EXHIBIT 4.1
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 29th day of
December, 2000 by and between Sheffield Pharmaceuticals, Inc. a Delaware
corporation (the "Company"), and the Investors set forth on the signature page
affixed hereto (each an "Investor" and collectively the "Investors").
Recitals
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended;
B. The Investors wish to purchase, and the Company wishes to sell and
issue to the Investors, upon the terms and conditions stated in this Agreement,
shares of the common stock of the Company, par value $0.01 per share (the
"Common Stock") and warrants to purchase Common Stock in the form attached
hereto as Exhibit A (the "Warrants") for an aggregate purchase price of
---------
$2,250,000; and
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "Registration Rights Agreement"),
---------
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder, and applicable state securities laws;
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
-----------
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1 "Affiliate" means, with respect to any Person, any other Person
---------
which directly or indirectly controls, is controlled by, or is under common
control with, such Person.
1.2 "Agreements" means this Agreement, the Registration Rights
----------
Agreement, and the Warrants.
1.3 "Closing" means the consummation of the initial purchase and sale
-------
transactions contemplated by this Agreement, and "Closing Date" means the date
------------
of such Closing.
1.4 "Control" means the possession, direct or indirect, of the power
-------
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
1.5 "Market Price" means the average of the closing prices of the
------------
Common Stock over the thirty (30) consecutive trading days immediately preceding
a specified date.
1.6 "Material Adverse Effect" means a material adverse effect on the
-----------------------
condition (financial or otherwise), business, assets, or results of operations
of the Company as a whole.
1.7 "Person" means an individual, corporation, partnership, trust,
------
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.8 "SEC Filings" has the meaning set forth in Section 4.6.
-----------
1.9 "Securities" means the Shares, the Warrants and the Warrant
----------
Shares (defined below).
1.10 "Shares" means the shares of Common Stock being purchased by the
------
Investors hereunder.
1.11 "Warrant Shares" means the shares of Common Stock issuable upon
--------------
exercise of or otherwise pursuant to the Warrants.
1.12 "1933 Act" means the Securities Act of 1933, as amended, and the
--------
rules and regulations promulgated thereunder.
1.13 "1934 Act" means the Securities Exchange Act of 1934, as
--------
amended, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms and
--------------------------------------------
conditions of this Agreement, the Investors hereby severally, and not jointly,
agrees to purchase, and the Company hereby agrees to sell and issue to the
Investors the number of Shares and Warrants to purchase the number of shares of
Common Stock set forth on such Investor's signature page attached hereto. The
number of Shares to be purchased by each Investor at the Closing shall be
determined by dividing such Investor's Closing aggregate purchase price (as such
aggregate purchase price is set forth on such Investor's signature page attached
hereto) by the lesser of ninety percent (90%) of the Market Price on the date of
this Agreement or the per share closing price of the Common Stock on the trading
day immediately preceding the date of this Agreement (the "Purchase Price"). The
number of shares of Common Stock purchasable by the Investors upon exercise of
the Warrants to be issued on the Closing Date shall be as set forth
2
on such Investor's signature page attached hereto and the exercise price of the
Warrants shall be 125% of the Market Price measured as of the date of this
Agreement (the "Exercise Price").
3. Closing. The Company shall promptly deliver to Investors' counsel, in
-------
trust, a certificate or certificates, registered in such name or names as the
Investors may designate, representing all of the Shares and all of the Warrants
to be purchased hereunder, with instructions that such certificates are to be
held for release to the Investors only upon payment of the aggregate Purchase
Price to the Company. Upon receipt by counsel to the Investors of the
certificates, each Investor shall promptly cause a wire transfer in same day
funds to be sent to the account of the Company as instructed in writing by the
Company, in an amount representing such Investor's aggregate Purchase Price. On
the date the Company receives such funds, the certificates evidencing the Shares
and the Warrants shall be released to the Investors (and such date shall be
deemed the "Closing Date").
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investors:
4.1 Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and its subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and own its properties. Each of the Company and
its subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property makes such qualification or licensing
necessary unless the failure to so qualify would not have a Material Adverse
Effect. The Company's subsidiaries are reflected on Schedule 4.1 hereto.
------------
4.2 Authorization. The Company has full power and authority and has
-------------
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Agreements, (ii) authorization of the performance of all obligations of the
Company hereunder or thereunder, and (iii) the authorization, issuance (or
reservation for issuance) and delivery of the Securities. The Agreements
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors' rights generally.
