Exhibit 1.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
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21, 2000, among Depomed, Inc., a California corporation (the "Company"), and
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Elan International Services, Ltd., a Bermuda exempted limited liability company
("EIS"), and a wholly owned subsidiary of Elan Corporation, plc, an Irish public
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limited company ("Elan").
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R E C I T A L S:
A. The Company desires to issue and sell to EIS, and EIS desires to
purchase from the Company, (i) 12,015 shares of a newly-created series of the
Company's Preferred Stock, no par value per share, captioned "Series A
Convertible Exchangeable Preferred Stock" (the "Series A Preferred Stock"), (ii)
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714,286 shares of the Company's common stock, no par value per share (the
"Common Stock"; together with the Series A Preferred Stock, the "Shares"),
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subject to adjustment. In addition, EIS has agreed to lend certain funds to the
Company pursuant to a convertible promissory note in the form attached hereto as
Exhibit A (as amended at any time, the "Note"; together with the Shares, the
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"Securities"), with a maximum aggregate principal amount of U.S.$8,010,000,
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amounts in respect of which shall be disbursed in accordance with its terms and
subject to the conditions contained herein and therein. The rights, preferences
and privileges of the Series A Preferred Stock are as set forth in the
Certificate of Determination of Preferences and Rights (the "Certificate of
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Designations"), the form of which is attached hereto as Exhibit B.
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B. The Company and EIS have formed DepoMed Development Ltd., an
exempted limited liability company incorporated under the laws of Bermuda
("Newco"), and pursuant to the terms of a Subscription, Joint Development and
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Operating Agreement, dated as of the date hereof (as amended at any time, the
"JDOA"), simultaneously with the transactions contemplated by this Agreement,
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(i) the Company shall acquire 6,000 voting common shares of Newco, par value
U.S.$1.00 per share (the "Newco Common Shares"), representing 100% of the
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outstanding shares of such class of stock, and 3,612 non-voting convertible
preference shares of Newco, par value of U.S.$1.00 (the "Newco Preferred
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Shares"; together with the Newco Common Shares, the "Newco Shares"),
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representing 60.2% of the aggregate outstanding shares of Newco Preferred Shares
and, on a fully diluted basis 30.1% of the aggregate outstanding shares of Newco
Shares, and (ii) EIS shall acquire 2,388 shares of Newco Preferred Shares
representing 39.8% of the aggregate outstanding shares of Newco Preferred Shares
and, on a fully diluted basis 19.9% of the aggregate outstanding shares of the
Newco Shares. Additionally, as of the date hereof, Newco has entered into
license agreements with (i) Elan and its subsidiary Elan Pharma International
Limited (such agreements, as amended at any time, collectively the "Elan License
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Agreement"), and (ii) the Company (such agreement, as amended at any time, the
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"Company License Agreement"; together with the Elan License Agreement, the
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"License Agreements").
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THE SYMBOL "[**]" IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
C. The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement, in the form attached hereto as Exhibit C
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(as amended at any time, the "Company Registration Rights Agreement"), in
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respect of the Common Stock issued or issuable upon (i) conversion of the Series
A Preferred Stock and/or the Note and (ii) the Common Stock being issued and
purchased hereunder, and any other Common Stock issued to EIS or any of its
affiliates or permitted transferees upon any stock split, stock dividend,
recapitalization or similar event affecting the Securities. The Company, EIS
and Newco are also executing and delivering on the date hereof a Registration
Rights Agreement in the form attached hereto as Exhibit D (as amended at any
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time, the "Newco Registration Rights Agreement"), in respect of the purchase of
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Newco Common Shares and Newco Preferred Shares by the Company and EIS. The
Company and EIS are executing and delivering on the date hereof an Escrow
Agreement in the form attached hereto as Exhibit E(as amended at any time, the
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"Escrow Agreement"). Additionally, the Company and EIS are executing and
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delivering on the date hereof a Funding Agreement in the form attached hereto as
Exhibit F (the "Funding Agreement;" and, together with this Agreement, the
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Certificate of Designations, the JDOA, the Company Registration Rights
Agreement, the Newco Registration Rights Agreement, the License Agreements, the
Escrow Agreement and each other document or instrument executed and delivered in
connection with the transactions contemplated hereby and by the JDOA, the
"Transaction Documents").
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A G R E E M E N T:
The parties hereto agree as follows:
SECTION 1. Closing.
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(a) Time and Place. The closing of the transactions contemplated
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hereby (the "Closing") shall occur on the date hereof (the "Closing Date"), at
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the offices of Xxxxx Xxxxxxxxxxx LLC, 000 Xxxxx Xxxxxx, 00/xx/ Xxxxx, Xxx Xxxx,
Xxx Xxxx 00000.
