SECURITIES PURCHASE
AGREEMENT
This Securities
Purchase Agreement (“ Agreement ”) is
made as of July 2, 2009 (the “ Effective
Date ”), by and among Somaxon Pharmaceuticals, Inc.,
a Delaware corporation (the “ Company ”),
and each of those persons and entities, severally and not jointly,
listed as a Purchaser on the Schedule of Purchasers attached as
Exhibit A hereto (the “ Schedule of
Purchasers ”). Such persons and entities are
hereinafter collectively referred to as “
Purchasers ” and each individually as a “
Purchaser ”.
In consideration
of the mutual covenants contained in this Agreement, and for other
good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and each Purchaser (severally and not
jointly) hereby agree as follows:
SECTION 1.
AUTHORIZATION OF SALE OF SECURITIES.
The Company has
authorized the sale and issuance of 5,106,375 shares of its Common
Stock, par value $0.0001 per share (the “ Common
Stock ”), and warrants in the form of
Exhibit B hereto to purchase an aggregate of 5,106,375
shares of Common Stock (each a “ Warrant
,” and collectively, the “ Warrants
”), on the terms and subject to the conditions set forth in
this Agreement. The shares of Common Stock sold hereunder at the
Closing (as defined below) shall be referred to as the “
Shares .” The Shares and the Warrants shall be
referred to collectively as the “ Securities
.”
SECTION 2.
AGREEMENT TO SELL AND PURCHASE THE SECURITIES.
2.1 Sale of
Securities . At the Closing (as defined in Section 3), the
Company will sell to each Purchaser, and each Purchaser will
purchase from the Company, (a) the number of Shares set forth
opposite such Purchaser’s name on the Schedule of Purchasers
at a purchase price of $1.05 per Share and (b) a Warrant to
purchase the number of shares of Common Stock set forth opposite
such Purchaser’s name on the Schedule of Purchasers (such
shares of Common Stock, the “ Warrant Shares
”), which Warrant shall have an exercise price equal to
$1.155 per Warrant Share, and which Warrant shall have a purchase
price equal to $0.125 per Warrant Share.
2.2 Separate
Agreement . Each Purchaser shall severally, and not jointly, be
liable for only the purchase of the Securities that appear on the
Schedule of Purchasers that relate to such Purchaser. The
Company’s agreement with each of the Purchasers is a separate
agreement, and the sale of Securities to each of the Purchasers is
a separate sale. Subject to the satisfaction of the closing
condition set forth in Section 7.6, the obligations of each
Purchaser hereunder are expressly not conditioned on the purchase
by any or all of the other Purchasers of the Securities such other
Purchasers have agreed to purchase.
SECTION 3.
CLOSING AND DELIVERY.
3.1 Closing
. The closing of the purchase and sale of the Securities (which
Securities are set forth in the Schedule of Purchasers) pursuant to
this Agreement (the “ Closing ”) shall be
held on July 8, 2009 at the offices of Latham & Watkins
LLP, 12636 High Bluff Drive, Suite 400, San Diego, California
92130, or on such other date and place as may be agreed to by the
Company and the Purchasers. At or prior to the Closing, each
Purchaser shall execute any related agreements or other documents
required to be executed hereunder, dated as of the date of the
Closing (the “ Closing Date
”).
3.2 Issuance of
the Securities. The Company shall issue to each Purchaser
(a) promptly following the Closing Date, stock certificates
registered in the name of such Purchaser, or in such nominee
name(s) as designated by such Purchaser, representing the number of
Shares to be purchased by such Purchaser at such Closing as set
forth in the Schedule of Purchasers, against payment of the
purchase price for such Shares and (b) at the Closing, a
Warrant registered in the name of such Purchaser, or in such
nominee name(s) as designated by such Purchaser, representing the
number of Warrant Shares as set forth in the Schedule of
Purchasers. The name(s) in which the stock certificates and Warrant
are to be issued to each Purchaser are set forth in the Stock
Certificate Questionnaire and the Registration Statement
Questionnaire in the form attached hereto as Exhibits C and
D , respectively (the “ Stock Certificate
Questionnaire ” and the “ Registration
Statement Questionnaire ,” respectively), as
completed by each Purchaser, which shall be provided to the Company
no later than the Closing Date. The physical delivery of the stock
certificates and Warrants to each Purchaser shall be made promptly
following the Closing Date.
SECTION 4.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY.
Except as
otherwise expressly described in the Company’s filings on
EDGAR with the Securities and Exchange Commission (the “
Commission ”) since December 31, 2008 (the
“ Commission Documents ”), or in the
Company’s press releases as posted on the website of the
Company in the News Section since December 31, 2008 (the
“ Press Releases ,” and together with the
Commission Documents, the “ Company Information
”), which qualify the following representations and
warranties in their entirety, the Company hereby represents and
warrants to, and covenants with, each Purchaser, as
follows:
4.1
Organization and Standing. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, has full corporate power
and authority to own or use its properties and assets and to
conduct its business as presently conducted, and is duly qualified
as a foreign corporation and in good standing in all jurisdictions
in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification
necessary, except where the failure to be so qualified would not be
reasonably expected to have a material adverse effect on the
business, prospects, properties, condition, financial or otherwise,
or results of operations of the Company or materially impairs the
Company’s ability to complete its obligations pursuant to
this Agreement or the Warrants (a “ Company Material
Adverse Effect ”).