4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the
-------------- ------------
authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company's stock plans; and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock. Except as set
forth on Schedule 4.3, all of the issued and outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. Except as set forth on Schedule
--------
4.3, no Person is entitled to preemptive or similar statutory or contractual
---
rights with
3
respect to any securities of the Company. Except as set forth on Schedule 4.3,
------------
there are no outstanding warrants, options, convertible securities or other
rights, agreements or arrangements of any character under which the Company or
any of its subsidiaries is or may be obligated to issue any equity securities of
any kind and except as contemplated by this Agreement, neither the Company nor
any of its subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind. Except as set forth on Schedule 4.3, the Company
------------
has no knowledge of any voting agreements, buy-sell agreements, option or right
of first purchase agreements or other agreements of any kind among any of the
security holders of the Company relating to the securities of the Company held
by them. Except as set forth on Schedule 4.3, the Company has not granted any
------------
Person the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person.
4.4 Valid Issuance. The Company has reserved a sufficient number of
--------------
shares of Common Stock for the issuance of the Shares pursuant to this Agreement
and upon exercise of the Warrants. The Company will take such steps as may be
necessary to reserve sufficient shares for issuance pursuant to Section 7 below
when such issuance is determinable. The Shares and Warrants are duly authorized,
and such Securities, along with the Warrant Shares when issued in accordance
herewith and with the terms of the Warrants, will be duly authorized, validly
issued, fully paid, non-assessable and free and clear of all encumbrances and
restrictions, except for restrictions on transfer imposed by applicable
securities laws.
4.5 Consents. The execution, delivery and performance by the Company of
--------
the Agreements and the offer, issuance and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings or consents that have been made
pursuant to applicable state securities laws and post-sale filings or consents
pursuant to applicable state and federal securities laws and the requirements of
the American Stock Exchange, which the Company undertakes to file within the
applicable time periods.
4.6 Delivery of SEC Filings; Business. The Company has provided the
---------------------------------
Investors with copies of the Company's most recent Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, and all other reports filed by the
Company pursuant to the 1934 Act since the filing of the Annual Report on Form
10-K and prior to the date hereof (collectively, the "SEC Filings"); which the
Company hereby represents and warrants are all filings required of the Company
pursuant to the 1934 Act for such period. The Company is engaged only in the
business described in the SEC Filings and the SEC Filings contain a materially
complete and accurate description of the business of the Company.
4.7 Use of Proceeds. The proceeds of the sale of the Common Stock and the
---------------
Warrants hereunder shall be used by the Company for working capital and general
corporate purposes.
4.8 No Material Adverse Change. Since the filing of the Company's most
--------------------------
recent Annual Report on Form 10-K or as otherwise identified and described in
subsequent
4
reports filed by the Company pursuant to the 1934 Act or as set forth on
Schedule 4.8 hereto, there has not been:
------------
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's most recent Quarterly Report
on Form 10-Q, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company;
(iv) any waiver by the Company of a valuable right or of a
material debt owed to it not in the ordinary course of business;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company taken as a
whole (as such business is presently conducted and as it is proposed to be
conducted);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(vii) any material labor difficulties or labor union organizing
activities with respect to employees of the Company;
(viii) any transaction entered into by the Company other than in
the ordinary course of business; or
(ix) any other event or condition of any character that might
have a Material Adverse Effect.
5
4.9 SEC Filings.
-----------
(a) The SEC Filings complied as to form in all material respects
with the requirements of the 1934 Act and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(b) During the preceding two years, each registration statement
and any amendment thereto filed by the Company pursuant to the 1933 Act and the
rules and regulations thereunder, as of the date such statement or amendment
became effective, complied as to form in all material respects with the 1933 Act
and did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading; and each prospectus filed pursuant to Rule 424(b) under
the 1933 Act, as of its issue date and as of the closing of any sale of
securities pursuant thereto did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
4.10 Form S-3 Eligibility. The Company is currently eligible to
--------------------
register the resale of its Common Stock on a registration statement on Form S-3
under the 1933 Act.
4.11 No Conflict, Breach, Violation or Default. The execution,
-----------------------------------------
delivery and performance of the Agreements by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company's Certificate of Incorporation or the Company's Bylaws, both as in
effect on the date hereof (copies of which have been provided to the Investors
before the date hereof), or (ii) except where it would not have a Material
Adverse Effect, (a) any statute, rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company or any of its properties, or (b) except as set forth on Schedule 4.11,
-------------
any agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is subject.