(b) Issuance of Securities. At the Closing, the Company shall issue
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and sell to EIS, and EIS shall purchase from the Company: (i) 12,015 shares of
Series A Preferred Stock and (ii) 714,286 shares of Common Stock.
(c) Purchase Price. The purchase price (the "Purchase Price") for the
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Securities shall be the sum of (i) U.S. $12,015,000, the purchase price for the
Series A Preferred Stock and (ii) U.S. $5,000,000, the purchase price for the
Common Stock.
(d) Convertible Note Facility. EIS shall lend up to U.S.$8,010,000 to
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the Company pursuant to the terms and conditions of the Note.
(e) Delivery. At the Closing:
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(i) EIS shall pay the Purchase Price by wire transfer to an
account designated by the Company and the parties hereto shall execute and
deliver to each other, as applicable: (A) certificates for the Series A
Preferred Stock and the Common Stock;
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(B) the Note; (C) the Company Registration Rights Agreement; (D) the Newco
Registration Rights Agreement; (E) the JDOA; (F) the Certificate of
Designations, as filed with the Secretary of State of the State of
California; (G) the License Agreements; (H) the Escrow Agreement; (I) the
Funding Agreement; (J) certificates as to the incumbency of the officers of
the Company executing any of the Transaction Documents; and (J) any other
documents or instruments reasonably requested by a party hereto; and
(ii) The Company shall cause to be delivered to EIS an
opinion of counsel in the form attached hereto as Exhibit G.
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(f) Exemption from Registration. The Securities and any underlying
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shares of Common Stock will be issued under an exemption or exemptions from
registration under the Securities Act of 1933, as amended (the "Securities
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Act"). Accordingly, the certificates evidencing the Series A Preferred Stock and
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the Common Stock, the Note and any shares of Common Stock or other securities
issuable upon the exercise, conversion or exchange of any of the Securities
shall, upon issuance, contain a legend, substantially in the form as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND NO INTEREST MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
STATE SECURITIES LAWS OR THIS CORPORATION RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO THIS CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS ALSO SUBJECT TO THE RESTRICTIONS CONTAINED IN
THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF
JANUARY 21, 2000, BY AND BETWEEN DEPOMED, INC. AND ELAN
INTERNATIONAL SERVICES, LTD.
SECTION 2. Representations and Warranties of the Company. The
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Company hereby represents and warrants to EIS, as of the date hereof, as
follows:
(a) Organization. The Company is duly organized, and validly existing
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under the laws of the state of California and has all requisite corporate power
and authority to own and lease its properties, to carry on its business as
presently conducted and as proposed to be conducted and to consummate the
transactions contemplated hereby. The Company is duly qualified as a foreign
corporation and in good standing to do business in each jurisdiction in
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which the nature of the business conducted or the property owned by it requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, liabilities (contingent or otherwise), operations, condition
(financial or otherwise), or prospects of the Company (a "Company Material
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Adverse Effect").
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(b) Capitalization. As of the Closing Date, the Company has reserved
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a sufficient number of shares of Common Stock (i) for issuance upon conversion
of the Series A Preferred Stock being purchased hereunder by EIS (including
dividends thereon), and (ii) for issuance upon conversion of the Note (including
interest payable thereon). The Shares, when issued against payment therefor in
accordance with this Agreement, will be duly and validly issued, fully paid and
nonassessable, and will not be issued in violation of any preemptive or similar
rights. The shares of Common Stock underlying the Series A Preferred Stock and
the Note (the "Underlying Shares"), when issued upon conversion or exercise in
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accordance with the terms thereof, will be duly and validly issued, fully paid
and nonassessable, and will not be issued in violation of any preemptive or
similar rights.
(c) Authorization of Transaction Documents. The Company has full
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corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery and performance by
the Company of this Agreement and each of the other Transaction Documents to
which it is a party, including the issuance and sale of the Securities, have
been duly authorized by all requisite corporate action by the Company and, when
executed and delivered by the Company, this Agreement and each of the other
Transaction Documents to which it is a party will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
(d) No Violation. The execution, delivery and performance by the
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Company of this Agreement and each other Transaction Document to which it is a
party, including the issuance and sale of the Securities, and compliance with
the provisions hereof and thereof by the Company, does not conflict with or
constitute or result in a breach of or default under (or an event which with
notice or passage of time or both would constitute a default) or give rise to
any right of termination, cancellation or acceleration under (i) the Articles of
Incorporation, as amended, or by-laws, of the Company, (ii) applicable law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, arbitrator, administrative agency or other governmental
body applicable to the Company or any of its properties or assets, or (iii) any
material contract or agreement affecting the Company, including any contract
filed or required by applicable law to be filed as an exhibit to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998 (the "1998
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Form 10-KSB") or any subsequent interim quarterly report, except where such
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breach, default, termination, cancellation or acceleration would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(e) Approvals. No material permit, authorization, consent, approval,
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or order of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement or the Transaction Documents,
including the issuance and sale of the Securities, by the Company other
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than the filing of a Form D by the Company pursuant to Regulation D under the
Securities Act ("Regulation D").
