-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FQjeggyylyA1U7tkQH+dwlu72DTsC2RynzDJ+5+MRmFzu8w1LsI6FZDavXaaR5iF wAa0R05R+EvuoJEgjtLgGg== 0000927016-01-000286.txt : 20010129 0000927016-01-000286.hdr.sgml : 20010129 ACCESSION NUMBER: 0000927016-01-000286 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHEFFIELD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000894158 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 133808303 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-54446 FILM NUMBER: 1516729 BUSINESS ADDRESS: STREET 1: 425 WOODSMILL RD CITY: ST LOUIS STATE: MO ZIP: 63017 BUSINESS PHONE: 3145799899 MAIL ADDRESS: STREET 1: 425 WOODSMILL RD CITY: ST LOUIS STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: SHEFFIELD MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19940606 S-3 1 0001.txt FORM S-3 Registration Statement No. 333-____________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________ REGISTRATION STATEMENT ON FORM S-3 UNDER THE SECURITES ACT OF 1933 __________________________ SHEFFIELD PHARMACEUTICALS, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 2834 13-3808303 (State or Other Jurisdiction (Primary Standard Industry (I.R.S. Employer of Incorporation or Organization) Classification Code Number) Identification No.)
__________________________ 425 South Woodsmill Road, Suite 270 St. Louis, MO 63017 (314) 579-9899 (Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) __________________________ Loren G. Peterson Chief Executive Officer Sheffield Pharmaceuticals, Inc. 425 South Woodsmill Road, Suite 270 St. Louis, MO 63017 (314) 579-9899 (Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) __________________________ Copy to: David A. Cifrino, P.C. William O. Fabbri, Esq. McDermott, Will & Emery 28 State Street Boston, MA 02109-1775 (617) 535-4034 __________________________ Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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, 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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 Proposed Maximum Maximum Title of Each Class of Securities to be Offering Price Per Aggregate Securities to be Registered Registered Share Offering Price Amount of Registration Fee =================================================================================================================================== Common Stock, $.01 par value per share..................... 913,258(1) $3.9375(2) $3,595,953.38 $899 ===================================================================================================================================
(1) The shares being registered by this registration statement include, pursuant to Rule 416 of the Securities Act, an indeterminate number of additional shares that may be issued as a result of stock splits, stock dividends or similar transactions. (2) Estimated solely for the purpose of determining the registration fee and computed pursuant to Rule 457(c), based upon the average of the high and low sale prices on January 23, 2001, as reported by the American Stock Exchange. 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, as amended or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ The information in this prospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until registration statement filed the Securities and Exchange commission is effective. The prospectus is not an offer to sell securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED JANUARY 26, 2001 913,258 Shares SHEFFIELD PHARMACEUTICALS, INC. [LOGO] Common Stock This prospectus relates to the offer and resale from time to time by the selling stockholders of: . 626,950 shares of our common stock issued to The Tail Wind Fund Ltd. in a private placement by the Company completed in December 2000, . 112,500 shares of our common stock issuable upon exercise of a warrant issued to The Tail Wind Fund Ltd. in the December 2000 private placement, . 53,808 shares of our common stock issuable upon exercise of warrants issued to Gruntal & Co., and . 100,000 shares of our common stock issuable upon exercise of a warrant issued to Continental Capital & Equity Corporation. . 20,000 shares of our common stock issuable upon exercise of a warrant issued to The P. L. Thomas Group. The selling stockholders may sell the shares from time to time at fixed prices, market prices or at negotiated prices, and may engage a broker or dealer to sell the shares. For additional information on the selling shareholders' possible methods of sales, you should refer to the section of this prospectus entitled "Plan of Distribution" on page 11. We will not receive any proceeds from the sale of the shares, but will bear the costs relating to the registration of the shares. Selling stockholders identified in this prospectus are offering all of these shares and will receive all of the proceeds of this offering. Our common stock presently trades on the American Stock Exchange, or AMEX, under the symbol "SHM". On January 25, 2001, the closing sale price of common stock on the AMEX was $4.25. _______________ Investing in our common stock involves risks. See "Risk Factors" beginning on page 3. _______________ The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. _______________ The date of this Prospectus is __________, 2001. TABLE OF CONTENTS Page ---- Prospectus Summary..................................................... 1 Risk Factors........................................................... 3 Note on Forward Looking Statements..................................... 9 Use of Proceeds........................................................ 9 Selling Stockholders................................................... 10 Plan of Distribution................................................... 11 Legal Matters.......................................................... 12 Experts................................................................ 12 Where You Can Find More Information.................................... 12 i PROSPECTUS SUMMARY This is only a summary and may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" section and our financial statements and the notes thereto included elsewhere in this prospectus. SHEFFIELD PHARMACEUTICALS, INC. We are a specialty pharmaceutical company focused on the development and commercialization of later stage, lower risk pharmaceutical opportunities, utilizing proprietary pulmonary delivery technologies over a range of therapeutic areas. Through our alliances with Elan Corporation plc, Zambon Group SpA, and Siemens AG, we are currently developing nine respiratory and systemic therapies to be delivered through our Metered Solution Inhaler, or MSI and Aerosol Drug Delivery System, or ADDS. We believe these pulmonary delivery technologies will allow us to capitalize on the growing drug delivery market by providing both advanced respiratory treatments and patient-friendly alternatives for therapies that can currently be administered only by injection or other inconvenient means. In 1997, we acquired the MSI through a worldwide exclusive license and supply arrangement with Siemens AG. In June 1998, we sublicensed to Zambon Group SpA worldwide marketing and development rights to respiratory products to be delivered by the MSI. During the second half of 1998, we acquired the ADDS from Aeroquip-Vickers, Inc. Additionally, during 1998, we licensed from Elan Corporation, plc, the Ultrasonic Pulmonary Drug Absorption System, a novel disposable unit dose nebulizer system, and Elan's Absorption Enhancing Technology, a therapeutic agent to increase the systemic absorption of drugs. In October 1999, we licensed Elan's NanoCrystal technology to be used in developing certain steroid products. Our lead drug delivery technology, the MSI, is a patented, multi-dose nebulizer delivery system. The pocket-sized inhaled drug delivery system features an ultrasonic nebulizer that emits high-frequency sound waves that turn liquid medication into a fine cloud or soft mist. Our MSI system combines the therapeutic benefits of nebulization with the convenience of pressurized metered dose inhalers, or MDIs, in one patient-friendly device. Our MSI is comprised of a hand-held ultrasonic nebulizer and interchangeable, drug-filled cartridges that are inserted into the inhaler unit. The interchangeable cartridges provide patients who must take multiple respiratory medications with a single, easy-to- use system. We believe the soft mist created by the MSI provides multiple drug administration advantages over the high-velocity MDIs and dry powder inhalers. Furthermore, our MSI system is fast and portable as compared to conventional tabletop nebulizers, which are large, cumbersome and more time consuming to use. The MSI system targets younger and older asthma patients, as well as older chronic obstructive pulmonary disease patients who have difficulty using MDIs and currently depend on tabletop nebulizers for delivery of their medications. Our ADDS is a patented, new generation MDI that we believe has significant efficiency and performance advantages over standard MDIs. Our ADDS technology utilizes a standard aerosol MDI canister, encased in a compact device that provides an aerosol flow-control chamber and a synchronized triggering mechanism. The aerosol flow-control chamber allows the patient to inhale through the device at a normal breathing rate, instead of a forced breath. The inspiratory breath establishes flow fields within the device that mix and uniformly disperse the drug in the breath. At the mouthpiece, nearly all the propellant is evaporated leaving only drug particles to be inspired, allowing a significant increase in the amount of drug delivered to the lungs. Our ADDS system, like our MSI system, is designed to reduce patient coordination problems and enhance compliance with the prescribed treatment. Sheffield Pharmaceuticals, Inc. (formerly Sheffield Medical Technologies Inc.) is a Delaware corporation. Our principal executive offices are located at 425 South Woodsmill Road, Suite 270, St. Louis, Missouri, 63017, and our telephone number is (314) 579-9899. Our common stock trades on the American Stock Exchange under the symbol "SHM". Our web site address is www.sheffieldpharm.com. Information contained on our web site is not intended to be part of this prospectus and is not incorporated by reference herein. Summary of Offering Common stock offered by selling stockholders........... 913,258 shares/(1)/ Shares of common stock outstanding after the offering..................................... 29,103,284 shares/(2)/ Use of proceeds........................................ All proceeds from the sale of the shares of common stock in this offering will be received by the selling stockholders. AMEX Ticker symbol..................................... SHM (1) Consists of 626,950 shares of common stock and 286,308 shares of common stock issuable upon the exercise of outstanding warrants. (2) Based on the number of shares actually outstanding on January 25, 2001. Includes all the shares being offered pursuant to this prospectus and excludes, as of January 25, 2001: . 4,511,400 shares of common stock issuable on the exercise of outstanding options at a weighted average exercise price of $3.19 per share, . 2,146,361 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.62 per share, . 1,189,200 shares of common stock available for future issuance under our 1993 Stock Option Plan, 1993 Restricted Stock Plan and 1996 Directors Stock Option Plan, . 15,464,235 shares of common stock issuable upon conversion of outstanding shares of preferred stock, and . 1,362,578 shares of common stock issuable upon conversion of outstanding convertible promissory notes. 2 RISK FACTORS You should carefully consider the risk factors in addition to the remainder of this prospectus before purchasing our common stock. The risks described below are not the only risks we face. Additional risks of which we do not yet know or that we currently think are immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or operating results could be adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. We have experienced significant operating losses throughout our history and expect these losses to continue for the foreseeable future. Our operations to date have consumed substantial amounts of cash and we have generated to date only limited revenues from contract research and licensing activities. We have incurred approximately $79.1 million of operating losses since our inception, including $4.3 million during the nine months ended September 30, 2000. Our operating losses and negative cash flow from operations are expected to continue in the foreseeable future. We will need additional financing, which if not available, could prevent us from funding or expanding our operations. Cash available for funding our operations as of September 30, 2000 was $1.6 million. As of such date, we had trade payables of $476,243 and current research obligations of $348,629. In addition, committed and/or anticipated funding of research and development after September 30, 2000 is estimated at approximately $3.1 million, of which $3.0 million has been committed to be funded by Elan through the issuance of our Series E cumulative convertible preferred stock. Since September 30, 2000 we have raised $2,250,000 through the sale of our securities and received $1.0 million as an interest-free advance against future milestone payments, and anticipate that we have sufficient cash to meet our cash requirements through December 31, 2001, assuming we do not incur unexpected costs. We need to raise substantial additional capital to fund our operations. The development of our technologies and proposed products will require a commitment of substantial funds to conduct costly and time-consuming research, preclinical and clinical testing, and to bring any such products to market. Our future capital requirements will depend on many factors, including continued progress in developing and out-licensing our pulmonary delivery technologies, our ability to establish and maintain collaborative arrangements with others and to comply with the terms thereof, receipt of payments due from partners under research and development agreements, progress with preclinical and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, the need to acquire licenses to new technology and the status of competitive products. We intend to seek such additional funding through collaborative or partnering arrangements, the extension of existing arrangements, or through public or private equity or debt financings. Additional financing may not be available on acceptable terms or at all. If we raise additional funds by issuing equity securities, stockholders may be further diluted and such equity securities might have rights, preferences and privileges senior to those of our current stockholders. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies, product candidates or products that we would otherwise seek to develop or commercialize. If adequate funds are not available from operations or additional sources of funding, our business will suffer a material adverse effect. Our products are still in development and we may be unable to bring our products to market. We have not yet begun to generate revenues from the sale of products. Our products will require significant additional development, clinical testing and investment prior to their commercialization. We do not expect regulatory approval for commercial sales of any of our products in the immediate future. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. Such reasons include the possibility that products will not be proven to be safe and efficacious in clinical trials, that they 3 will not be able to meet applicable regulatory standards or obtain required regulatory approvals, that they cannot be produced in commercial quantities at reasonable costs or that they fail to be successfully commercialized or fail to achieve market acceptance. If our products are not accepted by the medical community, our business will suffer. Commercial sales of our products will substantially depend upon the products' efficacy and on their acceptance by the medical community. Widespread acceptance of our products will require educating the medical community as to the benefits and reliability of the products. Our products may not be accepted and, even if accepted, we are unable to estimate the length of time it would take to gain such acceptance. We will be required to make royalty payments on products we may develop, reducing the amount of revenues with which we could fund ongoing operations. The owners and licensors of the technology rights acquired by us are entitled to receive a certain percentage of all revenues received by us from commercialization, if any, of products in respect of which we hold licenses. Accordingly, in addition to our substantial investment in product development, we will be required to make substantial payments to others in connection with revenues derived from commercialization of products, if any, developed under licenses we hold. Consequently, we will not receive the full amount of any revenues that may be derived from commercialization of products to fund ongoing operations. Our dependence on third parties for rights to technology and the development of our products could harm our business. Under the terms of existing license agreements, we are obligated to make certain payments to our licensors. In the event that we default on the payment of an installment under the terms of an existing licensing agreement, our rights thereunder could be forfeited. As a consequence, we could lose all rights under a license agreement to the related licensed technology, notwithstanding the total investment made through the date of the default. Unforeseen obligations or contingencies may deplete our financial resources and, accordingly, sufficient resources may not be available to fulfill our commitments. If we were to lose our rights to technology, we may be unable to replace the licensed technology or be unable to do so on commercially reasonable terms, which would materially adversely affect our ability to bring products based on that technology to market. In addition, we depend on our licensors for assistance in developing products from licensed technology. If these licensors fail to perform or their performance is not satisfactory, our ability to successfully bring products to market may be delayed or impeded. We face intense competition and rapid technological changes and our failure to successfully compete or adapt to changing technology could make it difficult to successfully bring products to market. The medical field is subject to rapid technological change and innovation. Pharmaceutical and biomedical research and product development are rapidly evolving fields in which developments are expected to continue at a rapid pace. Reports of progress and potential breakthroughs are occurring with increasing frequency. Our success will depend upon our ability to develop and maintain a competitive position in the research, development and commercialization of products and technologies in our areas of focus. Competition from pharmaceutical, chemical, biomedical and medical companies, universities, research and other institutions is intense and is expected to increase. All, or substantially all, of these competitors have substantially greater research and development capabilities, experience, and manufacturing, marketing, financial and managerial resources. Further, acquisitions of competing companies by large pharmaceutical or other companies could enhance such competitors' financial, marketing and other capabilities. Developments by others may render our products or technologies obsolete or not commercially viable and we may not be able to keep pace with technological developments. We have granted anti-dilutions rights to The Tail Wind Fund Ltd. which may require us to issue additional shares to Tail Wind, make cash payments to Tail Wind and may hinder our ability to raise additional funds. Pursuant to our December 2000 private placement with The Tail Wind Fund Ltd., until at least August 29, 2002, if we sell shares of our common stock or securities convertible into or exercisable for common stock for less 4 than $3.5888 per share, we are obligated to issue to Tail Wind additional shares so that the number of shares purchased by Tail Wind in the December 2000 private placement plus the additional shares issued to Tail Wind equals the number of shares that Tail Wind could have purchased for $2,250,000 at the price per share at which the new shares are sold. The presence of these anti-dilution rights may negatively affect our ability to obtain additional financing. In addition, in the event that we are required to issue additional shares to Tail Wind, we may not issue an aggregate of over 5,630,122 shares of our common stock in total to Tail Wind in connection with the December 2000 private placement. If we would otherwise be required to issue more than 5,630,122 shares to Tail Wind, we must instead pay Tail Wind 105% of the cash value of such shares we do not issue. We are subject to significant government regulation and failure to achieve regulatory approval for our products would severely harm our business. Our ongoing research and development projects are subject to rigorous FDA approval procedures. The preclinical and clinical testing requirements to demonstrate safety and efficacy in each clinical indication (the specific condition intended to be treated) and regulatory approval processes of the FDA can take a number of years and will require us to expend substantial resources. We may be unable to obtain FDA approval for our products, and even if we do obtain approval, delays in such approval would adversely affect the marketing of products to which we have rights and our ability to receive product revenues or royalties. Moreover, even if FDA approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA, and a later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer. Failure to comply with the applicable regulatory requirements can, among other things, result in fines, suspensions of regulatory approvals, product recalls, operating restrictions and criminal prosecution. Additional government regulation may be established which could prevent or delay regulatory approval of our products. Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Even if FDA approval has been obtained, approval of a product by comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing the product in those countries. The time required to obtain such approval may be longer or shorter than that required for FDA approval. We have no experience in manufacturing or marketing in foreign countries nor in matters such as currency regulations, import-export controls or other trade laws. To date, we have not received final regulatory approval from the FDA or any other comparable foreign regulatory authority for any of our products or technologies. Our failure to meet product release schedules would make it difficult to predict our quarterly results and may cause our operating results to vary significantly. Delays in the planned release of our products may adversely affect forecasted revenues and create operational inefficiencies resulting from staffing levels designed to support the forecasted revenues. Our failure to introduce new products on a timely basis could delay or hinder market acceptance and allow competitors to gain greater market share. If our intellectual property and proprietary rights are infringed, or infringe upon the rights of others, our business will suffer. Our success will depend in part on our ability to obtain patent protection for our technologies, products and processes and to maintain trade secret protection and operate without infringing the proprietary rights of others. The degree of patent protection to be afforded to pharmaceutical, biomedical or medical inventions is an uncertain area of the law. In addition, the laws of foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. We may not develop or receive sublicenses or other rights related to proprietary technology that are patentable, patents that are pending may be not issued, and any issued patents may not provide us with any competitive advantages and may be challenged by third parties. Furthermore, others may independently duplicate or develop similar products or technologies to those developed by or licensed to us. If we are required to defend against charges of patent infringement or to protect our own proprietary rights against third parties, substantial costs will be incurred and we could lose rights to certain products and technologies or be required to enter into costly royalty or licensing agreements. 