SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 19, 1999
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COLLAGENEX PHARMACEUTICALS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-28308 52-1758016
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
301 South State Street
Newtown, Pennsylvania 18940
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (215) 579-7388
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. OTHER EVENTS.
On March 19, 1999, CollaGenex Pharmaceuticals, Inc. (the "Company")
entered into a Convertible Loan and Security Agreement (the "Loan Agreement")
with OCM Principal Opportunities Fund, L.P. ("OCM") pursuant to which the
Company issued OCM a convertible note raising $10,000,000 in gross proceeds. In
accordance with the Loan Agreement, the Company executed and delivered to OCM a
12% senior secured convertible note due March 18, 2000 in the principal amount
of $10,000,000 (the "Note"). The Note is mandatorily payable upon the closing of
that certain Stock Purchase Agreement dated March 19, 1999 (the "Purchase
Agreement"), whereby the Company has agreed to sell to OCM and certain other
investors shares of its Series D Cumulative Convertible Preferred Stock, $.01
par value per share, at an aggregate purchase price of $20,000,000. The
consummation of the Purchase Agreement is subject to, among other things,
approval of such transaction by the stockholders of the Company. The Company
intends to seek such approval at its 1999 Annual Meeting of Stockholders. In the
event the Purchase Agreement is not consummated by June 30, 1999, OCM shall have
the option to convert the principal due under the Note into 1,538,462 shares of
Common Stock. The interest due under the Note is also convertible into shares of
Common Stock at a conversion price of $6.50 per share.
The Loan Agreement contains certain covenants including those set forth in
the Purchase Agreement which are incorporated by reference into the Loan
Agreement. Among other things, the Note is secured by a first priority lien on
certain of the Company's existing and future assets, including inventory,
accounts, goods, fixtures and general intangibles, and all of the proceeds of
the foregoing.
Prior to entering into the Note, the Company also executed an amendment to
its Shareholder Protection Rights Agreement in order to exclude OCM as an
Acquiring Person (as defined therein) with respect to the transactions set forth
above.
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Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
Exhibit No. Document
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4.1 Amendment No. 1 to Shareholder
Protection Rights Agreement, dated as
of March 16, 1999, between CollaGenex
Pharmaceuticals, Inc. and American
Stock Transfer & Trust Company.
10.1 Convertible Loan and Security
Agreement dated as of March 19, 1999,
between OCM Principal Opportunities
Fund, L.P. and CollaGenex
Pharmaceuticals, Inc.
10.2 Convertible Note dated March 19, 1999,
made by CollaGenex Pharmaceuticals,
Inc. in favor of OCM Principal
Opportunities Fund, L.P.
10.3 Stock Purchase Agreement dated March
19, 1999, between CollaGenex
Pharmaceuticals, Inc., OCM Principal
Opportunities Fund, L.P. and other
Purchasers set forth therein.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COLLAGENEX PHARMACEUTICALS, INC.
By: /s/ Brian M. Gallagher
--------------------------------------
Name: Brian M. Gallagher, Ph.D.
Title: President, Chief Executive Officer
and Director
March 25, 1999
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EXHIBIT INDEX
Exhibit No. Document
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4.1 Amendment No. 1 to Shareholder
Protection Rights Agreement, dated as
of March 16, 1999, between CollaGenex
Pharmaceuticals, Inc. and American
Stock Transfer & Trust Company.
10.1 Convertible Loan and Security
Agreement dated as of March 19, 1999,
between OCM Principal Opportunities
Fund, L.P. and CollaGenex
Pharmaceuticals, Inc.
10.2 Convertible Note dated March 19, 1999,
made by CollaGenex Pharmaceuticals,
Inc. in favor of OCM Principal
Opportunities Fund, L.P.
10.3 Stock Purchase Agreement dated March
19, 1999, between CollaGenex
Pharmaceuticals, Inc., OCM Principal
Opportunities Fund, L.P. and other
Purchasers set forth therein.
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AMENDMENT NO. 1 TO
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 dated as of March 16, 1999 (the "Amendment") to the
Shareholder Protection Rights Agreement dated as of September 15, 1997 (the
"Agreement"), between CollaGenex Pharmaceuticals, Inc., a Delaware company (the
"Company") and American Stock Transfer & Trust Company, as Rights Agent (the
"Agent").