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(f) SEC Filings. The Company has filed with the Securities and
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Exchange Commission (the "SEC") all forms, reports, schedules, statements,
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exhibits and other documents (collectively, the "SEC Filings") required to be
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filed by the Company on or before the date hereof. At the time filed, the SEC
Filings, including without limitation, any financial statements, exhibits and
schedules included therein or documents incorporated therein by reference (i)
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 light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be.
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(g) Financial Statements. The audited balance sheets of the Company
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at December 31, 1998 and 1997, together with the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the two
years ended December 31, 1998 and 1997, together with the reports and opinions
thereon of Ernst & Young LLP, contained in the 1998 Form 10-KSB, comply as to
form in all material respects with applicable accounting requirements, and
fairly present, in all material respects, the financial position of the Company
and the results of its operations and its cash flows at such dates and for the
years then ended and were prepared in conformity in all material respects with
generally accepted accounting principles applied on a consistent basis.
(h) Litigation. There is no legal, administrative, arbitration or
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other action or proceeding or governmental or investigation pending, or to the
Company's knowledge, threatened against the Company, or any director, officer or
employee of the Company that challenges the validity or performance of this
Agreement or the other Transaction Documents to which the Company is a party.
(i) Absence of Certain Events. Since December 31, 1998, except as
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contemplated by the Transaction Documents or as set forth on Schedule 2(i)
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hereto, (A) the Company has not (i) made, paid or declared any dividend or
distribution to any equity holder (in such capacity) or redeemed any of its
capital stock, (ii) varied its business plan or practices, in any material
respect, from past practices, (iii) entered into any financing, joint venture,
license or similar arrangement that would limit or restrict its ability to
perform its obligations hereunder and under each of the other Transaction
Documents to which it is a party, or (iv) suffered or permitted to be incurred
any liability or obligation or any lien or encumbrance against any of its
properties or assets that would limit or restrict its ability to perform its
obligations hereunder and under each of the other Transaction Documents to which
it is a party, and (B) there has not been any change or development which has
had, or in the Company's reasonable judgment is likely to have, a Company
Material Adverse Effect except as disclosed on Schedule 2(i) hereto.
(j) Disclosure. The representations and warranties set forth herein
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and in the other Transaction Documents, when viewed collectively, do not contain
any untrue statement of
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a material fact or omit to state any material fact necessary to make the
statements contained herein not misleading in light of the circumstances in
which they were made.
(k) Brokers or Finders. There have been no investment bankers,
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brokers or finders used by the Company in connection with the transactions
contemplated by the Transaction Documents and no persons or entities are
entitled to a fee or compensation in respect thereof.
SECTION 3. Representation and Warranties of EIS. EIS hereby
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represents and warrants to the Company, as of the date hereof, as follows:
(a) Organization. EIS is duly organized, validly existing and in good
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standing under the laws of Bermuda and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as presently
conducted and as proposed to be conducted and to consummate the transactions
contemplated hereby. EIS is duly qualified as a foreign corporation and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to be so qualified would not, individually or in the aggregate, have
a material adverse effect on the business, assets, liabilities (contingent or
otherwise), operations, condition (financial or otherwise), or prospects of EIS
(an "EIS Material Adverse Effect").
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(b) Authorization of Transaction Documents. EIS has full corporate
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power and authority to execute and deliver this Agreement and each of the other
Transaction Documents to which it is a party, and to perform its obligations
hereunder and thereunder. The execution, delivery, and performance by EIS of
this Agreement and each other Transaction Document to which it is a party,
including the purchase and acceptance of the Securities, have been duly
authorized by all requisite corporate action by EIS and, when executed and
delivered by EIS, this Agreement and each of the other Transaction Documents to
which it is a party, will be the valid and binding obligations of EIS,
enforceable against it in accordance with their respective terms.