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4.2 Corporate
Power; Authorization. The Company has the requisite power and
authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of
this Agreement, the Warrants and the other documents required to be
delivered pursuant hereto or thereto (the “ Transaction
Documents ”) by the Company and the consummation by
it of the transactions contemplated hereunder and thereunder have
been duly authorized by all necessary corporate action on the part
of the Company, and no further consent or action is required by the
Company, its Board of Directors or its stockholders. Each of the
Transaction Documents to which it is a party have been duly
executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding
obligation of the Company, enforceable against the Company in
accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting the enforcement of
creditors’ rights generally; and (ii) as limited by equitable
principles generally, including any specific
performance.
4.3 No
Conflicts or Violations. The execution, delivery and
performance of the Transaction Documents to which it is a party by
the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not
(i) conflict with or violate any provision of the
Company’s Amended and Restated Certificate of Incorporation
(the “ Certificate of Incorporation ”) or
Amended and Restated Bylaws (the “ Bylaws
”); (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company debt or otherwise) to which
the Company is a party or by which any property or asset of the
Company is bound or affected; or (iii) result in a violation
of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to
which the Company is subject (including federal and state
securities laws and regulations) and the rules and regulations of
any self-regulatory organization to which the Company or its
securities are subject, or by which any property or asset of the
Company is bound or affected, except in the case of clauses
(ii) and (iii), such as would not, individually or in the
aggregate, be reasonably expected to result in a Company Material
Adverse Effect.
4.4
Governmental Consents. No consent, approval, authorization,
filing with or order of or registration with, any court or
governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been or will
be obtained or made under the Securities Act of 1933, as amended
(the “ Securities Act ”), or the
Securities Exchange Act of 1934, as amended (the “
Exchange Act ”), and such as may be required
under the securities, or blue sky, laws of any jurisdiction in
connection with the offer and sale of the Securities by the Company
in the manner contemplated herein or the issuance of the Warrant
Shares in the manner contemplated in the Warrants.
4.5 Issuance
and Delivery of the Securities. The Securities have been duly
authorized and, when issued and paid for in compliance with the
provisions of the Transaction Documents to which it is a party,
will be validly issued, fully paid and nonassessable. The Warrant
Shares have been duly authorized and, upon exercise of the Warrants
in accordance with
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their terms,
including payment of the exercise price therefore, will be validly
issued, fully paid and nonassessable. The Company has reserved from
its duly authorized capital stock the maximum number of shares of
Common Stock issuable upon the exercise of the Warrants. The
Company shall maintain a reserve from its duly authorized shares of
Common Stock in such amount as may be required to fulfill its
obligations to issue the Warrant Shares under the Warrants. In the
event that at any time the then authorized shares of Common Stock
are insufficient for the Company to satisfy its obligations to
issue the Warrant Shares, the Company shall promptly take such
actions as may be required to increase the number of authorized
shares. The issuance and delivery of neither the Securities nor the
Warrant Shares is subject to preemptive, co-sale, right of first
refusal or any other similar rights of the stockholders of the
Company or any liens or encumbrances. Assuming the accuracy of the
representations made by each Purchaser in Section 5, the offer
and issuance by the Company of the Securities pursuant to this
Agreement and, in the case of the Warrant Shares, pursuant to the
Warrants, is exempt from registration under the Securities
Act.
4.6
Capitalization. All of the Company’s outstanding
shares of capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and were not
issued in violation of or subject to any preemptive right, co-sale
right or other rights to subscribe for or purchase securities. The
authorized capital stock of the Company consists of 100,000,000
shares of Common Stock and 10,000,000 shares of undesignated
Preferred Stock. As of the Effective Date, there are no shares of
Preferred Stock issued and outstanding and there are 18,460,975
shares of Common Stock issued, consisting of 18,415,247 shares of
Common Stock outstanding and 45,728 shares of Common Stock held in
treasury. There are no other shares of any other class or series of
capital stock of the Company issued or outstanding. The Company has
no capital stock reserved for issuance, except that, as of the
Effective Date: (i) 604,452 shares of Common Stock are
reserved for issuance upon the exercise of outstanding warrants;
(ii) 584,045 shares of Common Stock are subject to currently
outstanding stock options issued under the Company’s 2004
Equity Incentive Award Plan (the “ 2004 Plan
”), and no shares of Common Stock remain available for future
issuance under the 2004 Plan; (iii) 3,164,560 shares of Common
Stock are subject to currently outstanding stock options issued
under the Company’s 2005 Equity Incentive Award Plan (the
“ 2005 Plan ”), 120,000 shares of Common
Stock are outstanding as unvested restricted stock under the 2005
Plan, 1,372,916 shares of Common Stock are subject to currently
outstanding restricted stock units under the 2005 Plan, and
1,869,272 shares of Common Stock remain available for future
issuance under the 2005 Plan; and (iv) 849,454 shares of Common
Stock remain available for future issuance under the
Company’s 2005 Employee Stock Purchase Plan. Except as stated
above, there are no outstanding options, warrants, or other rights
to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company
that have been granted by the Company. As of the date hereof,
except as set forth above or as otherwise provided herein, the
Company has not entered into any agreement giving any Person the
right to subscribe for or acquire, any shares of Common Stock, or
securities or rights convertible or exchangeable into Shares of
Common Stock, other than agreements that have expired or
terminated. The issuance of Common Stock or other securities
pursuant to any provision of this Agreement or the Warrants will
not give rise to any preemptive rights, rights of first refusal or
any other similar rights on behalf of any person or result in the
triggering of any anti-dilution, the right of any holder of
securities to adjust the exercise,
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conversion
exchange or reset price under any such securities or other similar
rights. There are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the
sale or resale of any of their securities under the Securities Act.
