Document:

Exhibit 4.12

 

THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED HEREIN.

 

DISCOVERY LABORATORIES, INC.

 

Form of Warrant To Purchase Common Stock

Warrant No.: BMI00002

Number of Shares of Common Stock: 500,000

Date of Issuance: October 10, 2014 (“Issuance Date”)

 

Discovery Laboratories, Inc., a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Battelle Memorial Institute (“Battelle”), the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the Exercise Date (defined below), but not after 11:59 p.m., New York time, on the Expiration Date (defined below), Five Hundred Thousand (500,000) fully paid nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”).  This Warrant is issued in conjunction with that certain Collaboration Agreement (the “Collaboration Agreement”) by and between the Company and Battelle, dated October 10, 2014, entered into in conjunction herewith.  Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16.

 

1.            EXERCISE OF WARRANT.

(a)            Mechanics of Exercise.  Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the date on which Battelle shall have achieved the Device Development Milestone (as that term is defined in the Collaboration Agreement), provided that such date occurs on or before the Milestone Date (as that term is defined in the Collaboration Agreement) (the “Exercise Date”), in whole or in part, upon (i) surrender of this Warrant, with a notice in the form attached hereto as Exhibit A (the “Exercise Notice”), duly completed and executed by an authorized officer of the Holder, together with such evidence of authority as the Company may reasonably request, and (ii) (A) payment of the  Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds or (B) provided the conditions for cashless exercise set forth in Section 1(d) are satisfied, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)); at the office of the Company, 2600 Kelly Road, Suite 100, Warrington, PA 18976, Phone: (215) 488-9300, Fax: (215) 488-9421, electronic mail (Warrants@discoverylabs.com).  On or before the third (3rd) Business Day (the “Share Delivery Date”) following the date on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise) (collectively, the “Exercise Documents”), the Company shall (X) provided that Continental Stock Transfer & Trust Company (the Company’s “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal At Custodian (“DWAC”) system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or the Holder does not request delivery of the Warrant Shares via DWAC, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or delivered in certificate form, as the case may be.  If this Warrant is submitted to exercise a number of Warrant Shares in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 8(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, reduced by the number of Warrant Shares being exercised.  No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded down to the nearest whole number.  The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon a partial exercise of this Warrant.

 

(b)            Exercise Price.  For purposes of this Warrant, “Exercise Price” means $5.00, subject to adjustment as provided herein.

(c)            Company’s Failure to Timely Deliver Securities.  If the Company shall fail for any reason or for no reason to issue to the Holder within three (3) Business Days of receipt of the Exercise Documents in compliance with the terms of this Section 1, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or to credit the Holder’s balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Business Days after the Holder’s request, (1) pay cash to the Holder in the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased in the Buy-in, exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company has failed to deliver in connection with the exercise, by (B) the price at which the sell order giving rise to the Buy-in was executed; and (2) at the option of the Holder, either (xx)  provided that a registration statement covering the issuance of the Warrant Shares that are the subject of the Exercise Notice is effective, deliver to the Holder the number of Warrant Shares that would have been issued had the Company timely complied with the Exercise Notice and its delivery obligations hereunder, or (yy) provided the conditions for cashless exercise set forth in Section 1(d) are satisfied, notify the Company that the Warrant should be exercised pursuant to a Cashless Exercise (as defined in Section 1(d)), or (zz) reinstate that portion of the Warrant and equivalent number of Warrant Shares that the Company failed to deliver (prior to receipt by the Holder of the Exercise Shares),

(d)            Cashless Exercise.  Notwithstanding anything contained herein to the contrary, if, but only if, a registration statement covering the issuance of the Warrant Shares that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”) is not effective and an exemption from registration for the issuance and resale of such Unavailable Warrant Shares would only be available if the exercise of the Warrant were effected pursuant to a Cashless Exercise in accordance with this Section 1(d), then the Holder may exercise this Warrant in whole or in part and, in lieu of making the cash payment upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

B

For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being exercised.

B= the arithmetic average of the Closing Sale Prices of the shares of Common Stock for the five (5) consecutive Trading Days ending on the Trading Day immediately preceding the date of the Exercise Notice.

C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

2

For sake of clarity, in the event that neither a registration statement nor an exemption from registration is available, there is no circumstance that would require the Company to effect a net cash settlement of the Warrants.

 

(e)            Rule 144.  For purposes of Rule 144(d) promulgated under the Securities Act of 1934 (the “Securities Act”), as in effect on the date hereof, it is intended that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Underwriting Agreement.

(f)            Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed, and all such disputes shall be resolved pursuant to Section 13.

(g)            Beneficial Ownership.  The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (for the purpose of this clause (g), together with such Person’s affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise.  For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates shall include the number of shares of Common Stock of this Warrant being exercised, but shall exclude shares of Common Stock issuable upon (i) exercise of any unexercised portion of this Warrant beneficially owned by such Person and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent public filing with the Securities and Exchange Commission, (2) a more recent public announcement by the Company or (3) any notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. To the extent that the limitation contained in this Section 1(g) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of an Exercise Notice shall be deemed to be each Holder’s determination of whether this Warrant is exercisable and which portion of this Warrant is exercisable, and the Company shall have no obligation to verify or confirm the accuracy of such determination.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Business Days confirm to the Holder the number of shares of Common Stock then outstanding.  This Section 1(g) shall be construed and implemented in a manner otherwise than in strict conformity with its terms to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation or to make changes or supplements necessary or desirable to properly give effect to such limitation.

2.            ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

(a)            Adjustment upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the Pricing Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased.  Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

3

(b)            Other Events.  If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(b) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.

3.            RIGHTS UPON DISTRIBUTION OF ASSETS.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

(a)            any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and

(b)            the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a); provided that in the event that the Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose shares of common stock are traded on a national securities exchange or a national automated quotation system, then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding paragraph (a) and the number of Warrant Shares calculated in accordance with the first part of this paragraph (b).

4.            PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a)            Purchase Rights.  In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

 

4

(b)            Fundamental Transactions.  The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes this Warrant in accordance with the provisions of this Section (4)(b), including agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Holder.  Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.  Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

5.            NONCIRCUMVENTION.  The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder.  Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise).

6.            PRIVATE PLACEMENT; REGISTRATION RIGHTS

(a)            Private Placement Representations.  The Holder represents that it is an “accredited investor” within the meaning of Regulation D under the Securities Act who is acquiring the Warrants without having been offered or sold the Warrant by any form of “general solicitation” or “general advertising”, in each case within the meaning of Regulation D under the Securities Act, and that the Warrants are being or will be acquired for its own account or for one or more separate accounts maintained by it or for the account of one or more pension or trust funds and not with a view toward distributing or reselling such securities or any part thereof in any transaction that would be in violation of the Securities Act, federal securities laws or the securities laws of any state, without prejudice, however, to its rights to sell or otherwise dispose of all or any part of the Warrants under an effective registration statement under the Securities Act and applicable state securities laws, or under an exemption from such registration available under the Securities Act and applicable state securities laws.

 

5

(b)            Private Offering by the Company.  Neither the Company nor anyone acting on its behalf has offered the Warrants for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than the Holders, each of which has been offered the Warrants at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Warrants to the registration requirements of section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.

(c)            Restrictive Legends.  Each certificate for Warrant Shares issued upon the exercise of the Warrant, and each certificate issued upon the transfer of any such Warrant Shares, shall be stamped or otherwise imprinted with a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.”

