EXHIBIT 10.29
EXECUTION COPY
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.
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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 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.
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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, 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.
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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 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.
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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 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.
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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.
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.
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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
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