CERTAIN PORTIONS HAVE BEEN OMITTED BASED ON
A REQUEST FOR CONFIDENTIAL TREATMENT;
OMITTED PORTIONS FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
SECURITIES PURCHASE AGREEMENT dated as of June 30, 1998, between ELAN
INTERNATIONAL SERVICES, LTD., a Bermuda corporation ("EIS), and SHEFFIELD
PHARMACEUTICALS, INC., a Delaware corporation (the "Company").
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, as provided herein (i) 4,571,428 shares of the
Company's common stock, par value $ .01 per share (the "Common Stock"), and (ii)
a warrant to acquire 990,000 shares (subject to adjustment) of Common Stock at
an exercise price of $2.00 per share, in the form attached hereto as EXHIBIT A
(the "Warrant"), for aggregate consideration of $6,000,000.
B. The Company desires to issue and sell to EIS, and EIS desires to
purchase from the Company, all of the shares of a Series C Convertible Preferred
Stock (the "Series C Preferred") which shall be issued to EIS pursuant to the
Certificate of Designations in the form attached hereto as EXHIBIT B (the
"Certificate of Designations"), for aggregate consideration of $11,500,000 (the
"Original Issue Price").
C. The Company may, in its discretion, issue a new series of
convertible indebtedness, evidenced by a promissory note in the form attached
hereto as EXHIBIT C (the "Convertible Note"; together with the Common Stock, the
Warrant, and the Series C Preferred Stock, the "Securities"), and EIS hereby
agrees to make purchases of the Convertible Note in accordance with the terms
and conditions contained herein, in the event that such debt shall be issued.
D. The Company has previously caused to be formed Systemic Pulmonary
Delivery, Ltd., a Bermuda corporation ("Newco"), and pursuant to the terms of a
subscription agreement (the "Newco Subscription Agreement") has acquired 100% of
the issued and outstanding shares of the common stock of Newco; and, as of the
date hereof, Newco has entered into a license agreement with ELAN CORPORATION,
PLC ("Elan"; the "Elan License Agreement"), and two license agreements with the
Company (respectively, the "Sheffield License Agreement" and the "Newco License
Agreement"; collectively with the Elan License Agreement, the "License
Agreements") for the purpose of developing and commercializing products
incorporating, INTER ALIA, the Enhancing Technology, the UPDASTM Technology, the
Sheffield Technology and the ADDS Technology (as those terms are defined in each
of the License Agreements) relating to the Systemic Pulmonary and Topical
Pulmonary Fields (as those terms are defined in each of the license agreements).
E. The parties intend, as provided herein, that $15,500,000 of the
proceeds of the issuance of the sale of the Common Stock and the Series C
Preferred shall be applied by the Company solely to fund the Company's initial
investment in Newco and subsequent development funding required by Newco, as
provided herein and as set forth in the Newco joint development and operating
agreement dated as of the date hereof by and between Newco, EIS and the Company
(the "Development Agreement"), and that $2,000,000 of such proceeds shall be
retained by the Company as working capital.
F. The Company and EIS are executing and delivering on the date hereof
a Registration Rights Agreement in the form attached hereto as EXHIBIT D (the
"Registration Rights Agreement"; together with this Agreement, the Securities,
the Certificate of Designations, the Development Agreement and each other
document or instrument executed and delivered in connection with the
transactions contemplated hereby, the "Transaction Documents") in respect of the
initial purchase of Common Stock and the Common Stock underlying the Securities
and any other Common Stock that may at any time be acquired or owned by EIS or
its affiliates.
A G R E E M E N T:
The parties agree as follows:
SECTION 1. CLOSINGS. (a) TIME AND PLACE. The closing of the
transactions contemplated hereby (the "Closing") shall occur on the date hereof
(the "Closing Date"), at such place as the parties may agree.
(b) ISSUANCE OF SECURITIES. At the Closing, (x) the Company shall issue
and sell to EIS, and EIS shall purchase from the Company (i) 4,571,428 shares of
Common Stock (the "Initial Common Stock") and (ii) the Warrant, for an aggregate
purchase price of $6,000,000, and (y) 11,500 shares of Series C Preferred for
consideration of $11,500,000.
(c) DELIVERY. At the Closing, EIS shall pay the purchase price for the
Initial Common Stock, the Warrant and the Series C Preferred by wire transfer to
an account or accounts designated by the Company and the parties hereto shall
execute and deliver to each other, as applicable: (i) a certificate or
certificates for the shares of the Initial Common Stock; (ii) the Warrant; (iii)
a certificate or certificates for the shares of the Series C Preferred; (iv)
certificates as to the incumbency of the officers executing this Agreement; and
(vi) each of the other documents or instruments executed in connection herewith.
In addition, at the Closing, the Company shall cause to be delivered to EIS an
opinion of counsel in form attached hereto as EXHIBIT E.
(d) ADDITIONAL CLOSINGS. The Company shall be entitled from time to
time, subject to the conditions herein, to require EIS to purchase all or part
of the Convertible Note in accordance with Section 6 hereof.
2
(e) EXEMPTION FROM REGISTRATION. The Securities will be issued under an
exemption or exemptions from registration under the Securities Act of 1933, as
amended; accordingly, the certificates evidencing the Initial Common Stock, and
any shares of Common Stock issuable upon the exercise or exchange of any of the
Securities shall, upon issuance, contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT UNDER ANY
CIRCUMSTANCES BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES
LAWS.
(f) REGISTRATION RIGHTS AGREEMENT. On the date hereof, the Company, and
EIS are each executing and delivering the Registration Rights Agreement,
covering the resale by EIS of the Initial Common Stock issuable hereunder and
any Common Stock issuable upon conversion, exercise or exchange of any of the
Securities.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. (a)
ORGANIZATION. The Company is 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 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 qualified and in good standing
to do business in jurisdictions set forth on SCHEDULE 2(A), which constitute all
of the jurisdictions in which the nature of the business conducted or the
property owned by it requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the business, prospects,
properties or condition (financial or otherwise) of the Company (a "Material
Adverse Effect").
(b) CAPITALIZATION. (i) The authorized capital stock of the Company
consists of (i) 50,000,000 and shares of Common Stock, par value $.01 per share
and (ii) 3,000,000 shares of Preferred Stock, par value $.01 per share. As of
June 25, 1998, 22,282,109 shares of Common Stock were issued and outstanding and
1,250 shares of Preferred Stock were issued and outstanding.
(ii) Except as listed in SCHEDULE 2(B), as of June 15, 1998 there were
no options, warrants or other rights outstanding to purchase or otherwise
acquire, or any securities convertible into, any of the Company's authorized
capital stock. Other than as set forth in this
3
Agreement and as described in SCHEDULE 2(B), there are no agreements,
arrangements or understandings concerning the voting, acquisition or disposition
of any of the Company's outstanding securities to which the Company is a party
or of which it is otherwise aware, and, other than as set forth in SCHEDULE 2(B)
or in the Registration Rights Agreement, there are no agreements to register any
of the Company's outstanding securities under the U.S. federal securities acts
relating to securities that have not already been registered under the
Securities Act of 1933 as amended.
