ARADIGM CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3133088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3929 POINT EDEN WAY
HAYWARD, CALIFORNIA 94545
(510) 265-9000
|
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the registration statement becomes effective.
If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE FEE (2)
--------------------------------------------------------------------------------------------------------------------
COMMON STOCK, no par value and related
rights to purchase Series A Junior
Participating Preferred Stock 13,208,156 shares $7.115 $93,976,030 $22,461
====================================================================================================================
|
(1) Estimated in accordance with Rule 457(c) of the Securities Act solely for the purpose of computing the amount of registration fee based on the average of the high and low prices of the registrant's Common Stock as reported on the Nasdaq National Market on January 4, 2002.
(2) Calculated in accordance with Rule 457(o) of the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 11, 2002
PROSPECTUS
13,208,156 Shares
Aradigm Corporation
Common Stock
This prospectus relates to the offer and sale, from time to time, of up to 13,208,156 shares of Aradigm Corporation common stock by the selling security holders listed on page 13 of this prospectus, issuable upon conversion of shares of convertible preferred stock and exercise of warrants to purchase common stock. The selling security holders purchased the convertible preferred shares and common stock warrants from Aradigm in a private placement in December 2001. Aradigm will not receive any proceeds from the sale of the shares by the selling security holders.
For a description of the plan of distribution of the shares, see page 15 of this prospectus.
Our common stock is listed on The Nasdaq National Market under the symbol "ARDM." On January 10, 2002, the last reported sale price for our common stock was $7.17 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is __________ ___, 2002.
TABLE OF CONTENTS
THE COMPANY............................... 2 RISK FACTORS.............................. 4 FORWARD-LOOKING STATEMENTS................ 12 USE OF PROCEEDS........................... 12 SELLING SECURITY HOLDERS.................. 13 PLAN OF DISTRIBUTION...................... 15 WHERE YOU CAN FIND MORE INFORMATION....... 16 LEGAL MATTERS............................. 17 EXPERTS................................... 17 |
YOU SHOULD RELY ONLY ON THE INFORMATION OR REPRESENTATIONS PROVIDED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY DIFFERENT INFORMATION OR TO MAKE ANY DIFFERENT REPRESENTATIONS IN CONNECTION WITH ANY OFFERING MADE BY THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY STATE WHERE THE OFFER OR SALE IS PROHIBITED. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
ARADIGM(TM) AND AERx(TM) ARE TRADEMARKS OF THE COMPANY. THIS PROSPECTUS
ALSO INCLUDES TRADEMARKS OWNED BY OTHER PARTIES.
THE COMPANY
This prospectus contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors appearing under "Risk Factors" and elsewhere in this prospectus.
The following summary does not contain all the information that may be important to you. You should read the entire prospectus, including the financial statements and other information incorporated by reference in this prospectus, before making an investment decision.
ARADIGM CORPORATION
We are a leading developer of advanced pulmonary drug delivery systems for the treatment of systemic conditions as well as lung diseases. Our hand-held AERx(R) platform is being designed for the rapid and reproducible delivery of a wide range of pharmaceutical drugs and biotech compounds via the lung. We believe that our non-invasive AERx systems, which have been shown in clinical studies to achieve performance equivalent to injection, will be a welcome alternative to injection-based drug delivery. In addition, our systems may improve therapeutic efficacy in cases where other existing drug delivery methods, such as pills, transdermal patches or inhalers, are too slow or imprecise.
We were incorporated in California in January 1991. Our principal executive offices are located at 3929 Point Eden Way, Hayward, California 94545, and our telephone number is (510) 265-9000. Our Internet address is www.aradigm.com. The information on our website is not incorporated by reference into this prospectus.
RECENT DEVELOPMENTS
AERx INSULIN DIABETES MANAGEMENT SYSTEM
We are currently preparing for the initiation of Phase 3 clinical development of the AERx insulin Diabetes Management System, or AERx iDMS, which we expect to commence in early 2002. We are developing the AERx iDMS with Novo Nordisk A/S.
AERx PAIN MANAGEMENT SYSTEM
We have completed Phase 2b clinical trials for the AERx morphine Pain Management System, which is being developed in conjunction with GlaxoSmithKline plc. We expect to release detailed data from these trials during 2002.
OUR SERIES A CONVERTIBLE PREFERRED STOCK FINANCING
On December 14, 2001, pursuant to a securities purchase agreement among us and the selling security holders, we issued and sold to the selling security holders an aggregate of 2,001,236 shares of our Series A Convertible Preferred Stock, and warrants to purchase an aggregate of 5,203,212 shares of our common stock for an aggregate purchase price of $48.4 million in a private placement. The rights, preferences and privileges of the Series A preferred stock are set forth in the Amended and Restated Certificate of Determination of Preferences of Series A Convertible Preferred Stock filed with the Secretary of State of the State of California. The warrants may be exercised at an exercise price of $6.97 per share and are subject to the terms and conditions of the warrants issued by us and evidencing the warrants. Pursuant to the securities purchase agreement, we agreed to prepare and file with the SEC a registration statement covering the resale of the shares of our common stock issuable upon conversion of the Series A preferred stock and upon exercise of the warrants.
Each share of Series A preferred stock is convertible into four shares of our common stock, for an aggregate of 8,004,944 shares of common stock. The conversion rate is not subject to any adjustments other than for stock splits, stock dividends, reclassifications, reorganizations and other similar events. The fair value of our common stock on the date of the closing was $5.57 per share. The conversion price may be below the trading market price of the stock at the time of conversion.
The terms of the preferred stock financing also include a liquidation preference equal to the purchase price plus accrued dividends. Dividends at the rate of 6% of the original issue price per annum will accrue and be added
to the liquidation preference for a two-year period, which will result in a maximum preference that equals 112% of the original purchase price.
The shares of Series A preferred stock and warrants to purchase common are convertible into or exercisable for an aggregate of 13,208,156 shares of common stock. The holders of the Series A preferred stock may elect to convert their shares into our common stock at any time, just as they may choose to exercise their warrants at any time prior to December 14, 2006. The preferred stock will convert automatically into common stock either when the company completes an underwritten public offering of at least $25 million or when the common stock has been at or above $10.59 per share for 20 consecutive trading days.
For accounting purposes, the value of the beneficial conversion feature of the preferred stock and warrants will be treated as a deemed dividend to preferred shareholders as of the commitment date and will be reflected as an increase to net income (loss) applicable to common shareholders.
RISK FACTORS
An investment in our common stock involves a high degree of risk. We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. You should carefully consider the factors described below in addition to other information contained in this prospectus or incorporated by reference into this prospectus before purchasing our shares. Additional risks and uncertainties not presently known to us or that we currently see as immaterial may also impair our business operations.
WE ARE AN EARLY STAGE COMPANY.
You must evaluate us in light of the uncertainties and complexities present in an early stage company. Virtually all of our potential products are in an early stage of research or development. Our potential drug delivery products require extensive research, development and pre-clinical and clinical testing. Our potential products also may involve lengthy regulatory reviews before they can be sold. Because none of our products has yet received approval by the Food and Drug Administration or is yet in Phase 3 clinical trial development, we cannot assure you that our research and development efforts will be successful, any of our potential products will be proven safe and effective or regulatory clearance or approval to sell any of our potential products will be obtained. Because we have validated only one manufacturing facility, we cannot assure you that any of our potential products can be manufactured in commercial quantities or at an acceptable cost or marketed successfully. Failure to achieve commercial feasibility, demonstrate safety, achieve clinical efficacy, obtain regulatory approval or successfully market products will negatively impact our revenues and results of operations.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES.
We have never been profitable, and through September 30, 2001, we have incurred a cumulative deficit of approximately $132.6 million. We have not had any material product sales and do not anticipate receiving any revenue from product sales in 2002. We expect to continue to incur substantial losses over at least the next several years as we:
o expand our research and development efforts;
o expand our preclinical and clinical testing activities;
o expand our manufacturing efforts; and
o plan and build our commercial production capabilities.
To achieve and sustain profitability, we must, alone or with others, develop, obtain regulatory approval for, manufacture, market and sell products using our drug delivery platform. We cannot assure you that we will generate sufficient product or contract research revenue to become profitable or to sustain profitability.
WE MAY NOT BE ABLE TO DEVELOP PRODUCTS SUCCESSFULLY.
Our AERx systems are at an early stage of development and we are currently testing them using hand-held prototypes. Before we can begin to sell the AERx systems commercially, we will need to invest in substantial additional development and conduct preclinical and clinical testing. In order to further develop our AERx systems, we will need to address engineering and design issues, which include ensuring that the AERx systems can deliver a reproducible amount of drug into the bloodstream and can be manufactured successfully as hand-held systems. We cannot assure you that we will be successful in addressing these design, engineering and manufacturing issues. Additionally, we will need to formulate and package drugs for delivery by our AERx systems. We cannot assure you that we will be able to do this successfully.
Even if our pulmonary delivery technology is commercially feasible, it may not be commercially acceptable across a range of large and small molecule drugs. For the AERx systems to be commercially viable, we will need to demonstrate that drugs delivered by the AERx systems:
o are safe and effective;
o will not be subject to physical or chemical instability over time and under differing storage conditions; and
o do not suffer from other problems that would affect commercial viability.
While our development efforts are at different stages for different products, we cannot assure you that we will successfully develop any products. We may also abandon some or all of our proposed products. If we cannot develop potential products in a timely manner, our business will be impaired.
WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS SUCCESSFULLY.
Our success in commercializing our products depends on many factors, including acceptance by health care professionals and patients. Their acceptance of our products will largely depend on our ability to demonstrate our products' ability to compete with alternate delivery systems with respect to:
o safety;
o efficacy;
o ease of use; and
o price.
We cannot assure you that our products will be competitive with respect to these factors or that our partners will be able to successfully market any of them in a timely manner.
WE DEPEND ON COLLABORATIVE PARTNERS AND NEED ADDITIONAL COLLABORATIVE PARTNERS.
Our commercialization strategy depends on our ability to enter into agreements with collaborative partners. In particular, our ability to successfully develop and commercialize the AERx Diabetes Management System depends on our development partnership with Novo Nordisk A/S.
Novo Nordisk has agreed to:
o undertake certain collaborative activities with us;
o design and conduct advanced clinical trials;
o fund research and development activities with us;
o pay us fees upon achievement of certain milestones; and
o purchase product at a defined premium, pay royalties and/or share gross profits if and when we commercialize a product.
The development and commercialization of the AERx Diabetes Management System will be delayed if Novo Nordisk fails to conduct these collaborative activities in a timely manner or at all. In addition, our development partners could terminate these agreements and we cannot assure you that we will receive any development and milestone payments. If we do not receive development funds or achieve milestones set forth in the agreements, or if any of our development partners breach or terminate their agreement, our business will be impaired.
Although we have development arrangements with other collaborative partners, our arrangement with Novo Nordisk is our only active funded development agreement. For the nine months ended September 30, 2001, this partner-funded program contributed approximately 84% of our total contract revenues. Our agreement with Novo Nordisk can be terminated under certain conditions, including by either party on limited written notice, by Novo Nordisk by limited prior written notice upon the occurrence of certain events, and by either party upon 30 days' written notice in the event that the other party commits a material breach under the agreement and fails to remedy such breach within 60 days' notice of such breach.
We will also need to enter into agreements with other corporate partners to conduct the clinical trials, manufacturing, marketing and sales necessary to commercialize other potential products. In addition, our ability to apply the AERx system to any proprietary drugs will depend on our ability to establish and maintain corporate partnerships or other collaborative arrangements with the holders of proprietary rights to such drugs. We cannot assure you that we will be able to establish such additional corporate partnerships or collaborative arrangements on favorable terms or at all, or that our existing or future corporate partnerships or collaborative arrangements will be successful. Nor can we assure you that existing or future corporate partners or collaborators will not pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors. We could have disputes with our existing or future corporate partners or collaborators. Any such disagreements could lead to delays in the research, development or commercialization of any potential products or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor. If any of our corporate partners or collaborators do not develop or commercialize any product to which it has obtained rights from us, our business could be impaired.
WE HAVE LIMITED MANUFACTURING EXPERIENCE.
We have only limited manufacturing experience. We have only validated a single clinical manufacturing facility for disposable packets for our various AERx systems. We anticipate spending significant amounts to attempt to provide for the high-volume manufacturing required for multiple AERx products, and much of this spending will occur before our products are approved. We cannot assure you that:
o the design requirements of the AERx system will make it feasible for us to develop it beyond the current prototype;
o manufacturing and quality control problems will not arise as we attempt to scale-up; or
o any scale-up can be achieved in a timely manner or at a commercially reasonable cost.
Failure to address these issues could delay or prevent late stage clinical testing and commercialization of our products.
We are building our own manufacturing capabilities for the production of key components of our AERx drug delivery systems. We plan to internally produce the disposable nozzles, assemble the disposable unit-dose packets and fill the drug into the unit-dose packets. We have limited experience in manufacturing disposable unit-dose packets and we cannot assure you that we can successfully do so in high volumes, in a timely manner, at an acceptable cost, or at all.
We intend to use contract manufacturers to produce key components, assemblies and subassemblies in the clinical and commercial manufacturing of our AERx devices. We cannot assure you that we will be able to enter into or maintain satisfactory contract manufacturing arrangements. Certain components of our products may be available, at least initially, only from single sources. We cannot assure you that we could find alternate suppliers for any of these components. A delay of or interruption in production resulting from any supply problem could have a material adverse effect on our business.
WE WILL NEED ADDITIONAL CAPITAL AND OUR ABILITY TO FIND ADDITIONAL FUNDING IS UNCERTAIN.
Our operations to date have consumed substantial and increasing amounts of cash. We expect the negative cash flow from operations to continue in the foreseeable future. We will need to commit substantial funds to develop our technology and proposed products. We will have to continue to conduct costly and time-consuming research and preclinical and clinical testing to develop, refine and commercialize our technology and proposed products. Our future capital requirements will depend on many factors, including:
o progress in researching and developing our technology and drug delivery systems;
o our ability to establish and maintain favorable collaborative arrangements with others;
o progress with preclinical studies and clinical trials;
o time and costs to obtain regulatory approvals;
o costs of development and the rate at which we expand our production technologies;
o costs of preparing, filing, prosecuting, maintaining and enforcing patent claims; and
o our need to acquire licenses or other rights to technology.
Since inception, we have financed our operations primarily through private placements and public offerings of our capital stock, proceeds from equipment lease financings, contract research funding and interest earned on investments.
We anticipate that we will be able to maintain current and planned operations for the next 12 months, including anticipated capital spending requirements that will be in the range of $25 to $30 million through the end of 2002, with proceeds from the financing pursuant to which the securities convertible into or exercisable for the shares offered hereunder were originally sold, committed funding from our corporate development partners, primarily Novo Nordisk, and projected interest; however, there can be no assurances that these sources of funding will be sufficient or that our cash requirements will not change.
We will need to raise additional capital to fund our capital spending and operations before we become profitable. We may seek additional funding through collaborations, borrowing arrangements or through public or private equity financing. We cannot assure you that additional financing can be obtained on acceptable terms, or at all. Dilution to shareholders may result if funds are raised by issuing additional equity securities. If adequate funds are not available, we may be required to delay, to reduce the scope of, or to eliminate one or more of our research and development programs, or to obtain funds through arrangements with collaborative partners or other sources that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish.
WE DEPEND UPON PROPRIETARY TECHNOLOGY AND THE STATUS OF PATENTS AND PROPRIETARY TECHNOLOGY IS UNCERTAIN.
Our business and competitive position is dependent upon our ability to protect our proprietary technology and avoid infringing the proprietary rights of others. We have conducted original research on a number of aspects relating to pulmonary drug delivery. While we cannot assure you that any of our patents will provide a significant commercial advantage, these patents are intended to provide protection for important aspects of our technology, including methods for aerosol generation, devices used to generate aerosols, breath control, compliance monitoring certain pharmaceutical formulations, design of dosage forms and their manufacturing, and testing methods. In addition, we are maintaining as trade secrets some of the key elements of our manufacturing technologies, particularly those associated with production of disposable unit-dose packets for the AERx systems.
Our success will depend to a significant extent on our ability to obtain and enforce patents, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. Because the field of aerosolized drug delivery is crowded and a substantial number of patents have been issued and because patent positions can be highly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application or the enforceability of our patents cannot be predicted. Commercialization of pharmaceutical products can also be subject to substantial delays as a result of the time required for product development, testing and regulatory approval.
We also seek to protect some of these inventions through foreign counterpart applications in selected other countries. Statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States. These and other issues may limit the patent protection we will be able to secure outside of the United States.
The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in the United States or abroad. Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the extent patents have been issued or will be issued, whether these patents will be subjected to further proceedings limiting their scope, will provide significant proprietary protection or competitive advantage, or will be circumvented or invalidated. Furthermore, patents already issued to us or our pending applications may become subject to dispute, and any disputes could be resolved against us. For example, Eli Lilly and Company has brought an action against us seeking to have one or more employees of Eli Lilly named as
co-inventors on one of our patents. In addition, because patent applications in the United States are currently maintained in secrecy until patents issue, and patent applications in certain other countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first creator of inventions covered by pending patent applications or that we were the first to file patent applications on such inventions.
Our policy is to require our officers, employees, consultants and advisors to execute proprietary information and invention and assignment agreements upon commencement of their relationships with us. We cannot assure you, however, that these agreements will provide meaningful protection for our inventions, trade secrets or other proprietary information in the event of unauthorized use or disclosure of such information.