(c) No Violation. The execution, delivery and performance by EIS of
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this Agreement and each other Transaction Document to which it is a party,
including the purchase and acceptance of the Securities, and compliance with
provisions hereof and thereof by EIS, will not conflict with or constitute or
result in a breach of or default under (or an event which with notice or passage
of time or both would constitute a default) or give rise to any right of
termination, cancellation or acceleration under (i) the Memorandum and Articles
of Association of EIS, (ii) applicable law, statute, rule or regulation, or any
ruling, writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency or other governmental body applicable to EIS or any of its
properties or assets, or (iii) any material contract to which EIS is a party,
except where such breach, default, termination, cancellation or acceleration
would not, individually or in the aggregate, have an EIS Material Adverse
Effect.
(d) Approvals. Except for consent required under the Merger and
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Takeover (Control) Act 1978-1996 (Ireland), no material permit, authorization,
consent, approval or order of or by, or any notification of or filing with, any
person or entity (governmental or otherwise) is
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required in connection with the execution, delivery or performance of this
Agreement or the Transaction Documents by EIS.
(e) Investment Representations.
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(i) EIS is sophisticated in transactions of this type and
capable of evaluating the merits and risks of the transactions described
herein and in the other Transaction Documents to which it is a party, and
has the capacity to protect its own interests. EIS has not been formed
solely for the purpose of entering into the transactions described herein
and therein and is acquiring the Securities (and the Underlying Shares) for
investment for its own account, not as a nominee or agent, and not with the
view to, or for resale, distribution or fractionalization thereof, in whole
or in part, and no other person (other than Elan) has a direct or indirect
interest, beneficial or otherwise in the Securities (or the Underlying
Shares); provided, however, that EIS shall be permitted to convert or
exchange such Securities in accordance with their terms.
(ii) EIS has not and does not intend to enter into any
contract, undertaking, agreement or arrangement with any person or entity
to sell, transfer or pledge the Securities (or the Underlying Shares).
(iii) EIS acknowledges its understanding that the private
placement and sale of the Securities (and the Underlying Shares) is exempt
from registration under the Securities Act by virtue of the provisions of
Regulation D and Section 4(2) of the Securities Act. In furtherance
thereof, EIS represents and warrants that it is an "accredited investor" as
that term is defined in Regulation D, has the financial ability to bear the
economic risk of its investment, has adequate means for providing for its
current needs and personal contingencies and has no need for liquidity with
respect to its investment in the Company.
(iv) EIS agrees that it shall not sell or otherwise
transfer any of the Securities (or the Underlying Shares) without
registration under the Securities Act or pursuant to an opinion of counsel
reasonably satisfactory to the Company that an exemption from registration
is available, and fully understands and agrees that it must bear the total
economic risk of its purchase for an indefinite period of time because,
among other reasons, none of the Securities (or the Underlying Shares) have
been registered under the Securities Act or under the securities laws of
any applicable state or other jurisdiction and, therefore, cannot be
resold, pledged, assigned or otherwise disposed of unless subsequently
registered under the Securities Act and under the applicable securities
laws of such states or jurisdictions or an exemption from such registration
is available. EIS understands that the Company is under no obligation to
register the Securities (or the Underlying Shares) on its behalf with the
exception of certain registration rights with respect to certain of the
Securities (and the Underlying Shares), as provided in the Company
Registration Rights Agreement. EIS understands the lack of liquidity and
restrictions on transfer of the Securities (and the Underlying Shares) and
that this investment is suitable only for a person or entity of adequate
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financial means that has no need for liquidity of this investment and that
can afford a total loss of its investment.
(f) Litigation. There is no legal, administrative, arbitration or
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other action or proceeding or governmental investigation pending, or to EIS's
knowledge threatened, against EIS that challenges the validity or performance of
this Agreement or the other Transaction Documents to which EIS is a party.
(g) Brokers or Finders. There have been no investment bankers,
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brokers or finders used by EIS in connection with the transactions contemplated
by the Transaction Documents and no persons or entities are entitled to a fee or
compensation in respect thereof.
(h) Disclosure. The representations and warranties set forth herein
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and in the other Transaction Documents, when viewed collectively, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained herein not misleading in light of the
circumstances in which they were made.
SECTION 4. Covenants of the Parties.