(iii) All of the outstanding shares of capital stock of the Company
have been issued in accordance with applicable state and federal laws and
regulations governing the sale and purchase of securities, all of such shares of
have duly and validly issued and are fully paid and non-assessable, and none of
such shares carries preemptive or similar rights.
(c) AUTHORIZATION OF TRANSACTION DOCUMENTS. The Company has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents, and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of the
Transaction Documents (including the issuance and sale of the Securities) have
been authorized by all requisite corporate actions by the Company; and the
Transaction Documents, including the issuance and sale of the Securities, have
been duly executed and delivered by the Company are 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
Company of the Transaction Documents, including the issuance and sale of the
Securities, and compliance with the provisions thereof, will not (i) violate any
provision of applicable law, statute, rule or regulation applicable to the
Company 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 their respective properties or assets or (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of, or
constitute (with notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of, any Encumbrance (as defined below) upon any of the properties or
assets of the Company under its Articles of Incorporation, as amended, its
Certificate of Designations (in the form to be filed as provided herein) or
By-laws, or any material contract to which the Company is a party, except where
such violation, conflict or breach would not, individually or in the aggregate,
have a Material Adverse Effect. As used herein, "Encumbrance" shall mean any
liens, charges, encumbrances, equities, claims, options, proxies, pledges,
security interests, or other similar rights of any nature, except for such
conflicts, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect.
(e) APPROVALS. Except as set forth on SCHEDULE 2(E), no material
permit, authorization, consent or approval 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 the Transaction
Documents, including the issuance and sale of the Securities, by
4
the Company. There is no approval of the Company's stockholders required under
applicable laws in connection with the execution and delivery the Transaction
Documents or the consummation of the transactions contemplated thereby,
including the filing of the Certificate of Designations and the issuance of the
Securities.
(f) FILINGS, TAXES AND FINANCIAL STATEMENTS. (i) The Company has filed
its annual report on Form 10-K for the year ended December 31, 1997 (the "Annual
Report"), its related proxy materials and the quarterly report on Form 10-Q for
the quarter ended March 31, 1998 (the "Quarterly Report," together with the
Annual Report, including all exhibits and schedules required to be filed in
connection therewith, the "SEC Filings") with the Securities and Exchange
Commission, the American Stock Exchange, Inc., and any other required person or
entity (governmental or otherwise) in a timely manner and as otherwise required
by applicable laws and regulations, including the federal securities acts. The
audited financial statements of the Company for the fiscal year ended December
31, 1997 included in the Annual Report (the "Audited Financial Statements"), and
the Company's unaudited balance sheet for the period ending March 31, 1998,
together with the accompanying statements of operations and cash flows including
the notes thereto included in the Quarterly Report (the "March Financial
Statements"; collectively, with the Audited Financial Statements, the "Financial
Statements") are accurate and complete in all material respects and fairly
present the financial condition of the Company as at the dates thereof and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as may be
otherwise indicated in such financial statements or the notes thereto), subject,
in the case of the March Financial Statements, to normal year-end audit
adjustments (which shall not be material in the aggregate) and the absence of
footnote disclosures.
(ii) The Company has filed in a timely manner all material federal,
state, local and foreign tax returns, reports and filings (collectively,
"Returns"), including income, franchise, property and other taxes, and has paid
or accrued the appropriate amounts reflected on such Returns. None of the
Returns have been audited or challenged, nor has the Company received any notice
of challenge nor have any of the amounts or other data included in the Returns
been challenged or reviewed by any governmental authority.
(iii) Except as disclosed in the SEC Filings or listed in SCHEDULE
2(F), which sets forth a true and accurate list and description of any employee
benefit plans maintained or sponsored by the Company or to which the Company is
required to make contributions, the Company does not maintain, sponsor, is not
required to make contributions to or otherwise have any liability with respect
to any pension, profit sharing, thrift or other retirement plan, employee stock
ownership plan, deferred compensation, stock ownership, stock purchase,
performance share, bonus or other incentive plan, severance plan, health or
group insurance plan, welfare plan, or other similar plan, agreement, policy or
understanding (whether written or oral), whether or not such plan is intended to
be qualified under Section 401(a) of the Code, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended, which
plan covers any employee or former employee of the Company.
5
(g) ABSENCE OF CHANGES. Except as set forth on SCHEDULE 2(G), since May
31, 1998, there has not been (a) any material adverse change in the business,
properties, condition (financial or otherwise), operations or prospects of the
Company; (b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
condition (financial or otherwise), operations or prospects of the Company; (c)
any declaration, setting aside or payment of any dividend or other distribution
or payment (whether in cash, stock or property) in respect of the capital stock
of the Company, or any redemption or other acquisition of such stock by the
Company; (d) any disposal or lapse of any trade secret, invention, patent,
trademark, trademark registration, service xxxx, service xxxx registration,
copyright, copyright registration, or any application therefor or filing in
respect thereof that had a Material Adverse Effect; (e) loss of the services of
any of the key officers or key employees of the Company that had a Material
Adverse Effect; (f) any incurrence of or entry into any liability, mortgage,
lien, commitment or transaction, including without limitation, any borrowing (or
assumption or guarantee thereof) or guarantee of a third party's obligations, or
capital expenditure (or lease in the nature of a conditional purchase of capital
equipment) in excess of $50,000; or (g) any material change by the Company in
accounting methods or principles or (h) any change in the assets, liabilities,
condition (financial or otherwise), results or operations or prospects of the
Company from those reflected on the Quarterly Report, except changes in the
ordinary course of business that have not, individually or in the aggregate, had
a Material Adverse Effect.
(h) NO LIABILITIES. Except as set forth in the Quarterly Report
attached hereto, the Company has not incurred or suffered any liability or
obligation, matured or unmatured, contingent or otherwise, except in the
ordinary course of business that have not, individually or in the aggregate, had
a Material Adverse Effect.
(i) PROPERTIES AND ASSETS; ETC. (i) The SEC Filings disclose all
patents and other intellectual property material to the business and operations
of the Company and all applications therefore and licenses, sublicenses or
agreements in respect thereof which the Company owns or has the right to use or
to which the Company is a party ("Proprietary Rights"). The Proprietary Rights
are adequate for the conduct of the Company's business. Except as set forth in
the SEC Filings, the Sheffield License Agreement, or where the absence of which
would not have a material Adverse Effect, (A) the Company is the sole and
exclusive owner of all right, title and interest in an to all Proprietary Rights
free and clear of all liens, claims, charges, equities, rights of use,
encumbrances and restrictions whatsoever, (B) the Company does not have
knowledge of any basis for any claim of infringement or misappropriation
contesting the validity or Company's right to use any Proprietary Rights; (C)
all of such patents, trademark registrations, service xxxx registrations, trade
name registrations and copyrights and copyright registrations, whether foreign
or domestic, have been duly issued and have not been canceled, abandoned, or
otherwise terminated; and (D) all of the Company's patent applications,
trademark applications, service xxxx applications, trade name applications and
copyright applications have been duly filed.