5 We do not have any marketing or manufacturing capabilities and will likely rely on third parties for these capabilities in order to bring products to market. We do not currently have our own sales force or an agreement with another pharmaceutical company to market all of our products that are in development. When appropriate, we may build or otherwise acquire the necessary marketing capabilities to promote our products. However, we may not have the resources available to build or otherwise acquire our own marketing capabilities, and we may be unable to reach agreements with other pharmaceutical companies to market our products on terms acceptable to us, if at all. In addition, we do not intend to manufacture our own products. While we have already entered into two manufacturing and supply agreements related to the MSI system and one related to the ADDS, these manufacturing and supply agreements may not be adequate and we may not be able to enter into future manufacturing and supply agreements on acceptable terms, if at all. Our reliance on independent manufacturers involves a number of risks, including the absence of adequate capacity, the unavailability of, or interruptions in, access to necessary manufacturing processes and reduced control over product quality and delivery schedules. If our manufacturers are unable or unwilling to continue manufacturing our products in required volumes, we will have to identify acceptable alternative manufacturers. The use of a new manufacturer may cause significant interruptions in supply if the new manufacturer has difficulty manufacturing products to our specifications. Further, the introduction of a new manufacturer may increase the variation in the quality of our products. Healthcare reimbursement policies are uncertain and may adversely impact the sale of our products. Our ability to commercialize human therapeutic and diagnostic products may depend in part on the extent to which costs for such products and technologies are reimbursed by private health insurance or government health programs. The uncertainty regarding reimbursement may be especially significant in the case of newly approved products. Reimbursement price levels may be insufficient to provide a return to us on our investment in new products and technologies. In the United States, government and other third-party payers have sought to contain healthcare costs by limiting both coverage and the level of reimbursement for new pharmaceutical products approved for marketing by the FDA, including some cases refusal to cover such approved products. Healthcare reform may increase these cost containment efforts. We believe that managed care organizations may seek to restrict the use of new products, delay authorization to use new products or limit coverage and the level of reimbursement for new products. Internationally, where national healthcare systems are prevalent, little if any funding may be available for new products, and cost containment and cost reduction efforts can be more pronounced than in the United States. We may become subject to product liability claims and our product liability insurance may be inadequate. The use of our proposed products and processes during testing, and after approval, may entail inherent risks of adverse effects that could expose us to product liability claims and associated adverse publicity. Although we currently maintain general liability insurance, the coverage limits of our insurance policies may not be adequate. We currently maintain clinical trial product liability insurance of $2.0 million per event for certain clinical trials and intend to obtain insurance for future clinical trials of products under development. However, we may be unable to obtain or maintain insurance for any future clinical trials. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, or at all. A successful claim brought against us in excess of our insurance coverage would have a material adverse effect upon us and our financial condition. We intend to require our licensees to obtain adequate product liability insurance. However, licensees may be unable to maintain or obtain adequate product liability insurance on acceptable terms and such insurance may not provide adequate coverage against all potential claims. If our common stock is delisted from the American Stock Exchange, the price of our common stock and its liquidity could decline. Our common stock is listed for trading on the American Stock Exchange, or AMEX, under the symbol "SHM". We do not satisfy discretionary AMEX guidelines for continued listing, including a guideline that a listed company that has sustained losses from operations and/or net losses in three of its four most recent fiscal years, have 6 stockholders' equity of at least $4,000,000. We had net capital deficiency of $695,000 at September 30, 2000. We also do not satisfy a guideline against continued losses for each of the issuer's five most recent fiscal years. Our continued failure to meet the listing guidelines has been regularly reviewed by AMEX and may ultimately result in our common stock being delisted from AMEX. If our common stock were delisted from AMEX, trading of our common stock, if any, would thereafter likely be conducted in the over-the-counter market, unless we were able to list our common stock on The Nasdaq Stock Market or another national securities exchange, which cannot be assured. If our common stock were to trade in the over-the-counter market it may be more difficult for investors to dispose of, or to obtain accurate quotations as to the market value of our common stock. In addition, it may become more difficult for us to raise funds through the sale of our securities. In the event of the delisting of our common stock from the AMEX and our inability to list our common stock on The Nasdaq Stock Market or another national securities exchange, the regulations of the SEC under the Securities Exchange Act of 1934, as amended, require additional disclosure relating to the market for penny stocks. SEC regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. A disclosure schedule explaining the penny stock market and the risks associated therewith is required to be delivered to a purchaser and various sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). In addition, the broker-dealer must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. If our securities become subject to the regulations applicable to penny stocks, the market liquidity for our securities could be severely affected. In such an event, the regulations on penny stocks could limit the ability of broker-dealers to sell our securities. The price of biotechnology/pharmaceutical company stocks has been volatile which could result in substantial losses to our stockholders. The market price of securities of companies in the biotechnology/pharmaceutical industries has tended to be volatile. Announcements of technological innovations by us or our competitors, developments concerning proprietary rights and concerns about safety and other factors may have a material effect on our business or financial condition. The market price of our common stock may be significantly affected by announcements of developments in the medical field generally or our research areas specifically. The stock market has experienced volatility in market prices of companies similar to us that has been unrelated to the operating results of such companies. This volatility may have a material adverse effect on the market price of our common stock. Our ability to issue "blank check" preferred stock may make it more difficult for a change in our control. Our certificate of incorporation authorizes the issuance of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors, without shareholder approval. In the event of issuance, such preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in our control and preventing shareholders from receiving a premium for their shares in connection with a change of control. We issued Series A and Series B cumulative convertible redeemable preferred stock in connection with private placements in February 1997 and April 1998, respectively. All of the Series A preferred stock was converted into common stock during 1998. On July 31, 1998, all of the Series B Preferred stock was redeemed for cash. We also issued shares of our Series C cumulative convertible preferred stock in connection with the consummation of an agreement with Elan International Services, Ltd. ("Elan") in June 1998. In October 1999, in conjunction with a licensing agreement with Elan, we issued shares of our Series D cumulative convertible exchangeable preferred stock and Series F cumulative convertible preferred stock. In addition, we also have a commitment from Elan to purchase shares of Series E cumulative convertible non-exchangeable preferred stock at our option (subject to satisfaction of certain conditions). Except for the previously mentioned purchase commitment for Series E preferred stock, and additional shares of Series C, D and E preferred stock that may be payable as dividends to Elan, as holder of the outstanding Series C, D and E preferred stock, we have no present intention to issue any additional shares of our preferred stock; however, we may issue additional shares of our preferred stock in the future. 7 We are obligated to issue additional securities in the future diluting our stockholders. As of September 30, 2000, we had reserved approximately 6,801,513 shares of our common stock for issuance upon exercise of outstanding options and warrants convertible into shares of our common stock, including by our officers and directors. In addition, as of September 30, 2000, we had $2,000,000 principal amount of a convertible promissory note, 13,472 shares of our Series C preferred stock, 12,435 shares of our Series D preferred stock, 1,000 shares of our Series E preferred stock and 5,000 shares of our Series F preferred stock outstanding. Each of the convertible securities provides for conversion into shares of our common stock at a discount to the market price at September 30, 2000. Our Series C, D, E and F preferred stock are convertible into 9,554,610 shares, 2,558,642 shares, 257,069 shares and 1,470,588 shares, respectively, of common stock. The convertible promissory note is convertible into 1,328,796 shares of common stock. The exercise of options and outstanding warrants, the conversion of such other securities and sales of common stock issuable thereunder could have a significant dilutive effect on the market price of our common stock and could materially impair our ability to raise capital through the future sale of our equity securities. 8 NOTE ON FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by use of terms such as "may", "should", "plan", "expect", "anticipate", "estimate" and similar words although some forward-looking statements are expressed differently. Forward- looking statements represent our management's judgment regarding future events. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove to be incorrect. All statements other than statements of historical fact included in this prospectus and the exhibits hereto regarding our financial position, business strategy, products, products under development and clinical trials, markets, budgets, plans, or objectives for future operations are forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those identified under the heading "Risk Factors" and other sections of this prospectus and in the exhibits hereto. USE OF PROCEEDS All of the proceeds from the sale of the shares of common stock in this offering will be received by the selling stockholders. 9 SELLING STOCKHOLDERS The following table sets forth information regarding beneficial ownership of our common stock by the selling stockholders as of January 25, 2001. For purposes of presentation, we have assumed that the selling stockholders will sell all shares offered hereby including the shares issuable on exercise of warrants and options.
Shares Beneficially Owned Shares to be Shares Beneficially Owned Prior to Offering (1) Offered After Offering --------------------- ------- -------------- Name Number Percent Number Percent - ---- ------ ------- ------ ------- The Tail Wind Fund Ltd. 739,450/(2)/ 2.6% 739,450 - - Gruntal & Co. 53,808/(3)/ * 53,808 - - Continental Capital & 100,000/(4)/ * 100,000 - - Equity Corporation The P. L. Thomas Group 20,000/(5)/ * 20,000 - -
_______________ * Less than 1% (1) The persons named in the table, to our knowledge, have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws where applicable. (2) Consists of (i) 626,950 shares issued to The Tail Wind Fund Ltd. in a private placement, and (ii) 112,500 shares of common stock issuable upon exercise of an outstanding warrant held by The Tail Wind Fund Ltd. (3) Consists of 53,808 shares of common stock issuable upon exercise of warrants issued to Gruntal & Co. in consideration of services provided to us. (4) Consists of 100,000 shares of common stock issuable upon exercise of a warrant issued to Continental Capital & Equity Corporation in consideration of services provided to us. (5) Consists of 20,000 shares of common stock issuable upon exercise of a warrant issued to The P. L. Thomas Group in consideration of services provided to us. On December 29, 2000 we entered into a purchase agreement with The Tail Wind Fund Ltd. Under that agreement, we issued and sold 626,950 shares of our common stock and a warrant to purchase 112,500 shares of common stock at an exercise price of $4.9844 per share for a total cash consideration of $2.25 million. Pursuant to a registration rights agreement with Tail Wind, we filed a registration statement, of which this prospectus forms a part, in order to permit Tail Wind to resell to the public the shares of common stock that it purchased pursuant to the securities purchase agreement and that it may acquire upon any exercise of the warrant. In the purchase agreement, we granted Tail Wind anti-dilution rights. If we sell common stock or securities exercisable for or convertible into shares of our common stock for less than $3.5888 per share, we must issue additional shares to Tail Wind so that the 626,950 shares purchased by Tail Wind in the December 2000 private placement plus the additional shares issued to Tail Wind equals the number of shares that Tail Wind could have purchased for $2,250,000 at the new per share purchase price. We have agreed to register for resale any additional shares issued pursuant to these anti-dilution rights on a future registration statement. In addition, under the terms of the purchase agreement, we may not issue more than a total of 5,630,122 shares of common stock to Tail Wind in connection with the December 2000 private placement and the anti- dilution provisions. If we would otherwise be required to issue more than 5,630,122 shares to Tail Wind, we must instead pay 105% of the cash value of the shares we do not issue to Tail Wind. We granted a warrant to Gruntal & Co. to purchase 35,000 shares at $6.125 per share on October 2, 2000, in connection with investment banking services provided to us. We also granted a warrant to Gruntal & Co. to purchase 18,808 shares at $4.9844 per share on December 29, 2000, in connection with investment banking services 10 provided to us. The shares issuable under these warrants have been included in this prospectus in order to permit Gruntal & Co. to resell the shares. We granted a warrant to Continental Capital & Equity Corporation to purchase 100,000 shares at $2.25 per share on September 17, 1998, in connection with investor relation services provided to us. The shares issuable under that warrant have been included in this prospectus in order to permit Continental Capital & Equity Corporation to resell the shares. We granted a warrant to The P. L. Thomas Group to purchase 20,000 shares at $3.00 per share on September 30, 1997. The shares issuable under that warrant have been included in this prospectus in order to permit The P. L. Thomas Group to resell the shares. PLAN OF DISTRIBUTION The selling stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares: . ordinary brokerage transactions and transactions in which the broker- dealer solicits purchasers; . block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; . purchases by a broker-dealer as principal and resale by the broker- dealer for its account; . an exchange distribution in accordance with the rules of the applicable exchange; . privately negotiated transactions; . broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; . a combination of any such methods of sale; and . any other method permitted pursuant to applicable law. The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We have agreed to indemnify The Tail Wind Fund Ltd. against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. 11 LEGAL MATTERS The validity of the issuance of the securities being offered hereby has been passed upon for us by McDermott, Will & Emery. EXPERTS The consolidated financial statements of Sheffield Pharmaceuticals, Inc. and subsidiaries (a development stage enterprise) as of and for the year ended December 31, 1999 appearing in Sheffield Pharmaceuticals, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1999, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon the report of Ernst & Young LLP pertaining to such financial statements given upon the authority of such firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room. Our SEC filings are also available to the public from the SEC's web site at http://www.sec.gov. The SEC allows us to incorporate by reference the information we file with them into this prospectus, which mean 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 SEC will automatically update and supersede the information already incorporated by reference. We are incorporating by reference the documents listed below, which we have already filed with the SEC, and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, until the selling stockholders sell all of the shares that are being offered in this prospectus. We incorporate by reference the following documents heretofore filed with the Commission pursuant to the Exchange Act: 1. Our Annual Report on Form 10-K for the year ended December 31, 1999. 2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000. 3. Current Report of the Company on Form 8-K filed with the Commission on November 14, 2000. 4. Our Definitive Proxy Statement filed with the Commission on April 5, 2000. 5. The description of our common stock set forth in our registration statement on Form 8-B filed with the Commission on July 6, 1995. We hereby undertake to provide without charge to each person to whom a copy of this prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this prospectus by reference, other than exhibits to such documents. Written requests for such copies should be directed to Sheffield Pharmaceuticals, Inc., 425 South Woodsmill Road, Suite 270, St. Louis, Missouri 63017, Attention: Scott A. Hoffmann, Chief Financial Officer. Oral requests should be directed to Mr. Hoffmann at (314) 579-9899. You should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with different information. The selling stockholders 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 or the documents incorporated by reference is accurate as of any date other than the date on the front of this prospectus or those documents. 12 SHEFFIELD PHARMACEUTICALS, INC. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The following table sets forth an itemized statement of all estimated expenses in connection with the issuance and distribution of the securities being registered: Amount ------ SEC Registration Fees........................ $ 899 AMEX Listing Fees............................ 17,500 Legal Expenses............................... 12,500 Accounting Fees and Expenses................. 5,000 Miscellaneous................................ 10,101 --------- Total................................... $46,000 The amounts set forth above, except for the Securities and Exchange Commission registration and AMEX listing fees, are in each case estimated. Item 15. Indemnification of Directors and Officers. Except as hereinafter set forth, there is no statute, charter provision, by-law, contract or other arrangement under which any controlling person, director or officer of the Corporation is insured or indemnified in any manner against liability which he may incur in his capacity as such. Article TENTH of the Corporation's Certificate of Incorporation provides as follows: The Corporation shall, to the fullest extent permitted by (S)145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 5.1 of the By-laws of the Corporation provides as follows: (a) The Corporation shall indemnify, subject to the requirements of subsection (d) of this Section, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner her reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify, subject to the requirements of subsection (d) of this Section, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in II-1 the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonable incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonable believed to be in or not opposed to the best interest of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability buy in view of all the circumstances of the case, such person is fairly and reasonable entitled to indemnity for such expense which the Court of Chancery of the State of Delaware or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation, or a person serving in any other enterprise at the request of the Corporation, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsection (a) and (b) of this Section, or in defense of any claim, issue or matter therein, the Corporation shall indemnify him against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) of this Section (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this Section. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors, or (3) by independent legal counsel in a written opinion, or (4) by the stockholders. (e) Expenses incurred by a directors, officer, employee or agent in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suite or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section. (f) The indemnification and advancement of expenses provided by or granted pursuant to, the other subsections of this Section shall not limit the Corporation from providing any other indemnification or advancement of expenses permitted by law nor shall it be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (g) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. (h) The indemnification and advancement of expenses provided by, or granted pursuant to this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (i) For the purposes of this Section, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent f such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation of its separate existence had continued. II-2 (j) This Section 5.1 shall be construed to give the Corporation the broadest power permissible by the Delaware General Corporation Law, as it now stands and as heretofore amended. Section 145 of the General Corporation Law of the State of Delaware provides as follows: (a) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) A corporation may indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonable incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. (e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil criminal administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director of officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or II-3 advancement of expenses may be entitles under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (h) For purposes of this section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service s a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "no opposed to the best interests of the corporation" as referred to in this section. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company has purchased a Directors and Officer Liability Insurance policy for coverage of up to $5,000,000. Item 16. Exhibits. The following Exhibits are included pursuant to regulation S-K.
