
outstanding employment agreements or contracts with directors, officers,
employees or consultants; (ii) neither Buyer nor Acquisition Subsidiary is a
party to any agreement, policy or practice that requires it to pay termination
or severance pay to employees (other than as required by law); and (iii) neither
Buyer nor Acquisition Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Buyer
or Acquisition Subsidiary, nor does Buyer or Acquisition Subsidiary know of any
activities or proceedings of any labor union to organize any such employees.
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Section 4.16 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of Buyer or Acquisition Subsidiary.
Section 4.17 Environmental Laws. Except as disclosed in Section 4.17 of
the Buyer Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a Buyer Material Adverse Effect: (i) Buyer and
Acquisition Subsidiary is in compliance with all applicable Environmental Laws;
(ii) all past noncompliance, if any, of Buyer or Acquisition Subsidiary with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither
Buyer nor Acquisition Subsidiary has released or transported a Hazardous
Material, in violation of any Environmental Law.
Section 4.18 Insurance. Section 4.18 of the Buyer Disclosure
Schedule sets forth a true and complete list of all insurance policies in force
at the date hereof, with respect to the assets, properties or operations of each
of Buyer and Acquisition Subsidiary. True and complete copies of all such
insurance policies have been made available to Seller by Buyer. Such policies
will not be terminated as a result of the Merger, subject to payment of
applicable premiums. Such policies also are in full force and effect.
Section 4.19 Contracts and Commitments.
(a) Except as disclosed in Section 4.10, 4.15 or 4.19 of the Buyer
Disclosure Schedule, neither Buyer nor Acquisition Subsidiary is a party or
subject to:
(i) any plan, contract or arrangement, written or oral, which
requires aggregate payments by Buyer or Acquisition Subsidiary in
excess of $50,000 per year or which provides for bonuses, pensions,
deferred compensation, severance pay or benefits, retirement payments,
profit-sharing, or the like;
(ii) any joint marketing, joint development or joint venture
contract or arrangement or any other agreement which has involved or is
expected to involve a sharing of profits with other persons;
(iii) any lease for real or personal property in which the
amount of payments which Buyer or Acquisition Subsidiary is required to
make on an annual basis exceeds $50,000;
(iv) any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement,
commitment or authorization which may be, by its terms, terminated or
breached by reason of the execution of this Agreement, the Merger, or
the consummation of the transactions contemplated hereby or thereby;
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(v) except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness in excess of $50,000 incurred in the acquisition of
companies or other entities or indebtedness in excess of $50,000 for
borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, indemnification or
otherwise;
(vi) any contract containing covenants purporting to limit
Buyer's or Acquisition Subsidiary's freedom to compete in any line of
business or in any geographic area or with any third party,
(vii) any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of
$50,000; or
(viii) any other agreement, contract or commitment which is
material to Buyer and Acquisition Subsidiary taken as a whole.
(b) Except as disclosed in Section 4.19 of the Buyer Disclosure
Schedule, each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in Section 4.19 of the Buyer Disclosure Schedule is valid and binding on
Buyer or Acquisition Subsidiary and the other party(ies) thereto, as applicable,
and assuming due and valid authorization, execution and delivery by all counter
parties, is in full force and effect, and neither Buyer, Acquisition Subsidiary,
nor to the knowledge of Buyer any other party thereto, has breached any material
provision of, or is in material default under the terms of, any such agreement,
contract, mortgage, indenture, plan, lease, instrument, permit, concession,
franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon the Buyer or Acquisition Subsidiary which has or could reasonably
be expected to have the effect of prohibiting or materially impairing any
current business practice of Buyer or Acquisition Subsidiary, any acquisition of
property by Buyer or Acquisition Subsidiary or the conduct of business by Buyer
or Acquisition Subsidiary as currently conducted or as proposed to be conducted
by Buyer or Acquisition Subsidiary.
Section 4.20 Interests of Officers and Directors. To Buyer's knowledge,
except as set forth in Section 4.20 of the Buyer Disclosure Schedule, no officer
or director of Buyer or Acquisition Subsidiary has had, either directly or
indirectly, a material interest in: (i) any person or entity which purchases
from or sells, licenses or furnishes to Buyer or Acquisition Subsidiary any
goods, property rights or services; (ii) except for the contracts listed in
Section 4.15 of the Buyer Disclosure Schedule, any contract or agreement to
which Buyer or Acquisition Subsidiary is a party or by which it may be bound or
affected; or (iii) any property, real or personal, tangible or intangible, used
in or pertaining to its business or that of Acquisition Subsidiary.
Section 4.21 Questionable Payments. Neither Buyer nor Acquisition
Subsidiary nor to its knowledge any director, officer, agent or other employee
of Buyer or Acquisition Subsidiary
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has: (i) made any payments or provided services or other favors in the United
States of America or in any foreign country in order to obtain preferential
treatment or consideration by any Governmental Entity with respect to any aspect
of the business of Buyer or Acquisition Subsidiary; or (ii) made any political
contributions which would not be lawful under the laws of the United States or
the foreign country in which such payments were made. Neither Buyer nor
Acquisition Subsidiary nor to its knowledge any director, officer, agent or
other employee of Buyer or Acquisition Subsidiary has been the subject of any
inquiry or investigation by any Governmental Entity in connection with payments
or benefits or other favors to or for the benefit of any governmental or armed
services official, agent, representative or employee with respect to any aspect
of the business of Buyer or Acquisition Subsidiary or with respect to any
political contribution.
Section 4.22 Certain Tax Matters. Except as disclosed in Section 4.22
of the Buyer Disclosure Schedule, neither Buyer nor, to the knowledge of Buyer,
any of its affiliates has taken or agreed to take any action that could be
expected to prevent the Merger from constituting a transaction qualifying under
Section 368 of the Code. Buyer is not aware of any agreement, plan or other
circumstances that could reasonably be expected to prevent the Merger from so
qualifying under Section 368 of the Code.
Section 4.23 No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing), Acquisition Subsidiary has not incurred any
obligations or liabilities, and has not engaged in any business or activities of
any type or kind whatsoever or entered into any agreements or arrangements with
any person or entity. Acquisition Subsidiary is a wholly-owned subsidiary of
Buyer.
ARTICLE 5
COVENANTS
Section 5.1 Interim Operations of Seller and Buyer. Seller and Buyer
each hereby covenants and agrees with the other that, except (i) as expressly
contemplated by this Agreement, (ii) as set forth in Section 5.1 of the Seller
Disclosure Schedule, (iii) as set forth in Section 5.1 of the Buyer Disclosure
Schedule or (iv) as agreed in writing by Seller and Buyer, after the execution
and delivery of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time:
(a) the business of such party and its subsidiaries shall be conducted
only in the ordinary and usual course and, to the extent consistent therewith,
each party and its subsidiaries shall use its reasonable commercial efforts to
preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees, creditors and business partners;
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(b) each such party shall not, directly or indirectly, amend its or any
of its subsidiaries' certificate of incorporation or bylaws or similar
organizational documents;
(c) each such party shall not, and it shall not permit its subsidiaries
to: (i)(A) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to such party's capital stock or that of
its subsidiaries, or (B) redeem, purchase or otherwise acquire directly or
indirectly any of such party's capital stock (or options, warrants, calls,
commitments or rights of any kind to acquire any shares of capital stock) or
that of its subsidiaries; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, capital
stock of any class of such party or its subsidiaries, other than Common Shares
or Buyer Common Stock issuable upon the exercise of options and warrants
outstanding on the date hereof and described in Section 3.2 of this Agreement or
the Seller Disclosure Schedule or Section 4.2 of this Agreement or the Buyer
Disclosure Schedule; (iii) split, combine or reclassify the outstanding capital
stock of such party or of its subsidiaries; or (iv) amend or otherwise modify
the terms of any rights, warrants or options with respect to such party or of
its subsidiary's capital stock;
(d) each such party shall not, and it shall not permit its subsidiaries
to, acquire or agree to acquire, or dispose of or agree to dispose of, any
material assets, either by purchase, merger, consolidation, sale of shares in
any of its subsidiaries or otherwise, other than in the ordinary course of
business;
(e) each such party shall not, and it shall not permit its subsidiaries
to, transfer, lease, license, sell, mortgage, pledge or encumber any assets;
(f) except as contemplated by Section 4.14(b), neither such party nor
its subsidiaries shall: (i) grant any increase in the compensation payable to
any of its officers, directors or key employees; or (ii)(A) adopt any new, or
(B) except as contemplated by Section 2.5, amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become payable
under any existing, bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock purchase, insurance, pension,
retirement or other employee benefit plan, agreement or arrangement; or (iii)
enter into or modify or amend any employment or severance agreement with or,
except as required by applicable law, grant any severance or termination pay to
any officer, director or employee of Seller or any of its subsidiaries; or (iv)
enter into any collective bargaining agreement;
(g) neither such party nor any of its subsidiaries shall, without the
other party's prior written consent, which consent shall not be unreasonably
withheld, modify, amend or terminate any of its contracts or waive, release or
assign any rights or claims;
(h) neither such party nor any of its subsidiaries shall: (i) incur or
assume any indebtedness for money borrowed; (ii) modify any such indebtedness or
other liability; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly,
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contingently or otherwise) for the obligations of any other person, other than
immaterial amounts in the ordinary course of business consistent with past
practice and other than for any subsidiary; (iv) make any loans, advances or
capital contributions to, or investments in, any other person (other than to
wholly-owned subsidiaries of such party); (v) change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the year ended
December 31, 1997, or (vi) enter into any material commitment or transaction
except as contemplated by this Agreement;
(i) neither such party nor any of its subsidiaries shall change any of
the accounting methods, practices or policies used by it unless required by a
change in GAAP;
(j) such party shall not, and it shall not permit its subsidiaries to,
make or agree to make any new capital expenditures in excess of $10,000 in the
aggregate;
(k) such party shall not, and it shall not permit its subsidiaries to,
make any tax election (unless required by law) or settle or compromise any
income tax liability; and
(l) neither party nor any of its subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. Each of Seller and Buyer shall
(and Buyer shall cause each of its subsidiaries to) (a) afford to the officers,
employees, accountants, counsel and other representatives of Seller and Buyer,
as the case may be, reasonable access to and the right to inspect and observe,
during normal business hours during the period prior to the Effective Time, its
personnel, accountants, representatives, properties, books, contracts, insurance
policies, commitments and records, offices, plants and other facilities, (b)
make available promptly to Seller or Buyer, as the case may be (i) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws, if applicable and (ii) all other information concerning its
business, properties and personnel as Seller or Buyer may reasonably request.