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. AMENDMENT. The definition of an Acquiring Person, as contained in
Section 1.1 of the Agreement shall be revised in its entirety to read as
follows:
""Acquiring Person" shall mean any Person who is a Beneficial Owner of
more than the Specified Percentage of the outstanding shares of Common
Stock; provided, however, that the term "Acquiring Person" shall not
include any Person (i) who is the Beneficial Owner of more than the
Specified Percentage (as defined below) of the outstanding shares of
Common Stock on the date of this Agreement, or who shall become the
Beneficial Owner of more than the Specified Percentage of the outstanding
shares of Common Stock solely as a result of an acquisition by the Company
of shares of Common Stock, or who shall become the Beneficial Owner of
more than the Specified Percentage of the outstanding shares of Common
Stock as a result of the transactions contemplated by that certain Stock
Purchase Agreement dated March 1999, by and among the Company and the
Investor and Purchasers set forth therein, until such time as any of such
Persons shall become the Beneficial Owner (other than by means of a stock
dividend or stock split) after the date hereof of an additional 1% of the
outstanding shares of Common Stock, provided, that, for the purpose of
determining whether any Person has become the Beneficial Owner of an
additional 1% of the outstanding shares of Common Stock, compensatory
management stock options and other stock-based management awards issued by
the Company subsequent to the date of this Agreement shall not be
included, (ii) who becomes the Beneficial Owner of more than the Specified
Percentage of the outstanding shares of Common Stock but who acquired
Beneficial Ownership of shares of Common Stock without any plan or
intention to seek or affect control of the Company, if such Person
promptly enters into an irrevocable commitment to divest, and thereafter
promptly divests (without exercising or retaining any power, including
voting, with respect to such shares), sufficient shares of Common Stock
(or securities convertible into, exchangeable into or exercisable for
Common Stock) so that such Person ceases to be the Beneficial Owner of
more than the Specified Percentage of the outstanding shares of Common
Stock or (iii) who Beneficially Owns shares of Common Stock consisting
solely of one or more of (A) shares of Common Stock Beneficially Owned
pursuant to the grant or exercise of an option granted to such Person (an
"Option Holder") by the Company in connection with an agreement to merge
with, or acquire, the Company entered into prior to a Flip-in Date,
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(B) shares of Common Stock (or securities convertible into, exchangeable
into or exercisable for Common Stock), Beneficially Owned by such Option
Holder or its Affiliates or Associates at the time of grant of such
option, and (C) shares of Common Stock (or securities convertible into,
exchangeable into or exercisable for Common Stock) acquired by Affiliates
or Associates of such Option Holder after the time of such grant which, in
the aggregate, amount to less than 1% of the outstanding shares of Common
Stock. In addition, the Company, any wholly-owned Subsidiary (as defined
below) of the Company and any employee stock ownership or other employee
benefit plan of the Company or a wholly-owned Subsidiary of the Company
shall not be an Acquiring Person."
2. EFFECT ON THE AGREEMENT. Except as expressly amended by this Amendment,
the Agreement shall remain in full force and effect.
3. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware.
4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
5. EFFECTIVE DATE. This Amendment shall be effective immediately prior to
the execution by the Company of the Stock Purchase Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
as of the date first above written.
COLLAGENEX PHARMACEUTICALS, INC.
By: /s/ Nancy C. Broadbent
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Nancy C. Broadbent
Vice President and Chief Financial
Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Herbert J. Lemmer
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Herbert J. Lemmer
Vice President
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CONVERTIBLE LOAN AND SECURITY AGREEMENT
This is a Convertible Loan and Security Agreement (the "Agreement"),
dated as of March 19, 1999, by and between OCM PRINCIPAL OPPORTUNITIES FUND,
L.P., a Delaware limited partnership, having its principal office at c/o Oaktree
Capital Management, LLC, 333 South Grand Avenue, 28th Floor, Los Angeles,
California 90071 ("Lender"), and COLLAGENEX PHARMACEUTICALS, INC., a Delaware
corporation, having its principal office at 301 South State Street, Newtown,
Pennsylvania 18940 ("Borrower").
BACKGROUND
Lender, Borrower and other Persons named therein are parties to a certain Stock
Purchase Agreement of even date herewith (the "Purchase Agreement"), pursuant to
which Lender has agreed to purchase from Borrower and Borrower has agreed to
sell to Lender shares of Borrower's Series D Cumulative Convertible Preferred
Stock, one-cent ($0.01) par value per share ("Series D Preferred Stock"),
subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Transaction"). One of the conditions to the consummation of the
Purchase Transaction is that the Borrower obtain the approval of the holders of
a majority of the Borrower's Common Stock (as hereinafter defined) to the
Purchase Transaction (the "Stockholders Approval"). Until the Stockholders
Approval is obtained in accordance with the Purchase Agreement, Lender is
willing to make this Convertible Loan (as defined below) to Borrower and
Borrower is desirous of obtaining such loan from Lender on the terms and subject
to the conditions set forth in this Agreement.