There are no securities or instruments containing anti-dilution
provisions that will be triggered by the issuance of the Securities
or the Warrant Shares.
4.7 Commission
Documents; Financial Statements. The Company has filed all
reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the
12 months preceding the date hereof on a timely basis. Each
such documents and any document incorporated into any Registration
Statement (as defined below) complies or will comply in all
material respects with the Exchange Act, and none of such
documents, when filed by the Company, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. Except as otherwise disclosed in
the Commission Documents, (i) since December 31, 2008,the
Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables, accrued expenses and other
liabilities incurred in the ordinary course of business consistent
with past practice, (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the
Commission, (C) liabilities incurred in connection with events
disclosed in the Company Information, and (D) other
liabilities that would not, individually or in the aggregate,
result in a Company Material Adverse Effect; (ii) the Company
has not altered its critical accounting policies from those
disclosed in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 (the “ 2008
10-K ”); (iii) since December 31, 2008, the
Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its
capital stock, except with respect to the one-time option exchange
offer completed by the Company on June 9, 2009; and
(iv) since December 31, 2008, the Company has not issued
any equity securities to any officer, director or affiliate of the
Company, except pursuant to existing Company stock incentive or
purchase plans. The Company does not have pending before the
Commission any request for confidential treatment of information or
documents. The Company has not taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company believe that
its creditors intend to initiate involuntary bankruptcy
proceedings. The Company, after giving effect to the transactions
contemplated hereby, will not be Insolvent (as defined below). For
purposes of this Section 4.7, “ Insolvent
” means (i) the present fair saleable value of the
Company’s assets is less than the amount required to pay the
Company’s total Indebtedness (as defined in
Section 4.8), (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, or (iii) the
Company intends to incur or believes that it will incur debts that
would be beyond its ability to pay as such debts mature.
4.8
Indebtedness. The Company has no outstanding Indebtedness
(as defined below) which is expected to have a Company Material
Adverse Effect, and is not a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which,
has or is expected to have a Company Material Adverse Effect. For
purposes of this Agreement: (x) “ Indebtedness
” of any person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of
5
property or
services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and
other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds
of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement
which, in connection with GAAP, consistently applied for the
periods covered thereby, is classified as a capital lease,
(G) all indebtedness referred to in clauses (A) through
(F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest
or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through
(G) above; and (y) “ Contingent Obligation
” means, as to any person, any direct or indirect liability,
contingent or otherwise, of that person with respect to any
indebtedness, lease, dividend or other obligation of another person
if the primary purpose or intent of the person incurring such
liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid
or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect
thereto.
4.9 No
Proceedings or Investigations. There is no proceeding, or, to
the knowledge of the executive officers of the Company, inquiry or
investigation, before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of the Company, threatened
against or affecting the Company (other than any proceeding,
inquiry or investigation existing as of the date hereof relating to
the Company’s resubmission of its New Drug Application for
Silenor to the U.S. Food and Drug Administration (“
FDA ”)) that (i) could result in a Company
Material Adverse Effect or (ii) could impair the ability of
the Company to perform in any material respect its obligations
under this Agreement. Neither the Company nor any director or
officer is, or within the last ten years has been, the subject of
any action involving a claim of violation of or liability under
federal or state securities laws relating to the Company or a claim
of breach of fiduciary duty relating to the Company.
