PAYMENT AGREEMENT AND LOAN AMENDMENT
EXHIBIT
1.1
PAYMENT
AGREEMENT AND LOAN AMENDMENT dated as of April 27, 2010 (this “Agreement”), by and
between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Company”), and
PHARMABIO DEVELOPMENT INC., a North Carolina corporation (“Lender”).
A. The
Lender has advanced to Borrower an aggregate principal amount of $8,500,000
under the terms of that certain Second Amended and Restated Loan Agreement dated
as of October 25, 2006 (the “Loan
Agreement”). Capitalized terms used but not defined in this
Agreement shall have the meanings ascribed to them in the Loan
Agreement.
B. Pursuant
to the Loan Agreement, the Lender is the holder of that certain Second Amended
and Restated Promissory Note dated October 25, 2006, issued by the Company in
the principal amount of $8,500,000 (the “Note”).
C. Annex A sets forth
the agreed amount of principal, interest, premium and other amounts owing, if
any, as of the date hereof, pursuant to the Loan Agreement as evidenced by the
Note.
D. As
set forth on Annex
A, as of the date hereof, the outstanding indebtedness under the Loan
Agreement (including the outstanding principal, plus accrued interest in the
amount of $2,067,017 as of the date hereof equals $10,567,017) (the “Outstanding
Balance”).
E. As
set forth on Annex
A, and subject to fulfillment of the terms and conditions set forth
below, the Lender and the Company have agreed (a) that the Company will
repay $6,567,017 of the Outstanding Balance in cash (the “Cash Amount”) on
April 28, 2010, and (b) to extend the Maturity Date of the remaining
Outstanding Balance of $4,000,000 (the “Remaining Balance”)
and to amend certain other provisions of the Loan Agreement on the terms set
forth below.
NOW,
THEREFORE, in consideration of the mutual covenants and undertakings herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows
Section
1. Partial Repayment of Loan;
Amendment of Loan Documents.
(a) Subject
to and upon the terms and conditions of this Agreement, the Company shall repay
the Cash Amount on April 28, 2010, via wire transfer of immediately available
funds. The Remaining Balance shall remain outstanding and shall be
repaid, as follows: (i) $2,000,000 shall be repaid on July 30, 2010, and
(ii) $2,000,000, together with all accrued interest, if any, shall be
repaid on September 30, 2010.
(b) The
Company’s obligation to pay the Remaining Balance shall be evidenced by a new
promissory note (the “Note”) duly executed
and delivered by the Company in the form of Exhibit A attached
hereto as of the date hereof.
(c) On
the date hereof, the Lender and the Company hereby agree to the following
amendments to the Loan Agreement:
(i)
The first sentence of Section 2.03 of the Loan
Agreement is hereby deleted in its entirety.
(ii) The
first sentence of Section 2.04(a) of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
“Borrower
shall pay the aggregate outstanding principal amount of the Loan and all accrued
interest, if any, as follows: (i) $2,000,000 of the outstanding principal
amount shall be repaid on or before July 30, 2010, and (ii) the remaining
$2,000,000 principal amount, together with all accrued interest, if any, shall
be repaid on or before September 30, 2010 (the “Maturity Date”),
unless any such amount becomes due and payable sooner pursuant to the provisions
of this Agreement.”
(iii) The
first sentence of Section 2.04(b) of the Loan Agreement is hereby deleted in its
entirety and is replaced with the following:
“Interest
on the Loan shall accrue beginning April 28, 2010, and be payable at a rate per
annum (the “Base Rate”) equal to
the Prime Rate in effect from time to time, or, if less, the maximum rate
permitted by law. Notwithstanding the preceding sentence, provided
that if Borrower pays the aggregate outstanding principal amount of the Loan on
each of the dates set forth in Section 2.04(a), then the interest rate on the
Loan will be 0%.
(iv) Article
VI of the Loan Agreement is hereby amended and supplemented to add a new Section
6.11 at the end thereof:
6.11 Maintenance of Cash
Balance. The Borrower hereby agrees to maintain a Cash Balance
(as defined below) of (a) at least $10,000,000 until the Borrower makes the
first repayment of $2,000,000 in accordance with Section 2.04(a)(i), and
(b) at least $8,000,000 until the Maturity Date. For purposes of
this Agreement, the term “Cash Balance” means
the value of the Borrower’s cash and cash equivalents that are not subject to
any lien, pledge, charge or encumbrance of any kind (other than Permitted Liens
and the Lender’s security interest under the Loan Documents) as determined by
the Borrower in a manner consistent with past practices used in preparing the
Borrower’s financial statements filed from time to time with the
SEC. Within ten (10) days of each calendar month-end, the Borrower
shall provide Lender with a certificate, in a form satisfactory to Lender,
executed by the Borrower’s Chief Financial Officer containing (i) a statement to
the effect that the Chief Financial Officer has made the examination necessary
to confirm compliance with this Section 6.11 and (ii) a computation in
reasonable detail of the Borrower’s Cash Balance as of such calendar
month-end.