No. Description Reference ---- ----------- --------- 4.1 Purchase Agreement dated December 29, 2000 by and between Sheffield (1) Pharmaceuticals, Inc. and The Tail Wind Fund Ltd. 4.2 Registration Rights Agreement dated December 29, 2000 by and between (1) Sheffield Pharmaceuticals, Inc. and The Tail Wind Fund, Ltd. 4.3 Warrant dated December 29, 2000 issued to The Tail Wind Fund, Ltd. (1) 4.4 Warrant dated October 2, 2000 issued to Gruntal & Co. (2) 4.5 Warrant dated December 29, 2000 issued to Gruntal & Co. (2) 4.6 Warrant dated September 17, 1998 issued to Continental Capital & Equity (1) Corporation 4.7 Warrant dated September 30, 1997 issued to The P.L. Thomas Group (1) 5.1 Opinion of McDermott, Will & Emery (includes Consent) (2) 23.1 Consent of McDermott, Will & Emery included in Exhibit 5.1 (2) 23.2 Consent of Ernst & Young LLP relating to the use of Financial Statements (1) 24.1 Power of Attorney, included in Part II of the Registration Statement (1)
II-4 - --------------- (1) Filed herewith. (2) To be filed. Item 17. Undertakings. 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 to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information 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; (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 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; and Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the 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, the 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. II-5 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 County of St. Louis, State of Missouri on January 26, 2001. Sheffield Pharmaceuticals, Inc. By: /s/ Loren G. Peterson --------------------------------- Loren G. Peterson President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Loren G. Peterson his true and lawful attorney- in-fact, each acting alone, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes, each acting alone, may lawfully do or cause to be done by virtue thereof. 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.
Signature Title Date --------- ----- ---- /s/ Thomas M. Fitzgerald Director and Chairman January 26, 2001 - -------------------------------- Thomas M. Fitzgerald /s/ Loren G. Peterson Director, President and Chief January 26, 2001 - -------------------------------- Loren G. Peterson Executive Officer /s/ John M. Bailey Director January 26, 2001 - -------------------------------- John M. Bailey /s/ Digby W. Barrios Director January 26, 2001 - -------------------------------- Digby W. Barrios /s/ Todd C. Davis Director January 26, 2001 - -------------------------------- Todd C. Davis /s/ Roberto Rettani Director January 26, 2001 - -------------------------------- Roberto Rettani /s/ Scott A. Hoffmann Vice President Finance and January 26, 2001 - -------------------------------- Scott A. Hoffmann Administration Secretary and Treasurer
II-6 EX-4.1 2 0002.txt PURCHASE AGREEMENT DATED 12/29/2000 EXHIBIT 4.1 PURCHASE AGREEMENT ------------------ THIS PURCHASE AGREEMENT ("Agreement") is made as of the 29th day of December, 2000 by and between Sheffield Pharmaceuticals, Inc. a Delaware corporation (the "Company"), and the Investors set forth on the signature page affixed hereto (each an "Investor" and collectively the "Investors"). Recitals A. The Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended; B. The Investors wish to purchase, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, shares of the common stock of the Company, par value $0.01 per share (the "Common Stock") and warrants to purchase Common Stock in the form attached hereto as Exhibit A (the "Warrants") for an aggregate purchase price of --------- $2,250,000; and C. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit B (the "Registration Rights Agreement"), --------- pursuant to which the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder, and applicable state securities laws; In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. In addition to those terms defined above and elsewhere in ----------- this Agreement, for the purposes of this Agreement, the following terms shall have the meanings here set forth: 1.1 "Affiliate" means, with respect to any Person, any other Person --------- which directly or indirectly controls, is controlled by, or is under common control with, such Person. 1.2 "Agreements" means this Agreement, the Registration Rights ---------- Agreement, and the Warrants. 1.3 "Closing" means the consummation of the initial purchase and sale ------- transactions contemplated by this Agreement, and "Closing Date" means the date ------------ of such Closing. 1.4 "Control" means the possession, direct or indirect, of the power ------- to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. 1.5 "Market Price" means the average of the closing prices of the ------------ Common Stock over the thirty (30) consecutive trading days immediately preceding a specified date. 1.6 "Material Adverse Effect" means a material adverse effect on the ----------------------- condition (financial or otherwise), business, assets, or results of operations of the Company as a whole. 1.7 "Person" means an individual, corporation, partnership, trust, ------ business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.8 "SEC Filings" has the meaning set forth in Section 4.6. ----------- 1.9 "Securities" means the Shares, the Warrants and the Warrant ---------- Shares (defined below). 1.10 "Shares" means the shares of Common Stock being purchased by the ------ Investors hereunder. 1.11 "Warrant Shares" means the shares of Common Stock issuable upon -------------- exercise of or otherwise pursuant to the Warrants. 1.12 "1933 Act" means the Securities Act of 1933, as amended, and the -------- rules and regulations promulgated thereunder. 1.13 "1934 Act" means the Securities Exchange Act of 1934, as -------- amended, and the rules and regulations promulgated thereunder. 2. Purchase and Sale of the Shares and Warrants. Subject to the terms and -------------------------------------------- conditions of this Agreement, the Investors hereby severally, and not jointly, agrees to purchase, and the Company hereby agrees to sell and issue to the Investors the number of Shares and Warrants to purchase the number of shares of Common Stock set forth on such Investor's signature page attached hereto. The number of Shares to be purchased by each Investor at the Closing shall be determined by dividing such Investor's Closing aggregate purchase price (as such aggregate purchase price is set forth on such Investor's signature page attached hereto) by the lesser of ninety percent (90%) of the Market Price on the date of this Agreement or the per share closing price of the Common Stock on the trading day immediately preceding the date of this Agreement (the "Purchase Price"). The number of shares of Common Stock purchasable by the Investors upon exercise of the Warrants to be issued on the Closing Date shall be as set forth 2 on such Investor's signature page attached hereto and the exercise price of the Warrants shall be 125% of the Market Price measured as of the date of this Agreement (the "Exercise Price"). 3. Closing. The Company shall promptly deliver to Investors' counsel, in ------- trust, a certificate or certificates, registered in such name or names as the Investors may designate, representing all of the Shares and all of the Warrants to be purchased hereunder, with instructions that such certificates are to be held for release to the Investors only upon payment of the aggregate Purchase Price to the Company. Upon receipt by counsel to the Investors of the certificates, each Investor shall promptly cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing such Investor's aggregate Purchase Price. On the date the Company receives such funds, the certificates evidencing the Shares and the Warrants shall be released to the Investors (and such date shall be deemed the "Closing Date"). 4. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to the Investors: 4.1 Organization, Good Standing and Qualification. Each of the --------------------------------------------- Company and its subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and own its properties. Each of the Company and its subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or licensing necessary unless the failure to so qualify would not have a Material Adverse Effect. The Company's subsidiaries are reflected on Schedule 4.1 hereto. ------------ 4.2 Authorization. The Company has full power and authority and has ------------- taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Agreements, (ii) authorization of the performance of all obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities. The Agreements constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors' rights generally. 4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the -------------- ------------ authorized capital stock of the Company on the date hereof; (b) the number of shares of capital stock issued and outstanding; (c) the number of shares of capital stock issuable pursuant to the Company's stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Shares and the Warrants) exercisable for, or convertible into or exchangeable for any shares of capital stock. Except as set forth on Schedule 4.3, all of the issued and outstanding shares of the Company's capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. Except as set forth on Schedule -------- 4.3, no Person is entitled to preemptive or similar statutory or contractual - --- rights with 3 respect to any securities of the Company. Except as set forth on Schedule 4.3, ------------ there are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company or any of its subsidiaries is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement, neither the Company nor any of its subsidiaries is currently in negotiations for the issuance of any equity securities of any kind. Except as set forth on Schedule 4.3, the Company ------------ has no knowledge of any voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among any of the security holders of the Company relating to the securities of the Company held by them. Except as set forth on Schedule 4.3, the Company has not granted any ------------ Person the right to require the Company to register any securities of the Company under the 1933 Act, whether on a demand basis or in connection with the registration of securities of the Company for its own account or for the account of any other Person. 4.4 Valid Issuance. The Company has reserved a sufficient number of -------------- shares of Common Stock for the issuance of the Shares pursuant to this Agreement and upon exercise of the Warrants. The Company will take such steps as may be necessary to reserve sufficient shares for issuance pursuant to Section 7 below when such issuance is determinable. The Shares and Warrants are duly authorized, and such Securities, along with the Warrant Shares when issued in accordance herewith and with the terms of the Warrants, will be duly authorized, validly issued, fully paid, non-assessable and free and clear of all encumbrances and restrictions, except for restrictions on transfer imposed by applicable securities laws. 4.5 Consents. The execution, delivery and performance by the Company of -------- the Agreements and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings or consents that have been made pursuant to applicable state securities laws and post-sale filings or consents pursuant to applicable state and federal securities laws and the requirements of the American Stock Exchange, which the Company undertakes to file within the applicable time periods. 4.6 Delivery of SEC Filings; Business. The Company has provided the --------------------------------- Investors with copies of the Company's most recent Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and all other reports filed by the Company pursuant to the 1934 Act since the filing of the Annual Report on Form 10-K and prior to the date hereof (collectively, the "SEC Filings"); which the Company hereby represents and warrants are all filings required of the Company pursuant to the 1934 Act for such period. The Company is engaged only in the business described in the SEC Filings and the SEC Filings contain a materially complete and accurate description of the business of the Company. 4.7 Use of Proceeds. The proceeds of the sale of the Common Stock and the --------------- Warrants hereunder shall be used by the Company for working capital and general corporate purposes. 4.8 No Material Adverse Change. Since the filing of the Company's most -------------------------- recent Annual Report on Form 10-K or as otherwise identified and described in subsequent 4 reports filed by the Company pursuant to the 1934 Act or as set forth on Schedule 4.8 hereto, there has not been: - ------------ (i) any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company's most recent Quarterly Report on Form 10-Q, except changes in the ordinary course of business which have not had, in the aggregate, a Material Adverse Effect; (ii) any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Company, or any redemption or repurchase of any securities of the Company; (iii) any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company; (iv) any waiver by the Company of a valuable right or of a material debt owed to it not in the ordinary course of business; (v) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company taken as a whole (as such business is presently conducted and as it is proposed to be conducted); (vi) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (vii) any material labor difficulties or labor union organizing activities with respect to employees of the Company; (viii) any transaction entered into by the Company other than in the ordinary course of business; or (ix) any other event or condition of any character that might have a Material Adverse Effect. 5 4.9 SEC Filings. ----------- (a) The SEC Filings complied as to form in all material respects with the requirements of the 1934 Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (b) During the preceding two years, each registration statement and any amendment thereto filed by the Company pursuant to the 1933 Act and the rules and regulations thereunder, as of the date such statement or amendment became effective, complied as to form in all material respects with the 1933 Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of any sale of securities pursuant thereto did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. 4.10 Form S-3 Eligibility. The Company is currently eligible to -------------------- register the resale of its Common Stock on a registration statement on Form S-3 under the 1933 Act. 4.11 No Conflict, Breach, Violation or Default. The execution, ----------------------------------------- delivery and performance of the Agreements by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company's Certificate of Incorporation or the Company's Bylaws, both as in effect on the date hereof (copies of which have been provided to the Investors before the date hereof), or (ii) except where it would not have a Material Adverse Effect, (a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its properties, or (b) except as set forth on Schedule 4.11, ------------- any agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties of the Company is subject. 4.12 Tax Matters. The Company has timely prepared and filed all tax ------------ returns required to have been filed by the Company with all appropriate governmental agencies or has timely filed extensions therefor and timely paid all taxes owed by it. The charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company nor, to the knowledge of the Company, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except such as which are not material. All material taxes and other assessments and levies that the Company is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due. There are no tax liens or claims pending or threatened against the Company or any of its respective assets or property. There are no outstanding tax sharing agreements or other such arrangements between the Company and any other corporation or entity. 6 4.13 Title to Properties. Except as disclosed in the SEC Filings or ------------------- Schedule 4.13, the Company has good and marketable title to all real properties - ------------- and all other material properties and assets owned by it, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or currently planned to be made thereof by them; and except as disclosed in the SEC Filings, the Company holds any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or currently planned to be made thereof by them. 4.14 Certificates, Authorities and Permits. The Company possesses all ------------------------------------- material certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it and has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, would individually or in the aggregate have a Material Adverse Effect. 4.15 No Labor Disputes. No material labor dispute with the employees ----------------- of the Company exists or, to the knowledge of the Company, is imminent. 4.16 Intellectual Property. The Company has sufficient title or --------------------- adequate rights or licenses to the inventions, know-how, patents, copyrights, trademarks, trade names, confidential information and other intellectual property (collectively, "Intellectual Property Rights"), free and clear of any material liens, security interests, charges, encumbrances, equities and other adverse claims, necessary to conduct the business now operated by it, or presently employed by it, and presently contemplated to be operated by it, and the Company has not received any notice of infringement of or conflict with asserted rights of others with respect to any Intellectual Property Rights. To the knowledge of the Company, the Company's patents and other Intellectual Property Rights and the present activities of the Company do not infringe any patent, copyright, trademark, trade name or other proprietary rights of any third party. 4.17 Environmental Matters. The Company is not in violation of any --------------------- statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), does not own or operate any real property contaminated with any substance that is subject to any Environmental Laws, is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and is not subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation that might lead to such a claim. 4.18 Litigation. Except as disclosed in the SEC Filings or on ---------- Schedule 4.18 hereto, there are no pending actions, suits or proceedings against - ------------- or affecting the Company, its subsidiaries or any of its or their properties that, if determined adversely to the Company or such subsidiary, would individually or in the aggregate have a Material Adverse Effect or would 7 materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Securities; and to the Company's knowledge, no such actions, suits or proceedings are threatened or contemplated. 4.19 Financial Statements. The financial statements included in -------------------- each SEC Filing present fairly and accurately in all material respects the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. Except as set forth in the financial statements of the Company included in the SEC Filings filed prior to the date hereof, to the best of the Company's knowledge, the Company has no liabilities, contingent or otherwise, except those which individually or in the aggregate would not have a Material Adverse Effect. 4.20 Insurance Coverage. The Company maintains in full force and ------------------ effect insurance coverage that is customary for comparably situated companies for the business being conducted and properties owned or leased by the Company, and the Company reasonably believes such insurance coverage to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure. 4.21 Compliance with AMEX Continued Listing Requirements. Except as --------------------------------------------------- set forth on Schedule 4.21, the Company is in compliance with all applicable American Stock Exchange continued listing guidelines. Except as set forth on Schedule 4.21, there are no proceedings pending or to the Company's knowledge threatened against the Company relating to the continued listing of the Company's Common Stock on the American Stock Exchange and the Company has not received any notice of the delisting of the Common Stock from the American Stock Exchange. 4.22 Acknowledgement of Dilution. The number of shares of Common --------------------------- Stock issuable pursuant to this Agreement may increase substantially. The Company's executive officers and directors have studied and fully understand the nature of the transactions being contemplated hereunder and recognize that they have a potential dilutive effect. 4.23 Brokers and Finders. The Investors shall have no liability or ------------------- responsibility for the payment of any commission or finder's fee to any third party in connection with or resulting from this agreement or the transactions contemplated by this Agreement by reason of any agreement of or action taken by the Company. 