Each party will treat any such information in accordance with the provisions of
the letter agreement dated the date hereof between Seller and Buyer (the
"Confidentiality Agreement"). No investigation conducted by Seller or Buyer
shall impact any representation or warranty given by Seller to Buyer hereunder.
Section 5.3 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable commercial
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. Buyer also agrees to timely file
all filings required to be made with the SEC with respect to such transactions.
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Section 5.4 Consents and Approvals; HSR Act. Each of Seller, Buyer and
Acquisition Subsidiary will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
this Agreement and the transactions contemplated hereby (which actions shall
include, without limitation, furnishing all information required under the HSR
Act and in connection with approvals of or filings with any other Governmental
Entity) and will promptly cooperate with and furnish information to each other
in connection with any such requirements imposed upon any of them or any of
their subsidiaries in connection with this and the transactions contemplated
hereby. Each of Seller, Buyer and Acquisition Subsidiary will, and will cause
its subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Buyer, Acquisition
Subsidiary, Seller or any of their subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement. Each party
shall promptly inform the other party of any communication with, and any
proposed understanding, undertaking, or agreement with, any Governmental Entity
regarding any such filings or any such transaction.
Section 5.5 Exclusivity. From the date hereof until the earlier of
termination of this Agreement or consummation of the Merger, neither Seller nor
Buyer nor any of their officers, directors, employees, representatives
(including any investment banker, attorney or accountant retained by them),
agents or affiliates shall directly or indirectly encourage, solicit, initiate,
facilitate or conduct discussions or negotiations with, provide any information
to, or enter into any agreement with, any corporation, partnership, person or
other entity or group concerning or expressing an interest in or proposing any
merger, consolidation, reorganization, share exchange, business combination,
liquidation, dissolution sale of all or other significant assets or securities
or other similar transaction involving such party, except to the extent required
by their fiduciary duties as determined by the Board of Directors of such party
after discussion with their counsel.
Section 5.6 Publicity. So long as this Agreement is in effect, neither
Seller, Buyer nor any of their respective affiliates shall issue or cause the
publication of any press release or other public announcement with respect to
the Merger, this Agreement or the other transactions between the parties
contemplated hereby without the prior consultation of the other party, except as
may be required by law or by any listing agreement with a national securities
exchange or trading market.
Section 5.7 Notification of Certain Matters. Seller shall give prompt
notice to Buyer and Acquisition Subsidiary, and Buyer and Acquisition Subsidiary
shall give prompt notice to Seller, of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would cause any
representation or warranty made by such party or parties in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective Time
and (ii) any failure of Seller, Buyer or Acquisition Subsidiary, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.7 shall
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not limit or otherwise affect the remedies available hereunder to the party
receiving such notice. Seller also shall give prompt notice to Buyer, and Buyer
or Acquisition Subsidiary shall give prompt notice to Seller, of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement (unless the
requirement for such consent is set forth in Section 3.4 of the Seller
Disclosure Schedule or Section 4.4 of the Buyer Disclosure Schedule);
(ii) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this
Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge, threatened against,
relating to or involving or otherwise affecting it or any of its
subsidiaries or which relate to the consummation of the transactions
contemplated by this Agreement; and
(iv) any occurrence of any event having, or which could
reasonably be expected to have, a Seller Material Adverse Effect or
Buyer Material Adverse Effect.
Section 5.8 Indemnification. Notwithstanding Section 8.7 hereof, Buyer
agrees that all rights to indemnification existing in favor of directors,
officers or employees of Seller as provided in Seller's certificate of
incorporation or bylaws, with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect. If
the Surviving Corporation or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.8.
Section 5.9 Approval of Stockholders.
(a) Buyer shall, promptly after the date of this Agreement, take all
actions necessary in accordance with the requirements of the bylaws of the
National Association of Securities Dealers, Inc. ("NASD"), DGCL and its
certificate of incorporation and bylaws to convene a meeting of Buyer's
stockholders to act on this Agreement (the "Buyer Stockholders' Meeting") and
Buyer shall consult with Seller in connection therewith.
(b) Unless Seller's Board of Directors in the good faith exercise of
its fiduciary duties, after receiving advice from outside legal counsel,
determines not to recommend, or to withdraw its recommendation that such matters
be approved by Seller's stockholders, Seller shall, promptly after the date of
this Agreement, take all actions necessary in accordance with DGCL and its
certificate of incorporation and bylaws to obtain the unanimous written consent
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March 5, 1998
<PAGE>
of Seller's stockholders to act on this Agreement, and Seller shall consult with
Buyer in connection therewith.
Section 5.10 Buyer Proxy Statement. Unless the Board of Directors of
Buyer in the good faith exercise of its fiduciary duties determines not to
recommend the Merger and this Agreement to its stockholders (or to withdraw such
recommendation), Buyer, acting through its Board of Directors, shall, in
accordance with applicable law:
(i) after consultation with Seller and its legal counsel,
diligently prepare and file with the SEC as soon as reasonably
practicable after the date of this Agreement (but in no event later
than 30 days after the date hereof), a preliminary proxy or information
statement relating to the Merger and this Agreement and use
commercially reasonable efforts (x) to obtain and furnish the
information required to be included by the SEC in the Buyer Proxy
Statement (as hereinafter defined) and, after consultation with Seller
and its counsel, to respond promptly to any comments made by the SEC
with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any
amendment or supplement thereto (the "Buyer Proxy Statement") to be
mailed to its stockholders, provided that no amendment or supplement to
the Buyer Proxy Statement will be made by Buyer without consultation
with Seller and its counsel and (y) to obtain the necessary approvals
of the Merger and this Agreement by its stockholders;
(ii) prepare the preliminary proxy statement and prepare and
revise the Buyer Proxy Statement so that at the date mailed to Buyer's
stockholders and at the time of the meeting of Buyer's stockholders to
be held in connection with the Merger, the Buyer Proxy Statement will
(x) not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order that the statements made therein, in light of the circumstances
under which they are made, not misleading (except that Buyer shall not
be responsible under this clause (ii) with respect to statements made
therein based on information supplied by Seller expressly for inclusion
in the Buyer Proxy Statement), and (y) comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder; and
(iii) make at the Buyer's Stockholder's Meeting, and include
in the Proxy Statement, the recommendation of the Board that
stockholders of Buyer vote in favor of the approval of the Merger and
the authorization and adoption of this Agreement.
Section 5.11 Seller Information Statement.
(a) Seller shall afford Buyer and its legal counsel a reasonable
opportunity to review and comment on any solicitation materials, including
solicitation of action by written consent, that Seller distributes to its
stockholders in connection with the Merger, which shall be diligently prepared
and distributed to Seller's stockholders as soon as reasonably practicable after
the date
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March 5, 1998
<PAGE>
of this Agreement and, at such date, such solicitation materials will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order that the statements
made therein, in light of the circumstances under which they are made, not
misleading (except that Seller shall not be responsible under this Section
5.11(a) with respect to statements made therein based on information supplied by
Buyer expressly for inclusion in such solicitation materials). To the greatest
extent practicable, information required to be disclosed in both the Buyer Proxy
Statement and any such solicitation materials shall be disclosed in an identical
manner.
(b) Seller shall furnish to Buyer, and revise, written information
concerning itself expressly for inclusion in the Buyer Proxy Statement,
including without limitation by reviewing and commenting (with respect to
information concerning Seller) on drafts of the Buyer Proxy Statement and the
preliminary proxy statement to be prepared pursuant to Section 5.10. Seller
shall inform Buyer of any change regarding such information so that such
Seller-furnished information will not, at both the date mailed to Buyer
stockholders and at the time of the meeting of Buyer stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated in Seller furnished
information or necessary in order to make the statements made in
Seller-furnished information, in light of the circumstances under which they are
made, not misleading.
Section 5.12 Tax Treatment. Each party hereto shall use all reasonable
efforts to cause the Merger to qualify and shall not take, and shall use all
reasonable efforts to prevent any affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as a reorganization under
the provisions of Section 368(a) of the Code.
Section 5.13 Form S-8. With respect to the Seller Option Plan, Buyer
shall take all corporate action necessary or appropriate to, as soon as
practicable after the Effective Time, file a registration statement on Form S-8
(or any successor or other appropriate form) with respect to the shares of Buyer
Common Stock which will be subject to options outstanding under such plan as of
the Closing to the extent such registration statement is required under
applicable law in order for such shares of Buyer Common Stock to be sold without
restriction, and Buyer shall use reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectuses contained therein) for so long as such options under such
plan remain outstanding.
Section 5.14 Reservation of Buyer Common Stock. Buyer shall reserve
from its authorized but unissued shares of Buyer Common Stock that number of
shares of Buyer Common Stock issuable upon exercise of the Seller Stock Options
assumed by Buyer.
Section 5.15 Consolidation of Operations. Buyer and Seller shall
cooperate with one
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March 5, 1998
<PAGE>
another with a view toward consolidating the operations of Buyer and Seller at
Seller's principal executive offices and eliminating duplicative staffing and
overhead as soon as reasonably possible.
Section 5.16 Consolidation of Board of Directors. Buyer will utilize
good faith efforts to decrease the membership of the Board of Directors of Buyer
to a total of seven (7) members by the first anniversary of the date of this
Agreement. It is agreed and understood that this Section 5.16 shall not require
(i) Buyer to amend its organizational documents or (ii) Buyer's directors to
take any actions inconsistent with their fiduciary duties.
Section 5.17 Incentive Bonus Payments. Buyer and Seller agree that the
incentive bonus payments to be made to Robert J. Capetola, pursuant to Section
4.e. of the Capetola Employment Agreement attached as Exhibit A hereto, and to
each of Harry G. Brittain, Cynthia Davis, Laurence B. Katz, Lisa Mastroianni,
Christopher Schaber, Huei Tsai and Thomas Wiswell, pursuant to Section 4.d. of
the employment agreements to be entered into with such individuals in the form
of Exhibit B hereto, shall be determined for each of the above-named individuals
by Buyer's Compensation Committee, shall be paid in either cash or equity as
determined by such Compensation Committee, shall be in the following aggregate
amounts and shall be paid upon the achievement of each of the following
milestones (which are set forth in the aforementioned agreements): (a) $150,000
upon the successful completion of Phase II studies for any compound under
development in Discovery's portfolio (each a "Portfolio Compound"); (b) $500,000
upon the successful completion of Phase II studies for any Portfolio Compound;
and (c) $1,000,000 upon receipt of marketing approval in the United States for
any Portfolio Compound. The aforementioned bonuses shall be paid only once for
each of the milestones.