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(a) Certain Covenants. From and after the Closing Date for so long as
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the Note remains outstanding and until the earlier to occur of the exercise or
expiration of the EIS Exchange Right (as such term is defined in Section 5
hereof), the Company shall not without the prior written consent of EIS: (i)
sell, transfer, encumber, pledge or otherwise affect, in any respect, (A) any
shares of Newco Preferred Shares owned by the Company, including, without
limitation, those shares of Newco Preferred Shares transferable to EIS upon
exercise by EIS of the EIS Exchange Right, or (B) affect, in any respect, the
Company's ability to permit EIS to exercise the EIS Exchange Right in full, as
provided herein or (ii) enter into any material transaction with a director,
officer or more than [**]% beneficial owner of Common Stock on other than an
arm's length basis.
(b) Fully-diluted Stock Ownership. Notwithstanding any other
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provision of this Agreement, in the event that EIS shall have determined that at
any time it (together with its affiliates, if applicable) holds or has the right
to receive Common Stock (or securities or rights, options or warrants
exercisable, exchangeable or convertible for or into Common Stock) representing
in the aggregate in excess of [**]% of the Company's outstanding Common Stock on
a fully diluted basis, EIS shall have the right to convert the Series A
Preferred Stock and the Note into other junior, non-voting securities of the
Company such that EIS and its affiliates will not directly or indirectly own
more than [**]% of the Common Stock for a period of at least two years from the
election of the conversions of the Series A Preferred Stock or the Note. Each of
the Company and EIS shall use commercially reasonable efforts to effect such
transactions and any required subsequent conversions or adjustments to EIS's
securities position, on a quarterly basis, within 15 business days of the end of
each of EIS's fiscal quarters.
(c) Use of Proceeds. The Company shall use the proceeds of (i) the
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issuance and sale of the Series A Preferred Stock solely to fund its initial
capital contributions to and funding of Newco as described in the JDOA, and (ii)
the issuance and funding of the Note solely to fund
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development amounts in connection with the business of Newco, as described in
the Funding Agreement; and, in each case, for no other purpose.
(d) Confidentiality; Non-Disclosure.
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(i) Subject to clauses (ii) and (iii) below, from and
after the date hereof, neither the Company nor EIS (nor their respective
affiliates) shall disclose to any person or entity this Agreement or the
other Transaction Documents or the contents thereof or the parties thereto,
except that such parties may make such disclosure (x) to their directors,
officers, employees and advisors, so long as they shall have advised such
persons of the obligation of confidentiality herein and for whose breach or
default the disclosing party shall be responsible, (y) as required by
applicable law, rule, regulation or judicial or administrative process,
provided that the disclosing party uses reasonable efforts to obtain an
order or ruling protecting the confidentiality of confidential information
of the other party contained herein or therein, except as may be required
by law, in the written opinion of such party's outside legal counsel or (z)
to the American Stock Exchange. The parties shall be entitled to seek
injunctive or other equitable relief in respect of any breach or threatened
breach of the foregoing covenant without the requirement of posting a bond
or other collateral.
(ii) Prior to issuing any press release or public
disclosure in respect of this Agreement or the transactions contemplated
hereby, the party proposing such issuance except as maybe required by law,
in the written opinion of such party's outside legal counsel, shall obtain
the consent of the other party to the contents thereof, which consent shall
not be unreasonably withheld or delayed; it being understood that if such
second party shall not have responded to such consent request within two
business days, such consent shall be deemed given.
(iii) This Section 4(d) shall not be construed to prohibit
disclosure by the receiving party of any information which has not been
previously determined to be confidential by the disclosing party, or which
shall have become publicly disclosed (other than by breach of the receiving
party's obligations hereunder).
(e) Further Assurances. From and after the date hereof, each of the
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parties hereto agree to do or cause to be done such further acts and things and
deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable to carry into effect the purposes of this Agreement and the other
Transaction Documents.
SECTION 5. Certain Rights of EIS. (a) Preemptive Right. Until
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the [**] anniversary of the date hereof, EIS shall have the right (but not the
obligation) to participate in any equity, warrant, or convertible or
exchangeable for equity financing consummated by the Company, in order for EIS
to maintain its pro rata interest in the Company, based on the actual number of
shares of Common Stock outstanding on the date such financing is consummated;
provided, that such right shall not apply to any public offering under the
Securities Act, offering under an option plan, or other stock plan, asset or
company acquisition paid for, in whole or in
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part, in shares of stock, or issuances of warrants to purchase shares of stock
as part of an equipment financing. Such right shall be exercised by EIS within
15 days of receipt of notice of such financing from the Company. Such
participation by EIS shall be on the same terms and conditions offered to any
other potential investor in such offering.
