-----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, PMWVrO5pAXeB6h4/kGzIsaGnPo7haUjkjvbe4Wx6I8ZZn7SBbBNpk5y76e3m8qrL 34XbFjyG8yg6EtD7xDWI6g== 0000950124-01-504079.txt : 20020410 0000950124-01-504079.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950124-01-504079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12584 FILM NUMBER: 1791071 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 10-Q 1 c66107e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2001 Commission file number 1-12584 SHEFFIELD PHARMACEUTICALS, INC. (Exact name of registrant as specified in its Charter) DELAWARE 13-3808303 (State of Incorporation) (IRS Employer Identification Number) 14528 SOUTH OUTER FORTY ROAD 63017 (314) 579-9899 ST. LOUIS, MISSOURI (Zip Code) (Registrant's telephone, (Address of principal executive offices) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Class Name of each exchange on which registered Common Stock. $.01 par value American Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares outstanding of the Registrant's Common Stock is 28,953,302 shares as of November 9, 2001. SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage enterprise) FORM 10-Q For the Quarter Ended September 30, 2001 Table of Contents
Page ---- PART I Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000.................................................................3 Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000 and for the period from October 17, 1986 (inception) to September 30, 2001 ....................4 Consolidated Statements of Stockholders' Equity (Net Capital Deficiency) for the period from October 17, 1986 (inception) to September 30, 2001 .....................................................5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 and for the period from October 17, 1986 (inception) to September 30, 2001.....................................6 Notes to Consolidated Financial Statements ..............................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................9 PART II Item 2. Changes in Securities...........................................................13 Item 6. Exhibits and Reports on Form 8-K................................................13 Signatures...............................................................................14
2 PART I: FINANCIAL INFORMATION Item 1. Financial Statements SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage enterprise) CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2001 2000 ------------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents ............................................... $ 2,118,149 $ 3,041,948 Marketable equity securities............................................. - 327,422 Milestone advance receivable............................................. - 1,000,000 Prepaid expenses and other current assets ............................... 522,048 540,272 ------------ ------------ Total current assets ................................................. 2,640,197 4,909,642 ------------ ------------ Property and equipment: Laboratory equipment .................................................... 341,815 271,748 Office equipment ........................................................ 245,019 211,609 Leasehold improvements .................................................. 25,309 18,320 ------------ ------------ Total at cost ........................................................ 612,143 501,677 Less accumulated depreciation and amortization .......................... (324,065) (235,389) ------------ ------------ Property and equipment, net .......................................... 288,078 266,288 ------------ ------------ Patent costs, net of accumulated amortization of $17,144 and $9,287, respectively.................................................... 286,858 258,897 Other assets................................................................. 29,344 15,830 ------------ ------------ Total assets ............................................................ $ 3,244,477 $ 5,450,657 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) Current liabilities: Accounts payable and accrued liabilities ................................ $ 955,368 $ 1,234,765 Sponsored research payable .............................................. 235,757 235,757 Note payable ............................................................ 2,000,000 - ------------ ------------ Total current liabilities ............................................ 3,191,125 1,470,522 Convertible promissory note ................................................. 2,000,000 2,000,000 Long-term debt .............................................................. 3,000,000 2,000,000 Other long-term liabilities ................................................. 560,677 393,855 Commitments and contingencies ............................................... - - ------------ ------------ Total liabilities ....................................................... 8,751,802 5,864,377 Minority interest in subsidiary.............................................. - - Stockholders' equity (net capital deficiency): Preferred stock, $.01 par value, authorized 3,000,0000 shares: Series C cumulative convertible preferred stock, authorized 23,000 shares; issued and outstanding 14,450 and 13,712 shares at September 30, 2001 and December 31, 2000, respectively.............. 145 137 Series D cumulative convertible exchangeable preferred stock, authorized 21,000 shares; 13,325 and 12,870 issued and outstanding at September 30, 2001 and December 31, 2000, respectively........................................................ 133 129 Series E cumulative convertible non-exchangeable preferred stock, authorized 9,000 shares; 2,049 and 1,004 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively........................................................ 21 10 Series F convertible non-exchangeable preferred stock, 5,000 shares authorized; 5,000 shares issued and outstanding at September 30, 2001 and December 31, 2000............................ 50 50 Common stock, $.01 par value, authorized 100,000,000 shares; issued and outstanding 29,153,932 and 28,791,643 shares at September 30, 2001 and December 31, 2000, respectively................................. 291,539 287,916 Additional paid-in capital ............................................ 82,862,873 80,108,095 Other comprehensive income ............................................ - 157,467 Deficit accumulated during development stage .......................... (88,662,086) (80,967,524) ------------ ------------ Total stockholders' equity (net capital deficiency).............. (5,507,325) (413,720) ------------ ------------ Total liabilities and stockholders' equity (net capital deficiency).......... $ 3,244,477 $ 5,450,657 ============ ============
See notes to consolidated financial statements. 3 SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage enterprise) CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine Months Ended September 30, 2001 and 2000 and for the Period from October 17, 1986 (inception) to September 30, 2001 (Unaudited)
Three Months Ended Nine Months Ended October 17, 1986 September 30, September 30, (inception) to --------------------------- ---------------------------- September 30, 2001 2000 2001 2000 2001 ----------- ----------- ------------ ----------- ---------------- Revenues: Contract research revenue......... $ - $ 46,109 $ 869,095 $ 291,784 $ 1,770,045 Sublicense revenue................ - - 5,000 - 1,370,000 ----------- ----------- ------------ ----------- ------------ Total revenues................. - 46,109 874,095 291,784 3,140,045 Expenses: Acquisition of research and development in-process technology....................... - - - - 29,975,000 Research and development.......... 1,686,046 892,411 4,666,181 2,677,189 33,439,042 General and administrative........ 1,031,562 521,060 2,909,362 1,907,205 27,244,447 ----------- ----------- ------------ ----------- ------------ Total expenses................. 2,717,608 1,413,471 7,575,543 4,584,394 90,658,489 ----------- ----------- ------------ ----------- ------------ Loss from operations................ (2,717,608) (1,367,362) (6,701,448) (4,292,610) (87,518,444) Interest income..................... 4,362 21,193 55,127 115,685 786,076 Interest expense.................... (95,039) (57,267) (204,286) (164,424) (1,002,001) Realized gain (loss) on sale of marketable securities............. 79,706 67,031 79,706 119,645 (5,580) Minority interest in loss of subsidiary..................... 135,758 18,264 318,260 62,663 3,458,332 ----------- ----------- ------------ ------------ ------------ Loss before extraordinary item...... (2,592,821) (1,318,141) (6,452,641) (4,159,041) (84,281,617) Extraordinary item.................. - - - - 42,787 ----------- ----------- ------------ ------------ ------------ Net loss............................ $(2,592,821) $(1,318,141) $ (6,452,641) $(4,159,041) $(84,238,830) =========== =========== ============ =========== ============ Accretion of mandatorily redeemable preferred stock................... - - - - (103,400) ----------- ----------- ------------ ----------- ------------ Net loss - attributable to common shares..................... $(2,592,821) $(1,318,141) $ (6,452,641) $(4,159,041) $(84,342,230) =========== =========== ============ =========== ============ Weighted average common shares outstanding-basic and diluted..... 29,052,998 28,100,673 28,949,802 27,888,877 10,313,147 Net loss per share of common stock - basic and diluted: Loss before extraordinary item.. $ (0.09) $ (0.05) $ (0.22) $ (0.15) $ (8.18) Extraordinary item.............. - - - - - ----------- ----------- ------------ ----------- ------------ Net loss per share.............. $ (0.09) $ (0.05) $ (0.22) $ (0.15) $ (8.18) =========== =========== ============ =========== ============
See notes to consolidated financial statements. 4 SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage enterprise) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) For the Period from October 17, 1986 (Inception) to September 30, 2001 (Unaudited)
Notes Deficit Total receivable Other accumulated stockholders' in connection Additional comprehen- during equity (net Preferred Common with sale of paid-in sive income development capital stock stock stock capital (loss) stage deficiency) --------- ------------ ------------- ----------- ----------- ------------- ------------- Balance at October 17, 1986......... $ - $ - $ - $ - $ - $ - $ - Common stock issued................. - 11,484,953 100,000 30,539,185 - - 42,124,138 Reincorporation in Delaware at $.01 par value......................... - (11,220,369) - 11,220,369 - - - Common stock subscribed............. - - (110,000) - - - (110,000) Common stock options and warrants issued................... - - - 240,868 - - 240,868 Issuance of common stock in connection with acquisition of Camelot Pharmacal, L.L.C.......... - 6,000 - 1,644,000 - - 1,650,000 Common stock options extended....... - - - 215,188 - - 215,188 Accretion of issuance costs for Series A preferred stock.......... - - - - - (103,400) (103,400) Series C preferred stock issued..... 115 - - 11,499,885 - - 11,500,000 Series C preferred stock dividends.. 4 - - 413,996 - (415,112) (1,112) Comprehensive income (loss): Unrealized loss on marketable securities...................... - - - - (222,226) - - Net loss.......................... - - - - - (54,638,251) - Comprehensive income (loss)....... - - - - - - (54,860,477) --------- ------------ --------- ----------- --------- ------------- ------------- Balance at December 31, 1998........ 119 270,584 (10,000) 55,773,491 (222,226) (55,156,763) 655,205 Common stock issued................. - 2,504 10,000 89,059 - - 101,563 Series C preferred stock dividends.. 9 - - 865,991 - (868,277) (2,277) Series D preferred stock issued..... 120 - - 12,014,880 - - 12,015,000 Series F preferred stock issued..... 50 - - 4,691,255 - - 4,691,305 Common stock warrants issued........ - - - 203,452 - - 203,452 Comprehensive income (loss): Unrealized gain on marketable securities...................... - - - - 391,613 - - Net loss.......................... - - - - - (17,384,788) - Comprehensive income (loss)....... - - - - - - (16,993,175) --------- ------------ --------- ----------- --------- ------------- ------------- Balance at December 31, 1999........ 298 273,088 - 73,638,128 169,387 (73,409,828) 671,073 Common stock issued................. - 15,738 - 3,796,072 - - 3,811,810 Repurchase and retirement of common stock...................... - (910) - (312,279) - - (313,189) Series C preferred stock dividends.. 9 - - 931,991 - (934,045) (2,045) Series D preferred stock dividends.. 9 - - 854,991 - (855,750) (750) Series E preferred stock issued..... 10 - - 999,990 - - 1,000,000 Series E preferred stock dividends.. - - 4,000 - (4,750) (750) Common stock warrants issued........ - - - 195,202 - - 195,202 Comprehensive income (loss): Unrealized loss on marketable securities...................... - - - - (11,920) - - Net loss.......................... - - - - - (5,763,151) - Comprehensive income (loss)....... - - - - - - (5,775,071) --------- ------------ --------- ----------- --------- ------------- ------------- Balance at December 31, 2000........ 326 287,916 - 80,108,095 157,467 (80,967,524) (413,720) Common stock issued................. - 3,623 - 390,060 - - 393,683 Series C preferred stock dividends.. 8 - - 737,992 - (740,784) (2,784) Series D preferred stock dividends.. 4 - - 454,996 - (455,455) (455) Series E preferred stock issued..... 10 - - 999,990 - - 1,000,000 Series E preferred stock dividends.. 1 - - 44,999 - (45,682) (682) Common stock warrants issued........ - - - 126,741 - - 126,741 Comprehensive income (loss): Unrealized loss on marketable securities...................... - - - - (157,467) - - Net loss.......................... - - - - - (6,452,641) - Comprehensive income (loss)....... - - - - - - (6,610,108) --------- ------------ --------- ----------- --------- ------------- ------------- Balance at September 30, 2001....... $ 349 $ 291,539 $ - $82,862,873 $ - $(88,662,086) $ (5,507,325) ========= ============ ========= =========== ========= ============= =============
See notes to consolidated financial statements. 5 SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage enterprise) CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2001 and 2000 and for the Period from October 17, 1986 (inception) to September 30, 2001 (Unaudited)
Nine Months Ended October 17, 1986 September 30, (inception) to ------------------------------ September 30, 2001 2000 2001 ------------ ------------ --------------- Cash outflows from operating activities: Net loss......................................... $(6,452,641) $(4,159,041) $(84,238,830) Adjustments to reconcile net loss to net cash used by development stage activities: Issuance of common stock, stock options/warrants for services................. 126,741 77,002 2,819,368 Depreciation and amortization................... 96,533 96,622 694,868 Non-cash acquisition of research and development in-process technology............. - - 1,650,000 (Gain) loss realized on sale of marketable securities.................................... (79,706) (119,645) 5,580 Decrease (increase) in prepaid expenses & other current assets................................ 18,224 (224,037) (581,089) Decrease in milestone advance receivable........ 1,000,000 - - (Increase) decrease in other assets............. (49,332) (62,054) (274,305) Increase (decrease) in accounts payable and accrued liabilities....................... 38,018 (235,167) 839,520 (Decrease) increase in sponsored research payable.............................. - (73,052) 812,827 Other........................................... (149,043) 95,918 149,005 ------------ ----------- ------------ Net cash used by operating activities................ (5,451,206) (4,603,454) (78,123,056) ------------ ----------- ------------ Cash flows from investing activities: Proceeds from sale of marketable securities..... 249,661 164,656 844,420 Acquisition of laboratory and office equipment, and leasehold improvements......... (110,466) (57,602) (782,285) Other........................................... - - (57,087) ------------ ----------- ------------ Net cash provided (used) by investing activities..... 139,195 107,054 5,048 ------------ ----------- ------------ Cash flows from financing activities: Payments on debt and capital leases............. (5,471) (4,739) (848,080) Net proceeds from issuance of: Debt......................................... 3,000,000 - 10,050,000 Common stock................................. - - 23,433,660 Preferred stock.............................. 1,000,000 1,000,000 34,741,117 Proceeds from exercise of warrants/stock options 393,683 1,584,325 13,671,589 Repurchase and retirement of common stock....... - (313,189) (313,189) Other........................................... - - (500,024) ------------ ----------- ------------ Net cash provided by financing activities............ 4,388,212 2,266,397 80,235,073 ------------ ----------- ------------ Net (decrease) increase in cash and cash equivalents. (923,799) (2,230,003) 2,117,065 Cash and cash equivalents at beginning of period..... 3,041,948 3,874,437 1,084 ------------ ----------- ------------ Cash and cash equivalents at end of period........... $ 2,118,149 $ 1,644,434 $ 2,118,149 ============ =========== ============ Noncash investing and financing activities: Common stock, stock options/warrants issued for services.................................... $ 126,741 $ 77,002 $ 2,819,368 Common stock redeemed in payment of notes receivable.................................... - - 10,400 Acquisition of research and development in-process technology......................... - - 1,655,216 Common stock issued for intellectual property rights............................... - - 866,250 Common stock issued to retire debt.............. - - 600,000 Common stock issued to redeem convertible securities.................................... - - 5,353,368 Securities acquired under sublicense agreement.. - - 850,000 Equipment acquired under capital lease.......... - - 121,684 Notes payable converted to common stock......... - - 749,976 Stock dividends................................. 1,239,000 1,112,000 4,680,369 Supplemental disclosure of cash flow information: Interest paid...................................... $ 1,560 $ 1,777 $ 280,820