4.10 NASDAQ
Compliance. The Company has not, in the twelve months preceding
the date hereof, received notice (written or oral) from the
Financial Industry Regulatory Authority or NASDAQ to the effect
that the Company is not in compliance with the listing or
maintenance requirements of the NASDAQ Capital Market. Other than
the failure to meet the stockholders’ equity requirement in
accordance with NASDAQ Listing Rule 5550(b)(1) for the quarter
ending June 30, 2009, the Company is in compliance with all
such listing and maintenance requirements that have not been
suspended by the NASDAQ Capital Market. The issuance and sale of
the Securities under this Agreement does not, and the issuance of
the Warrant Shares pursuant to the Warrant will not, contravene the
rules and regulations of the NASDAQ Capital Market, and
no
6
approval of the
stockholders of the Company thereunder is required for the Company
to issue and deliver the Securities or, if applicable, the Warrant
Shares to the Purchasers.
4.11
Sarbanes-Oxley Act . The Company is in compliance in all
material respects with the requirements of the Sarbanes-Oxley Act
of 2002 that are effective and applicable to the Company as of the
date hereof, and the rules and regulations promulgated by the
Commission thereunder that are effective and applicable to the
Company as of the date hereof.
4.12 Disclosure
Controls and Procedures; Internal Control Over Financial
Reporting . The Company has established and maintains
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) that comply in all material
respects with the Exchange Act and are effective in all material
respects to ensure that material information relating to the
Company, including its subsidiaries, is made known to its principal
executive officer and principal financial officer by others within
those entities. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure
controls and procedures as of December 31, 2008. The Company
presented in the 2008 10-K the conclusions of the certifying
officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of December 31, 2008.
Since December 31, 2008, there have been no significant
changes in the Company’s internal controls over financial
reporting (as would be required to be disclosed pursuant to Item
308(c) of Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors, that could adversely
and significantly affect the Company’s internal control over
financial reporting.
4.13 No
Integrated Offering. Neither the Company, nor any person acting
on its 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 cause the offering of Shares
contemplated by this Agreement to be integrated or aggregated with
prior offerings by the Company for purposes of the Securities Act
or the rules and regulations of the Nasdaq Capital Market.
Additionally, the Company hereby covenants that it shall not, and
shall ensure that no affiliate thereof shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a
manner that would require stockholder consent to be obtained in
connection with the issuance of the Securities pursuant to this
Agreement.
4.14 Price of
Common Stock . The Company has not taken, and will not take,
directly or indirectly, any action designed to cause or result in,
or that has constituted or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Shares or the Warrant Shares.
4.15 No General
Solicitation . Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the
meaning of Regulation D promulgated under the Securities Act)
in connection with the offer or sale of the Securities.
7
4.16 No
Registration Rights . No holder of any security of the Company
has any right, which has not been waived, to have any security
owned by such holder included in the Registration Statements (as
such term is defined in Section 8.1(a)(i)).
4.17
Publicity . Except as required by law or as otherwise
provided in this Section 4.17, the Company shall not issue any
press release or make any public statement (excluding information
contained in the Registration Statements (as defined below))
listing any Purchaser as a purchaser of the Shares without the
prior approval of such Purchaser. The Company shall, on or before
8:30 a.m., Eastern time, on the second Trading Day following
execution of this Agreement, issue a press release disclosing all
material terms of the transactions contemplated hereby. The Company
shall file a Current Report on Form 8-K with the SEC (the “
8-K Filing ”) describing the terms of the
transactions contemplated by the Transaction Documents and
including as exhibits to such Current Report on Form 8-K this
Agreement and the form of Warrant (including the schedules and the
names, and addresses of the Investors and the amount(s) of
Securities respectively purchased), in the form, and within the
timeframe, required by the Exchange Act. Thereafter, the Company
shall timely file any filings and notices required by the SEC or
applicable law with respect to the transactions contemplated
hereby. Except as herein provided, the Company shall not publicly
disclose the name of any Investor, or include the name of any
Investor in any press release without the prior written consent of
such Investor, unless otherwise required by law.
4.18
Disclosure . Except for any information provided to a
Purchaser pursuant to a specific due diligence request by such
Purchaser to receive material nonpublic information or pursuant to
a binding non-disclosure agreement, the Company confirms that
neither it nor any officers, directors or affiliates, has provided
any of the Purchasers or their agents or counsel with any
information that constitutes material, nonpublic information (other
than the existence and terms of the issuance of Securities, as
contemplated by this Agreement). The Company understands and
confirms that each of the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the
Company. To the Company’s knowledge, except for the
transactions contemplated by this Agreement, no event or
circumstance has occurred or information exists with respect to the
Company or its business, properties, operations or financial
condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company prior to
the date hereof but which has not been so publicly announced or
disclosed. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties to the Company
with respect to the transactions contemplated hereby other than
those set forth in the Transaction Documents.
4.19 Title to
Assets . The Company has good and marketable title in all
personal property owned by it that is material to the business of
the Company, in each case free and clear of all liens, encumbrances
and defects, except as described in the Commission Documents or as
do not individually or in the aggregate have or result in a Company
Material Adverse Effect. Any real property and facilities held
under lease by the Company are held by it under valid, subsisting
and enforceable leases of which the Company is in material
compliance. The Company does not own any real property.
8
4.20
Intellectual Property .