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by Seller,
Buyer or Acquisition Subsidiary, as the case may be, to the extent permitted by
applicable law:
(a) Stockholder Approval. This Agreement shall have been
approved by the requisite vote of the stockholders of Seller, Buyer and
Acquisition Subsidiary;
(b) Statutes. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any Governmental Entity which
prohibits the consummation of the Merger;
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March 5, 1998
<PAGE>
(c) Injunctions. There shall be no order or injunction of a
court or other governmental authority of competent jurisdiction in effect
precluding, restraining, enjoining or prohibiting consummation of the Merger;
(d) Tax Opinions. Buyer shall have received from Roberts,
Sheridan & Kotel, P.C., counsel to Buyer, a written opinion dated as of the
Closing Date to the effect that the Merger, when effected in accordance with
this Agreement, will qualify as a reorganization under Section 368(a) of the
Code; Seller shall have received from Brobeck, Phleger & Harrison LLP, counsel
to Seller, a written opinion dated as of the Closing Date to the effect that the
Merger, when effected in accordance with this Agreement, will qualify as a
reorganization under Section 368(a) of the Code;
(e) Capetola Employment Agreement. Robert J. Capetola shall
have entered into an employment agreement with Buyer, in the form attached as
Exhibit A hereto;
(f) Key Executive Employment Agreements. Buyer and each of
Harry G. Brittain, Cynthia Davis, Laurence B. Katz, Lisa Mastroianni,
Christopher Schaber, Huei Tsai and Thomas Wiswell shall have entered into
employment agreements as mutually agreed to by Buyer and Seller, substantially
in the form attached as Exhibit B hereto (the "Key Executive Employment
Agreements");
(g) Exchange Agreement. Buyer shall have entered into the
Exchange Agreement with JJDC.
(h) Board of Directors. On the Effective Date, the Board of
Directors of Buyer shall consist of Robert J. Capetola, Steve Kanzer, Max Link,
Herbert McDade, David Naveh, Milton Packer, Richard Power, Mark Rogers, Marvin
Rosenthale, and Richard Sperber.
(i) No Litigation. After the date hereof, there shall not be
threatened, or instituted and continuing, any action, suit or proceeding against
Seller, Buyer or Acquisition Subsidiary, by any Governmental Entity or any other
person directly or indirectly relating to the Merger or any other transactions
contemplated by this Agreement which individually or in the aggregate could
reasonably be expected to have a Seller Material Adverse Effect or Buyer
Material Adverse Effect.
Section 6.2 Additional Conditions to Obligations of Seller. The
obligation of Seller to effect the Merger is also subject to the fulfillment of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer and Acquisition Subsidiary contained in this Agreement shall
be true and correct on the date hereof and shall also be true and correct on and
as of the Effective Time, with the same force and effect as if made on and as of
the Effective Time, unless the failure of such representations and warranties to
be true and correct could not reasonably be expected to cause, individually or
in the aggregate, a Buyer Material Adverse Effect (as applied to such dates);
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March 5, 1998
<PAGE>
(b) Agreements, Conditions and Covenants. Buyer and Acquisition
Subsidiary shall have performed or complied in all material respects with all
agreements, conditions and covenants required by this Agreement to be performed
or complied with by them on or before the Effective Time;
(c) Certificate of Chairman of the Board. Seller shall have
received a certificate of the Chairman of the Board of Directors of Buyer to the
effect that each of the conditions specified in clauses (a) and (b) of this
Section 6.2 have been satisfied;
(d) Stock Option Agreements. In addition to the Stock Options
assumed by Buyer under Section 2.4, Buyer shall have granted stock options
pursuant to Buyer Stock Option Plan in the forms of option agreements attached
hereto as Exhibit C, Exhibit D and Exhibit E, to certain of Seller's employees
as set forth on Schedule 6.2(d), for an aggregate of 338,500, 175,000 and
160,000 shares of Common Stock, respectively.
(e) Opinion. Seller shall have received an opinion dated as of
the Closing Date from Roberts, Sheridan & Kotel P.C., counsel to Buyer and
Acquisition Subsidiary, covering the matters set forth in Schedule 6.2(e).
(f) Registration Rights Agreement. Buyer shall have entered
into a Registration Rights Agreement with JJDC and The Scripps Research
Institute, substantially in the form attached hereto as Exhibit F.
Section 6.3 Additional Conditions to Obligations of Buyer and
Acquisition Subsidiary. The obligations of Buyer and Acquisition Subsidiary to
effect the Merger are also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and correct on
the date hereof and shall also be true and correct on and as of the Effective
Time, with the same force and effect as if made on and as of the Effective Time,
unless the failure of such representations and warranties to be true and correct
as of such dates could not reasonably be expected to cause, individually or in
the aggregate, a Seller Material Adverse Effect (as applied to such dates);
(b) Agreements, Conditions and Covenants. Seller shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time;
(c) Officer's Certificate. Buyer shall have received a
certificate of the Chief Executive Officer of Seller to the effect that each of
the conditions specified in clauses (a) and (b) of this Section 6.3. have been
satisfied.
(d) Investment Agreement. Each holder of Common Shares shall
have executed and delivered to Buyer the form of Investment Agreement attached
as Exhibit G hereto.
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March 5, 1998
<PAGE>
(e) Opinion. Buyer shall have received an opinion dated as of
the Closing Date from Brobeck, Phleger & Harrison LLP, counsel to Seller,
covering the matters set forth in Schedule 6.3(e).
(f) Dissenting Common Shares. The aggregate number of Common
Shares held by Dissenting Stockholders shall not be equal to or exceed five
percent (5%) of the outstanding Common Shares immediately prior to the Effective
Time.
(g) Contractual Lock-up Agreements. Each common stockholder
and optionholder of Seller shall have entered into an agreement with Buyer
substantially in the form of Exhibit H attached hereto.
(h) Buyer Stock Option Plan. The 1998 stock option plan of
Buyer (the "1998 Stock Option Plan") in the form attached as Exhibit I hereto,
shall have been approved by the requisite vote of the stockholders of Buyer.
(i) Termination Agreement. Seller shall enter into a letter
agreement terminating the Co-Sale Agreement dated as of October 28, 1996 by and
between Seller and the stockholders listed on Schedule A thereto.
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the terms of
this Agreement by the stockholders of Buyer or Seller:
(a) by mutual written consent of the Boards of Directors of
Buyer and Seller;
(b) by either Buyer or Seller if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting consummation of the Merger and
such order, decree or ruling or other action shall have become final and
nonappealable;
(c) by either Buyer or Seller, if the Merger shall not have
been consummated by July 15, 1998; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(c) shall not be available
to any party whose failure (or the failure of the affiliates of which) to
perform any of its obligations under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before such date;
provided, further, that for this purpose, Buyer and Seller shall not be deemed
to be affiliates of each other; directors, officers and employees of Seller
shall be deemed to act only on behalf of such Seller; and directors, officers
and employees of Buyer or Acquisition Subsidiary shall be deemed to act only on
behalf of Buyer and/or Acquisition Subsidiary; and provided further that an
individual holding
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March 5, 1998
<PAGE>
positions on the boards of both Seller, on the one hand, and Buyer or
Acquisition Subsidiary, on the other hand, shall be deemed to act only on behalf
of Buyer and/or Acquisition Subsidiary unless such interpretation would be
manifestly unreasonable;
(d) by Buyer or Acquisition Subsidiary, in the event of a
breach by Seller of any representation, warranty, covenant or other agreement
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to Seller and which, individually
or in the aggregate, has had or could reasonably be expected to have, a Seller
Material Adverse Effect; or
(e) by Seller, in the event of a breach by Buyer or
Acquisition Subsidiary of any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which cannot be or
has not been cured within thirty (30) days after the giving of written notice to
Buyer or Acquisition Subsidiary, and which, individually or in the aggregate,
has had or could reasonably be expected to have, a Buyer Material Adverse
Effect.
Section 7.2 Effect of Termination. In the event of a termination of
this Agreement by either Seller or Buyer as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Buyer, Acquisition Subsidiary or Seller or their
respective officers or directors, except with respect to Sections 3.16, 4.16,
5.2, this Section 7.2 and Article 8; provided, however, that nothing herein
shall relieve any party of liability for any breach this Agreement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Fees and Expenses. All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of Seller or Buyer
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the stockholders
of Seller or Buyer, no such amendment, modification or supplement shall reduce
the amount or change the form of the consideration to be received by Seller
stockholders in the Merger.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
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March 5, 1998
<PAGE>
Section 8.4 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt, and shall be given
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer or Acquisition Subsidiary, to:
Discovery Laboratories, Inc.
509 Madison Avenue
Suite 1406
New York, NY 10022
Telephone: (212) 223-9504
Facsimile: (212) 688-7978
Attention: Steve H. Kanzer, Esq.
with copies to:
Roberts, Sheridan & Kotel, P.C.
Tower Forty-Nine
12 East 49th Street
New York, NY 10017
Telephone: (212) 299-8600
Facsimile: (212) 299-8686
Attention: Kenneth G. Alberstadt, Esq.
(b) if to Seller, to:
Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
Telephone: (215) 794-3064
Facsimile: (215) 794-3239
Attention: Robert J. Capetola, Ph. D.
37
March 5, 1998
<PAGE>
with copies to:
Brobeck, Phleger & Harrison LLP
1633 Broadway
47th Floor
New York, NY 10019
Telephone: (212) 581-1600
Facsimile: (212) 586-7878
Attention: Ellen B. Corenswet, Esq.
Section 8.5 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act. As used in this Agreement,
a "subsidiary" of any entity shall mean all corporations or other entities in
which such entity owns a majority of the issued and outstanding capital stock or
equity or similar interests.
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) other than the provisions of Section 5.8 hereof, nothing expressed or
implied in this Agreement is intended or will be construed to confer upon or
give to any person, firm or corporation other than the parties hereto any rights
or remedies under or by reason of this Agreement or any transaction contemplated
hereby.
Section 8.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.9 Governing Law. This Agreement and the legal relations
between the parties hereto will be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the choice of law
principles thereof.
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March 5, 1998
<PAGE>
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Acquisition Subsidiary may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Buyer or to any direct or indirect wholly owned subsidiary of
Buyer. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
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March 5, 1998
<PAGE>
IN WITNESS WHEREOF, Buyer, Acquisition Subsidiary and Seller have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
Buyer
By: /s/ James S. Kuo
_____________________________
Name: James S. Kuo
_____________________________
Title: President
_____________________________
Acquisition Subsidiary
By: /s/ James S. Kuo
_____________________________
Name: James S. Kuo
_____________________________
Title: President
_____________________________
Seller
By: /s/ Robert J. Capetola
_____________________________
Name: Robert J. Capetola
_____________________________
Title: President/CEO
_____________________________
40
March 5, 1998
Exhibit 2.2
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as
of May 1, 1998 ("Amendment No. 1"), by and among Discovery Laboratories, Inc., a
Delaware corporation ("Buyer" or "Discovery"), ATI Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Buyer ("Acquisition Subsidiary"),
and Acute Therapeutics, Inc., a Delaware corporation ("Seller" or "Acute").