See notes to consolidated financial statements. 6 SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES (a development stage enterprise) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission and should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position, results of operations, stockholders' equity and cash flows at September 30, 2001 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations for the three and nine months ended September 30, 2001 and 2000 are not necessarily indicative of the operating results for the full years. The consolidated financial statements include the accounts of Sheffield Pharmaceuticals, Inc. and its wholly owned subsidiaries, Systemic Pulmonary Delivery, Ltd., Ion Pharmaceuticals, Inc., and CP Pharmaceuticals, Inc., and its 80.1% owned subsidiary, Respiratory Steroid Delivery, Ltd., and are herein referred to as "Sheffield" or the "Company." All significant intercompany transactions are eliminated in consolidation. The Company is focused on the development and commercialization of later stage pharmaceutical products that utilize the Company's unique proprietary pulmonary delivery technologies. The Company is in the development stage and to date has been principally engaged in research, development and licensing efforts. The Company has generated minimal operating revenue, sustained significant net operating losses, and requires additional capital that the Company intends to obtain through out-licensing as well as through equity and debt offerings to continue to operate its business. Even if the Company is able to successfully develop new products, there can be no assurance that the Company will generate sufficient revenues from the sale or licensing of such products to be profitable. 2. BASIC LOSS PER COMMON SHARE Basic net loss per share is calculated in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic net loss per share is based upon the weighted average common stock outstanding during each period. Potentially dilutive securities such as stock options, warrants, convertible debt and preferred stock, have not been included in any periods presented as their effect is antidilutive. On October 17, 2001, as part of the September 28, 2001 amendment of the Company's 1998 agreement with Zambon Group, SpA ("Zambon"), the Company repurchased from Zambon, 214,997 shares of common stock for $3.0233 per share ("Repurchase Price"). In addition, the Company received an option, expiring December 31, 2002, to repurchase the remaining shares of the Company's common stock held by Zambon at the Repurchase Price. In the event the Company completes a sublicense for the North American rights or a sublicense for the non- North American rights to the Premaire respiratory products prior to December 31, 2002, the Company will repurchase from Zambon 882,051 shares of the Company's common stock on each of the events. 3. LONG-TERM DEBT In September 2001, in connection with the amendment of its 1998 agreement with Zambon, the Company entered into a Loan and Security Agreement (the "Loan") with Zambon, pursuant to which Zambon agreed to lend the Company $2.5 million. The Company received $1.0 million upon signing of the Loan, with additional borrowings of $1.0 million and $.5 million to be made on January 1, 2002 and April 1, 2002, respectively. The Loan provides for interest on principal and annually compounded interest at a fixed rate of 2% per annum and is secured by certain security interests in respiratory products developed in the Premaire. One third of the principal balance, together with interest, is payable by the Company upon the Company's execution of an agreement with one or more third parties to develop, co-promote and/or sell certain products in North America, with all remaining unpaid principal and interest due on December 31, 2005. The outstanding principal balance of the Loan at September 30, 2001, and December 31, 2000, was $1.0 million and $0, respectively. 7 As part of the amendment of its 1998 agreement with Zambon, the terms of all milestone advances received from Zambon were modified in that the Company shall repay $1.0 million of the advance milestone payments upon the earlier of December 31, 2003, or upon the first regulatory approval for either albuterol or an inhaled steroid delivered in the Premaire. The remaining $1.0 million advance shall be repaid by the Company on the earlier of December 31, 2005, or the regulatory approval of the second product (albuterol or an inhaled steroid) delivered in the Premaire. Due to the modification in the repayment terms, the advances, totaling $2.0 million at both September 30, 2001 and December 31, 2000, have been reclassified in the Company's balance sheet as long-term debt. 4. RECLASSIFICATIONS Certain amounts in the prior year financial statements and notes have been reclassified to conform to the current year presentation. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. All forward-looking statements involve risks and uncertainty. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. The Company's actual results may differ materially from the results anticipated in the forward-looking statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Important Factors that May Affect Future Results" included herein for a discussion of factors that could contribute to such material differences. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. The Company disclaims any obligation to update or revise the information provided in this report to reflect future events. OVERVIEW The Company provides innovative, cost-effective pharmaceutical therapies by combining state-of-the-art pulmonary drug delivery technologies with existing and emerging therapeutic agents. The Company is developing a range of products to treat respiratory and systemic diseases in its proprietary Premaire(TM) Delivery System ("Premaire") and Tempo(TM) Inhaler ("Tempo"). The Company is in the development stage and, as such, has been principally engaged in the development of its pulmonary delivery systems. The Company and its development partners currently have ten products in various stages of development. In 1997, the Company acquired the Premaire Delivery System, a portable nebulizer-based pulmonary delivery system, through a worldwide exclusive license and supply arrangement with Siemens AG ("Siemens"). During the second half of 1998, the Company acquired the rights to an additional pulmonary delivery technology, the Tempo Inhaler, from a subsidiary of Aeroquip-Vickers, Inc. ("Aeroquip-Vickers"). The Tempo technology is a new generation propellant-based pulmonary delivery system. Additionally, during 1998, Sheffield licensed from Elan Corporation, plc ("Elan") the Ultrasonic Pulmonary Drug Absorption System ("UPDAS"), a novel disposable unit dose nebulizer system, and Elan's Absorption Enhancing Technology ("Enhancing Technology"), a therapeutic agent to increase the systemic absorption of drugs. In October 1999, the Company licensed Elan's Nanocrystal(TM) technology to be used in developing certain inhaled steroid products. Using the above pulmonary delivery systems and technologies as platforms, the Company has established strategic alliances for developing some of its initial products with Elan and Siemens. In June 1998, the Company sublicensed to Zambon Group SpA ("Zambon") worldwide marketing and development rights to respiratory products to be delivered by the Premaire in return for an equity investment in the Company (approximately 10%). From June 1998 to September 2001, Zambon funded the development costs for the respiratory compounds delivered by Premaire. In September 2001, the Company amended its 1998 agreement with Zambon whereby Sheffield regained the rights to the Premaire previously granted to Zambon. As part of the amended agreement, Zambon provided a low-interest, $2.5 million loan to Sheffield to progress the development of the Premaire respiratory program. Upon commercialization, Zambon will be entitled to certain royalties on payments received by Sheffield for albuterol, ipratropium and cromolyn sales for specified periods. As part of a strategic alliance with Elan, the Company is developing therapies for non-respiratory diseases to be delivered to the lungs using both Tempo and Premaire. In 1998, the systemic applications of Premaire and Tempo were licensed to Systemic Pulmonary Delivery, Ltd. ("SPD"), a wholly owned subsidiary of the Company. In addition, two Elan technologies, UPDAS(TM) and the Enhancing Technology, were also licensed to SPD. The Company retained exclusive rights outside of the strategic alliance to respiratory disease applications utilizing the Tempo technology and the two Elan technologies. Two systemic compounds for pulmonary delivery are currently under development. For the treatment of breakthrough pain, the Company is developing morphine delivered through Premaire. Ergotamine, a therapy for the treatment of migraine headaches, is currently being developed for use in Tempo. In addition to the above alliance with Elan, in 1999, the Company and Elan formed a joint venture, Respiratory Steroid Delivery, Ltd. ("RSD"), to develop certain inhaled steroid products to treat respiratory diseases using Elan's NanoCrystal technology. The inhaled steroid products to be developed include a propellant-based steroid formulation for delivery through the Tempo(TM) Inhaler, a solution-based unit-dose-packaged steroid formulation for delivery using a conventional tabletop nebulizer, and a solution-based steroid formulation for delivery using the Premaire(TM) Delivery System. 9 RESULTS OF OPERATIONS Revenue Contract research revenues primarily represented revenues earned from a collaborative research agreement with Zambon relating to the development of respiratory applications of Premaire. Contract research revenue for the third quarter of 2001 and 2000 were $0 and $46,109, respectively. The decrease for the third quarter 2001 was due to Sheffield no longer performing development work for Zambon as a result of Sheffield regaining the Premaire respiratory rights in the third quarter of 2001. For the first nine months of 2001 and 2000, contract research revenues were $869,095 and $291,784, respectively. The increase for the first nine months of 2001 is due to higher costs associated with Premaire device development work and testing prior to the start of Phase III Premaire-albuterol clinical trials, partially offset by the Company no longer performing development work for Zambon in the third quarter of 2001. Costs of contract research revenue approximated such revenues and were included in research and development expenses. Future contract research revenues and expenses are anticipated to fluctuate depending, in part, in obtaining additional collaborative agreements and upon the success of current clinical studies. The Company's ability to generate material revenues is contingent on the successful commercialization of its technologies and other technologies and products that it may acquire, followed by the successful marketing and commercialization of such technologies through licenses, joint ventures and other arrangements. Research and Development Research and development ("R&D") expenses were $1,686,046 and $892,411 for the third quarter of 2001 and 2000, respectively. For the nine months ended September 30, 2001 and 2000, R&D costs were $4,666,181 and $2,677,189, respectively. The increase for both the third quarter and the first nine months primarily reflects higher development expenses related to RSD's unit-dose and Premaire steroid products, higher costs related to development, design and testing of the Tempo Inhaler, and higher costs associated with Premaire device development work and testing prior to the start of Phase III Premaire-albuterol clinical trials. The increase in research and development expenses also reflects slightly higher expenses related to formulation and feasibility work associated with new product development in the area of polypeptides, partially offset by nonrecurring costs incurred in the first nine months of 2000 associated with modifications made to the Premaire Delivery System to enhance its commercial appeal. General and Administrative General and administrative expenses were $1,031,562 and $521,060 for the quarters ended September 30, 2001, and 2000, respectively, and $2,909,362 and $1,907,205 for the first nine months of 2001 and 2000, respectively. The increase for both the third quarter and the first nine months of 2001 was primarily due to higher consulting costs and legal fees associated with expanded business development activities. Interest Interest income was $4,362 and $21,193 for the third quarter of 2001 and 2000, respectively, and $55,127 and $115,685 for the first nine months of 2001 and 2000, respectively. The decrease in interest income for both the third quarter and first nine months of 2001 was primarily due to less cash available for investment and lower yields on those investments. Interest expense was $95,039 and $57,267 for the third quarter of 2001 and 2000, respectively, and $204,286 and $164,424 for the first nine months of 2001 and 2000, respectively. The increase for both the third quarter and first nine months of 2001 resulted from interest associated with the August 2001 $2 million convertible promissory note with Elan Pharma International Ltd. ("Elan Pharma"). Realized Gain on Sale of Marketable Securities Realized gain on sale of marketable securities was $79,706 and $67,061 for the third quarter 2001 and 2000, respectively, and $79,706 and $119,645 for the first nine months of 2001 and 2000, respectively. These gains resulted from the sale of 283,188 and 45,000 shares for the third quarter of 2001 and 2000, respectively, and 283,188 and 75,000 shares for the first nine months of 2001 and 2000, respectively, of the Company's investment in Lorus Therapeutics, Inc. ("Lorus"). As of September 20, 2001, the Company had no remaining investment in Lorus. 