6
(ii) Each of the Contracts listed as an exhibit to the Company's SEC
Filings is a legal and valid agreement binding upon each of the parties thereto
and is in full force and effect except where the expiration or termination have
not, individually or in the aggregate had a Material Adverse Effect. To the best
knowledge of the Company, there is no breach or default by any party thereunder
that had a Material Adverse Effect. Such Contracts constitute all material
agreements, arrangements or understandings required to be included as an exhibit
in such reports under Item 601 of the Securities and Exchange Commission
Regulations.
(iii) The Company has and maintains adequate and sufficient insurance,
including liability, casualty and products liability insurance, covering risks
associated with its business, properties and assets, including insurance that is
customary for companies similarly situated.
(iv) The Company, its business and properties and assets are in
compliance, in all material respects, with all applicable laws and regulations,
including without limitation, those relating to (a) health, safety and employee
relations, (ii) environmental matters, including the discharge of any hazardous
or potentially hazardous materials into the environment, and (iii) the
development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable foreign regulatory authorities.
(j) LEGAL PROCEEDINGS, ETC. There is no legal, administrative,
arbitration or other action or proceeding or governmental investigation pending
or, to the best of the Company's knowledge threatened against the Company, or
any director, officer or employee of the Company, which is required to be
described in the SEC Filings and is not so described. The Company is not in
violation of or default under, any material laws, judgments, injunctions, orders
or decrees of any court, governmental department, commission, agency,
instrumentality or arbitrator applicable to its business.
(k) DISCLOSURE. The Company's Annual Report and periodic reports
subsequently filed under Section 13 of the Exchange Act, and the representations
and warranties set forth herein and the 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 and
therein not misleading in light of circumstances in which they were made. (l)
BROKERS OR FINDERS. The Company has not retained any investment banker, broker
or finder in connection with the transactions contemplated by the Transaction
Documents.
SECTION 3. REPRESENTATION AND WARRANTIES OF EIS. EIS hereby represents
and warrants to the Company as follows:
(a) ORGANIZATION. EIS is a corporation duly organized, validly existing
and in good 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
7
conducted and to consummate the transactions contemplated hereby. EIS is
qualified 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 so qualify would not reasonably be
expected to have a material adverse effect on the business or condition
(financial or otherwise) of EIS.
(b) AUTHORIZATION OF AGREEMENT. EIS has full legal right, power and
authority to enter into this Agreement and purchase and accept the Note, and
perform its obligations hereunder, which have been duly authorized by all
requisite corporate action. This Agreement and the purchase of the Convertible
Note are the valid and binding obligations of EIS, enforceable against them in
accordance with their terms.
(c) NO CONFLICTS. The execution, delivery and performance by EIS of
this Agreement, the purchase and acceptance of the Convertible Note and
compliance with provisions hereof by EIS, will not (i) violate any provisions of
applicable law, statute, rule or regulation applicable to EIS or any ruling,
written, injunction, order, judgment or decree of any court, arbitration,
administrative agency of other governmental body applicable to EIS of any of its
properties or assets or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with notice or lapse of time
to both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Encumbrance upon any of
the properties or assets of EIS under the Certificate of Incorporation or
By-laws of EIS or any material contract to which EIS is party, except where such
violation conflict or breach would not, individually or in the aggregate, have a
material adverse effect on EIS.
(d) APPROVALS. No permit, authorization, consents or approval 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 Convertible Note (including the funding and acceptance
thereof) by EIS.
(e) INVESTMENT REPRESENTATIONS. (i) EIS is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D. 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, has the
capacity to protect its own interests, has reviewed the SEC Filings, and is
aware of the risk factors relating to an investment in the Company as disclosed
in such filings. EIS has not been formed solely for the purpose of entering into
the transactions described herein and therein and is acquiring the Securities
for investment for its own account, not as a nominee or agent, and not with the
view to, or for sale in connection with, any distribution of any part thereof;
provided, that EIS shall be permitted to convert or exchange such Securities
and/or transfer them as permitted herein and under applicable law. EIS has been
afforded the opportunity to ask questions of and information about the Company
and its business and prospects, from management and representatives of the
Company, and have relied on its own independent judgment in making a judgment
about an investment in the Securities.
8
(ii) Nothing contained in this Section 3(e) shall limit any of the
Company's representations or warranties or limit EIS's recourse in respect
thereof.
(iii) EIS has not retained any investment banker, broker or finder in
connection with the transactions contemplated by the Transaction Documents.
SECTION 4. COVENANTS OF THE COMPANY. (a) NON-DISCLOSURE. From and after
the date hereof, the Company shall not disclose to any person or entity (other
than its directors, officers and agents who need to know such information in
connection with the transactions described herein and the other Transaction
Documents (each of whom shall be informed of this confidentiality provision and
in respect of whose breaches the Company shall be responsible)) the content of
this Agreement or any of the other Transaction Documents or the substance of the
transactions described herein, without the prior written consent of EIS (which
consent shall not be unreasonably withheld or delayed), except to the extent
required by applicable laws, regulations or administrative or judicial processes
in respect of press releases, periodic reports or other public disclosure
prepared in good faith by the Company; provided, that the Company shall provide
EIS with a reasonable opportunity to review such releases or reports prior to
release. This Section 4 shall not be construed to prohibit disclosure of any
information which has not been previously determined to be confidential by EIS,
or which shall have become publicly disclosed (other than by breach of the
Company's obligations hereunder).
(b) BOARD OF DIRECTORS. Immediately following the Company's Annual
Meeting of Stockholders scheduled to be held on July 15, 1998, the Company's
board of directors shall be expanded by one member, and EIS shall be entitled to
appoint a director to fill the vacancy so created (the "EIS Director"), who
shall be reasonably satisfactory to the Company, and who shall be a duly elected
director. The Company shall not enter into any agreement relating to a material
acquisition or sale of assets or financing agreements from the date of this
Agreement until July 15, 1998 without the prior approval of EIS or the prior
election of the EIS Director to its Board of Directors. From and after the date
hereof and for so long as EIS and/or its respective affiliates own Securities
that represent ownership of at least 5% of the Common Stock, on a fully diluted
basis, the Company shall use its best efforts to cause the EIS Director to be
elected to the Company's board of directors, by including the EIS Director in
the management slate of directors at each meeting of stockholders at which an
election of directors occurs.