4.24 No Directed Selling Efforts or General Solicitation. Neither --------------------------------------------------- the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities. 4.25 No Integrated Offering. Neither the Company nor any of its ---------------------- Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption from registration for the 8 transactions contemplated hereby or would require registration of the Securities under the 1933 Act. 4.26 Disclosures. No representation or warranty made under any Section ----------- hereof contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein, in light of the circumstances under which the statements were made, not misleading. 5 Representations and Warranties of the Investors. Each of the Investors ----------------------------------------------- hereby severally, and not jointly, represents, warrants and covenants to the Company that: 5.1 Organization and Existence. The Investor is a validly existing -------------------------- corporation or limited liability company and has all requisite corporate or limited liability company power and authority to invest in the Securities pursuant to this Agreement. 5.2 Authorization. The execution, delivery and performance by the ------------- Investor of the Agreements have been duly authorized and the Agreements will each constitute the valid and legally binding obligation of the Investor, enforceable against the Investor in accordance with their terms. 5.3 Purchase Entirely for Own Account. The Securities to be received --------------------------------- by the Investor hereunder will be acquired for the Investor's own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor is not a registered broker dealer or an entity engaged in the business of being a broker dealer. 5.4 Investment Experience. The Investor acknowledges that it can bear --------------------- the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby. 5.5 Disclosure of Information. The Investor has had an opportunity to ------------------------- receive documents related to the Company and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. The Investor acknowledges receipt of the SEC Filings and any other filings which it requested be made by the Company with the SEC. Neither such inquiries nor any other due diligence investigation conducted by the Investor shall modify, amend or affect the Investor's right to rely on the Company's representations and warranties contained in this Agreement. 5.6 Restricted Securities. The Investor understands that the --------------------- Securities are characterized as "restricted securities" under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances. 9 5.7 Legends. (a) It is understood that, until registration for resale ------- pursuant to the Registration Rights Agreement, certificates evidencing the Securities may bear one or all of the following legends: (i) "The shares represented by this certificate may not be transferred without (i) the opinion of counsel satisfactory to the corporation that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws; or (ii) such registration or qualification." (ii) If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority. (b) Upon registration for resale pursuant to the Registration Rights Agreement or upon Rule 144(k) becoming available, the Company shall promptly cause certificates evidencing the Shares previously issued hereunder (including Shares issued pursuant to Section 7.1 below) to be replaced with certificates which do not bear such restrictive legends, and all other Shares or Warrant Shares subsequently issued shall not bear such restrictive legends. When the Company is required to cause unlegended certificates to replace previously issued legended certificates, if unlegended certificates are not delivered to an Investor within ten (10) business days of submission by that Investor of legended stock certificate(s) to the Company's transfer agent, the Company shall be liable to the Investor for a penalty equal to 2% of the aggregate purchase price of the Shares evidenced by such certificate(s) for each thirty day period (or portion thereof) beyond such ten days that the unlegended certificates have not been so delivered. 5.8 Accredited Investor. The Investor is an accredited investor as ------------------- defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act. 5.9 No General Solicitation. The Investor did not learn of the ----------------------- investment in the Securities as a result of any public advertising or general solicitation. 5.10 Short Position. The Investor does not currently have a short -------------- position in the securities of the Company and during the MFN Period will not engage in any market transactions in the Company's securities which are designed to and have the effect of manipulating the market price of the Company's common stock. 6. Registration Rights Agreement. The parties acknowledge and agree that ----------------------------- part of the inducement for the Investors to enter into this Agreement is the Company's execution and delivery of the Registration Rights Agreement. The parties acknowledge and agree that simultaneously with the execution hereof, the Registration Rights Agreement is being duly executed and delivered by the parties thereto. 10 7. Covenants and Agreements of the Company. --------------------------------------- 7.1 Purchase Price Adjustments. -------------------------- (a) Required Adjustments. Subject to the exclusions -------------------- contained in Section 7.1(f) below, if during the MFN Period (defined below) the Company issues or sells any shares of its Common Stock at a Per Share Selling Price (as defined below) lower than the Purchase Price set forth in Section 2.1 hereof, the Purchase Price of the Shares sold pursuant to Section 2.1 shall be adjusted downward to equal such lower Per Share Selling Price and Investors shall be entitled to receive the additional shares as provided by Section 7.1(c); provided, however, that in the event an Investor then owns less than 70% of the Shares previously acquired by it hereunder on the Closing Date, such Investor shall be entitled to additional shares only with respect to the number of Shares then owned by such Investor from the Closing. The Company shall give to the Investors written notice of any such sale within 24 hours of the closing of any such issuance or sale. For so long as an Investor owns 70% or more of the Shares originally acquired by such Investor hereunder in the Closing, such Investor shall be entitled to the full benefit of the Purchase Price adjustment required by this Section 7.1. The term "Shares" as used in this Agreement shall include shares issued to the Investors pursuant to this Section 7.1. (b) Definitions. ----------- (i) For the purposes of this Section 7.1, the term "Per Share Selling Price" as used in this Section 7.1 shall include the amount actually paid by third parties for each share of Common Stock. In the event a fee in excess of five percent (5%) of the gross sale price is paid by the Company in connection with such transaction, any such excess amount shall be deducted from the selling price pro rata to all shares sold in the transaction to arrive at the Per Share Selling Price. A sale of shares of Common Stock shall include the sale or issuance of rights, options, warrants or convertible securities under which the Company is or may become obligated to issue shares of Common Stock (either in the first instance or upon conversion or exercise of any other convertible securities, rights, options or warrants), and in such circumstances the Per Share Selling Price of the Common Stock covered thereby shall also include the exercise or conversion price thereof (in addition to the consideration received by the Company upon such sale or issuance less the excess fee amount as provided above). In case of any such security issued within the MFN Period in a "Variable Rate Transaction" or an "MFN Transaction" (each as defined below), the Per Share Selling Price shall be deemed to be the lowest conversion or exercise price at which such securities are converted or exercised or might have been converted or exercised in the case of a Variable Rate Transaction, or the lowest adjustment price in the case of an MFN Transaction, over the life of such securities. If shares are issued for a consideration other than cash, the Per Share Selling Price shall be the lower of (i) the value of such consideration as determined in good faith by independent certified public accountants mutually acceptable to the Company and the Investors; or (ii) the Market Price upon the closing of such transaction giving rise to the adjustment hereunder. (ii) The term "Variable Rate Transaction" shall mean a transaction in which the Company issues or sells (a) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive other convertible securities or additional shares of Common Stock either (x) at a conversion, exercise or exchange 11 rate or other price that is based upon and/or varies with the trading prices of or quotations for the Common Stock at any time after the initial issuance of such debt or equity securities, or (y) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock (but excluding standard stock split anti-dilution provisions), or (b) any securities of the Company pursuant to an "equity line" structure which provides for the sale, from time to time, of securities of the Company which are registered for resale pursuant to the 1933 Act. (iii) The term "MFN Transaction" shall mean a transaction in which the Company issues or sells any securities in a capital raising transaction or series of related transactions (the "New Offering") which grants to the investor (the "New Investor") the right to receive additional securities based upon future capital raising transactions of the Company on terms more favorable than those granted to the New Investor in the New Offering. (iv) The term "MFN Period" shall mean the period ending twenty (20) months following the Closing Date. (c) Adjustment Mechanism. If an adjustment of the Purchase -------------------- Price is required pursuant to Section 7.1(a), the Company shall deliver to the Investors within ten (10) calendar days of the closing of the transaction giving rise to the adjustment ("Delivery Date") each Investor's pro-rata share of such number of additional shares of Common Stock equal to (i) the aggregate Purchase Price paid by the Investor pursuant to Sections 2.1, divided by the Per Share Selling Price as required under Section 7.1(a), minus (ii) the total number of shares of Common Stock previously delivered to that Investor hereunder; provided however, that the Company shall effect such adjustment in cash, in whole or in part, to the extent required by Section 7.1(d). In the event the Company fails to deliver the additional shares (or cash, as the case may be) by the Delivery Date, the Company shall be liable to the Investors for a penalty equal to 2% of the aggregate Purchase Price adjustment per month (in each instance to such Investor pro rata in accordance with its participation in this offering), payable in Common Stock or cash, at each Investor's election. (d) Limitation on Number of Shares. ------------------------------ (i) If by way of any adjustment required by this Section 7.1, an Investor would receive a number of shares of Common Stock such that the total number of such shares held by the Investor as of the date of such adjustment would be greater than 9.99% of the total outstanding Common Stock of the Company, then the Company shall not effect the adjustment required by this Section to the extent necessary to avoid causing the aforesaid limitation to be exceeded and shall agree to effect such adjustment at the earliest possible time when such adjustment would not exceed the aforementioned limitation. (ii) In the event that the Company would be obligated to issue an amount of shares of Common Stock which, when aggregated with all shares of Common Stock issued to an Investor, would constitute a breach of the Company's obligations 12 under the rules or regulations of the American Stock Exchange as they apply to the Company, or any other principal securities exchange or market upon which the Common Stock is or becomes traded (the "Cap Regulations"), the Company shall not be obligated to issue any such shares of Common Stock. Instead, the Company shall promptly pay to the Investor at an amount equal to 105% of the cash value of the adjustment with respect to such shares which would have exceeded the Cap Regulations. Only shares acquired pursuant to this Agreement will be included in determining whether the limitations would be exceeded for purposes of this Section 7.1(d)(ii). (iii) Notwithstanding anything to the contrary in this Agreement, in no event will the total aggregate number of Shares and Warrant Shares issuable pursuant to this Agreement exceed 19.99% (i.e., 5,630,122 shares ---- of Common Stock) of the outstanding Common Stock of the Company on the date hereof. (e) Capital Adjustments. In case of any stock split or ------------------- reverse stock split, stock dividend, reclassification of the common stock, recapitalization, merger or consolidation, or like capital adjustment affecting the Common Stock of the Company, the provisions of Section 7.1 shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. (f) Exclusions. Section 7.1(a) shall not apply to: ---------- (i) issuances of options to acquire shares or shares of Common Stock by the Company pursuant to the provisions of any existing shareholder-approved option or similar employee benefit plan heretofore adopted by the Company; (ii) sales of shares of Common Stock by the Company upon conversion or exercise of any convertible securities, options or warrants outstanding prior to the date hereof; (iii) issuances by the Company of options or warrants exercisable for a total of up to 250,000 shares of Common Stock to consultants and advisors and the issuance of shares of Common Stock upon exercise of such options and/or warrants; (iv) issuances of securities convertible or exercisable into shares of Common Stock by the Company pursuant to written agreements existing as of the date hereof; or (v) issuances by the Company of additional Securities pursuant to Section 7.1 hereof. 7.2 Limitation on Transactions. -------------------------- (a) From the Closing Date until the date of effectiveness of the Registration Statement covering the Shares issued pursuant to Section 2.1 and the Warrant Shares, the Company will cause all of its directors and executive officers to refrain from making sales of shares of Common Stock into the public market and in addition, without the prior written 13 consent of the Investors (which consent may be withheld in the Investors' discretion), the Company shall not issue or sell or agree to issue or sell for cash any securities in a capital raising transaction other than (i) to existing stockholders of the Company who are both corporate and strategic stockholders of the Company; (ii) in connection with sales described in Section 7.1(f); or (iii) in connection with a bona fide licensing transaction, the primary purpose of which is not to raise capital. (b) Until the expiration of the MFN Period, without the prior written consent of the Investors (which consent may be withheld in the Investors' discretion), the Company shall not (i) issue or sell or agree to issue or sell for cash any securities in a MFN Transaction; or (ii) issue or sell, or agree to issue or sell, for cash any securities in a Variable Rate Transaction, provided, however, that the foregoing limitation on MFN Transactions and Variable Rate Transactions shall not apply to any such securities in total with an aggregate face value outstanding equal to or less than eight percent (8%) of the market value of the Company's issued and outstanding Common Stock. 7.3 Right of the Investors to Participate in Future Transactions. ------------------------------------------------------------ Until the expiration of the MFN Period, the Investors will have a right to participate in future capital raising transactions (which shall not include bona fide licensing transactions, the primary purpose of which is not to raise capital) on the terms and conditions set forth in this Section 7.3. During such period, the Company shall give seven (7) business days advance written notice to the Investor prior to any non-public sale of any of the Company's equity securities or any securities convertible into or exchangeable or exercisable for such securities by providing to the Investors a comprehensive term sheet containing all significant business terms of such a proposed transaction. The Investors shall have the right (pro rata in accordance with the Investors' participation in this offering) to purchase up to twenty-five percent (25%) of the securities which are the subject of such a proposed transaction for the same consideration and on the same terms and conditions as contemplated for such third-party sale. The Investor(s)' rights hereunder must be exercised in writing by the Investor(s) within five (5) business days following receipt of the notice from the Company. If, subsequent to the Company giving notice to an Investor hereunder but prior to the Investor exercising its right to participate (or the expiration of the five-day period without response from the Investor), the terms and conditions of the proposed third-party sale are changed from that disclosed in the comprehensive term sheet provided to such Investor, the Company shall be required to provide a new notice to the Investors hereunder and the Investors shall have the right, which must be exercised within five (5) business days of such new notice, to exercise their rights to purchase the securities on such changed terms and conditions as provided hereunder. In the event the Investors do not exercise their rights hereunder, or affirmatively decline to engage in the proposed transaction with the Company, then the Company may proceed with such proposed transaction on the same (or substantially similar, provided that the Investor is given at least 24 hours notice of any change and the opportunity within that 24 hour period to exercise its right to participate in accordance herewith) terms and conditions as noticed to the Investors (assuming the Investors have consented to the transaction, if required, pursuant to Section 7.2 of this Agreement). The rights and obligations of this Section 7.3 shall in no way diminish the other rights of the Investors pursuant to this Section 7. 7.4 Opinion of Counsel. On or prior to the Closing Date, the Company ------------------ will deliver to the Investors the opinion of legal counsel to the Company, in form and substance 14 reasonably acceptable to the Investors, addressing those legal matters set forth in Schedule 7.4 hereto. ------------ 7.5 Reservation of Common Stock Pursuant to Section 7.1 and Exercise ---------------------------------------------------------------- of Warrants. The Company hereby agrees at all times to reserve and keep - ----------- available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal the number of shares sufficient to permit the exercise of the Warrants in accordance with the terms of the Warrants. In addition, as soon as such number is determinable, the Company agrees to reserve such shares as may be necessary to permit the issuances to the Investors required by Section 7.1. 7.6 Reports. In the event the Company no longer files periodic ------- reports with the SEC and for so long as the Investors beneficially own any of the Securities, the Company will furnish to the Investors the following reports, each of which shall be provided to the Investors by air mail: (a) Quarterly Reports. Consolidated balance sheets of the ----------------- Company as at the end of each fiscal quarter and the related consolidated statements of operations, stockholders' equity and cash flows for such period and for the portion of the Company's fiscal year ended on the last day of such quarter, all in reasonable detail and certified by a principal financial officer of the Company to have been prepared in accordance with generally accepted accounting principles, subject to year-end and audit adjustments. (b) Annual Reports. Consolidated balance sheets of the Company -------------- as of the end of each fiscal year and the related consolidated statements of earnings, stockholders' equity and cash flows for such year, all in reasonable detail and accompanied by the report on such consolidated financial statements of an independent certified public accountant selected by the Company and reasonably satisfactory to the Investor. (c) Documents Sent to Stockholders. Copies of all notices, proxy ------------------------------ statements, financial statements, reports and documents as the Company shall send or make available generally to its stockholders, promptly after providing same to the stockholders. (d) Other Information. Such other information relating to the ----------------- Company as from time to time may reasonably be requested by the Investors provided the Company produces such information in its ordinary course of business, and further provided that the Company, solely in its own discretion, determines that such information is not confidential in nature and disclosure to the Investors would not be harmful to the Company. 