We also execute confidentiality agreements with outside collaborators and consultants. However, disputes may arise as to the ownership of proprietary rights to the extent that outside collaborators or consultants apply technological information developed independently by them or others to our projects, or apply our technology to other projects, and we cannot assure you that any such disputes would be resolved in our favor.
We may incur substantial costs if we are required to defend ourselves in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license to continue to manufacture or market the accused product or process and we cannot assure you that any license required under any such patent would be made available to us on acceptable terms, if at all. Litigation may also be necessary to enforce our patents against others or to protect our know-how or trade secrets. Such litigation could result in substantial expense, and we cannot assure you that any litigation would be resolved in our favor.
WE MAY NOT PREVAIL IN OUR DEFENSE OF ELI LILLY'S COMPLAINT AGAINST US.
At this time, we are involved in an outstanding lawsuit with Eli Lilly and Company whereby Eli Lilly is making various allegations against us, originally arising from our decision to enter into an exclusive collaboration with Novo Nordisk with respect to the development and commercialization of a pulmonary delivery system for insulin and insulin analogs. Following our motion for summary judgment directed against all eight claims in Eli Lilly's original complaint, Eli Lilly's claims for declaratory relief, unjust enrichment and breach of contract (in part) currently remain.
The risks to us should Eli Lilly prevail in this case are that Eli Lilly would be given the rights of an owner, along with us, on one or more of our patents relating to pulmonary delivery of insulin analogs and/or that Eli Lilly would be awarded damages on its remaining claims for breach of contract and unjust enrichment. We cannot assure you that we will prevail in this case.
WE MAY NOT OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY BASIS, OR AT ALL.
All medical devices and new drugs, including our products under development, are subject to extensive and rigorous regulation by the federal government, principally the Food and Drug Administration, or FDA, and by state and local government agencies. Such regulations govern the development, testing, manufacture, labeling, storage, approval, advertising, promotion, sale and distribution of such products. Medical devices or drug products that are marketed abroad are also subject to regulation by foreign governments.
The process for obtaining FDA approvals for drug products is generally lengthy, expensive and uncertain. Securing FDA approvals often requires applicants to submit extensive clinical data and supporting information to the FDA. Even if granted, the FDA can withdraw product clearances and approvals for failure to comply with regulatory requirements or upon the occurrence of unforeseen problems following initial marketing.
The activities required before a new drug product may be marketed in the United States includes pre-clinical and clinical testing and submission of a new drug application with the FDA. Preclinical tests include laboratory evaluation of product chemistry and other characteristics and animal studies to assess the potential safety and efficacy of the product as formulated. Clinical testing involves the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified principal investigator, usually a physician, pursuant to an FDA reviewed protocol.
Human clinical trials typically are conducted in three sequential phases, but the phases may overlap. Phase 1 trials consist of testing the product in a small number of patients or normal volunteers, primarily for safety, at one or more dosage levels, as well as characterization of a drug's pharmacokinetic and/or pharmacodynamic profile. In Phase 2 clinical trials, in addition to safety, the efficacy of the product is usually evaluated in a patient population. Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically disperse sites. All of the phases of clinical studies must be conducted in conformance with FDA's bioresearch monitoring regulations.
We cannot assure you that we will be able to obtain necessary regulatory approvals on a timely basis, if at all, for any of our potential products. Even if granted, regulatory approvals may include significant limitations on the uses for which products may be marketed. Moreover, we cannot assure you that any required approvals, once obtained, will not be withdrawn or that we will remain in compliance with other regulatory requirements. If we, or manufacturers of our components, fail to comply with applicable FDA and other regulatory requirements, we, and they, are subject to sanctions, including:
o warning letters;
o fines;
o product recalls or seizures;
o injunctions;
o refusals to permit products to be imported into or exported out of the United States;
o withdrawals of previously approved marketing applications; and
o criminal prosecutions.
Manufacturers of drugs also are required to comply with the applicable Good Manufacturing Practices, or GMP, requirements, which relate to product testing, quality assurance and maintaining records and documentation. We cannot assure you that we will be able to comply with the applicable GMP and other FDA regulatory requirements for manufacturing as we expand our manufacturing operations, which would impair our business.
In addition, to market our products in foreign jurisdictions, we and our partners must obtain required regulatory approvals from foreign regulatory agencies and comply with extensive regulations regarding safety and quality. We cannot assure you that we will obtain regulatory approvals in such jurisdictions or that we will not incur significant costs in obtaining or maintaining any foreign regulatory approvals. If approvals to market our products are delayed, if we fail to receive these approvals, or if we lose previously received approvals, our business would be impaired.
Because certain of our clinical studies involve narcotics, we are registered with the Drug Enforcement Agency, or DEA, and our facilities are subject to inspection and DEA export, import, security and production quota requirements. We cannot assure you that we will not be required to incur significant costs to comply with DEA regulations in the future or that such regulations will not otherwise harm our business.
THE RESULTS OF PRECLINICAL AND CLINICAL TESTING ARE UNCERTAIN.
Before we can file for regulatory approval for the commercial sale of our potential AERx products, the FDA will require extensive preclinical and clinical testing to demonstrate their safety and efficacy. To date, we have tested prototype patient-operated versions of our AERx systems with morphine, insulin and dornase alfa on a limited number of individuals in Phase 1 and Phase 2 clinical trials. If we do not or cannot complete these trials or progress to more advanced clinical trials, we may not be able to commercialize our AERx products.
Completing clinical trials in a timely manner depends on, among other factors, the enrollment of patients. Our ability to recruit patients depends on a number of factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the existence of competitive clinical trials. Delays in planned patient enrollment in our current or future clinical trials may result in increased costs, program delays or both.
Although we believe the limited data we have regarding our potential products is encouraging, the results of initial preclinical and clinical testing do not necessarily predict the results that we will get from subsequent or more extensive preclinical and clinical testing. Furthermore, we cannot assure you that clinical trials of these products will demonstrate that these products are safe and effective to the extent necessary to obtain regulatory approvals. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If we cannot adequately demonstrate that any therapeutic product we are developing is safe and effective, regulatory approval of that product would be delayed or prevented, which would impair our business.
We are also developing applications of our AERx platform for the delivery of other compounds. These applications are in early stages of development and we do not yet know the degree of testing and development that will be needed to obtain necessary marketing approvals from the FDA and other regulatory agencies. We cannot assure you that these applications will prove to be viable or that any necessary regulatory approvals will be obtained in a timely manner, if at all.
In addition, the FDA may require us to provide clinical data beyond what is currently planned to demonstrate that the chronic administration of drugs delivered via the lung for systemic effect is safe. We cannot assure you that we will be able to present such data in a timely manner, or at all.
WE ARE IN A HIGHLY COMPETITIVE MARKET AND OUR COMPETITORS MAY DEVELOP ALTERNATIVE THERAPIES.
We are in competition with pharmaceutical, biotechnology and drug delivery companies, hospitals, research organizations, individual scientists and nonprofit organizations engaged in the development of alternative drug delivery systems or new drug research and testing, as well as with entities producing and developing injectable drugs. We are aware of a number of companies such as Alkermes Pharmaceuticals and Inhale Therapeutic Systems that are currently seeking to develop new products and non-invasive alternatives to injectable drug delivery, including oral delivery systems, intranasal delivery systems, transdermal systems, bucal and colonic absorption systems. Several of these companies may have developed or are developing dry powder devices that could be used for pulmonary delivery. Many of these companies and entities have greater research and development capabilities, experience, manufacturing, marketing, financial and managerial resources than we do. Accordingly, our competitors may succeed in developing competing technologies, obtaining FDA approval for products or gaining market acceptance more rapidly than we can.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY
EMPLOYEES.
We depend on a small number of key management and technical personnel. Losing any of these key employees could harm our business and operations. Our success also depends on our ability to attract and retain additional highly qualified marketing, management, manufacturing, engineering and research and development personnel. We face intense competition in our recruiting activities and may not be able to attract or retain qualified personnel.
WE MAY BE EXPOSED TO PRODUCT LIABILITY.
Researching, developing and commercializing medical devices and therapeutic products entail significant product liability risks. The use of our products in clinical trials and the commercial sale of such products may expose us to liability claims. These claims might be made directly by consumers or by pharmaceutical companies or others selling such products.
Companies often address the exposure of such risk by obtaining product liability insurance. Although we currently have product liability insurance, we cannot assure you that we can maintain such insurance or obtain additional insurance on acceptable terms, in amounts sufficient to protect our business, or at all. A successful claim brought against us in excess of our insurance coverage would have a material adverse effect on our business.
THIRD-PARTY REIMBURSEMENT FOR OUR PRODUCTS IS UNCERTAIN.
In both domestic and foreign markets, sales of our potential products depend in part on the availability of reimbursement from third-party payors such as government health administration authorities, private health insurers and other organizations. Third-party payors often challenge the price and cost-effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products. We
cannot assure you that any of our products will be reimbursable by third-party payors. In addition, we cannot assure you that our products will be considered cost-effective or that adequate third-party reimbursement will be available to enable us to maintain price levels sufficient to realize a profit. Legislation and regulations affecting the pricing of pharmaceuticals may change before our products are approved for marketing and any such changes could further limit reimbursement.
WE USE HAZARDOUS MATERIALS.
Our operations involve use of hazardous and toxic materials, chemicals and various radioactive compounds and generate hazardous, toxic and radioactive wastes. Although we believe that our safety procedures for handling and disposing of such materials comply with all state and federal regulations and standards, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result and such liability could exceed the resources of our business.
OUR STOCK PRICE IS LIKELY TO REMAIN VOLATILE.
The market prices for securities of many companies in the drug delivery industry, including ours, have historically been highly volatile, and the market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. Prices for our common stock may be influenced by many factors, including:
o investor perception of us;
o analyst recommendations;
o fluctuations in our operating results;
o market conditions relating to the drug delivery industry;
o announcements of technological innovations or new commercial products by us or our competitors;
o publicity regarding actual or potential developments relating to products under development by us or our competitors;
o failure to establish new collaborative relationships;
o developments or disputes concerning patent or proprietary rights;
o delays in the development or approval of our product candidates;
o regulatory developments in both the United States and foreign countries;
o public concern as to the safety of drug delivery technologies;
o period-to-period fluctuations in financial results;
o future sales of substantial amounts of common stock by shareholders; or
o economic and other external factors.
In the past, class action securities litigation has often been instituted against companies following periods of volatility in the market price of their securities. Any such litigation instigated against us could result in substantial costs and a diversion of management's attention and resources.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS.
Certain provisions of our articles of incorporation and the California General Corporation Law could discourage a third party from acquiring, or make it more difficult for a third party to acquire, control of us without approval of
our board of directors. These provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock. We are also subject to the provisions of Section 1203 of the California General Corporation Law which requires a fairness opinion to be provided to our shareholders in connection with their consideration of any proposed "interested party" reorganization transaction.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward looking statements, which include statements based on our current expectations, assumptions, estimates and projections about us and our industry, including statements about:
o the timing and results of clinical trials;
o regulatory approval;
o the establishment of corporate partnering arrangements;
o the anticipated commercial introduction of our products; and
o and the timing of our cash requirements.
We use words such as "believes," "anticipates," "expects," "intends," "plans" and similar expressions to identify forward-looking statements, but these are not the exclusive means of identifying these statements. Actual results could differ materially from those projected in any forward-looking statements for the reasons detailed in "Risk Factors" or elsewhere in this prospectus. Before you decide to invest in our common stock, you should be aware that if any of the events described in the "Risk Factors" section and elsewhere in this prospectus occur, they could have an adverse affect on our business. We assume no obligation to update any forward-looking statement.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares by the selling security holders. All proceeds from the sale of the shares will be for the accounts of the selling security holders.
SELLING SECURITY HOLDERS
We are registering for resale shares of our common stock which may be issued to the selling security holders identified below upon conversion of the preferred shares or exercise of the warrants to permit the selling security holders to resell the shares. Pursuant to the securities purchase agreement dated as of December 11, 2001 among us and the selling security holders, we issued and sold, for an aggregate purchase price of $48.4 million:
o an aggregate of 2,001,236 shares of our Series A Convertible Preferred Stock, which shares are each convertible into four shares of our common stock (the conversion rate is fixed and is not subject to any adjustments other than for stock splits, stock dividends, reclassifications, reorganizations and other similar events); and
o warrants to purchase an aggregate of 5,203,212 shares of our common stock at an exercise price of $6.97 per share, which warrants are exercisable at the election of the selling security holders prior to December 14, 2006.
The table below presents information regarding the selling security holders and the shares that they may offer and sell from time to time under this prospectus. The shares of common stock covered, as to their resale, under this prospectus include shares issued or issuable upon conversion of the preferred shares and upon exercise of the warrants.
This table is prepared based on information supplied to us by the listed selling security holders. The table assumes that the selling security holders sell all of the shares offered under this prospectus. However, because the selling security holders may offer from time to time all or some of their shares under this prospectus, or in another permitted manner, we cannot assure you as to the actual number of shares that will be sold by the selling security holders or that will be held by the selling security holders after completion of the sales. Information concerning the security holders may change from time to time and changed information will be presented in a supplement to this prospectus if and when necessary and required.
SHARES OWNED NUMBER OF SHARES OWNED
PRIOR TO OFFERING SHARES AFTER OFFERING
------------------------ BEING -----------------------
SECURITY HOLDERS NUMBER (1) PERCENT (1) OFFERED NUMBER PERCENT (2)
---------------- ---------- ----------- ---------- --------- -----------
New Enterprise Associates 9,556,719 26.29% 6,818,176 2,738,543 9.27%
10, Limited Partnership (3)
Domain Public Equity 1,150,722 3.77 1,022,722 128,000 *
Partners, L.P. (4)
Castle Creek Healthcare 681,813 2.26 681,813 -- --
Partners LLC (5)
CC LifeScience, Ltd. (6) 681,813 2.26 681,813 -- --
Federated Kaufmann Fund (7) 2,372,667 7.61 1,650,000 722,667 2.45
Camden Partners Strategic Fund 934,560 3.07 934,560 -- --
II-A, L.P. (8)
Camden Partners Strategic Fund 55,440 * 55,440 -- --
II-B, L.P. (9)
MPM BioEquities Master Fund 1,369,132 4.43 1,363,632 5,500 *
LP (10)
|
* Less than one percent (1%)
(1) The shares of common stock owned prior to the offering equals the sum of
(a) shares of common stock owned, (b) shares of common stock issuable
upon conversion of the Series A preferred stock and (c) shares of common
stock issuable upon exercise of warrants. Percentages are based on
29,536,383 shares of our common stock that were outstanding on December
31, 2001. In calculating the percentage for each selling security
holder, the shares represented by items (b) and (c) above are included
in the denominator of the shares outstanding for that selling security
holder but are not included in the denominator for any other person.
(2) Percentages are based on 29,536,383 shares of our common stock that were outstanding on December 31, 2001.
(3) Consists of 2,489,585 shares of common stock, 4,132,228 shares of common stock issuable upon conversion of the preferred shares and 2,934,906 shares of common stock issuable upon exercise of warrants. Stewart Alsop, Peter J. Barris, Robert T. Coneybeer, Nancy L. Dorman, Ronald H. Kase, C. Richard Kramlich, Thomas C. McConnell, Peter T. Morris, Charles W. Newhall, III, Mark W. Perry and Scott D. Sandell are the general partners of NEA Partners 10, L.P., which is the general partner of New Enterprise Associates 10, Limited Partnership. The individuals identified in the foregoing sentence disclaim beneficial ownership of the securities.
(4) Consists of 128,000 shares of common stock, 619,832 shares of common stock issuable upon conversion of the preferred shares and 402,890 shares of common stock issuable upon exercise of the warrant. The general partner of Domain Public Equity Partners, L.P. is Domain Public Equity Associates, LLC. The general partners of Domain Public Equity Associates, LLC are Nicole Vitullo and Domain Associates L.L.C. The general partners of Domain Associates L.L.C. are James Blair, Brian Dovey, Jesse Freu, Kathleen Shoemaker, Robert More and Arthur Klausner. The individuals identified in the foregoing sentences disclaim beneficial ownership of the securities.
(5) Consists of 413,220 shares of common stock issuable upon conversion of the preferred shares and 268,593 shares of common stock issuable upon exercise of a warrant. As investment manager under a management agreement, Castle Creek Partners, LLC may exercise dispositive and voting power with respect to the shares of common stock that Castle Creek Healthcare Partners, LLC is offering in this prospectus; accordingly, Castle Creak Healthcare Partners, LLC may be considered to beneficially own such shares. Castle Creek Partners, LLC disclaims this beneficial ownership. Daniel Asher is the managing member of Castle Creek Partners, LLC. Mr. Asher disclaims beneficial ownership of securities owned by Castle Creek Healthcare Partners, LLC.
(6) Consists of 413,220 shares of common stock issuable upon conversion of the preferred shares and 268,593 shares of common stock issuable upon exercise of a warrant. As an investment manager under a management agreement, Castle Creek LifeScience Partners LLC may exercise dispositive and voting power with respect to the shares of common stock that CC LifeScience, Ltd. is offering in this prospectus; accordingly, Castle Creek LifeScience Partners LLC may be considered to beneficially own such shares. Castle Creek LifeScience Partners LLC disclaims such beneficial ownership. Daniel Asher and Dr. Nathan Fischel are the managing members of Castle Creek LifeScience Partners LLC. Mr. Asher and Dr. Fischel disclaim beneficial ownership of the securities owned by CC LifeScience, Ltd.