RECITALS:
WHEREAS, the parties hereto entered into an Agreement and Plan
of Merger, dated March 5, 1998 (the "Merger Agreement"), pursuant to which
Acquisition Subsidiary will merge with and into Seller (the "Merger") and Seller
will become a wholly-owned subsidiary of Buyer; and
WHEREAS, the parties wish to enter into this Amendment No. 1
in connection with certain clarifications and corrections to the Merger
Agreement;
NOW, THEREFORE, for good and valuable consideration and the
mutual covenants and agreements contained in this Amendment No. 1 and in the
Merger Agreement, and intending to be legally bound hereby and thereby, Seller,
Buyer and Acquisition Subsidiary hereby agree as follows:
1. Unless otherwise defined in this Amendment No. 1, all
capitalized terms used herein shall have the meanings given to them in the
Merger Agreement.
2. Section 2.1 of the Merger Agreement is hereby amended to
replace the number "3.91" in the first sentence thereof with the number "3.90."
3. Section 2.2 of the Merger Agreement is hereby amended to
replace the phrase "Series A Preferred Stock" with the phrase "Series C
Preferred Stock."
4. Section 2.5(a) of the Merger Agreement is hereby amended to
delete the phrase ", except for options to purchase 44,800 Common Shares granted
on October 10, 1996, as listed on Schedule 2.5 hereto which shall terminate on
the closing."
5. Section 2.5(a) of the Merger Agreement is hereby further
amended to delete the word "and" between clauses (i) and (ii) of the third
sentence of such section and to add at the end of clause (ii) after the words
"Conversion Ratio" the following: "and (iii) the vesting of the options to
purchase 44,800 Common Shares granted on October 10, 1996, as
<PAGE>
listed on Schedule 2.5 hereto shall be accelerated in full immediately prior to
the Effective Time."
6. Except as set forth in this Amendment No. 1, the Merger
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Buyer, Acquisition Subsidiary and Seller
have caused this Amendment No. 1 to be signed by their respective officers
thereunto duly authorized as of the date first written above.
BUYER
By: /s/ Robert J. Capetola
_______________________________
Name: Robert J. Capetola
Title: Acting CEO
ACQUISITION SUBSIDIARY
By: /s/ Evan Myrianthopoulos
_______________________________
Name: Evan Myrianthopoulos
Title: Vice President
SELLER
By: /s/ Robert J. Capetola
_______________________________
Name: Robert J. Capetola
Title: President/CEO
2
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
of
SERIES C PREFERRED STOCK
of
DISCOVERY LABORATORIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
DISCOVERY LABORATORIES, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation adopted the
following resolution establishing a series of 2,039 shares of Preferred Stock of
the Corporation designated as "Series C Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation a series of Preferred Stock, par value $0.001 per share,
of the Corporation is hereby established and created, and that the
designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications, limitations
and restrictions thereof are as follows:
The Series C Preferred Stock shall have the following rights,
preferences, powers, privileges and restrictions, qualifications and
limitations.
1. Dividends.
The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
rate of $100 per share per annum (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) prior to and in preference to any
declaration or payment of any dividend on the Junior Stock (as defined below).
Such dividends shall be cumulative from the Original Issue Date (as defined in
Section 4(a) below) and shall accrue annually; provided, however, that such
dividends (i) shall be due and payable only upon and in the event of (A) a
liquidation, dissolution or winding up of the Corporation under Section 2(a)
hereof, or (B) the redemption of the Series C Preferred Stock pursuant to
Section 5 hereof; and (ii) shall be convertible into Common Stock in accordance
with Section 4 hereof.
<PAGE>
2. Liquidation, Dissolution or Winding Up; Certain Mergers,
Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series C Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock, or any other class or series of stock ranking on
liquidation junior to the Series C Preferred Stock (the Common Stock, the Series
A Preferred Stock, the Series B Preferred Stock and any other class or series of
stock ranking on liquidation junior to the Series C Preferred Stock being
collectively referred to as the "Junior Stock") by reason of their ownership
thereof, an amount equal to $1000 per share (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares)(the "Liquidation Value"), plus any
dividends declared or accrued but unpaid thereon. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series C Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series C Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series C Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series C Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series C Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) The consolidation or merger of the Corporation into or
with any other entity or entities or the consummation of any transaction or
series of transactions which results in either (i) the exchange by the holders
of outstanding shares of the Corporation of 50% or more of either (x) the then
outstanding shares of Common Stock or (y) the combined voting power of the
Corporation's then outstanding securities entitled to vote generally in the
election of directors or other general matters, (ii) the holders of outstanding
shares of the Corporation immediately prior to the consummation of such
transaction or transactions holding less than 50% of the outstanding securities
of the resulting entity entitled to vote generally in the election of directors
or other general matters (either of (i) and (ii) being hereinafter referred to
as a "Change-in-Control Event") or (iii) the sale or transfer by the Corporation
of all or substantially all its assets (a "Consolidation Event"), shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this Section 2. The consolidation or merger of
the Corporation into or with any entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or
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<PAGE>
caused to be issued or paid by any such entity or affiliate thereof which does
not result in a Change-of- Control Event or a Consolidation Event shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this Section 2.
3. Voting. Each holder of outstanding shares of Series C Preferred
Stock shall be entitled to one vote per share of Series C Preferred Stock, at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings), with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, or by the provisions establishing any other series of
Preferred Stock, holders of Series C Preferred Stock shall vote together with
the holders of Common Stock as a single class.
4. Conversion. The holders of the Series C Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, into shares of Common
Stock of the Corporation, in accordance with the provisions of this Section 4,
(i) at any time prior to the first anniversary of the first date on which a
share of Series C Preferred Stock is issued by the Corporation (the "Original
Issue Date"), if the Market Price (as defined below) of a share of Common Stock
is (or, at any time since the Original Issue Date, has been) equal to or greater
than two times the Market Price of a share of Common Stock on the Original Issue
Date, provided that no more than 50% of the shares of Series C Preferred Stock
issued on the Original Issue Date may be converted under this clause (i); and
(ii) at any time on or after the first anniversary of the Original Issue Date.
The number of shares of Common Stock into which each share of Series C Preferred
Stock is convertible at any time and from time to time (the "Conversion Ratio")
shall be equal to (A) divided by (B), where (A) is the Liquidation Value of a
share of Series C Preferred Stock on such date, plus any dividends declared or
accrued but unpaid on all such shares being converted, and (B) is the Market
Price of a share of Common Stock of the Corporation determined as of the date on
which a holder of Series C Preferred Stock gives notice to the Corporation of
its intent to convert all or a portion of such shares (the "Conversion Notice
Date"). The "Market Price" of a share of Common Stock shall mean the average of
the closing prices of the Common Stock for the twenty (20) consecutive trading
day period ending on the trading day prior to the date of determination (whether
or not a sale of the Corporation's Common Stock was reported on any trading
day). The closing prices shall be the last reported sales price regular way, in
each case on the principal national securities exchange or the Nasdaq National
Market on which the shares of the Corporation's Common Stock are listed or
admitted to trading, or if not listed or admitted to trading thereon, the
average of the closing bid and asked prices of the Common Stock in the
over-the-counter market as reported by Nasdaq or any comparable system, or if
the Common Stock is not listed on Nasdaq or a comparable system, the average of
the closing bid and asked prices on such day in the domestic over-the-counter
market as reported in the Nasdaq Small Cap Market or the NASD Electronic
Bulletin Board, or, if not reported thereon, in the "pink sheets" published by
the National Quotation Bureau, Incorporated. The Conversion Ratio shall be
subject to adjustment as provided below.
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<PAGE>
In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate at the close of business on the day preceding
the date fixed for the payment of any amounts distributable on liquidation to
the holders of Series C Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Market Price
of a share of Common Stock determined as of the Conversion Notice Date.
(c) Mechanics of Conversion.
(i) In order for a holder of Series C Preferred Stock
to convert shares of Series C Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
C Preferred Stock, at the office of the transfer agent for the Series C
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series C
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his, her or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series C
Preferred Stock, or to his, her or its nominees, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series
C Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series C Preferred Stock.
(iii) All shares of Series C Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor. Any shares of Series C
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may from
time to time take such appropriate action as may be necessary to reduce the
authorized Series C Preferred Stock accordingly.
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<PAGE>
(iv) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series C Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series C Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustment for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon the conversion of the Series C Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend),
then and in each such event the holders of Series C Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series C Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(e) Adjustment for Merger or Reorganization, etc. In case of
any consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is covered
by Subsection 2(c)), each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series C Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series C Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Ratio) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series C Preferred Stock.
5. Mandatory Redemption
(a) The Corporation shall, at the option of each holder of
Series C Preferred Stock, upon the first to occur of (i) the approval of the
United States Food and Drug Administration (the "FDA") of the first New Drug
Application filed by the Corporation relating to or incorporating the
Corporation's product under development which carries the trademark Surfaxin(TM)
or (ii) eighteen (18) months from the Original Issue Date (the "Mandatory
Redemption Date"), redeem from each holder of shares of Series C Preferred
Stock, at a price (the "Mandatory Redemption Price") equal to the Liquidation
Value per share, plus any dividends declared or accrued but unpaid thereon,
subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar
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<PAGE>
recapitalization affecting such shares, all of the outstanding shares of Series
C Preferred Stock held by such holder on the applicable Mandatory Redemption
Date payable, at the option of the Corporation, either in cash or in shares of
Common Stock valued at the Market Price determined as of the Mandatory
Redemption Date, or in a combination of cash and shares of Common Stock valued
at the Market Price determined as of the Mandatory Redemption Date.
(b) If the funds of the Corporation legally available for
redemption of Series C Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the number of shares of Series C Preferred Stock required
under this Section 5 to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares of
Series C Preferred Stock ratably on the basis of the number of shares of Series
C Preferred Stock which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
of Series C Preferred Stock required to be redeemed on such date. At any time
thereafter when additional funds of the Corporation become legally available for
the redemption of Series C Preferred Stock, such funds will be used, at the end
of the next succeeding fiscal quarter, to redeem the balance of the shares which
the Corporation was theretofore obligated to redeem, ratably on the basis set
forth in the preceding sentence.
(c) The Corporation shall provide notice of any redemption of
Series C Preferred Stock pursuant to this Section 5 specifying the time and
place of redemption and the Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series C Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not more than 60 nor less than 30 days prior to the date on
which such redemption is to be made. If less than all Series C Preferred Stock
owned by such holder is then to be redeemed, the notice will also specify the
number of shares which are to be redeemed. Upon mailing any such notice of
redemption, the Corporation will become obligated to redeem at the time of
redemption specified therein all Series C Preferred Stock specified therein.