(a) The
Company owns or possesses valid and enforceable rights to use, or
can acquire on reasonable terms such ownership of or rights to use,
all patents, patent applications, patent rights, licenses,
inventions, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, data,
systems or procedures), copyrights, trademarks, service marks,
service names, trade names and other intellectual property
necessary for the conduct of the Company’s business as now
conducted or as currently proposed to be conducted, and all other
rights reasonably necessary for the development, manufacture, use
or sale of its current products and currently proposed products, as
described in the Commission Documents (collectively, “
Intellectual Property ”), except in each case
where the failure to so own or possess such rights would not
reasonably be expected to have a Company Material Adverse
Effect.
(b) In
connection with Intellectual Property owned by or licensed to the
Company, and to the Company’s knowledge:
(i)
except as would not reasonably be expected to have a Company
Material Adverse Effect, there are no valid and enforceable rights
of third parties to such Intellectual Property that are or would be
infringed by the business currently conducted by the Company or in
the manufacture, use, sale, offer for sale or import of its
presently proposed products, as described in the Commission
Documents;
(ii)
there is no pending or threatened action, suit, proceeding or claim
by third parties challenging the Company’s rights in or to
any Intellectual Property, which if adversely determined would
reasonably be expected to have a Company Material Adverse Effect,
and the Company is unaware of any facts which could form a
reasonable basis for any such action, suit, proceeding or
claim;
(iii)
except as would not be reasonably expected to have a Company
Material Adverse Effect, there is no patent or published patent
application which contains claims that dominate or would dominate
any patent of the Intellectual Property, that would interfere with
the issued or pending claims of any patent of the Intellectual
Property or that the Company expects would result in the invalidity
or unenforceability of any of the Intellectual Property;
(iv)
there is no infringement by third parties of any Intellectual
Property; and
(v)
there is no pending or threatened action, suit, proceeding or claim
by third parties that the Company infringes or otherwise violates,
or would, upon the commercialization of any product or service
described in the Commission Documents, if any, as under
development, infringe or violate, any patent, trademark,
tradenames, service name, copyright, trade secret or other
proprietary rights of others, which if adversely determined would
reasonably be expected to have a Company Material
9
Adverse Effect,
and the Company is unaware of any facts which could form a
reasonable basis for any such action, suit, proceeding or
claim.
(c) To
the Company’s knowledge and except as would not be reasonably
expected to have a Company Material Adverse Effect:
(i)
all patents and patent applications filed by or on behalf of the
Company are owned, or co-owned by the Company free and clear of all
liens, encumbrances, defects or other restrictions, except with
respect to licenses granted in the ordinary course of business as
described in the Commission Documents;
(ii)
except with respect to actions taken by the USPTO or other
applicable governmental departments in the course of the
prosecution of patent and trademark applications or as disclosed in
the Commission Documents, the Intellectual Property owned by or
exclusively licensed to the Company is not subject to any judgment,
order, writ, injunction or decree of any court or any federal,
state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or
any arbitrator; and
(iii)
all prior art references known to the Company that could reasonably
be considered relevant to the patentability of any claim in any
patent application or patent within the Intellectual Property have
been or will be disclosed to the U.S. Patent and Trademark Office
to the extent required by and in accordance with 37 C.F.R.
Section 1.56; and neither the Company nor to the
Company’s knowledge any other person has made any material
misrepresentations or concealed any material information from the
USPTO in such applications, or in connection with the prosecution
of such applications, in violation of 37 C.F.R.
Section 1.56.
(d) In
connection with Intellectual Property licensed to the Company, the
Company has complied in all material respects with the terms of
each agreement pursuant to which Intellectual Property has been
licensed to the Company, and all such agreements are in full force
and effect.
4.21 Regulatory
Compliance.
(a) The
Company is not in violation of the Federal Food, Drug, and Cosmetic
Act, 42 U.S.C. Sec. 1320a-7b (the United States anti-kickback
statute), or the regulations and regulatory guidance promulgated
thereunder or similar legal requirements of any foreign
jurisdiction (collectively, “ Drug Laws
”), including but not limited to those relating to good
laboratory practices, good clinical practices, adverse event
reporting, good manufacturing practices, advertising and promotion,
recordkeeping, and filing of reports.
(b) All
drug products being manufactured or developed by or on behalf of
the Company are being manufactured, labeled, stored, tested, and
developed in compliance with applicable Drug Laws.
10
(c) The
Company has not received written notice or other communication,
whether written or non-written, from the FDA or any other similar
foreign governmental regulatory authority (i) alleging or asserting
noncompliance with any Drug Laws or any licenses, certificates,
approvals, clearances, authorizations, or permits required by any
such Drug Laws necessary for the conduct of the Company’s
business; (ii) indicating an intention to conduct an
investigation, audit, or review; or (iii) notifying the
Company of any inspectional observation (including those recorded
on form FDA-483), establishment inspection report, warning letter,
untitled letter, penalty, fine, sanction, request for recall or
other remedial action. There are no lawsuits, actions,
arbitrations, proceedings, or charges pending or, to the
Company’s knowledge, threatened against the Company with
respect to a violation by the Company of any Drug Law.