TERMS
In consideration of the mutual promises and covenants herein
contained, and intending to be legally bound hereby, Lender and Borrower agree
as follows:
SECTION 1 - DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the following
meanings:
(A) "Accounts" and "General Intangibles" have the meanings given to
those terms in the Uniform Commercial Code of the Commonwealth of Pennsylvania.
(B) "Affiliate" of a Person shall mean (i) a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common
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control with, the first-mentioned Person, and (ii) an "associate", as that term
is defined in Rule 12b-2 promulgated under the Exchange Act as in effect on the
date of this Agreement.
(C) "Collateral" means all the collateral described in Section 4.1.
(D) "Common Stock" means the common stock of Borrower, par value $.01
per share.
(E) "Convertible Loan" has the meaning set forth in Section 2.1.
(F) "Convertible Note" has the meaning set forth in Section 2.1.
(G) "Event of Default" means an event specified in Section 8.1.
(H) "Financial Statements" means the consolidated financial statements
of Borrower.
(I) "Financing Statements" has the meaning set forth in Section 4.3.
(J) "Indebtedness" means all items of indebtedness, obligation or
liability incurred by Borrower to any Person other than Lender, whether matured
or unmatured, liquidated or unliquidated, direct or indirect, joint or several,
including, but without limitation or duplication: (1) all obligations of
Borrower for borrowed money, or with respect to deposits or advances of any kind
to Borrower, (2) all obligations of Borrower evidenced by bonds, debentures,
notes or similar instruments, (3) all obligations of Borrower upon which
interest charges are customarily paid, (4) all obligations of Borrower under
conditional sale or other title retention agreements relating to property
purchased by Borrower, (5) all obligations of Borrower issued or assumed as the
deferred purchase price of property or services (excluding obligations of
Borrower to creditors for raw materials, inventory, services and supplies
incurred in the ordinary course of Borrower's business), (6) all capitalized
lease obligations of Borrower, (7) all obligations of others secured by any Lien
on property or assets owned or acquired by Borrower, whether or not the
obligations secured thereby have been assumed, (8) all obligations of Borrower
under interest rate or currency hedging transactions (valued at the termination
value thereof), (9) all letters of credit issued for the account of Borrower
(excluding letters of credit issued for the benefit of suppliers to support
accounts payable to suppliers incurred in the ordinary course of business), and
(10) all guarantees and arrangements having the economic effect of a guarantee
of Borrower of any indebtedness of any other Person.
(K) "Inventory" means all goods now owned or hereafter acquired
intended for sale or lease, or to be furnished under contracts of service by
Borrower, including, without limitation, all raw materials, goods in process,
finished goods, materials and supplies of every nature and description now owned
or hereafter owned by Borrower, used or which might be
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used in connection with the manufacturing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or consumed in
Borrower's business.
(L) "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity.
(M) "Loan Documents" means the Convertible Note and Financing
Statements described herein, the Security Agreement in the form attached hereto
as Exhibit D and any other document, agreement or instrument made pursuant to
this Agreement or contemplated hereby.
(N) "Material Adverse Effect" means (i) any adverse change in the
condition (financial or otherwise), assets (including without limitation,
patents, licenses to patents and Intellectual Property), liabilities, business,
results of operations or prospects of Borrower and its Affiliate, which change,
individually or in the aggregate, is material to the Company or its subsidiary,
or (ii) any event, matter, condition or effect which impairs the ability of
Borrower or its Affiliate to perform on a timely basis its obligations under
this Agreement, the Convertible Loan, the Convertible Note or the consummation
of the transactions contemplated by this Agreement. Materiality under clauses
(i) or (ii) hereof shall be as determined in good faith by Lender.
