>>13-Feb-2013
Entry into a Material Definitive Agreement, Creation of a Direct
Item 1.01 Entry into a Material Definitive Agreement. Loan Facility with Deerfield Management Company, L.P.
Facility Agreement
On February 13, 2013, Discovery Laboratories, Inc. (the "Company") entered into a Facility Agreement (the "Facility Agreement") with affiliates of Deerfield Management Company, L.P. ("Deerfield"), pursuant to which Deerfield agreed to provide financing to the Company of up to $30 million on a secured basis, subject to the terms and conditions set forth in the Facility Agreement (the "Financing"). Under the terms of the Facility Agreement, Deerfield shall advance funds to the Company in two disbursements. The first disbursement, in the amount of $10 million occurred upon execution of the Facility Agreement (the "Agreement Date"). The second disbursement, in the amount of $20 million, will occur on or about the date of the first commercial sale of SURFAXIN? (lucinactant) for the prevention of respiratory distress syndrome (RDS) in premature infants at high risk for RDS, provided that such initial product sale date is not later than December 31, 2013 (the "Milestone Date"). The Company is required to pay to Deerfield at the time of each disbursement a transaction fee equal to one and one-half percent (1.5%) of the amount disbursed under the Facility Agreement.
Any amounts drawn under the Facility Agreement shall accrue interest at a rate of 8.75% per annum, which shall be payable quarterly in cash. The Company has the right to prepay any amounts owed without penalty. In addition, at the election of the holders of the notes evidencing loans under the Facility Agreement ("Notes"), the principal amounts of the Notes may be reduced to the extent that the holders elect to apply a portion of the principal amount outstanding under the Notes to satisfy the exercise price of the related Warrants (see below) upon exercise of all or a portion of the Warrants. The principal amounts outstanding under the Facility Agreement are payable in equal installments on the fourth, fifth and sixth anniversaries of the Facility Agreement; provided that the amount payable on the fourth anniversary shall be deferred for one year if either (i) the Company's "Net Sales" (defined below) for the immediately preceding 12-month period are at least $20 million, or (ii) the Company's "Equity Value" (defined below) is at least $200 million; and provided further, that the amount payable on the fifth anniversary (together with any amount deferred on the fourth anniversary) shall be deferred until the sixth anniversary if either (x) the Company's "Net Sales" for the immediately preceding 12 month period are at least $30 million, or (ii) the Company's "Equity Value" is at least $250 million. For the purposes of the foregoing deferrals of principal, "Net Sales" means, without duplication, the gross amount invoiced by or on behalf of the Company, any of its Subsidiaries or any direct or indirect assignee or licensee for products, sold globally in bona fide, arm's length transactions, less customary deductions determined without duplication in accordance with generally accepted accounting principles; and "Equity Value" means, with respect to each measurement date, the product of (x) the number of issued and outstanding shares of common stock of the Company (the "Common Stock") on such measurement date multiplied by (y) the per share closing price of the Common Stock on such measurement date.
Additionally, any amounts drawn under the Facility Agreement may become immediately due and payable upon (i) an "Event of Default," as defined in the Facility Agreement, in which case Deerfield would have the right to require the Company to repay the outstanding principal amount of the loan, plus any accrued and unpaid interest thereon, or (ii) the occurrence of certain events as defined in the Facility Agreement, including the consummation of a change of control transaction or the sale of more than 50% of the Company's assets (collectively, a "Major Transaction").
The Facility Agreement also contains various representations and warranties and affirmative and negative covenants customary for financings of this type, including restrictions on the ability of the Company to incur additional indebtedness and grant additional liens on its assets.
Warrants
In connection with the execution of the Facility Agreement, on February 13, 2013, the Company issued to Deerfield warrants to purchase an aggregate of 2,340,000 shares of the Common Stock at an exercise price of $2.81 per share of Common Stock, representing a 24% premium to the closing price of Common Stock on the Nasdaq Capital Market on the immediately preceding trading day. Following the Milestone Date and upon disbursement of the additional $20 million loan under the Facility Agreement, the Company will issue warrants to purchase an additional 4,660,000 shares of Common Stock at an exercise price of $2.81 per share of Common Stock (together with the warrants in the preceding sentence, the "Warrants"). The number of shares of Common Stock into which a Warrant is exercisable and the exercise price of any Warrant will be adjusted to reflect any stock splits, recapitalizations or similar adjustments in the number of outstanding shares of Common Stock.
Each Warrant issued under the Facility Agreement expires on the sixth anniversary of the Facility Agreement and contains certain limitations that generally prevent the holder from acquiring shares upon exercise of a Warrant that would result in the number of shares beneficially owned by it to exceed 9.985% of the total number of shares of Common Stock then issued and outstanding.
The holder of a Warrant may exercise the Warrants either for cash or on a cashless basis. In connection with a Major Transaction, as defined in the Warrants, to the extent of consideration payable to stockholders in cash in connection with such Major Transaction, the holder may have the option to redeem the Warrant or that portion of the Warrant for cash in an amount equal to the Black-Scholes value (as defined in the Warrant) of the Warrant or that portion of the Warrant redeemed. In addition, in connection with a Major Transaction, to the extent of any consideration payable to stockholders in securities, or in the event of an Event of Default, the holder may have the option to exercise the Warrant and receive therefor that number of shares of Common Stock that equals the Black Scholes value of the Warrant or that portion of the Warrant exercised. Prior to the holder exercising the Warrant for shares in such transactions, the Company may elect to terminate the Warrant or that portion of the Warrant and pay the holder cash in an amount equal to the Black Scholes value of the Warrant.<<
Somewhat better terms than previous arrangements. Last I saw, DSCO was guiding for a 2nd quarter launch, so let's hope they're not off by too much!
Cheers, Tuck |