(7) Consists of 722,667 shares of common stock, 1,000,000 shares of common stock issuable upon conversion of the preferred shares and 650,000 shares of common stock issuable upon exercise of the warrant. Hans P. Utsch and Lawrence Auriana are the portfolio managers of Federated Kaufmann Fund, which is a mutual fund. The individuals identified in the foregoing sentence disclaim beneficial ownership of the securities.
(8) Consists of 566,400 shares of common stock issuable upon conversion of the preferred shares and 368,160 shares of common stock issuable upon exercise of a warrant. Richard M. Johnston, David L. Warnock and Donald W. Hughs are the partners of Camden Partners Strategic Fund II-A, L.P. The individuals identified in the foregoing sentence disclaim beneficial ownership of the securities.
(9) Consists of 33,600 shares of common stock issuable upon conversion of the preferred shares and 21,840 shares of common stock issuable upon exercise of a warrant. Richard M. Johnston, David L. Warnock and Donald W. Hughs are the partners of Camden Partners Strategic Fund II-A, L.P. The individuals identified in the foregoing sentence disclaim beneficial ownership of the securities.
(10) Consists of 5,500 shares of common stock, 826,444 shares of common stock issuable upon conversion of the preferred shares and 537,188 shares of common stock issuable upon exercise of a warrant. Kurt von Emster, Jake Nunn and Paul Walker are the partners of MPM BioEquitites Master Fund LP. The individuals identified in the foregoing sentence disclaim beneficial ownership of the securities.
John Nehra is a director of the Company and a limited partner of NEA Partners 10, the general partner of New Enterprise Associates 10, Limited Partnership. Mr. Nehra's appointment as a director was a closing condition to the securities purchase agreement pursuant to which the preferred shares and warrants were issued and sold. None of
the other selling security holders nor any of their affiliates, officers, directors or principal equity holders has held any position or office or has had any material relationship with us within the past three years.
PLAN OF DISTRIBUTION
The shares may be sold or distributed from time to time by the selling security holders or by pledgees, donees, transferees or other successors-in-interest selling shares received from a named selling security holder as a gift, partnership distribution or other non-sale-related transfer after the date of this prospectus. The selling security holders will act independently of us in making decisions with respect to the timing, manner and size of each sale of the common stock covered in this prospectus. The shares will be offered on the Nasdaq National Market System or in privately negotiated transactions. The selling security holders may sell the shares registered here in one or more of the following methods:
o cross trades or block trades in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by a broker or dealer for its own account under this prospectus;
o "at the market" to or through market makers or into an existing market for the shares;
o ordinary brokerage transactions and transactions in which the broker solicits purchasers, which may include long sales or short sales effected after the effective date of the registration statement of which this prospectus is a part;
o in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents;
o through transactions in options, swaps or other derivatives (whether exchange-listed or otherwise); or
o any combination of the foregoing, or by any other legally available means.
The selling security holders may enter into hedging transactions with broker-dealers in connection with distributions of the shares or otherwise. In these transactions, broker-dealers may engage in short sales of the shares in the course of hedging the positions they assume with the selling security holders, provided that they hold an offsetting long position in the shares. The selling security holders also may sell shares short, provided that they hold an offsetting long position in the shares, and redeliver the shares to close out short positions. The selling security holders may also enter into option or other transactions with brokers or dealers that require the delivery by these brokers or dealers of the shares, which shares may be resold thereafter pursuant to this prospectus. In addition, a selling security holder may pledge its shares to brokers or dealers or other financial institutions. Upon a default by a selling security holder, the brokers, dealers or financial institutions may offer and sell the pledged shares.
Selling security holders Castle Creek Healthcare Partners, LLC and CC LifeScience, Ltd. are affiliates of Castlewood Securities, LLC, which is a broker-dealer. Each of the foregoing selling security holders purchased the securities in the ordinary course of business, and at the time of the purchase of such securities, had no agreements or understandings, directly or indirectly, with any person to distribute the securities.
Underwriters, broker-dealers and agents that participate in the distribution of shares may be deemed to be underwriters and any discounts or commissions received by them from the selling security holders and any profit on the resale of shares by them may be deemed to be underwriting discounts and commissions under the Securities Act. At such time that the selling security holders elect to make an offer of shares, a prospectus supplement, if required, will be distributed that will identify any underwriters, dealers or agents and any discounts, commissions and other terms constituting compensation from such selling security holders and any other required information.
Under agreements which may be entered into by the selling security holders, underwriters who participate in the distribution of shares may be entitled to indemnification by the selling security holders against certain liabilities, including liabilities under the Securities Act. We have also agreed to indemnify, in certain circumstances, the selling security holders and certain control and other persons related to the foregoing persons against certain liabilities, including liabilities under the Securities Act. The selling security holders have agreed to indemnify us in
certain circumstances, as well as certain related persons, against certain liabilities, including liabilities under the Securities Act.
Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the selling security holders will be subject to applicable provisions of the Exchange Act and the associated rules and regulations under the Exchange Act, including Regulation M, which provisions may limit the timing of purchases and sales of shares of our common stock by the selling security holders. We will make copies of this prospectus available to the selling security holders and have informed the selling security holders of the need to deliver copies of this prospectus to purchasers at or prior to the time of any sale of the shares.
Some of the underwriters or agents and their associates may be customers of, engage in transactions with or perform services for us in the ordinary course of business.
The selling security holders are not obligated to, and there is no assurance that the selling security holders will, sell any or all of the shares.
We will bear all costs, expenses and fees in connection with the registration of the shares. The selling security holders will pay all commissions and discounts, if any, associated with the sale of the shares.
WHERE YOU CAN FIND MORE INFORMATION
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT ON FORM S-3 WE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT PAGE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF COMMON STOCK.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information filed by us may be inspected and copied at the Commission's Public Reference Section located at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material also can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W, Washington, D.C. 20549, at prescribed rates. Please call the Commission at 1-800-SEC-0330 for more information about the operation of the public reference rooms. The Commission also makes electronic filings publicly available on the Internet. The Commission's Internet address is http://www.sec.gov. The Commission's web site also contains reports, proxy and information statements and other information regarding us that has been filed with the Commission. Our common stock is quoted on the Nasdaq National Market. Reports, proxy statements and other information concerning us may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
This prospectus constitutes a part of a registration statement on Form S-3 filed by us with the Commission under the Securities Act of 1933, as amended, including amendments thereto relating to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement.
The Commission allows us to "incorporate by reference" information that we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the Commission will automatically update and supersede this information. Further, all filings we make under the Securities Exchange Act of 1934 after the date of the initial registration statement and prior to effectiveness of the registration statement shall be deemed to be incorporated by reference into this prospectus. We incorporate by reference the documents listed below and any future filings we will make with the Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
(i) Our Annual Report on Form 10-K for the fiscal year ended December 31, 2000, as amended, including all material incorporated by reference therein;
(ii) Our Notice of Annual Meeting and Proxy Statement dated April 11, 2001 filed in connection with our 2001 Annual Meeting of Shareholders;
(iii) Our Notice of Special Meeting and Proxy Statement dated January 9, 2002 filed in connection with a special meeting of shareholders;
(iv) Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001; and
(iv) The description of the common stock contained in our Registration Statement on Form 8-A.
We will provide without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request of such person, a copy of any and all of the documents that have been incorporated by reference in this prospectus (not including exhibits to such documents, unless such exhibits are specifically incorporated by reference in this prospectus or into such documents). Such request may be directed to: Investor Relations Department, Aradigm Corporation, 3929 Point Eden Way, Hayward, California 94545, telephone (510) 265-9000.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon by Cooley Godward LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2000, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM: 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the shares of common stock being registered. All the amounts shown are estimates except for the registration fee.
Securities and Exchange Commission registration fee..................... $ 22,461
Nasdaq National Market additional shares listing fee.................... $ 17,500
Legal fees and expenses ................................................ $ 30,000
Accounting fees and expenses ........................................... $ 8,000
Miscellaneous .......................................................... $ 7,039
--------
Total.................................................... $ 85,000
========
|
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Articles of Incorporation include provisions to (i) eliminate the personal liability of its directors for monetary damages resulting from breaches of their fiduciary duty to the fullest extent permitted by California law and (ii) permit the Company to indemnify its directors and officers, employees and other agents for breach of duty to the Company and its shareholders through bylaw provisions or through agreements, or both, to the fullest extent permitted by the California Corporations Code (the "Corporations Code"). The Company's Amended and Restated Bylaws include provisions that (i) permit the Company to indemnify its officers, employees and other agents as set forth in the Corporations Code and (ii) require the Company to indemnify its directors to the fullest extent not prohibited by the Corporations Code; provided, however, that the Company may limit the extent of such indemnification by individual contracts with its directors; and, provided, further, that the Company shall not be required to indemnify any director in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the Company or its directors, officers, employees or other agents except as provided in the Bylaws. Pursuant to Section 317 of the Corporations Code, a corporation generally has the power to indemnify its present and former directors, officers, employees and other agents against any expenses incurred by them in connection with any proceeding to which they are, or are threatened to be made, a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of a corporation, and with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. The Company believes that these provisions are necessary to attract and retain qualified persons as directors and officers. These provisions do not eliminate liability for breach of the director's duty of loyalty to the Company or its shareholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for any transaction from which the director derived an improper personal benefit or for any willful or negligent payment of any unlawful dividend.
The Company has entered into agreements with its directors and executive officers that require the Company to indemnify such persons against expenses, judgments, fines, settlements and other amounts that such person becomes legally obligated to pay (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer of the Company or any of its affiliated enterprises, provided such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.
The Company has an insurance policy covering the officers and directors of the Company with respect to certain liabilities, including liabilities under the Securities Act of 1933 or otherwise.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1(1) Amended and Restated Articles of Incorporation.
3.2(1) Bylaws of the Company.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2(1) Specimen stock certificate.
4.3 Amended and Restated Certificate of Determination and Preferences of Series A
Convertible Preferred Stock.
4.4 Securities Purchase Agreement, dated as of December 11, 2001,
by and among Aradigm Corporation and the purchasers named
therein (the "Purchasers").
4.5 Form of Warrant issued to the Purchasers.
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP included in Exhibit 5.1.
24.1 Power of Attorney. See signature page.
|
(1) Incorporated by reference to the indicated exhibit in the Company's Registration Statement on Form S-1 (No. 333-4236), as amended.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 15 above, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by registrant of expenses incurred or paid by a director, officer or controlling person of registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those
II-2
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hayward, State of California, on the 11th day of January, 2002.
Aradigm Corporation
By: /s/ Richard P. Thompson
---------------------------------------
Richard P. Thompson
President, Chief Executive Officer
and Director
|
Know All Persons By These Presents, that each person whose signature appears below hereby constitutes and appoints jointly and severally, Richard P. Thompson and Michael Molkentin, and each or any one of them, his or her true and lawful attorney-in-fact and agent, each with the full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any way and all capacities, to sign any and all amendments (including post-effective amendments and registration statements filed pursuant to Rule 462) to this registration statement and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE
/s/ Richard P. Thompson President, Chief Executive Officer and January 11, 2002
--------------------------------------- Director (Principal Executive Officer)
RICHARD P. THOMPSON
/s/ Michael Molkentin Acting Chief Financial Officer (Acting January 11, 2002
--------------------------------------- Principal Financial and Accounting
MICHAEL MOLKENTIN Officer)
/s/ Frank H. Barker Director January 11, 2002
---------------------------------------
FRANK H. BARKER
/s/ Stan M. Benson Director January 11, 2002
---------------------------------------
STAN M. BENSON
/s/ Igor Gonda Director January 11, 2002
---------------------------------------
IGOR GONDA
/s/ Wayne I. Roe Director January 11, 2002
---------------------------------------
WAYNE I. ROE
/s/ Virgil D. Thompson Director January 11, 2002
---------------------------------------
VIRGIL D. THOMPSON
/s/ John Nehra Director January 11, 2002
---------------------------------------
JOHN NEHRA
|
EXHIBIT 4.3
ARADIGM CORPORATION
AMENDED AND RESTATED
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
The undersigned, Richard P. Thompson and Michael Molkentin, hereby certify that:
A. They are the duly elected and acting President and Chief Executive ' Officer, and Acting Chief Financial Officer, respectively, of Aradigm Corporation, a California corporation (the "COMPANY").
B. Pursuant to authority conferred by the Company's Amended and Restated Articles of Incorporation (the "ARTICLES OF INCORPORATION"), the board of directors of the Company (the "BOARD OF DIRECTORS") has duly adopted the following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Company authorize a class of shares of stock known as "PREFERRED STOCK" comprising Five Million (5,000,000) shares, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series;
WHEREAS, the Board of Directors has previously adopted resolutions to provide for the issuance of a Series A Convertible Preferred Stock of the Company and to fix and determine the rights, preferences, privileges, restrictions, and other matters relating to the said Series A Convertible Preferred Stock;
WHEREAS, the Board of Directors now wishes to amend and restate such resolutions;
WHEREAS, none of the shares of Series A Convertible Preferred Stock has been issued;
NOW, THEREFORE, BE IT RESOLVED that the resolutions providing for the issuance of a Series A Convertible Preferred Stock of the Company and fixing and determining the rights, preferences, privileges, restrictions, and other matters relating to said Series A Convertible Preferred Stock are hereby amended and restated to read as follows.
Section 1. Designation of Series Preferred. Two Million Fifty Thousand (2,050,000) shares of Preferred Stock are designated Series A Convertible Preferred Stock (the "SERIES
PREFERRED") with the rights, preferences, privileges and restrictions specified herein. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series Preferred to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series Preferred.
Section 2. Dividend Rights.
a. During the two (2) year period beginning the date that the first share of Series Preferred is issued (the "ORIGINAL ISSUE DATE"), the holders of Series Preferred, in preference to the holders of Common Stock of the Company ("COMMON STOCK") and the Series A Junior Participating Preferred Stock (the "JUNIOR PREFERRED STOCK") and any other stock ranking junior to the Series Preferred (collectively with the Common Stock and Junior Preferred Stock, the "JUNIOR STOCK"), shall be entitled to receive, when, as and if declared by the Board of Directors, but only out of funds that are legally available therefor, dividends at the rate of six percent (6%) of the Original Issue Price (as defined below) per annum on each outstanding share of Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Original Issue Date). Such dividends shall be payable only when, as and if declared by the Board of Directors, but they shall be cumulative and will accrue, whether or not declared. At the option of the Company, such dividends may be paid in either cash or stock (at a price equal to the then current market price). For purposes of this Section 2(a), the current market price of the Company's Common Stock on any dividend payment date shall be based on the closing price of the Company's Common Stock as quoted on the Nasdaq Stock Market, or, if on any day the Common Stock is not so listed, the average of the highest bid and the lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each case averaged over a period of ten (10) trading days consisting of the day as of which the current fair value of Common Stock is being determined and the nine (9) consecutive trading days prior to such day. If at any time the Common Stock is not listed on any securities exchange or quoted in the over-the-counter market, the current fair market value of Common Stock shall be used, and shall be determined in good faith by the Board of Directors.
b. The Original Issue Price of the Series Preferred shall be Twenty-Four Dollars and Twenty Cents ($24.20) per share (the "ORIGINAL ISSUE PRICE").
c. So long as any shares of Series Preferred are outstanding, the Company shall not pay or declare any dividend, whether in cash or property, or make any other distribution on the Common Stock, or purchase, redeem or otherwise acquire for value any shares of Common Stock unless and until all accrued and unpaid dividends on the Series Preferred shall have first been paid or declared and set apart, except for:
(i) acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares at cost (or the lesser of cost or fair market value) upon termination of services to the Company;
(ii) acquisitions of Common Stock in exercise of the Company's right of first refusal to repurchase such shares; or
(iii) any repurchase of any outstanding securities of the Company that is approved by the Board of Directors; or
(iv) dividends payable in Common Stock that are approved by the Board of Directors.
d. In the event dividends are paid on any share of Common Stock, the Company shall pay an additional dividend on all outstanding shares of Series Preferred in a per share amount equal (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.
e. The holders of the Series Preferred expressly waive their rights, if any, as described in California Code Sections 502, 503 and 506 as they relate to repurchases of shares of Common Stock upon termination of employment or service as a consultant or director.
Section 3. Liquidation Rights.
a. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Junior Stock, the holders of Series Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution, or the consideration received in such transaction, an amount per share of Series Preferred equal to the Original Issue Price plus all accrued and unpaid dividends on the Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Original Issue Date) for each share of Series Preferred held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference set forth in this Section 3(a), then such assets (or consideration) shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. After payment of the full liquidation preference of the Series Preferred as aforesaid, the assets of the Company legally available for distribution (or the consideration received in such transaction), if any, shall be distributed to the holders of any Junior Stock in accordance with the Articles of Incorporation and any other Certificate of Determination of Preferences creating a series of Preferred Stock or any similar stock.
b. An Acquisition (as defined below) or Asset Transfer (as defined below) shall be deemed a liquidation for purposes of this Section 3. An "ACQUISITION" shall mean (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the voting power of the surviving entity immediately after such consolidation, merger or reorganization; or (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred; provided that an Acquisition shall not include (x) any consolidation or merger effected
exclusively to change the domicile of the Company, or (y) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof; and "ASSET TRANSFER" shall mean a sale, lease or other disposition of all or substantially all of the assets of the Company.