(c) FULLY-DILUTED STOCK OWNERSHIP. Notwithstanding any other 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 19.9% of the Company's outstanding Common Stock (assuming
any such exercise, exchange or conversion, but not the exercise, exchange or
conversion of any other similar securities), EIS shall have the right, in its
sole discretion, rather than acquiring such securities from the Company, to
exchange such number of securities, as are necessary to bring its holdings to
below 19.9% of the voting securities of the Company, for non-
9
voting, liquidation preferred stock of the Company (which shall be reasonably
satisfactory to the Company and EIS), which equity securities shall be entitled
to all of the other rights and benefits of the Common Stock. In the event that
EIS shall undertake to exercise such right, EIS shall retain the additional
right to exchange such new class of equity security for Common Stock, in its
discretion on terms that are mutually agreeable to the Company and EIS.
(d) CERTAIN PREEMPTIVE RIGHTS. For a period of four years from and
after the date hereof, EIS shall be entitled to participate in any convertible
debt or equity financing (the "Preemptive Right") undertaken by the Company
(each, a "Capital Raising"), in order that EIS may maintain its then current PRO
RATA percentage ownership interest in equity securities (on a fully diluted
basis) of the Company. Notwithstanding the foregoing, the Preemptive Right shall
terminate and be of no further force and effect at such time as EIS's ownership
interest in the Company's Common Stock falls below 5%, on a fully-diluted basis.
Such participation by EIS shall be on terms no less attractive to EIS than those
offered to any other potential investor in a Capital Raising; provided, that
such Preemptive Right shall not apply to (i) any BONA FIDE offering to the
public pursuant to the Securities Act, or (ii) an offering of securities solely
in connection with (A) an acquisition of assets, merger, consolidation or
similar transaction with an unaffiliated third party, or (B) an employee stock
option plan.
(e) USE OF PROCEEDS. The Company shall use $15,500,000 of the aggregate
proceeds of the sale of the Initial Common Stock and the Series C Preferred
solely for the purpose of meeting its capitalization and funding requirements to
Newco.
SECTION 5. MUTUAL COVENANTS OF THE PARTIES. (a) RIGHT OF CONVERSION.
EIS may, pursuant to the Certificate of Designations, from and after the date
hereof and until the term of the Series C Preferred shall expire, convert the
Series C Preferred into Common Stock ("Conversion Right).
(b) RIGHTS OF EXCHANGE. (i) FIRST EXCHANGE RIGHT. (A) EIS may, in
accordance with the Certificate of Designations, exchange the originally issued
shares of the Series C Preferred for an aggregate of 50% of the common stock,
par value $1.00 per share of Newco (the "Newco Common Stock"), owned by the
Company (the "First Exchange Right"). Thereafter, such shares of Series C
Preferred shall be of no further force or effect; provided, that all additional
shares of Series C Preferred issued as a dividend thereon shall continue to
carry all rights attributable thereto pursuant to the Certificate of
Designations. Notwithstanding the foregoing, EIS, and any permitted transferees,
will convert any Dividend Shares (as defined in the Certificate of Designations)
within thirty months of the date of exercise of the First Exchange Right, in
accordance with Article 7 of the Certificate of Designations.
(B) The First Exchange Right shall terminate upon the earlier of (X)
exercise of the Conversion Right by EIS and (Y) termination of the Series C
Preferred.
10
(ii) SECOND EXCHANGE RIGHT. In the event that EIS shall consummate the
exercise of the First Exchange Right, EIS shall be entitled to purchase from the
Company, for consideration in the amount of $[text omitted], a number of shares
of Newco Common Stock sufficient to increase EIS's ownership interest therein to
[text omitted] (the "Second Exchange Right").
(iii) THIRD EXCHANGE RIGHT. (A) In the event that EIS shall have
consummated the exercise of each of the First Exchange Right and the Second
Exchange Right, EIS shall be entitled, and the Company shall be required at
EIS's request, to enter into good faith negotiations to arrange for the sale of
the remaining [text omitted] of Newco Common Stock owned by the Company to EIS
(the "Final Purchase"), for consideration of fair market value ("FMV"); such FMV
to be determined without regard to EIS's [text omitted] ownership interest
(i.e., as if such sale were to an unaffiliated third party and without effect to
a premium for EIS's control position).
(B) In the event that EIS and the Company are unable to reach agreement
on the FMV and other terms to be negotiated in connection with such sale, the
parties shall mutually agree as to an arbitrator (or, failing mutual agreement,
an arbitrator shall by appointed by the American Arbitration Association in
accordance with its customary appointment provisions; each an "Arbitrator"), the
expense of whom shall be borne equally by EIS and the Company, and the
arbitrator shall establish FMV.
(C) FMV as determined by the Arbitrator shall be binding upon the
Company, and the Company shall be obligated to enter into the Final Purchase at
EIS's discretion; however, EIS shall be bound by the Arbitrator's determination
of FMV and be required to enter into the Final Purchase only if such FMV shall
be an amount which is less than EIS's most recent offer to the Company. In
addition, in order to accommodate the Company's internal accounting
requirements, the Company shall be entitled to request that the Arbitrator
determine what portion of FMV is comprised of the value of rights to the MSI
Technology (as defined in the Sheffield License Agreement), licensed by the
Company to Newco; provided, that such determination shall be for information
purposes only, and shall not create or add to EIS's obligations hereunder.
(D) In the event that EIS shall fail to enter into the Final Purchase
within 30 days of receipt of notice of the Arbitrator's determination of FMV,
the Company shall be free, for a period of [text omitted] months from and after
the date of receipt of such notice, to consummate a sale of its remaining [text
omitted] interest in Newco to an unaffiliated third party (notwithstanding
Article IV of the Newco Subscription Agreement) without first offering such
interest to EIS.
(b) FURTHER ASSURANCES. From and after the date hereof, each of the
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 the Transaction Documents or to
better to assure and confirm unto each other their respective rights, powers and
remedies hereunder and thereunder.
11
SECTION 6. CONVERTIBLE NOTE. (a) ISSUANCE. (i) Beginning with the date
which is 90 days from and after the date hereof, and until the date which is the
24-month anniversary of the date hereof, EIS shall be required, at the Company's
discretion, to purchase up to $[text omitted] of debt under the Convertible Note
in minimum increments of $[text omitted]; provided, that the maximum amount of
debt under the Convertible Note which the Company may require EIS to purchase
shall be $[text omitted] in the event that the ADDS Technology (as described in
the Newco License Agreement) is not acquired by Newco on or before December 31,
1998;
(ii) the maximum amount of debt under the Convertible Note which EIS
shall be required to purchase in any calendar quarter shall be $500,000.
(b) CONDITIONS TO THE PURCHASE OF CONVERTIBLE DEBT. It shall be a
condition to EIS's obligation to purchase any debt under the Convertible Note
that (A) each of the representations and warranties set forth in Section 2(a),
(b)(iii), (c), (d), (f), (i) and (l) shall be true and correct in all material
respects as if the date hereof were the proposed funding date thereof; provided,
that any reference to the Quarterly Report shall refer to the most recent
quarterly report on Form 10-Q and/or any report filed pursuant to Section 13 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), required
to be filed by the Company under applicable law immediately prior to such
funding date and SEC Filings shall refer to all filings required to be made by
the Company under applicable law on or prior to such date, (B) there shall be no
default or breach in any material respect by the Company or Newco of a material
obligation under any of the Transaction Documents or any other agreement between
the Company or Newco or any of its affiliates, on the one hand, and EIS or any
of their affiliates, on the other hand, (C) Newco shall continue to require
funds, and the Company shall be continuing to provide services, in connection
with the R&D Program (as defined in the Development Agreement), and (D) the
Company shall have executed and delivered to EIS the promissory note attached
hereto as EXHIBIT C.