10 LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, the Company had $2,118,149 in cash and cash equivalents compared to $3,041,948 at December 31, 2000. The decrease of $923,799 primarily reflects $6,451,206 of cash disbursements used primarily to fund operating activities, partially offset by the receipt of a $1.0 million milestone advance from Zambon, $1.0 million from the issuance of 1,000 shares of the Company's Series E Cumulative Convertible Preferred Stock, $2.0 million from the proceeds of an unsecured promissory note from Elan Pharma, $1.0 million from the proceeds of a secured loan from Zambon, and $393,683 in net proceeds from the exercise of common stock options and warrants. In September 2001, in connection with the amendment of its 1998 agreement with Zambon, the Company entered into a Loan and Security Agreement ("Loan Agreement") with Zambon, pursuant to which Zambon agreed to lend the Company $2.5 million. The Company received $1.0 million upon signing of the Loan Agreement, with additional borrowings of $1.0 million and $.5 million to be made on January 1, 2002 and April 1, 2002, respectively. The Loan Agreement provides for interest on principal and annually compounded interest at a fixed rate of 2% per annum and is secured by certain security interests in respiratory products developed in the Premaire. One third of the principal balance, together with interest, is payable by the Company upon the Company's execution of an agreement with one or more third parties to develop, co-promote and/or sell certain products in North America, with all remaining unpaid principal and interest due on December 31, 2005. On October 17, 2001, as part of the amendment of its 1998 agreement with Zambon, the Company repurchased from Zambon, 214,997 shares of common stock for $3.0233 per share ("Repurchase Price"). In addition, the Company received an option, expiring December 31, 2002, to repurchase the remaining shares of the Company's common stock held by Zambon at the Repurchase Price. In the event the Company completes a sublicense for the North American rights or a sublicense for the non-North American rights to certain Premaire respiratory products prior to December 31, 2002, the Company will repurchase from Zambon 882,051 shares of the Company's common stock on each of the events. In August 2001, the Company entered into a Note Purchase Agreement with Elan Pharma, pursuant to which Elan Pharma agreed to lend the Company $2 million. All borrowings under the Note Purchase Agreement are evidenced by an unsecured promissory note of the Company of up to $4 million that provides for interest on principal and semi-annually compounded interest at a fixed rate of 10% per annum and a maturity date 360 days after the last funding under the Note Purchase Agreement, or upon the earlier occurrence of one or more specified events. In October 1999, as part of a licensing agreement with Elan, the Company received gross proceeds of $17,015,000 related to the issuance to Elan of 12,015 shares of Series D Cumulative Convertible Exchangeable Preferred Stock and 5,000 shares of Series F Convertible Non-Exchangeable Preferred Stock. In turn, the Company made an equity investment of $12,015,000 in a joint venture, RSD, representing an initial 80.1% ownership. The remaining proceeds from this preferred stock issuance will be utilized for general operating purposes. As part of the agreement, Elan also committed to purchase, on a drawdown basis, up to an additional $4.0 million of the Company's Series E Preferred Stock, of which $2.0 million of such commitment remains outstanding. The proceeds from the Series E Preferred Stock will be utilized by the Company to fund its portion of RSD's operating and development costs. In May 1999, in conjunction with the completion of its Phase I/II Premaire-albuterol trial, Zambon provided the Company with a $1.0 million interest-free advance against future milestone payments. In January 2001, the Company received an additional $1.0 million interest-free milestone advance resulting from the demonstration of the technical feasibility of delivering an inhaled steroid formulation in Premaire. The proceeds from these advances are not restricted as to their use by the Company. As part of the amendment of its 1998 agreement with Zambon, the terms of the milestone advances were modified in that the Company shall repay $1.0 million of the advance milestone payments upon the earlier of December 31, 2003, or upon the first regulatory approval for either albuterol or an inhaled steroid delivered in the Premaire. The remaining $1.0 million advance shall be repaid by the Company on the earlier of December 31, 2005, or the regulatory approval of the second product (albuterol or an inhaled steroid) delivered in the Premaire. Due to the modification in the repayment terms, the advances have been reclassified in the Company's balance sheet as long-term debt. Since its inception, the Company has financed its operations primarily through the sale of securities and convertible debentures, from which it has raised an aggregate of approximately $81.9 million through September 30, 2001, of which approximately $30.0 million has been spent to acquire certain in-process research and development technologies, and $33.4 million has been incurred to fund certain ongoing technology research projects. The Company expects to incur additional costs in the future, including costs relating to its ongoing research and development activities, and preclinical and clinical testing of its product candidates. The Company may also bear considerable costs in connection with filing, prosecuting, defending and/or enforcing its patent and other intellectual property claims. Therefore, the Company will need substantial additional capital before it will recognize significant cash flow from operations, which is contingent on the successful commercialization of the Company's 11 technologies. There can be no assurance that any of the technologies to which the Company currently has or may acquire rights can or will be commercialized or that any revenues generated from such commercialization will be sufficient to fund existing and future research and development activities. Because the Company does not expect to generate significant cash flows from operations for at least the next few years, the Company believes it will require additional funds to meet future costs. In an effort to meet its capital requirements, the Company is currently evaluating various financing alternatives including private offerings of its securities, debt financing, and collaboration and licensing arrangements with other companies. There can be no assurance that the Company will be able to obtain such additional funds or enter into such collaborative and licensing arrangements on terms favorable to the Company, if at all. The Company's development programs may be curtailed if future financings are not completed. IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS The following are some of the factors that could affect the Company's future results. They should be considered in connection with evaluating forward-looking statements contained in this report and otherwise made by the Company or on the Company's behalf, because these factors could cause actual results and conditions to differ materially from those projected in forward-looking statements. The Company's future results are subject to risks and uncertainties including, but not limited to, the risks that (1) the Company may not be able to obtain additional financing on acceptable terms, or at all, to continue to fund its operations, and may be required to delay, reduce the scope of, or eliminate one or more of its research and development programs, or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop; (2) the Company's product opportunities may not be successfully developed, proven to be safe and efficacious in clinical trials, may not meet applicable regulatory standards, may not receive the required regulatory approvals, or may not be produced in commercial quantities at reasonable costs or be successfully commercialized and marketed; (3) the Company may default in payments required under certain licensing agreements, thereby potentially forfeiting its rights under those agreements; (4) due to rapid technological change and innovation, the Company may not have a competitive advantage in its fields of technology or in any of the fields in which the Company may concentrate its efforts; (5) government regulation may prevent or delay regulatory approval of the Company's products; (6) the Company may not develop or receive sublicenses or other rights related to proprietary technology that are patentable, one or more of the Company's pending patents may not issue, any issued patents may not provide the Company with any competitive advantages, or issued patents may be challenged by third parties; (7) the Company may not have the resources available to build or otherwise acquire its own marketing capabilities, or agreements with other pharmaceutical companies to market the Company's products may not be reached on terms acceptable to the Company; (8) manufacturing and supply agreements entered into by the Company may not be adequate or the Company may not be able to enter into future manufacturing and supply agreements on acceptable terms; (9) private health insurance and government health program reimbursement price levels may not be sufficient to provide a return to the Company on its investment in new products and technologies; (10) the Company may not be able to maintain or obtain product liability insurance for any future clinical trials; (11) the failure to meet the American Stock Exchange's ("AMEX") listing guidelines may result in the Common Stock of the Company no longer being eligible for listing on the AMEX, which would make it more difficult for investors to dispose of, or to obtain accurate quotations as to the market value of the Company's Common Stock and would make it more difficult for the Company to raise additional funds; (12) announcements of developments in the medical field generally, or in the Company's research areas or by the Company's competitors specifically, may have a materially adverse effect on the market price of, the Company's Common Stock; (13) the exercise of options and outstanding warrants, the conversion of the Company's currently outstanding convertible securities or convertible promissory notes, or conversion of convertible securities issuable in the future may significantly dilute the market price of shares of the Company's Common Stock, and could impair the Company's ability to raise capital through the future sale of its equity securities. Readers are also directed to other risks and uncertainties discussed, as well as to further discussion of the risks described above, in other documents filed by the Company with the Securities and Exchange Commission. The Company specifically disclaims any obligation to update or revise any forward-looking information, whether as a result of new information, future developments, or otherwise. 12 PART II: OTHER INFORMATION Item 2. Changes in Securities. The following unregistered securities were issued by the Company during the quarter ended September 30, 2001.
Number of Date of Sale/ Description of Shares Offering Price Purchase Issuance Securities Issued Sold/Issued per Share ($) or Class ------------- ----------------- ------------ -------------- -------- September 2001 Common Stock 98,611 $1.375 Advisors in lieu of cash consideration
Item 6. Exhibits and Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 2001.
Exhibits -------- 10.32 Amendment to Sublicense and Development Agreement dated September 29, 2001, between Sheffield Pharmaceuticals, Inc. and Inpharzam International S.A. 10.33 Loan and Security Agreement dated September 29, 2001, between Sheffield Pharmaceuticals, Inc. and Inpharzam International, S.A. 10.34 Promissory Note dated September 29, 2001 issued to Inpharzam International, S.A. 10.35 Note Purchase Agreement dated August 14, 2001 between Sheffield Pharmaceuticals, Inc. and Elan Pharma International Ltd. (portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to the Company's application requesting confidential treatment in accordance with Rule 24b-2 as promulgated under the Securities Exchange Act of 1934, as amended). 10.36 Promissory Note dated August 14, 2001 issued to Elan Pharma International Ltd. (portions of this exhibit are omitted and were filed separately with the Securities and Exchange Commission pursuant to the Company's application requesting confidential treatment in accordance with Rule 24b-2 as promulgated under the Securities Exchange Act of 1934, as amended).
13 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHEFFIELD PHARMACEUTICALS, INC. Dated: November 13, 2001 /s/ Loren G. Peterson -------------------------------------------- Loren G. Peterson President & Chief Executive Officer Dated: November 13, 20001 /s/ Scott A. Hoffmann -------------------------------------------- Scott A. Hoffmann Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) 14 EX-10.32 3 c66107ex10-32.txt AMENDMENT TO SUBLICENSE AND DEVELOPMENT AGREEMENT EXHIBIT 10.32 AMENDMENT TO SUBLICENSE AND DEVELOPMENT AGREEMENT This AMENDMENT TO SUBLICENSE AND DEVELOPMENT AGREEMENT (the "Amendment") is made this 28th day of September, 2001, by and between SHEFFIELD PHARMACEUTICALS, INC., a Delaware corporation having a principal place of business at 14528 South Outer Forty Road, Suite #205, St. Louis, Missouri 63017 ("Sheffield") and INPHARZAM INTERNATIONAL, S.A., a corporation organized under the laws of Switzerland and having its principal executive offices at Via Industria 1, 6814 Cadempino, Switzerland and its affiliates, including Zambon Group, S.p.A. (collectively, "Inpharzam"). Sheffield and Inpharzam may be referred to collectively as the "Parties". WHEREAS, Sheffield holds (i) the exclusive worldwide right to be supplied with Devices pursuant to the terms of a certain Basic Supply Agreement by and between Sheffield and Siemens Aktiengesellschaft Keramik und Porzellanwerk ("Siemens"), dated March 21, 1997, and (ii) the exclusive worldwide rights in and to the Sublicensed Patent Rights and Technology pursuant to the terms of Sheffield's License Agreement with Siemens, dated March 21, 1997, and by virtue of its own development work; WHEREAS, Sheffield and Inpharzam entered into a Sublicense and Development Agreement, dated June 15, 1998 (the "Sublicense Agreement"), providing for among other things, an arrangement whereby Inpharzam would be (i) supplied with Devices to facilitate the development of certain Licensed Products and (ii) expected to develop, market and sell the Licensed Products; WHEREAS, pursuant to such Sublicense Agreement and in partial consideration for Inpharzam's purchase of 2,646,153 shares of the Common Stock of Sheffield (the "Inpharzam Shares"), Sheffield granted an exclusive Sublicense to Inpharzam for the Sublicensed Patent Rights and the Technology in the Field in the Territory; WHEREAS, based on mutual discussions and negotiations between them, Sheffield and Inpharzam desire to amend the Sublicense Agreement and modify their respective obligations under the Sublicense Agreement, including, without limitation, (i) a termination of the sublicense between Sheffield and Inpharzam, (ii) a termination of certain payments to be made by Sheffield to Inpharzam, and (iii) providing for the repurchase or disposition of the Inpharzam Shares; NOW THEREFORE, in consideration of the foregoing recitals and the mutual promises set forth herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby, intending to be legally bound, agree that the Sublicense Agreement is hereby amended as of the date of this Amendment as follows: 1. Definitions. Except as otherwise provided herein, capitalized terms used in this Amendment and in the premises shall have the respective meanings ascribed to them in the Sublicense Agreement. Except as otherwise provided herein, section references in this Amendment correspond to those section numbers set forth in the Sublicense Agreement. 2. Termination of Development Program. Except with respect to Section 3.3 of the Sublicense Agreement, which is hereby amended and restated to read as follows, and Section 3.4 of the Sublicense Agreement which shall remain unchanged, the balance of Section 3 therein is hereby deleted, and the rights, duties and obligations of the Parties set forth therein with respect to the Development Program are hereby terminated as of the date of this Amendment. Section 3.3 is hereby amended and restated to read as follows: 3.3 Inventions (a) All intellectual property rights such as patents, patent applications, inventions, data, know-how and the like (hereinafter "Intellectual Property"), owned or controlled by either party prior to the parties entering into this Agreement or the Option Agreement, shall remain the property of such party, subject only to the rights granted herein and to Sheffield's obligations under the Siemens Agreements. (b) All Intellectual Property which relates to Licensed Products pursuant to this Agreement, the Development Plan or any work performed by Inpharzam which was conceived and/or first reduced to practice during the term of this Agreement or the Option Agreement, dated April 14, 1998, between Sheffield and Inpharzam, by personnel employed by or on behalf of either party shall be the property of Sheffield subject only to Sheffield's obligations under the Siemens Agreements. Should Sheffield elect to file patent applications for the same, Sheffield may do so, employing an attorney or agent that Sheffield shall select in its sole discretion and at its sole cost. Inpharzam shall cooperate fully in the prosecution and enforcement of any patent application or patent resulting therefrom and such patents or patent applications shall be the sole property of Sheffield. 3. Termination of Sublicense. Section 4.1 of the Sublicense Agreement is hereby deleted in its entirety and the sublicense to the Sublicensed Patent Rights and the Technology in the Field granted to Inpharzam therein is hereby terminated in all respects. 