Section 4. Conversion. The holders of the Series Preferred shall have conversion rights as follows (the "CONVERSION RIGHTS"):
a. Optional Conversion. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the Conversion Rate then in effect (determined as provided in
Section 4(b) by the number of shares of Series Preferred being converted.
b. Conversion Rate. The Conversion Rate for Series Preferred in effect at any time for conversion of the Series Preferred (the "CONVERSION RATE") shall be the quotient obtained by dividing the Original Issue Price by the Conversion Price, calculated as provided in Section 4(c).
c. Conversion Price. The Conversion Price for the Series Preferred shall initially be Six Dollars and Five Cents ($6.05) (the "CONVERSION PRICE"). Such initial Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Conversion Price herein shall mean the Conversion Price as so adjusted.
d. Mechanics of Conversion. Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender its certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that it elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder of Series Preferred a certificate or certificates, registered in such names as are specified by the holder, for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash (at the Common Stock's fair market value determined by the Board of Directors as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series Preferred. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the the shares of Series Preferred to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
e. Adjustment for Stock Splits and Combinations. If at any time or from time to time after the Original Issue Date the Company effects a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date the Company
combines the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.
f. Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Company pays a dividend or other distribution in additional shares of Common Stock, the Conversion Price that is then in effect shall be decreased as of the time of such issuance, as provided below:
i. The Conversion Price shall be adjusted by multiplying the Conversion Price then in effect by a fraction equal to:
(A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and
(B) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution;
ii. If the Company fixes a record date to determine which holders of Common Stock are entitled to receive such dividend or other distribution, the Conversion Price shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and
iii. If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution.
g. Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3(b) or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event each holder of Series Preferred shall then have the right to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.
h. Reorganizations, Mergers or Consolidations. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock or the merger or consolidation of the Company with or into another corporation or another entity or person (other than an Acquisition or Asset Transfer as defined in Section 3(b) or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable.
i. Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series Preferred, if the Series Preferred is then convertible pursuant to this Section 4, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series Preferred at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the Conversion Price at the time in effect and (ii) the type and amount, if any, of other property which at the time would be received upon conversion of the Series Preferred.
j. Notices of Record Date. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(b)) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in Section
3(b)), or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to each holder of Series Preferred at least
ten (10) days prior to the record date specified therein (or such shorter period
approved by the holders of a majority of the outstanding Series Preferred) a
notice specifying (A) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up. The Company shall also
use its reasonable efforts to furnish to the
holders of Series Preferred information that is reasonably sufficient to enable such holders to make a determination as to whether it would be to their advantage to convert their shares of Series Preferred to shares of Common Stock pursuant to this Section 4 prior to any transaction listed in (ii) above.
k. Automatic Conversion.
i. Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Conversion
Rate, upon either (A) the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Company with gross proceeds to the Company (before underwriting discounts,
commission and fees) of not less than Twenty-Five Million Dollars ($25,000,000),
or (B) the date on which the Common Stock closing bid price has been at least
seventy-five percent (75%) greater than the Conversion Price for at least twenty
(20) consecutive trading days; provided, however, that if either of the events
described in clause (A) or (B) of this Section 4(k)(i) occurs at a time when
insufficient authorized Common Stock is available for issuance of all shares of
Common Stock issuable upon such conversion or prior to the effective date of the
registration statement to be filed with the Securities and Exchange Commission
registering for resale the shares of Common Stock issuable upon such conversion,
then automatic conversion of the Series Preferred shares shall not immediately
occur but instead shall occur at such time as sufficient authorized Common Stock
is available and such registration has been declared effective.
ii. Upon a conversion in accordance with Section 4(k)(i) above, the outstanding shares of Series Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred.
l. Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay
cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board of Directors) on the date of conversion.
m. Reservation of Stock Issuable Upon Conversion. The Company shall use its commercially reasonable efforts at all times to reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
n. Notices. Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.
o. Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered.
p. No Dilution or Impairment. Without the consent of the holders of a majority of the then outstanding Series Preferred, the Company shall not amend its Amended and Restated Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against dilution or other impairment.
Section 5. No Reissuance of Series Preferred. No shares of Series Preferred acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued.
Section 6. Voting Rights. Each holder of shares of Series Preferred shall have a number of votes equal to the number of shares of Common Stock issuable upon conversion of such holder's shares of Series Preferred and shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Series Preferred shall be
entitled to notice of any shareholders' meeting in accordance with the Amended and Restated Bylaws of the Company and shall vote with holders of the Common Stock at any annual or special meeting of the shareholders and not as a separate class, except those matters required by law to be submitted to a class vote.
RESOLVED FURTHER, that the officers are hereby authorized and directed to prepare and file an Amended and Restated Certificate of Determination of Preferences of Series Preferred in accordance with the foregoing resolutions and the provisions of California law.
C. The authorized number of shares of Preferred Stock of the Company is Five Million (5,000,000) shares and the number of shares constituting Series Preferred, none of which has been issued, is Two Million Fifty Thousand (2,050,000).
IN WITNESS WHEREOF, the undersigned have executed this Certificate as of December 12, 2001.
/s/ Richard P. Thompson ---------------------------------------- Richard P. Thompson President and Chief Executive Officer /s/ Michael Molkentin ---------------------------------------- Michael Molkentin Acting Chief Financial Officer |
The undersigned, Richard P. Thompson and Michael Molkentin, the President and Chief Executive Officer, and Acting Chief Financial Officer, respectively, of ARADIGM CORPORATION, declare under penalty of perjury that the matters set out in the foregoing Certificate are true of their own knowledge.
Executed at Hayward, California on December 12, 2001.
/s/ Richard P. Thompson ---------------------------------------- Richard P. Thompson /s/ Michael Molkentin ---------------------------------------- Michael Molkentin |
EXHIBIT 4.4
ARADIGM CORPORATION
SECURITIES PURCHASE AGREEMENT
DECEMBER 11, 2001
TABLE OF CONTENTS
PAGE
ARTICLE 1 AUTHORIZATION AND SALE OF PREFERRED SHARES AND WARRANTS.......................1
1.1 Authorization.................................................................1
1.2 Sale of Preferred Shares and Warrants.........................................1
ARTICLE 2 CLOSING DATE; DELIVERY........................................................1
2.1 Closing Date..................................................................1
2.2 Delivery......................................................................2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................2
3.1 Organization and Standing.....................................................2
3.2 Corporate Power; Authorization................................................2
3.3 Issuance and Delivery of the Shares...........................................2
3.4 SEC Documents; Financial Statements...........................................3
3.5 Governmental Consents.........................................................3
3.6 No Material Adverse Change....................................................3
3.7 Authorized Capital Stock......................................................4
3.8 Litigation....................................................................4
3.9 Eligibility to Use Form S-3...................................................4
ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS...................4
4.1 Authorization.................................................................4
4.2 Investment Experience.........................................................4
4.3 Investment Intent.............................................................5
4.4 Registration or Exemption Requirements........................................5
4.5 Dispositions..................................................................5
4.6 No Legal, Tax or Investment Advice............................................5
4.7 Confidentiality...............................................................5
4.8 Residency.....................................................................6
4.9 Governmental Review...........................................................6
4.10 Legend........................................................................6
4.11 Foreign Investors.............................................................6
ARTICLE 5 CONDITIONS TO CLOSING OBLIGATIONS OF PURCHASERS...............................7
5.1 Representations and Warranties................................................7
|
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.2 Covenants.....................................................................7
5.3 Certificates..................................................................7
5.4 Legal Opinion.................................................................7
5.5 Board of Directors............................................................7
ARTICLE 6 CONDITIONS TO CLOSING OBLIGATIONS OF COMPANY..................................7
6.1 Receipt of Payment............................................................7
6.2 Representations and Warranties................................................7
6.3 Covenants.....................................................................8
6.4 Delivery of Purchaser Questionnaire...........................................8
ARTICLE 7 COVENANTS.....................................................................8
7.1 Definitions...................................................................8
7.2 Registration Procedures and Expenses..........................................8
7.3 Delay in Effectiveness.......................................................10
7.4 Indemnification..............................................................10
7.5 Prospectus Delivery..........................................................11
7.6 Termination of Obligations...................................................12
7.7 Reporting Requirements.......................................................12
7.8 Common Increase..............................................................12
7.9 Board of Directors...........................................................12
7.10 No Sale of Additional Shares.................................................12
ARTICLE 8 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT...............................................................13
8.1 Restrictions on Transferability..............................................13
8.2 Instruction Sheet............................................................13
8.3 Transfer of Securities.......................................................13
8.4 Purchaser Information........................................................14
ARTICLE 9 MISCELLANEOUS................................................................14
9.1 Waivers and Amendments.......................................................14
9.2 Broker's Fee.................................................................14
9.3 Governing Law................................................................14
|
TABLE OF CONTENTS
(CONTINUED)
PAGE
9.4 Survival.....................................................................14
9.5 Successors and Assigns.......................................................14
9.6 Entire Agreement.............................................................14
9.7 Notices, etc.................................................................14
9.8 Severability of this Agreement...............................................15
9.9 Counterparts.................................................................15
9.10 Further Assurances...........................................................15
9.11 Expenses.....................................................................15
9.12 Currency.....................................................................15
9.13 Waiver of Conflicts..........................................................15
|
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Warrant
Exhibit C - Form of Certificate of Determination
Exhibit D - Form of Purchaser's Questionnaire
Exhibit E - Form of Company Counsel Opinion
Exhibit F - Instruction Sheet
Exhibit G - Form of Purchaser's Certificate of Subsequent Sale
ARADIGM CORPORATION
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made as of December 11, 2001, by and among ARADIGM CORPORATION, a California corporation (the "COMPANY") with its principal office at 3929 Point Eden Way, Hayward, California 94545, and the persons listed on the Schedule of Purchasers attached hereto as EXHIBIT A (the "PURCHASERS").
ARTICLE 1
AUTHORIZATION AND SALE OF PREFERRED SHARES AND WARRANTS
1.1 AUTHORIZATION. The Company has authorized (a) the sale and issuance of up to two million one thousand two hundred thirty-six (2,001,236) shares of its Series A Convertible Preferred Stock (the "PREFERRED SHARES"), (b) the sale and issuance of warrants, in the form attached hereto as EXHIBIT B (the "WARRANTS"), to purchase up to five million two hundred three thousand two hundred twelve (5,203,212) shares of the Company's Common Stock (the "COMMON STOCK") pursuant to this Agreement and (c) the issuance of such shares of the Company's Common Stock to be issued upon conversion of the Preferred Shares (the "CONVERSION SHARES"). The Preferred Shares and the Conversion Shares have the rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of Determination of the Company, in the form attached hereto as EXHIBIT C (the "CERTIFICATE").
1.2 SALE OF PREFERRED SHARES AND WARRANTS. Subject to the terms and conditions of this Agreement, the Company agrees to issue and sell to each Purchaser and each Purchaser severally agrees to purchase from the Company:
(a) Preferred Shares in the amount and at the purchase price set forth opposite each Purchaser's name on EXHIBIT A; and
(b) Warrants to purchase five million two hundred three thousand two hundred twelve (5,203,212) shares of the Company's Common Stock, at an exercise price equal to $6.97 per share of Common Stock. The shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to herein as the "WARRANT SHARES". The Preferred Shares, the Conversion Shares and the Warrant Shares are collectively referred to herein as the "SHARES". The Shares and the Warrants are collectively referred to herein as the "SECURITIES".
1.
ARTICLE 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the Preferred Shares and Warrants hereunder (the "CLOSING") shall be held at the offices of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California 94111, at 10:00 a.m. California time on the date that is one (1) business day following the Company's receipt of confirmation by the Secretary of State of the State of California of acceptance of the Certificate, or at such other time and place upon which the Company and the Purchasers purchasing the majority of the Preferred Shares shall agree. The date of the Closing is hereinafter referred to as the "CLOSING DATE".
2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser a duly executed Warrant and a certificate representing the number of Preferred Shares to be purchased by such Purchaser, registered in the Purchaser's name as shown on EXHIBIT A. Such delivery shall be against payment of the purchase price therefor by wire transfer of immediately available funds to the Company in accordance with the Company's written wiring instructions in the amounts set forth on EXHIBIT A.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as of the Closing Date as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of California and is in good standing as a domestic corporation under the laws of said state.
3.2 CORPORATE POWER; AUTHORIZATION. Subject to the Common Increase, the Company has all requisite legal and corporate power and has taken all requisite corporate action to execute and deliver this Agreement, to sell and issue the Preferred Shares and Warrants, to issue the Conversion Shares upon conversion of the Preferred Shares in accordance with the terms of the Certificate, to issue the Warrant Shares upon exercise of the Warrants in accordance with the terms of such Warrants and to carry out and perform all of its obligations under this Agreement. This Agreement constitutes, and upon execution and delivery by the Company of the Warrants, the Warrants will constitute, legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally and (b) as limited by equitable principles generally. The execution and delivery of this Agreement does not, and the performance of this Agreement and the compliance with the provisions hereof and the issuance, sale and delivery of the Preferred Shares and the Warrants by the Company will not materially conflict with, or result in a material breach or violation of the terms, conditions or provisions of, or constitute a material default under, or result in the creation or imposition of any material lien pursuant to the terms of, the Articles of Incorporation or Bylaws of the Company or any statute, law, rule or regulation or any state or
2.
federal order, judgment or decree or any indenture, mortgage, lease or other material agreement or instrument to which the Company or any of its properties is subject.
3.3 ISSUANCE AND DELIVERY OF THE SHARES. The rights, preferences and privileges and restrictions of the Preferred Shares are as stated in the Certificate. When issued in compliance with the provisions of this Agreement and the Certificate, the Preferred Shares will be validly issued, fully paid and nonassessable. The Conversion Shares are duly and validly reserved for issuance and when issued in compliance with the provisions of the Certificate, the Conversion Shares will be validly issued, fully paid and nonassessable. Upon exercise of the Warrants in accordance with the terms thereof and following the increase in the number of shares of Common Stock authorized to one hundred million (100,000,000) (the "COMMON INCREASE"), the Warrant Shares will be validly issued, fully paid and nonassessable. The issuance and delivery of the Preferred Shares and the Warrants is not subject to preemptive or any other similar rights of the shareholders of the Company or any liens or encumbrances, except for rights created in connection with the Common Stock Purchase Agreement, dated as of November 3, 2000, by and between the Company and Acqua Wellington North American Equities Fund, Ltd.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. Each report or proxy statement delivered to the Purchasers is a true and complete copy of such document as filed by the Company with the Securities and Exchange Commission (the "SEC"). The Company has filed in a timely manner all documents that the Company was required to file with the SEC under Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), during the twelve (12) months preceding the date of this Agreement. As of their respective filing dates, all documents filed by the Company with the SEC (the "SEC DOCUMENTS") complied in all material respects with the requirements of the Exchange Act or the Securities Act of 1933, as amended (the "SECURITIES ACT"), as applicable. None of the SEC Documents as of their respective dates contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents (the "FINANCIAL Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the consolidated financial position of the Company and any subsidiaries at the dates thereof and the consolidated results of their operations and consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, recurring adjustments or to the extent that such unaudited statements do not include footnotes).
3.5 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement except for (a) compliance with the securities and blue sky laws
in the states in which the Preferred Shares and Warrants are offered and/or
sold, which compliance will be effected in accordance with such laws, (b) the
filing of Form S-3 and all amendments thereto with the SEC as contemplated by
Section 7.2 of this Agreement, (c) the filing of the Nasdaq National Market
Notification Form with the Nasdaq National Market and (d) those necessary to
effectuate the Common Increase.
3.
3.6 NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein or in the SEC Documents, since September 30, 2001, there have not been any changes in the assets, liabilities, financial condition, business prospects or operations of the Company from that reflected in the Financial Statements except changes in the ordinary course of business which have not been, either individually or in the aggregate, materially adverse.
3.7 AUTHORIZED CAPITAL STOCK. The authorized capital stock of the Company
consists of (a) forty million (40,000,000) shares of Common Stock, no par value,
of which, as of November 28, 2001, twenty-nine million five hundred thirty-six
thousand three hundred eighty-three (29,536,383) shares were outstanding, and
(b) five million (5,000,000) shares of Preferred Stock, no par value, two
hundred thirty thousand (230,000) shares of which are designated Series A Junior
Participating Preferred Stock, none of which shares is currently outstanding,
and one million nine hundred thousand (1,900,000) of which are designated Series
A Convertible Preferred Stock, none of which shares is currently outstanding.
3.8 LITIGATION. Except as disclosed in the SEC Documents, there are no actions, suits proceedings or investigations pending or, to the best of the Company's knowledge, threatened against the Company or any of its properties before or by any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood (in the judgment of the Company) of an adverse decision that (a) could have a material adverse effect on the Company's properties or assets or the business of the Company as currently conducted or (b) could impair the ability of the Company to perform in any material respect its obligations under this Agreement.
3.9 ELIGIBILITY TO USE FORM S-3. The Company is eligible to use Form S-3 for the registration of its securities under the Securities Act which are offered in transactions involving secondary offerings.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company, effective as of the Closing Date, as follows:
4.1 AUTHORIZATION. Purchaser represents and warrants to the Company that:
(a) Purchaser has all requisite legal and corporate or other power and capacity
and has taken all requisite corporate or other action to execute and deliver
this Agreement, to purchase the Preferred Shares and the Warrants to be
purchased by it and to carry out and perform all of its obligations under this
Agreement; and (b) this Agreement constitutes the legal, valid and binding
obligation of such Purchaser, enforceable in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, or similar
laws relating to or affecting the enforcement of creditors' rights generally and
(ii) as limited by equitable principles generally.
4.2 INVESTMENT EXPERIENCE. Purchaser is an "accredited investor" as defined in Rule 501(a) under the Securities Act. Purchaser is aware of the Company's business affairs and financial condition and has had access to and has acquired sufficient information about the
4.