(d)            Registration Rights.  The Company and Holder shall negotiate in good faith and, prior to the Exercise Date, enter into a customary registration rights agreement providing for registration rights and procedures relating thereto that are mutually agreeable by the parties acting in good faith with respect to the Warrant Shares that Holder has the right to acquire pursuant the exercise of this Warrant.

7.            WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

8.            REISSUANCE OF WARRANTS.

(a)            Transfer of Warrant.  If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company together with a written assignment of this Warrant in the form attached hereto as Exhibit B duly executed by an authorized officer of the Holder or its agent or attorney, together with such evidence of authority as the Company may reasonably request, whereupon the Company will forthwith, subject to compliance with any applicable securities laws, issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 8(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 8(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

(b)            Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 8(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

6

(c)            Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 8(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

(d)            Issuance of New Warrants.  Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 8(a) or Section 8(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant, which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

9.            NOTICES.  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor.  Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in writing, will be mailed (a) if within the domestic United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile or (b) if delivered from outside the United States, by International Federal Express or facsimile, and (c) will be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed and (iv) if delivered by facsimile, upon electronic confirmation of receipt, and will be delivered and addressed as follows:

		(a)	if to the Company, to:

 

Discovery Laboratories, Inc.

2600 Kelly Road

Warrington, Pennsylvania 18976

Attention: Chief Financial Officer

Facsimile: 215-488-9301

  

with copies to:

 

Discovery Laboratories, Inc.

2600 Kelly Road

Warrington, Pennsylvania 18976

Attention: General Counsel

Facsimile: 215-488-9557

 

(b)            if to the Holder, at its address on the Exercise Notice in the form attached as Exhibit A hereto, or at such other address or addresses as may have been furnished to the Company in writing to the foregoing addresses.

10.            AMENDMENT AND WAIVER.  Except as otherwise provided herein, the provisions of this Warrant may be amended only with the written consent of the Company and the Holder, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only with the written consent of the Holder.

 

7

11.            GOVERNING LAW.  This Warrant shall be governed by and construed and enforced in accor­dance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware.

12.            CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

13.            DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile or electronic mail (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

14.            REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant.

15.            TRANSFER.  This Warrant may not be offered for sale, sold, transferred or assigned prior to the Exercise Date.  Thereafter, subject to compliance with any applicable securities laws, this Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

16.            CERTAIN DEFINITIONS.  For purposes of this Warrant, the following terms shall have the following meanings:

(a)            “Bloomberg” means Bloomberg Financial Markets.

(b)           “Business Day” “Business Day” means any day on which both (a) the Common Stock is scheduled to trade for at least 4.5 hours on the Principal Market and (b) the Transfer Agent is open for business.

(c)            “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported by OTC Link LLC (formerly Pink OTC Markets Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as determined by the Board of Directors of the Company in the exercise of its good faith judgment.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

8

(d)           “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

(e)            “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

(f)             “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., The American Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Capital Market.

(g)           “Expiration Date” means the tenth anniversary date of the effective date of the Collaboration Agreement or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday; except (i) upon a material breach by Battelle of its obligations under the Collaboration Agreement, then this warrant shall expire immediately as provided in Section 5.D(i) of the Collaboration Agreement, and (ii) if the Exercise Date shall not have occurred on or before the Milestone Date provided in Section 3.E.ii. of the Collaboration Agreement, then this Warrant shall expire on the last day of the month in which the Milestone Date occurs.

(h)            “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

(i)            “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

(j)             “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

(k)            “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

(l)             “Principal Market” means The NASDAQ Capital Market or the principal securities exchange or other securities market on which the Common Stock is being traded at any time.

9

(m)          “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

(n)           “Trading Day” means any day on which the Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

[Signature Page Follows]

10

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

	 	
DISCOVERY LABORATORIES, INC.

	 	 	 
	 	
By:

	
/s/ John Tattory

	 	
Name:

	
John Tattory

	 	
Title:

	
Senior Vice President and Chief Financial Officer

 

EXHIBIT A

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

DISCOVERY LABORATORIES, INC.

 

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Discovery Laboratories, Inc, a Delaware corporation (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1. Form of Exercise Price.  The Holder intends that payment of the Exercise Price shall be made as:

____________                                        a “Cash Exercise” with respect to _________________ Warrant Shares; and/or

 

____________                                        a “Cashless Exercise” with respect to _______________ Warrant Shares.

 

2.  Payment of Exercise Price.  In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

 

3.  Delivery of Warrant Shares.  The Company shall deliver __________ Warrant Shares in the name of the undersigned holder or in the name of ______________________ in accordance with the terms of the Warrant to the following DWAC Account Number or by physical delivery of a certificate to:

 

	 	       	 
	 	     	 
	 	    	 

 

Date: _______________ __, ______

 

	     	 
	
Name of Registered Holder

	 
	 	 

	
By:

	    	 
	 	
Name:

	 
	 	
Title:

	 

 

 

EXHIBIT B

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

_______________________________________________ whose address is

_______________________________________________________________.

 

_______________________________________________________________

Dated:  ______________, _______

 

	 	
Holder’s Signature:

	    	 
	 	 	 	 
	 	
Holder’s Address:

	    	 
	 	 	 	 
	 	 	    	 

 

Signature Guaranteed:  ___________________________________________

 

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.Exhibit 10.1

 

Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment under Rule 24b-2 under the Exchange Act of 1934, as amended.  Confidential Portions are marked: [***]

COLLABORATION AGREEMENT

 

BETWEEN

 

DISCOVERY LABORATORIES, INC.,

 

AND

 

BATTELLE MEMORIAL INSTITUTE

 

REGARDING

 

DEVELOPMENT OF AEROSURF®

 

Dated as of October 10, 2014

 

TABLE OF CONTENTS

 

	
1.

	
DEFINITIONS

	
1

	 	 	 
	
2.

	
IMPLEMENTATION OF THE PROJECT

	
5

	 	 	 
	
3.

	
COMPENSATION TO BATTELLE

	
9

	 	 	 
	
4.

	
SALES REPORTS, RECORD KEEPING AND AUDITS

	
12

	 	 	 
	
5.

	
TERM AND TERMINATION

	
12

	 	 	 
	
6.

	
TERMS AND CONDITIONS INCORPORATED BY REFERENCE.

	
15

	 	 	 
	
7.

	
REPRESENTATIONS AND WARRANTIES OF THE PARTIES

	
17

	 	 	 
	
8.

	
MISCELLANEOUS

	
19

 

COLLABORATION AGREEMENT

THIS COLLABORATION AGREEMENT (the "Agreement") is made and entered into by and between DISCOVERY LABORATORIES, INC., a corporation organized and existing under the laws of the state of Delaware having its principal place of business at 2600 Kelly Road, Suite 100, Warrington, PA 18976 USA ("Discovery Labs”), and BATTELLE MEMORIAL INSTITUTE, through its Corporate Operations, a corporation organized and existing under the laws of the state of Ohio having its principal place of business at 505 King Avenue, Columbus, Ohio 43201-2693, USA ("Battelle”) as of October 10, 2014 (the "Effective Date"). Discovery Labs and Battelle may be referred to herein individually as a "Party" or collectively as "Parties".