7.7 Press Releases. Any press release or other publicity concerning -------------- this Agreement or the transactions contemplated by this Agreement shall be submitted to the Investors for comment at least two (2) business days prior to issuance, unless the release is required to be issued within a shorter period of time by law or pursuant to the rules of a national securities exchange. 15 7.8 No Conflicting Agreements. The Company will not take any action, ------------------------- enter into any agreement or make any commitment that would conflict or interfere in any material respect with the obligations to the Investors under the Agreements. 7.9 Insurance. So long as the Investors beneficially own any --------- Securities, the Company shall not materially reduce the insurance coverages described in Section 4.20, other than insurance for discontinued products. 7.10 Compliance with Laws. So long as the Investors beneficially own -------------------- any Securities, the Company will use reasonable efforts to comply with all applicable laws, rules, regulations, orders and decrees of all governmental authorities, except to the extent non-compliance (in one instance or in the aggregate) would not have a Material Adverse Effect. 7.12 Listing of Underlying Shares and Related Matters. The Company ------------------------------------------------ hereby agrees, promptly following the Closing of the transactions contemplated by this Agreement, to take such action to cause the Shares and the Warrant Shares to be listed on the American Stock Exchange as promptly as possible but no later than the effective date of the registration contemplated by the Registration Rights Agreement. The Company further agrees that if the Company applies to have its Common Stock or other securities traded on any other principal stock exchange or market, it will include in such application the Warrant Shares and will take such other action as is necessary to cause such Common Stock to be so listed. For so long as the Investors beneficially own any of the Securities, the Company will use its best efforts to continue the listing and trading of its Common Stock on the American Stock Exchange, Nasdaq National Market, Nasdaq SmallCap Market or New York Stock Exchange and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of such exchange, as applicable, to ensure the continued eligibility for trading of the Shares and the Warrant Shares thereon. 7.13 Corporate Existence. So long as the Investors beneficially own ------------------- any of the Shares or Warrants, the Company shall maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, as long as the surviving or successor entity in such transaction (a) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith, regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to fulfill its obligations hereunder and effect the exercise in full of all Warrants outstanding as of the date of such transaction; (b) has no legal, contractual or other restrictions on its ability to perform the obligations of the Company hereunder and under the agreements and instruments entered into in connection herewith; and (c) is a publicly traded corporation whose common stock and the shares of capital stock issuable upon exercise of the Warrants are (or would be upon issuance thereof) listed for trading on the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange or other recognized foreign exchange; provided, however, that in the event of a merger or other transaction as a result of which the Company is not a surviving public company, the Investor shall have the option to require the Company to repurchase all of the shares of Common Stock (and Common Stock equivalents) then held by the Investor at a price equal to 120% of the adjusted Purchase Price for the shares. 16 8. Survival. All representations, warranties, covenants and agreements -------- contained in this Agreement shall be deemed to be representations, warranties, covenants and agreements as of the date hereof and shall survive the execution and delivery of this Agreement for a period of two years from the date of this Agreement; provided, however, that the provisions contained in Section 7 hereof shall survive in accordance therewith. 9. Miscellaneous. ------------- 9.1 Successors and Assigns. This Agreement may not be assigned by a ---------------------- party hereto without the prior written consent of the other party hereto, except that without the prior written consent of the Company, but after notice duly given, an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some portion or all of its Shares in a private transaction, and without the prior written consent of the Investors, but after notice duly given and in compliance with this Agreement, the Company may assign its rights and delegate its duties hereunder to any successor-in-interest corporation in the event of a merger or consolidation of the Company with or into another corporation, or any merger or consolidation of another corporation with or into the Company that results directly or indirectly in an aggregate change in the ownership or control of more than 50% of the voting rights of the equity securities of the Company, or the sale of all or substantially all of the Company's assets. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.3 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.4 Notices. Unless otherwise provided, any notice required or ------- permitted under this Agreement shall be given in writing and shall be deemed effectively given only upon delivery to each party to be notified by (i) personal delivery, (ii) telex or telecopier, upon receipt of confirmation of complete transmittal, or (iii) an internationally recognized overnight air courier, addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days' advance written notice to the other party: If to the Company: Sheffield Pharmaceuticals, Inc. 17 425 South Woodsmill Road, Suite 270 St. Louis, MO 63017-3441 Attn: President Fax: 314/579-9799 If to the Investors, to the addresses set forth on the signature pages hereto. 9.5 Expenses. The parties hereto shall pay their own costs and -------- expenses in connection herewith, except that the Company shall pay to Tail Wind, Inc. a sum equal to 0.75% of the aggregate Purchase Price as and for reimbursement for due diligence expenses incurred in connection herewith and such amount shall be paid at Closing from gross proceeds of the offering. 9.6 Amendments and Waivers. Any term of this Agreement may be ---------------------- amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company. 9.7 Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.8 Entire Agreement. This Agreement, including the Exhibits and ---------------- Schedules hereto, and the Registration Rights Agreement constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof. 9.9 Further Assurances. The parties shall execute and deliver all ------------------ such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfilment of the agreements herein contained. 9.10 Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company: SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Loren G. Peterson ----------------------------------- President and Chief Executive Officer The Investor: The Tail Wind Fund Ltd. By: /s/ The Tail Wind Fund Ltd. ----------------------------------- Aggregate Purchase Price: 2,250,000 --------- Number of Shares of Common Stock: 626,950 ------- Number of Warrants: 112,500 -------- (50,000 Warrants for each $1,000,000 of aggregate Purchase Price) Effective per share Purchase Price of Shares: $3.5888 ------ Exercise price of Warrants: $4.983 ----- Address for Notice: The Tail Wind Fund Ltd. MeesPierson (Bahamas) Ltd. Attn: Ms. Rolle Windemere House, 404 East Bay Street P.O. Box SS 5539, Nassau, Bahamas Tel: 242/393-8777 Facsimile: 242/393-9021 with a copy to: David Crook, Esq. c/o EASI 1st Floor, No. 1 Regent Street London, SW1Y 4NS UK Telephone: 44-207-468-7660 Facsimile: 44-207-468-7657 and with a copy to: Bryan Cave LLP 700 Thirteenth Street, NW Washington, DC 20005 Attn: LaDawn Naegle Telephone: 202/508-6046 Facsimile: 202/508-6200 19 EX-4.2 3 0003.txt REGISTRATION RIGHTS AGREEMENT DATED 12/29/2000 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (the "Agreement") is made and entered into as of this 29th day of December, 2000 by and between Sheffield Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and the "Investors" named in that Purchase Agreement of even date herewith by and between the Company and the Investors (the "Purchase Agreement"). The parties hereby agree as follows: 1. Certain Definitions. ------------------- As used in this Agreement, the following terms shall have the following meanings: "Additional Registrable Securities" shall mean the shares of Common --------------------------------- Stock, if any, issued to the Investors pursuant to Section 7.1 of the Purchase Agreement. "Common Stock" shall mean the Company's Common Stock, par value $0.01 ------------ per share. "Investors" shall mean the purchasers identified in the Purchase --------- Agreement and any affiliate or permitted transferee of any Investor who is a subsequent holder of any Warrants, Registrable Securities or Additional Registrable Securities. "Prospectus" shall mean the prospectus included in any Registration ---------- Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities or Additional Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Register," "registered" and "registration" refer to a registration -------- ---------- ------------ made by preparing and filing a registration statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" shall mean the shares of Common Stock issued ---------------------- and issuable to the Investors pursuant to the Purchase Agreement (other than additional shares of Common Stock issuable pursuant to Section 7.1 of the Purchase Agreement) and issuable upon the exercise of the Warrants, and any other securities issued or issuable with respect to or in exchange for Registrable Securities. "Registration Statement" shall mean any registration statement of the ---------------------- Company filed under the 1933 Act that covers the resale of any of the Registrable Securities or Additional Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. "SEC" means the U.S. Securities and Exchange Commission. --- "1933 Act" means the Securities Act of 1933, as amended, and the rules -------- and regulations promulgated thereunder. "1934 Act" means the Securities Exchange Act of 1934, as amended, and -------- the rules and regulations promulgated thereunder. "Warrants" mean warrants to purchase shares of Common Stock issued to -------- the Investors pursuant to the Purchase Agreement, the form of which Warrants is attached to the Purchase Agreement as Exhibit A. 2. Registration. ------------ (a) Registration Statements. ----------------------- (i) Registrable Securities. Promptly following the closing of ---------------------- the purchase and sale of Common Stock and Warrants contemplated by Section 2 of the Purchase Agreement (the "Closing Date") (but no later than thirty (30) days after the Closing Date), the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Registrable Securities, subject to the Investors' consent), covering the resale of the Registrable Securities in an amount equal to the number of shares of Common Stock issued to the Investors on the Closing Date plus the number of shares of Common Stock necessary to permit the exercise in full of the Warrants. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the Rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall use its reasonable efforts to obtain from each person who now has piggyback registration rights a waiver of those rights with respect to the Registration Statement. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investors and their counsel prior to its filing or other submission. (ii) Additional Registrable Securities. Upon the written demand --------------------------------- of any Investor following the issuance of any additional shares of Common Stock to such Investor pursuant to Section 7.1, of the Purchase Agreement, the Company shall prepare and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Additional Registrable Securities, subject to the Investor's consent) covering the resale of the Additional Registrable Securities issued to all Investors and, at the option of the Company, any additional amounts of Additional Registrable Securities that the Company reasonably anticipates it could be required to register. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the Rules promulgated thereunder 2 (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Additional Registrable Securities. The Company shall use its reasonable efforts to obtain from each person who now has piggyback registration rights a waiver of those rights with respect to the Registration Statement. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Investor and its counsel prior to its filing or other submission. (iii) Notwithstanding anything to the contrary contained herein, the Company shall have the option to consolidate two or more of the registrations required by sections (i) and (ii) above into a single Registration Statement provided that any such consolidating Registration Statement otherwise complies with and is subject to the provisions of this Agreement. (b) Expenses. The Company will pay all expenses associated with each -------- registration, including the Investors' reasonable expenses in connection with the registration but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals. (c) Effectiveness. ------------- (i) The Company shall use its best efforts to have each Registration Statement declared effective as soon as practicable. If (A) the Registration Statement covering Registrable Securities is not declared effective by the SEC within three (3) months following the Closing Date or the Registration Statement covering Additional Registrable Securities is not declared effective by the SEC within three (3) months following the demand of an Investor relating to the Additional Registrable Securities covered thereby, or with respect to any of the foregoing a Registration Statement which is subject to full review by the SEC staff (which shall not include a mere "plain English" review), within four (4) months following the Closing Date or demand, as the case may be (each, a "Registration Date"), (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement for any reason (including without limitation by reason of a stop order, or the Company's failure to update the Registration Statement) but except as excused pursuant to subparagraph (ii) below, or (C) the Common Stock generally or the Registrable Securities specifically are not listed or included for quotation on the American Stock Exchange, the Nasdaq National Market System, the Nasdaq Small Cap Market, or the New York Stock Exchange then the Company will make pro rata payments to each Investor, as liquidated damages (the "Liquidated Damages Payments") and not as a penalty, in an amount equal to 2% of the aggregate amount paid by such Investor on the Closing Date to the Company for shares of Common Stock still held by such Investor for any month or pro rata for any portion thereof following the Registration Date during which any of the events described in (A) or (B) or (C) above occurs and is continuing (the "Blackout Period"), provided, however, that in the case of the events described in (A) or (B) above with respect only to the Additional Registrable Securities, such penalty shall equal 2% of the aggregate market value of such Additional Registrable Securities for the duration of the Blackout Period. Each such payment shall be due and payable within five (5) days of the end of each month (or ending portion thereof) of the 3 Blackout Period. Such payments shall be in partial compensation to the Investors, and shall not constitute the Investors' exclusive remedy for such events. The Blackout Period shall terminate upon (x) the effectiveness of the applicable Registration Statement in the case of (A) and (B) above; (y) listing or inclusion of the Common Stock on the American Stock Exchange, the Nasdaq National Market System, the Nasdaq Small Cap Market or the New York Stock Exchange in the case of (C) above; and (z) in the case of the events described in (A) or (B) above, the earlier termination of the Registration Period (as defined in Section 3(a) below). The amounts payable as liquidated damages pursuant to this paragraph shall be payable, at the option of the Investors, in lawful money of the United States or in shares of Common Stock at the Market Price (as defined in the Purchase Agreement), and amounts payable as liquidated damages shall be paid monthly within two (2) business days of the last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period. Amounts payable as liquidated damages hereunder shall cease when an Investor no longer holds Warrants or Registrable Securities or Additional Registrable Securities, as applicable. (ii) For not more than ten (10) consecutive trading days or for a total of not more than forty (40) trading days in any twelve (12) month period, the Company may suspend sales under any Registration Statement contemplated by this Agreement in the event it desires in good faith and in the best interests of the Company to delay the disclosure of material non-public information concerning the Company (an "Allowed Delay"); provided that the Company shall promptly (a) notify the Investors in writing of the existence of (but in no event, without the prior written consent of an Investor, shall the Company disclose to such Investor any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay, and (b) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay (upon receipt of which advisory the Investors shall cease all such sales until the Registration Statement and related Prospectus have been amended or supplemented as appropriate, which the Company agrees to do as promptly as practicable). The duration of the MFN Period provided for in the Purchase Agreement will be extended by the number of days of any and all Allowed Delays. (d) Underwritten Offering. If any offering pursuant to a Registration --------------------- Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Company shall have the right to select an investment banker and manager to administer the offering, which investment banker or manager shall be reasonably satisfactory to the Investors. 