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 XXXXXXX & XXXXXXX 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
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.
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.
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.
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.
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 0000 Xxx.
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.
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.
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.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
DISCOVERY LABORATORIES, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
_____________________________________
Xxxxxx X. Xxxxxxxx, Ph.D.
President and
Chief Executive Officer
Address: 0000 Xxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
XXXXXXX & XXXXXXX
DEVELOPMENT CORPORATION
/s/ Xxxxx X. Xxxxxxx
_________________________________________
(Signature)
Xxxxx X. Xxxxxxx
_________________________________________
(Print Name)
Address: Xxx Xxxxxxx & Xxxxxxx Xxxxx
Xxx Xxxxxxxxx, Xxx Xxxxxx 00000
9.