RECITALS:

WHEREAS, Discovery Labs is developing AEROSURF® as a therapy for premature infants with respiratory distress syndrome (“RDS”). AEROSURF is an investigational combination drug/device product that combines Discovery Labs’ proprietary technologies: lyophilized synthetic KL4 surfactant for inhalation and its capillary aerosol generator (CAG). By enabling delivery of aerosolized lyophilized KL4 surfactant using less invasive procedures, Discovery Labs believes that AEROSURF will address a serious unmet medical need and enable the treatment of a significantly greater number of premature infants with RDS; and

WHEREAS, over the past two years, Discovery Labs has engaged Battelle to assist in developing the CAG aerosol technology and to manufacture aerosol devices and accompanying disposables that meet the requirements for the AEROSURF phase 2 clinical program. To date, the developmental device and disposables have been deployed in a clinical trial setting in several neonatal intensive care units (NICU’s) in the US. The current developmental device and disposable units are expected to be utilized in a planned phase 2b study; and

WHEREAS, further investment in development of the developmental device and disposable units will be required to continue the AEROSURF clinical program into phase 3 and potential commercialization, and the Parties are interested in collaborating to further develop Discovery Labs’ CAG technology into a product that will meet the requirements for a phase 3 clinical trial and commercialization of AEROSURF (the “Collaboration”);

NOW THEREFORE, IN CONSIDERATION OF THE COVENANTS AND PROMISES CONTAINED IN THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS WITH THE INTENT TO BE LEGALLY BOUND HEREBY:

	1.	   DEFINITIONS.

Except as otherwise defined herein, the following terms shall have the meanings described below:

 

1

		A.	“AEROSURF” means Discovery Labs’ investigational combination drug/device product that combines Discovery Labs’ proprietary technologies: lyophilized synthetic KL4 surfactant for inhalation and its capillary aerosol generator (CAG).  For the purposes of this Agreement, “AEROSURF” means AEROSURF for the treatment of respiratory distress syndrome (RDS) in premature infants.

		B.	“AEROSURF System” means that particular system described in the Product Requirements Document, being developed for use in the treatment of respiratory distress syndrome (RDS) in premature infants.

		C.	"Affiliates" means with respect to any Party, any entity who directly or indirectly Controls, or is Controlled by, or is under common Control with such Party.  Affiliates include subsidiaries.  The term Affiliate or Affiliates, as to Battelle, does not include any person or business operation which manages or operates national laboratories, other laboratories of a third party, or facilities for any of the United States of America, foreign governments or entities, or a third party.

		D.	“Commercially Reasonable Efforts” means the level of efforts and resources, and the application of the requisite level of skills and experience, commonly used in the medical device industry by a company of similar size and with similar capital resources to the Party with respect to the development and commercialization of a product of similar commercial potential at a similar stage in its development or product life, taking into consideration its safety and efficacy, its cost to develop, manufacture and bring to market, the prevalence of the therapeutic purpose for which it is intended, the competitiveness of alternative devices or systems, the patent and other proprietary position of such device or system, the likelihood of regulatory approval, market size and geographic dispersion, product sales cycle, and its profitability.

		E.	"Consumables" means disposable dose packet, including a capillary element and other materials that may be included as part of the AEROSURF System as to be detailed in the PRD.

		F.	“Control” means (a) with respect to any item of Confidential Information (as such term is further defined in the CDA), patent, know how or other intellectual property right, the right to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with, or any legal rights of, any third party, or (b) with respect to any specified party, the possession, directly or indirectly, of the power to direct the management or policies of such party, whether through the ownership of voting equity or by contract relating to voting rights or corporate governance, or otherwise.

		G.	“Cost Overruns” means any expenses incurred by Battelle that exceed the sum of the Project Plan Fixed Cost and the planned costs set forth in all associated Scope Change Orders.

		H.	“Device Development Milestone” means successful completion by Battelle of Stage 3 activities as set forth in the Project Plan.

 

2

		I.	“Discovery Labs Fixed Fee” means the fixed fee payable by Discovery Labs to Battelle for Battelle’s performance and completion of Stages 2 and 3 of the Project Plan, which amount may be subject to amendment following completion of Stage 1 Work, as provided in Section 3.B(i).

		J.	“Discovery Labs Default Percent” means, at any time, that portion of the Project Plan performed by Battelle up to the date of termination for material breach by Discovery Labs, expressed as a percent equal to the percentage of the aggregate Discovery Labs Fixed Fee invoiced by Battelle to Discovery Labs up to the date of such  termination, plus any amount not yet invoiced by Battelle for the period from the date of the last invoice through the date of such termination [***].

		K.	“First Commercial Sale” occurs on the date following Registration of AEROSURF in the Territory on which (i) Discovery Labs, an Affiliate or a sublicensee sells AEROSURF (whether based on the AEROSURF System or any Next Generation System(s)), to a non-Affiliate and (ii) Discovery Labs or an Affiliate records Net Sales or Net License Revenues in accordance with U.S. (or other applicable) generally accepted accounting principles (“GAAP”), consistently applied.

		L.	“Net License Revenues” means royalties actually received by Discovery Labs or an Affiliate from third-party licensees or sublicensees on account of commercial sales of AEROSURF (whether based on the AEROSURF System or any Next Generation System(s)), including sales of related AEROSURF Consumables, in the Territory in accordance with terms and conditions of the applicable licensing or sublicensing agreement. For monies received by Discovery Labs or an Affiliate in a currency other than U.S. dollars, the monies shall be converted to U.S. dollars based on a commercially reasonable method in the industry then used by Discovery Labs in the preparation of its audited financial statements, consistently applied.

		M.	“Net Sales” means the amount recognized by Discovery Labs or an Affiliate, in accordance with U.S. GAAP (or by an Affiliate in accordance with applicable GAAP), representing the gross amount invoiced by Discovery Labs or an Affiliate as a result of arms-length, commercial transactions in the Territory on account of the sale of AEROSURF (whether based on the AEROSURF System or any Next Generation System(s)), including the sale of related AEROSURF Consumables [***], less all amounts customarily excluded from the calculation of net sales by Discovery Labs or its Affiliate, including by way of example, [***]. For sales denominated in a currency other than U.S. dollars, the sales shall be converted to U.S. dollars based on a commercially reasonable method in the industry then used by Discovery Labs in the preparation of its audited financial statements, consistently applied.

		N.	“Next Generation System” means any drug-device combination product or medical device, which (i) essentially and in all material respects utilizes, incorporates, derives from, are made using or based on the AEROSURF System for the treatment of RDS in premature infants developed by Battelle under this Agreement, or (ii) [***].

 

3

		O.	“Product Requirements Document” or “PRD” shall mean the detailed device requirements for the AEROSURF System and assumptions and data supplied by Discovery Labs to Battelle, and which is included in the Project Plan.

		P.	“Project” means the project as more particularly identified in the Project Plan.

		Q.	“Project Managers” refers to the individuals designated by each of Discovery Labs and Battelle from time to time to manage the overall coordination of the Project.

		R.	“Project Plan” means the confidential plan attached to this Agreement as Schedule 1, which includes the PRD and identifies appropriate steps contemplated for both Parties and key milestones contemplated to complete development of a device for use in Discovery Labs’ planned phase 3 AEROSURF clinical program and, if AEROSURF is Registered, initial commercialization of AEROSURF, and the related timeline, costs and expenses to complete Stages 1 through 3 of the Project, together.

		S.	“Project Plan Fixed Cost” means the fixed investment amount established by the Parties to fund Stages 2 and 3 of the Project Plan, which may be adjusted after completion of Stage 1 Work.  Project Plan Fixed Cost will be used solely to determine the Discovery Labs Fixed Fee, as more particularly set forth in Section 3.B(i).