4. Amendments to Section 4.2 of Sublicense Agreement. (a) Section 4.2(b) of the Sublicense Agreement is hereby deleted. In connection with such deletion of Section 4.2(b), the Subscription Agreement referred to therein, including any provisions relating to the grant of an option to purchase shares of common stock of Sheffield, shall have no further force or effect as of the date hereof. (b) Inpharzam will retain its designee to the Board of Directors of Sheffield as set forth in Section 4.2(c) of the Sublicense Agreement until such time as the first repurchase of the Inpharzam Shares described in Section 13(a) hereof is consummated. Following such repurchase, Inpharzam shall have no further rights to any board seat, or any board observer or information rights. Notwithstanding the foregoing, nothing in this Section shall be deemed a waiver of any (i) applicable shareholder information rights to which Inpharzam is entitled under Delaware law or (ii) reports with respect to royalty payments on the Subject Products, described in Exhibit B, to which Inpharzam is entitled under the Sublicense Agreement. 2 (c) Section 4.2(d) of the Sublicense Agreement is amended as provided in Section 15 of this Amendment. (d) Sections 4.2(e), (f), (g), (h) and (i) of the Sublicense Agreement are hereby deleted in their entirety. 5. Termination of Royalties. The royalty obligations set forth in Section 4.3 of the Sublicense Agreement, pursuant to which Inpharzam is to have made royalty payments to Sheffield, are hereby terminated. Any royalty obligations continuing between the parties from and after the date of this Amendment are set forth in Section 16 of this Amendment. The provisions of Sections 4.4, 4.5, 4.6, 4.7 and 4.8 are hereby amended so that they shall be deemed to apply only to the payment obligations of Sheffield to Inpharzam set forth in Section 16 of this Amendment. 6. Regulatory, Co-Promotion. Sections 4.9 and 4.10 of the Sublicense Agreement with respect to regulatory authority and promotion and marketing are hereby deleted in their entirety. 7. Manufacture and Data. (a) Section 5.4(a) and 5.4 (c) of the Sublicense Agreement are hereby deleted. Section 5.4(b) is hereby amended so that the disclosure obligations of Inpharzam shall survive, on a product by product basis, with respect to each Licensed Product until FDA approval or Non-US Regulatory Authority is obtained and the disclosure obligations of Sheffield shall continue until such time as the board seat of Inpharzam is terminated. Thereafter, Sheffield shall have no further disclosure obligations to Inpharzam, except to the extent that Inpharzam is threatened to be made a party to litigation against which Inpharzam is not fully indemnified by Sheffield. (b) Except with respect to Section 7(d), which shall remain unchanged, the balance of Section 7 is hereby deleted. 8. Termination of Commercial Efforts. Sections 6.1 and 6.3 of the Sublicense Agreement are hereby deleted. Section 6.2 is hereby amended and restated to read as follows: 6.2 Sheffield hereby agrees that it shall use commercially reasonable efforts, or shall cause its Affiliates or sublicensees to use commercially reasonable efforts, to seek FDA approval for and to market and sell the Licensed Products described in Exhibit B in the Field in the United States. 9. Assumption of Contracts. On or as soon as practicable following the date of execution and delivery of this Amendment, or as soon thereafter as practicable but as of the date of this Amendment, Inpharzam shall assign to Sheffield, and Sheffield shall assume all obligations of Inpharzam accruing from and after the date of this Amendment with respect to, the contracts set forth on Exhibit A attached hereto and made a part hereof. As soon as practicable following the execution of this Amendment, Inpharzam shall provide Sheffield with copies of all contracts and documents executed in connection with the Sublicense Agreement, whether or not such contracts or documents have expired or are no longer valid. Inpharzam acknowledges and agrees that, except with respect to the contracts set forth on Exhibit A, it has not entered into any 3 leases, employment arrangements, or other material contracts by which Sheffield may be bound. Inpharzam hereby covenants and agrees that it shall be solely responsible for obtaining the consents of any third party required for the transfer or assignment of such contracts or agreements including, without limitation, any fees or expenses in connection therewith. 10. Amendments to Section 8 of the Sublicense Agreement. (a) Section 8.6 is hereby deleted in its entirety. (b) The first sentence of Section 8.2 of the Sublicense Agreement is hereby deleted in its entirety. (c) In the event a third-party shall be infringing any rights to the Licensed Products described in Exhibit B which, in Sheffield's reasonable determination will result in a material adverse effect on the royalty payments provided in Section 16 below, Sheffield shall use commercially reasonable efforts to cause the infringing third party to cease and desist from such infringement. (d) The balance of Section 8 shall remain unchanged. 11. Amendments to Section 9 of the Sublicense Agreement. (a) Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.7 and 9.8 of the Sublicense Agreement are hereby deleted. (b) Section 9.9 of the Sublicense Agreement shall be amended by changing the words "subsection 5.4(e)" to "subsection 5.4(d)". 12. Amendments to Section 17 of the Sublicense Agreement. Section 17.8 of the Sublicense Agreement is hereby deleted. Section 17.1 of the Sublicense Agreement is hereby amended and restated to read as follows: 17.1 This Agreement (including the Appendices attached hereto), as amended by that certain Amendment to Sublicense and Development Agreement, dated September 28, 2001, and the Confidentiality Agreement constitute the entire agreement between the parties and, except as noted in Article 2 of this Agreement, supersede all prior written or oral agreements or understandings concerning the subject matter thereof or in conflict with their terms. 13. Repurchase of Inpharzam Shares. (a) As of the date of this Amendment, Sheffield shall repurchase from Inpharzam 214,997 of the Inpharzam Shares for an aggregate purchase price of Six Hundred Forty Two Thousand Eight Hundred Forty One Dollars and 03/100 dollars ($642,841.03) (the "Initial Repurchase"). Solely in connection with the Initial Repurchase under this subsection (a), Inpharzam shall make a payment of $642,841.03 on account of an invoice presented to Inpharzam by Sheffield for unreimbursed expenses. Such payment for unreimbursed expenses in the amount of $642,841.03 represents all amounts due and owing on account of such invoice and represents all amounts owing by Inpharzam to Sheffield, except as otherwise provided in this 4 Amendment. Simultaneously with the execution and delivery of this Amendment, or as soon thereafter as shall be practicable (but not later than five days after such execution and delivery), Inpharzam shall deliver to Sheffield a certificate representing the 214,997 Inpharzam Shares. (b) In addition, Inpharzam hereby grants to Sheffield an option to repurchase from Inpharzam, at any time before December 31, 2002, any Inpharzam Shares not otherwise purchased by Sheffield pursuant to this Section 13, at the Redemption Price, as defined in subsection (d) below. (c) To the extent that either of the following two events occurs prior to December 31, 2002, Sheffield shall repurchase Inpharzam Shares from Inpharzam in the following manner: (i) In the event Sheffield completes a sublicense for the North American rights to Licensed Products with a third party, Sheffield will repurchase, at the Redemption Price, 882,051 Inpharzam Shares; and (ii) In the event Sheffield completes a sublicense for the ex-North American rights to Licensed Products with a third party, Sheffield will repurchase, at the Redemption Price, an additional 882,051 Inpharzam Shares. Notwithstanding the foregoing, the number of Inpharzam Shares which Sheffield shall be obligated to purchase pursuant to the first to occur of clause (i) or clause (ii) above shall be reduced by the number of Inpharzam Shares repurchased under the Initial Repurchase. (d) For purposes of this Amendment, the redemption price per share shall equal $3.03 (the "Redemption Price"). (e) To the extent that there remain Inpharzam Shares on December 31, 2002 (the "Remaining Inpharzam Shares") which shall not have been repurchased under this Section 13, such shares shall be free and clear of any restriction on resale, other than restrictions of applicable federal and state securities laws, and Inpharzam shall be permitted to sell such shares to any third party in any manner desired, subject only to applicable securities laws. Upon the request of Inpharzam, Sheffield agrees promptly to remove any restrictive legend or legends on the certificate or certificates representing the Remaining Inpharzam Shares. 14. Deliveries/Transfer of Intellectual Property. Simultaneously upon the execution and delivery of this Amendment, Inpharzam will deliver, transfer, convey and assign to Sheffield all Intellectual Property referred to in Section 3.3 of the Sublicense Agreement, as amended hereby. Inpharzam shall cooperate and assist in the transfer to Sheffield of all Investigational New Drug Applications ("IND'S") and all other regulatory filings relating to the Sublicense Agreement for which Inpharzam is a sponsor. Inpharzam will do each and every act as may be necessary or reasonably requested by Sheffield to evidence the transfer of ownership of such Intellectual Property to Sheffield. 5 15. Repayment of Loan. Section 4.2(d) of the Sublicense Agreement is hereby deleted in its entirety and is hereby replaced by the following: (d) It is expressly acknowledged and agreed that Inpharzam has extended an interest-free line of credit in the amount of Two Million Dollars to Sheffield, $1,000,000 on May 10, 1999, and $1,000,000 on January 11, 2001 (the "Line of Credit Loan"). It is expressly understood and agreed that Sheffield shall repay the Line of Credit Loan as follows: (i) Sheffield shall make a payment of One Million Dollars on the earlier of (x) December 31, 2003 or (y) the first regulatory approval date for either Albuterol or the inhaled steroid; and (ii) Sheffield shall make a final repayment on the Line of Credit Loan in the amount of One Million Dollars ($1,000,000) on the earlier of (x) December 31, 2005 or (y) the first regulatory approval date for the second of the products to be approved (either Albuterol or the inhaled steroid). 16. Continuing Royalty Obligations. From and after the date hereof, Sheffield may, solely or in conjunction with a third party sublicensee or commercial partner, continue development activities with respect to the Sublicensed Patent Rights and the Technology in the Field. In the event that certain products, described on Exhibit B, reach commercialization as a direct result of any prior development efforts conducted by Inpharzam under the Sublicense Agreement, Inpharzam shall be entitled to royalties derived from such products, if any, as set forth on Exhibit B. Except with respect to the stock repurchase and royalty obligations set forth herein, and the repayment of the Line of Credit Loan, and except as otherwise expressly set forth in this Amendment or the Sublicense Agreement, as amended hereby, Sheffield shall have no further obligation to make payments of any type to Inpharzam from and after the date of execution and delivery of this Amendment. 17. Representations and Warranties of Sheffield. Sheffield hereby represents and warrants to Inpharzam as follows: (a) Organization, Good Standing and Qualification. Sheffield is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. Sheffield is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on Sheffield or its business. (b) Corporate Power. Sheffield has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Amendment and to carry out the provisions of this Amendment and the Sublicense Agreement, as amended hereby, and to carry on its business as presently conducted and as presently proposed to be conducted. 6 (c) Authorization. All corporate action on the part of Sheffield, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Amendment, the performance of all obligations of Sheffield hereunder and under the Sublicense Agreement, as amended hereby, has been taken. This Amendment and the Sublicense Agreement, as amended hereby, constitute the valid and binding obligations of Sheffield, enforceable in accordance with their terms. (d) Compliance with Other Instruments, None Burdensome, etc. Sheffield is not in violation of any term of its Certificate of Incorporation, as amended to date, or its By-Laws, or, to the best of its knowledge, in any material respect, of any term or provision of any material mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or decree, any order, statute rule or regulation applicable to Sheffield where such violation would materially and adversely affect Sheffield. The execution, delivery and performance of and compliance with this Amendment and the Sublicense Agreement, as amended hereby, and the performance of such agreements, with or without the passage of time or giving of notice, will not result in any material violation of, or conflict with, or constitute a material default under, Sheffield's Certificate of Incorporation or By-Laws or any of its agreements or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of Sheffield or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to Sheffield, its business or operations or any of its assets or properties. (e) Reporting Status. Sheffield's Common Stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Sheffield has filed in a timely manner all documents that Sheffield was required to file under the Exchange Act during the 12 months preceding the date of this Amendment, and all such documents ("SEC Reports") complied in all material respects with the requirements of the Exchange Act as of their respective filing dates, and the information contained therein as of the date thereof did not contain 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 in light of the circumstances under which they were made, not misleading. 18. Representations and Warranties of Inpharzam. Inpharzam hereby represents and warrants to Sheffield as follows: (a) Organization, Good Standing and Qualification. Inpharzam is a corporation duly organized and validly existing under, and by virtue of, the laws of Switzerland and is in good standing under such laws. Inpharzam is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on Inpharzam or its business. (b) Corporate Power. Inpharzam has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Amendment and to carry out the provisions of this Amendment and the Sublicense Agreement, as amended 7 hereby, and to carry on its business as presently conducted and as presently proposed to be conducted. (c) Authorization. All corporate action on the part of Inpharzam, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Amendment, the performance of all obligations of Inpharzam hereunder and under the Sublicense Agreement, as amended hereby, has been taken. This Amendment and the Sublicense Agreement, as amended hereby, constitute the valid and binding obligations of Inpharzam, enforceable in accordance with their terms. (d) Compliance with Other Instruments, None Burdensome, etc. The execution, delivery and performance of and compliance with this Amendment and the Sublicense Agreement, as amended hereby, and the performance of such agreements, with or without the passage of time or giving of notice, will not result in any material violation of, or conflict with, or constitute a material default under, Inpharzam's organization documents or any of its agreements. 19. Releases Of Liability. (a) Except with respect to third party infringement claims which may arise, Sheffield hereby remises, releases and forever discharges Inpharzam, and its present and former parents, subsidiaries, affiliates, agents, employees, attorneys, servants, predecessors, successors, and assigns (hereinafter collectively referred to as the "Inpharzam Released Parties") of and from any and all manner of debts, contracts, agreements, promises, claims, demands, actions, suits, causes of action or other liabilities of any kind, nature or description whatsoever, in law, equity, arbitration or any other forum, state or federal, whether absolute or contingent, known or unknown, foreseen or unforeseen, which Sheffield, its present and former parents, subsidiaries, affiliates, agents, employees, attorneys, servants, predecessors, successors, and assigns ever had, now has or hereinafter can, shall or may have against the Inpharzam Released Parties, upon, by reason of or relating directly or indirectly to the performance of their respective obligations through the date of this Amendment under the Sublicense Agreement. (b) Except with respect to third party infringement claims which may arise, Inpharzam hereby remises, releases and forever discharges Sheffield, and its present and former parents, subsidiaries, affiliates, agents, employees, attorneys, servants, predecessors, successors, and assigns (hereinafter collectively referred to as the "Sheffield Released Parties") of and from any and all manner of debts, contracts, agreements, promises, claims, demands, actions, suits, causes of action or other liabilities of any kind, nature or description whatsoever, in law, equity, arbitration or any other forum, state or federal, whether absolute or contingent, known or unknown, foreseen or unforeseen, which Inpharzam, its present and former parents, subsidiaries, affiliates, agents, employees, attorneys, servants, predecessors, successors, and assigns ever had, now has or hereinafter can, shall or may have against the Sheffield Released Parties, upon, by reason of or relating directly or indirectly to the performance of their respective obligations through the date of this Amendment under the Sublicense Agreement. 