(d) Unless there shall have been a default in payment of the
Mandatory Redemption Price, no share of Series C Preferred Stock shall be
entitled to any dividends declared after its Mandatory Redemption Date, and on
such Mandatory Redemption Date all rights of the holder of such share as a
stockholder of the Corporation by reason of the ownership of such share will
cease, except the right to receive the Mandatory Redemption Price of such share,
without interest, upon presentation and surrender of the certificate
representing such share, and such share will not from and after such Mandatory
Redemption Date be deemed to be outstanding.
(e) Any Series C Preferred Stock redeemed pursuant to this
Section 5 will be cancelled and will not under any circumstances be reissued,
sold or transferred and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series C
Preferred Stock accordingly.
6. No Reissuance of Series C Preferred Stock. No share or shares of
Series C Preferred Stock acquired by the Corporation by reason of conversion,
redemption, purchase or otherwise shall be
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<PAGE>
reissued, and all such shares shall be cancelled, retired and eliminated from
the shares which the Corporation shall be authorized to issue.
7. Preemptive Rights. The Series C Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation.
8. Notice of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holder thereof who are entitled to receive any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Corporation shall mail to each holder of Series C Preferred
Stock, at least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of any
dividend (other than a cash dividend) or other distribution, any right to such
dividend, distribution or right.
9. No Amendment or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series C Preferred
Stock against impairment.
10. Protective Provisions. So long as any shares of Series C Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) by majority vote of
the Board of Directors and of the holders of at least a majority of the
outstanding shares of the Series C Preferred Stock:
(a) amend or repeal any provisions of the Corporation's
Certificate of Incorporation or Bylaws which in any manner adversely affects the
holders of Series C Preferred Stock; or
(b) alter or change the designations, powers, rights,
preferences or privileges, or the qualifications, limitations or restrictions of
the Series C Preferred Stock; or
(c) increase the authorized number of shares of Series C
Preferred Stock; or
(d) Authorize, create or issue any class or series of stock or
any other securities convertible into equity securities of the corporation
having a preference over, or being on a parity with, the Series C Preferred
Stock with respect to dividends, redemption or upon liquidation or dissolution
of the Corporation; or
(e) Reclassify the shares of Common Stock or any other shares
of any class or series of capital stock hereafter created junior to the Series C
Preferred Stock into shares of any class or series of capital stock (i) ranking
either as to payment of dividends, distributions of assets or redemptions, prior
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<PAGE>
to or on parity with the Series C Preferred Stock, or (ii) which in any manner
adversely affects the holders of Series C Preferred Stock.
11. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
IN WITNESS WHEREOF, Discovery Laboratories, Inc. has caused
this certificate to be signed on its behalf by Robert J. Capetola, its President
and Chief Executive Officer, this 16th day of June, 1998.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola
___________________________________
Name: Robert J. Capetola, Ph.D.
Title: President and Chief Executive
Officer
-8-
EXHIBIT 4.1
STOCK EXCHANGE AGREEMENT
THIS AGREEMENT is made this 16th day of June, 1998, by and
between DISCOVERY LABORATORIES, INC., a Delaware corporation (the "Company"),
and JOHNSON & JOHNSON DEVELOPMENT CORPORATION, a New Jersey corporation
("JJDC").
WHEREAS, the Company and Acute Therapeutics, Inc. ("ATI") have
entered into an agreement dated as of March 5, 1998, amended as of May 1, 1998,
whereby a newly-formed subsidiary of the Company will merge with and into ATI
(the "Merger") and ATI will become a wholly-owned subsidiary of the Company (the
"Merger Agreement");
WHEREAS, JJDC owns 2,039 shares of Series B Preferred Stock,
$0.001 par value per share of ATI (the "Series B ATI Preferred Shares"); and
WHEREAS, it is a condition to the consummation of the Merger
contemplated by the Merger Agreement that the Company and JJDC enter into an
agreement pursuant to which JJDC will exchange its shares of Series B ATI
Preferred Shares for 2,039 shares of Series C Preferred Stock, $0.001 par value
per share, of the Company (the "Discovery Series C Preferred Shares").
WHEREAS, pursuant to the terms of the Certificate of
Designation of the Series B ATI Preferred Shares, JJDC is entitled to receive a
dividend (the "Series B Dividend") accrued but unpaid through the date of the
consummation of the Merger (the "Merger Date") on its Series B ATI Preferred
Shares .
WHEREAS, the Company has agreed to issue to JJDC a certain
number of shares (the "Dividend Shares") of common stock of the Company, $0.001
par value per share (the "Common Stock") equal to $203,900 divided by the
"current market price" (as defined in Section 3 below) of the Common Stock in
lieu of the Series B Dividend, which shares shall be issued on the 21st business
day after the date of the Merger.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
1. Authorization of Discovery Series C Preferred Shares. On or
before the effective time of the Merger (the "Effective Time"), the Company (a)
shall authorize the
<PAGE>
Discovery Series C Preferred Shares, having the rights, preferences and
privileges set forth in the Certificate of Designation attached hereto as
Exhibit A (the "Certificate of Designation") and (b) shall file with the
Secretary of State of Delaware such Certificate of Designation.
2. Exchange of Series B ATI Preferred Shares. At the Effective
Time, each issued and outstanding Series B ATI Preferred Share shall be
exchangeable for, and shall be deemed to represent, one Discovery Series C
Preferred Share. On or after the Effective Time, JJDC shall deliver to the
Company the certificate representing its Series B ATI Preferred Shares, duly
endorsed in blank for transfer or with duly executed blank stock powers
attached.
3. Issuance of Shares. Upon surrender by JJDC of its stock
certificate for the 2,039 shares of Series B ATI Preferred Shares to the
Company, the Company shall issue two duly executed stock certificates to JJDC.
One stock certificate shall be registered in the name of JJDC for the Discovery
Series C Preferred Shares and shall be issued on the date of the Merger. The
second stock certificate shall be registered in the name of JJDC for the number
of shares of Common Stock representing the Dividend Shares and shall be issued
on the 21st business day following the date of the Merger. The Discovery Series
C Preferred Shares and the Dividend Shares are herein collectively referred to
as the "Shares."
For purposes of this Agreement, the "current market price" of
the Company's Common Stock shall mean the average of the closing price of the
Company's Common Stock for the twenty (20) consecutive trading days commencing
on the Effective Date of the Merger (as defined in the Merger Agreement)
(whether or not a sale of the Common Stock was reported on any such business
day). The closing price shall be the reported sales price regular way, in each
case on the principal national securities exchange or the Nasdaq National Market
on which the shares of the Company's Common Stock are listed or admitted to
trading, or if not listed or admitted to trading thereon, the average of the
closing bid and asked prices of the Common Stock in the over-the-counter market
as reported by Nasdaq or any comparable system, or if the Common Stock is not
listed on Nasdaq or a comparable system, the average of the closing bid and
asked prices on such day in the domestic over-the-counter market as reported on
the NASD Electronic Bulletin Board, or, if not reported on such bulletin board,
in the "pink sheets" published by the National Quotation Bureau, Incorporated.
4. Representations and Warranties of the Company. On the date
of this Agreement and at the Effective Time (except with respect to changes in
capitalization as contemplated in Section 4.e. below), the Company hereby
represents and warrants to JJDC that:
a. Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.
<PAGE>
b. Authorization. The Company has full corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the Registration Rights Agreement attached as Exhibit B hereto
(the "Registration Rights Agreement"). All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of the Agreement and the Registration
Rights Agreement, the performance of all obligations of the Company hereunder
and thereunder, and the authorization, issuance (or reservation for issuance),
sale and delivery of the Shares and the shares of Common Stock to be issued upon
conversion and, in certain cases, redemption of the Discovery Series C Preferred
Shares (the "Underlying Common Shares") has been taken. The Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company and constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies and (iii) as limited by the
indemnification provisions set forth in Section 1.7 of the Registration Rights
Agreement.
c. Valid Issuance of the Shares. The Shares, when
issued, sold and delivered in accordance with the terms of this Agreement, and
any Underlying Common Shares, when issued upon conversion of the Discovery
Series C Preferred Shares, will be duly and validly issued and outstanding,
fully paid, and nonassessable, free of any liens, encumbrances, preemptive
rights or rights of first refusal and will be issued in compliance with all
applicable federal and state securities laws and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws. The terms of the Discovery Series
C Preferred Shares are set forth in the Certificate of Designation.
d. Capitalization. The authorized capital stock of
the Company consists of 20,000,000 shares of Common Stock, par value $0.001 per
share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share, of
which 2,420,282 are designated Series B Convertible Preferred Stock (the
"Discovery Series B Preferred Stock"). As of December 31, 1997, (i) 3,176,065
shares of Common Stock were issued and outstanding, (ii) 2,200,256 shares of
Discovery Series B Preferred Stock were issued and outstanding and were
convertible into 3,424,980 shares of Common Stock, (iii) 115,491 shares of
Common Stock were held in the treasury of the Company, (iv) 253,535 shares of
Common Stock were reserved for issuance upon exercise of outstanding options
issued under the 1996 Stock Option Plan of Discovery Laboratories, Inc., a
former Delaware corporation ("Old Discovery") and outside such plan and assumed
by the Company, (v) an aggregate of 116,162 shares of Common Stock were reserved
for issuance under stock options issued (or issuable) under the Company's 1993
and 1995 Stock Option Plans (the "Discovery Option Plans"), (vi) an aggregate of
2,297 shares of Common Stock were reserved for issuance under stock options
issued (or issuable) by the Company outside the Discovery Option Plans, (vii) an
aggregate of 2,055,624 shares of Common Stock were reserved for issuance under
outstanding warrants, (viii) 342,499 shares of Common Stock were reserved for
issuance upon conversion of the 220,026 shares of Discovery Series B Preferred
Stock issuable upon the exercise of
3.
<PAGE>
outstanding warrants, and (ix) 173,333 shares of Common Stock were reserved for
issuance upon exercise of the Company's outstanding unit purchase option
(including warrants issuable upon the exercise of such unit purchase option).