4.12 Tax Matters. The Company has timely prepared and filed all tax
------------
returns required to have been filed by the Company with all appropriate
governmental agencies or has timely filed extensions therefor and timely paid
all taxes owed by it. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company nor,
to the knowledge of the Company, any basis for the assessment of any additional
taxes, penalties or interest for any fiscal period or audits by any federal,
state or local taxing authority except such as which are not material. All
material taxes and other assessments and levies that the Company is required to
withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party when due. There are no tax
liens or claims pending or threatened against the Company or any of its
respective assets or property. There are no outstanding tax sharing agreements
or other such arrangements between the Company and any other corporation or
entity.
6
4.13 Title to Properties. Except as disclosed in the SEC Filings or
-------------------
Schedule 4.13, the Company has good and marketable title to all real properties
-------------
and all other material properties and assets owned by it, in each case free from
liens, encumbrances and defects that would materially affect the value thereof
or materially interfere with the use made or currently planned to be made
thereof by them; and except as disclosed in the SEC Filings, the Company holds
any leased real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or currently
planned to be made thereof by them.
4.14 Certificates, Authorities and Permits. The Company possesses all
-------------------------------------
material certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by it and has
not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if determined
adversely to the Company, would individually or in the aggregate have a Material
Adverse Effect.
4.15 No Labor Disputes. No material labor dispute with the employees
-----------------
of the Company exists or, to the knowledge of the Company, is imminent.
4.16 Intellectual Property. The Company has sufficient title or
---------------------
adequate rights or licenses to the inventions, know-how, patents, copyrights,
trademarks, trade names, confidential information and other intellectual
property (collectively, "Intellectual Property Rights"), free and clear of any
material liens, security interests, charges, encumbrances, equities and other
adverse claims, necessary to conduct the business now operated by it, or
presently employed by it, and presently contemplated to be operated by it, and
the Company has not received any notice of infringement of or conflict with
asserted rights of others with respect to any Intellectual Property Rights. To
the knowledge of the Company, the Company's patents and other Intellectual
Property Rights and the present activities of the Company do not infringe any
patent, copyright, trademark, trade name or other proprietary rights of any
third party.
4.17 Environmental Matters. The Company is not in violation of any
---------------------
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), does not own or operate any real property
contaminated with any substance that is subject to any Environmental Laws, is
not liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is not subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation that might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings or on
----------
Schedule 4.18 hereto, there are no pending actions, suits or proceedings against
-------------
or affecting the Company, its subsidiaries or any of its or their properties
that, if determined adversely to the Company or such subsidiary, would
individually or in the aggregate have a Material Adverse Effect or would
7
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the context
of the sale of the Securities; and to the Company's knowledge, no such actions,
suits or proceedings are threatened or contemplated.
4.19 Financial Statements. The financial statements included in
--------------------
each SEC Filing present fairly and accurately in all material respects the
consolidated financial position of the Company as of the dates shown and its
consolidated results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. Except as set
forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof, to the best of the Company's knowledge, the
Company has no liabilities, contingent or otherwise, except those which
individually or in the aggregate would not have a Material Adverse Effect.
4.20 Insurance Coverage. The Company maintains in full force and
------------------
effect insurance coverage that is customary for comparably situated companies
for the business being conducted and properties owned or leased by the Company,
and the Company reasonably believes such insurance coverage to be adequate
against all liabilities, claims and risks against which it is customary for
comparably situated companies to insure.
4.21 Compliance with AMEX Continued Listing Requirements. Except as
---------------------------------------------------
set forth on Schedule 4.21, the Company is in compliance with all applicable
American Stock Exchange continued listing guidelines. Except as set forth on
Schedule 4.21, there are no proceedings pending or to the Company's knowledge
threatened against the Company relating to the continued listing of the
Company's Common Stock on the American Stock Exchange and the Company has not
received any notice of the delisting of the Common Stock from the American Stock
Exchange.
4.22 Acknowledgement of Dilution. The number of shares of Common
---------------------------
Stock issuable pursuant to this Agreement may increase substantially. The
Company's executive officers and directors have studied and fully understand the
nature of the transactions being contemplated hereunder and recognize that they
have a potential dilutive effect.
4.23 Brokers and Finders. The Investors shall have no liability or
-------------------
responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this agreement or the transactions
contemplated by this Agreement by reason of any agreement of or action taken by
the Company.