20. Cooperation. Inpharzam shall cooperate with all reasonable requests made by Sheffield to facilitate any due diligence investigation which may be performed by a potential 8 third-party sublicensee of any or all of the Sublicensed Patent Rights and Technology. Inpharzam shall also cooperate with all reasonable requests for information made by Sheffield to provide copies of all relevant documentation with respect to the expired contracts, including reasonable access to all personnel who worked on such contracts, and those documents described in Section 9 of this Amendment and on Exhibit A hereto. Inpharzam shall have the right to identify possible partners to take over Inpharzam's former development role under the Sublicense Agreement. Any such possible partner shall be evaluated in good faith by Sheffield, but Sheffield shall not be obligated to pursue any discussions initiated by Inpharzam if Sheffield concludes, in its sole discretion, that further consideration of the potential partnership is not commercially justified. 21. Public Statements. Inpharzam will cooperate with Sheffield to make any and all appropriate public disclosures that may be required by Sheffield's status as a public entity. Neither Party will issue any press release or make any public statements, relating to this Amendment, the Sublicense Agreement or the Parties without the prior written consent of the other. 22. Survival of Obligations. Except as otherwise set forth herein, the Sublicense Agreement, including all provisions relating to confidentiality, cooperation and the representations and warranties contained therein, are hereby ratified and confirmed by the Parties hereto and shall remain in full force and effect. 23. Notices. Section 16 of the Sublicense Agreement is hereby deleted and replaced with the following language: 16. Notices. All notices and other communication required or permitted to be given under or in connection with this Agreement shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), express courier services (signature required), telexed, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof): If to Inpharzam: If to Sheffield: - --------------- --------------- Inpharzam International Sheffield Pharmaceuticals, Inc. Via Industria 1 3136 Winton Road South, Suite 306 6814 Cadempino, Switzerland Rochester, NY 14623 Attn: Managing Director Attn: Chairman Fax: 011-41919664351 Fax: 716-292-0522 With a copy to: With a copy to: - -------------- -------------- Zambon Group, S.p.A. Sheffield Pharmaceuticals, Inc. 2091 Bresso 14528 South Outer Forty Road, Suite 205 Via Lillo del Duca, 10 St. Louis, MO 63017 Milan, Italy Attn: Corporate Secretary Attn: Chairman Fax: 314-579-9799 9 24. Counterparts. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. [Signature Page Follows] 10 IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the date first written above. SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Thomas M. Fitzgerald ------------------------------------- Name: Thomas M. Fitzgerald Title: Chairman INPHARZAM INTERNATIONAL, S.A. By: /s/ Roberto Rettani ------------------------------------- Name: Roberto Rettani Title: Vice President 11 EXHIBIT A Contracts To Be Assigned ------------------------ 1. Research Agreement, dated June 22, 2000, by and between Zambon Corporation and Edwin A. Bronsky, M.D. 2. Contract No. ZAM CL-052250, dated June 23, 2000, by and between Zambon Corporation and Coromed, Inc. 12 EXHIBIT B Royalty Payments Sheffield shall pay to Inpharzam royalties as a percentage of Sheffield's Net Proceeds, if any, resulting from the sale of any of the Licensed Products described in this Exhibit B (the "Subject Products") under the Sublicense Agreement, in accordance with the following schedule: o Ten percent (10%) of Net Proceeds received by Sheffield with respect to MSI (Metered Solution Inhaler) Albuterol, for so long as Sheffield receives such Net Proceeds. o Eight percent (8%) of Net Proceeds received by Sheffield with respect to MSI Ipratropium, during the first five (5) years of commercial sale and Sheffield is in receipt of net royalties from such third-party sublicensee. o Eight percent (8%) of Net Proceeds received by Sheffield with respect to MSI Cromolyn during the first five (5) years of commercial sale and Sheffield is in receipt of such Net Proceeds. The term "Net Proceeds" shall mean: (a) Net Sales by Sheffield or any affiliated company resulting from the sale of any Subject Products; (b) Royalties paid to Sheffield by any sublicensee or joint venturer of Sheffield resulting from the sale of any Subject Products; (c) Notwithstanding the terms of subsections (a) and (b), all payments constituting Net Proceeds pursuant to this Exhibit B shall be net of any existing royalty or other payment obligations to Siemens with respect to the Licensed Products. 13 EX-10.33 4 c66107ex10-33.txt LOAN AND SECURITY AGREEMENT EXHIBIT 10.33 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT, dated as of September 28, 2001, is made and entered into by and between SHEFFIELD PHARMACEUTICALS, INC., a Delaware corporation ("Borrower"), and INPHARZAM INTERNATIONAL, S.A., a Swiss corporation ("Lender"). W I T N E S S E T H: ------------------- WHEREAS, Borrower desires to borrow $2,500,000 from Lender, and Lender is willing to make such loan to Borrower, on the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINED TERMS. The following terms when used in this Agreement shall have the following meanings: "Agreement" means, on any date, this Loan and Security Agreement as originally in effect on the hereof and as thereafter from time to time amended, supplemented or otherwise modified and in effect on such date. "Authorized Officer" means Borrower's officers whose signatures and incumbency shall have been certified to Lender pursuant to Section 4.1(d). "Borrower" is defined in the preamble. "Business Day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York, U.S. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 50% or more of the outstanding shares of voting stock of Borrower. "Collateral" is defined in Section 3.1. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Default Rate" means 15% per annum. "Disbursement" is defined in Section 2.1. "Dollar" and the sign "$" mean lawful money of the United States. "Event of Default" is defined in Section 8.1. "Initial Disbursement" is defined in Section 2.1. "Instrument" means any contract, agreement, indenture, mortgage, document or writing (whether by formal agreement, letter, or otherwise) under which any obligation is evidenced, assumed or undertaken, or any Lien (or right or interest therein) is granted or perfected. "Lender" is defined in the preamble of this Agreement. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan" is defined in Section 2.1. "Loan Document" means this Agreement, the Note and each other agreement, document or Instrument executed and delivered in connection with this Agreement, as any and all of the foregoing may be amended, supplemented, amended and restated, or otherwise modified from time to time in accordance with the provisions hereof and thereof. "Loan Rate" means 2.0% per annum. "Note" means the promissory note of Borrower payable to Lender, in the form of Exhibit A hereto (as such promissory note may be amended, supplemented, endorsed or otherwise modified from time to time), evidencing the Loan, and any other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Obligations" means all obligations (monetary or otherwise) of Borrower, however created, arising, or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, which arise out of or in connection with this Agreement, the Note or any other Loan Document. "Organic Document" means Borrower's certificate of incorporation, bylaws and all stockholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Person" means any natural person, corporation, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "UCC" shall mean the Uniform Commercial Code as in effect from time to time and enacted in the State of New York, U.S. "United States" or "U.S." means the United States of America. 2 1.2 USE OF DEFINED TERMS. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Note and each Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. 1.3 CROSS-REFERENCES. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article are references to such Article of this Agreement or such other Loan Document, as the case may be. ARTICLE II LOAN 2.1 LOAN. Subject to the terms and conditions hereof, Lender shall make a term loan (the "Loan") to Borrower. The principal amount of the Loan shall be Two Million Five Hundred Thousand Dollars ($2,500,000), and shall be disbursed as follows (each, a "Disbursement"): (a) $1,000,000 upon execution of this Agreement and fulfillment of all conditions set forth in Article IV hereof (the "Initial Disbursement"); (b) $1,000,000 on January 1, 2002; and (c) $500,000 on April 1, 2002. 2.2 NOTE. The Loan shall be evidenced by the Note. The Note shall be of even date herewith, shall bear interest at the rates and be repayable as to principal and interest in accordance with the terms hereof and as specified in the Note. In the event of any conflict between the provisions hereof and those set forth in the Note, the provisions in this Agreement shall control. 2.3 PREPAYMENTS. Borrower may, at its option, prepay the Loan in whole at any time or in part from time to time, free of any prepayment penalties or premiums. All amounts paid by Borrower to Lender shall first be applied to any outstanding taxes, fees, penalties, charges and assessments due Lender, then to interest accrued but unpaid and then to principal. ARTICLE III SECURITY AGREEMENT 3.1 SECURITY INTEREST. To secure the prompt payment of the Loan and the performance of Borrower's other Obligations under this Agreement, Borrower hereby irrevocably grants to Lender a first and continuing security interest in the Sublicensed Patent Rights, as that term is defined in the Sublicense and Development Agreement (the "Sublicense Agreement"), dated June 15, 1998, between Borrower and Lender, as amended (the "Collateral"). 3 3.2 TITLE, SUBORDINATION, ETC. Borrower has and shall retain all rights necessary or appropriate to grant Lender the first security interest and other rights in the Collateral contained herein free and clear of all liens, claims, security, interests and other encumbrances, except those created hereby in favor of Lender and any pre-existing rights of Siemens Aktiengesellschaft Keramik and Porzellanwerk ("Siemens") as owner of some or all of the Sublicensed Patent Rights, and Borrower shall warrant and defend its right, title and/or interest in and to the Collateral, subject to the rights of Lender and/or Siemens, against the claims and demands of all Persons whomsoever. Without limiting the generality of the foregoing, Borrower shall not pledge, assign or otherwise encumber, or permit any Liens or security interests to attach to, any of the Collateral, nor permit any of the Collateral to be levied upon under any legal process; provided, however, that Borrower shall: (a) be permitted to sublicense the Collateral, or any part thereof, to one or more bona fide third parties, provided that such sublicenses are negotiated at arms-length on commercially reasonable terms. In the event that such a sublicense is granted, the security interest granted to the Lender in this Agreement shall for the duration of the sublicense no longer be applicable to that portion of the Collateral licensed to the third-party, and Lender shall have a first and continuing security interest in and to the sublicense and all proceeds of the sublicense received or to be received by the Borrower (including without limitation all royalty payments and milestone payments), and in and to any other sublicenses, and the proceeds of any other sublicenses, granted subsequently with respect to that portion of the Collateral, such that upon an Event of Default (as defined in Section 8.1 of this Agreement), Lender shall be entitled to such proceeds, until such time as all principal and interest amounts due to the Lender under the Note are paid; and (b) be permitted to incur indebtedness to any bank or institutional lender which would constitute Senior Indebtedness, as defined herein, which Senior Indebtedness shall be senior to the payment obligations of Borrower to Lender hereunder and pursuant to the Note, and in connection with such Senior Indebtedness Borrower may pledge, assign or permit a security interest to attach to the Collateral. For purposes of this subsection (b), Senior Indebtedness shall mean (i) all principal of and interest and other obligations arising on or with respect to debt of the Borrower to any bank or other institutional lender, including but not limited to all renewals, extensions, restructurings and guarantees, from time to time, of the foregoing. 3.3 TAXES AND LIENS. Borrower shall immediately notify Lender in the event there ever arises against any of the Collateral any lien, assessment or tax or other liability, whether or not entitled to priority over Lender's security interest hereunder. In any such event, whether or not such notice is given Lender shall (unless such lien, assessment, tax or other liability is the subject of an appeal by Borrower and an appropriate bond has been posted to stay the effect of any resulting lien) have the right (but shall be under no obligation) to pay any tax or other liability of Borrower deemed by Lender in good faith to affect Lender's interests hereunder. Borrower shall repay to Lender on demand all sums which Lender shall have paid under this section in respect of taxes or other liabilities of Borrower, with interest thereon at the Loan Rate, and Borrower's liability to Lender for such repayment with interest shall be included in the Obligations. Lender shall be subrogated to the extent of any such payment by it to all the rights and liens of the lienholder against Borrower's assets. 4 3.4 LOCATIONS. Borrower agrees to notify Lender promptly in the event of a change in the location of any place of business or the establishment of any additional place of business of Borrower. 3.5 FURTHER ASSURANCES. Borrower shall execute and deliver to Lender from time to time all such other agreements, instruments and other documents (including without limitation all requested financing and continuation statements) and do all such other further acts and things as Lender may reasonably request in order to further evidence or carry out the intent of this Agreement or to perfect the liens and security interest created hereby or intended so to be. 3.6 POWER OF ATTORNEY. Borrower hereby irrevocably appoints any officer, employee or agent of Lender as Borrower's true and lawful attorney-in-fact with power, upon the occurrence of an Event of Default and failure to cure such Event of Default within a five (5) day period, to (i) endorse Borrower's name upon any notes, checks, drafts, money orders, or other instruments of payment that may come into Lender's possession and which constitute Collateral or proceeds of any Collateral; (ii) sign and endorse Borrower's name upon any documents of title, invoices, freight or express bills, assignments, verifications and notices in connection with any of the Collateral, and any instruments or documents relating thereto or to Borrower's rights therein; and (iii) execute in Borrower's name and file one or more financing statements covering the Collateral. Any such attorney of Borrower shall have full power to do any and all things necessary to be done with respect to the above transactions as fully and effectually as Borrower might do, and Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. ARTICLE IV CONDITIONS TO DISBURSEMENTS 4.1 CONDITIONS TO INITIAL DISBURSEMENT. Lender's obligation hereunder to advance funds with respect to the Initial Disbursement to Borrower is conditioned upon Borrower's delivery to Lender of each of the following, in such form and substance as is satisfactory to Lender in its sole discretion: (a) A duly executed Note and all other Loan Documents as may be reasonably required by Lender; (b) Evidence satisfactory to Lender that Borrower is organized and in good standing in the State of Delaware and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification; (c) Copies of Borrower's Organic Documents certified by the Secretary of Borrower as true and correct as of the date of the execution of this Agreement by Lender; (d) Certificates of the Secretary of Borrower, dated as of the date of this Agreement, as to incumbency and signatures of the officers of Borrower executing this Agreement, any of the other Loan Documents and any other certificates or other document to be 5 delivered pursuant hereto or thereto, together with evidence of the incumbency of such Secretary; (e) Resolutions of Borrower's board of directors, certified by the Secretary of Borrower, duly adopted and in full force and effect on the date of this Agreement, authorizing (i) the execution, delivery and performance of this Agreement and all other Loan Documents, (ii) the borrowings hereunder and the performance by Borrower of all actions contemplated by this Agreement and the other Loan Documents, (iii) the granting of the Liens provided for in this Agreement, and (iv) specific officers to execute and deliver this Agreement, the other Loan Documents and all other related documents and instruments; and (f) Acknowledgment copies of properly filed UCC financing statements (Form UCC-l), dated a date reasonably near to the date of the Note, or such other evidence of filing as may be acceptable to Lender, naming Borrower as the debtor and Lender as the secured party, or other similar instruments or documents, filed under the UCC of all jurisdictions as may be necessary or, in the opinion of Lender, desirable to perfect the security interest of Lender pursuant to this Agreement. 