Except as set forth in this Section 4.d, there are no other options, warrants or
other rights, convertible debt, agreements, arrangements or commitments of any
character obligating the Company to issue or sell any shares of capital stock of
or other equity interests in the Company. The Company is not obligated to
redeem, repurchase or otherwise reacquire any of its capital stock or other
securities.
e. Absence of Certain Changes. Since December 31,
1997, except as contemplated by this Agreement, there has not been:
(1) any material adverse change in the
assets, liabilities, financial condition, operating results or business
of the Company; or
(2) any issuance of capital stock by the
Company or any options, warrants or rights therefor, other than:
(a) shares of Common Stock issued
upon the conversion of shares of Discovery Series B Preferred
Stock outstanding at December 31, 1997;
(b) shares of Common Stock issued
pursuant to options and warrants outstanding at December 31,
1997;
(c) options to purchase 132,500
shares of Common Stock granted by the Company on January 2,
1998; and
(d) options to purchase up to 75,000
shares of Common Stock that the Company may issue after the
date hereof to employees and consultants at exercise prices at
least equal to the fair market value of such shares.
f. Securities Laws. Assuming that JJDC's
representations and warranties contained in Section 5 of this Agreement are true
and correct, the exchange of the Series B ATI Preferred Shares for the Discovery
Series C Preferred Shares pursuant to Section 2 of this Agreement and the
issuance of the Discovery Series C Preferred Shares pursuant to Section 3 of
this Agreement will be exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "1933 Act").
5. Representations and Warranties of JJDC.
JJDC hereby represents and warrants to the Company that:
a. Authorization. JJDC has full corporate power and
authority to enter into and perform its obligations under this Agreement, and
the Registration Rights Agreement, and such Agreements constitute valid and
legally binding obligations of JJDC,
4.
<PAGE>
enforceable in accordance with their terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies and (iii) as limited by the indemnification
provisions set forth in Section 1.7 of the Registration Rights Agreement.
b. Investment Representations.
(1) Investment Intent. This Agreement is
made with JJDC in reliance upon its representation to the Company, which by
acceptance hereof JJDC confirms, that the Shares will be acquired with JJDC's
own assets for investment, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and that JJDC has no present intention
of selling, granting participation in, or otherwise distributing the same. By
executing this Agreement, JJDC represents that it does not have any contract,
undertaking, agreement or arrangement with any person or entity to sell,
transfer, or grant participation, to such person or entity or to any third
person or entity, with respect to any of the Shares.
(2) Restricted Securities. JJDC
understands that the Shares and the Underlying Common Shares have not been
registered under the 1933 Act. JJDC further understands that if a registration
statement covering the Shares or the Underlying Common Shares under the 1933 Act
is not in effect when it desires to sell the Shares or the Underlying Common
Shares, JJDC may be required to hold the Shares or the Underlying Common Shares
for an indeterminate period. JJDC also acknowledges that it understands that any
sale of the Shares or the Underlying Common Shares that might be made by JJDC in
reliance upon Rule 144 under the 1933 Act may be made only in limited amounts in
accordance with the terms and conditions of that rule and that JJDC may not be
able to sell the Shares or the Underlying Common Shares at the time or in the
amount JJDC so desires. JJDC is familiar with Rule 144 and understands that the
Shares and the Underlying Common Shares constitute "restricted securities"
within the meaning of that Rule.
(3) Investment Experience. JJDC represents
that it is able to fend for itself in the transactions contemplated by this
Agreement, has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of its investment, has the
ability to bear the economic risks of its investment and has been furnished with
and has had access to such information as JJDC has requested and deems
appropriate to its investment decision.
(4) Limitations on Disposition. JJDC agrees
that in no event will it make a disposition of any of the Shares or the
Underlying Common Shares, unless and until (a) JJDC shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (b) if
requested by the Company, JJDC shall have furnished the Company with an opinion
of counsel reasonably satisfactory to the Company to the effect that (i) such
disposition will not require registration of such Shares, or the underlying
Common Shares, under the 1933 Act, or (ii) that appropriate action necessary for
compliance with the 1933 Act
5.
<PAGE>
has been taken, or (c) the Company shall have waived, expressly and in writing,
its rights under clauses (a) and (b) of this subparagraph. In addition, prior to
any disposition of any of the Shares, or the Underlying Common Shares, the
Company may require the transferee or assignee to provide in writing investment
representations and its agreement to the market stand-off provisions hereof in a
form acceptable to the Company. The restrictions on disposition imposed by this
Section 5(b)(4) shall cease and terminate as to the Shares or the Underlying
Common Shares when: (i) such securities shall have been effectively registered
under the 1933 Act and sold by the holder thereof in accordance with such
registration, or (ii) an opinion of the kind described in the second preceding
sentence states that all future transfers of such securities by the holder
thereof would be exempt from registration under the 1933 Act.
The Company shall not be required (i) to transfer on its books
any Shares or the Underlying Common Shares of the Company which shall have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or (ii) to treat as owner of such shares or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred. JJDC shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Company with respect
to the Shares or the Underlying Common Shares of the Company after the issuance,
and prior to the repurchase, thereof.
c. Legends. All certificates representing any
Shares or the Underlying Common Shares of the Company subject to the provisions
of this Agreement shall have endorsed thereon the following legends (except that
such certificates shall not be required to bear such legend after a transfer
thereof if the transfer was made in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is issued
and provides that such legend is not required in order to establish compliance
with any provisions of the 1933 Act):
(1) "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
STOCK EXCHANGE AGREEMENT WHICH INCLUDES A MARKET STAND-OFF AGREEMENT
AND A REGISTRATION RIGHTS AGREEMENT ON THE SALE OF THE SECURITIES.
COPIES OF THE AGREEMENTS MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
(2) "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, OR PURSUANT TO RULE 144 UNDER THE ACT OR AN OPINION OF
COUNSEL
6.
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SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT."
(3) Any legend required to be placed
thereon by applicable state laws.
6. "Market Stand-Off" Agreement. JJDC hereby agrees that,
during the period specified by the Company and the underwriter or underwriters
of common stock (or other securities) of the Company, following the effective
date of a registration statement of the Company filed under the 1933 Act, JJDC
shall not to the extent requested by the Company and such underwriter, but in
any case for a period not to exceed 180 days, directly or indirectly, sell,
offer or contract to sell (including, without limitation, any short sale), grant
any option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company at any time
during such period except common stock included in such registration, provided,
however, that (a) such agreement shall be applicable only to the first such
registration statement of the Company after the date of this Agreement which
covers common stock (or other securities) to be sold on its behalf to the public
in an underwritten offering and (b) all directors and officers of the Company
and all stockholders of the Company holding the same or a greater percentage of
the outstanding stock of the Company on a fully diluted basis enter into similar
agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Shares held by JJDC until
the end of such 180-day period.
7. Miscellaneous.
a. Publicity. No party shall originate any
publicity, news release, or other announcement, written or oral, relating to
this Agreement, or to performance hereunder or the existence of an arrangement
between the parties hereto without the prior written consent of the other.
b. Notices. Any notice required or permitted
hereunder shall be given in writing and shall be deemed effectively given upon
personal delivery or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, or upon delivery by
overnight courier service (paid by sender), addressed to the other party hereto
at his or her address hereinafter shown below his or her signature or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
c. Governing Law, Assignment and Enforcement. This
Agreement is governed by the internal law of Delaware and shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon JJDC and its
successors and assigns.
7.
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d. Amendments and Waivers. This Agreement represents
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all previous understandings, written or oral. This
Agreement may only be amended with the written consent of the parties hereto and
the Company's assignees, or the successors or assigns of the foregoing, and no
oral waiver or amendment shall be effective under any circumstances whatsoever.
e. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola
_____________________________________
Robert J. Capetola, Ph.D.
President and
Chief Executive Officer
Address: 3359 Durham Road
Doylestown, Pennsylvania 18901
JOHNSON & JOHNSON
DEVELOPMENT CORPORATION
/s/ Blair M. Flicker
_________________________________________
(Signature)
Blair M. Flicker
_________________________________________
(Print Name)
Address: One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
9.
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 16th day
of June, 1998, by and among DISCOVERY LABORATORIES, INC., a Delaware
corporation, (the "Company"), JOHNSON & JOHNSON DEVELOPMENT CORPORATION, a New
Jersey Corporation ("J&J") and THE SCRIPPS RESEARCH INSTITUTE, a California
not-for-profit organization ("Scripps") (J&J and Scripps are herein collectively
referred to as the "Stockholders").
RECITALS
WHEREAS, Acute Therapeutics, Inc. ("ATI") and Scripps are
parties to the Scripps Stock Purchase Agreement dated as of October 28, 1996
(the "Scripps Agreement"), pursuant to which Scripps acquired 40,000 shares of
common stock, $0.001 par value per share of ATI (the "ATI Common Stock");
WHEREAS, J&J, its affiliate, Ortho Pharmaceutical Corporation
and ATI are parties to the Inventory Transfer/Stock Purchase Agreement dated as
of October 28, 1996, as amended (the "Inventory Transfer Agreement"), pursuant
to which ATI issued to J&J 2,039 shares of its Non-Voting Series B Preferred
Stock, $0.001 par value per share (the "ATI Series B Preferred Stock") and
40,000 shares of ATI Common Stock;
WHEREAS, ATI, Scripps and J&J are parties to a Registration
Rights Agreement dated as of October 28, 1996 (the "ATI Registration Rights
Agreement") pursuant to which Scripps and J&J were granted certain registration
rights;
WHEREAS, the Company and ATI are parties to an Agreement and
Plan of Merger, dated March 5, 1998, as amended on May 1, 1998, whereby a
newly-formed subsidiary of the Company will merge with and into ATI and ATI will
become a wholly-owned subsidiary of the Company (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement, each of the issued
and outstanding shares of ATI Common Stock shall be automatically converted into
3.91 shares of Common Stock of the Company, $0.001 par value per share ("the
Common Stock");
WHEREAS, the Company and J&J are parties to the Stock Exchange
Agreement of even date herewith pursuant to which J&J will exchange its ATI
Series B Preferred Stock for 2,039 shares of Series C Preferred Stock, $0.001
par value per share, of
<PAGE>
the Company ("Series C Preferred Stock") and pursuant to which the Company will
issue J&J shares of Common Stock (the "Dividend Shares") in lieu of the accrued
but unpaid dividend accrued through the date of the Merger on its shares of ATI
Series B Preferred Stock (the "Stock Exchange Agreement");
WHEREAS, the Stockholders and the Company hereby agree that
this Registration Rights Agreement (the "Agreement") shall govern the rights of
the Stockholders to cause the Company to register the shares of Common Stock
held by the Stockholders;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and
agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.8 hereof.