3. Company Obligations. The Company will use its best efforts to effect the ------------------- registration of the Registrable Securities and the Additional Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible: (a) use its best efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities or Additional Registrable Securities, as the case may be, covered by such Registration Statement, as amended from time to time, have been sold, and (ii) the date on which all Registrable Securities or Additional Registrable Securities, as the case may be, may be sold pursuant to Rule 144(k) (the "Registration Period"); 4 (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the period specified in Section 3(a) and to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all Registrable Securities and Additional Registrable Securities; provided that, at least five (5) business days prior to the filing of a Registration Statement or Prospectus, or, at least two (2) business days prior to filing any amendments or supplements thereto, the Company will furnish to the Investors copies of all documents proposed to be filed, which documents will be subject to the comments of the Investors and their counsel, which must be received within such five (5) or two (2) business day period, as applicable. (c) not file any Registration Statement or amendment or supplement thereto to which Investor's counsel reasonably objects except such filings as are required to be made pursuant to law or the rules and regulations of the American Stock Exchange, or other securities exchange, interdealer quotation system or market on which the Company's securities are then listed; (d) furnish to the Investors and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Investor may reasonably request in order to facilitate the disposition of the Registrable Securities, and Additional Registrable Securities owned by such Investor; (e) in the event the Company selects an underwriter for the offering, the Company shall enter into and perform its reasonable obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriter of such offering; (f) if required by the underwriter, or if any Investor is described in the Registration Statement as an underwriter, the Company shall furnish, on the effective date of the Registration Statement, on the date that Registrable Securities or Additional Registrable Securities, as applicable, are delivered to an underwriter, if any, for sale in connection with the Registration Statement and at periodic intervals thereafter from time to time on request, (i) an opinion, dated as of such date, from independent legal counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriter and the Investors and (ii) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriter and the Investors; 5 (g) make reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness and, if such order is issued, obtain the withdrawal of any such order at the earliest possible moment; (h) furnish to each Investor at least five copies of the Registration Statement and any post-effective amendment thereto, including financial statements and schedules by air mail within two business days of the effective date thereof; (i) prior to any public offering of Registrable Securities or Additional Registrable Securities, use its reasonable best efforts to register or qualify or cooperate with the Investors and their counsel in connection with the registration or qualification of such Registrable Securities or Additional Registrable Securities, as applicable, for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Investor and do any and all other reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities or Additional Registrable Securities covered by the Registration Statement; (j) cause all Registrable Securities or Additional Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed; (k) immediately notify the Investors, at any time when a Prospectus relating to the Registrable Securities or Additional Registrable Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such holder, promptly prepare (subject to any Allowed Delay) and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities or Additional Registrable Securities, as applicable, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (l) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities and Additional Registrable Securities, if applicable, hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act (for the purpose of this subsection 3(l), "Availability Date" means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the 6 Company's fiscal year, "Availability Date" means the 90th day after the end of such fourth fiscal quarter). 4. Due Diligence Review; Information. The Company shall make --------------------------------- available, during normal business hours, for inspection and review by the Investors, advisors to and representatives of the Investors (who may or may not be affiliated with the Investors and who are reasonably acceptable to the Company), any underwriter participating in any disposition of Common Stock on behalf of the Investors pursuant to the Registration Statement or amendments or supplements thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by the Investors or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investors and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. The Company shall not disclose material nonpublic information to the Investors, or to advisors to or representatives of the Investors, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review. The Company may, as a condition to disclosing any material nonpublic information hereunder, require the Investors' advisors and representatives to enter into a confidentiality agreement (including an agreement with such advisors and representatives prohibiting them from trading in Common Stock during such period of time as they are in possession of material nonpublic information) in form reasonably satisfactory to the Company and the Investors. Nothing herein shall require the Company to disclose material nonpublic information to the Investors or their advisors or representatives. 5. Obligations of the Investors. ---------------------------- (a) Each Investor shall furnish in writing to the Company such information regarding itself, the Registrable Securities or Additional Registrable Securities, as applicable, held by it and the intended method of disposition of the Registrable Securities or Additional Registrable Securities, as applicable, held by it, as shall be reasonably required to effect the registration of such Registrable Securities or Additional Registrable Securities, as applicable, and shall execute such documents in connection with such registration as the Company may reasonably request. At least fifteen (15) calendar days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from such Investor if such Investor elects to have any of the Registrable Securities or Additional Registrable Securities included in the Registration Statement. An Investor shall provide such information to the Company at least five (5) calendar days prior to the first anticipated filing date of such Registration Statement if such Investor elects 7 to have any of the Registrable Securities or Additional Registrable Securities included in the Registration Statement. (b) Each Investor, by its acceptance of the Registrable Securities and Additional Registrable Securities, if any, agrees to cooperate with the Company in connection with the preparation and filing of Registration Statement hereunder, unless such Investor has notified the Company in writing of its election to exclude all of its Registrable Securities or Additional Registrable Securities, as applicable, from the Registration Statement. (c) In the event the Company, at the request of the Investors, determines to engage the services of an underwriter, such Investor agrees to enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the dispositions of the Registrable Securities or Additional Registrable Securities, as applicable. (d) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event rendering a Registration Statement no longer effective, such Investor will immediately discontinue disposition of Registrable Securities or Additional Registrable Securities pursuant to the Registration Statement covering such Registrable Securities or Additional Registrable Securities, until the Investor's receipt of the copies of the supplemented or amended prospectus filed with the SEC and declared effective and, if so directed by the Company, the Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in the Investor's possession of the prospectus covering the Registrable Securities or Additional Registrable Securities, as applicable, current at the time of receipt of such notice. (e) No Investor may participate in any third party underwritten registration hereunder unless it (i) agrees to sell the Registrable Securities or Additional Registrable Securities, as applicable, on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to the terms of this Agreement. 6. Indemnification. --------------- (a) Indemnification by Company. The Company agrees to indemnify -------------------------- and hold harmless, to the fullest extent permitted by law the Investors, each of their officers, directors, partners and employees and each person who controls the Investors (within the meaning of the 1933 Act) against all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorney's fees) and expenses imposed on such person caused by (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or any preliminary prospectus or any amendment or supplement thereto or any 8 omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are based upon any information furnished in writing to the Company by such Investors, expressly for use therein, or (ii) any violation by the Company of any federal, state or common law, rule or regulation applicable to the Company in connection with any Registration Statement, Prospectus or any preliminary prospectus, or any amendment or supplement thereto, and shall reimburse in accordance with subparagraph (c) below, each of the foregoing persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claims. The foregoing is subject to the condition that, insofar as the foregoing indemnities relate to any untrue statement, alleged untrue statement, omission or alleged omission made in any preliminary prospectus or Prospectus that is eliminated or remedied in any Prospectus or amendment or supplement thereto, the above indemnity obligations of the Company shall not inure to the benefit of any indemnified party if a copy of such corrected Prospectus or amendment or supplement thereto had been made available to such indemnified party and was not sent or given by such indemnified party at or prior to the time such action was required of such indemnified party by the 1933 Act and if delivery of such Prospectus or amendment or supplement thereto would have eliminated (or been a sufficient defense to) any liability of such indemnified party with respect to such statement or omission. Indemnity under this Section 5(a) shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the permitted transfer of the Registrable Securities and Additional Registrable Securities. (b) Indemnification by Holder. In connection with any registration ------------------------- pursuant to the terms of this Agreement, each Investor will furnish to the Company in writing such information as the Company reasonably requests concerning the holders of Registrable Securities and Additional Registrable Securities or the proposed manner of distribution for use in connection with any Registration Statement or Prospectus and agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney's fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto and that such information was substantially relied upon by the Company in preparation of the Registration Statement or Prospectus or any amendment or supplement thereto. In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Investor and the amount of any damages such holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities or Additional Registrable Securities included in the Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any person entitled to -------------------------------------- indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume 9 the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification -------- hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party -------- ------- to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) Contribution. If for any reason the indemnification provided ------------ for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities or Additional Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities or Additional Registrable Securities giving rise to such contribution obligation. 7. Miscellaneous. ------------- (a) Amendments and Waivers. This Agreement may be amended only by ---------------------- a writing signed by the parties hereto. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of each Investor. (b) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made as set forth in Section 9.4 of the Purchase Agreement. 10 (c) Assignments and Transfers by Investors. This Agreement and all -------------------------------------- the rights and obligations of the Investors hereunder may not be assigned or transferred to any transferee or assignee except to an affiliate or permitted transferee of an Investor who is a subsequent holder of any Warrants, Registrable Securities or Additional Registrable Securities. (d) Assignments and Transfers by the Company. This Agreement may not ---------------------------------------- be assigned by the Company without the prior written consent of each Investor, except that without the prior written consent of the Investors, but after notice duly given, the Company shall assign its rights and delegate its duties hereunder to any successor-in-interest corporation, and such successor-in- interest shall assume such rights and duties, in the event of a merger or consolidation of the Company with or into another corporation or the sale of all or substantially all of the Company's assets. (e) Benefits of the Agreement. The terms and conditions of this ------------------------- Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (g) Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (h) Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms to the fullest extent permitted by law. (i) Further Assurances. The parties shall execute and deliver all ------------------ such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained. (j) Entire Agreement. This Agreement is intended by the parties as a ---------------- final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (k) Applicable Law. This Agreement shall be governed by, and -------------- construed in accordance with, the laws of the State of New York without regard to principles of conflicts of law. 11 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. The Company: SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Loren G.Peterson ------------------------------------ President and Chief Executive Officer The Investors: THE TAIL WIND FUND LTD. By: /s/ The Tail Wind Fund Ltd. ------------------------------------ 12 EX-4.3 4 0004.txt WARRANT DATED 12/29/2000 EXHIBIT 4.3 NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. VOID AFTER 5:00 P.M. EASTERN TIME ON DECEMBER 29, 2005 ("EXPIRATION DATE"). SHEFFIELD PHARMACEUTICALS, INC. WARRANT TO PURCHASE 112,500 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE ("Common Stock") For VALUE RECEIVED, The Tail Wind Fund Ltd. ("Warrantholder"), is entitled to purchase, subject to the provisions of this Warrant, from Sheffield Pharmaceuticals, Inc., a Delaware corporation ("Company"), at any time not later than 5:00 P.M., Eastern time, on the Expiration Date, at an exercise price per share equal to $4.983 (the exercise price in effect being herein called the "Warrant Price"), 112,500 shares ("Warrant Shares") of Common Stock. The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein. Section 1. Registration. The Company shall maintain books for the transfer ------------ and registration of the Warrant. Upon the initial issuance of the Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder. Section 2. Transfers. As provided herein, this Warrant may be transferred --------- only pursuant to a registration statement filed under the Securities Act of 1933, as amended ("Securities Act") or an exemption from such registration; provided, however, this Warrant may only be transferred to an affiliate of the Warrantholder. Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company. Section 3. Exercise of Warrant. Subject to the provisions hereof, the ------------------- Warrantholder may exercise this Warrant in whole or in part at any time upon surrender of the Warrant, together with delivery of the duly executed Warrant exercise form attached hereto (the "Exercise Agreement") and payment by cash, certified check or wire transfer of funds for the Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof). The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered (or evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Company), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding seven (7) business days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. Each exercise hereof shall constitute the representation and warranty of the Warrantholder to the Company that the representations and warranties contained in Article 5 of the Purchase Agreement (as defined below) are true and correct in all material respects with respect to the Warrantholder as of the time of such exercise. Section 4. Compliance with the Securities Act of 1933. Neither this ------------------------------------------ Warrant nor the Common Stock issued upon exercise hereof nor any other security issued or issuable upon exercise of this Warrant may be offered, sold or transferred except as provided in this agreement and in conformity with the Securities Act, and then only against receipt of an agreement of such person to whom such offer of sale is made to comply with the provisions of this Section 4 with respect to any resale or other disposition of such security. The Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary. Section 5. Payment of Taxes. The Company will pay any documentary stamp ---------------- taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered holder of this Warrant in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid. The holder shall be responsible for income taxes due under federal, state or other law, if any such tax is due. Section 6. Mutilated or Missing Warrants. In case this Warrant shall be ----------------------------- mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant 2 lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company. Section 7. Reservation of Common Stock. The Company hereby represents and --------------------------- warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by the Warrant. The Company agrees that all Warrant Shares issued upon exercise of the Warrant shall be, at the time of delivery of the certificates for suchWarrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company. Section 8. Adjustments. Subject and pursuant to the provisions of this ----------- Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter. (a) If the Company shall at any time or from time to time while the Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event upon payment of a Warrant Price that has been adjusted to reflect a fair allocation of the economics of such event to the Warrantholder. Such adjustments shall be made successively whenever any event listed above shall occur. (b) If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company's assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the 3 Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitations, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise thereof. The Company shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the holder of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions. (c) In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price per share of Common Stock (as defined below), less the fair market value (as determined by the Company's Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock. "Market Price" shall mean the average of the closing bid prices of the Common Stock over the twenty (20) consecutive trading days preceding the date in question. Such adjustment shall be made successively whenever such a payment date is fixed. (d) During the term of this Warrant, the Warrant Price shall be subject to adjustment on a basis consistent with the provisions of Section 7.1(a) of the Purchase Agreement by and between the Company and the Investors named therein dated December 29, 2000 (the "Purchase Agreement"), except that the Warrant Price shall be adjusted to a price equal to 125% of the adjusted Purchase Price, if such adjustment to the Warrant Price would result in a lower Warrant Price and that the adjustment shall be made regardless of whether the Holder of this Warrant then holds any other shares of Common Stock subject to adjustment under the terms of Section 7.1(a) of the Purchase Agreement. Such adjustments shall be made successively whenever required regardless of the Holder's then Common Stock ownership. 4 (e) An adjustment shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment. (f) In the event that, as a result of an adjustment made pursuant to Section 8(a), the holder of this Warrant shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant. Section 9. Fractional Interest. The Company shall not be required to issue ------------------- fractions of Warrant Shares upon the exercise of the Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon the exercise of the Warrant (or specified portions thereof), the fractional share shall be disregarded and the number of shares to be issued upon exercise shall be the number of whole shares only. Section 10. Benefits. Nothing in this Warrant shall be construed to give -------- any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder. Section 11. Notices to Warrantholder. Upon the happening of any event ------------------------ requiring an adjustment of the Warrant Price, the Company shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. In the event of a dispute with respect to any such calculation, the certificate of the Company's independent certified public accountants shall be conclusive evidence of the correctness of any computation made, absent manifest error. Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment. Section 12. Identity of Transfer Agent. The Transfer Agent for the Common -------------------------- Stock is Computershare Investor Services. Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrantholder a statement setting forth the name and address of such transfer agent. 