		T.	“Registration” or “Register” means obtaining permissions, authorizations, registrations or approvals from the U.S. Food and Drug Administration (“FDA”), the European Commission (“EU”) or other applicable regulatory authorities, as necessary to manufacture, use, commercialize and/or sell AEROSURF (or other combination drug/device product comprised of a Next Generation System and Discovery Labs’ lyophilized KL4 surfactant for inhalation for the treatment of RDS in premature infants) in the Territory.

		U.	“Royalty Cap” means the aggregate maximum royalties to be paid by Discovery Labs to Battelle for performance of its obligations under the Project Plan during the Term of this Agreement.  The amount of the Royalty Cap is set forth in Section 3.D(ii).

		V.	“Scope Change” means a change in the scope of the Product Requirements Document, including any assumptions and intentions of the Parties contained therein.

		W.	“Scope Change Order” means a written modification to this Project Plan agreed to and signed by both Parties reflecting the terms of a Scope Change.

		X.	“Services Agreement” means the Research and Development Services Agreement entered into between the Parties on June 22, 2012, as amended from time to time.

		Y.	“Stage 1 Work” means the initial work performed hereunder as agreed by the Parties, which is expected to result in a final, agreed Project Plan and which will be funded according to the terms of Section 3.A of this Agreement.

 

		Z.	“Territory” means all countries worldwide.

Unless otherwise defined, all references in this Agreement to sections and clauses refer to sections and clauses in this Agreement.

 

4

	2.	   IMPLEMENTATION OF THE PROJECT.

		A.	General Scope.

This Agreement is in addition to, and not in substitution of, the Services Agreement, which covered work on aspects of the AEROSURF program.  Any activities that are ongoing under the Services Agreement and any future proposals included under the Services Agreement by amendment shall be performed in accordance with the terms of the Services Agreement.  The activities as defined in the Project Plan of this Agreement are required to further the AEROSURF program and will be performed under the terms of this Agreement.

The general scope of activities under this Agreement will include a three-stage Project Plan which, at a high level, shall consist of an initial stage to define the requirements of the AEROSURF System (Stage 1 Work), Stage 2, which will be devoted to Phase 3 device and disposables development (“Device Development”) and Stage 3, which will complete all testing and verification to be in a position to manufacture AEROSURF System(s) for use in Discovery Labs’ phase 3 clinical program and, if approved, initial commercial supply.  The Parties also may agree from time to time to amend this Agreement to expand the scope or include other projects under this Agreement and will also enter into such other agreements as they deem necessary or appropriate to meet the objectives of this Agreement, including but not limited to a Quality Agreement.  Upon completion of the Project Plan, the Parties intend to negotiate in good faith to enter into an agreement covering the manufacture of AEROSURF Systems, including AEROSURF Consumables, for use in the AEROSURF phase 3 clinical program.  The Parties contemplate that, if AEROSURF is approved, they will negotiate in good faith to enter into a supply agreement providing for initial commercial supply.

		B.	Battelle’s Contribution to the Project.

		i.	Battelle will use Commercially Reasonable Efforts to:

		a.	perform research and development services according to the Project Plan, and to meet the milestones according to the Project Plan and to otherwise perform its obligations pursuant to the Project Plan and under this Agreement. Battelle further agrees to exercise Commercially Reasonable Efforts to meet objectives and comply with directions and guidance with respect to the Project Plan, the PRD, and any Scope Change Order, that may be established from time to time by the Steering Committee or Discovery Labs, as appropriate, and to promptly and thoroughly inform the Steering Committee of the status of development efforts under this Agreement and the Project Plan; and

 

5

		b.	contribute, in accordance with the terms of this Agreement, its labor costs and expenses necessary to complete the work under the Project Plan, in exchange for the payments and other compensation provided by Discovery Labs in accordance with Section 3 herein.

		C.	Discovery Lab's Contribution to the Project.

i. Discovery Labs will use Commercially Reasonable Efforts to:

		a.	perform its obligations set forth in the Project Plan;

		b.	adhere to all provisions of this Agreement; and

		c.	if Discovery Labs’ clinical program achieves the desired results and if Discovery Labs successfully Registers AEROSURF in the U.S. for the treatment of RDS in premature infants, provide for the U.S. commercial launch of AEROSURF (based on the AEROSURF System or a Next-Generation System) following Registration in the U.S.; and perform or provide for all necessary marketing and sales activities to support the distribution of AEROSURF in the U.S. for the duration of the Agreement. Such activities may include, but shall not be limited to, adhering to Registration requirements in the U.S., conducting or providing for the manufacture of devices and drug product, and conducting or providing for marketing, selling, distribution and warranty of AEROSURF.

ii.   Discovery Labs shall compensate Battelle according to the terms of Section 3.

		D.	Scope Change Orders.

		i.	Following agreement on a final Project Plan at the completion of Stage 1 Work, the Parties may enter into a Scope Change Order for the purpose of (a) incorporating the final Project Plan in this Agreement, (b) adjusting the Project Plan Fixed Cost and the associated Discovery Labs Fixed Fee based on the results of Stage 1 Work, and (c) incorporating such other changes that the Parties agree are necessary and appropriate.

		ii.	In addition, it may be necessary during the performance of the Project Plan, to enter into one or more additional Scope Change Orders to implement changes determined by Discovery Labs as being necessary or appropriate under the circumstances to meet its objectives.  In that event, the Parties will negotiate in good faith to agree upon an appropriate cost and implementation plan for such Scope Change and enter into a Scope Change Order.  To the extent that implementation of a Scope Change, as set forth in the related Scope Change Order, causes the date for completion of the Project Plan to be extended beyond the then current Milestone Date (as defined in Section 3.E(ii), below), then such Milestone Date shall be delayed for the period of such extension.  By way of example, if implementation of a Scope Change Order would cause the Project Plan to be extended by one month, then the Milestone Date would be similarly extended to June 30, 2016.

 

6

E.  Establishing Project Managers.

		i.	Each Party shall appoint an individual to serve as such Party’s Project Manager, who shall be responsible for the day to day management of the Project and communications with the other Party and the Steering Committee, as may be appropriate to advance the purposes of this Agreement.

		ii.	Project Managers and their respective teams will be in frequent communications and contact as required to perform the Project Plan.

 

		iii.	Project Managers shall keep up to date, and otherwise maintain, the Project Plan, including, if appropriate, forecasts for Project spending, and will provide periodic updates, in such form as is acceptable to the Steering Committee.

 

		iv.	Each Project Manager will immediately notify the other of any event which is likely to substantially affect the Project or the timely completion of the Device Development Milestone.

 

		v.	The Parties will appoint initial Project Managers within 72 hours of the Effective Date. Each Party shall appoint and replace its Project Manager as it deems appropriate during the term of this Agreement. When possible, a Party will allow for a minimum of a week’s transition if it elects to appoint a new Project Manager.

F.      Establishing the Steering Committee.

		i.	Membership. The Steering Committee shall initially consist of a maximum of six members, with an even number of members from each Party, with all initial members to be appointed within fourteen calendar days after the Effective Date. A Discovery Labs member will serve as Chairman of the Steering Committee. The Chairman shall be responsible for scheduling special meetings, circulating the agenda and presiding as chair at each meeting. The size of the Steering Committee can be amended upon mutual agreement of the Parties. Each Party shall appoint and replace its representatives to the Steering Committee as it deems appropriate during the term of this Agreement.