Company to reach an informed and knowledgeable decision to acquire the Preferred Shares and the Warrants. Purchaser has such business and financial experience as is required to give it the capacity to protect its own interests in connection with the purchase of the Preferred Shares and Warrants.
4.3 INVESTMENT INTENT. Purchaser is purchasing the Preferred Shares and the Warrants for its own account as principal, for investment purposes only, and not with a present view to, or for, resale, distribution or fractionalization thereof, in whole or in part, within the meaning of the Securities Act, other than as contemplated by Article 7. Purchaser understands that its acquisition of the Preferred Shares and the Warrants has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. Purchaser has completed or caused to be completed the Purchaser Questionnaire attached hereto as EXHIBIT D for use in preparation of the Registration Statement (as defined below), and the responses provided therein shall be true and correct as of the Closing Date and will be true and correct as of the effective date of the Registration Statement. Purchaser has, in connection with its decision to purchase the Preferred Shares and the Warrants, relied solely upon the SEC Documents and the representations and warranties of the Company contained herein. Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities except in compliance with the Securities Act, and the rules and regulations promulgated thereunder.
4.4 REGISTRATION OR EXEMPTION REQUIREMENTS. Purchaser further acknowledges and understands that the Securities may not be resold or otherwise transferred except in a transaction registered under the Securities Act or unless an exemption from such registration is available.
4.5 DISPOSITIONS. Purchaser will not, prior to the effectiveness of the Registration Statement, if then prohibited by law or regulation, sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to (collectively, a "DISPOSITION") the Securities, nor will such Purchaser engage in any hedging or other transaction which is designed or could reasonably be expected to lead to or result in a Disposition of Securities by such Purchaser or any person or entity. In addition, the Purchaser agrees that for so long as it owns any Shares, it will not enter into any Short Sales. For such purposes, a "Short Sale" by the Purchaser means a short sale of Shares executed at a time when the Purchaser has no equivalent offsetting long position in the Common Stock. For purposes of determining whether the Purchaser has an equivalent offsetting long position in the Shares, shares that the Purchaser is entitled to receive within sixty (60) days (whether pursuant to contract or upon conversion or exercise of convertible securities) will be included as if held long by the Purchaser.
4.6 NO LEGAL, TAX OR INVESTMENT ADVICE. Purchaser understands that nothing in this Agreement or any other materials presented to Purchaser in connection with the purchase and sale of the Preferred Shares and the Warrants constitutes legal, tax or investment advice. Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Preferred Shares and the Warrants.
5.
4.7 CONFIDENTIALITY. Purchaser will hold in confidence all information concerning this Agreement and the placement of the Securities hereunder until the earlier of such time as (a) the Company has made a public announcement concerning the Agreement and the placement of the Securities hereunder or (b) this Agreement is terminated; provided, however, that the foregoing provision of this Section 4.7 shall not apply if the Company does not issue a press release concerning the Agreement and the placement of the Securities hereunder within two (2) days of the Closing.
4.8 RESIDENCY. Purchaser's principal executive officers are in the jurisdiction set forth immediately below Purchaser's name of the signature pages hereto.
4.9 GOVERNMENTAL REVIEW. Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Shares or the Warrants.
4.10 LEGEND. Purchaser understands that, until such time as the Registration Statement (as defined below) has been declared effective or the Securities may be sold pursuant to Rule 144 under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of the certificates for the Shares):
"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 OF THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS."
4.11 FOREIGN INVESTORS. If Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Preferred Shares and the Warrants or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Preferred Shares and the Warrants, (b) any foreign exchange restrictions applicable to such purchase, (c) any government or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Securities. Purchaser's subscription and payment for and continued beneficial ownership of the Securities will not violate any applicable securities or other laws of Purchaser's jurisdiction.
6.
ARTICLE 5
CONDITIONS TO CLOSING OBLIGATIONS OF PURCHASERS
Each Purchaser's obligation to purchase the Preferred Shares and the Warrants at the Closing is, at the option of such Purchaser, subject to the fulfillment or waiver as of the Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations made by the Company in Article 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of such date.
5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects.
5.3 CERTIFICATES. The Company shall have delivered to the Purchasers duly executed certificates for the Preferred Shares and the Warrants (in such denominations as set forth opposite each Purchaser's name on EXHIBIT A).
5.4 LEGAL OPINION. The Purchasers shall have received on the Closing Date an opinion of Cooley Godward LLP, counsel for the Company, dated the Closing Date, to the effect set forth in EXHIBIT E.
5.5 BOARD OF DIRECTORS. Upon the Closing, the authorized size of the Board of Directors of the Company shall be eight (8) members and John Nehra shall be a member of the Board of Directors.
ARTICLE 6
CONDITIONS TO CLOSING OBLIGATIONS OF COMPANY
The Company's obligation to sell and issue the Preferred Shares and the Warrants at the Closing is, at the option of the Company, subject to the fulfillment or waiver of the following conditions:
6.1 RECEIPT OF PAYMENT. The Purchasers shall have delivered payment of the purchase price to the Company for the Preferred Shares and the Warrants being issued hereunder.
6.2 REPRESENTATIONS AND WARRANTIES. The representations made by the Purchasers in Article 4 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of such date.
7.
6.3 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects.
6.4 DELIVERY OF PURCHASER QUESTIONNAIRE. The Company shall have received from each Purchaser a fully completed Purchaser Questionnaire in the form attached hereto as EXHIBIT D prior to the Closing for the Company's use in preparing the Registration Statement pursuant to Article 7 below.
ARTICLE 7
COVENANTS
7.1 DEFINITIONS. For the purpose of this Article 7:
(a) the term "REGISTRATION STATEMENT" shall mean any registration statement required to be filed by Section 7.2 below, and shall include any preliminary prospectus, final prospectus, exhibit or amendment included in or relating to such registration statements; and
(b) the term "UNTRUE STATEMENT" shall include any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and
(c) the term "REGISTRABLE SHARES" shall mean all of the Conversion Shares and the Warrant Shares.
7.2 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) use its best efforts to (i) file a Registration Statement with the SEC within thirty (30) days following the Closing Date to register such of the Registrable Shares as have been duly authorized for issuance by the Company as of the date of filing on Form S-3 under the Securities Act (providing for shelf registration of such Registrable Shares under SEC Rule 415) or on such other form which is appropriate to register such Registrable Shares for resale from time to time by the Purchasers, and (ii) as soon as reasonably practicable once the portion of the Registrable Shares that were not registered in the Registration Statement filed under clause (i) above (the "REMAINING REGISTRABLE SHARES") have been duly authorized for issuance by the Company, to amend the Registration Statement filed under clause (i) above, or file another substantially similar Registration Statement with the SEC, to register for resale from time to time by the Purchasers all of the Remaining Registrable Shares;
(b) use its commercially reasonable efforts, subject to receipt of necessary information from the Purchasers, to cause any such Registration Statement filed pursuant to clauses (i) and (ii) of Section 7.2(a) above to become effective as promptly after filing of such Registration Statement as practicable but in any event by the date (the "EFFECTIVENESS DEADLINE DATE") that is thirty (30) days following the date of the initial filing of such Registration Statement with the SEC; provided, however, that in the event that a Registration Statement is
8.
reviewed by the SEC, then the Effectiveness Deadline Date shall mean, with respect to any Registration Statement, the date that is one hundred (120) days following the Closing Date;
(c) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective until termination of such obligation as provided in Section 7.6 below, subject to the Company's right to suspend pursuant to Section 7.5;
(d) furnish to each Purchaser (and to each underwriter, if any, of such Registrable Shares) such number of copies of prospectuses in conformity with the requirements of the Securities Act and such other documents as the Purchasers may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Shares by the Purchasers;
(e) file such documents as may be required of the Company for normal securities law clearance for the resale of the Registrable Shares in such states of the United States as may be reasonably requested by each Purchaser; provided, however, that the Company shall not be required in connection with this paragraph (e) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction;
(f) advise each Purchaser promptly:
(i) of any request by the SEC for amendments to the Registration Statement or amendments to the prospectus or for additional information relating thereto;
(ii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Registrable Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes;
(iii) of the existence of any fact and the happening of any event that makes any statement of a material fact made in the Registration Statement, the prospectus and amendment or supplement thereto, or any document incorporated by reference therein, untrue, or that requires the making of any additions to or changes in the Registration Statement or the prospectus in order to make the statements therein not misleading;
(g) use its best efforts to cause all Registrable Shares to be listed on each securities exchange, if any, on which equity securities by the Company are then listed; and
(h) bear all expenses in connection with the procedures in paragraphs
(a) through (g) of this Section 7.2 and the registration of the Registrable
Shares on such Registration Statement and the satisfaction of the blue sky laws
of such states.
7.3 DELAY IN EFFECTIVENESS. If the Registration Statement is not declared effective by the SEC on or prior to the Effectiveness Deadline Date, then for each thirty (30) day period following the Effectiveness Deadline Date, until but excluding the date the Registration Statement is declared effective, the Company shall, for such period, pay each Purchaser, as liquidated damages and not as a penalty, an amount equal to one percent (1%) of the purchase
9.
price of the Preferred Shares purchased by such Purchaser hereunder, for such period (or prorated for any partial period); and for any such period, such payment shall be made no later than the first business day of the calendar month next succeeding the last month in which such period occurs. The parties hereto agree that the liquidated damages provided for in this Section 7.3 constitute a reasonable estimate of the damages that may be incurred by the Purchasers by reason of the failure of the Registration Statement to be declared effective in accordance with the provisions hereof.
7.4 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Purchaser from and against any losses, claims, damages or liabilities to which such Purchaser may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case on the effective date thereof, or arise out of any failure by the Company to fulfill any undertaking included in the Registration Statement and the Company will, as incurred, reimburse such Purchaser for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement or omission or alleged untrue statement or omission made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Purchaser specifically for use in preparation of the Registration Statement or any breach of this Agreement by Purchaser.
(b) Each Purchaser, severally and not jointly, agrees to indemnify and
hold harmless the Company (and each person, if any, who controls the Company
within the meaning of Section 5 of the Securities Act or Section 20 of the
Exchange Act, each officer of the Company who signs the Registration Statement
and each director of the Company), from and against any losses, claims, damages
or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any breach of
this Agreement by such Purchaser or any untrue statement of a material fact
contained in the Registration Statement or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in each case, on the effective date
thereof, if, and to the extent, such untrue statement was made in reliance upon
and in conformity with written information furnished by or on behalf of such
Purchaser specifically for use in preparation of the Registration Statement, and
such Purchaser will reimburse the Company (and each of its officers, directors
or controlling persons) for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that in no event shall any indemnity under this
Section 7.4(b) exceed the net proceeds from the offering received by such
Purchaser.
10.
(c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 7.4, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, and, subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person and such indemnifying shall have been notified thereof, such indemnifying person shall be entitled to participate therein, and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate in the reasonable judgment of the indemnified person for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, further, that no indemnifying person shall be responsible for the fees and expense of more than one separate counsel for all indemnified parties. The indemnifying party shall not settle an action without the consent of the indemnified party, which consent shall not be unreasonably withheld.
(d) If after proper notice of a claim or the commencement of any action against the indemnified party, the indemnifying party does not choose to participate, then the indemnified party shall assume the defense thereof and upon written notice by the indemnified party requesting advance payment of a stated amount for its reasonable defense costs and expenses, the indemnifying party shall advance payment for such reasonable defense costs and expenses (the "ADVANCE INDEMNIFICATION PAYMENT") to the indemnified party. In the event that the indemnified party's actual defense costs and expenses exceed the amount of the Advance Indemnification Payment, then upon written request by the indemnified party, the indemnifying party shall reimburse the indemnified party for such difference; in the event that the Advance Indemnification Payment exceeds the indemnified party's actual costs and expenses, the indemnified party shall promptly remit payment of such difference to the indemnifying party.
(e) If the indemnification provided for in this Section 7.4 is required by its terms, but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to above, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities.
7.5 PROSPECTUS DELIVERY. Each Purchaser hereby covenants with the Company not to make any sale of the Shares without effectively causing the prospectus delivery requirement under the Securities Act to be satisfied. The Purchaser acknowledges that there may be times when the Company must suspend the use of the prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the SEC, or until such time as the Company has filed an appropriate report with the SEC pursuant to the Exchange Act. The Purchaser hereby covenants that it will not sell any Securities pursuant to said prospectus during the period commencing at the time at which the Company gives the Purchaser notice of the suspension of the use of said
11.
prospectus and ending at the time the Company gives the Purchaser notice that the Purchaser may thereafter effect sales pursuant to said prospectus. Such suspension periods shall in no event exceed sixty (60) days in any twelve (12) month period.
7.6 TERMINATION OF OBLIGATIONS. The obligations of the Company pursuant to
Section 7.2 hereof shall cease and terminate upon the earlier to occur of (a)
such time as all of the Registrable Shares have been resold, (b) such time as
all of the Registrable Shares may be resold in a three-month period pursuant to
Rule 144, or (c) the third anniversary of the Closing Date.
7.7 REPORTING REQUIREMENTS.
(a) With a view to making available the benefits of certain rules and regulations of the SEC that may at any time permit the sale of the Securities to the public without registration or pursuant to a registration statement on Form S-3, the Company agrees to use its best efforts to:
(i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act;
(ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(iii) so long as any of the Purchasers own Registrable Shares, to furnish to such Purchaser forthwith upon request (1) a written statement by the Company as to whether it is in compliance with the reporting requirements of said Rule 144, the Securities Act and the Exchange Act, or whether it is qualified as a registrant whose securities may be resold pursuant to SEC Form S-3, and (2) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company.
7.8 COMMON INCREASE. The Company shall take all action necessary to call, give notice of and hold a meeting of the holders of Company Common Stock to vote on the approval of the Common Increase.
7.9 BOARD OF DIRECTORS. Following the Closing, New Enterprise Associates 10, Limited Partnership may nominate an independent director with relevant industry experience to be elected to the Board of Directors of the Company, subject to the prior approval of a majority of the members of the Board of Directors, excluding John Nehra.
7.10 NO SALE OF ADDITIONAL SHARES. The Company agrees that, until the holders of the Company's Common Stock and the holders of the Preferred Shares have approved the Common Increase, the Company will not exercise its right under the Stock Purchase Agreement dated as of October 22, 2001 (the "NOVO PURCHASE AGREEMENT") between the Company and Novo Nordisk Pharmaceuticals, Inc. ("NOVO NORDISK") to sell Additional Shares (as defined in the Novo Purchase Agreement) to Novo Nordisk.
12.
ARTICLE 8
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
8.1 RESTRICTIONS ON TRANSFERABILITY. The Securities shall not be transferable in the absence of a registration under the Securities Act or an exemption therefrom or in the absence of compliance with any term of this Agreement. The Company shall be entitled to give stop transfer instructions to its transfer agent with respect to the Securities in order to enforce the foregoing restrictions.
8.2 INSTRUCTION SHEET. Each certificate representing Shares shall bear the Instruction Sheet attached hereto as EXHIBIT F (in addition to any legends required under applicable securities laws).
8.3 TRANSFER OF SECURITIES.
(a) Each Purchaser hereby covenants with the Company not to make any sale of the Securities except:
(i) in accordance with the Registration Statement, in which case Purchaser covenants to comply with the requirement of delivering a current prospectus; or
(ii) in accordance with Rule 144, in which case Purchaser covenants to comply with Rule 144; or
(iii) (A) If the transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act.
(b) Notwithstanding the provisions of subsection (a) above, no such restriction shall apply to a transfer by a Purchaser that is (i) a partnership transferring to its partners or former partners in accordance with partnership interests, (ii) a corporation transferring to a wholly-owned subsidiary or a parent corporation that owns all of the capital stock of the Purchaser, (iii) a limited liability company transferring to its members or former members in accordance with their interest in the limited liability company, or (iv) an individual transferring to the Purchaser's family member or trust for the benefit of an individual Purchaser; provided that in each case the transferee will agree in writing to be subject to the terms of this Agreement to the same extent as if he were an original Purchaser hereunder.
(c) Purchaser further acknowledges and agrees that such Securities are not transferable on the books of the Company unless the certificate submitted to the Company's transfer agent evidencing such Securities is accompanied by a separate certificate executed by an
13.
officer of, or other person duly authorized by, the Purchaser in the form attached hereto as EXHIBIT G.
8.4 PURCHASER INFORMATION. Each Purchaser covenants that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding such Purchaser or such Purchaser's "Plan of Distribution."
ARTICLE 9
MISCELLANEOUS
9.1 WAIVERS AND AMENDMENTS. With the exception of Article 7 hereof, the terms of this Agreement may be waived or amended with the written consent of the Company and each Purchaser. With respect to Article 7 hereof, with the written consent of the Company and the record holders of more than fifty percent (50%) of the Shares then outstanding and held by Purchasers, the terms of this Agreement may be waived or amended and any such amendment or waiver shall be binding upon the Company and all holders of Shares.
9.2 BROKER'S FEE. Each Purchaser acknowledges that the Company intends to pay a fee in respect of the sale of the Securities to SG Cowen. Each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no other brokers or finders entitled to compensation in connection with the sale of Securities to the Purchasers.
9.3 GOVERNING LAW. This Agreement shall be governed in all respects by and construed in accordance with the laws of the State of California without any regard to conflicts of laws principles.
9.4 SURVIVAL. The representations, warranties, covenants and agreements made in this Agreement shall survive any investigation made by the Company or the Purchasers and the Closing.