(d) The
Company has delivered or made available to the Purchasers all
material correspondence and material meeting minutes received from
or sent to FDA or any other similar foreign governmental authority,
and all written reports of telephone conversations, visits or other
contact with FDA and any other similar foreign governmental
authority, relating to the Company’s development of Silenor
(doxepin HCl) for commercial marketing, in each case other than any
raw data delivered or made available to the FDA in connection
therewith.
(e) Neither
the Company nor any director, officer, employee, or, to the
Company’s knowledge, any agent of the Company has made an
untrue statement of a material fact or fraudulent statement to FDA
or any other similar foreign governmental authority, failed to
disclose a material fact required to be disclosed to FDA or any
other similar governmental authority, or committed any act, made
any statement, or failed to make any statement, that would
reasonably be expected to provide a basis for FDA to invoke its
policy respecting “Fraud, Untrue Statements of Material Fact,
Bribery, and Illegal Gratuities,” set forth in FDA’s
Compliance Policy Guide Sec. 120.100 (CPG 7150.09).
(f) Neither
the Company nor, to the knowledge of the Company, any director,
officer, employee, or agent of the Company has been convicted of
any crime or engaged in any conduct that would reasonably be
expected to result in or that has resulted in (i) permanent
debarment under 21 U.S.C. Sec. 335a or any similar state or federal
law or (ii) exclusion from participation in federal health
care programs under 42 U.S.C. Sec. 1320a-7 or any similar state or
federal law.
4.22 Investment
Company Act . The Company is not required to be registered as,
and is not an affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as
amended.
4.23
Form S-3 Eligibility . Except as may be limited by
written guidance, rules of general applicability of the Commission
staff, or comments, requirements or requests of the Commission, the
Company satisfies the registrant requirements for the use of a
registration statement on Form S-3 to register the Shares and the
Warrant Shares for resale by the Purchasers under the Securities
Act.
4.24
Transactions With Affiliates and Employees . Except as set
forth or incorporated by reference in the Commission Documents or
described in this Agreement, none of
11
the officers,
directors or employees of the Company is presently a party to any
transaction that would be required to be reported pursuant to
Item 404 of Regulation S-K promulgated under the
Securities Act.
4.25 Internal
Accounting Controls . The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
4.26
Environmental Laws . The Company (i) is in compliance
in all material respects with any and all Environmental Laws (as
hereinafter defined), (ii) has received all permits, licenses
or other approvals required of it under applicable Environmental
Laws to conduct its business and (iii) is in compliance in all
material respects with all terms and conditions of any such permit,
license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply would be reasonably
expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The term “ Environmental
Laws ” means all federal, state, local or foreign
laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes
(collectively, “ Hazardous Materials ”)
into the environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated
or approved thereunder.
4.27 Employment
Matters . The Company is in compliance in all material respects
with all federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours. All
nonqualified deferred compensation plans maintained by the Company
or any of its affiliates which plans are or have been subject to
Section 409A of the Internal Revenue Code are and have at all
time been in compliance in all material respects
therewith.
4.28 Foreign
Corrupt Practices. Neither the Company nor, to the knowledge of
the Company, any director, officer, agent, employee or other Person
acting on behalf of the Company has, in the course of its actions
for, or on behalf of, the Company (i) used any corporate funds
for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made
any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds;
(iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
12
4.29 Encumbered
Securities. The Company will not object to and shall permit
(except as prohibited by law) a Purchaser to pledge or grant a
security interest in some or all of the Securities and/or Warrant
Shares in connection with a bona fide margin agreement or other
loan or financing arrangement secured by the Securities and/or
Warrant Shares, and if required under the terms of such agreement,
loan or arrangement, the Company will not object to and shall
permit (except as prohibited by law) such Purchaser to transfer
pledged or secured Securities and/or Warrant Shares to the pledges
or secured parties. Except as required by law, such a pledge or
transfer would not be subject to approval of the Company, no legal
opinion of the pledgee, secured party or pledgor shall be required
in connection therewith, and no notice shall be required of such
pledge. Each Purchaser acknowledges that the Company shall not be
responsible for any pledges relating to, or the grant of any
security interest in, any of the Securities and/or Warrant Shares
or for any agreement, understanding or arrangement between any
Purchaser and its pledgee or secured party. At the appropriate
Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of
Securities and/or Warrant Shares may reasonably request in
connection with a pledge or transfer of the Securities and/or
Warrant Shares, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of selling stockholders thereunder.
Provided that the Company is in compliance with the terms of this
Section 4.29, the Company’s indemnification obligations
pursuant to Section 10.1(b) shall not extend to any losses
arising out of or related to this Section 4.29.
4.30
Pre-Emptive Rights .