(c) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(d) The term "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the Common
Stock issued by the Company pursuant to the Merger Agreement in exchange for the
shares of ATI Common Stock originally issued to Scripps pursuant to the Scripps
Purchase Agreement, (ii) the Common Stock issued by the Company pursuant to the
Merger Agreement in exchange for the shares of ATI Common Stock originally
issued to J&J pursuant to the Inventory Transfer Agreement, (iii) any Common
Stock issued to J&J upon conversion or redemption of the Series C Preferred
Stock, (iv) the Dividend Shares and (v) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the shares referenced in (i)-(iv) above,
that cannot be publicly resold by the holder thereof without registration under
the Act or sold in a single transaction exempt from the registration and
prospectus delivery requirement of the Act pursuant to Rule 144 thereunder, it
being understood, for the purposes of this Agreement, that Registrable
Securities shall cease to be Registrable Securities when (1) a registration
statement covering such Registrable Securities has been declared effective and
they have been disposed of pursuant to such effective registration statement,
(2) they are transferred on the open market pursuant to any available exemption
under the Act, (3) they have been otherwise
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transferred and the Company has delivered new certificates or other evidences of
ownership for them not subject to any stop transfer order or other restriction
on transfer and not bearing any legend restricting transfer in the absence of an
effective registration or an exemption from the registration requirements of the
Act, (4) they have been sold, assigned, pledged, hypothecated or otherwise
disposed of by the Holder in a transaction in which the Holder's rights under
this Agreement are not assigned or assignable, or (5) the rights of the Holder
under Section 1.2 have terminated pursuant to Section 1.9.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Company Registration.
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 2.5, the Company shall cause to be registered under
the Act all of the Registrable Securities that each such Holder has requested to
be registered.
(b) Notwithstanding any other provision of this Section 1.2,
if the managing underwriter of an underwritten distribution advises in writing
the Company and the Holders of the Registrable Securities requesting
participation in such registration that in its good faith judgment the number of
shares of Registrable Securities and the other securities requested to be
registered under this Section 1.2 exceeds the number of shares of Registrable
Securities and other securities which can be sold in such offering, then (i) the
number of shares of Registrable Securities and other securities so requested to
be included in the offering shall be reduced to that number of shares which in
the good faith judgment of the managing underwriter can be sold in such offering
(except for shares to be issued by the Company, which shall have priority over
the Registrable Securities), and (ii) such reduced number of shares shall be
allocated among all participating Holders of Registrable Securities and holders
of other securities in proportion, as nearly as practicable, to the respective
number of shares of Registrable Securities and other securities held by such
Holders at the time of filing the registration statement; provided, however,
that a minimum of thirty percent (30%) of the shares to be underwritten shall be
allocated, on a pro rata basis, to the Holders requesting
3
<PAGE>
inclusion in such offering (the "selling stockholders"). For purposes of clause
(ii) above concerning apportionment, for any selling stockholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
affiliates (as defined in the rules and regulations promulgated under the Act),
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
stockholder", and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder", as defined in this sentence.
1.3 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or until the distribution contemplated in the Registration Statement
has been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
4
<PAGE>
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) Notify the participating Holders at any time when a
prospectus relating to any Registrable Securities covered by such registration
statement is required to be delivered under the Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and promptly file such amendments and supplements as may be necessary
so that, as thereafter delivered to such Holders of such Registrable Securities,
such prospectus shall not include 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 not misleading in light of the circumstances then existing
and use its best efforts to cause each such amendment and supplement to become
effective.
(i) Furnish on the closing date of an underwritten public
offering (i) an opinion, dated such date, of the counsel representing the
Company, for purposes of such registration, in form and substance as is
customarily given by company counsel to the underwriters in an underwritten
public offering, addressed to the underwriters, and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters.
1.4 Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of
5
<PAGE>
disposition of such securities as shall be required to effect the registration
of such Holder's Registrable Securities.
1.5 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.8), including (without limitation) all federal and state
registration, filing, qualification fees, printers and accounting fees relating
or apportionable thereto and reasonable fees and disbursements of one counsel
for the participating Holders together, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.6 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.7 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, and each officer, director, employee and
agent thereof against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) 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, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, and each officer, director, employee and agent thereof as incurred, 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 indemnity agreement contained in this subsection
1.7(a) 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), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
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<PAGE>
(b) To the extent permitted by law, each selling Holder
(severally and not jointly) will indemnify and hold harmless the Company, each
of its directors, each of its officers who has signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.7(a), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.7(a) 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 Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 1.10(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.7.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such
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<PAGE>
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 in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party 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.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.8 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.9 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the fifth
anniversary of the date of this Agreement.
1.10 Reports Under 1934 Act. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the Act and any other
rule or regulation of the SEC that may at any time permit a Holder to sell
Registrable Securities to the public without registration, the Company agrees
to:
(a) make and keep available public information, as
those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act; and
8
<PAGE>
(c) furnish to a Holder owning any Registrable
Securities upon request (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144 (at any time after 90 days
after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), the Act and
the 1934 Act (at any time after the Company has become subject to the reporting
requirements of the 1934 Act), (ii) a copy of the most recent annual or
quarterly report of the company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably required in
availing any Holder of Registrable Securities of any rule or regulation of the
SEC which permits the selling of any such Registrable Securities without
registration or pursuant to such form (at any time after the company has become
subject to the reporting requirements of the 1934 Act).
1.11 Granting of Registration Rights. The Company shall not,
without the prior written consent of the Holders of at least 50.1% of the
Registrable Securities then outstanding, grant any rights to any persons to
register any shares of capital stock or other securities of the Company that
would limit the Holders' proportional rights under Section 1.2(b). The grant of
registration rights to any person that would entitle such person to participate
on a pro rata basis in an offering under Section 1.2(b) shall not be deemed a
limitation to the Holders' proportional rights under Section 1.2(b), pursuant to
this Section 1.11; provided that in no circumstance will fewer than ten percent
(10%) of the shares to be underwritten pursuant to Section 1.2(b) be allocated
to the Holders, regardless of any subsequent registration rights granted by the
Company.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania without regard to
its conflict of laws principles.
2.3 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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<PAGE>
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
2.6 Expenses. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
2.9 Aggregation of Stock. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
2.10 Entire Agreement; Amendment; Waiver; No Further Rights.
This Agreement (including the Exhibits hereto, if any) constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. The Stockholders hereby agree that they have no
further rights under the ATI Registration Rights Agreement.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola
________________________________
Robert J. Capetola, Ph.D.
President
Address: 3359 Durham Road
________________________________
Doylestown, PA 18901
________________________________
Stockholders:
JOHNSON & JOHNSON DEVELOPMENT
CORPORATION
By: /s/ Blair M. Flicker
________________________________
Address: One Johnson & Johnson Plaza
________________________________
New Brunswick, NJ 08933
________________________________
THE SCRIPPS RESEARCH INSTITUTE
By: /s/ Arnold LaGuardia
________________________________
Address: 10550 N. Torrey Pines Road, TPC-16
________________________________
La Jolla, CA 92037
________________________________
11
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as
of June 16, 1998 by and between Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), and Robert Capetola, Ph.D. (the "Executive").
WHEREAS, the Company and Executive desire that Executive be
employed by the Company and that the terms and conditions of such employment be
defined;
NOW, THEREFORE, in consideration of the employment of
Executive by the Company, the Company and Executive agree as follows:
1. Term of the Agreement. The Company shall employ Executive
and Executive shall accept employment for a period of four (4) years commencing
on June 16, 1998 (the "Commencement Date") and continuing until June 15, 2002,
subject, however, to prior termination as hereinafter provided in Section 5 (the
"Employment Period").
2. Executive's Duties and Obligations.
a. Duties. Executive shall serve as President and
Chief Executive Officer of the Company. Executive shall be responsible for
overall management of the Company and all operating managers of the Company
shall report to Executive. Executive shall at all times report to, and shall be
subject to the policies established by, the Company's Board of Directors (the
"Board") or any Executive Committee thereof. The Company agrees that, at all
times during the Employment Period, it will nominate Executive for election to
the Board of Directors of the Company. Executive shall immediately resign from
any Board position held by
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<PAGE>
him at the expiration or termination of the Employment Period.
b. Location of Employment. Executive's principal
place of business shall be at the Company's offices to be located within thirty
(30) miles of Doylestown, Pennsylvania. Such office shall serve as the Company's
principal executive office.
c. Proprietary Information and Inventions Agreement.
Upon commencement of employment with the Company, Executive shall execute the
Company's standard form of Intellectual Property and Confidential Information
Agreement (the "Confidentiality Agreement") a copy of which is attached to this
Agreement as Exhibit A.
3. Devotion of Time to Company's Business
a. Full-Time Efforts. During his employment with
the Company, Executive shall devote substantially all of his business time,
attention and efforts to the high quality performance of his duties to the
Company.
b. No Other Employment. During his employment with
the Company, Executive shall not, whether directly or indirectly, render any
services of a commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Executive Committee or Board of Directors.
Notwithstanding the foregoing provisions of this Section 3.b., Executive may
perform services in connection with charitable or civic activities to the extent
such participation does not materially interfere with the performance of
Executive's duties for the Company.
<PAGE>
c. Non-Competition. During the Employment Period and
for eighteen (18) months after its termination, Executive shall not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity compete with the Company's business of developing or
commercializing pulmonary surfactants, Vitamin D analogs or any other category
of compounds which forms the basis of the Company's products or products under
development (a "Competing Business"), or (ii) directly or indirectly solicit
employees of the Company. Notwithstanding the provisions of this Section 3.c.,
nothing herein shall prohibit Executive from (i) holding less than one percent
(1%) of the outstanding capital stock of a publicly held corporation engaged in
a Competing Business; (ii) serving on one or more Boards of Directors of
for-profit or non-profit corporations so long as, in the aggregate, such
commitments do not interfere with the performance of Executive's duties for the
Company and such corporations are not engaged in any Competing Business; or
(iii) after his employment with the Company terminates for any reason, being
employed by a multi-division corporation that engages in a Competing Business so
long as Executive works in a division of such corporation which is not primarily
engaged in a Competing Business and Executive has no responsibilities for the
direct supervision of, and will not in the ordinary course of discharging his
responsibilities become involved in the analysis of proprietary data or
marketing strategies relating to, any Competing Business.
4. Compensation and Benefits.
a. Initial Bonus. The Company shall pay to Executive
an initial sign-on bonus of One Hundred Thousand Dollars ($100,000) upon the
execution of this Agreement.