4.24 No Directed Selling Efforts or General Solicitation. Neither
---------------------------------------------------
the Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.25 No Integrated Offering. Neither the Company nor any of its
----------------------
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would adversely affect reliance by
the Company on Section 4(2) for the exemption from registration for the
8
transactions contemplated hereby or would require registration of the Securities
under the 0000 Xxx.
4.26 Disclosures. No representation or warranty made under any Section
-----------
hereof contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein, in light of the
circumstances under which the statements were made, not misleading.
5 Representations and Warranties of the Investors. Each of the Investors
-----------------------------------------------
hereby severally, and not jointly, represents, warrants and covenants to the
Company that:
5.1 Organization and Existence. The Investor is a validly existing
--------------------------
corporation or limited liability company and has all requisite corporate or
limited liability company power and authority to invest in the Securities
pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by the
-------------
Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be received
---------------------------------
by the Investor hereunder will be acquired for the Investor's own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof, and the Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor is not a
registered broker dealer or an entity engaged in the business of being a broker
dealer.
5.4 Investment Experience. The Investor acknowledges that it can bear
---------------------
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. The Investor has had an opportunity to
-------------------------
receive documents related to the Company and to ask questions of and receive
answers from the Company regarding the Company, its business and the terms and
conditions of the offering of the Securities. The Investor acknowledges receipt
of the SEC Filings and any other filings which it requested be made by the
Company with the SEC. Neither such inquiries nor any other due diligence
investigation conducted by the Investor shall modify, amend or affect the
Investor's right to rely on the Company's representations and warranties
contained in this Agreement.
5.6 Restricted Securities. The Investor understands that the
---------------------
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
9
5.7 Legends. (a) It is understood that, until registration for resale
-------
pursuant to the Registration Rights Agreement, certificates evidencing the
Securities may bear one or all of the following legends:
(i) "The shares represented by this certificate may not be
transferred without (i) the opinion of counsel satisfactory to the corporation
that such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities laws;
or (ii) such registration or qualification."
(ii) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
(b) Upon registration for resale pursuant to the Registration
Rights Agreement or upon Rule 144(k) becoming available, the Company shall
promptly cause certificates evidencing the Shares previously issued hereunder
(including Shares issued pursuant to Section 7.1 below) to be replaced with
certificates which do not bear such restrictive legends, and all other Shares or
Warrant Shares subsequently issued shall not bear such restrictive legends. When
the Company is required to cause unlegended certificates to replace previously
issued legended certificates, if unlegended certificates are not delivered to an
Investor within ten (10) business days of submission by that Investor of
legended stock certificate(s) to the Company's transfer agent, the Company shall
be liable to the Investor for a penalty equal to 2% of the aggregate purchase
price of the Shares evidenced by such certificate(s) for each thirty day period
(or portion thereof) beyond such ten days that the unlegended certificates have
not been so delivered.
5.8 Accredited Investor. The Investor is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. The Investor did not learn of the
-----------------------
investment in the Securities as a result of any public advertising or general
solicitation.
5.10 Short Position. The Investor does not currently have a short
--------------
position in the securities of the Company and during the MFN Period will not
engage in any market transactions in the Company's securities which are designed
to and have the effect of manipulating the market price of the Company's common
stock.
6. Registration Rights Agreement. The parties acknowledge and agree that
-----------------------------
part of the inducement for the Investors to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
10
7. Covenants and Agreements of the Company.
---------------------------------------
7.1 Purchase Price Adjustments.
--------------------------
(a) Required Adjustments. Subject to the exclusions
--------------------
contained in Section 7.1(f) below, if during the MFN Period (defined below) the
Company issues or sells any shares of its Common Stock at a Per Share Selling
Price (as defined below) lower than the Purchase Price set forth in Section 2.1
hereof, the Purchase Price of the Shares sold pursuant to Section 2.1 shall be
adjusted downward to equal such lower Per Share Selling Price and Investors
shall be entitled to receive the additional shares as provided by Section
7.1(c); provided, however, that in the event an Investor then owns less than 70%
of the Shares previously acquired by it hereunder on the Closing Date, such
Investor shall be entitled to additional shares only with respect to the number
of Shares then owned by such Investor from the Closing. The Company shall give
to the Investors written notice of any such sale within 24 hours of the closing
of any such issuance or sale. For so long as an Investor owns 70% or more of the
Shares originally acquired by such Investor hereunder in the Closing, such
Investor shall be entitled to the full benefit of the Purchase Price adjustment
required by this Section 7.1. The term "Shares" as used in this Agreement shall
include shares issued to the Investors pursuant to this Section 7.1.