9.5 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties to this Agreement. Upon a permitted transfer of a Purchaser's Securities on the books of the Company in accordance with the terms of Sections 8.3(a)(iii) and 8.3(b), the Purchaser may assign this Agreement to the permitted transferee upon prior written notice to the Company. Except as set forth in the previous sentence, no Purchaser shall assign this Agreement without the prior written consent of the Company.
9.6 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects thereof.
9.7 NOTICES, ETC. All notices and other communications required or permitted under this Agreement shall be in writing and may be delivered in person, by telecopy, overnight delivery service or registered or certified United States mail, addressed to the Company or the Purchasers, as the case may be, at their respective addresses set forth at the beginning of this Agreement or on EXHIBIT A, or at such other address as the Company or the Purchasers shall have furnished to the other party in writing. All notices and other communications shall be
14.
effective upon the earlier of actual receipt thereof by the person to whom notice is directed or (a) in the case of notices and communications sent by personal delivery or telecopy, one business day after such notice or communication arrives at the applicable address or was successfully sent to the applicable telecopy number, (b) in the case of notices and communications sent by overnight delivery service, at noon (local time) on the second business day following the day such notice or communication was sent, and (c) in the case of notices and communications sent by United States mail, seven days after such notice or communication shall have been deposited in the United States mail.
9.8 SEVERABILITY OF THIS AGREEMENT. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
9.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
9.10 FURTHER ASSURANCES. Each party to this Agreement shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as the other party hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
9.11 EXPENSES. The Company shall bear the expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby, including fees of legal counsel. The Company agrees to reimburse the Purchasers for the reasonable fees of one legal counsel (in an amount not to exceed twenty-five thousand dollars ($25,000)) incurred by them with respect to this Agreement and the transactions contemplated hereby.
9.12 CURRENCY. All references to "dollars" or "$" in this Agreement shall be deemed to refer to United States dollars.
9.13 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges that legal counsel for the Company, Cooley Godward LLP ("COOLEY GODWARD"), has in the past and may continue in the future to perform legal services for one or more of the Purchasers or their affiliates in matters unrelated to the transactions contemplated by this Agreement, including, but not limited to, the representation of the Purchasers in matters of a similar nature to the transactions contemplated herein. Each party to this Agreement hereby (a) acknowledges that they have had an opportunity to ask for and have obtained information relevant to such representation, including disclosure of the reasonably foreseeable adverse consequences of such representation; (b) acknowledges that with respect to the transactions contemplated herein, Cooley Godward has represented the Company and not any individual Purchaser or any individual shareholder, director or employee of the Company; and (c) gives its informed consent to Cooley Godward's representation of the Company in the transactions contemplated by this Agreement and Cooley Godward's representation of one or more of the Purchasers or their affiliates in matters unrelated to such transactions.
15.
The foregoing agreement is hereby executed as of the date first above written.
ARADIGM CORPORATION,
a California corporation
By: /s/ Richard P. Thompson
----------------------------------------
Name: Richard P. Thompson
--------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
|
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
NEW ENTERPRISE ASSOCIATES 10, LIMITED
PARTNERSHIP
By: NEA Partners 10, Limited Partnership
Name: /s/ C. Richard Kramlich
------------------------------
By: C. Richard Kramlich
--------------------------------
Title: General Partner
------------------------------
|
DOMAIN PUBLIC EQUITY PARTNERS L.P.
By: /s/ Nicole Vitullo
------------------------------------
Name: Nicole Vitullo
----------------------------------
Title: Managing Member
---------------------------------
|
MPM BIOEQUITIES MASTER FUND LP
Name: /s/ Kurt von Ernster
----------------------------------
By: Kurt von Ernster
------------------------------------
Title: Managing Member
---------------------------------
|
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
FEDERATED KAUFMANN FUND
By Federated Investment Management Company,
as attorney in fact for Federated Kaufmann
Fund
By: /s/ G. Andrew Bonnewell
------------------------------------
Name: G. Andrew Bonnewell
----------------------------------
Title: Vice President
---------------------------------
|
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
CAMDEN PARTNERS STRATEGIC FUND II-A,
L.P.
By its General Partner: Camden Partners
Strategic II, LLC
By: /s/ Richard M. Johnston
--------------------------------
Name: Richard M. Johnston
Title: Managing Member
|
CAMDEN PARTNERS STRATEGIC FUND II-B,
L.P.
By its General Partner: Camden Partners
Strategic II, LLC
Name: /s/ Richard M. Johnston
------------------------------
By: Richard M. Johnston
Title: Managing Member
|
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
CASTLE CREEK HEALTHCARE PARTNERS,
LLC
BY: CASTLE CREEK PARTNERS, LLC,
Investment Manager
By: /s/ Thomas A. Frei
--------------------------------
Thomas A. Frei
Managing Director
|
CC LIFESCIENCE, LTD.
BY: CASTLE CREEK LIFESCIENCE PARTNERS,
LLC
Investment Manager
By: /s/ Thomas A. Frei
--------------------------------
Thomas A. Frei
Authorized Individual
|
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
EXHIBIT A
SCHEDULE OF PURCHASERS
PURCHASER PURCHASE PREFERRED WARRANTS
PRICE SHARES
New Enterprise Associates 10, Limited $24,999,979.40 1,033,057 2,685,948
Partnership
1119 St. Paul Street
Baltimore, Maryland 21202
Tel: (410) 244-0115
Fax: (410) 752-7721
Attn: John Nehra
State or Country of Residence: Maryland
Domain Public Equity Partners L.P. 3,749,983.60 154,958 402,890
One Palmer Square, Suite 515
Princeton, New Jersey 08542
Tel: (609) 683-5656
Fax: (609) 683-4581
Attn: Nicole Vitullo
State or Country of Residence:
New Jersey
Camden Partners Strategic Fund II-A, L.P. 3,426,720.00 141,600 368,160
c/o Camden Partners, Inc.
One South Street, Suite 2150
Baltimore, MD 21202
Tel: (410) 895-3800
Fax: (410) 895-3805
Attn: Richard M. Johnston
State or Country of Residence:
Maryland
Camden Partners Strategic Fund II-B, L.P. 203,280.00 8,400 21,840
c/o Camden Partners, Inc.
One South Street, Suite 2150
Baltimore, MD 21202
Tel: (410) 895-3800
Fax: (410) 895-3805
Attn: Richard M. Johnston
State or Country of Residence:
Maryland
|
A-1.
Castle Creek Healthcare Partners LLC 2,499,981.00 103,305 268,593
c/o Castle Creek Healthcare Partners, LLC
111 West Jackson Boulevard, Suite 2020
Chicago, Illinois 60604
Tel: (312) 499-6900
Fax: (312) 499-6999
Attn: Thomas A. Frei
State or Country of Residence:
Illinois
CC Lifescience, Ltd. 2,499,981.00 103,305 268,593
c/o Castle Creek Healthcare Partners, LLC
111 West Jackson Boulevard, Suite 2020
Chicago, Illinois 60604
Tel: (312) 499-6900
Fax: (312) 499-6999
Attn: Thomas A. Frei
State or Country of Residence:
Illinois
MPM BioEquities Master Fund LP 4,999,986.20 206,611 537,188
601 Gateway Blvd., Suite 360
South San Francisco, California 94080
Tel: (650) 553-3357
Fax: (650) 553-3301
Attn: Jake Nunn
State or Country of Residence:
California
Federated Kaufmann Fund 6,050,000.00 250,000 650,000
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Tel: (412) 288-1412
Fax: (412) 288-8141
Attn: G. Andrew Bonnewell
Legal Department - Federated
Investors, Inc.
State or Country of Residence:
California
TOTAL $48,429,911.20 2,001,236 5,203,212
|
A-2.
EXHIBIT B
to Securities Purchase Agreement
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ARADIGM CORPORATION
WARRANT TO PURCHASE COMMON STOCK
DECEMBER 14, 2001
VOID AFTER DECEMBER 14, 2006
THIS CERTIFIES THAT, for value received, ___________________________, with its principal office at __________________________, or assigns (the "Holder"), is entitled to subscribe for and purchase at the Exercise Price (defined below) from Aradigm Corporation, a California corporation, with its principal office at 3929 Point Eden Way, Hayward, CA 94545 (the "Company") up to ____________________ (_____) shares of the Common Stock of the Company (the "Common Stock").
1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings:
(a) "Exercise Period" shall mean the period commencing with the date that is the earlier of (i) the increase in the number of authorized shares of Common Stock to a number that is sufficient to permit exercise of this Warrant (the "Common Increase") and (ii) May 31, 2002, and ending five (5) years from the date hereof, unless sooner terminated as provided below.
(b) "Exercise Price" shall mean $6.97 per share, subject to adjustment pursuant to Section 5 below.
(c) "Exercise Shares" shall mean the shares of the Company's Common Stock issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):
(a) An executed Notice of Exercise in the form attached hereto;
(b) Payment of the Exercise Price either (i) in cash or by check, or
(ii) by cancellation of indebtedness; and
1.
(c) This Warrant.
Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised.
The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.
2.1 NET EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation)
B = Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the "fair market value" of one share of Common Stock shall mean (i) the average of the closing sales prices for the shares of Common Stock on the Nasdaq National Market or other trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the holders if Bloomberg Financial Markets is not then reporting sales prices of such security) (collectively, "Bloomberg") for the ten (10) consecutive trading days immediately preceding such date, or (ii) if the Nasdaq National Market is not the principal trading market for the shares of Common Stock, the average of the reported sales prices reported by Bloomberg on the principal trading market for the Common Stock during the same period, or, if there is no sales price for such period, the last sales
2.
price reported by Bloomberg for such period, or (iii) if neither of the foregoing applies, the last sales price of such security in the over-the-counter market on the pink sheets or bulletin board for such security as reported by Bloomberg, or if no sales price is so reported for such security, the last bid price of such security as reported by Bloomberg, or (iv) if fair market value cannot be calculated as of such date on any of the foregoing bases, the fair market value shall be as determined by the Board of Directors of the Company in the exercise of its good faith judgment.
3. COVENANTS OF THE COMPANY.
3.1 COVENANTS AS TO EXERCISE SHARES. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. If by May 31, 2002 the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, then for each thirty (30) day period following May 31, 2002, until but excluding the date of the Common Increase, the Company shall, for such period (or prorated for any partial period), issue to the Holder a warrant to purchase ____________ shares of Common Stock; and for any such period, such warrant shall be issued no later than the first business day of the calendar month next succeeding the last month in which such period occurs.
3.2 NO IMPAIRMENT. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.
3.3 NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
3.
4. REPRESENTATIONS OF HOLDER.
4.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and warrants that it is acquiring the Warrant solely for its account for investment and not with a view to or for sale or distribution of said Warrant or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only.
4.2 SECURITIES ARE NOT REGISTERED.
(a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the "Act") on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention.
(b) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the Act
or an exemption from such registration is available. The Holder recognizes that
the Company will register the Exercise Shares pursuant to the provisions of
Section 7 of the Securities Purchase Agreement.
(c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations.
4.3 DISPOSITION OF WARRANT AND EXERCISE SHARES.
(a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until:
(i) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; or
(ii) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or
(iii) The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the
4.
Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Act or any applicable state securities laws.
(b) The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
5. ADJUSTMENT OF EXERCISE PRICE.
(a) In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant.
(b) If at any time or from time to time the holders of Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor,
(i) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution (other than a dividend or distribution covered in section 5(a) above),
(ii) any cash paid or payable otherwise than as a cash dividend, or
(iii) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement (other than shares of Common Stock pursuant to Section 5(a) above),
then and in each such case, the Holder hereof will, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (ii) and (iii) above) which such Holder would hold on the date of such exercise had he been the holder of record of
5.
such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.
6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction.
7. NO SHAREHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company.
8. TRANSFER OF WARRANT. Subject to applicable laws and the restriction on transfer set forth on the first page of this Warrant, this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to the Company.
9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.
10. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to Holder at ___________________ or at such other address as the Company or Holder may designate by ten (10) days advance written notice to the other parties hereto.
11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
12. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California.
6.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of December 14, 2001.
ARADIGM CORPORATION
Name: Richard P. Thompson
Title: President and Chief Executive Officer
Address: 3929 Point Eden Way, Hayward, CA 94545
NOTICE OF EXERCISE
TO: ARADIGM CORPORATION
(1) [ ] The undersigned hereby elects to purchase ________ shares of the Common Stock of ARADIGM CORPORATION (the "Company") pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
[ ] The undersigned hereby elects to purchase ________ shares of Common Stock of the Company pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of Common Stock of the Company in the name of the undersigned or in such other name as is specified below:
(3) The undersigned represents that (i) the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares, other than as contemplated by Article 7 of the Securities Purchase
Agreement dated as of December 11, 2001 by and among the Company and the
purchasers named therein; (ii) the undersigned is aware of the Company's
business affairs and financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision regarding its
investment in the Company; (iii) the undersigned is experienced in making
investments of this type and has such knowledge and background in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment and protecting the undersigned's own interests; (iv)
the undersigned understands that the shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), by reason of a specific exemption from
the registration provisions of the Securities Act, which exemption depends upon,
among other things, the bona fide nature of the investment intent as expressed
herein, and, because such securities have not been registered under the
Securities Act, they must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available;
(v) the undersigned is aware that the aforesaid shares of Common Stock may not
be sold pursuant to Rule 144 adopted under the Securities Act unless certain
conditions are met and until the undersigned has held the shares for the number
of years prescribed by Rule 144, that among the conditions for use of the Rule
is the availability of current information to the public about the Company; and
(vi) the undersigned agrees not to make any disposition of all or any part of
the aforesaid shares of Common Stock unless and until there is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.
2.
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
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 whatever. 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 C
to Securities Purchase Agreement
ARADIGM CORPORATION
AMENDED AND RESTATED
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
The undersigned, Richard P. Thompson and Michael Molkentin, hereby certify that:
A. They are the duly elected and acting President and Chief Executive Officer, and Acting Chief Financial Officer, respectively, of Aradigm Corporation, a California corporation (the "COMPANY").
B. Pursuant to authority conferred by the Company's Amended and Restated Articles of Incorporation (the "ARTICLES OF INCORPORATION"), the board of directors of the Company (the "BOARD OF DIRECTORS") has duly adopted the following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Company authorize a class of shares of stock known as "PREFERRED STOCK" comprising Five Million (5,000,000) shares, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series;
WHEREAS, the Board of Directors has previously adopted resolutions to provide for the issuance of a Series A Convertible Preferred Stock of the Company and to fix and determine the rights, preferences, privileges, restrictions, and other matters relating to the said Series A Convertible Preferred Stock;
WHEREAS, the Board of Directors now wishes to amend and restate such resolutions;
WHEREAS, none of the shares of Series A Convertible Preferred Stock has been issued;
NOW, THEREFORE, BE IT RESOLVED that the resolutions providing for the issuance of a Series A Convertible Preferred Stock of the Company and fixing and determining the rights, preferences, privileges, restrictions, and other matters relating to said Series A Convertible Preferred Stock are hereby amended and restated to read as follows.
Section 1. Designation of Series Preferred. Two Million Fifty Thousand (2,050,000) shares of Preferred Stock are designated Series A Convertible Preferred Stock (the "SERIES PREFERRED") with the rights, preferences, privileges and restrictions specified herein. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series Preferred to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series Preferred.
Section 2. Dividend Rights.
a. During the two (2) year period beginning the date that the first share of Series Preferred is issued (the "ORIGINAL ISSUE DATE"), the holders of Series Preferred, in preference to the holders of Common Stock of the Company ("COMMON STOCK") and the Series A Junior Participating Preferred Stock (the "JUNIOR PREFERRED STOCK") and any other stock ranking junior to the Series Preferred (collectively with the Common Stock and Junior Preferred Stock, the "JUNIOR STOCK"), shall be entitled to receive, when, as and if declared by the Board of Directors, but only out of funds that are legally available therefor, dividends at the rate of six percent (6%) of the Original Issue Price (as defined below) per annum on each outstanding share of Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Original Issue Date). Such dividends shall be payable only when, as and if declared by the Board of Directors, but they shall be cumulative and will accrue, whether or not declared. At the option of the Company, such dividends may be paid in either cash or stock (at a price equal to the then current market price). For purposes of this Section 2(a), the current market price of the Company's Common Stock on any dividend payment date shall be based on the closing price of the Company's Common Stock as quoted on the Nasdaq Stock Market, or, if on any day the Common Stock is not so listed, the average of the highest bid and the lowest asked price on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each case averaged over a period of ten (10) trading days consisting of the day as of which the current fair value of Common Stock is being determined and the nine (9) consecutive trading days prior to such day. If at any time the Common Stock is not listed on any securities exchange or quoted in the over-the-counter market, the current fair market value of Common Stock shall be used, and shall be determined in good faith by the Board of Directors.
b. The Original Issue Price of the Series Preferred shall be Twenty-Four Dollars and Twenty Cents ($24.20) per share (the "ORIGINAL ISSUE PRICE").
c. So long as any shares of Series Preferred are outstanding, the Company shall not pay or declare any dividend, whether in cash or property, or make any other distribution on the Common Stock, or purchase, redeem or otherwise acquire for value any shares of Common Stock unless and until all accrued and unpaid dividends on the Series Preferred shall have first been paid or declared and set apart, except for:
(i) acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares at cost (or the lesser of cost or fair market value) upon termination of services to the Company;
(ii) acquisitions of Common Stock in exercise of the Company's right of first refusal to repurchase such shares; or
(iii) any repurchase of any outstanding securities of the Company that is approved by the Board of Directors; or
(iv) dividends payable in Common Stock that are approved by the Board of Directors.
d. In the event dividends are paid on any share of Common Stock, the Company shall pay an additional dividend on all outstanding shares of Series Preferred in a per share amount equal (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock.
e. The holders of the Series Preferred expressly waive their rights, if any, as described in California Code Sections 502, 503 and 506 as they relate to repurchases of shares of Common Stock upon termination of employment or service as a consultant or director.