(c) USE OF PROCEEDS. The Company shall use the proceeds of the
Convertible Debt, if any, as follows: [text omitted]; provided, that in the
event of a failure to acquire the ADDS Technology on or before December 31,
1998, the Company shall use [text omitted] of the proceeds of the Convertible
Debt to meet its funding obligations to Newco in connection with Newco research
and development.
SECTION 7. SURVIVAL AND INDEMNIFICATION. (a) SURVIVAL PERIOD. The
representations and warranties of the Company contained herein shall survive for
a period of one year from and after the date hereof.
(b) INDEMNIFICATION. In addition to all rights and remedies available
to the parties hereunder at law or in equity, each party hereto (in such
capacity, an "Indemnifying Party") shall
12
indemnify each other party hereto, and its respective affiliates, and its
respective 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 under Section 2 or 3 of this Agreement; or
(ii) any nonfulfillment, default or breach of any covenant or agreement
on the part of the Indemnifying Party under Section 4 or 5 of this Agreement.
(c) MAXIMUM RECOVERY. Notwithstanding anything to this Agreement to the
contrary, in no event shall Sheffield be liable for indemnification under this
Section 7, the Transaction Documents, or otherwise in an amount in excess of
$[text omitted], in the aggregate. No Indemnified Party shall assert any such
claim unless Losses in respect thereof incurred by any Indemnified Party, when
aggregated with all previous Losses hereunder, equal or exceed $50,000; and
after the $50,000 threshold is reached, each indemnified person shall be
entitled to be indemnified for the amount of all claims arising hereunder in
excess of $50,000.
(d) EXCEPTION. Notwithstanding the foregoing, and subject to the
following sentence, 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 Persons 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 Persons all amounts previously
paid in full or partial 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 Party's 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(b) above,
irrespective of any
13
investigation, inquiry or examination made for or on behalf of, or any knowledge
of the Indemnified Persons or the acceptance of any certificate or opinion.
(f) CONTRIBUTION. If the indemnity provided for the 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. Subject to
Section 7(h) hereunder, 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 part 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 one year from and after the date hereof; and any claim for nonfulfillment,
default or breach of any covenant shall be brought within one year of the date
of 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. 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 airmail, return receipt requested and postage prepaid, addressed as
follows:
(i) if to the Company, to:
Sheffield Pharmaceuticals, Inc.
00 Xxxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: Chairman
and
14
Sheffield Pharmaceuticals, Inc.
000 Xxxxx Xxxxxxxxx Xxxx
Xx. Xxxxx, Xxxxxxxx 00000-0000
Attention: Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxxx Frome & Xxxxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
(ii) if to EIS, to:
Elan International Services, Ltd.
Xxxxxx, Xxxxxx Xxxxxx
Xxxxxxx, XX00
Attention: Director
with a copy to:
Xxxxx Xxxxxxxxxxx XxXxxxxxx LLC
000 Xxxx 00xx Xxxxxx , 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxx
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 8. Any such notice or communication shall be deemed to have been
received (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 and (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. Notice hereunder may be given
on behalf of the parties by their respective attorneys.
SECTION 9. ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto.
SECTION 10. 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.
15
SECTION 11. 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 12. 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 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of laws. Each of the parties hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in the county, city and state of New York over any action
or proceeding arising out of or relating to this Agreement or the other
Transaction Documents; and each hereby waives the defense of an inconvenient
forum for the maintenance of such an action.
SECTION 14. 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 15. PUBLIC RELEASES; ETC. The parties shall reasonably agree
upon the contents of any press release or releases and other public disclosure
in respect of the transactions contemplated hereby, and except as may otherwise
be required by applicable law or judicial or administrative process or which the
Company concludes in good faith is required by applicable securities laws and
regulations.
SECTION 16. SCHEDULES, ETC. All statements contained in any exhibit or
schedule delivered by or on behalf of the parties hereto, or in connection with
the transactions contemplated hereby, are an integral part of this Agreement and
shall be deemed representations and warranties hereunder.
SECTION 17. ASSIGNMENTS. 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 other
Transaction Documents, and the Securities may be transferred by EIS to
affiliates and subsidiaries.
16
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Securities Purchase Agreement as of the date first written above.
SHEFFIELD PHARMACEUTICALS, INC.
By:/s/ Xxxxxx X. Xxxxxxxxxx
---------------------------------------
Xxxxxx X. Xxxxxxxxxx
Chairman
ELAN INTERNATIONAL SERVICES, LTD.
By:/s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
Title: President
EXHIBIT B
FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
SHEFFIELD PHARMACEUTICALS, INC.
---------------
Pursuant to Section 151 of
the General Corporation Law of the State of Delaware
---------------
Sheffield Pharmaceuticals, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation by unanimous written consent dated
June 26, 1998 pursuant to authority of the Board of Directors as required by
Section 151 of the General Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation (the "Board" or the
"Board of Directors") by the provisions of the Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation"), there hereby is created,
out of the 3,000,000 shares of preferred stock of the Corporation authorized in
Article FOURTH of the Certificate of Incorporation (the "Preferred Stock"), a
series of Preferred Stock consisting of 23,000 shares, which series shall have
the following powers, designations, preferences and relative, participating,
optional or other rights, and the following qualifications, limitations and
restrictions (in addition to the powers, designations, rights, and the
qualifications, limitations and restrictions, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock).
ARTICLE 1
DESIGNATION AND AMOUNT
The shares of such series shall be designated as "Series C
Cumulative Convertible Preferred Stock" (the "Series C Preferred Stock") and the
authorized number of shares constituting such series shall be 23,000 shares. The
par value of the Series C Preferred Stock shall be $.01 per share. The stated
value of the Series C Preferred Stock shall be One Thousand Dollars ($1,000) per
share (the "Stated Value").
ARTICLE 2
DEFINITIONS
The terms defined in this Article whenever used in this
Certificate of Designations have the following respective meanings:
(a) "AMEX" means the American Stock Exchange.
(b) "BUSINESS DAY" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(c) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, $.01 par value, of the Corporation.
(d) "CONVERSION DATE" means any day on which all or any
portion of shares of the Series C Preferred Stock is converted in accordance
with the provisions hereof.
(e) "CONVERSION NOTICE" has the meaning set forth in Section
6.1.
(f) "CONVERSION PRICE" has the meaning set forth in Section
6.1.