4.2 CONDITIONS TO ALL DISBURSEMENTS. Lender's obligation hereunder to advance funds with respect to the Initial Disbursement and any subsequent Disbursements, is conditioned upon Borrower's satisfaction of each of the following conditions precedent upon each such Disbursement: (a) No Event of Default and no event which, upon the lapse of time or the giving of notice or both, would become an Event of Default shall have occurred and be continuing; (b) The representations and warranties contained in this Agreement, the Note and all other Loan Documents shall be true and correct; (c) With respect to the license agreement between Borrower and Siemens, Borrower shall not agree to any material amendments that affect the Collateral without the prior approval of Lender, which approval may not be unreasonably withheld; and (d) Borrower shall have delivered to Lender a certificate executed by an Authorized Officer of Borrower confirming the statements made in subsections (a), (b) and (c) above. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce Lender to enter into this Agreement and to make Disbursements hereunder, Borrower represents and warrants unto Lender as set forth in this Article V, as of the date hereof and the date of each Disbursement. 5.1 ORGANIZATION, ETC. Borrower is a corporation validly organized and existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of 6 its business requires such qualification, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under each Loan Document, to obtain loans, to own and hold under lease its property and to conduct its business substantially as currently conducted by it. 5.2 DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, delivery and performance by Borrower of each Loan Document executed or to be executed by it is within Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not: (a) contravene Borrower's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting Borrower; or (c) result in, or require the creation or imposition of, any Lien on Borrower's properties. 5.3 GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by Borrower of any Loan Document. 5.4 VALIDITY, ETC. This Agreement constitutes, and each other Loan Document executed by Borrower shall, on the due execution and delivery thereof, constitute, the legal, valid and binding obligation of Borrower enforceable in accordance with its respective terms. 5.5 COMPLIANCE WITH APPLICABLE LAWS. Borrower is in compliance with the requirements of all applicable laws, rules, regulations and orders of all governmental authorities, a breach of which would materially and adversely affect Borrower's business, credit, operations, financial condition or prospects. 5.6 REGULATIONS U AND X. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of the Loan will be used for a purpose which violates, or would be inconsistent with, Federal Reserve Board Regulation U or X. 5.7 ACCURACY OF INFORMATION. All factual information heretofore or contemporaneously furnished by or on behalf of Borrower in writing to Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of Borrower to Lender shall be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. 7 ARTICLE VI COVENANTS 6.1 AFFIRMATIVE COVENANTS. Borrower agrees with Lender that, until all Obligations incurred by Borrower in relation to the Loan have been finally paid and performed in full, Borrower shall perform the obligations set forth in this Section 6.1. (a) MAINTENANCE OF PROPERTIES. Borrower shall maintain, preserve, protect and keep its properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times unless Borrower determines in good faith that the continued maintenance of any of its properties is no longer economically desirable. Nothing in this Agreement shall be construed as obligating Borrower to file any patent or trademark applications, to continue the prosecution of any patent or trademark application or to maintain any issued patent or registered trademark. (b) BOOKS AND RECORDS. Borrower shall keep books and records which accurately reflect all of its business affairs and transactions and permit Lender or any of its representatives, twice a year (a) to visit all of its offices, (b) to discuss its financial matters with its officers and independent public accountants (and Borrower hereby authorizes such independent public accountants to discuss Borrower's financial matters with Lender or its representatives whether or not any representative of Borrower is present) and (c) to examine any of its books or other corporate records. 6.2 NEGATIVE COVENANTS. Borrower agrees with Lender that, until all Obligations incurred by Borrower in relation to the Loan have been finally paid and performed in full, Borrower shall perform the obligations set forth in this Section 6.2. (a) DIVIDENDS. Borrower shall not declare or pay any dividend or other distribution to its stockholders other than dividends payable in shares of preferred stock of Borrower. (b) MERGER. Borrower shall not, without prior written consent of Lender, consolidate with, merge into or with, or sell all or substantially all of its assets to any other corporation or other entity, unless such surviving or acquiring entity (i) shall assume the Obligations of Borrower hereunder and pursuant to the Note or (ii) Borrower or such surviving or acquiring entity shall pay all sums due under the Note prior to or contemporaneous with the closing of such consolidation, sale or merger. ARTICLE VII TERM 7.1 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING ARRANGEMENT. No termination or cancellation (regardless of cause or procedure) of the financing under this Agreement shall in any way affect or impair the powers, obligations, duties, rights and liabilities of Borrower or the rights of Lender relating to any transaction or event occurring prior to such termination. All undertakings, agreements, covenants, warranties and 8 representations contained in this Agreement shall survive such termination or cancellation and shall continue in full force and effect until such time as all of the Obligations have been paid in full in accordance with the terms of the agreements creating such Obligations, at which time the same shall terminate. ARTICLE VIII EVENTS OF DEFAULT 8.1 LISTING OF EVENTS OF DEFAULT. Each of the following events or occurrences described in this Section 8.1 shall constitute an "Event of Default": (a) Borrower fails to make any payment of principal, interest or other amount when due under this Agreement, the Note or any other Loan Document. (b) Borrower fails to observe and perform any of the covenants or agreements on its part to be observed or performed under this Agreement, the Note, any other Loan Document or any other agreement between Borrower and Lender, including without limitation the Sublicense Agreement. (c) Any representation or warranty of Borrower under this Agreement, the Note or any other Loan Document shall be untrue in any material respect. (d) Borrower (i) applies for or consents to the appointment of a receiver, trustee or liquidator of itself or any of its property, (ii) admits in writing its inability to pay debts as they mature, (iii) makes a general assignment for the benefit of creditors, (iv) is adjudicated bankrupt or insolvent, (v) files a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (vi) takes any action for the purpose of effecting any of the foregoing. (e) Any order, judgment or decree is entered by any court of competent jurisdiction (i) approving a petition seeking reorganization of Borrower or all or a substantial part of the assets of Borrower, or (ii) appointing a receiver, sequester, trustee or liquidator of Borrower or any of its property, and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days or more. (f) The occurrence of any event which would constitute an event of default under any other Loan Document. 8.2 REMEDIES UPON DEFAULT. If any Event of Default shall occur for any reason, whether voluntary or involuntary, Lender may declare all unpaid Obligations of Borrower hereunder and under the Note and/or any other Loan Document immediately due and payable, and Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and Lender may at its option exercise from time to time any and all rights and remedies available to it under the 9 Uniform Commercial Code or otherwise, including the right to collect, assemble, receipt for, adjust, modify, repair, refurnish or refurbish (but without any obligation to do so) or foreclose or otherwise realize upon any of the Collateral and to dispose of any of the Collateral at one or more public or private sales or other proceedings, and Borrower agrees that Lender or its nominee may become the purchaser at any such sale or sales. Borrower agrees that l0 days shall be reasonable prior notice of the date of any public sale or other disposition of all or any part of the Collateral, or of the date on or after which any private sale or other disposition of the same may be made. All rights and remedies granted Lender hereunder or under any other agreement between Lender and Borrower shall be deemed concurrent and cumulative and not alternative, and Lender may proceed with any number of remedies at the same time or at different times until all the Obligations are fully satisfied. The exercise of any one right or remedy shall not be deemed a waiver or release of or an election against any other right or remedy. Borrower shall pay to Lender on demand any and all expenses (including reasonable attorneys' fees and legal expenses) which may have been incurred by Lender with interest at the Default Rate (i) in the prosecution or defense of any action growing out of or connected with the subject matter of this Agreement, the Obligations, the Collateral or any of Lender's rights therein or thereto; or (ii) in connection with the custody, preservation, use, operation, preparation for sale or sale of any of the Collateral, the incurring of all of which are hereby authorized to the extent Lender deems the same advisable. Borrower's liability to Lender for any such payment with interest shall be included in the Obligations. ARTICLE IX MISCELLANEOUS PROVISIONS 9.1 WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement, the Note and of each other Loan Document may from time to time be amended, modified or waived, only if such amendment, modification or waiver is in a writing signed by Borrower and Lender. No failure or delay on the part of Lender or the holder of the Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by Lender or the holder of the Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. 9.2 NOTICES. All notices and other communications required or permitted to be given under or in connection with this Agreement, the Note or any other Loan Document shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), express courier service (signature required), telexed, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof): 10 If to Lender: Inpharzam International, S.A. Via Industria 1 6814 Cadempino, Switzerland Attn: Managing Director Fax: 011-4191966351 with copies to: Zambon Group, SPA 20091 Bresso Via Lillo del Duca, 10 Milan, Italy Attn: Chairman Spencer W. Franck, Jr., Esq. Saul Ewing LLP 1200 Liberty Ridge Drive, Suite 200 Wayne, PA 19087-5055 Fax: 610 408-4405 If to Borrower: Sheffield Pharmaceuticals 14528 South Outer Forty Road, Suite 205 St. Louis, MO 63017-5785 Attn: Chairman Fax: 314-579-9799 with a copy to: Adolfo R. Garcia, P.C McDermott, Will & Emery 28 State Street Boston, MA 02109-1775 Fax: 617-535-3800 9.3 COSTS. Borrower agrees to pay, and to save Lender harmless from all liability for, any stamp, documentary or other taxes which may be payable in connection with the execution or delivery of this Agreement and/or any other Loan Document, the borrowings hereunder or the issuance of the Note. Borrower also agrees to reimburse Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by Lender in connection with the enforcement of any Obligations. 9.4 ASSIGNMENT. Except with the prior written approval of Lender, Borrower may not assign any of its rights or obligations under this Agreement or any of the Loan Documents. Lender may assign all of its rights and obligations under this Agreement or any of 11 the Loan Documents to any Person, its successors and assigns. Any attempted assignment in violation of this Section 9.4 shall be null and void. 9.5 SURVIVAL. The representations and warranties made by Borrower in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. 9.6 SEVERABILITY. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. 9.7 HEADINGS. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. 9.8 EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. 9.9 GOVERNING LAW; ENTIRE AGREEMENT. This Agreement, the Note and each other Loan Document shall each be deemed to be a contract made under and governed by the internal laws of the State of New York, U.S. without giving effect to it principles of conflicts of law. This Agreement, the Note and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. The parties hereto specifically agree to waive all rights to rely on or enforce any oral statements made prior to or subsequent to the execution of this Agreement. 9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 9.11 JURISDICTION. Each party hereby consent that it shall be subject to jurisdiction in the State of New York, U.S. in any legal proceeding or equitable action that relates in any way to this Agreement, the Note or any other Loan Document, and further consents to venue for any such proceeding or action in the state courts of the State of New York and/or the United States District Court for the Southern District of New York. [The remainder of this page has been intentionally left blank] 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. [CORPORATE SEAL] SHEFFIELD PHARMACEUTICALS, INC. Attest: By: By /s/ Thomas M. Fitzgerald --------------------------------- ------------------------------------ Name: Name: Thomas M. Fitzgerald ------------------------------- Title: Chairman Title: ------------------------------ [CORPORATE SEAL] INPHARZAM INTERNATIONAL, S.A. Attest: By: By /s/ Roberto Rettani --------------------------------- ------------------------------------ Name: Name: Roberto Rettani ------------------------------- Title: Vice President Title: ------------------------------ 13 EX-10.34 5 c66107ex10-34.txt PROMISSORY NOTE DATED SEPTEMBER 29, 2001 EXHIBIT 10.34 PROMISSORY NOTE $2,500,000 New York, New York, U.S.A. September 28, 2001 FOR VALUE RECEIVED, SHEFFIELD PHARMACEUTICALS, INC., a Delaware corporation (the "Payor"), intending to be legally bound hereby, promises to pay to the order of INPHARZAM INTERNATIONAL, S.A., a Swiss corporation ("Payee"), at such place as Payee may designate from time to time in writing, the principal sum of Two Million Five Hundred Thousand Dollars ($2,500,000), in lawful money of the United States, together with interest thereon from the date hereof at the rates hereinafter provided, and both payable as hereinafter provided. 1. PURPOSE OF NOTE. This Promissory Note ("Note") is made and delivered by Payor in favor of Payee pursuant to that certain Loan and Security Agreement between Payor and Payee of even date herewith (the "Loan Agreement"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. 