- 2
-
(v) Section
7.01(c) of the Loan Agreement is hereby deleted in its entirety and is replaced
with the following:
“Borrower
shall fail to perform or observe any term, covenant or agreement contained in
this Agreement required to be performed or observed by Borrower (other than
Section 6.02, 6.03, 6.04, or 6.11) and such failure to perform or observe such
term, covenant or agreement has a Material Adverse Effect and is not cured
within thirty (30) days after receipt of notice thereof by
Borrower;”.
(vi) Section
7.01(d) of the Loan Agreement is hereby deleted in its entirety and is replaced
with the following:
“Borrower
shall fail to perform or observe the provisions of Section 6.02, 6.03, 6.04, or
6.11, except, in the case of Section 6.04, if an Event of Default is based on a
tax lien, judgment lien or materialman’s lien, such lien shall continue without
discharge or stay for a period of sixty (60) days;”.
(vii) Section
8.14 of the Loan Agreement is hereby amended and supplemented to add a new
sentence at the end thereof:
“For the
avoidance of doubt, the failure of Borrower to make any payment when due under
Section 2.04(a) shall not constitute a Dispute subject to the procedures in
Sections 8.14 or 8.15, and Lender immediately may pursue any and all rights,
powers, or remedies now or hereafter existing at law or in equity or by statute
or otherwise available under the Loan Documents.
(d) Upon
the Closing, the Warrant Agreements dated June 20, 2003, November 3, 2004 and
October 25, 2006 (collectively, the “Warrant Agreements”)
exercisable for 43,612 shares of Common Stock, par value, $.001 per share, of
the Company (“Common
Stock”), 850,000 shares of Common Stock, and 1,500,000 shares of Common
Stock, respectively, shall be cancelled, and all of the Company’s obligations
represented thereby shall be discharged. After the date hereof, the
Company shall take reasonable steps to terminate, amend or supplement , as the
Company and its counsel deem appropriate, the registration statements on Form
S-3 filed with the Securities and Exchange Commission on August 11, 2003,
December 15, 2004, and December 7, 2006 that cover the resale of the shares
specified in the Warrant Agreements.
(e) In
consideration of the mutual covenants and undertakings herein contained, from
and after the date hereof, the Company and the Lender hereby agree to negotiate
in good faith to enter into a strategic alliance or collaborative arrangement
under which Lender would provide funding for a research collaboration between
Quintiles Transnational Corp. (“Quintiles”) and the Company relating to the
possible research and development, and commercialization of two of the Company’s
drug product candidates, Surfaxin LS™ and Aerosurf®, for the
prevention and treatment of respiratory distress syndrome (RDS) in premature
infants. The Company acknowledges and agrees that the Lender intends to receive
advice and assistance from Quintiles regarding the research, development, and
commercialization services and associated budget that would be required for
Surfaxin LS™ and Aerosurf®. Upon
execution of this Agreement, the parties will promptly negotiate, in good faith,
the terms of such strategic alliance or collaborative arrangement; provided,
however, that neither party shall have any obligation to enter into any such
alliance or arrangement except to the extent that it, in its sole discretion,
agrees to enter into definitive documents therefor. Without limiting
the foregoing, the Company acknowledges that the Lender’s willingness to make
such a strategic investment will depend on the Company’s funding requirements,
the Lender’s available investment capital, and the risk-reward profile of the
investment terms offered by the Company as compared to the Lender’s other
investment opportunities. Nothing in this Section 1(e) requires
either the Company or the Lender to negotiate such transaction for any specified
period of time.
- 3
-
(f) This
Agreement is a document executed pursuant to the Loan Agreement and shall
(unless otherwise expressly indicated therein) be construed, administered or
applied in accordance with the terms and provisions thereof. Whenever
the Loan Agreement and the other Loan Documents are referred to in instruments,
agreements or other documents, it shall be deemed to mean the Loan Agreement and
the Loan Documents as modified by this Agreement. Except as hereby
amended, the Loan Documents shall continue in full force and
effect.