(g) "CORPORATION" means Sheffield Pharmaceuticals, Inc. a
Delaware corporation, and any successor or resulting corporation by way of
merger, consolidation, sale or exchange of all or substantially all of the
Corporation's assets, or otherwise.
(h) "CURRENT MARKET PRICE" on any date of determination means
the closing price of a Common Share on such day as reported on the AMEX, or, if
such security is not listed or admitted to trading on the AMEX, on the principal
national security exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the average of
the closing bid and ask prices of such security on the over-the-counter market
on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not so
available, in such manner as furnished by any Nasdaq member firm of the National
Association of Securities Dealers, Inc. selected from time to time
-2-
by the Board of Directors of the Corporation for that purpose, or a price
determined in good faith by the Board of Directors of the Corporation as being
equal to the fair market value thereof, as the case may be.
(i) "DIVIDEND PAYMENT DATE" has the meaning set forth in
Section 4.1.
(j) "DIVIDEND PERIOD" has the meaning set forth in Section
4.1.
(k) "DIVIDEND SHARES" means the shares of Series C Preferred
Stock issued as dividends on outstanding shares of Series C Preferred stock in
accordance with Article 4 hereof.
(l) "DOLLARS" or "$" means currency of the United States of
America.
(m) "EXCHANGE DATE" has the meaning set forth in Article 7.
(n) "EXCHANGE NOTICE" has the meaning set forth in Article 7.
(o) "HOLDER" OR "HOLDERS" means Elan International Services,
Ltd., a Bermuda corporation, any successor thereto, or any Person(s) to whom the
Series C Preferred Stock is subsequently transferred in accordance with the
provisions hereof.
(p) "ISSUE DATE" means the date of original issuance of the
applicable share of Series C Preferred Stock.
(q) "JUNIOR SECURITIES" has the meaning set forth in Article
3.
(r) "LIQUIDATION PREFERENCE" has the meaning set forth in
Section 5.1(b).
(s) "MANDATORY CONVERSION DATE" has the meaning set forth in
Section 6.3.
(t) "PARI PASSU SECURITIES" has the meaning set forth in
Article 3.
(u) "PERSON" means an individual, a corporation, a
partnership, an association, a limited liability company, a unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality thereof.
(v) "RIGHTS" has the meaning set forth in Section 6.2(e).
(w) "SERIES C PREFERRED STOCK" means the Series C Cumulative
Convertible Preferred Stock of the Corporation created by this Certificate of
Designations.
(x) "SPD" Systemic Pulmonary Delivery, Ltd., a Bermuda
corporation.
-3-
(y) "STATED VALUE" has the meaning set forth in Article 1.
(z) "TRADING DAY" means any day on which purchases and sales
of securities authorized for quotation on the AMEX are reported thereon or, if
the Common Stock is not listed or admitted to trading on the AMEX, a day on
which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business, or, if
the Common Stock is not so listed or admitted to trading on any national
securities exchange, a day on which the Nasdaq National Market (or any successor
thereto) or such other system then in use is open for the transaction of
business, or, if the Common Stock is not quoted by any such organization, any
day other than a Saturday, Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive order to
close.
ARTICLE 3
RANK
The Series C Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created other than "Pari Passu Securities" (collectively,
with the Common Stock, "Junior Securities"); (iii) pari passu with the
Corporation's Series B Cumulative Convertible Redeemable Preferred Stock (the
"Series B Preferred Stock"); and (iv) pari passu with any class or series of
capital stock of the Corporation hereafter created specifically ranking on
parity with the Series C Preferred Stock (collectively, with the Series B
Preferred Stock, "Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) Subject to Article 6, the Holder shall be entitled to
receive, out of funds legally available for the payment of dividends, dividends
at the rate of 7.0% per annum (computed on the basis of a 360-day year) (the
"Dividend Rate") on the Stated Value of each outstanding share of Series C
Preferred Stock payable on and as of the most recent Dividend Payment Date with
respect to each Dividend Period. Dividends on the Series C Preferred Stock shall
be cumulative from the date of issue or the most recent Dividend Payment Date
upon which dividends have been paid on the Series C Preferred Stock by the
Corporation.
-4-
(ii) Dividend on the Series C Preferred Stock shall be payable
in equal quarterly amounts on each March 31, June 30, September 30 and December
31 of each year (each, a "Dividend Payment Date"), commencing September 30,
1998, to the holders of record of shares of the Series C Preferred Stock, as
they appear on the stock records of the Corporation at the close of business on
any record date, not more than 60 days or less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors. For the
purposes hereof, "Dividend Period," in respect of any share of Series C
Preferred Stock, shall mean (i) the period commencing on and including the Issue
Date of such share and including September 30, 1998 and, thereafter, the
quarterly period commencing on and including the day after the immediately
preceding Dividend Payment Date and ending on and including the immediately
subsequent Dividend Payment Date. Accrued and unpaid dividends for any past
Dividend Period may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not more than 15 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(iii) Dividends on the outstanding shares of Series C
Preferred Stock shall be paid through the issuance of duly and validly
authorized and issued, fully paid and non-assessable additional shares of Series
C Preferred Stock to be issued at the rate of one (1) share of Series C
Preferred Stock for each $1,000 of dividend due and payable. No fractional
shares of the Series C Preferred Stock shall be issued as Dividend Shares.
Instead of any fractional shares of Series C Preferred Stock which would
otherwise be issuable as Dividend Shares, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to 1,000
times the fractional interest.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series C
Preferred Stock. Except as provided in this Article 4, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series C Preferred Stock that may be in arrears.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in
-5-
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of ninety (90) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any Junior
Securities of the Corporation upon liquidation, dissolution or winding up unless
prior thereto, the Holders, subject to Article 5, shall have received the
Liquidation Preference (as defined in Article 5.1(b)) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the Holders and holders of shares of Pari Passu
Securities shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series C Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the preferential amounts payable on each such share
bears to the aggregate preferential amounts payable on all such shares.
(b) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series C Preferred Stock shall mean an amount equal to
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
stock dividends on such share of Series C Preferred Stock until the most recent
Dividend Payment Date; PROVIDED that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(iii) above shall be calculated by including accrued and unpaid stock dividends
to the actual date of such liquidation, dissolution or winding up, rather than
the applicable Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF SERIES C PREFERRED STOCK
SECTION 6.1 CONVERSION.
(a) Holders of shares of the Series C Preferred Stock shall
have the right, exercisable at any time and from time to time through the
Mandatory Conversion Date, to convert all or any such shares of the Series C
Preferred Stock into shares of the Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) at the conversion price of $1.41
per share of the Common Stock (equivalent to a conversion rate of 709.22 shares
of Common Stock for each share of the Series C Preferred Stock so converted),
subject to adjustment as described below (the "Conversion Price"). Upon
conversion, no adjustment or payment will be made for dividends, but if any
holder surrenders a share of the Series C Preferred Stock for conversion after
the close of business on the record date for the payment of a dividend and prior
to the opening of business on the next Dividend Payment Date, then,
notwithstanding such conversion, the dividend payable on such Dividend Payment
Date will be paid to the registered holder of such share on such record date. In
such event, such share, when
-6-
surrendered for conversion during the period between the close of business on
any dividend payment record date and the opening of business on the
corresponding Dividend Payment Date, must be accompanied by payment of an amount
equal to the dividend payable on such Dividend Payment Date on the share so
converted.