 

7

		ii.	Meetings. During the period beginning with the Effective Date through the completion of Stage 3, the Steering Committee will meet in-person at a minimum of once each calendar quarter according to a schedule agreed by the Parties. After that period of time, in-person meetings shall be held as requested by a Party on no less than three (3) business days’ advance notice (unless such notice is waived by all members). A majority of members must be present or otherwise available for a meeting to be constituted. Each Party may appoint a replacement or delegate for any member who is unable to attend a meeting of the Steering Committee. The location for each in-person meeting will alternate between Columbus, Ohio and Warrington, Pennsylvania. Each Party will bear its own expenses to prepare for and attend in-person Steering Committee meetings and these shall not be considered Project-related expenses for any purpose. The Steering Committee may conduct meetings (other than in-person meetings) by telephone or video conference and may act without a meeting by written consent signed by both Parties. Both Parties may contribute to the agenda for any upcoming Steering Committee meeting and meeting minutes must be taken during every meeting, however held. All such minutes and other records of the Steering Committee shall be available at all times to either Party. Employees of each Party who are not on the Steering Committee or delegates of a Party may attend meetings of the Steering Committee, as required to further the Project.  Neither Party shall be entitled to instruct its representatives to refuse to attend or to convene any properly noticed and scheduled meeting as a means of avoiding the establishment of a quorum, and a deemed quorum shall exist if a Party shall fail for any reason to have its representatives in attendance (in person or by telephone or video conference) more than twice at any properly noticed and scheduled (or adjourned) meeting. The Steering Committee will establish such standing rules as it deems appropriate to conduct its work, to the extent that such rules are not inconsistent with this Agreement.

	 	iii.	At each quarterly meeting, and otherwise as needed, the Steering Committee will:

		a.	Require members to indicate whether their respective Parties are pursuing the Project Plan in compliance with this Agreement;

		b.	Hear updates on the Project Plan from the Project Managers;

		c.	Evaluate the progress made since the date of the prior meeting and approve the results of the Project to date, in writing;

		d.	Discuss and decide any issues brought to its attention by the Project Managers including without limitation those brought under Section 3 and Section 9.E or which a member of the Steering Committee wishes to raise; and

		e.	Discuss and decide how to proceed with the Project if the Steering Committee does not approve the results to date.

G.      Decision Making Generally.

		i.	For the duration of the Project, the Project Managers may resolve issues that arise in day-to-day operations under the Project Plan unless otherwise stated in this Section.

		ii.	The Steering Committee shall be responsible for resolving outstanding issues regarding the following:

		a.	Any day-to-day issue or other matter that Project Managers cannot decide;

		b.	Any and all changes in Project Plan dates and the Product Requirements Document and any updates or amendments thereto; and

		c.	All other matters of any kind brought to its attention by a Party.

 

8

		iii.	The Steering Committee will use Commercially Reasonable Efforts to reach consensus on all matters before it.  The Steering Committee will duly consider the input of the Project Managers in reaching its decisions. If the Steering Committee is unable to reach consensus on any matter within a reasonable time under the circumstances, either Party may escalate the matter in accordance with the terms of Section 6(A)(viii) (Dispute Resolution).

		iv.	Notwithstanding the foregoing, Discovery Labs shall have final decision-making authority and the final say on all matters relating to the design, Registration, manufacture, packaging, marketing, distribution and sale of the AEROSURF System, and any final decision made by Discovery Labs on such matters shall not be subject to any further review under the dispute resolution provisions of Section 6.A(ix) of this Agreement or in any court or other forum either at law or in equity.

	3.	   COMPENSATION TO BATTELLE. 

		A.	Stage 1 Work.

With respect solely to Stage 1 Work, Discovery Labs will pay Battelle fifty percent (50%) of Battelle’s costs and expenses incurred, including Cost Overruns and Scope Changes, according to [***] invoices prepared by Battelle for all Stage 1 Work performed by Battelle under the Project Plan.  Based on an estimated cost for Stage 1 Work of approximately [***], Discovery Labs expects that its share of Stage 1 Work will be approximately [***].  Battelle Invoices will indicate all costs incurred by Battelle for Stage 1 Work performed, and Battelle will provide further detail [***], through [***] detailed project plan reports.  Discovery Labs shall pay all Battelle invoices in accordance with Section 3.C.

 

9

		B.	Stages 2 – 3 Work.

		i.	Discovery Labs Fixed Fee.  The estimated Project Plan Fixed Cost as of the Effective Date is [***].  The estimated Discovery Labs Fixed Fee as of the Effective date is 50% of the Project Plan Fixed Cost, or [***].  The Project Plan Fixed Cost may be revised once by mutual agreement of the Parties following completion of the Stage 1 Work, to take into account any increase or decrease in anticipated costs of the Project Plan based on the results of the Stage 1 Work.  If the Project Plan Fixed Cost is revised, the Discovery Labs Fixed Fee will be similarly revised to equal 50% of the revised Project Plan Fixed Cost.  [***]. Battelle shall be solely responsible for any and all Cost Overruns related to its performance of its obligations under the Project Plan.

		ii.	Scope Changes.  Discovery Labs shall be responsible for any increase in the Project Plan costs that result from Scope Changes detailed in Scope Change Orders approved under Section 2.D(ii).  The Parties shall agree to [***].  In addition, [***], the Parties shall agree to [***].  Battelle shall be responsible for any Cost Overruns associated with any Scope Changes affecting Stages 2 and 3.

 

		iii.	Stages 2 – 3 Work Invoices.  Discovery Labs Fixed Fee shall be payable in [***] over the period of performance set forth in the final Project Plan established following the Stage 1 Work.  Battelle shall prepare [***] invoices, each of which shall reflect the Discovery Labs Fixed Fee [***] amount due, [***].  The [***] detailed project plan report shall also include such other information as may be agreed by the Parties.

 

		iv.	Detailed Project Plan Report.  In addition, invoices shall be accompanied by a detailed report of actual work performed by Battelle in performing its obligations under the Project Plan, and, for Stage 1 Work, shall include [***].

 

		v.	Taxes.  For all payments hereunder, [***] shall pay any [***], or similar taxes arising out of or in connection with the performance of this Agreement (other than those [***]), imposed by any authority, government or governmental agency, unless a valid exemption certificate, if applicable, is received.  [***] shall be responsible for taxes based on [***].

		C.	Payment of Invoices; Financial Covenant.

		i.	Under no circumstances shall the amount payable by Discovery Labs for Battelle’s performance under the Project Plan exceed the sum of the Discovery Labs Fixed Fee plus, [***] Scope Change Orders approved under Section 2.D(ii).

		ii.	[***] invoiced amounts shall be payable on a date no later than [***].

10

iii.    All payments made to Battelle under this Agreement shall be in U.S. dollars and shall be made without reduction for, or withholding of, any tax assessment, fee, levy, or similar charge in lieu of tax of any nature, by bank wire transfer in immediately available funds to an account designated by Battelle.

iv.    Discovery Labs shall maintain at all times aggregate available cash and cash equivalents (as reflected in its financial statements) sufficient to satisfy the amounts that would be due Battelle if invoices were [***]. If as of the last business day of a calendar quarter, any Battelle invoices to Discovery Labs are outstanding [***].

		D.	Royalties.

		i.	As consideration for Battelle’s achievement of the Device Development Milestone, Discovery Labs will pay royalties to Battelle in an amount equal to [***] of Net Sales and Net License Revenues in the Territory.  Royalty payments based on Net Sales or Net License Revenues in the U.S. shall be made [***].  Royalty payments based on Net Sales or Net License Revenues outside the U.S. shall be made [***].

ii.  The payment of royalties by Discovery Labs to Battelle shall be subject to a Royalty Cap of Twenty Five Million dollars ($25,000,000).  Upon payment of aggregate royalties equal to the Royalty Cap, Discovery Labs obligations to pay royalties under this Section 3.D shall terminate.