Section
2. Closing. The
closing of the transactions contemplated by this Agreement (the “Closing”) shall take
place at 10:00 a.m. on April 28, 2010 (the “Closing
Date”). The Closing shall be held at the offices of the
Company, 0000 Xxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxxxxxx. At the
Closing, (a) the Lender shall surrender the Note to the Company for
cancellation and shall deliver all documentation related thereto, and whatever
documents of assignment, conveyance and transfer may be necessary or desirable
with respect thereto, (b) the Lender shall surrender the Warrant Agreements
to the Company for cancellation and shall deliver all documentation related
thereto, and whatever documents of assignment, conveyance and transfer may be
necessary or desirable with respect thereto, (c) the Company shall deliver
the Cash Amount to the Lender via wire transfer of immediately available funds,
and (d) the Company shall deliver the new Note evidencing the Remaining
Balance in the form attached hereto as Exhibit A, duly
executed by an authorized officer of Company. The parties shall also
execute and deliver appropriate cross-receipts for the deliveries effected in
connection with the Closing.
Section
3. Conditions to
Closing.
(a) Conditions to Closing of the
Company. The
Company’s obligations at the Closing are subject to: (i) the receipt by the
Company of the existing Note and the Warrant Agreements and the other
documentation related thereto, and whatever documents of assignment, conveyance
and transfer may be necessary or desirable with respect thereto, and (ii) the
accuracy as of the Closing of the representations and warranties made by the
Lender and the fulfillment of those undertakings of the Lender to be fulfilled
prior to the Closing Date.
(b) Conditions to Closing of the
Lender. The
Lender’s obligations at the Closing are subject to: (i) the receipt
by Lender of the Cash Amount and the new Note, and (ii) the accuracy as of the
Closing of the representations and warranties made by the Company and the
fulfillment of those undertakings of the Company to be fulfilled prior to the
Closing Date.
- 4
-
Section
4. Representations of
Lender. The
Lender hereby represents, warrants and agrees that:
(a)
The Lender has full power and authority to enter into, execute, deliver and
perform this Agreement and all other agreements and instruments to be executed
by the Lender in connection herewith. All of such actions have been
duly authorized by all necessary corporate action on the part of the Lender and
no further approval or authorization by Lender’s shareholders or any other
persons or entities are necessary to authorize such actions. This
Agreement constitutes the legal, valid and binding obligation of the Lender
enforceable against the Lender in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
laws and subject to general principles of equity.
(b) As
of the Closing, the Lender is the sole legal owner of the Note and the Warrant
Agreements. The Note and the Warrant Agreements are free and clear of
any mortgage, lien, pledge, charge, security interest, encumbrance, title
retention agreement, option, equity or similar adverse claim
thereto. The Lender has not, in whole or in part, given any person or
entity any transfer order, power of attorney or other authority of any nature
whatsoever with respect to such Note and Warrant Agreements which has not been
revoked or which is otherwise outstanding and effective as of the
Closing. No action is pending or, to the Lender’s knowledge,
threatened, which would contest the Lender’s ownership of, or right to transfer,
such Note and Warrant Agreements.
(c) The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby will not result:
(i)
in a breach of any of the
terms and provisions of or constitute a default under Lender’s articles of
incorporation or bylaws, or any indenture, mortgage, deed or trust, or other
agreement or instrument to which the Lender is a party; or
(ii) in
a violation of or default under any state or federal statute or any of the rules
or regulations applicable to the Lender of any court or of any federal and state
regulatory body or administrative agency.
Section
5. Representations of
Company. The
Company hereby represents, warrants and agrees that:
(a) The
Company has full power and authority to enter into, execute, deliver and perform
this Agreement and all other agreements and instruments to be executed by the
Company in connection herewith. All of such actions have been duly
authorized by all necessary corporate action on the part of the Company and no
further approval or authorization by the Company’s stockholders or any other
persons or entities are necessary to authorize such actions. This
Agreement constitutes, and when issued at Closing the new Note will constitute,
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with their respective terms except as such enforcement may
be limited by bankruptcy, insolvency, reorganization or other laws and subject
to general principles of equity.
- 5
-
(b) The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby will not result:
(i)
in a breach of any of the
terms and provisions of or constitute a default under the Company’s certificate
of incorporation or bylaws;
(ii) in
the creation of any lien, charge, security interest or encumbrance upon any
assets of the Company pursuant to the terms or provisions of, or will not
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under any
indenture, mortgage, deed or trust, or other agreement or instrument to which
the Company is a party; or
(iii) in
a violation of or default under any state or federal statute or any of the rules
or regulations applicable to the Company of any court or of any federal and
state regulatory body or administrative agency.
(c) The
Company has, and will have on the Closing Date, a Cash Balance (as defined in
Section 6.11 of the Loan Agreement as hereby amended) of at least
$10,000,000.
(d) No
Event of Default (as defined in the Loan Agreement) (i) has occurred and is
continuing as of the date hereof, nor (ii) will have occurred and be continuing
as of the Closing Date.