Section 3. Liquidation Rights.
a. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Junior Stock, the holders of Series Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution, or the consideration received in such transaction, an amount per share of Series Preferred equal to the Original Issue Price plus all accrued and unpaid dividends on the Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Original Issue Date) for each share of Series Preferred held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference set forth in this Section 3(a), then such assets (or consideration) shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. After payment of the full liquidation preference of the Series Preferred as aforesaid, the assets of the Company legally available for distribution (or the consideration received in such transaction), if any, shall be distributed to the holders of any Junior Stock in accordance with the Articles of Incorporation and any other Certificate of Determination of Preferences creating a series of Preferred Stock or any similar stock.
b. An Acquisition (as defined below) or Asset Transfer (as defined below) shall be deemed a liquidation for purposes of this Section 3. An "ACQUISITION" shall mean (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the voting power of the surviving entity immediately after such consolidation, merger or reorganization; or (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred; provided that an Acquisition shall not include (x) any consolidation or merger effected
exclusively to change the domicile of the Company, or (y) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof; and "ASSET TRANSFER" shall mean a sale, lease or other disposition of all or substantially all of the assets of the Company.
Section 4. Conversion. The holders of the Series Preferred shall have conversion rights as follows (the "CONVERSION RIGHTS"):
a. Optional Conversion. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the Conversion Rate then in effect (determined as provided in
Section 4(b) by the number of shares of Series Preferred being converted.
b. Conversion Rate. The Conversion Rate for Series Preferred in effect at any time for conversion of the Series Preferred (the "CONVERSION RATE") shall be the quotient obtained by dividing the Original Issue Price by the Conversion Price, calculated as provided in Section 4(c).
c. Conversion Price. The Conversion Price for the Series Preferred shall initially be Six Dollars and Five Cents ($6.05) (the "CONVERSION PRICE"). Such initial Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Conversion Price herein shall mean the Conversion Price as so adjusted.
d. Mechanics of Conversion. Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender its certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that it elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder of Series Preferred a certificate or certificates, registered in such names as are specified by the holder, for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash (at the Common Stock's fair market value determined by the Board of Directors as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series Preferred. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the the shares of Series Preferred to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
e. Adjustment for Stock Splits and Combinations. If at any time or from time to time after the Original Issue Date the Company effects a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date the Company
combines the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.
f. Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Company pays a dividend or other distribution in additional shares of Common Stock, the Conversion Price that is then in effect shall be decreased as of the time of such issuance, as provided below:
i. The Conversion Price shall be adjusted by multiplying the Conversion Price then in effect by a fraction equal to:
(A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and
(B) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution;
ii. If the Company fixes a record date to determine which holders of Common Stock are entitled to receive such dividend or other distribution, the Conversion Price shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and
iii. If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution.
g. Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3(b) or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event each holder of Series Preferred shall then have the right to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.
h. Reorganizations, Mergers or Consolidations. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock or the merger or consolidation of the Company with or into another corporation or another entity or person (other than an Acquisition or Asset Transfer as defined in Section 3(b) or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable.
i. Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series Preferred, if the Series Preferred is then convertible pursuant to this Section 4, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series Preferred at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the Conversion Price at the time in effect and (ii) the type and amount, if any, of other property which at the time would be received upon conversion of the Series Preferred.
j. Notices of Record Date. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(b)) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in Section
3(b)), or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to each holder of Series Preferred at least
ten (10) days prior to the record date specified therein (or such shorter period
approved by the holders of a majority of the outstanding Series Preferred) a
notice specifying (A) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up. The Company shall also
use its reasonable efforts to furnish to the
holders of Series Preferred information that is reasonably sufficient to enable such holders to make a determination as to whether it would be to their advantage to convert their shares of Series Preferred to shares of Common Stock pursuant to this Section 4 prior to any transaction listed in (ii) above.
k. Automatic Conversion.
i. Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Conversion
Rate, upon either (A) the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Company with gross proceeds to the Company (before underwriting discounts,
commission and fees) of not less than Twenty-Five Million Dollars ($25,000,000),
or (B) the date on which the Common Stock closing bid price has been at least
seventy-five percent (75%) greater than the Conversion Price for at least twenty
(20) consecutive trading days; provided, however, that if either of the events
described in clause (A) or (B) of this Section 4(k)(i) occurs at a time when
insufficient authorized Common Stock is available for issuance of all shares of
Common Stock issuable upon such conversion or prior to the effective date of the
registration statement to be filed with the Securities and Exchange Commission
registering for resale the shares of Common Stock issuable upon such conversion,
then automatic conversion of the Series Preferred shares shall not immediately
occur but instead shall occur at such time as sufficient authorized Common Stock
is available and such registration has been declared effective.
ii. Upon a conversion in accordance with Section 4(k)(i) above, the outstanding shares of Series Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred.
l. Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay
cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board of Directors) on the date of conversion.
m. Reservation of Stock Issuable Upon Conversion. The Company shall use its commercially reasonable efforts at all times to reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.
n. Notices. Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.
o. Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered.
p. No Dilution or Impairment. Without the consent of the holders of a majority of the then outstanding Series Preferred, the Company shall not amend its Amended and Restated Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against dilution or other impariment.
Section 5. No Reissuance of Series Preferred. No shares of Series Preferred acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued.
Section 6. Voting Rights. Each holder of shares of Series Preferred shall have a number of votes equal to the number of shares of Common Stock issuable upon conversion of such holder's shares of Series Preferred and shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Series Preferred shall be
entitled to notice of any shareholders' meeting in accordance with the Amended and Restated Bylaws of the Company and shall vote with holders of the Common Stock at any annual or special meeting of the shareholders and not as a separate class, except those matters required by law to be submitted to a class vote.
RESOLVED FURTHER, that the officers are hereby authorized and directed to prepare and file an Amended and Restated Certificate of Determination of Preferences of Series Preferred in accordance with the foregoing resolutions and the provisions of California law.
C. The authorized number of shares of Preferred Stock of the Company is Five Million (5,000,000) shares and the number of shares constituting Series Preferred, none of which has been issued, is Two Million Fifty Thousand (2,050,000).
IN WITNESS WHEREOF, the undersigned have executed this Certificate as of December ___, 2001.
The undersigned, Richard P. Thompson and Michael Molkentin, the President and Chief Executive Officer, and Acting Chief Financial Officer, respectively, of ARADIGM CORPORATION, declare under penalty of perjury that the matters set out in the foregoing Certificate are true of their own knowledge.
Executed at Hayward, California on December ___, 2001.
EXHIBIT D
INSTRUCTION SHEET FOR PURCHASER
(TO BE READ IN CONJUNCTION WITH THE ENTIRE
SECURITIES PURCHASE AGREEMENT)
A. Complete the following items in the Securities Purchase Agreement:
1. Provide the information regarding the Purchaser requested on the signature page. The Agreement must be executed by an individual authorized to bind the Purchaser.
2. EXHIBIT D-1 - Stock Certificate Questionnaire:
Provide the information requested by the Stock Certificate Questionnaire;
3. EXHIBIT D-2 - Registration Statement Questionnaire:
Provide the information requested by the Registration Statement Questionnaire:
4. EXHIBIT D-3 - Purchaser Certificate:
Provide the information requested by the Certificate for Individual Purchasers or the Certificate for Corporate, Partnership, Trust, Foundation and Joint Purchasers, as applicable.
5. Return the signed Securities Purchase Agreement to:
Cathlin Suh, Esq.
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
B. Instructions regarding the transfer of funds for the purchase of Securities will be telecopied to the Purchaser at a later date.
C. Upon the resale of the Securities by the Purchaser after the Registration Statement covering the Securities is effective, as described in the Securities Purchase Agreement, the Purchaser:
(i) must deliver a current prospectus, and annual and quarterly reports of the Company to the buyer (prospectuses, and annual and quarterly reports may be obtained from the Company at the Purchaser's request); and
(ii) must send a letter in the form of Exhibit G to the Company so that the Securities may be properly transferred.
D-1.
EXHIBIT D-1
ARADIGM CORPORATION
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 4.3 of the Agreement, please provide us with the following information:
D-1-1.
EXHIBIT D-2
ARADIGM CORPORATION
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please provide us with the following information regarding the Purchaser.
A. GENERAL INFORMATION
1. Please state your organization's name exactly as it should appear in the Registration Statement:
2. Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates other than as disclosed in the Prospectus included in the Registration Statement?
[ ] Yes [ ] No
If yes, please indicate the nature of any such relationships below:
B. SECURITIES HOLDINGS
Please fill in all blanks in the following questions related to your BENEFICIAL OWNERSHIP of the Company's capital stock. Generally, the term "BENEFICIAL OWNERSHIP" refers to any direct or indirect interest in the securities which entitles you to any of the rights or benefits of ownership, even though you may not be the holder of record of the securities. For example, securities held in "street name" over which you exercise voting or investment power would be considered BENEFICIALLY OWNED by you. Other examples of indirect ownership include ownership by a partnership in which you are a partner or by an estate or trust of which you or any member of your IMMEDIATE FAMILY is a beneficiary. Ownership of securities held in the names of your spouse, minor children or other relatives who live in the same household may be attributed to you.
PLEASE NOTE: IF YOU HAVE ANY REASON TO BELIEVE THAT ANY INTEREST IN SECURITIES OF THE COMPANY WHICH YOU MAY HAVE, HOWEVER REMOTE, IS A BENEFICIAL INTEREST, PLEASE DESCRIBE SUCH INTEREST. FOR PURPOSES OF RESPONDING TO THIS QUESTIONNAIRE, IT IS PREFERABLE TO ERR ON THE SIDE OF INCLUSION RATHER THAN EXCLUSION. WHERE THE SEC'S INTERPRETATION OF BENEFICIAL OWNERSHIP WOULD REQUIRE DISCLOSURE OF YOUR INTEREST OR POSSIBLE INTEREST IN CERTAIN SECURITIES OF THE COMPANY, AND YOU BELIEVE THAT YOU DO NOT ACTUALLY POSSESS THE ATTRIBUTES OF BENEFICIAL OWNERSHIP, AN APPROPRIATE RESPONSE IS TO DISCLOSE THE INTEREST AND AT THE SAME TIME DISCLAIM BENEFICIAL OWNERSHIP OF THE SECURITIES.
D-2-1.
(1) As of NOVEMBER 30, 2001, I owned outright (including shares registered in my name individually or jointly with others, shares held in the name of a bank, broker, nominee, depository or in "street name" for my account), the following number of shares of the Company's capital stock: _________________.
(2) In addition to the number of shares I own outright as indicated by my answer to question B(1), as of NOVEMBER 30, 2001, I had or shared voting power or investment power, directly or indirectly, through a contract, arrangement, understanding, relationship or otherwise, over the following number of shares of the Company's capital stock: _________________.
If the answer to this question B(2) was not "zero," please complete the following: with whom shared; and the nature of the relationship and any underlying voting trust agreement, investment arrangement or the like:
SHARED VOTING POWER:
================== ================== ======================== NUMBER OF SHARES WITH WHOM SHARED NATURE OF RELATIONSHIP ================== ================== ======================== |
SHARED INVESTMENT POWER:
(3) As of NOVEMBER 30, 2001, I will have the right to acquire ________ shares of the Company's capital stock pursuant to outstanding stock options issued under the Company's stock option plans and ______ shares pursuant to the exercise of outstanding warrants (none, indicated by "0" above).
OPTIONS AND WARRANTS
CLASS NUMBER OF SHARES
D-2-2.
(4) Please identify the natural person or persons who have voting and/or investment control over the Company's securities that you own, and state whether such person(s) disclaims beneficial ownership of the securities. For example, if you are a general partnership, please identify the general partners in the partnership.
D-2-3.
C. NASD QUESTIONS
1. Are you (i) a "member"(1) of the National Association of Securities
Dealers, Inc. (the "NASD"), (ii) an "affiliate"(2) of a member of the NASD,
(iii) a "person associated with a member" or an "associated person of a
member"(3) of the NASD or (iv) an immediate family member(4) of any of the
foregoing persons? IF YES, please identify the member and describe such
relationship (whether direct or indirect), and please respond to Question
Number 2 below; IF NO, please proceed directly to Question Number 3.
Yes _____ No _____
Description:
(2) The term "affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is in common control with, the person specified. Persons who have acted or are acting on behalf of or for the benefit of a person include, but are not necessarily limited to, directors, officers, employees, agents, consultants and sales representatives. The following should apply for purposes of the foregoing:
(i) a person should be presumed to control a Member if the person beneficially owns 10 percent or more the outstanding voting securities of a Member which is a corporation, or beneficially owns a partnership interest in 10 percent or more of the distributable profits or losses of a Member which is a partnership;
(ii) a Member should be presumed to control a person if the Member and Persons Associated With a Member beneficially own 10 percent or more of the outstanding voting securities of a person which is a corporation, or beneficially own a partnership interest in 10 percent or more of the distributable profits or losses of a person which is a partnership;
(iii) a person should be presumed to be under common control with a Member if:
(1) the same person controls both the Member and another person by beneficially owning 10 percent or more of the outstanding voting securities of a Member or person which is a corporation, or by beneficially owning a partnership interest in 10 percent or more of the distributable profits or losses of a Member or person which is a partnership; or
(2) a person having the power to direct or cause the direction of the management or policies of the Member or such person also has the power to direct or cause the direction of the management or policies of the other entity in question.
(3) The NASD defines a "person associated with a member" or an "associated person of a member" as being every sole proprietor, partner, equity owner, officer, director or branch manager of any member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who directly or indirectly controls or is controlled by such member (for example, any employee), whether or not any such person is registered or exempt from registration with the NASD.
(4) Immediate family includes parents, mother-in-law, father-in-law, husband or wife, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law, and children, or any other person who is supported, directly or indirectly, to a material extent, by a person associated with a member of the NASD or any other broker/dealer.
D-2-4.
2. If you answered "yes" to Question Number 1, please furnish any information as to whether any such member intends to participate in any capacity in the public offering, including the details of such participation:
Description:
3. Are you or have you been an "underwriter or related person"(5) or a person associated with an underwriter or related person, including, without limitation, with respect to the proposed public offering? If yes, please identify the underwriter or related person and describe such relationship (whether direct or indirect).
Yes _____ No _____
Description:
4. If known, please describe in detail any underwriting compensations, arrangements or dealings entered into during the previous twelve months, or proposed to be consummated in the next twelve months, between (i) any underwriter or related person, member of the NASD, affiliate of a member of the NASD, person associated with a member or associated person of a member of the NASD or any immediate family member thereof, on the one hand, and (ii) the Company, or any director, officer or shareholder thereof, on the other hand, which provides for the receipt of any item of value and/or the transfer of any warrants, options or other securities from the Company to any such person (other than the information relating to the arrangements with any investment firm or underwriting organization which may participate in the proposed public offering).
Description:
5. Have you purchased the securities in the ordinary course of business?
Yes _____ No _____
D-2-5.
The answers to the foregoing questions are correctly stated to the best of my information and belief. I shall advise Cathlin Suh at (415) 693-2013, the Company's outside counsel, promptly of any changes in the foregoing information.
D-2-6.
EXHIBIT D-3
ARADIGM CORPORATION
CERTIFICATE FOR INDIVIDUAL PURCHASERS
If the investor is an individual Purchaser (or married couple) the Purchaser must complete, date and sign this Certificate.
CERTIFICATE
I certify that the representations and responses below are true and accurate:
In order for the Company to offer and sell the Securities in conformance with state and federal securities laws, the following information must be obtained regarding your investor status. Please INITIAL EACH CATEGORY applicable to you as an investor in the Company.
_____ (1) A natural person whose net worth, either individually or jointly with such person's spouse exceeds $1,000,000;
_____ (2) A natural person who had an income in excess of $200,000, or joint income with the person's spouse in excess of $300,000, in 1998, 1999 and 2000, and reasonably expects to have individual income reaching the same level in 2001;
_____ (3) An executive officer or director of the Company.
Date: ----------------------------------------
--------------------------- Name(s) of Purchaser
----------------------------------------
Signature
----------------------------------------
Signature
|
D-3-1.
EXHIBIT D-3
ARADIGM CORPORATION
CERTIFICATE FOR CORPORATE, PARTNERSHIP,
TRUST, FOUNDATION, AND JOINT PURCHASERS
If the investor is a corporation, partnership, trust, pension plan, foundation, joint purchaser (other than a married couple) or other entity, an authorized officer, partner, or trustee must complete, date and sign this Certificate.
CERTIFICATE
The undersigned certifies that the representations and responses below are true and accurate:
(a) The investor has been duly formed and is validly existing and has full power and authority to invest in the Company. The person signing on behalf of the undersigned has the authority to execute and deliver the Securities Purchase Agreement on behalf of the Purchaser and to take other actions with respect thereto.
(b) Indicate the form of entity of the undersigned:
[ ] Limited Partnership
[ ] General Partnership
[ ] Corporation
(c) Indicate the approximate date the undersigned entity was formed:
D-3-2.
(d) In order for the Company to offer and sell the Securities in conformance with state and federal securities laws, the following information must be obtained regarding your investor status. Please INITIAL EACH CATEGORY applicable to you as an investor in the Company.