(b) Definitions.
-----------
(i) For the purposes of this Section 7.1, the term
"Per Share Selling Price" as used in this Section 7.1 shall include the amount
actually paid by third parties for each share of Common Stock. In the event a
fee in excess of five percent (5%) of the gross sale price is paid by the
Company in connection with such transaction, any such excess amount shall be
deducted from the selling price pro rata to all shares sold in the transaction
to arrive at the Per Share Selling Price. A sale of shares of Common Stock shall
include the sale or issuance of rights, options, warrants or convertible
securities under which the Company is or may become obligated to issue shares of
Common Stock (either in the first instance or upon conversion or exercise of any
other convertible securities, rights, options or warrants), and in such
circumstances the Per Share Selling Price of the Common Stock covered thereby
shall also include the exercise or conversion price thereof (in addition to the
consideration received by the Company upon such sale or issuance less the excess
fee amount as provided above). In case of any such security issued within the
MFN Period in a "Variable Rate Transaction" or an "MFN Transaction" (each as
defined below), the Per Share Selling Price shall be deemed to be the lowest
conversion or exercise price at which such securities are converted or exercised
or might have been converted or exercised in the case of a Variable Rate
Transaction, or the lowest adjustment price in the case of an MFN Transaction,
over the life of such securities. If shares are issued for a consideration other
than cash, the Per Share Selling Price shall be the lower of (i) the value of
such consideration as determined in good faith by independent certified public
accountants mutually acceptable to the Company and the Investors; or (ii) the
Market Price upon the closing of such transaction giving rise to the adjustment
hereunder.
(ii) The term "Variable Rate Transaction" shall mean a
transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive other convertible securities or additional shares
of Common Stock either (x) at a conversion, exercise or exchange
11
rate or other price that is based upon and/or varies with the trading prices of
or quotations for the Common Stock at any time after the initial issuance of
such debt or equity securities, or (y) with a fixed conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock (but excluding standard stock
split anti-dilution provisions), or (b) any securities of the Company pursuant
to an "equity line" structure which provides for the sale, from time to time, of
securities of the Company which are registered for resale pursuant to the 1933
Act.
(iii) The term "MFN Transaction" shall mean a
transaction in which the Company issues or sells any securities in a capital
raising transaction or series of related transactions (the "New Offering") which
grants to the investor (the "New Investor") the right to receive additional
securities based upon future capital raising transactions of the Company on
terms more favorable than those granted to the New Investor in the New Offering.
(iv) The term "MFN Period" shall mean the period
ending twenty (20) months following the Closing Date.
(c) Adjustment Mechanism. If an adjustment of the Purchase
--------------------
Price is required pursuant to Section 7.1(a), the Company shall deliver to the
Investors within ten (10) calendar days of the closing of the transaction giving
rise to the adjustment ("Delivery Date") each Investor's pro-rata share of such
number of additional shares of Common Stock equal to (i) the aggregate Purchase
Price paid by the Investor pursuant to Sections 2.1, divided by the Per Share
Selling Price as required under Section 7.1(a), minus (ii) the total number of
shares of Common Stock previously delivered to that Investor hereunder; provided
however, that the Company shall effect such adjustment in cash, in whole or in
part, to the extent required by Section 7.1(d). In the event the Company fails
to deliver the additional shares (or cash, as the case may be) by the Delivery
Date, the Company shall be liable to the Investors for a penalty equal to 2% of
the aggregate Purchase Price adjustment per month (in each instance to such
Investor pro rata in accordance with its participation in this offering),
payable in Common Stock or cash, at each Investor's election.
(d) Limitation on Number of Shares.
------------------------------
(i) If by way of any adjustment required by this
Section 7.1, an Investor would receive a number of shares of Common Stock such
that the total number of such shares held by the Investor as of the date of such
adjustment would be greater than 9.99% of the total outstanding Common Stock of
the Company, then the Company shall not effect the adjustment required by this
Section to the extent necessary to avoid causing the aforesaid limitation to be
exceeded and shall agree to effect such adjustment at the earliest possible time
when such adjustment would not exceed the aforementioned limitation.