(b) Any holder of a share or shares of the Series C Preferred
Stock electing to convert such share or shares thereof shall deliver the
certificate or certificates therefor to the principal office of the Corporation
or any transfer agent for the Common Stock, with the form of notice of election
to convert attached to this Certificate of Designations (the "Conversion
Notice"), fully completed and duly executed and (if such required by the
Corporation or any conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion agent, duly executed
by the registered Holder of his duly authorized attorney. The conversion right
with respect to any such shares shall be deemed to have been exercised at the
date upon which the certificates therefore accompanied by such duly executed
notice of election and instruments of transfer and such taxes, stamps, funds, or
evidence of payment shall have been so delivered, and the Person or Persons
entitled to receive the shares of the Common Stock issuable upon such conversion
shall be treated for all purposes as the record Holder or Holders of such shares
of the Common Stock upon said date.
(c) From and after the delivery of the Conversion Notice in
respect of any conversion of shares of Series C Preferred Stock, all such shares
of Series C Preferred Stock shall be deemed to have been converted into shares
of Common Stock as of the applicable Conversion Date at the applicable
conversion rate, all stock dividends on such shares of the Series C Preferred
Stock shall cease to accrue, and all rights of the Holders thereof as holders of
Series C Preferred Stock, except the right to receive all accrued and unpaid
stock dividends to such Conversion Date at the applicable rate for such shares
of Series C Preferred Stock and the right to receive certificates representing
shares of Common Stock issuable upon the conversion of such shares (including,
without limitation, with respect to such stock dividends, as applicable), shall
cease and terminate, such shares of Series C Preferred Stock shall not
thereafter be transferred (except with the consent of the Corporation) and such
shares shall not be deemed to be outstanding for any purpose whatsoever.
(d) No fractional shares of the Common Stock or scrip
representing fractional shares shall be issued upon conversion of shares of the
Series C Preferred Stock. If more than one share of the Series C Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of the Common Stock which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of the
Series C Preferred Stock so surrendered. Instead of any fractional shares of the
Common Stock which would otherwise be issuable upon conversion of any shares of
the Series C Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of the Current
Market Price for the Common Stock on the last Trading Day preceding the
applicable date of conversion.
-7-
(e) Each Conversion Notice under this Section 6.1 shall
request the conversion of at least 500 shares of Series C Preferred Stock or the
remaining balance of Series C Preferred Stock held by the converting Holder,
whichever is less.
SECTION 6.2 ADJUSTMENTS. The Conversion Price and the number of shares
issuable upon conversion of the Series C Preferred Stock are subject to
adjustment from time to time as follows:
(a) MERGER, SALE OF ASSETS, ETC. If at any time while the
Series C Preferred Stock, or any portion thereof, is outstanding there shall be
(i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Corporation with or into another corporation in which the
Corporation is the surviving entity but the shares of the Corporation's capital
stock outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Corporation's properties and
assets as, or substantially as, an entirety to any other person, then as a part
of such reorganization, merger, consolidation, sale or transfer lawful provision
shall be made so that the Holder shall thereafter be entitled to receive upon
conversion of the Series C Preferred Stock, during the period specified herein,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that the Holder would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if the Series C
Preferred Stock had been converted immediately before such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 6.2(a). The foregoing provisions of this Section 6.2(a)
shall similarly apply to successive reclassification, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers. If the per share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Board of
Directors. In all events, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions of
this Certificate of Designations with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Certificate
of Designations shall be applicable after that event, as near as reasonably may
be, in relation to any shares or other property deliverable after that event
upon conversion of the Series C Preferred Stock.
(b) RECLASSIFICATION, ETC. If the Corporation, at any time
while the Series C Preferred Stock, or any portion thereof, remains outstanding,
shall change any of the securities as to which conversion rights under this
Certificate of Designations exist into the same or a different number of
securities of any other class or classes, the Series C Preferred Stock shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the conversion rights under this Certificate of
Designations immediately prior to such reclassification or other change and the
Conversion Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Certificate of Designations.
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(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Corporation at any time while the Series C Preferred Stock, or any portion
thereof, remains outstanding shall split, subdivide or combine the securities as
to which conversion rights under this Certificate of Designations exist, into a
different number of securities of the same class, the Conversion Price shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(d) ADJUSTMENTS FOR DIVIDENDS IN STOCK AND OTHER SECURITIES OR
PROPERTY. If while the Series C Preferred Stock, or any portion hereof, remains
outstanding, the holders of the securities as to which conversion rights under
this Certificate of Designations exist at the time shall have received, or, on
or after the record date fixed for the determination of eligible stockholders of
the Corporation, shall have become entitled to receive, without payment
therefor, other or additional stock or other securities or property (other than
cash) of the Corporation by way of dividend, then and in each case, the Series C
Preferred Stock shall represent the right to acquire, upon conversion, in
addition to the number of shares of the security receivable upon conversion of
the Series C Preferred Stock, and without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities or property (other than cash) of the Corporation that the Holder
would hold on the date of such conversion had it been the holder of record of
the security receivable upon conversion of the Series C Preferred Stock on the
date hereof and had thereafter, during the period from the date hereof to and
including the date of such conversion, retained such shares and/or additional
stock available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 6.2.
(e) REPURCHASES OR REDEMPTIONS OF COMMON STOCK OR OPTIONS. If
the Corporation at any time while shares of Series C Preferred Stock are
outstanding, shall repurchase or redeem any outstanding shares of Common Stock
or rights, options or warrants granting the holder thereof the right to acquire
shares of Common Stock (collectively, the "Rights") in a single transaction or a
series of related transactions involving an aggregate repurchase or redemption
price in excess of $500,000 at a price (on a per share basis) which is greater
than 125% of the Current Market Price as of the day prior to such repurchase or
redemption, the Conversion Price shall thereupon be adjusted by multiplying the
Conversion Price in effect immediately prior to the applicable repurchase or
redemption by a fraction (i) the numerator of which shall be the Conversion
Price in effect immediately prior to such repurchase or redemption and (ii) the
denominator of which shall be the fair market value of the consideration paid by
the Corporation for each share of Common Stock (or each share of Common Stock
issuable upon exercise of the Right(s) subject to such repurchase or redemption)
in such repurchase or redemption.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6.2, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
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(g) CUMULATIVE ADJUSTMENTS. No adjustment in the Conversion
Price shall be required until cumulative adjustments result in a concomitant
change of 1% or more of the Conversion Price as in effect prior to the last
adjustment of the Conversion Price; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 6.2 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 6.2 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. No adjustment to the Conversion
Price shall be made for cash dividends.