Section
6. Survival. Notwithstanding
any investigation made by any party to this Agreement, all agreements,
representations and warranties made by the Company and the Lender herein will
survive the execution of this Agreement.
Section
7. Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument. The exchange of copies of this Agreement or amendments
thereto and of signature pages by facsimile transmission or by email
transmission in portable document format, or similar format, shall constitute
effective execution and delivery of such instrument(s) as to the parties and may
be used in lieu of the original Agreement or amendment for all
purposes. Signatures of the parties transmitted by facsimile or by
email transmission in portable document format, or similar format, shall be
deemed to be original signatures for all purposes.
Section
8. Notices. All
notices, requests, consents and other communications hereunder will be in
writing, will be mailed (a) if within the domestic United States by first-class
registered or certified airmail, or nationally recognized overnight express
courier, postage prepaid, or by facsimile or (b) if delivered from outside the
United States, by International Federal Express or facsimile, and (c) will be
deemed given (i) if delivered by first-class registered or certified mail
domestic, three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one business day after so mailed, (iii) if
delivered by International Federal Express, two business days after so mailed
and (iv) if delivered by facsimile, upon electronic confirmation of receipt and
will be delivered and addressed as follows (or to such other address or
addresses as may have been furnished by notice to the other
party):
- 6
-
if to the
Company, to:
Discovery
Laboratories, Inc.
0000
Xxxxx Xxxx
Xxxxxxxxxx,
XX 00000
Attention: Legal
Department
Facsimile: (000)
000-0000
with copies
to:
Xxxxxxxxxxxx
Xxxx & Xxxxxxxxx LLP
Two World
Financial Center, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attention: Xxx
X. Xxxxx, Esq.
Ph.:
(000) 000-0000
Facsimile:
(000) 000-0000
if to the
Lender, to:
PharmaBio
Development Inc.
c/o
Quintiles Transnational Corp.
0000 Xxxxxxx Xxxx
Xxxxxx, XX 00000
Attn: President
Facsimile: (000)
000-0000
with copies
to:
Smith, Anderson, Blount,
Dorsett,
Xxxxxxxx &
Xxxxxxxx, L.L.P.
0000 Xxxxxxxx Xxxxxxx
Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxxxxxxx X.
Xxxxx
Facsimile: (000)
000-0000.
Section
9. Applicable
Law. This
Agreement will be governed by, and construed in accordance with, the internal
laws of the State of Delaware, as applied to contracts made and to be performed
entirely within such State, without giving effect to the principles of conflicts
of law that would require the application of the laws of any other
jurisdiction.
Section
10. No Implied Rights or
Remedies. Except
as otherwise expressly provided herein, nothing herein expressed or implied is
intended or shall be construed to confer upon or to give any person, other than
the Company and the Lender, any rights or remedies under or by reason of this
Agreement.
- 7
-
Section
11. No Waiver. No
failure on the part of any of the parties to this Agreement to exercise, no
delay in exercising and no course of dealing with respect to, any right or
remedy under this Agreement will operate as a waiver thereof. No
single or partial exercise of any right or remedy under this Agreement will
preclude any other further exercise thereof or the exercise of any other right
or remedy.
Section
12. Headings. The
headings in this Agreement are inserted for convenience of reference only and
shall not be a part of or control or affect the meaning of this
Agreement.
Section
13. Successors and
Assigns. This
Agreement is subject to the restrictions on assignment set forth in Section 8.05
of the Loan Agreement. This Agreement and all of its provisions shall
be binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns, heirs and legal representatives.
Section
14. Severability. If
any provision of this Agreement shall be invalid or unenforceable, the other
provisions of this Agreement shall continue in full force, and the validity and
enforceability of such other provisions shall not be adversely
affected.
[Remainder
of page intentionally blank]
- 8
-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
|
PHARMABIO
DEVELOPMENT INC.
|
||
|
By:
|
/s/ Xxxx X. Xxxxxxx, Xx.
|
|
|
Name:
|
Xxxx
X. Xxxxxxx, Xx.
|
|
|
Title:
|
Vice
President
|
|
|
DISCOVERY
LABORATORIES, INC.
|
||
|
By:
|
/s/ W. Xxxxxx Xxxxx
|
|
|
Name:
|
W.
Xxxxxx Xxxxx
|
|
|
Title:
|
Chairman
& CEO
|
|
Annex A
Agreed Loan
Calculations
|
As of April 28,
2010:
|
||||
|
Outstanding
principal (A):
|
$ | 8,500,000.00 | ||
|
Accrued
Interest (B):
|
$ | 2,067,017.00 | ||
|
OUTSTANDING
BALANCE (A+B):
|
$ | 10,567,017.00 | ||
Exhibit
A
Form of Promissory
Note
See
Exhibit 1.2 to Form 8-K