		E.	Warrants.

		i.	As consideration for Battelle’s investment in the Project under this Agreement, on the Effective Date, Discovery Labs shall execute and deliver to Battelle a warrant, in the form of Exhibit A (the “Initial Warrant”), granting Battelle the right to purchase One Million (1.00M) shares of Discovery Labs common stock, par value $0.001 per share (“Common Stock”), at an exercise price per share equal to Five Dollars ($5.00), exercisable upon achievement of the Device Development Milestone, and expiring on the tenth anniversary date of the Effective Date.

		ii.	As consideration for the achievement of the Device Development Milestone on or before May 31, 2016 (“Milestone Date”), or such later date as may be determined under Section 2.D(ii), on the Effective Date, Discovery Labs will execute and deliver to Battelle a second Warrant, in the form of Exhibit B, granting Battelle the right to purchase 500,000 shares of Common Stock, at an exercise price per share equal to Five Dollars ($5.00), exercisable upon achievement of the Device Development Milestone, provided such event occurs no later than the Milestone Date, and expiring on the tenth anniversary date of the Effective Date.

 

11

	4.	SALES REPORTS, RECORD KEEPING AND AUDITS.

		A.	Battelle Records.  Battelle shall keep complete, true and accurate books of account and records for the purpose of determining Stage 1 Work [***] invoices to be delivered by Battelle to Discovery Labs under this Agreement.  Such books and records relating to all costs billed to Discovery Labs shall be kept at the principal place of business of Battelle or at such reasonably accessible location acceptable to Discovery Labs, as the case may be, [***] following the end of the [***] period to which they pertain.  Such records, excluding Battelle’s proprietary indirect rates and their associated calculations, will be open for inspection during such [***] period by a public accounting firm to whom Battelle has no reasonable objection. Such inspections may be made no more than [***], at reasonable times, on reasonable notice and at Discovery Labs’ expense which shall include Battelle’s direct costs, including labor costs, in providing for such an audit. Any under- or over-payment that is discovered shall be promptly reconciled.

		B.	Discovery Labs Reports.  Beginning [***] with respect to which the first royalty payment to Battelle is made, Discovery Labs shall provide written reports [***] with respect to Net Sales and Net License Revenues in the U.S., and [***] with respect to Net Sales and Net License Revenues from outside the U.S., and shall state in each such report, separately for Discovery Labs, Affiliates and each sublicensee, the number, description, and aggregate Net Sales and Net License Revenues, by region, sold during [***].

		C.	Discovery Labs Records.  Discovery Labs and its agents shall keep complete, true and accurate books of account and records for the purpose of determining the payments to be made to Battelle under this Agreement. Such books and records shall be kept at Discovery Labs’ principal place of business for [***] following the end of [***] to which they pertain. Such records will be open for inspection during such [***] period by a public accounting firm to whom Discovery Labs has no reasonable objection, solely for the purpose of verifying payment obligations hereunder. Such inspections may be made no more than [***], at reasonable times, on reasonable notice and at Battelle’s expense. Any under- or over-payment that is discovered shall be promptly reconciled.

	5.	TERM AND TERMINATION.

		A.	Term.  This Agreement shall have a term (“Term”) that shall begin as of the Effective Date and expire upon the fulfillment of all payment obligations of Discovery Labs to Battelle under this Agreement, unless sooner terminated as provided in this Section 5.

 

		B.	Bankruptcy.

 

With respect to bankruptcy or insolvency, if a Party shall:

		i.	admit in writing its inability to pay its debts generally as they become due;

		ii.	file a petition in bankruptcy or a petition to take advantage of any insolvency act which are not be dismissed within [***] after the filing thereof;

		iii.	make an assignment for the benefit of creditors;

 

12

		iv.	consent to the appointment of a receiver of the whole or any substantial part of its property;

		v.	on a petition in bankruptcy filed against it, be adjudicated a bankrupt, which is not dismissed within [***] after the filing thereof;

		vi.	file a petition or answer seeking reorganization or similar arrangement under applicable law;

	 	vii.	if a court of competent jurisdiction shall enter an order, judgment, or decree appointing, without the consent of the Party, a receiver of the whole or any substantial part of the Party's property, and such order, judgment or decree shall not be vacated or set aside or stayed within [***] from the date of entry thereof; or

	 	viii.	if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the whole or any substantial part of a Party's property and such custody or control shall not be terminated or stayed within [***] from the date of assumption of such custody or control,

then, for any of the foregoing scenarios, the other Party shall have the right to terminate this Agreement upon [***] written notice to the Party subject to such circumstances.

		C.	‘Failure of Purpose’ Termination Rights.

Either Party may terminate this Agreement on thirty (30) calendar days’ written notice to the other Party upon the occurrence of one or more of the following events (each, a “Failure of Purpose”):

 

		i.	After a good faith negotiation, the Parties fail to agree on a final Project Plan within [***] of the Stage 1 Work;

		ii.	Discovery Labs determines in good faith that (a) the AEROSURF clinical program (including with respect thereto, related preclinical studies) has failed or will fail to demonstrate the results needed to proceed with the AEROSURF development program based on the AEROSURF System, or (b) Discovery Labs is unable to achieve Registration of AEROSURF in the U.S.;

		iii.	After consultation, the Parties determine in good faith that, for reasons other than a material breach by a Party, the Project Plan cannot be completed for the reason of technical infeasibility;

		iv.	After consultation with Battelle, Discovery Labs determines in good faith that, for reasons other than a material breach by a Party, the Parties will be unable to complete the Project Plan within [***] after the then-current Milestone Date; or

		v.	Extended Force Majeure exceeding six months.

 

Other than as specifically set forth in this Agreement, including Discovery Labs’ obligation to pay Battelle invoices, [***]; provided that, if Discovery Labs terminates this Agreement pursuant to Clause (ii) of this Section 5.C after Battelle has successfully completed Stage 3, and if Discovery Labs or an Affiliate subsequently Registers AEROSURF based on the AEROSURF System developed by Battelle in the Territory [***], then Discovery Labs or an Affiliate [***] provided in Section 3.D(ii).

 

13

		D.	Termination for Breach.

If either Party believes the other is in material breach of its obligations under this Agreement, including failure to pay an undisputed amount due under this Agreement, it may give notice of such breach or payment failure to the other Party, which Party shall have thirty (30) calendar days after receipt of such notice in which to remedy such breach.  If such alleged breach is not remedied in the time period set forth above, the non-breaching Party may terminate this Agreement and receive the liquidated damages set forth below, as their respective sole and exclusive monetary remedy, which liquidated damages are agreed in light of the difficulty in forecasting damages as of the Effective Date.  Nothing in the foregoing shall preclude equitable remedies in addition to monetary remedies.

i.   In the event Discovery Labs terminates this Agreement because of an uncured material breach by Battelle:

		a.	Discovery Labs’ obligation to pay royalties to Battelle shall cease;

		b.	any outstanding warrants delivered to Battelle pursuant to this Agreement shall expire immediately and be of no further effect;

		c.	At its expense, Battelle shall cooperate with Discovery Labs to complete the activities provided in Section 5.F; and

		d.	Battelle shall pay to Discovery Labs within [***] (after receipt of an invoice from Discovery Labs) [***] of the amount paid by Discovery Labs to Battelle under Section 3 of this Agreement up to the effective date of termination, plus reasonable costs to cover transition to a successor.

ii.   In the event Battelle terminates this Agreement because of an uncured material breach by Discovery Labs:

		a.	Discovery Labs shall pay to Battelle all outstanding amounts then due from Discovery Labs under this Agreement, including unpaid invoiced amounts, and reasonable transition costs [***];

		b.	Discovery Labs shall pay to Battelle within [***] (after receipt of an invoice from Battelle) [***] of the amount of the Project Plan Fixed Cost actually contributed by Battelle under the Project Plan up to the effective date of termination;

		c.	if Discovery Labs or an Affiliate (i) completes the Project Plan without the assistance of Battelle, and (ii) [***]; and

		d.	that percent of the Initial Warrant issued to Battelle on the Effective Date that equals the Discovery Labs Default Percent shall immediately become exercisable and remain outstanding for the period therein provided.