2. INTEREST RATE. Interest on the unpaid principal amount of this Note shall accrue from the date hereof at a rate equal to 2% per annum (the "Interest Rate"); provided, however, that from and after the occurrence of any Event of Default and failure to cure such Event of Default within a five (5) day period, the rate of interest on this Note shall automatically increase to 15% for so long as such Event of Default continues. Notwithstanding anything to the contrary herein, the liability of Payor for payment of interest shall not exceed the maximum amount permitted by law, and if any payment by Payor includes interest in excess of such maximum amount, Payee shall apply such excess to the reduction of principal or, if none is due, such excess shall be refunded to Payor. Interest shall be computed on the basis of a 360-day year. 3. PAYMENTS OF PRINCIPAL AND INTEREST. One-third of the principal balance under this Note, together with interest, shall be payable by Payor to Payee upon Payor's execution of a written agreement with one or more third parties to develop, co-promote and/or sell Licensed Products, as such term is defined in that certain Sublicense and Development Agreement, dated June 15, 1998, between Payor and Payee, as amended, in North America. Notwithstanding the foregoing, all unpaid principal and accrued interest shall be due and payable by Payor to Payee, subject to the terms of Section 4, upon the earlier of (a) December 31, 2005, or (b) Approval of the second of the Licensed Products to be Approved. For purposes of subsection (b) hereof, "Approval" shall mean approval for marketing by any health agency or regulating authority in and throughout the world authorized to grant marketing approval for the Licensed Products. 4. SUBORDINATION. a. PAYMENT, SENIOR INDEBTEDNESS. Notwithstanding the foregoing or anything else to the contrary contained herein, each of Payee, for itself, its successors and assigns, and Payor covenants and agrees, and each successor holder of this Note by such holder's acceptance hereof likewise covenants and agrees, that, notwithstanding any provision of this Note to the contrary, the payment of the principal of and interest on this Note shall be subordinated in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full of any Senior Indebtedness as defined in the Loan Agreement. The provisions of this Section 4 shall constitute a continuing representation to all persons who, in reliance upon such provisions, become the holders of or continue to hold the Senior Indebtedness, and such provisions are made for the benefit of the holder of the Senior Indebtedness, and such holder is hereby made obligee hereunder the same as if its name was written herein as such, and it may proceed to enforce such provisions against Payor or against the Payee without the necessity of joining Payor as a party. b. PAYMENT OF THE SENIOR INDEBTEDNESS. In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to Payor or to its property, or, in the event of any proceedings for voluntary liquidation, dissolution or other winding up of Payor, distribution or marshalling of its assets or any composition with creditors of Payor, whether or not involving insolvency or bankruptcy, the Senior Indebtedness shall be paid in full before any payment or distribution of any character, whether in cash, securities or other property, shall be made on account of this Note; and any such payment or distribution shall be paid or delivered directly to the holder of the Senior Indebtedness (or its duly authorized representative), until the Senior Indebtedness shall have been paid in full, and every holder of this Note by becoming a holder hereof shall have designated and appointed the holder of the Senior Indebtedness (and its duly authorized representative) as his, her or its agent and attorney-in-fact to demand, sue for, collect and receive such Senior Indebtedness holder's ratable share of all such payments and distributions and to file any necessary proof of claim therefor and to take all such other action (including the right to vote such Senior Indebtedness holder's ratable share of this Note), in the name of the Holder of this Note or otherwise, as such Senior Indebtedness holder (or its duly authorized representative) may determine to be necessary or appropriate for the enforcement of this Section 4. Payee and each successor holder of this Note, by his, her, or its acceptance hereof, agrees to execute, at the request of Payor, a separate agreement with any holder of the Senior Indebtedness on or substantially on the terms set forth in this Section 4, and to take all such other action as such holder of the Senior Indebtedness (or its duly authorized) representative may request in writing in order to enable such holder of Senior Indebtedness to enforce all claims upon or in respect of such holder's ratable share of this Note. Nothing contained in this Section 4 or elsewhere in this Note is intended to or shall impair, as between Payor and its creditors other than the holder of the Senior Indebtedness, the obligation of Payor, which is unconditional and absolute, to pay to Payee the principal of and interest on the Note as and when the same shall become due and payable in accordance with the terms hereof, or to affect the relative rights of Payee under this Note and creditors of Payee other than the holder of the Senior Indebtedness, or to benefit any other creditors of Payor other than the holder of the Senior Indebtedness, nor shall anything herein or therein prevent Payee from accepting any payment with respect to this Note or exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 4 of the holder of the Senior Indebtedness in respect of cash, property or securities of Payor. c. NO PAYMENT ON NOTE UNDER CERTAIN CONDITIONS. In the event that any default occurs in the payment of the principal of or interest on the Senior Indebtedness (whether as a result of acceleration thereof by the holder of such Senior Indebtedness or otherwise) and 2 during the continuance of such default for a period (the "Standstill Period") up to one hundred and eighty (180) days and thereafter, if judicial or arbitral proceedings shall have been instituted with respect to such defaulted payment and shall be diligently pursued, or (if a shorter period) until such payment has been made or such default has been cured or waived in writing by such holder of the Senior Indebtedness, then and during the continuance of such event no payment of principal or interest on this Note shall be made by Payor or accepted by any holder of this Note who has received notice from Payor or from a holder of the Senior Indebtedness of such event. Notwithstanding the foregoing the maximum amount of time that the holder of this Note may be subject to a Standstill Period in any period of 360 days shall be 180 days plus such period of time as the holder of Senior Indebtedness shall have commenced and be diligently pursuing a judicial or arbitral proceeding with respect to such defaulted payment. d. PAYMENTS HELD IN TRUST. In case any payment or distribution shall be paid or delivered to any holder of this Note before the Senior Indebtedness shall have been paid in full, despite or in violation or contravention of the express terms of this Section 4, such payment or distribution shall be held in trust for and paid and delivered ratably to the holders of the Senior Indebtedness (or its duly authorized representative), until the Senior Indebtedness shall have been paid in full. e. SUBROGATION. Subject to the payment in full of the Senior Indebtedness and until this Note shall be paid in full, Payee shall be subrogated to the rights of the holders of the Senior Indebtedness (to the extent of payments or distributions previously made to such holder of the Senior Indebtedness pursuant to the provisions of subsections (a) and (c) of this Section 4) to receive payments or distributions of assets of Payor applicable to the Senior Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between Payor and its creditors, other than the holder of the Senior Indebtedness, be deemed to be a payment by the Payor; and for the purposes of such subrogation, no payments or distributions to the holder of the Senior Indebtedness to which Payee would be entitled except for the provisions of this Section 4 shall, as between Payor and its creditors, other than the holder of the Senior Indebtedness, be deemed to be a payment by Payor to or on account of the Senior Indebtedness. f. SURVIVAL OF RIGHTS. The right of any present or future holder of the Senior Indebtedness to enforce subordination of this Note pursuant to the provisions of this Section 4 shall not at any time be prejudiced or impaired by any act or failure to act on the part of Payor or any such holder of the Senior Indebtedness, including, without limitation, any forbearance, waiver, consent, compromise, amendment, extension, renewal or by noncompliance by Payor with the terms of such subordination regardless of any knowledge thereof the holder may have or otherwise be charged with. g. AMENDMENT OR WAIVER. The provisions of this Section 4 may not be amended or waived in any manner which is detrimental to the Senior Indebtedness without the consent of the holder of such Senior Indebtedness. 5. PREPAYMENT. Payor, at its option, may prepay the principal amount and accrued interest hereunder at any time in whole or in part without premium or penalty. All amounts paid by Payor to Payee shall first be applied to any outstanding taxes, fees, penalties, charges and assessments due Payee, then to interest accrued but unpaid and then to principal. 3 6. EVENTS OF DEFAULT; REMEDIES. This Note is subject to the "Events of Default" provisions and remedies (including without limitation acceleration provisions) in the Loan Agreement, which are incorporated herein in their entirety. 7. WAIVER. Payor, for itself, its successors and assigns, hereby waives presentment, demand, notice of nonpayment, protest, notice of protest or other notice of dishonor, and any and all other notices in connection with any default in the payment of, or any enforcement of the payment of, all amounts due hereunder. To the extent permitted by law, Payor waives the right to and stay of execution and the benefit of all exemption laws now or hereafter in effect. 8. COSTS AND EXPENSES. Following the occurrence of any Event of Default, Payor shall pay upon demand all reasonable costs and expenses (including all reasonable amounts paid to attorneys, accountants, and other advisors employed by Payee), incurred by Payee in the exercise of any of its rights, remedies or powers under this Note with respect to such Event of Default, and any amount thereof not paid promptly following demand therefor shall be added to the principal sum hereunder and shall bear interest at the Default Rate from the date of such demand until paid in full. 9. MISCELLANEOUS. a. WAIVERS, AMENDMENTS, ETC. The provisions of this Note may from time to time be amended, modified or waived, only if such amendment, modification or waiver is in a writing signed by Payor and Payee. No failure or delay on the part of Payee or the holder of this Note in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on Payor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by Payee or the holder of this Note under this Note shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. b. NOTICES. All notices and other communications required or permitted to be given under or in connection with this Note shall be given in accordance with the notice provisions in Section 9.2 of the Loan Agreement. c. ASSIGNMENT. Except with the prior written approval of Payee which consent may not be unreasonably withheld, Payor may not assign any of its rights or obligations under this Note. Payee may assign any of its rights and obligations under this Note to any Person, its successors and assigns. Any attempted assignment in violation of this Section 8.c. shall be null and void. d. SEVERABILITY. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Note or affecting the validity or enforceability of such provision in any other jurisdiction. 4 e. HEADINGS. The various headings of this Note are inserted for convenience only and shall not affect the meaning or interpretation of this Note or any provisions hereof. f. GOVERNING LAW. This Note shall be governed by the internal laws of the State of New York without giving effect to it principles of conflicts of law. g. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. h. JURISDICTION. Payor hereby consents to jurisdiction in the State of New York in any legal proceeding or equitable action that relates in any way to this Note, and further consents to venue for any such proceeding or action in the state courts of the State of New York and/or the United States District Court for the Southern District of New York. [Signature Page Follows] 5 IN WITNESS WHEREOF, Payor has executed this Note as of the day and year first above written. PAYOR: [CORPORATE SEAL] Attest: SHEFFIELD PHARMACEUTICALS, INC. By: By: /s/ Thomas M. Fitzgerald --------------------------------- ---------------------------------- Its: Its: Chairman -------------------------------- --------------------------------- 6 EX-10.35 6 c66107ex10-35.txt NOTE PURCHASE AGREEMENT EXHIBIT 10.35 *** TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80 (B)(4), 200.83 AND 240.24b-2 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT (the "Agreement"), dated as of August 14, 2001, between SHEFFIELD PHARMACEUTICALS, INC., a Delaware corporation (the "Company"), and ELAN PHARMA INTERNATIONAL LIMITED, an Irish limited company ("EPIL"). R E C I T A L : The parties hereto (or in the case of EPIL, one of its affiliates), are parties to a Securities Purchase Agreement dated as of October 15, 1999 (as amended at any time, the "Purchase Agreement"), pursuant to which, among other things, the Company issued and sold to EPIL and EPIL acquired from the Company certain securities. The parties desire that, in accordance with the provisions hereof, the Company will issue to EPIL and EPIL will acquire from the Company, a promissory note (as amended at any time, the "Note"), in the original principal amount of $4 million, of which $2 million shall be funded on the date hereof and up to the remaining $2 million may be funded in accordance with the terms hereof and thereof (references herein to "dollars" or "$" refer to United States dollars and capitalized terms not defined herein have the meanings ascribed to them in the Purchase Agreement). A G R E E M E N T : The parties agree as follows: SECTION 1. Closings. (a) Time and Place. The closing of the transactions contemplated hereby (the "Closing") shall occur as of the date hereof at the offices of New York counsel of EPIL or at such other place as the parties may agree. (b) Issuance of Note; Etc. At the Closing, the Company and EPIL shall execute and deliver to EPIL the Note and EPIL shall fund to an account designated by the Company $2 million, which is the initial principal amount provided to be funded hereunder. In the event that (x) the company shall have failed [text omitted] on or propr to the date that is 60 days after the date hereof, and (y) there shall be no default or breach by the Company hereunder, under the Note or under the Purchase Agreement or other Transaction Documents and all of the Company's representations herein and therein shall be true and accurate, then, in such events, the Company shall have the right to request from EPIL (which request shall be in writing within 15 days of the expiration of the 60-day period referred to in clause (x) above, and which writing shall confirm the conditions described in clauses (x) and (y) above) that up to an additional $2 million principal amount be funded thereunder (the "Second Funding"), which EPIL shall have the right, in its sole discretion, to elect to fund, to fund in part (up to the requested amount) or not to fund. In the event that EPIL elects to fund all or a portion of the Second Funding, the parties shall thereafter agree on a time and place for such funding and the amount thereof (up to $2 million), EPIL shall fund such amount on such date and an appropriate written notation in respect thereof shall be made by EPIL on the reverse of the Note. There shall be only one funding of the Second Funding and if the entire $2 million is not funded, such unfunded portion shall not be subsequently funded. (c) Exemption from Registration. The Note will be issued under an exemption or exemptions from registration under the Securities Act of 1933, as amended (the "Securities Act"); accordingly, the Note shall, upon issuance, contain the following legend: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT UNDER ANY CIRCUMSTANCES BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE UNDER THE ACT OF AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASOANABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS. SECTION 2. (a) Representations of the Company. Except for representations made as of a specified date not amended hereby, and except as set forth on Schedule 2(a) hereto, the Company incorporates herein and restates, mutatis mutandis, each of the representations made by the Company and set forth in Section 2 of the Purchase Agreement, except that the dates in Sections 2(f) and 2(g) are amended from "December 31, 1998" and "June 30, 1999" to "December 31, 2000" and "June 30, 