5 Section 13. Notices. Any notice pursuant hereto to be given or made by the ------- Warrantholder to or on the Company shall be sufficiently given or made if sent by certified mail, return receipt requested, postage prepaid, addressed as follows: Sheffield Pharmaceuticals, Inc. 425 South Woodsmill Road Suite 270 St. Louis, MO 63017-3441 Attn: President Fax: 314-579-9799 or such other address as the Company may specify in writing by notice to the Warrantholder complying as to delivery with the terms of this Section 13. Any notice pursuant hereto to be given or made by the Company to or on the Warrantholder shall be sufficiently given or made if personally delivered or if sent by an internationally recognized courier services by overnight or two-day service, to the address set forth on the books of the Company or, as to each of the Company and the Warrantholder, at such other address as shall be designated by such party by written notice to the other party complying as to delivery with the terms of this Section 13. All such notices, requests, demands, directions and other communications shall, when sent by courier be effective two (2) days after delivery to such courier as provided and addressed as aforesaid. Section 14. Registration Rights. The initial holder of this Warrant is ------------------- entitled to the benefit of certain registration rights in respect of the Warrant Shares as provided in the Registration Rights Agreement dated as of as of December 29, 2000. Section 15. Successors. All the covenants and provisions hereof by or for ----------- the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder. Section 16. Governing Law. This Warrant shall be deemed to be a contract ------------- made under the laws of the State of New York, without giving effect to its conflict of law principles, and for all purposes shall be construed in accordance with the laws of said State. IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed, as of the day and year first above written. SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Loren G. Peterson ------------------------------------- President and Chief Executive Officer 6 Sheffield Pharmaceuticals, Inc. WARRANT EXERCISE FORM To: Sheffield Pharmaceuticals, Inc. This undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant ("Warrant") for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, _______________ shares of Common Stock ("Warrant Shares") provided for therein, and requests that certificates for the Warrant Shares be issued as follows: ____________________________________ Name ____________________________________ Address ____________________________________ ____________________________________ Federal Tax ID or Social Security No. and delivered by certified mail to the above address, or electronically (provide DWAC Instructions:_________), or other (specify: ______________________________________). and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrantholder or the undersigned's Assignee as below indicated and delivered to the address stated below. By exercising the rights represented by this Warrant, the undersigned hereby certifies that, as of the date of exercise of this Warrant, the representations and warranties contained in Section 5 of the Purchase Agreement are true and correct in all material respects with respect to the undersigned. Dated:___________________, ____ Note: The signature must correspond with Signature:_______________________ the name of the registered holder as written on the first page of the Warrant in every ______________________________ particular, without alteration or enlargement Name (please print) or any change whatever, unless the Warrant has been assigned. ______________________________ ______________________________ Address ______________________________ Federal Identification or Social Security No. Assignee: ______________________________ ______________________________ ______________________________ ______________________________ 7 EX-4.6 5 0005.txt WARRANT DATED 9/17/1998 EXHIBIT 4.6 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FORM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON THE HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR OTHER STATE SECURITIES LAW. COMMON STOCK PURCHASE WARRANT For the Purchase of 100,000 Shares of Common Stock of SHEFFIELD PHARMACEUTICALS, INC. (A Delaware Corporation) 1. Warrant. ------- THIS CERTIFIES THAT, for value received, Continental Capital & Equity Corporation (the "Holder"), as registered owner of this Warrant, is entitled during the period commencing March 17, 1999 and ending at 5:00 pm., New York City time, on the earlier to occur of (i) the third anniversary of the date hereof and (ii) the first anniversary of the date that the shares of Common Stock issuable upon exercise of this Warrant (the "Warrant Shares") are first registered for resale pursuant to an effective registration statement (such earlier date being the " Expiration Date"), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to One Hundred Thousand (100,000) shares of Common Stock, par value $.01 per share (the "Common Stock"), of Sheffield Pharmaceuticals, Inc., a Delaware corporation (the "Company") in accordance with the terms hereof. The exercise price (the "Exercise Price") per share of Common Stock shall be $2.25 per share. 2. Exercise. -------- In order to exercise this Warrant, the exercise form attached hereto must be duly executed, completed and delivered to the Company, together with this Warrant and payment of the applicable Exercise Price for the shares of the common Stock being purchased. If the rights represented hereby shall not have been exercised before 5:oo p.m., New York City time, on the Termination Date, this Warrant shall become and be void and without further force or effect and all rights represented hereby shall cease and expire. 3. Transfer. -------- 3.1 General Restrictions. The registered Holder of this Warrant, by -------------------- his acceptance hereof, agrees that it shall not sell, transfer or assign or hypothecate this Warrant without the prior written consent of the Company. The shares of Common Stock issuable upon exercise of this Warrant shall be subject to the transfer restrictions set forth below. 3.2 Restrictions Imposed by the Securities Act. The Holder by ------------------------------------------ accepting this Warrant confirms that the Warrants were acquired by the Holder solely for investment and with no present intention to distribute any Warrants or securities issuable upon the exercise hereof only in compliance with applicable Federal and state securities laws. The shares of Common Stock purchased upon exercise of this Warrant shall not be transferred unless and until (i) the company has received the opinion of counsel for the Holder that such shares may be sold pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), the availability of which is established to the reasonable satisfaction of the Company, or (ii) a registration statement relating to such shares has been filed by the Company and declared effective by the Securities and Exchange Commission ("the Commission") Each certificate for securities purchased upon exercise of this Warrant shall bear a legend substantially as follows unless such securities have been registered under the Securities Act: "The securities represented by this certificate have not been registered under the Securities Act of 1933 ("the Act"). The securities may not be offered for sale, sold or otherwise transferred except (i) pursuant to an effective registration statement under the Act or (ii) pursuant to an exemption from registration under the Act in respect of which the Company has received an opinion of counsel satisfactory to the Company to such effect. Copies of the agreement covering both -2- the purchase of the securities and restricting their transfer may be obtained at no cost by written request made by the holder of record of this certificate to the Secretary of the Company at the principal executive offices of the Company." 4. New Warrants to be Issued. ------------------------- 4.1 Partial Exercise or Transfer. Subject to the restrictions in ---------------------------- Section 3 hereof, this Warrant may be exercised in whole or in part. In the event of the exercise hereof in part, upon surrender of this Warrant for cancellation, together with the duly executed exercise form, the Company shall cause to be delivered to the Holder without charge a new warrant or new warrants of like tenor with this Warrant in the name of the Holder evidencing the right to purchase, in the aggregate, the remaining number of underlying shares of Common Stock purchasable hereunder after giving effect to any such partial exercise. 4.2 Lost Certificate. Upon receipt by the Company of evidence ---------------- satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and of an indemnification in favor of the Company, reasonably satisfactory to it, the Company shall execute and deliver a new warrant of like tenor and date. Any such new warrants executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute an additional contractual obligation on the part of the Company. 5. Reservation. The Company shall at all times reserve and keep available out ----------- of its authorized shares of Common Stock, solely for the purpose of issuance upon exercise of the Warrant, such number of authorized but unissued shares of Common Stock, free from preemptive rights, as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrant and payment of the applicable Exercise Price therefor, all shares of Common Stock shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights of any stockholder. The Company further covenants and agrees that upon exercise of this Warrant and payment of the applicable Exercise Price therefor, all shares of Common Stock shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights of any stockholder. If the Common Stock is then listed on a national securities exchange, all shares of Common Stock issued upon exercise of this Warrant shall also be duly listed thereon. 6. Adjustments. The Exercise Price and the number of shares purchasable ----------- hereunder are subject to adjustment from to time as follows. 6.1 Merger, Sale of Assets, Etc. If at any time while this Warrant, --------------------------- or any portion thereof, is outstanding and unexpired -3- there shall be (i) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company with or into another corporation in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then as a part of such reorganization, merger, consolidation, sale or transfer lawful provision shall be made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 6. The foregoing provisions of this Section 6 shall similarly apply to successive reorganization, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to the holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after the transaction, to the end that the provisions of this Warrant shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant. 6.2 Reclassification, Etc. If the Company, at any time while this ---------------------- Warrant, or any portion thereof, remains outstanding and unexpired by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 6. -4- 6.3 Split Subdivision or Combination of Shares. If the Company at any ------------------------------------------ time while this Warrant, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, the Exercise Price for such securities shall be proportionately decreased in the case of a split or subdivision or proportionately increased in the case of a combination. 6.4 Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment pursuant to this Section 6, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 7. Registration Rights. ------------------- 7.1 "Piggy Back" Registration Rights. If the Company shall at any time -------------------------------- or from time to time after the date hereof determine to register any of its securities with the Commission (other than by means of a registration statement on a form (e.g., Form F-4, S-4 or S-8 or successor forms) which, by its terms, ---- could not be used for the sale and distribution of the Company's common stock), Sheffield shall: (a) give written notice thereof to the Holder; (b) use its best efforts to effect the registration and any qualifications of Warrant Shares. 7.2 Expenses. The Company shall bear all expenses in connection with -------- any registration, qualification and compliance under this Section 7, including, without limitations, all registration and filing fees, printing expenses and fees and disbursements of Company's counsel, provided, that the Company shall not, in any event, be required to bear the cost of any commissions and compensation paid, and concessions and discounts allowed to, underwriters, dealers or others performing similar functions in connection with the sale and distribution of the Warrant Shares sold by the Holder. 7.3 Information Provided by the Holder. Holder shall furnish in ---------------------------------- writing to the Company such information regarding Holder and the distribution proposed by Holder as the Company may request in writing and as shall be reasonably required in connection with any registration referred to in this Section 7. -5- 7.4 Prospectuses, Etc. The Company will, at its expense, furnish to ----------------- Holder such number of prospectuses, offering circulars and other documents incident to such registration and related qualification or compliance as Holder from time to time may reasonably request. 7.5 Underwritten Offering; Exceptions. (a) In the event any --------------------------------- registration under this Section 7 is underwritten and the managing underwritter determines that the inclusion of any Warrant Shares would materially interfere with the successful completion thereof in the reasonable judgment of such managing underwriter, then the number of Warrant Shares to be included may be reduced by such amount as such managing underwriting shall determine. (b) The Company shall have no obligation to register the Warrant Shares under any registration statement that would be prohibited due to any contractual rights granted by the Company prior to the date of this Warrant. 8. Certain Notice Requirements. --------------------------- 8.1 Holder's Right to Receive Notice. Nothing herein shall be -------------------------------- construed as conferring upon the Holder the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company prior to the exercise hereof (including the right to receive dividends). If, however, at any time prior to the expiration of the Warrant and its exercise, any of the events described in Section 6 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least ten (10) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution,liquidation, winding up, merger, consolidation, reorganization or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. 8.2 Transmittal of Notices. Any notice or other communication or ---------------------- delivery required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified mail, postage prepaid, or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally or by overnight courier service, or, if mailed, three (3) days after the date of deposit in the United States mails, as follows: -6- (i) if to the Company, to: Sheffield Pharmaceuticals, Inc. 425 South Woodsmill Road, Suite 270 St. Louis, Missouri 63017-3441 Attention: Chief Financial Officer With a copy to: Olshan Grundman Frome & Rosenzweig LLP 505 Park Avenue New York, New York 10022 Attention: Daniel J. Gallagher, Esq. (ii) if to the Holder, to the address of such Holder as shown on the books of the Company. Either of the Holder or the Company may change the foregoing address by notice given pursuant to this Section 8.2. 9. Miscellaneous. ------------- 9.1 Purchase for Investment. By his acceptance of this Warrant, the ----------------------- Holder represents and warrants that the Holder has acquired this Warrant for the Holder's own account for investment and not with the view to the distribution thereof, except in accordance with applicable federal and state securities laws. The Holder represents that he is an "accredited investor" as such term is defined under Rule 501 of Regulation D promulgated under the Securities Act. The Holder confirms that she has been advised that the Warrants have not been, and the shares of Common Stock issuable upon exercise of this Warrant Shares will not be, registered under the Securities Act and that he has consulted with and been advised by counsel as to the restrictions on resale to which this Warrant and such Shares will be subject. 9.2 Amendments. All modifications or amendments to this Warrant shall ---------- require the written consent of each party. 9.3 Headings. The headings contained herein are for the sole -------- purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Warrant. 9.4 Issuance Under Agreement. The Holder and the Company acknowledge ------------------------ that this Warrant is issued to Holder in satisfaction of the Company's obligations to Continental Capital & Equity Corporation under the agreement dated September 17, 1998 between the Company and Continental Capital & Equity Corporation. 9.5 Entire Agreement. This Warrant constitutes the entire agreement ---------------- of the parties hereto with respect to the subject -7- matter hereof, and supersede all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. 9.6 Binding Effect; Board Approval. This warrant shall inure solely ------------------------------ to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Warrant or any provisions herein contained. This Warrant shall become effective upon its approval by the Board of Directors of the Company. 9.7 Governing Law. This Warrant shall be governed by and construed ------------- and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws. 9.8 Waiver, Etc. The failure of the Company or the Holder to at any ----------- time enforce any of the provisions of this Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Warrant or any provison hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Warrant. No waiver of any breach, noncompliance or nonfulfillment of any of the provisions of this Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, noncompliance or nonfulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, noncompliance or nonfulfillment. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer as of the 17th day of September, 1998. SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Loren G. Peterson -------------------------- Loren G. Peterson President and CEO AGREED AND ACCEPTED: CONTINENTAL CAPITAL & EQUITY CORPORATION By: /s/ Jim Schnorf ----------------------- Name: JIM SCHNORF Title: CFO -8- Form to be used to exercise Warrant: Sheffield Pharmaceuticals, Inc. 425 South Woodsmill Road, Suite 270 St. Louis, Missouri 63017-3441 Attention: Chief Financial Officer Date: ______________, 19___ The Undersigned hereby elects irrevocably to exercise the within Warrant and to purchase __________ shares of Common Stock of Sheffield Pharmaceuticals, Inc. and hereby makes payment of $____________ (at the rate of $___________ per share) in payment of the Exercise Price pursuant thereto. Please issue the shares as to which this Warrant is exercised in accordance with the instructions given below. ___________________________________ Signature ___________________________________ Signature Guaranteed INSTRUCTIONS FOR REGISTRATION OF SECURITIES Name________________________________________________________________________ (Print in Block Letters) Address_____________________________________________________________________ NOTICE: The signature to this form must correspond with the name as written upon the face of the within Warrant in every particular without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange. -9- EX-4.7 6 0006.txt WARRANT DATED 9/30/1997 Exhibit 4.7 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND ARE TRANSFERABLE ONLY IN COMPLIANCE WITH SUCH LAWS WARRANT CERTIFICATE 20,000 Warrants to Purchase Common Stock Sheffield Pharmaceuticals, Inc. (Incorporated under the laws of the State of Delaware) This is to certify that, for value received, The P. L. Thomas Group, Inc., or registered assigns, is the owner of 20,000 Warrants, each of which entitles the registered owner to purchase from Sheffield Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), at any time after the date specified below, one share of fully paid and non-assessable common stock (the "Common Stock") of the Corporation, at a purchase price per share of $3.00 (the "Applicable Exercise Price"), subject to adjustment as set forth herein. This Warrant Certificate covers an aggregate of 20,000 shares of Common Stock, subject to adjustment as set forth herein. The shares of Common Stock issuable upon the exercise of the Warrants are sometimes called the "Warrant Share." Subject to the provisions hereof, the Warrants represented by this Warrant Certificate may be exercised by the registered holder in whole or in part by surrender of this Warrant Certificate at the principal executive offices of the Corporation with the form of election to exercise attached hereto duly executed and with payment in full to the Corporation of the Applicable Exercise Price for each of the Warrant Shares so purchased. Payment of such Applicable Exercise Price shall be made in cash or by certified official bank check. Thereupon, the Warrants shall be deemed to have been exercised and the person exercising the same to have become a holder of record of the Warrant Shares so purchased (or of the other securities or property to which such person is entitled upon such exercise) for all purposes; and certificates for Warrant Shares so purchased shall be delivered to the purchaser within a reasonable time (not exceeding 10 days) after the Warrants shall have been exercised as set forth above. The right of the registered holder to exercise the Warrants represented by this Warrant Certificate shall be exercisable in full on or after October 15, 1997, and until 5:00 p.m., Eastern Standard Time, October 15, 2002 (the "Expiration Time"). Any Warrants not exercised on or before the Expiration Time shall expire and be of no further force or effect. If only a portion of the Warrants shall be exercised, the holder of this Warrant Certificate shall be entitled to receive a similar warrant certificate of like tenor and date covering the number of Warrants which shall not have been exercised. This Warrant Certificate is exchangeable upon surrender by its registered holder at the principal executive offices of the Corporation, for new warrant certificates of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares which may be purchased hereunder. This Warrant Certificate and the rights evidenced hereby may not be sold, conveyed, pledged or otherwise transferred by the holder hereof without the prior written consent of the Corporation. The Corporation covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant Certificate will, upon issuance, be validly issued, fully paid and non- assessable and free from all taxes, liens and charges with respect to the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Corporation further covenants and agrees that it will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant Certificate. ARTICLE I Section 1.1 Adjustment of Applicable Exercise Price. --------------------------------------- (a) The Applicable Exercise Price shall be subject to adjustment from time to time as follows: (i) If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split- up, the number of Warrants and the Applicable Exercise Price shall be appropriately adjusted so that the number of shares of Common Stock issuable on exercise of each Warrant shall be increased and the Applicable Exercise Price decreased in proportion to such increase of outstanding shares. (ii) If the number of shares of Common Stock outstanding at any time after the date hereof is decreased -2- by a combination of the outstanding shares of Common Stock, then, following the record date for such combination, the number of Warrant Shares issuable upon exercise of Warrants and the Applicable Exercise Price shall be appropriately adjusted so that the number of shares of Common Stock issuable on exercise of each Warrant shall be decreased and the Applicable Exercise Price shall be increased in proportion to such decrease in outstanding shares. (iii) If any consolidation or merger of the Corporation with or into another entity, or the sale of all or substantially all its assets to another entity shall be effected, or in case of any capital reorganization or reclassification of the capital stock of the Corporation, then lawful and adequate provision shall be made whereby each holder of Warrants shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the conversion of such Warrants, such shares of stock, securities, interests or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so receivable by such holder had such consolidation, merger, sale, reorganization or reclassification not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holder to the end that the provisions hereof (including without limitation provisions for adjustment of the Applicable Exercise Price) shall thereafter be applicable, as nearly as may be in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. (iv) All calculations under this paragraph (a) shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, or one cent ($.01), as the case may be. (b) In any case in which the provisions of this Article I shall require that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (x) issuing to the holder of any Warrant exercised after such record date and before the occurrence of such event, the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such exercise before giving effect to such adjustment and (y) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to -3- Section 1.2; provided, however, that the Corporation shall deliver to such -------- ------- holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares, and such cash, upon the occurrence of the event requiring such adjustment. (c) Except in the case of shares registered pursuant to Section 2.1, any and all Warrant Shares issued pursuant to the exercise of the Warrants shall bear a legend reflecting that such Warrant Shares have not been registered under the Securities Act of 1933, as amended, or under any state securities law, and cannot be transferred by sale, pledge or otherwise, except in compliance with such securities laws and all regulations thereunder. As a condition to the issuance of Warrant Shares, the holder hereof requesting to so exercise the Warrants shall execute appropriate investment letters and shall deliver such other documents (including legal opinions) as may be reasonably required by the Corporation and its counsel to assure that Warrant Shares are issued only in compliance with applicable securities law. (d) In the event the Corporation proposes to take any action of the types described in this Section 1.1, the Corporation shall give notice to each holder of Warrants, at the address of such holder shown on the books of the Corporation, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. The notice shall also set forth the facts with respect thereto reasonably necessary to indicate the effect of the action (to the extent the effect may be known at the date of such notice) on the Applicable Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon exercise of the Warrants. In the case of any action which would require the fixing of a record date, notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action, and the holder of these Warrants shall have no right to prevent or delay any such action by injunction or otherwise. (e) In the event that at any time as a result of an adjustment made pursuant to this Section 1.1, the holder of any Warrants thereafter surrendered or exercised shall become entitled to receive any shares of the Corporation or another corporation other than shares of Common Stock, the provisions of -4- this Section 1.1 and Section 1.2 with respect to the Common Stock shall apply on like terms to any such other shares. Section 1.2. No certificates for fractional shares of Common Stock shall be issued upon the exercise of Warrants, but in lieu thereof the Corporation shall pay, upon exercise in full of the Warrants represented by this Warrant Certificate, out of funds legally available therefor, a cash adjustment in respect of such fractional shares based upon the then effective Applicable Exercise Price. ARTICLE II Section 2.1. If the Corporation at any time after the date hereof, proposes to register any of its shares of Common Stock under the Securities Act pursuant to a registration statement (other than pursuant to a registration statement on Form S-4 or S-8 or any successor or similar forms), it will promptly give written notice to the registered holder hereof of its intention to do so and, upon the written request of the holder given within 20 days after receipt of any such notice (which request shall state the intended method of disposition of such Warrant Shares by such holder), the Corporation will use its best efforts to cause any or all of the Warrant Shares held by such holder, or which may be acquired by such holder upon exercise of the Warrants, to be registered under the Securities Act, all to the extent requisite to permit the sale or other disposition (in accordance with the intended methods thereof, as aforesaid) by such holder of such Warrant Shares; provided, however, that the Corporation may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of such other Common Stock originally proposed to be registered; provided, further, that if the Corporation's underwriters recommend a reduction in the number of shares to be registered, the number of Warrant Shares which the Corporation is required to register hereunder on behalf of the holder shall be reduced in the same ratio that recommended reduction bears to the total number of shares (other than shares of Common Stock issuable by the Company) originally proposed to be registered. The Corporation need not reduce the number of any shares which it proposes to sell, in which case any reduction shall be allocated proportionately among the balance of the shares to be registered (other than shares of Common Stock issuable by the Company), including the Warrant Shares. In addition, if at any time after the date hereof the Corporation proposes to register shares of its date hereof the Corporation proposes to register shares of its Common Stock for offering otherwise than in connection with an underwritten public offering (including pursuant to -5- Rule 415(a)(iii) or (viii) of the Securities Act), the Corporation will use its best efforts to cause any Warrant Shares not theretofore issued to be registered for issuance upon exercise thereof. Section 2.2. All expenses incurred by the Corporation in complying with this Article II, including, without limitation, all registration and filing fees (including all expenses incident to filing with the National Association of Securities Dealers, Inc.), printing expenses, fees and disbursements of counsel for the Corporation, the expense of any special audits incident to or required by any such registration, and the expense (including counsel fees) of complying with securities or Blue Sky laws shall be paid by the Corporation; provided in no event shall the Corporation be liable for any fees payable to counsel or accountants retained by any holder hereof or for underwriting fees, discounts or selling commissions attributable to such Warrant Shares. Section 2.3. In the event of any registration of Warrant Shares under the Securities Act pursuant to this Article 2, the Corporation will indemnify and hold harmless the holder against any losses, claims, damages or liabilities to which such holder may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained (on the effective date thereof) in any registration statement under which such Warrant Shares were registered under the Securities Act, any preliminary prospectus, prospectus subject to completion or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse such holder for reasonable legal or any other expenses reasonably incurred by such holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Corporation will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, prospectus subject to completion or final prospectus, or said amendment or supplement in reliance upon and in conformity with written information furnished to the Corporation through an instrument duly executed by such holder specifically for use in the preparation thereof. -6- Section 2.4. In the event of any registration of any Warrant Shares pursuant to this Article II, the holder will indemnify and hold harmless the Corporation, its attorneys, accountants, underwriters and each other person, if any, who controls the Corporation within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Corporation or such other person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained (on the effective date thereof) in any registration statement under which such Warrant Shares were registered under the Securities Act, any preliminary prospectus, prospectus subject to completion or final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the 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 to the extent and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, prospectus subject to completion or said amendment or supplement in reliance upon and in conformity with written information furnished to the Corporation through an instrument duly executed by such holder specifically for use in the preparation thereof, and such holder will reimburse the Corporation and each such other person for any legal or any other expenses reasonably incurred by the Corporation or such other person in connection with investigating or defending any such loss, claim, damage, liability or action. Section 2.5. In the event of any claim for which indemnity is sought under Section 2.3 or 2.4, above, the party seeking indemnification shall give prompt notice of its claim to the other party and shall permit the other party to engage counsel and to defend against the same. Section 2.6. The holder's right to request registration of Warrant Shares under this Article II shall cease and terminate as to any particular Warrant Shares when such Warrant Shares shall have been effectively registered under the Securities Act or when such Warrant Shares shall have become eligible for sale pursuant to Rule 415 of the Securities Act. The holder's right to request registration of Warrant Shares under this Article II shall be transferable in connection with any disposition of such shares to a permitted transferee of at least 5,000 of such Warrant Shares upon the agreement of such transferee to be bound by the terms hereof; provided, however, if -7- at any time The P. L. Thomas Group, Inc., shall hold less than 5,000 Warrant Shares as a result of having transferred Warrant Shares together with registration rights hereunder, its registration rights with respect to the Warrant Shares it still holds shall terminate. For purposes of this Warrant Certificate, shares of Common Stock shall cease to be Warrant Shares when such shares have been sold pursuant to an effective registration statement under the Securities Act or pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration thereunder or when such Warrant Shares shall have become eligible for sale pursuant to Rule 415 of the Securities Act. ARTICLE III Section 3.1. The issue of any stock or other certificate upon the exercise of the Warrants shall be made without charge to the registered holder hereof for any transfer or issuance tax in respect of the issue thereof. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the registered holder of this Warrant Certificate, and the Corporation shall not required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. Section 3.2. If this Warrant Certificate shall be lost, stolen, mutilated or destroyed, the Corporation shall, on such terms as to indemnify or otherwise protect the Corporation as the Corporation may in its discretion impose, issue a new warrant certificate of like denomination, tenor and date as the Warrant Certificate so lost, stolen, mutilated or destroyed. Any such new warrant certificate shall constitute an original contractual obligation of the Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone. Section 3.3. The Corporation may deem and treat the registered holder of this Warrant Certificate as the absolute owner of this Warrant Certificate for all purposes and shall not be affected by any notice to the contrary. This Warrant Certificate and all rights hereunder are transferable on the books of the Corporation, upon surrender of this Warrant Certificate, with the form of assignment attached hereto duly executed by the registered holder hereof or by his attorney duly authorized in writing, to the Corporation at its principal -8- executive offices and thereupon there shall be issued in the name of the transferee or transferees, in exchange for this Warrant Certificate, a new warrant certificate or warrant certificates of like tenor and date, representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder; provided that the Corporation shall not be obligated to record or give effect to any transfer of Warrants, unless the holder shall furnish evidence reasonably satisfactory to the Corporation that the proposed transfer does not violate any applicable securities law or regulation. References in this Certificate to a "holder" shall include any transferee or transferees to whom the Warrants may be transferred pursuant to the foregoing. Notwithstanding the foregoing, this Warrant Certificate and the rights represented hereby may not be sold, conveyed, pledged or otherwise transferred without the prior written consent of the Corporation. Section 3.4. Except as otherwise provided herein, this Warrant Certificate shall not entitle the holder to any rights of a stockholder of the Corporation either at law or in equity, including, without limitation, the right to vote, to receive dividends and other distributions, to exercise any preemptive rights or to receive any notice of meetings of stockholders or of any other proceedings of the Corporation. Section 3.5. Upon the exercise or permitted transfer of any Warrants hereunder, if the holder has Warrants with different Applicable Exercise Prices, he shall designate the Applicable Exercise Price with respect to the Warrants exercised or transferred. Such designation shall be recorded by the Corporation in its books and records and shall be specifically identified with such Warrants. Section 3.6. This Warrant Certificate shall, in all events, remain outstanding and fully exercisable until it is exercised in its entirety or terminates in accordance with the terms hereof. Section 3.7. In the event that one or more of the provisions of this Warrant Certificates shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provison of this Warrant Certificate, but this Warrant Certificate shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Section 3.8. This Warrant Certificate shall be governed by and construed in accordance with the laws of the -9- State of New York applicable to agreements made and to be entirely performed within such State. Dated: As of 4/30, 1997. ---- Sheffield Pharmaceuticals, Inc. By /s/ Loren G. Peterson ---------------------------- Chief Financial Officer -10- FORM OF EXERCISE ---------------- (to be executed by the registered holder hereof) The undersigned hereby exercises the right to purchase ___________ shares of common stock ("Common Stock") of Sheffield Pharmaceuticals, Inc., evidenced by the within Warrant Certificate for an Applicable Exercise Price of $___________ per share and herewith makes payment of the purchase price in full of $____________. Kindly issue certificates for shares of Common Stock (and for the unexercised balance of the Warrants evidenced by the within Warrant Certificate, if any) in accordance with the instructions given below. Dated: ________________, 19_____. _______________________________ Instructions for registration of stock ______________________________________ Name (Please Print) Social Security or other identifying Number: _____________________ Address: _______________________________________ City/State and Zip Code Instructions for registration of certificate representing the unexercised balance of Warrants (if any) ______________________________________ Name (Please Print) Social Security or other identifying Number: _____________________ Address: _______________________________________ City, State and Zip Code -11- TRANSFER OF WARRANT CERTIFICATE ------------------------------- For value received ___________________________________________________ hereby sells, assigns and transfers unto _______________________________________ the rights to purchase ____________________ shares of common stock of Sheffield Pharmaceuticals, Inc. (the "Corporation"), at an Applicable Exercise Price of $_________ per share, which rights are represented by the within Warrant Certificate, and does hereby irrevocably constitute and appoint ________________ attorney to transfer said rights on the books of the within named Corporation, with full power of substitution in the premises. The undersigned acknowledges that such sale, assignment and transfer is subject to the written approval of the Corporation in accordance with the terms of the Warrant Certificate. ___________________________________ DATED: In the Presence of ____________________________ Social Security and other Identifying Number of Assignee: _________________ Address of Assignee: _____________________________________ City, State and Zip Code EX-23.2 7 0007.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.2 Consent of Independent Auditors ------------------------------- We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3, No. 333-_______) and related Prospectus of Sheffield Pharmaceuticals, Inc. for the registration of 913,258 shares of its common stock and to the incorporation by reference therein of our report dated March 1, 2000, with respect to the consolidated financial statements of Sheffield Pharmaceuticals, Inc. and subsidiaries as of and for the year ended December 31, 1999 included in its annual Report (Form 10-K) for the year ended December 31, 1999, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP St. Louis, Missouri January 24, 2001 -----END PRIVACY-ENHANCED MESSAGE-----