(ii) In the event that the Company would be obligated
to issue an amount of shares of Common Stock which, when aggregated with all
shares of Common Stock issued to an Investor, would constitute a breach of the
Company's obligations
12
under the rules or regulations of the American Stock Exchange as they apply to
the Company, or any other principal securities exchange or market upon which the
Common Stock is or becomes traded (the "Cap Regulations"), the Company shall not
be obligated to issue any such shares of Common Stock. Instead, the Company
shall promptly pay to the Investor at an amount equal to 105% of the cash value
of the adjustment with respect to such shares which would have exceeded the Cap
Regulations. Only shares acquired pursuant to this Agreement will be included in
determining whether the limitations would be exceeded for purposes of this
Section 7.1(d)(ii).
(iii) Notwithstanding anything to the contrary in this
Agreement, in no event will the total aggregate number of Shares and Warrant
Shares issuable pursuant to this Agreement exceed 19.99% (i.e., 5,630,122 shares
----
of Common Stock) of the outstanding Common Stock of the Company on the date
hereof.
(e) Capital Adjustments. In case of any stock split or
-------------------
reverse stock split, stock dividend, reclassification of the common stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of Section 7.1 shall be applied
in a fair, equitable and reasonable manner so as to give effect, as nearly as
may be, to the purposes hereof.
(f) Exclusions. Section 7.1(a) shall not apply to:
----------
(i) issuances of options to acquire shares or shares
of Common Stock by the Company pursuant to the provisions of any existing
shareholder-approved option or similar employee benefit plan heretofore adopted
by the Company;
(ii) sales of shares of Common Stock by the Company
upon conversion or exercise of any convertible securities, options or warrants
outstanding prior to the date hereof;
(iii) issuances by the Company of options or warrants
exercisable for a total of up to 250,000 shares of Common Stock to consultants
and advisors and the issuance of shares of Common Stock upon exercise of such
options and/or warrants;
(iv) issuances of securities convertible or
exercisable into shares of Common Stock by the Company pursuant to written
agreements existing as of the date hereof; or
(v) issuances by the Company of additional Securities
pursuant to Section 7.1 hereof.
7.2 Limitation on Transactions.
--------------------------
(a) From the Closing Date until the date of effectiveness
of the Registration Statement covering the Shares issued pursuant to Section 2.1
and the Warrant Shares, the Company will cause all of its directors and
executive officers to refrain from making sales of shares of Common Stock into
the public market and in addition, without the prior written
13
consent of the Investors (which consent may be withheld in the Investors'
discretion), the Company shall not issue or sell or agree to issue or sell for
cash any securities in a capital raising transaction other than (i) to existing
stockholders of the Company who are both corporate and strategic stockholders of
the Company; (ii) in connection with sales described in Section 7.1(f); or (iii)
in connection with a bona fide licensing transaction, the primary purpose of
which is not to raise capital.
(b) Until the expiration of the MFN Period, without the
prior written consent of the Investors (which consent may be withheld in the
Investors' discretion), the Company shall not (i) issue or sell or agree to
issue or sell for cash any securities in a MFN Transaction; or (ii) issue or
sell, or agree to issue or sell, for cash any securities in a Variable Rate
Transaction, provided, however, that the foregoing limitation on MFN
Transactions and Variable Rate Transactions shall not apply to any such
securities in total with an aggregate face value outstanding equal to or less
than eight percent (8%) of the market value of the Company's issued and
outstanding Common Stock.
7.3 Right of the Investors to Participate in Future Transactions.
------------------------------------------------------------
Until the expiration of the MFN Period, the Investors will have a right to
participate in future capital raising transactions (which shall not include bona
fide licensing transactions, the primary purpose of which is not to raise
capital) on the terms and conditions set forth in this Section 7.3. During such
period, the Company shall give seven (7) business days advance written notice to
the Investor prior to any non-public sale of any of the Company's equity
securities or any securities convertible into or exchangeable or exercisable for
such securities by providing to the Investors a comprehensive term sheet
containing all significant business terms of such a proposed transaction. The
Investors shall have the right (pro rata in accordance with the Investors'
participation in this offering) to purchase up to twenty-five percent (25%) of
the securities which are the subject of such a proposed transaction for the same
consideration and on the same terms and conditions as contemplated for such
third-party sale. The Investor(s)' rights hereunder must be exercised in
writing by the Investor(s) within five (5) business days following receipt of
the notice from the Company. If, subsequent to the Company giving notice to an
Investor hereunder but prior to the Investor exercising its right to participate
(or the expiration of the five-day period without response from the Investor),
the terms and conditions of the proposed third-party sale are changed from that
disclosed in the comprehensive term sheet provided to such Investor, the Company
shall be required to provide a new notice to the Investors hereunder and the
Investors shall have the right, which must be exercised within five (5) business
days of such new notice, to exercise their rights to purchase the securities on
such changed terms and conditions as provided hereunder. In the event the
Investors do not exercise their rights hereunder, or affirmatively decline to
engage in the proposed transaction with the Company, then the Company may
proceed with such proposed transaction on the same (or substantially similar,
provided that the Investor is given at least 24 hours notice of any change and
the opportunity within that 24 hour period to exercise its right to participate
in accordance herewith) terms and conditions as noticed to the Investors
(assuming the Investors have consented to the transaction, if required, pursuant
to Section 7.2 of this Agreement). The rights and obligations of this Section
7.3 shall in no way diminish the other rights of the Investors pursuant to this
Section 7.