(b) Company Board of Directors. For so long as (i) EIS and/or its
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affiliates or subsidiaries collectively own securities that represent ownership
of at least [**]% of the Common Stock (or securities convertible, exchangeable
or exercisable for or into the Common Stock) on a fully diluted basis (assuming
the exercise, conversion or exchange by EIS and its affiliates), EIS shall be
entitled to nominate one director (the "EIS Director") for election to the
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Company's Board who shall be reasonably acceptable to the Company. In
connection with the foregoing, the Company will take all necessary and/or
appropriate steps to effect such appointment, including the inclusion of the
designated EIS Director on the recommended slate of directors presented at any
regular or special meeting of the stockholders of the Company at which directors
of the Company are to be elected. Prior to such election, the designated EIS
Director shall be entitled to be an observer at the meetings of the Company's
board of directors.
(c) Conversion and Exchange Rights. (i) The Certificate of
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Designations sets forth certain rights of the holders of shares of Series A
Preferred Stock to convert such shares of preferred stock into newly issued
shares of Common Stock. In addition to such rights, the holders of the
Series A Preferred Stock shall have the right to exchange such shares of
Series A Preferred Stock for certain shares of Newco Stock owned by the
Company (the "EIS Exchange Right"), on the terms and conditions set forth
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below.
(ii) Provided that (a) none of the shares of Series A Preferred
Stock initially issued and sold by the Company to EIS have been converted
(but not including any of the accrued and unpaid dividends thereon), as
provided in Section 4 of the Company's Certificate of Designations, and (b)
the Exchange Termination Date (as defined below) shall not have occurred,
the holders of the Series A Preferred Stock (acting by act of the majority
holders thereof) shall have the right to exchange all of their shares of
Series A Preferred Stock (but not including any of the accrued and unpaid
dividends thereon) of the Company initially for 3,612 shares of non-voting
convertible preferred shares ("the Preferred Shares") (as adjusted for any
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combinations or divisions or similar recapitalizations) of Newco, held by
the Company, so that, in any event, after giving effect to the exercise of
the EIS Exchange Right, EIS and the Company will each hold 50% of the total
outstanding share capital of Newco, on a fully diluted basis, assuming that
neither EIS nor the Company has sold any shares of Newco. Upon exercise of
the EIS Exchange Right, the Preferred Shares held by the Company shall be
transferred legally and beneficially to EIS. Such Preferred Shares may be
converted into common shares of Newco on a one-for-one basis at any time
after the [**] anniversary of the Original Issue Date and shall be
converted immediately upon the exercise of the Exchange Right, provided
that such exercise occurs after the [**] anniversary of the Original Issue
Date.
(iii) The rights of the holders to exercise the EIS Exchange
Right shall terminate and be of no further force and effect on the date
that is six years after the date
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of the first issuance of any shares of the Series A Preferred Stock
hereunder (the "Exchange Termination Date").
-------------------------
(iv) Upon exercise of the EIS Exchange Right, the shares of
Series A Preferred Stock originally purchased from the Company, but not
including any of the accrued and unpaid dividends thereon (all of which
shall remain outstanding), shall be canceled and shall no longer be
entitled to any rights in the Company.
(v) If any shares of the Series A Preferred Stock (other than
shares in respect of accrued dividends) are converted pursuant to Section
4(a) of the Certificate of Designations, to shares of Common Stock, the EIS
Exchange Right with respect to the shares of Series A Preferred Stock
originally purchased from the Company, but not including any of the accrued
and unpaid dividends thereon, shall be canceled and shall no longer be
entitled to any rights in the Company.
(vi) In order to exercise the EIS Exchange Right, the holders
shall provide written notice thereof to the Company, setting forth (a) the
fact that such holders intend to exercise the EIS Exchange Right, and (b)
the proposed date for such exercise (the "Exercise Date"), which shall be
-------------
between 10 and 30 days after the date of such notice. On the Exercise
Date, (y) such holders shall tender their shares of Series A Preferred
Stock to the Company for cancellation, and (z) the Company shall cause to
be delivered to EIS, acting on behalf of such holders, such shares of
Newco. The holders and the Company shall take all other necessary or
appropriate actions in connection with or to effect such closing.
(vii) The provisions of this Section5(c) shall be applicable to
subsequent holders of the Series A Preferred Stock.