(a) So
long as a Purchaser holds at least 250,000 Shares (as adjusted for
any stock splits, stock dividends, stock combinations, and similar
events occurring after the Closing Date) (each such Purchaser, an
“ Eligible Purchaser ”), such Eligible
Purchaser shall have the right to participate in any offer and sale
by the Company of any equity securities (any such offer and sale
being referred to as a “ Subsequent Placement
”) up to such Eligible Purchaser’s Pro Rata Portion (as
defined below) on the same terms, conditions and price provided for
in the Subsequent Placement (the “ Right of First
Refusal ”). For purposes of this Agreement, an
“ Eligible Purchaser’s Pro Rata Portion
” shall mean the ratio that (x) the number of Shares
issued at the Closing to the Eligible Purchaser, bears to
(y) the aggregate number of Shares issued at the Closing to
all of the Eligible Purchasers.
(b) The
Company shall deliver, at least ten Trading Days (as defined below)
prior to the anticipated pricing of a Subsequent Placement, to each
Eligible Purchaser, a written notice (the “ Subsequent
Financing Notice ”) of any proposed Subsequent
Placement, which Subsequent Financing Notice shall
(i) identify and describe the securities being offered (the
“ Offered Securities ”);
(ii) describe in reasonable detail, if known, the price (or
anticipated price range), the expected pricing date, the number or
amount of Offered Securities proposed to be issued, sold or
exchanged and other terms upon which the Offered Securities are to
be issued, sold or exchanged; and (iii) offer to issue and
sell to such Eligible Purchaser a portion of such Offered
Securities equal to such Eligible Purchaser’s Pro Rata
Portion (as amended in accordance with any additional notice
provided under this Section 4.30(b), the “
Offer ”). For purposes of this Agreement,
“ Trading Day ” shall mean a day that is
not a weekend or holiday and the Nasdaq Capital Market (or
subsequent principal securities exchange on which the
13
Company’s
Common Stock is then traded) is not closed. Each Eligible Purchaser
shall within five Trading Days of its receipt of the Subsequent
Financing Notice provide written notice to the Company setting
forth the portion of such Eligible Purchaser’s Pro Rata
Portion of such Offered Securities that the Eligible Purchaser
elects to purchase in the Subsequent Placement. Each Eligible
Purchaser acknowledges that the Subsequent Financing Notice may not
contain the price or other terms upon which the Offered Securities
will ultimately be issued; provided that the Company shall
deliver to the Eligible Purchaser written or oral notice of the
price and other definitive terms of the Offered Securities and the
deadline for acceptance of the Offer contemporaneously with, and in
substantially the same form and manner as, all other purchasers of
the Offered Securities. If the Company delivers additional notice
of the definitive terms of the Offered Securities, an Eligible
Purchaser which has properly delivered a notice to the Company
within the five-Trading Day period after its receipt of the
Subsequent Financing Notice may accept the Offer by providing the
Company written or oral notice of such acceptance on or before the
deadline established by the Company for all other purchasers of the
Offered Securities.
(c) The
rights and obligations contained in this Section 4.30 shall
not apply to: (i) shares of restricted stock, stock options or
other stock awards granted to officers, directors, employees,
advisors or consultants pursuant to the Company’s equity
incentive plans approved by its Board of Directors;
(ii) shares of capital stock issued by the Company upon the
exercise or conversion of options or other stock awards outstanding
immediately prior to the Closing or issued after the Closing in
accordance with clause (i) of this Section 4.30(c);
(iii) shares of capital stock issued by the Company upon the
exercise or conversion of the Warrants or warrants to purchase
capital stock of the Company or other convertible securities
outstanding immediately prior to the Closing; (iv) securities
issued after the Closing pursuant to license or co-promotion
arrangements, equipment lease financing arrangements, credit
agreements, debt financings, royalty interest financings or other
commercial transactions approved by the Company’s Board of
Directors; (v) securities issued pursuant to a merger,
consolidation, acquisition or similar business combination approved
by the Company’s Board of Directors; or (vi) securities
issued in connection with any stock split, stock dividend, or
recapitalization of the Company.
(d) Notwithstanding
anything to the contrary set forth in this Section 4.30, this
Section 4.30 shall not prohibit the Company from consummating
a Subsequent Placement if the Company has been advised, by an
investment bank, underwriter, placement agent or other financial
advisor that compliance with the terms of this Section 4.30
could reasonably be expected to jeopardize the ability of the
Company to consummate such Subsequent Placement; provided,
however , that, subject to the rules and regulations of the
Commission or the Nasdaq Stock Market LLC, immediately following
the consummation of such Subsequent Placement, each Eligible
Purchaser shall have the right to purchase up to Eligible
Purchaser’s Pro Rata Portion of the Offered Securities in
such Subsequent Placement on the same terms, conditions and price
provided for in the Subsequent Placement.