7.4 Opinion of Counsel. On or prior to the Closing Date, the Company
------------------
will deliver to the Investors the opinion of legal counsel to the Company, in
form and substance
14
reasonably acceptable to the Investors, addressing those legal matters set forth
in Schedule 7.4 hereto.
------------
7.5 Reservation of Common Stock Pursuant to Section 7.1 and Exercise
----------------------------------------------------------------
of Warrants. The Company hereby agrees at all times to reserve and keep
-----------
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the exercise of the Warrants, such number of shares
of Common Stock as shall from time to time equal the number of shares sufficient
to permit the exercise of the Warrants in accordance with the terms of the
Warrants. In addition, as soon as such number is determinable, the Company
agrees to reserve such shares as may be necessary to permit the issuances to the
Investors required by Section 7.1.
7.6 Reports. In the event the Company no longer files periodic
-------
reports with the SEC and for so long as the Investors beneficially own any of
the Securities, the Company will furnish to the Investors the following reports,
each of which shall be provided to the Investors by air mail:
(a) Quarterly Reports. Consolidated balance sheets of the
-----------------
Company as at the end of each fiscal quarter and the related consolidated
statements of operations, stockholders' equity and cash flows for such period
and for the portion of the Company's fiscal year ended on the last day of such
quarter, all in reasonable detail and certified by a principal financial officer
of the Company to have been prepared in accordance with generally accepted
accounting principles, subject to year-end and audit adjustments.
(b) Annual Reports. Consolidated balance sheets of the Company
--------------
as of the end of each fiscal year and the related consolidated statements of
earnings, stockholders' equity and cash flows for such year, all in reasonable
detail and accompanied by the report on such consolidated financial statements
of an independent certified public accountant selected by the Company and
reasonably satisfactory to the Investor.
(c) Documents Sent to Stockholders. Copies of all notices, proxy
------------------------------
statements, financial statements, reports and documents as the Company shall
send or make available generally to its stockholders, promptly after providing
same to the stockholders.
(d) Other Information. Such other information relating to the
-----------------
Company as from time to time may reasonably be requested by the Investors
provided the Company produces such information in its ordinary course of
business, and further provided that the Company, solely in its own discretion,
determines that such information is not confidential in nature and disclosure to
the Investors would not be harmful to the Company.
7.7 Press Releases. Any press release or other publicity concerning
--------------
this Agreement or the transactions contemplated by this Agreement shall be
submitted to the Investors for comment at least two (2) business days prior to
issuance, unless the release is required to be issued within a shorter period of
time by law or pursuant to the rules of a national securities exchange.
15
7.8 No Conflicting Agreements. The Company will not take any action,
-------------------------
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the obligations to the Investors under the
Agreements.
7.9 Insurance. So long as the Investors beneficially own any
---------
Securities, the Company shall not materially reduce the insurance coverages
described in Section 4.20, other than insurance for discontinued products.
7.10 Compliance with Laws. So long as the Investors beneficially own
--------------------
any Securities, the Company will use reasonable efforts to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
7.12 Listing of Underlying Shares and Related Matters. The Company
------------------------------------------------
hereby agrees, promptly following the Closing of the transactions contemplated
by this Agreement, to take such action to cause the Shares and the Warrant
Shares to be listed on the American Stock Exchange as promptly as possible but
no later than the effective date of the registration contemplated by the
Registration Rights Agreement. The Company further agrees that if the Company
applies to have its Common Stock or other securities traded on any other
principal stock exchange or market, it will include in such application the
Warrant Shares and will take such other action as is necessary to cause such
Common Stock to be so listed. For so long as the Investors beneficially own any
of the Securities, the Company will use its best efforts to continue the listing
and trading of its Common Stock on the American Stock Exchange, Nasdaq National
Market, Nasdaq SmallCap Market or New York Stock Exchange and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of such exchange, as applicable, to ensure the continued
eligibility for trading of the Shares and the Warrant Shares thereon.