SECTION 6. Pledge of Newco Stock. In order to secure the Company's
---------------------
obligations pursuant to the EIS Exchange Right, the Company hereby deposits with
Xxxxx Xxxxxxxxxxx LLC, as escrow agent (the "Escrow Agent"), pursuant to the
------------
Escrow Agreement, all of the Company's Newco Shares deliverable by the Company
upon exercise of the EIS Exchange Right (including share distributions and
dividends thereon) (if EIS elects the option in Section 5(c)(i)), together with
stock powers attached, for such period of time as the EIS Exchange Right shall
be exercisable. The Company shall cause to be delivered to the Escrow Agent, on
the date hereof, all of the certificates evidencing such shares, together with
duly executed stock powers in favor of EIS. Upon exercise of the EIS Exchange
Right, the Escrow Agent shall deliver to EIS, upon surrender by EIS of all of
the Series A Preferred Stock to be exchanged therefor to the Company as the
owner thereof for cancellation, such share certificates, which shall then be
owned by EIS in accordance with the terms thereof. Until EIS exercises the EIS
Exchange Right, the Company shall retain all rights in and to the pledged Newco
Common Shares (including without limitation all voting, dividend, liquidation
and other rights), subject only to this pledge and the JDOA.
SECTION 7. Survival and Indemnification.
-----------------------------
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(a) Survival. The representations and warranties of the Company and
--------
EIS contained herein shall survive for a period of 12 months from and after the
date hereof.
(b) Indemnification. In addition to all rights and remedies
---------------
available to the parties hereto at law or in equity, the parties (each in such
capacity, "Indemnifying Party"; together, "Indemnifying Parties") shall
------------------ --------------------
indemnify each other as corporate entities (EIS and the Company), their
stockholders, officers, directors and assigns, their affiliates, and their
affiliates' stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the "Indemnified
-----------
Person"), and save and hold each Indemnified Person harmless from and against
------
and pay on behalf of or reimburse each such Indemnified Person, as and when
incurred, for any and all loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not
arising out of any claims by or on behalf of such Indemnified Person or any
third party, including interest, penalties, reasonable attorneys' fees and
expenses and all amounts paid in investigation, defense or settlement of any of
the foregoing (collectively, "Losses"), that any such Indemnified Person may
------
suffer, sustain incur or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on the part of
the Indemnifying Party in the case of the Company under Section 2 of this
Agreement or in the case of EIS under Section 3 of this Agreement or any of the
other Transaction Documents (as limited thereby)(it being understood that the
Company shall not be responsible for any such misrepresentation or breach of
warranty by Newco); or
(ii) any nonfulfillment, default or breach of any covenant or
agreement on the part of the Indemnifying Party under Section 4 of this
Agreement or any of the other Transaction Documents.
(c) Maximum Recovery. Notwithstanding anything in this Agreement
----------------
to the contrary, in no event shall the Indemnifying Parties be liable in the
case of the Company for indemnification under this Section 7 in an amount in
excess of the aggregate of the purchase price paid for the Shares and the
amounts advanced and not repaid under the Note or in the case of EIS for
indemnification hereunder in an amount in excess of the Company's costs and
expenses incurred in connection with the transactions contemplated hereby. No
Indemnified Person shall assert any such claim unless Losses in respect thereof
incurred by any Indemnified Person, when aggregated with all previous Losses
hereunder, equal or exceed U.S.$50,000, but at such time that an Indemnified
Person is entitled to assert a claim, such claim shall include all Losses
covered by this Section 7.
(d) Exception. Notwithstanding the foregoing, upon judicial
---------
determination that is final and no longer appealable, that the act or omission
giving rise to the indemnification set forth above resulted primarily out of or
was based primarily upon the Indemnified Person's negligence (unless such
Indemnified Person's negligence was based upon the Indemnified Person's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the Indemnifying Party herein) the Indemnifying Party shall not be
responsible for any Losses sought to be indemnified in connection therewith, and
the Indemnifying Party shall be entitled to recover from the Indemnified Person
all amounts previously paid in full or partial
12
satisfaction of such indemnity, together with all costs and expenses (including
reasonable attorneys fees) of the Indemnifying Party reasonably incurred in
connection with the Indemnified Persons claim for indemnity, together with
interest at the rate per annum publicly announced by Xxxxxx Guaranty Trust
Company as its prime rate from the time of payment of such amounts to the
Indemnified Person until repayment to the Indemnifying Party.
(e) Investigation. All indemnification rights hereunder shall
-------------
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 7(g) below,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.
(f) Contribution. If the indemnity provided for in this Section 7
------------
shall be, in whole or in part, unavailable to any Indemnified Person, due to
Section 7(b) being declared unenforceable by a court of competent jurisdiction
based upon reasons of public policy, so that Section 7(b) shall be insufficient
to hold each such Indemnified Person harmless from Losses which would otherwise
be indemnified hereunder, then the Indemnifying Party and the Indemnified Person
shall each contribute to the amount paid or payable for such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Indemnifying Party on the one hand and the Indemnified Person on the
other, but also the relative fault of the Indemnifying Party and be in addition
to any liability that the Indemnifying Party may otherwise have. The indemnity,
contribution and expense reimbursement obligations that the Indemnifying Party
has under this Section 7 shall survive the expiration of the Transaction
Documents. The parties hereto further agree that the indemnification and
reimbursement commitments set forth in this Agreement shall apply whether or not
the Indemnified Person is a formal party to any such lawsuit, claims or other
proceedings.