SECTION 6.3 MANDATORY CONVERSION. On the tenth anniversary of the Issue
Date (the "Mandatory Conversion Date"), all Series C Preferred Stock outstanding
on such date shall be automatically converted at the Conversion Price in effect
as of the Mandatory Conversion Date. For purposes of such conversion, each
Holder shall be deemed to have delivered a Notice of Conversion to the
Corporation in accordance with Section 6.1, with the applicable Conversion Date
being the Mandatory Conversion Date.
ARTICLE 7
EXCHANGE RIGHTS
Holders of at least a majority of the then outstanding shares
of Series C Preferred Stock shall have the right, by written notice delivered to
the Corporation in the form of notice of election to exchange attached to this
Certificate of Designations (the "Exchange Notice"), fully completed and duly
executed by the requisite Holders, to require the Corporation to exchange all
outstanding shares of Series C Preferred Stock as of any Dividend Payment Date
(such date being the "Exchange Date") for fifty percent (50%) of the then
outstanding capital stock of SPD owned by the Corporation as of the Exchange
Date, with such capital stock to be delivered to all Holders on a pro rata basis
based on their respective holdings of Series C Preferred Stock on the Exchange
Date. The Exchange Notice shall be delivered at least 30 days prior to the
Exchange Date. Upon receipt of the Exchange Notice, the Corporation shall
promptly notify all Holders of its receipt of thereof and all Holders will
promptly deliver the certificate or certificates therefor to the principal
office of the Corporation or any transfer agent for the Common Stock for
cancellation.
From and after the delivery of the Exchange Notice, all shares
of Series C Preferred Stock (other than Dividend Shares) shall be deemed to have
been exchanged for fifty percent (50%) of the then outstanding capital stock of
SPD (in the aggregate) as of Exchange Date, all stock dividends on such shares
of the Series C Preferred Stock shall cease to accrue, and all rights of the
Holders thereof as holders of Series C Preferred Stock, except the right to
receive all accrued and unpaid stock dividends to the Exchange Date at the
applicable rate for such shares of such shares of Series C Preferred Stock and
the right to receive certificates representing the applicable shares of SPD
capital stock issuable in respect of the exchange, shall cease and terminate,
such shares of Series C Preferred Stock shall not thereafter be transferred
(except with the consent of the Corporation) and such shares shall not be deemed
to be outstanding for any purpose whatsoever.
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The Rights of Holders under this Article 7 shall terminate and
such Holders shall not be entitled to exchange shares of Series C Preferred
Stock under this Article 7 after a Conversion Notice has been delivered to the
Corporation pursuant to this Section 6.1. Notwithstanding anything to the
contrary in this Article 7, the delivery of the exchange notice shall not effect
any Holder's rights to convert Dividend Shares held by such holder pursuant to
Section 6.2 hereof, except that any conversion of Dividend Shares must occur
within thirty months from the Exchange Date.
ARTICLE 8
VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting
power, except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 8, and in Article 9 below.
The Corporation shall provide each Holder of Series C
Preferred Stock with prior notification of any meeting of the shareholders of
the Corporation (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of
the Series C Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the Holders of at least a majority of the shares
of the Series C Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series C
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL Holders of the Series C Preferred Stock are entitled to vote on a
matter with Holders of Common Stock, voting together as one class, each share of
Series C Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which convertible the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series C Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other infirmation sent to shareholders) with respect to which they
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would be entitled as of right under the DGCL which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 9
PROTECTIVE PROVISIONS
So long as shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the Holders of at least a majority
of the then outstanding shares of Series C Preferred Stock:
(a) create any new class or series of capital stock having a
preference over the Series C Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series C Preferred Stock; or
(b) amend or alter whether by merger, consolidation or
otherwise, any of the provisions of the Certificate of Incorporation (including
this Certificate of Designations) that would change the preferences, rights or
privileges with respect to the Series C Preferred Stock so as to affect the
Series C Preferred Stock adversely.
In the event holders of at least a majority of the then
outstanding shares of Series C Preferred Stock agree to allow the Corporation to
amend or alter the preferences, rights or privileges of the shares of Series C
Preferred Stock, pursuant to subsection (b) above, so as to affect adversely the
Series C Preferred Stock, then the Corporation will deliver notice of such
approved change to the Holders of the Series C Preferred Stock that did not
agree to such amendment or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to Section 6.2 of this Certificate of Designations as they exist prior
to such alteration or change or continue to hold their shares of Series C
Preferred Stock.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series C Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series C Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series C Preferred Stock, new shares of Series C Preferred
Stock of like date and tenor.
-12-
SECTION 10.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series C Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series C Preferred Stock for the purpose of receiving payment of
dividends on the Series C Preferred Stock, for the conversion of the Series C
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series C Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 10.3 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
SECTION 10.4 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
C Preferred Stock.
SECTION 10.5 HEADINGS. The headings of the Articles and Sections of
this Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and Rights to be signed by Xxxxx X. Xxxxxxxx, its
President and Chief Executive Officer, and attested by Xxxx Xxxxxx Xxxxxxx, its
Secretary, on this 30th day of June, 1998.
SHEFFIELD PHARMACEUTICALS, INC.
By:
----------------------------------------
Xxxxx X. Xxxxxxxx
President and Chief Executive Officer
Attested:
By:
----------------------------------------
Xxxx Xxxxxx Xxxxxxx
Secretary
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FORM OF CONVERSION NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner of shares of Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercises its
option to convert __________ shares of the Series C Preferred Stock into shares
of the common stock, $.01 par value, of the Corporation ("Common Stock"), in
accordance with the terms of the Certificate of Designations of the Series C
Preferred Stock. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series C Preferred Stock specified above into shares of
Common Stock in accordance with the provisions of Article 6 of such Certificate
of Designations. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series C Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in such Certificate of Designations.
Dated:__________________
________________________________________
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address
(including zip code number) :
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FORM OF EXCHANGE NOTICE
TO: Sheffield Pharmaceuticals, Inc.
Attention: Chief Financial Officer
The undersigned owner(s) of shares of Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") issued by Sheffield
Pharmaceuticals, Inc. (the "Corporation") hereby irrevocably exercise its option
to cause the Corporation to exchange 11,500 shares of Series C Preferred Stock
for 50% of the outstanding capital stock Systemic Pulmonary Delivery, Ltd. ("SPD
Stock") in accordance with the terms of the Certificate of Designations of the
Series C Preferred Stock. The undersigned hereby instructs the Corporation to
advise all other holders of Series C Preferred Stock, if any, of this exercise
by the undersigned owner(s). The undersigned direct that the SPD Stock issuable
and certificates therefor deliverable to the undersigned upon such exchange be
issued in the name of and delivered to the undersigned unless a different name
has been indicated below. All capitalized terms used and not defined herein have
the respective meanings assigned to them in such Certificate of Designations.
Dated:__________________
________________________________________
Signature
Fill in for registration of SPD Stock:
Please print name and address
(including zip code number) :
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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