7.13 Corporate Existence. So long as the Investors beneficially own
-------------------
any of the Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (a) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith,
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to fulfill
its obligations hereunder and effect the exercise in full of all Warrants
outstanding as of the date of such transaction; (b) has no legal, contractual or
other restrictions on its ability to perform the obligations of the Company
hereunder and under the agreements and instruments entered into in connection
herewith; and (c) is a publicly traded corporation whose common stock and the
shares of capital stock issuable upon exercise of the Warrants are (or would be
upon issuance thereof) listed for trading on the American Stock Exchange, the
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or other recognized foreign exchange; provided, however, that in the event of a
merger or other transaction as a result of which the Company is not a surviving
public company, the Investor shall have the option to require the Company to
repurchase all of the shares of Common Stock (and Common Stock equivalents) then
held by the Investor at a price equal to 120% of the adjusted Purchase Price for
the shares.
16
8. Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of two years from the date of this
Agreement; provided, however, that the provisions contained in Section 7 hereof
shall survive in accordance therewith.
9. Miscellaneous.
-------------
9.1 Successors and Assigns. This Agreement may not be assigned by a
----------------------
party hereto without the prior written consent of the other party hereto, except
that without the prior written consent of the Company, but after notice duly
given, an Investor may assign its rights and delegate its duties hereunder in
whole or in part to an Affiliate or to a third party acquiring some portion or
all of its Shares in a private transaction, and without the prior written
consent of the Investors, but after notice duly given and in compliance with
this Agreement, the Company may assign its rights and delegate its duties
hereunder to any successor-in-interest corporation in the event of a merger or
consolidation of the Company with or into another corporation, or any merger or
consolidation of another corporation with or into the Company that results
directly or indirectly in an aggregate change in the ownership or control of
more than 50% of the voting rights of the equity securities of the Company, or
the sale of all or substantially all of the Company's assets. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telex or telecopier, upon receipt of confirmation of
complete transmittal, or (iii) an internationally recognized overnight air
courier, addressed to the party to be notified at the address as follows, or at
such other address as such party may designate by ten days' advance written
notice to the other party:
If to the Company:
Sheffield Pharmaceuticals, Inc.
17
000 Xxxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xx. Xxxxx, XX 00000-0000
Attn: President
Fax: 314/000-0000
If to the Investors, to the addresses set forth
on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and
--------
expenses in connection herewith, except that the Company shall pay to Tail Wind,
Inc. a sum equal to 0.75% of the aggregate Purchase Price as and for
reimbursement for due diligence expenses incurred in connection herewith and
such amount shall be paid at Closing from gross proceeds of the offering.
9.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
9.7 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.8 Entire Agreement. This Agreement, including the Exhibits and
----------------
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.9 Further Assurances. The parties shall execute and deliver all
------------------
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfilment of the agreements herein contained.
9.10 Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
The Company: SHEFFIELD PHARMACEUTICALS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
-----------------------------------
President and Chief Executive Officer
The Investor: The Tail Wind Fund Ltd.
By: /s/ The Tail Wind Fund Ltd.
-----------------------------------
Aggregate Purchase Price: 2,250,000
---------
Number of Shares of Common Stock: 626,950
-------
Number of Warrants: 112,500
--------
(50,000 Warrants for each $1,000,000 of aggregate Purchase Price)
Effective per share Purchase Price of Shares: $3.5888
------
Exercise price of Warrants: $4.983
-----
Address for Notice: The Tail Wind Fund Ltd.
MeesPierson (Bahamas) Ltd.
Attn: Xx. Xxxxx
Windemere House, 000 Xxxx Xxx Xxxxxx
P.O. Box SS 5539, Nassau, Bahamas
Tel: 242/000-0000
Facsimile: 242/393-9021
with a copy to: Xxxxx Xxxxx, Esq.
x/x XXXX
0xx Xxxxx, No. 0 Xxxxxx Xxxxxx
Xxxxxx, XX0X 0XX XX
Telephone: 00-000-000-0000
Facsimile: 00-000-000-0000
and with a copy to: Xxxxx Xxxx LLP
000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, XX 00000
Attn: XxXxxx Xxxxxx
Telephone: 202/000-0000
Facsimile: 202/508-6200
19