<PAGE>
b. Base Compensation. During the first year of the
Employment Period, the Company shall pay to Executive, payable in accordance
with the Company's standard payroll policy, base annual compensation of Two
Hundred Thirty Six Thousand Two Hundred Fifty Dollars ($236,250), less all
required withholdings. Such base salary shall be increased annually during the
Employment Period by a minimum of five percent (5%) per year.
c. Bonuses. During the Employment Period, Executive
shall be entitled to a minimum year-end bonus equal to twenty percent (20%) of
his base compensation for each year and, at the discretion of the Compensation
Committee of the Board of Directors of the Company, any additional bonus that
may be awarded him.
d. Benefits. During the Employment Period, Executive
will be entitled to all such family health and medical benefits and disability
insurance as are provided to officers of the Company generally. In addition, the
Company will provide to Executive (i) term life insurance on behalf of
Executive's beneficiaries in the amount of Two Million Dollars ($2,000,000) for
the term of this Agreement, and (ii) long-term disability insurance, subject to
a combined premium cap of Fifteen Thousand Dollars ($15,000) per year.
e. Incentive Bonus. Executive shall be eligible for
incentive bonuses as follows:
(i) Fifty Thousand Dollars ($50,000) upon
the execution of each partnering or similar arrangement involving Surfaxin
having a Value (as hereinafter defined) to the Company in excess of Ten Million
Dollars ($10,000,000). For purposes of this Agreement, "Value" shall mean the
total payments, including without limitation, contingent payments prior to or at
receipt of marketing approval for the compound under development in the
<PAGE>
Company's portfolio (each a "Portfolio Compound") involved in the relevant
agreement, to be paid to Discovery from corporate partnering transactions or
from any other transactions for the development, clinical testing, regulatory
approval, manufacturing and/or marketing of a Portfolio Compound, including
without limitation upfront fees, milestone payments, research and development
and other contractual commitments.
(ii) In amounts to be determined by the
Company's Compensation Committee, to be paid in either cash or equity, upon the
achievement of each of the following milestones (which bonuses shall be paid
only once for each of the milestones): (a) the successful completion of Phase II
studies for any Portfolio Compound; (b) the successful completion of Phase III
studies of any Portfolio Compound; and (c) receipt of marketing approval in the
United States for any Portfolio Compound.
f. Stock Options. The Board of Directors of the
Company has granted to Executive, on the date hereof, incentive stock options to
purchase: (i) 115,090 shares of Common Stock, $0.001 par value of the Company
(the "Common Stock"), pursuant to the terms of the Notice of Grant attached
hereto as Exhibit B, (ii) 59,500 shares of Common Stock, subject to acceleration
at such time as the market capitalization of the Company exceeds $75 million,
pursuant to the terms of the Notice of Grant attached hereto as Exhibit C, and
(iii) 54,240 shares of Common Stock, subject to acceleration upon consummation
of a corporate partnering deal having a total Value of at least $20 million,
pursuant to the terms of the Notice of Grant attached hereto as Exhibit D.
<PAGE>
5. Termination of Employment.
a. Termination for Cause. The Company may terminate
Executive's employment at any time for "Cause," as herein defined. For the
purposes of this Agreement, "Cause" shall mean (i) breach of any contractual
obligations relating to noncompetition, assignment of inventions, protection of
intellectual property or confidentiality, (ii) gross negligence or willful
misconduct relating to the performance of employment responsibility or (iii) the
commission of any felony or any other crime involving moral turpitude.
b. Termination without Cause. If Executive's
employment is terminated by the Company without Cause, the following provisions
shall apply:
(i) Executive shall be entitled to any
unpaid compensation accrued through the last day of Executive's employment;
(ii) Executive shall be entitled to receive
severance payments equal to his base compensation for an eighteen (18) month
period, not subject to setoff by the Company, but subject to the execution by
the Executive of a Release, substantially in the form attached hereto as Exhibit
E, with respect to all employment-related matters. Such severance shall be
payable in six (6) equal installments, with the first installment payable on the
date of receipt of the foregoing release and the subsequent installments payable
at three (3) month intervals thereafter.
<PAGE>
c. Death or Disability. This Agreement shall
terminate if Executive dies or is mentally or physically "Disabled" as herein
defined. For the purposes of this Agreement, "Disabled" shall mean a mental or
physical condition that renders Executive incapable of performing his duties and
obligations under this Agreement for three (3) or more consecutive months or for
a total of six (6) months during any twelve (12) consecutive months; provided,
that during such period the Company shall give Executive at least thirty (30)
days' written notice that it considers the time period for disability to be
running. If this Agreement is terminated under this Section 5.c., Executive or
his estate shall be entitled to any unpaid compensation accrued through the last
day of Executive's employment but shall not be entitled to any severance
benefits.
d. Lock-up Period. Executive shall not directly or
indirectly, sell, offer, contract to sell, transfer the economic risk of
ownership, make any short sale, pledge or otherwise dispose of any shares of
Common Stock issued or issuable upon the exercise of options, or any securities
convertible into or exchangeable or exercisable for such options, granted to
Executive for a one-year lock-up period following any termination of Executive's
employment by (i) the Company for Cause or (ii) Executive to the extent such
termination constitutes a breach of this Agreement.
6. Miscellaneous.
a. Governing Law. This Agreement shall be
interpreted, construed, governed and enforced according to the laws of the
Commonwealth of Pennsylvania as applied to agreements among Pennsylvania
residents entered into and to be performed entirely within Pennsylvania without
regards to the application of choice of law rules.
<PAGE>
b. Amendments. No amendment or modification of the
terms or conditions of this Agreement shall be valid unless in writing and
signed by the parties hereto.
c. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be construed, if possible, so as to be enforceable under applicable law,
else, such provision shall be excluded from this Agreement and the balance of
the Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
d. Successors and Assigns. The rights and
obligations of the Company under this Agreement shall inure to the benefit of
and shall be binding upon the successors and assigns of the Company. Executive
shall not be entitled to assign any of his rights or obligations under this
Agreement.
e. Notices. All notices required or permitted under
this Agreement shall be in writing and shall be deemed effective upon personal
delivery, on the date of scheduled delivery by a nationally recognized overnight
service or two (2) days after deposit in the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the other party at
the address shown below such party's signature, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 6.e.
f. Entire Agreement. This Agreement, including the
exhibits attached hereto, constitutes the entire agreement between the parties
with respect to the employment of Executive. The Employment Agreement by and
between Executive and Acute Therapeutics, Inc., dated October 1, 1996, is hereby
terminated and shall be of no further force or effect and that he shall have no
further rights under said agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date set forth above.
DISCOVERY LABORATORIES, INC.
/s/ Steve H. Kanzer
_____________________________
By: Steve H. Kanzer
Its: Director (on behalf of
the Board of Directors)
Address: 787 Seventh Avenue
New York, New York 10019
EXECUTIVE:
/s/ Robert J. Capetola
_____________________________
Robert Capetola, Ph.D.
Address: 6097 Hidden Valley Drive
Doylestown, PA 18901
ACUTE THERAPEUTICS, INC. (for
purposes of Section 6.f. only)
/s/ Robert J. Capetola
_____________________________
By: Robert J. Capetola, Ph.D.
Its: President and Chief
Executive Officer
Address: 3359 Durham Road
Doylestown, PA 18901
Exhibit 99.1
Company Press Release
Discovery Laboratories Completes Merger With Acute Therapeutics
DOYLESTOWN, PA--(BW HealthWire)--June 17 1998--Discovery Laboratories, Inc.
(Discovery) (NASDAQ Small Cap: DSCO - news, DSCOU - news) announced today that
shareholders ratified the merger with its majority-owned subsidiary, Acute
Therapeutics, Inc. (ATI). Shareholders voted in favor of the merger, at the
Annual Shareholders meeting. As a result of the merger the management of
Discovery is now assumed by the former ATI management team. Robert J. Capetola,
Ph.D., formerly CEO of ATI, is now the CEO of the combined company.
Dr. Capetola, said, "We are very excited about the new simplified corporate
structure of Discovery. This merger will allow us to continue the accelerated
development of Surfaxin in our pivotal Phase 3 direct ARDS (acute respiratory
distress syndrome) trial." Capetola continued, "Our primary objective in this
merger was to join and focus our resources on the development of the combined
Company's portfolio compounds."
Pursuant to this merger Discovery acquired all outstanding shares of common
stock of ATI through a merger of ATI Acquisition Corp. into ATI. The merger
results in 100% ownership by Discovery of ATI's product portfolio and is
expected to strengthen Discovery's drug development team and consolidate
development activities. Discovery's headquarters have been relocated to ATI's
Doylestown, PA location. As a result of the merger, the stockholders of ATI will
be issued 3.90 shares of Discovery common stock in exchange for each share of
ATI common stock held by them prior to the transaction.
Evan Myrianthopoulos, Vice President of Finance commented, "Obtaining 100%
ownership of the Surfaxin technology is an important milestone for the Company.
At the same time, we have fortified our company by gaining ATI's drug
development expertise."
Discovery's lead product in development is Surfaxin for the treatment of direct
ARDS. Surfaxin is a novel, proprietary, peptide-containing lung surfactant
invented at The Scripps Research Institute and initially developed by Johnson &
Johnson. The peptide is KL4 (sinapultide), a 21 amino acid peptide modeled after
the important human surfactant protein B. Lung surfactants are protein-lipid
complexes that coat the airsacs of the lung and facilitate oxygen exchange with
blood. ARDS is an acute generalized inflammatory disease of the lung affecting
approximately 150,000 persons per year in the U.S. and has an associated
mortality rate of approximately 50%. Surfaxin is also the subject of an ongoing
Phase 2 trial in meconium aspiration syndrome (MAS) in newborn infants.
Discovery Laboratories, Inc. is a biopharmaceutical company whose mission is to
develop and commercialize medically novel therapeutics for critical care.
Presently, Discovery is developing proprietary pharmaceuticals to treat direct
ARDS, MAS, idiopathic respiratory distress syndrome (IRDS), postmenopausal
osteoporosis and cystic fibrosis. Discovery has a novel vitamin D
<PAGE>
analog for postmenopausal osteoporosis called ST-630, which is currently in a
Phase 1B clinical trial in postmenopausal women. Discovery is actively seeking a
partner to develop ST-630 worldwide. Phase 1/2 clinical trials of SuperVent,
Discovery's novel nebulized product for the treatment of cystic fibrosis, are
also underway. More information about Discovery is available on the company's
web site at: "http://www.discoverylabs.com"
To the extent that statements in this press release are not strictly historical,
including statements as to future financial conditions, events conditioned on
stockholder or other approval, or otherwise as to future events, such statements
are forward-looking, and are made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. The forward-looking statements contain
in this release are subject to certain risks and uncertainties that could cause
actual results to differ materially from the statements made. Among the factors
which could affect the Company's actual results and could cause results to
differ from those contained in the forward-looking statements contained herein
are the risk that financial conditions may change, risks relating to the
progress of the Company's research and development and the development of
competing therapies and/or technologies by other companies. Those associated
risks and others are further described in the Company's filings with the
Securities and Exchange Commission.
Contact:
DISCOVERY LABORATORIES, Inc.
Evan Myrianthopoulos, Vice President of Finance
212.223.9504
or
Investor Contact: Dian Griesel, Ph.D.
The Investor Relations Group, Inc.
212/664-8489