_______ (1) A bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its individual
or fiduciary capacity;
_______ (2) A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;
_______ (3) An insurance company as defined in Section 2(13) of the Securities Act;
_______ (4) An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act;
_______ (5) A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958;
_______ (6) A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000;
_______ (7) An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
_______ (8) A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
_______ (9) An organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000;
_______ (10) A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of investing in the Company;
D-3-3.
_______ (11) An entity in which all of the equity owners qualify under any of the above subparagraphs. If the undersigned belongs to this investor category only, list the equity owners of the undersigned, and the investor category which each such equity owner satisfies:
D-3-4.
[COOLEY GODWARD LLP LETTERHEAD]
December 14, 2001
TO THE PURCHASERS LISTED
ON EXHIBIT A HERETO
Ladies and Gentlemen:
We have acted as counsel for Aradigm Corporation, a California corporation (the "Company"), in connection with the issuance and sale pursuant to the terms of the Securities Purchase Agreement dated as of December 11, 2001 (the "Agreement"), by and among the Company and the purchasers named therein (each, a "Purchaser" and collectively, the "Purchasers"), of an aggregate of 2,001,236 shares of the Company's Series A Convertible Preferred Stock (the "Preferred Shares") and warrants to purchase an aggregate of up to 5,203,212 shares of the Company's Common Stock (the "Warrants"). We are rendering this opinion pursuant to Section 5.4 of the Agreement. Except as otherwise defined herein, capitalized terms used but not defined herein have the respective meanings given to them in the Agreement.
In connection with this opinion, we have examined and relied upon the representations and warranties as to factual matters contained in and made pursuant to the Agreement by the various parties and originals or copies certified to our satisfaction, of such records, documents, certificates, opinions, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. As to certain factual matters, we have relied upon certificates of officers of the Company and have not independently sought to verify such matters. Where we render an opinion "to the best of our knowledge" or concerning an item "known to us" or our opinion otherwise refers to our knowledge, it is based solely upon (i) an inquiry of attorneys within this firm who perform legal services for the Company, (ii) receipt of a certificate executed by an officer of the Company covering such matters, and (iii) such other investigation, if any, that we specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of all signatures on original documents; the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; and the due authorization, execution and delivery of all documents (except the due authorization, execution and delivery by the Company of the Agreement and the Warrants (collectively, the "Transaction Documents")), where authorization, execution and delivery are prerequisites to the effectiveness of such documents. We have also assumed: that all individuals executing and delivering documents had the legal capacity to so execute and deliver; that you have received all documents you were to receive under the Transaction Documents; that the Transaction Documents are obligations binding upon the parties thereto other than the Company; if you or any Purchasers are a corporation or other entity, that such entities have filed any required California franchise or income tax returns and have paid any required California franchise or income taxes; and that
To The Purchasers Listed
on Exhibit A Hereto
December 14, 2001
Page Two
there are no extrinsic agreements or understandings among the parties to the Transaction Documents that would modify or interpret the terms of the Transaction Documents or the respective rights or obligations of the parties thereunder.
Our opinion is expressed only with respect to the federal laws of the United States of America and the laws of the State of California. We express no opinion as to whether the laws of any particular jurisdiction apply, and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the subject matter hereof. We are not rendering any opinion as to compliance with any antifraud law, rule or regulation relating to securities, or to the sale or issuance thereof.
With regard to our opinion in paragraph 2 below with respect to the Company's obligation to qualify to do business in various states, we have relied solely on a certificate of an officer of the Company regarding the states in which the Company owns or leases property or has employees or other representatives with authority to bind it to contracts; we have made no further investigation.
With regard to our opinion in paragraph 6 below, we express no opinion with respect to any required consents, approvals, authorizations, orders, filings, registrations and qualifications under any antitrust laws, rules or regulations of the United States.
On the basis of the foregoing, in reliance thereon and with the foregoing qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of California.
2. The Company has the requisite corporate power to enter into and perform its obligations under the Transaction Documents. The Company has the requisite corporate power to own its properties and assets and to conduct its business as, to the best of our knowledge, it is currently being conducted, and, to the best of our knowledge, is not required to qualify as a foreign corporation to do business in any other jurisdiction in the United States.
3. The Transaction Documents have been duly and validly authorized, executed and delivered by the Company and constitute valid and binding agreements of the Company enforceable against the Company in accordance with their respective terms, except as rights to indemnity under Section 7.4 of the Agreement may be limited by applicable laws and except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting creditors' rights, and subject to general equity principles and to limitations on availability of equitable relief, including specific performance.
To The Purchasers Listed
on Exhibit A Hereto
December 14, 2001
Page Three
4. The Preferred Shares and the Warrants have been duly authorized, and upon issuance and delivery against payment therefor in accordance with the terms of the Agreement, the Preferred Shares and the Warrants will be duly authorized and validly issued and the Preferred Shares will be fully paid and nonassessable. Following the Common Increase, the shares of Common Stock issuable upon conversion of the Preferred Shares will be duly authorized and reserved for issuance, and when issued upon conversion of the Preferred Shares in accordance with the Purchase Agreement and the Company's Certificate of Determination of Preferences of Series A Convertible Preferred Stock, will be validly issued, fully paid and nonassessable. Following the Common Increase, the shares of Common Stock issuable upon exercise of the Warrants will be duly authorized and reserved for issuance, and upon issuance and delivery upon exercise of the Warrants in accordance with the terms of the Warrants, will be validly issued, fully paid and nonassessable.
5. The execution and delivery of the Transaction Documents by the Company and the offer, issuance and sale of the Preferred Shares and the Warrants pursuant to the Agreement do not violate or contravene (a) any governmental statute, rule or regulation applicable to the Company or (b) any order, writ, judgment, injunction, decree, determination or award which has been entered against the Company and of which we are aware, the violation or contravention of which would materially and adversely affect the Company, its assets, financial condition or operations.
6. All consents, approvals, authorizations or orders of, and filings,
registrations and qualifications with any regulatory authority or
governmental body in the United States required for the issuance of the
Preferred Shares and the Warrants have been made or obtained, except (a)
for the filing of the notice to be filed under California Corporations Code
Section 25102.1(d), (b) for the filing of a Form D pursuant to Securities
and Exchange Commission Regulation D and (c) other Blue Sky filings.
7. The offer and sale of the Preferred Shares and the Warrants are exempt from the registration requirements of the Securities Act of 1933, as amended, subject to the timely filing of a Form D pursuant to Securities and Exchange Commission Regulation D.
This opinion is intended solely for your benefit and is not to be made available to or be relied upon by any other person, firm, or entity without our prior written consent; except that each Purchaser may rely on this opinion as if it were addressed and delivered to such Purchaser on the date hereof.
Cooley Godward LLP
EXHIBIT A
SCHEDULE OF PURCHASERS
New Enterprise Associates 10, Limited
Partnership
1119 St. Paul Street
Baltimore, Maryland 21202
Domain Public Equity Partners L.P.
One Palmer Square, Suite 515
Princeton, New Jersey 08542
Camden Partners Strategic Fund II-A, L.P.
c/o Camden Partners, Inc.
One South Street, Suite 2150
Baltimore, MD 21202
Camden Partners Strategic Fund II-B, L.P.
c/o Camden Partners, Inc.
One South Street, Suite 2150
Baltimore, MD 21202
Castle Creek Healthcare Partners LLC
c/o Castle Creek Healthcare Partners, LLC
111 West Jackson Boulevard, Suite 2020
Chicago, Illinois 60604
CC Lifescience, Ltd.
c/o Castle Creek Healthcare Partners, LLC
111 West Jackson Boulevard, Suite 2020
Chicago, Illinois 60604
MPM BioEquities Master Fund LP
601 Gateway Blvd., Suite 360
South San Francisco, California 94080
Federated Kaufmann Fund
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
EXHIBIT F
ARADIGM CORPORATION
IMPORTANT - DO NOT REMOVE THIS INSTRUCTION SHEET FROM THE ATTACHED SHARE CERTIFICATE UNLESS AND UNTIL THE SHARES ARE SOLD AS FOLLOWS:
(1) THE SHARES ARE RESOLD PURSUANT TO THE REGISTRATION STATEMENT ON FORM S-3 (NO. [________________]), AND, IN CONNECTION WITH SUCH RESALE, THE HOLDER HAS DELIVERED TO THE PURCHASER OF THE SHARES A CURRENT PROSPECTUS AND HAS PROVIDED TO THE COMPANY OR TO THE TRANSFER AGENT FOR THE COMPANY'S STOCK A PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE; OR
(2) THE SHARES ARE RESOLD IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, PROVIDED THAT, PRIOR TO SUCH RESALE, THE HOLDER HAS NOTIFIED THE COMPANY OF SUCH DISPOSITION AND PROVIDED THE COMPANY WITH WRITTEN ASSURANCES, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY OF COMPLIANCE WITH THE REQUIREMENTS OF SUCH EXEMPTION.
DO NOT REMOVE THIS INSTRUCTION SHEET FROM
THE ATTACHED SHARE CERTIFICATE
EXCEPT IN ACCORDANCE WITH
THE INSTRUCTIONS SET FORTH ABOVE.
F-1.
EXHIBIT G
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
To: [INSERT TRANSFER AGENT]
ATTENTION: [________________]
The undersigned, the Purchaser or an officer of, or other person duly authorized by the Purchaser, hereby certifies that _____________________________ ________ institution was the [FILL IN NAME OF INSTITUTION]
Purchaser of the shares evidenced by the attached certificate, and as such, proposes to transfer such shares on or about _________________ either (i) in accordance with the registration [DATE]
statement, file number [_______________] in which case the Purchaser certifies that the requirement of delivering a current prospectus has been complied with or will be complied with in connection with such sale, or (ii) in accordance with Rule 144 under the Securities Act of 1933 ("RULE 144"), in which case the Purchaser certifies that it has complied with or will comply with the requirements of Rule 144.
Print or type:
Signature by:
G-1.
EXHIBIT 4.5
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ARADIGM CORPORATION
WARRANT TO PURCHASE COMMON STOCK
December 14, 2001
VOID AFTER DECEMBER 14, 2006
THIS CERTIFIES THAT, for value received, ___________________________, with its principal office at __________________________, or assigns (the "Holder"), is entitled to subscribe for and purchase at the Exercise Price (defined below) from Aradigm Corporation, a California corporation, with its principal office at 3929 Point Eden Way, Hayward, CA 94545 (the "Company") up to ____________________ (_____) shares of the Common Stock of the Company (the "Common Stock").
1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings:
(a) "Exercise Period" shall mean the period commencing with the date that is the earlier of (i) the increase in the number of authorized shares of Common Stock to a number that is sufficient to permit exercise of this Warrant (the "Common Increase") and (ii) May 31, 2002, and ending five (5) years from the date hereof, unless sooner terminated as provided below.
(b) "Exercise Price" shall mean $6.97 per share, subject to adjustment pursuant to Section 5 below.
(c) "Exercise Shares" shall mean the shares of the Company's Common Stock issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):
(a) An executed Notice of Exercise in the form attached hereto;
(b) Payment of the Exercise Price either (i) in cash or by check, or
(ii) by cancellation of indebtedness; and
(c) This Warrant.
1.
Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised.
The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.
2.1 NET EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation)
B = Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the "fair market value" of one share of Common Stock shall mean (i) the average of the closing sales prices for the shares of Common Stock on the Nasdaq National Market or other trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the holders if Bloomberg Financial Markets is not then reporting sales prices of such security) (collectively, "Bloomberg") for the ten (10) consecutive trading days immediately preceding such date, or (ii) if the Nasdaq National Market is not the principal trading market for the shares of Common Stock, the average of the reported sales prices reported by Bloomberg on the principal trading market for the Common Stock during the same period, or, if there is no sales price for such period, the last sales price reported by Bloomberg for such period, or (iii) if neither of the foregoing applies, the last sales price of such security in the over-the-counter market on the pink sheets or bulletin board for
2.
such security as reported by Bloomberg, or if no sales price is so reported for
such security, the last bid price of such security as reported by Bloomberg, or
(iv) if fair market value cannot be calculated as of such date on any of the
foregoing bases, the fair market value shall be as determined by the Board of
Directors of the Company in the exercise of its good faith judgment.
3. COVENANTS OF THE COMPANY.
3.1 COVENANTS AS TO EXERCISE SHARES. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. If by May 31, 2002 the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, then for each thirty (30) day period following May 31, 2002, until but excluding the date of the Common Increase, the Company shall, for such period (or prorated for any partial period), issue to the Holder a warrant to purchase ____________ shares of Common Stock; and for any such period, such warrant shall be issued no later than the first business day of the calendar month next succeeding the last month in which such period occurs.
3.2 NO IMPAIRMENT. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.
3.3 NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
4. REPRESENTATIONS OF HOLDER.
4.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and warrants that it is acquiring the Warrant solely for its account for investment and not with a view to or for sale or distribution of said Warrant or any part thereof. The Holder also represents that
3.
the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only.
4.2 SECURITIES ARE NOT REGISTERED.
(a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the "Act") on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention.
(b) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the Act
or an exemption from such registration is available. The Holder recognizes that
the Company will register the Exercise Shares pursuant to the provisions of
Section 7 of the Securities Purchase Agreement.
(c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations.
4.3 DISPOSITION OF WARRANT AND EXERCISE SHARES.
(a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until:
(i) The Company shall have received a letter secured by the Holder from the Securities and Exchange Commission stating that no action will be recommended to the Commission with respect to the proposed disposition; or
(ii) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or
(iii) The Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Act or any applicable state securities laws.
(b) The Holder understands and agrees that all certificates evidencing the shares to be issued to the Holder may bear the following legend:
4.
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
5. ADJUSTMENT OF EXERCISE PRICE.
(a) In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant.
(b) If at any time or from time to time the holders of Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor,
(i) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution (other than a dividend or distribution covered in section 5(a) above),
(ii) any cash paid or payable otherwise than as a cash dividend, or
(iii) Common Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement (other than shares of Common Stock pursuant to Section 5(a) above),
then and in each such case, the Holder hereof will, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (ii) and (iii) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.
6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining
5.
whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction.
7. NO SHAREHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company.
8. TRANSFER OF WARRANT. Subject to applicable laws and the restriction on transfer set forth on the first page of this Warrant, this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to the Company.
9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.
10. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to Holder at ___________________ or at such other address as the Company or Holder may designate by ten (10) days advance written notice to the other parties hereto.
11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
12. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California.
6.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of December 14, 2001.
ARADIGM CORPORATION
Name: Richard P. Thompson
Title: President and Chief Executive Officer
Address: 3929 Point Eden Way, Hayward, CA 94545
NOTICE OF EXERCISE
TO: ARADIGM CORPORATION
(1) [ ] The undersigned hereby elects to purchase ________ shares of the Common Stock of ARADIGM CORPORATION (the "Company") pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
[ ] The undersigned hereby elects to purchase ________ shares of Common Stock of the Company pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of Common Stock of the Company in the name of the undersigned or in such other name as is specified below:
(3) The undersigned represents that (i) the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares, other than as contemplated by Article 7 of the Securities Purchase
Agreement dated as of December 11, 2001 by and among the Company and the
purchasers named therein; (ii) the undersigned is aware of the Company's
business affairs and financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision regarding its
investment in the Company; (iii) the undersigned is experienced in making
investments of this type and has such knowledge and background in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment and protecting the undersigned's own interests; (iv)
the undersigned understands that the shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), by reason of a specific exemption from
the registration provisions of the Securities Act, which exemption depends upon,
among other things, the bona fide nature of the investment intent as expressed
herein, and, because such securities have not been registered under the
Securities Act, they must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available;
(v) the undersigned is aware that the aforesaid shares of Common Stock may not
be sold pursuant to Rule 144 adopted under the Securities Act unless certain
conditions are met and until the undersigned has held the shares for the number
of years prescribed by Rule 144, that among the conditions for use of the Rule
is the availability of current information to the public about the Company; and
(vi) the undersigned agrees not to make any disposition of all or any part of
the aforesaid shares of Common Stock unless and until there is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
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 whatever. 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 5.1
[COOLEY GODWARD LLP LETTERHEAD]
January 11, 2002
Aradigm Corporation
3929 Point Eden Way
Hayward, California 94545
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection with the filing by Aradigm Corporation (the "Company") of a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission, including a prospectus covering the offering of up to 13,208,156 shares of Common Stock, no par value, as described in the Registration Statement (the "Shares").
In connection with this opinion, we have examined and relied upon the Registration Statement and related Prospectus, the Company's Amended and Restated Articles of Incorporation and Bylaws and the originals or copies certified to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. We have assumed the genuineness and authenticity of all documents submitted to us as copies thereof, and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof. We have also assumed that prior to any sale of the Shares the Company will have sufficient authorized and unissued shares of Common Stock, the terms of offer and sale of the Shares will have been authorized by resolutions of the Company's Board of Directors and an appropriate prospectus supplement with respect to the Shares being sold will have been prepared, delivered and filed in compliance with the Securities Act of 1933, as amended, and the applicable rules thereunder.
On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when issued and paid for in accordance with the Registration Statement and the applicable prospectus supplement and authorizing resolutions, will be validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By: /s/ Jamie E. Chung
--------------------------------
Jamie E. Chung
|
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of Aradigm Corporation for the registration of 13,208,156 shares of its Common Stock and to the incorporation by reference therein of our report dated February 20, 2001 with respect to the financial statements of Aradigm Corporation included in its Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP Palo Alto, California January 10, 2002 |