(g) Limitation. No claim shall be brought by an Indemnified Person
----------
in respect of any misrepresentation or breach of warranty under this Agreement
after 12 months from the date hereof; and any claim for nonfulfillment, default
or breach of any covenant or any misrepresentation shall be brought within one
year of the date that such Indemnified Person became aware or should have become
aware of the nonfulfillment, default or breach. Except as set forth in the
previous sentence and in Section 7(c) above, this Section 7 is not intended to
limit the rights or remedies otherwise available to any party hereto with
respect to this Agreement or the Transaction Documents.
SECTION 8. Withholding Taxes. The parties agree that the Company may
-----------------
be required under U.S. tax laws to withhold from any payments of interest on the
Notes or dividends on the Shares appropriate withholding taxes to be paid to
jurisdictions of the United States. The parties agree to cooperate to minimize
the amount of such withholding taxes, if any, and to consult with each other for
this purpose from time to time.
13
SECTION 9. Notices. All notices, demands and requests of any kind to
-------
be delivered to any party in connection with this Agreement shall be in writing
and shall be deemed to have been duly given if personally or hand delivered or
if sent by an internationally-recognized overnight delivery or by registered or
certified mail, return receipt requested and postage prepaid, or by facsimile
transmission addressed as follows:
(i) if to the Company, to:
DepoMed, Inc.
000 Xxxxxxxx Xxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx White & XxXxxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxx, Esq.
Facsimile: 000-000-0000
(ii) if to EIS, to:
Elan International Services, Ltd.
Flatts, Smiths Parish
Bermuda, FL 04
Attention: Director
Facsimile: 000-000-0000
with a copy to:
Xxxxx Xxxxxxxxxxx LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
Facsimile: 000-000-0000
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 9. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery service, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted, and (iv) in the case of
facsimile transmission, on the date of telephone confirmation of receipt.
14
SECTION 10. Entire Agreement. This Agreement and the other
----------------
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings among the parties with respect thereto.
SECTION 11. Amendments. This Agreement may not be modified or
----------
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS dated after the date hereof.
SECTION 12. Counterparts and Facsimile. The Transaction Documents
--------------------------
may be executed in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such counterparts together
shall constitute one agreement. Each of the Transaction Documents may be signed
and delivered to the other party by facsimile transmission; such transmission
shall be deemed a valid signature.
SECTION 13. Headings. The section and paragraph headings contained
--------
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of the Agreement.
SECTION 14. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to principles of conflicts of laws except for those provisions of
California law specifically applicable to the issuance of stock and the election
and responsibilities of directors of a California corporation.
SECTION 15. Expenses. Each of the parties shall be responsible for
--------
its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
SECTION 16. Assignments and Transfers. This Agreement and all of the
-------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement,
the shares of Series A Preferred Stock and Common Stock being purchased
hereunder by EIS, the Note, and the shares of Common Stock underlying the Series
A Preferred Stock and the Note may be transferred by EIS to its affiliates and
subsidiaries, as well as any special purpose financing or similar vehicle
established by EIS, provided, however, that EIS shall remain liable for its
obligations hereunder after any such assignment. Other than as set forth above,
no party shall transfer or assign this Agreement, the shares of Series A
Preferred Stock and Common Stock being purchased hereunder by EIS, the Note, and
the shares of Common Stock underlying the Series A Preferred Stock and the Note,
or any interest therein, without the prior written consent of the other party.
SECTION 17. Schedules, etc. All statements contained in any exhibit
--------------
or schedule delivered by the parties hereto, or in connection with the
transaction contemplated hereby, are an integral part of this Agreement and
shall be deemed representations and warranties hereunder.
15
SECTION 18. Severability. In case any provision of this Agreement
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be in any way affected or
impaired thereby.
16
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement as of the date first written above.
DEPOMED, INC.
By: /s/ Xxxx X. Xxxx
--------------------------------
Name: Xxxx X. Xxxx
Title: President & CEO
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Xxxxx Xxxxxx
-----------------------------------
Xxxxx Xxxxxx
President & CFO
[Securities Purchase Agreement]
17