 

14

		E.	Section 365(n) of the Bankruptcy Code.

All grants, rights and licenses granted or created under or pursuant to this Agreement by Discovery Labs or Battelle are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the United States Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the United States Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the United States Bankruptcy Code, the Party hereto that is not a party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, which, if not already in the non- subject Party’s possession, shall be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under clause (a) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.

		F.	Post-Termination Activities.

In the event that either Party issues a notice of termination of this Agreement, the Parties will exercise Commercially Reasonable Efforts during the [***] period following issuance by a Party of such notice of termination to reach agreement regarding an appropriate wind-down plan, taking into account ethical responsibilities to patients in clinical trials (if any), control of any trailing project costs, and the stewardship of intellectual property and other assets created by the Parties hereunder.  Battelle shall promptly transfer or return to Discovery Labs all data, reports, materials, Discovery Labs Inventions, designs, models, working embodiments, prototypes etc. of the device, and must take continuing action to disclose and transfer the know-how and technical information relating to the Project to Discovery Labs and to cooperate and take measures to assign to Discovery Labs and execute such documents as Discovery Labs may reasonably request to perfect Discovery Labs’ title as sole owner of all Discovery Labs’ Inventions.  Except as provided in Section 5.D(i), Discovery Labs shall pay Battelle’s reasonable expenses in complying with this Section 5.F.  Battelle shall issue to Discovery Labs detailed invoices in a manner consistent with those prepared for Stage 1 Work described in Section 3.A.

	6.	   TERMS AND CONDITIONS INCORPORATED BY REFERENCE.

		A.	The following provisions of the Services Agreement are incorporated herein by reference, provided that references in the Services Agreement to “Agreement”, “Project”, “Services” and other defined terms shall be construed to refer to such terms as defined in this Agreement or, if not so defined, in a manner to be consistent with the terms and conditions of this Agreement:

 

	
i.

		
Section 3

	
Intellectual Property

	
ii.

		
Section 4

	
No Endorsement: Public Announcement

	
iii.

		
Section 5

	
Confidentiality (excluding Section 5.3)

	
iv.

		
Section 7

	
Warranties; Limitation of Liability (excluding Section 7.2)

	
v.

		
Section 8

	
Indemnities

	
vi.

		
Section 13

	
U.S. Export Control

	
vii.

		
Section 14

	
Client Furnished Materials

	
viii.

		
Section 16

	
Dispute Resolution

 

15

		B.	[***].

		C.	Discovery Labs assumes responsibility for its use, misuse, or inability to use the Project results, except to the extent of liabilities resulting from the gross negligence or willful misconduct of Battelle.  Except as necessary to satisfy Third Party Claims (as defined in Section 8.1 of the Services Agreement) indemnified hereunder, [***], Battelle's total liability to Discovery Labs arising out of or related to this Agreement [***].  Except for a breach of Section 6.B or its confidentiality obligations hereunder and as set forth in the CDA, neither Party shall be liable to the other Party for any indirect, incidental, consequential, special, punitive or exemplary damages in connection with this Agreement or the Project, however caused, under any theory of liability.  [***].

	7.	  INSURANCE

Discovery Labs shall purchase and maintain, at its own expense, insurance in amounts reasonable and customary for the industry in which they operate.  Discovery Labs shall maintain all insurance which is required by any law, statute, ordinance or regulation of any jurisdiction having authority in whole or in part over their operations.  Nevertheless, the following minimum insurance coverage shall be maintained:

		a.	Clinical Trials Insurance: If any AEROSURF System or Next Generation System developed under this Agreement is used by Discovery Labs in clinical trial(s), prior to the first activity involving human subjects, Discovery Labs shall maintain no less than [***] of clinical trials liability insurance related to the AEROSURF System or Next Generation System in all territories (on a country-by-country basis) in which the Device is used in clinical trials involving human subjects.

		b.	Product Liability Insurance: Prior to the commercial sale of any AEROSURF System or Next Generation System, Discovery Labs shall maintain no less than [***] of product liability insurance related to the AEROSURF System or Next Generation System in all territories (on a country-by-country basis) in which the Device is commercially available. Such insurance shall cover any Discovery Labs products that may be developed in whole or in part based on Battelle's work under this Agreement and shall name Battelle Memorial Institute as an additional insured.

Discovery Labs shall maintain coverage with insurance companies that [***].  Should any of the insurance policies agreed to herein provide coverage on a claims-made basis, such insurance shall be kept in force for a period of [***].  Discovery Labs shall provide a certificate of insurance to Battelle evidencing such coverage prior to the first administration to a human subject of such product and prior to the sale of such product.  Such certificate shall provide that, if a policy is cancelled, notice will be delivered as provided in the policy provisions.  Discovery Labs shall use commercially reasonable efforts to provide at least thirty (30) days prior notice to Battelle of any cancellation, non-renewal, or relevant reduction in coverage.

 

16

	8.	REPRESENTATIONS AND WARRANTIES OF THE PARTIES.

Battelle and Discovery Labs each hereby represent and warrant to each other, as of the Effective Date, as set forth below:

		i.	It is duly organized and validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.

		ii.	It is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder.

 

		iii.	Its legal team (i) is not aware of any pending or threatened litigation involving the AEROSURF System and (ii) has not received any communications alleging that it has violated or would violate any rights (including intellectual property rights) of any third party; in each case, which if decided adversely, would reasonably be expected to have a material adverse effect upon such Party, its condition, financial or otherwise, or its business affairs or business prospects, or its ability to perform its obligations under this Agreement.

 

		iv.	To its knowledge, there is no material unauthorized use, infringement or misappropriation of any of its patents, copyrights, trademarks, trade secret rights or know-how necessary or useful to make, use or sell the AEROSURF System.

 

		v.	All of its employees, officers, contractors and consultants performing research and development services related to this Agreement have executed agreements requiring assignment to the Party of all inventions made during the course of and as a result of their association with such Party and obligating the individual to maintain as confidential the Confidential Information of such Party.

 

		vi.	It has the power, authority and legal right, and is free to enter into this Agreement and, in so doing, will not violate any other agreement to which it is a party as of the Effective Date.

 

		vii.	Battelle represents and warrants that, after due inquiry, it has not and will not knowingly employ, contract with or retain any person directly or indirectly to perform services under this Agreement, if such person is debarred by the FDA under 21 USC 335a(k) of the FDA Act or a regulator in the EU under similar laws. Upon written request from Discovery Labs, Battelle shall within five (5) business days confirm in writing that it has complied with the foregoing obligation.