(e) The
Right of First Refusal granted under this Section 4.30 shall
cease to apply, and shall terminate and be of no further force or
effect, upon the earlier of (i) June 30, 2010 and
(ii) the closing of a sale, lease, exclusive license or other
disposition, in a single transaction or a series of related
transactions, of all or substantially all of the Company’s
assets
14
or the
Company’s merger into or consolidation with any other
corporation or other entity, or any other corporate reorganization,
in which the holders of the Company’s outstanding voting
stock immediately prior to such transaction own, immediately after
such transaction, securities representing less than 50% of the
voting power of the corporation or other entity surviving such
transaction, provided that this Section 4.30(e) shall
not apply to a merger effected exclusively for the purpose of
changing the domicile of the Company.
(f) Notwithstanding
anything set forth herein, the Right of First Refusal granted under
this Section 4.30 may be waived with respect to any Subsequent
Placement for all Eligible Purchasers by the written consent of a
majority in interest of the Eligible Purchasers.
SECTION 5.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASERS.
5.1 Each
Purchaser, severally and not jointly, represents and warrants to
and covenants with the Company that:
(a) Such
Purchaser, taking into account the personnel and resources it can
practically bring to bear on the purchase of the Securities
contemplated hereby, is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with
respect to investments in securities presenting an investment
decision like that involved in the purchase of the Securities,
including investments in securities issued by the Company, and has
requested, received, reviewed and considered all information such
Purchaser deems relevant (including the Company Information) in
making an informed decision to purchase the Securities.
(b) Such
Purchaser is acquiring the Securities pursuant to this Agreement in
the ordinary course of its business and for its own account for
investment only and with no present intention of distributing any
of such Securities or any arrangement or understanding with any
other persons regarding the distribution of such Securities, except
in compliance with Section 5.1(c).
(c) Such
Purchaser will not, directly or indirectly, offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) any of the
securities purchased hereunder except in compliance with the
Securities Act, applicable blue sky laws, and the rules and
regulations promulgated thereunder.
(d) Such
Purchaser has, in connection with its decision to purchase the
Securities, relied with respect to the Company and its affairs
solely upon the Commission Documents and the representations and
warranties of the Company contained herein.
(e) Such
Purchaser is an “accredited investor” within the
meaning of Rule 501 of Regulation D promulgated under the
Securities Act or a Qualified Institutional Buyer within the
meaning of Rule 144A promulgated under the Securities
Act.
(f) Such
Purchaser is an entity duly organized and validly existing in good
standing (to the extent such concepts are applicable) under the
laws of its jurisdiction of organization. Such Purchaser has the
requisite right, power, authority and capacity to enter
into
15
this Agreement
and to consummate the transactions contemplated by this Agreement
and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement. Upon the execution and
delivery of this Agreement by Purchaser, this Agreement shall
constitute a valid and binding obligation of Purchaser, enforceable
in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting the enforcement of
creditors’ rights generally; and (ii) as limited by
equitable principles generally, including any specific
performance.
(g) Such
Purchaser is not a broker or dealer registered pursuant to
Section 15 of the Exchange Act (a “ registered
broker-dealer ”) and, except as otherwise disclosed
in writing to the Company in the Registration Statement
Questionnaire executed by such Purchaser, is not affiliated with a
registered broker dealer. The Purchaser is not party to any
agreement for distribution of any of the Securities.
(h) Such
Purchaser shall have completed or caused to be completed and
delivered to the Company at no later than the Effective Date, the
Stock Certificate Questionnaire and the Registration Statement
Questionnaire for use in preparation of the Registration Statement,
and the answers to the Stock Certificate Questionnaire and the
Registration Statement Questionnaire are true and correct in all
material respects as of the Effective Date and will be true and
correct as of the Closing Date and the effective date of the
Registration Statement; provided that such Purchaser shall
be entitled to update such information by providing notice thereof
to the Company before the effective date of such Registration
Statement.
(i) Such
Purchaser (including any person controlling, controlled by, or
under common control with such Purchaser, as the term
“control” is defined pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and its
implementing regulations (the “ HSR Act
”)) does not, and upon the consummation of the transactions
contemplated by this Agreement will not, hold voting securities of
the Company exceeding an aggregate fair market value as of the
Closing Date of sixty-five million two hundred thousand dollars
($65,200,000), calculated pursuant to the HSR Act.
5.2 Each
Purchaser, severally and not jointly, represents and warrants to
and covenants with the Company that such Purchaser has not engaged
and will not engage in any short sales of the Company’s
Common Stock prior to the effectiveness of the Registration
Statement (either directly or indirectly through an affiliate,
agent or representative).
5.3 Each
Purchaser, severally and not jointly, understands that nothing in
this Agreement or any other materials presented to such Purchaser
in connection with the purchase and sale of the Securities
constitutes legal, tax or investment advice. Such Purchaser has
consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection
with its purchase of the Securities.
5.4
Legends. It is understood that the Shares, the Warrant and
the Warrant Shares may bear one or more legends in substantially
the following form and substance:
16
“THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM,
OR NOT SUBJECT TO, SUCH REGISTRATION, IN EACH CASE IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS, AND IN THE CASE OF A
TRANSACTION EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION,
UNLESS TH
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