2001," respectively. In addition, Sections 2(c), 2(d) and 2(e) are amended to include the Note within the definitions of Securities and Transaction Documents, as used therein. (b) Representations of EPIL. Except as set forth on Schedule 2(b) hereto, EPIL incorporates herein and restates, mutatis mutandis, each of the representations made by EPIL and set forth in Section 3 of the Purchase Agreement, as if EPIL were the party making such representations. (c) The representations of the parties hereunder shall survive for a period of 15 months following the date hereof or, if the Second Funding shall have occurred, 15 months following the Second Funding. SECTION 3. Covenants. (a) Use of Proceeds. The Company shall use the disbursements under the Note for general corporate purposes. (b) Further Assurances. From and after the date hereof, each of the parties hereto agree to do or cause to be done such further acts and things and deliver or cause to be delivered to each other such additional assignments, agreements, powers and instruments, as 2 each may reasonably require or deem advisable to carry into effect the purposes of this Agreement and the Note. (c) Non-disclosure. From and after the date hereof, neither the Company nor EPIL shall disclose to any person or entity (other than its directors, officers and agents who need to know such information in connection with the transactions described herein and the Note, each of whom shall be informed of this confidentiality provision and in respect of whose breaches the Company shall be responsible) the content of this Agreement and the Note or the substance of the transactions described herein, without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed), except to the extent required by applicable laws, regulations or administrative or judicial processes in respect of press releases, periodic reports or other public disclosure prepared in good faith by the Company or EPIL; provided, that EPIL and the Company shall each provide the other with a reasonable opportunity to review such releases or reports prior to release. This Section 3(c) shall not be construed to prohibit disclosure of any information which has not been previously determined to be confidential by EPIL or the Company, or which shall have become publicly disclosed (other than by breach obligations of the Company or EPIL hereunder). SECTION 4. Notices. All notices, demands and requests of any kind to be delivered to any party in connection with this Agreement shall be in writing and shall be deemed to have been duly given if personally or hand delivered or if sent by an internationally-recognized overnight courier or by registered or certified airmail, return receipt requested and postage prepaid, or by facsimile transmission addressed as follows: (i) if to the Company, to: Sheffield Pharmaceuticals, Inc. South Winton Court 3136 Winton Road South Suite 306 Rochester, New York 14623 Attention: Chairman Facsimile: 716-292-0522 and Sheffield Pharmaceuticals, Inc. 1428 South Outer Forty Road, Suite 205 St. Louis, Missouri 63017-5785 Attention: Chief Executive Officer Facsimile: 314-579-9799 with a copy to: McDermott Will & Emery 28 State Street 3 Boston, Massachusetts 02109-1775 Attention: Adolfo Garcia Facsimile: 617-535-3800 (ii) if to EPIL, to: Elan Pharma International Limited Wil House Shannon Business Park Shannon, Co. Clare Ireland Facsimile: 353-61-362097 with a copy to: Reitler Brown LLC 800 Third Avenue, 21st Floor New York, New York 10022 Attention: David Robbins Facsimile: 212-371-5500 or to such other address as the party to whom notice is to be given may have furnished to the other party hereto in writing in accordance with provisions of this Section 4. Any such notice or communication shall be deemed to have been effectively given (i) in the case of personal or hand delivery, on the date of such delivery, (ii) in the case of an internationally-recognized overnight delivery courier, on the second business day after the date when sent, (iii) in the case of mailing, on the fifth business day following that day on which the piece of mail containing such communication is posted, and (iv) in the case of facsimile transmission, the date of telephone confirmation of receipt. Notice hereunder may be given on behalf of the parties by their respective attorneys. SECTION 5. Amendments. This Agreement may not be modified or amended, or any of the provisions hereof waived, except by written agreement of the Company and EPIL. SECTION 6. Counterparts and Facsimile. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute one agreement. Each of this Agreement and the Note may be signed and delivered to the other party by facsimile transmission; such transmission shall be deemed a valid signature. SECTION 7. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of the Agreement. 4 SECTION 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles thereof relating to conflicts of laws. SECTION 9. Expenses. Each of the parties shall be responsible for its own costs and expenses incurred in connection with the transactions contemplated hereby. SECTION 10. Assignments. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement and the Note may be transferred by EPIL to affiliates and subsidiaries and to special purpose financing and similar vehicles, in each case, without restriction (so long as EPIL acts as agent or nominee for determinations hereunder); provided, however, that EPIL shall remain liable for its obligations hereunder after any such assignment. Other than as set forth above, no party shall transfer or assign this Agreement or the Note or any interest therein without the prior written consent of the other party. 5 IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement as of the date first written above. SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Loren G. Peterson ----------------------------------------------- Name: Loren G. Peterson Title: President & Chief Executive Officer ELAN PHARMA INTERNATIONAL LIMITED By: /s/ Kevin Insley ---------------------------------------------- Name: Kevin Insley Title: 6 EX-10.36 7 c66107ex10-36.txt PROMISSORY NOTE DATED AUGUST 14, 2001 EXHIBIT 10.36 *** TEXT OMITTED AND FILED SEPARATELY CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80 (B)(4), 200.83 AND 240.24b-2 SHEFFIELD PHARMACEUTICALS, INC. PROMISSORY NOTE MAXIMUM PRINCIPAL AMOUNT NEW YORK, NEW YORK OF U.S.$4,000,000 (excluding capitalized interest) AUGUST 14, 2001 The undersigned, SHEFFIELD PHARMACEUTICALS, INC., a Delaware corporation, with offices at 425 South Woodsmill Road, St. Louis, Missouri 63017-3441 (the "Company"), unconditionally promises to pay to ELAN PHARMA INTERNATIONAL LIMITED, an Irish limited company ("EPIL"), or its permitted assigns, transferees and successors as provided herein (the "Holder"), on the earlier of (x) date that is 360 days after the date hereof and (y) [text omitted]; provided, that if the Second Funding shall have occurred, then, in such event, the date described in clause (x) shall be the date that is 360 days after the date of the Second Funding (such earlier date in clauses (x) and (y) above, the "Maturity Date"), at such place that may be designated by the Holder to the Company, the principal amount outstanding hereunder (not to exceed U.S.$4,000,000 (excluding capitalized interest)), together with interest thereon accrued at a rate per annum equal to 10%, from and after the date of the initial disbursement of funds hereunder (the "Original Issue Date"), compounded on a semi-annual basis, the initial such compounding to commence on the date that is 180 days from and after the Original Issue Date and thereafter on each 180-day anniversary (each such date, a "Compounding Date"). Interest shall be computed on a 360-day year of twelve 30-day months. SECTION 1. SECURITIES PURCHASE AGREEMENT; SECURITY. This Note is issued pursuant to a Note Purchase Agreement dated as of the date hereof, by and between the Company and EPIL (as amended at any time, the "Note Purchase Agreement"), and the Holder hereof is intended to be afforded the benefits thereof, including the representations and warranties set forth therein. An amount equal to U.S.$2,000,000 shall be funded on the date hereof and up to an additional U.S.$2,000,000 may be funded in accordance with Section 1(b) of the Purchase Agreement. The Company shall use the proceeds of the issuance and sale of this Note solely in accordance with the provisions set forth therein. Capitalized terms used but not otherwise defined herein shall, unless otherwise indicated, have the meanings given such terms in the Note Purchase Agreement (including the meanings of defined terms incorporated therein). SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST. Unless repaid in accordance with the terms hereof, the entire outstanding principal amount of this Note (including capitalized interest, if any), together with any accrued interest thereon, shall be due and payable on the Maturity Date. Accrued interest hereon shall not be paid in cash, but shall be capitalized and added to the principal amount outstanding hereunder on each Compounding Date. This Note may be prepaid at any time at the option of the Company without penalty or premium on at least five business days' prior written notice to the Holder. SECTION 3. EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "Event of Default"): (a) a default in the payment of the principal amount of this Note, when and as the same shall become due and payable, continuing five business days after notice thereof; (b) a default in the payment of any accrued and unpaid interest on this Note, when and as the same shall become due and payable, continuing five business days after notice thereof; (c) a breach by the Company of its obligations hereunder or under the Note Purchase Agreement or under any of the Transaction Documents, which breach remains uncured at the conclusion of the cure period specified within the relevant documents after written notice thereof by EPIL or EIS; (d) a distress, execution, sequestration or other process is levied or enforced upon the Company or sued out against a material part of its property which is not discharged or challenged within 60 days; (e) the Company is unable to pay its debts in the normal course of business; (f) the Company ceases wholly or substantially to carry on its business (other than as a result of the merger or consolidation of the Company with another entity), without the prior written consent of the Holder (such consent not to be unreasonably withheld); (g) the Company shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Company or of any substantial part of the assets of the Company or shall commence any case or other proceeding relating to the Company under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Company by any third party which is not withdrawn or discharged within 60 days; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Company bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Company in an involuntary case under federal bankruptcy laws as now or hereafter constituted; and/or 2 (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than 45 days, whether or not consecutive, any final judgment against the Company that, with other outstanding and undischarged final judgments against the Company exceeds in the aggregate U.S.$250,000. SECTION 4. REMEDIES IN THE EVENT OF DEFAULT. (a) In the case of any Event of Default by the Company, the Holder may in its sole discretion demand that the aggregate amount of funds advanced to the Company under this Note and outstanding hereunder and accrued and unpaid interest thereon shall, in addition to all other rights and remedies of the Holder hereunder and under applicable law, be and become immediately due and payable upon written notice delivered by the Holder to the Company; provided, that in the event of any Event of Default specified in Section 3(g) or 3(h), all such amounts shall become immediately due and payable automatically and without any requirement of demand from or by the Holder. Notwithstanding the preceding sentence, the rights of the Holder as set forth in Section 3 and 4 hereunder shall survive any such acceleration and payment. (b) The Company hereby waives demand and presentment for payment, notice of nonpayment, protest and notice of protest, diligence, filing suit, and all other notice and promises to pay the Holder its reasonable costs of collection of all amounts due hereunder, including reasonable attorneys' fees. (c) In the case of any Event of Default under this Note by the Company, this Note shall continue to bear interest after such default at the interest rate otherwise in effect hereunder plus 3% per annum (but in any event not in excess of the maximum rate of interest permitted by applicable law). SECTION 5. VOTING RIGHTS. This Note shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company. SECTION 6. COVENANTS OF THE COMPANY. (a) The Company shall not use the funds advanced by the Holder to the Company as evidenced by this Note for any use other than as provided in the Note Purchase Agreement. (b) The Company shall not incur any indebtedness for money borrowed which shall rank senior to this Note as to priority of payment and the Company shall not grant, or permit to occur any security interest, lien or other encumbrance against any of its assets other than purchase money security interests not to exceed in the aggregate $100,000, without the prior written consent of the Holder. 3 SECTION 7. MISCELLANEOUS. (a) This Note and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. All or any part of this Note may be assigned or transferred by EPIL to its affiliates and subsidiaries, as well as any special purpose financing or similar vehicle established by EPIL or any of its affiliates or subsidiaries. Other than as set forth above, no party shall assign or transfer all or any part of this Note, or any interest therein, without the prior written consent of the other party. (b) All notices, demands and requests of any kind to be delivered to any party in connection with this Note shall be in writing and shall be deemed to have been duly given if personally or hand delivered or if sent by an internationally-recognized overnight delivery courier or by registered or certified mail, return receipt requested and postage prepaid, or by facsimile transmission addressed as follows: (i) if to the Company, to: Sheffield Pharmaceuticals, Inc. South Winton Court 3136 Winton Road South Suite 306 Rochester, New York 14623 Attention: Chairman Facsimile: 716-292-0522 and Sheffield Pharmaceuticals, Inc. 14528 South Outer Forty Road, Suite 205 St. Louis, Missouri 63017-5785 Attention: Chief Executive Officer Facsimile: 314-579-9799 with a copy to: McDermott Will & Emery 28 State Street Boston, Massachusetts 02109-1775 Attention: Adolfo Garcia Facsimile: 617-535-3800 (ii) if to EPIL, to: Elan Pharma International Limited Wil House Shannon Business Park Shannon, Co. Clare 4 Ireland Facsimile: 353-61-362097 with a copy to: Reitler Brown LLC 800 Third Avenue, 21st Floor New York, New York 10022 Attention: David Robbins Facsimile: 212-371-5500 or to such other address as the party to whom notice is to be given may have furnished to the other party hereto in writing in accordance with provisions of this Section 7. Any such notice or communication shall be deemed to have been effectively given (i) in the case of personal or hand delivery, on the date of such delivery, (ii) in the case of an internationally-recognized overnight delivery courier, on the second business day after the date when sent, (iii) in the case of mailing, on the fifth business day following that day on which the piece of mail containing such communication is posted and (iv) in the case of facsimile transmission, the date of telephone confirmation of receipt. Notice hereunder may be given on behalf of the parties by their respective attorneys. (c) This Note may not be modified or amended, or any of the provisions hereof waived, except by written agreement of the Company and the Holder dated after the date hereof. (d) This Note shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflicts of laws. Any dispute under this Note that is not settled by mutual consent shall be finally adjudicated by any federal or state court sitting in the City, County and State of New York, and the Company consents to the exclusive jurisdiction of such Courts (or any appellate court therefrom) over any such dispute. (e) This Note may be executed and delivered to the Holder by a facsimile transmission; such transmission shall be deemed a valid signature. [Signature page follows] 5 IN WITNESS WHEREOF, the Company has executed and delivered this Note on the date first above written. SHEFFIELD PHARMACEUTICALS, INC. By: /s/ Loren G. Peterson ----------------------------------------- Name: Loren G. Peterson Title: President & Chief Executive Officer EXHIBIT A Outstanding Amount Date Amount Funded Amount Repaid Outstanding Amount Notation By -----END PRIVACY-ENHANCED MESSAGE-----