 

17

		viii.	The execution and delivery of this Agreement and the performance of such Party's obligations hereunder (a) do not and will not, whether with the giving of notice or passage of time or both, conflict with or violate any requirement of any obligation, agreement, covenant or condition contained in any contract, indenture, credit agreement, or other agreement or instrument to which it is a party (“Agreements/Instruments”), (b) nor will such actions result in any violation of any provision of the articles of incorporation, bylaws, limited partnership agreement or any similar instrument of such Party, as applicable, (c) nor will such actions result in any violation of any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Affiliate or any of their assets, properties or operations; do not conflict with, violate, or breach or constitute a default or require any consent under, any applicable law or any Agreements/Instruments or court or administrative order by which such Party is bound; except, with respect to each of the foregoing clauses viii(a)-(c), for those or under those circumstances that would not reasonably be expected to have a material adverse effect upon such Party, its condition, financial or otherwise, or its business affairs or business prospects, or its ability to perform its obligations under this Agreement.

 

		ix.	Battelle acknowledges that the success of the Project Plan, and the efforts by Discovery Labs to secure Registration, and execute a commercial launch for, AEROSURF in the U.S. are subject to a variety of risks and uncertainties that could cause results to differ materially from those set forth in the Project Plan or otherwise anticipated by the Parties.  Examples of such risks and uncertainties are set forth in Discovery Labs’ Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2014 and in Discovery Labs’ periodic and other reports filed with the SEC from time to time.

 

		x.	Discovery Labs acknowledges that its business strategy includes seeking to enter into a significant strategic alliance that potentially could provide development, regulatory and commercial market expertise as well as financial resources for the AEROSURF development program, and, if AEROSURF is approved, support the commercial introduction of AEROSURF and/or AEROSURF System(s) in the EU and other selected markets outside the U.S.  However, there can be no assurance that Discovery Labs will succeed, if at all, during the performance of this Agreement.

With respect to the foregoing, the term “knowledge” shall be deemed to refer to the personal knowledge of the respective Parties management and the legal team

18

	9.	MISCELLANEOUS.

		A.	Assignment. Except as otherwise provided for herein, neither Party may assign this Agreement without the written consent of the other Party, which consent may be granted or withheld in the other Party's sole discretion. Notwithstanding the foregoing, [***]. In any event, this Agreement shall be binding upon and inure to the successors and permitted assignees of the Parties and the name of a Party appearing herein shall be deemed to include the names of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this Agreement.  Any assignment not in accordance with this Section 8(A) shall be void.

		B.	Compliance with Law. The Parties shall comply with appropriate legal, ethical and professional standards of behavior and conduct, and will exercise diligence in complying with all laws applicable to their relationship and to each Party’s performance as described herein, including, but not limited to, the following U.S. laws: Foreign Corrupt Practices Act, the Export Administration Act, the Export Administration Regulations including the Anti-boycott Regulations and Guidelines, and any other applicable export regulations.

		C.	Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be effective on receipt, when sent via Internet email, hand-delivered, transmitted by facsimile, or sent by registered airmail or overnight courier and addressed to the Parties as noted below (or to such other address as may be provided in writing by a Party to the other Party in accordance with this Section).

For Battelle: Battelle Memorial Institute

Attn: General Counsel 505 King Avenue

Columbus, Ohio 43201

For Discovery Labs: Discovery Laboratories, Inc.

Attn: General Counsel

2600 Kelly Road, Suite 100

Warrington, PA 18976

		D.	Severability. If any part of this Agreement is found to be invalid or unenforceable by any court of competent jurisdiction, or if any government or other agency having jurisdiction over either Battelle or Discovery Labs deems any part thereof to be contrary to any antitrust or competition law, then such declaration shall not affect the remainder of the Agreement, which shall remain in full force and effect. To the extent possible, the Parties shall revise such invalidated part in a manner that will render it valid without impairing the Parties' original business purpose.

		E.	Force Majeure. Except as otherwise provided herein, no Party shall be in breach of this Agreement, or liable to the other Party, for any loss, damages, delay or failure of performance to the extent such loss, damages, delay or failure is caused by circumstances beyond its reasonable control. Circumstances beyond the reasonable control of a Party include, but are not limited to, fire, strikes, riots, wars, terroristic acts, martial law, extreme natural disaster, or threat of terroristic acts, embargoes, shortages, delays in transportation, environmental contamination by nuclear fuel or nuclear waste, inability to obtain supplies of raw materials or requirements or regulations of any government or any other civil or military authority. In the event of a force majeure situation, the obligations of the Parties under this Agreement shall be suspended as long as the force majeure situation continues. Should the force majeure situation continue for more than four (4) weeks, then the Steering Committee will make appropriate determinations of the effect of the force majeure on the contractual relationship between the Parties.

 

19

		F.	Non-Waiver. The failure of a Party in any one or more instances to insist upon strict performance of any of the terms and conditions of this Agreement shall not be construed as a waiver or relinquishment, to any extent, of the right to assert or rely upon any such terms or conditions on any future occasion.

		G.	Disclaimer of Agency. Battelle's relationship with Discovery Labs is that of an independent Contractor and not as an agent, representative, or employee of Discovery Labs. This Agreement shall not constitute, create or give effect to, or otherwise imply a joint venture, corporation, partnership, or any other form of business entity of any kind. Each Party to this Agreement shall act as an independent contractor with respect to the other Party. Neither Party to this Agreement shall have any authority or control over the other Party or the other Party's employees, nor shall either Party have the power to bind the other Party, nor shall this Agreement be construed as creating any actual or implied authority or any type of agency relationship.

In addition, Discovery Labs specifically acknowledges that Battelle is a service provider and contract manufacturer and not a distributor or supplier and Discovery Labs retains all final decision making authority and all responsibility for the design, manufacture, packaging, marketing, distribution and sale of the AEROSURF System, including, without limitation, product labeling, warnings, and instructions to users.

		H.	Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts as may be necessary or appropriate in order to carry out the purposes and intent of the Agreement.

		I.	Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document.

		J.	Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of and enforced within the jurisdiction of the State of Delaware without regard to the principles of conflict of laws.

		K.	Entire Agreement; Amendment. This Agreement, the Exhibits attached hereto, and together with the Services Agreement, the CDA, and any Quality Agreement between the Parties, sets forth the terms of the agreement regarding AEROSURF System between the Parties hereto and, except for the CDA incorporated therein, the Quality Agreement and as otherwise set forth herein, supersedes and terminates all prior representations, term sheets, agreements and understandings between the Parties regarding the subject matter hereof. No alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.

		L.	Survival. The following provisions shall survive the termination or expiration of this Agreement: 3, 4, 5, 6(A)(i), 6(A)(iii)-(v), 6(A)(viii), 6(B), 6(C), 7, and 9(J).

[Signatures appear on the next page]

 

20

In Witness Whereof, the Parties have duly executed this Collaboration Agreement as of the Effective Date.

	
DISCOVERY LABORATORIES, INC.

	
BATTELLE MEMORIAL INSTITUTE

Corporate Operations

	 	 
	
By:

	
By:

	 	 
	
Name:  John G. Cooper

	
Name:

	 	 
	
Title:  President and Chief Executive Officer

	
Title:

 

21

EXHIBIT A: Initial Warrant

 

22

EXHIBIT B: Second Warrant

 

23

SCHEDULE 1: PROJECT PLAN

 

24

Proposal No. [***]

 

Next-Generation Aerosurf®

Delivery System, Stage 1

 

Prepared by

 

Battelle

505 King Avenue

Columbus, Ohio 43201

Prepared for

 

Lawrence Weinstein

Vice President, Medical Device Development

Discovery Laboratories, Inc.

2600 Kelly Road, Suite 100

Warrington, PA 18976-3622

October 9, 2014

 

 

25

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00237-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00237-of-00352.parquet"}]]