(O) "Obligations" means the obligations of:
(1) Borrower to pay the principal of and interest on the
Convertible Note in accordance with the terms thereof, and to satisfy all of its
other indebtedness, liabilities and obligations of Borrower to Lender, of every
kind and description, whether hereunder or otherwise, now existing or hereafter
incurred, direct or indirect, absolute or contingent, due or to become due,
including, without limitation, all interest, fees, charges and expenses, and any
extensions, modifications, renewals of such indebtedness or substitutions
therefor;
(2) Borrower to repay to Lender all amounts advanced by Lender
hereunder or otherwise on Borrower's behalf, including, but without limitation,
advances for principal or interest, payments to prior secured parties,
mortgagees, or lienors, or for taxes, levies, insurance, rent, repairs to or
maintenance of any of the Collateral; and
(3) Borrower to reimburse Lender, on demand, for all of Lender's
expenses and costs, including the fees and expenses of its counsel, in
connection with the preparation, administration, amendment, modification or
enforcement of this Agreement and the documents required hereunder, including,
without limitation, any proceeding brought or threatened to enforce payment of
any of the obligations referred to in the foregoing paragraphs (1) and (2).
(P) "Permitted Liens" means:
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(1) liens for taxes, assessments, or similar charges, incurred in
the ordinary course of business that are not yet due and payable;
(2) pledges or deposits made in the ordinary course of business
to secure payment of workers' compensation, or to participate in any fund in
connection with workers' compensation, unemployment insurance, old-age pension
or other social security programs;
(3) liens of mechanics, materialmen, warehousemen, carriers, or
other like liens, security obligations incurred in the ordinary course of
business which are not yet due and payable;
(4) liens in favor of Lender;
(5) the following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so long as levy
and execution thereon have been stayed and continue to be stayed, adequate
reserves are set aside therefor, and they could not, individually or in the
aggregate, have a Material Adverse Effect on the value of the property of
Borrower, or materially impair the use thereof in the operation of its business:
(a) claims or liens for taxes or assessments, but not in
excess of $50,000;
(b) claims or liens of mechanics, materialmen, warehousemen,
carriers or other like liens, but not in excess of $50,000; and
(c) adverse judgments on appeal, but not in excess of
$50,000.
(Q) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, incorporated organization, joint
venture, court or government or political subdivision or agency thereof.
(R) "Purchase Agreement" has the meaning set forth in the Background
section to this Agreement.
(S) "Records" means records, orders, receipts, correspondence,
memoranda, tapes, data processing cards, discs, papers, tabulating runs,
programs, books, journals and other documents, or transcribed information of any
type, whether expressed in ordinary or machine language.
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(T) "Security Agreement" means the Intellectual Property Security
Agreement of even date herewith between Borrower and Lender in the form of
Exhibit D.
(U) "Series D Preferred Stock" means the shares of Borrower's Series D
Cumulative Convertible Preferred Stock, par value $.01 per share, to be
purchased by Lender at the Closing of the Purchase Agreement.
(V) "Special Power of Attorney" has the meaning set forth in Section
4.3.
(W) "Stockholders and Registration Rights Agreement" means the
Stockholders and Registration Rights Agreement dated as of the date hereof,
between Borrower, Lender and the other Persons named therein, the Schedules and
Exhibits thereto, and any certificate or other document required thereby, as the
same may be amended from time to time.
(X) "Subsidiary" means any corporation with respect to which a
majority of the voting stock is owned directly or indirectly by Borrower.
1.2 CAPITALIZED TERMS. Any capitalized term not otherwise defined in this
Agreement shall have the meaning ascribed to such term in the Purchase
Agreement.
1.3 ACCOUNTING TERMS. Any accounting terms used in this Agreement which are
not specifically defined herein shall have the meanings customarily given them
in accordance with generally accepted accounting principles.
SECTION 2 - CONVERTIBLE LOAN
2.1 SENIOR SECURED CONVERTIBLE TERM LOAN.
(A) General Terms. Subject to the terms hereof, Lender will lend to
Borrower the principal sum of US Ten Million Dollars (US $10,000,000.00), on a
senior secured term basis, convertible in accordance with this Agreement and the
Convertible Note (the "Convertible Loan"). The Convertible Loan shall be
convertible, at Lender's option, in whole or in part, in accordance with Section
3 of the Convertible Note into shares of Borrower's Common Stock.
(B) Convertible Note. Borrower shall simultaneously with the execution
and delivery of this Agreement, execute and deliver to Lender its 12% Senior
Secured Convertible Note due March 18, 2000 (the "Convertible Note"), in the
principal amount of US Ten Million Dollars $10,000,000.00 in the form attached
hereto as Exhibit A.
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(C) Payments of Principal. Except as provided in Section 2.3, the
principal sum of this Convertible Loan shall be due and payable in on the
first(1st) anniversary date of the issuance of the Convertible Note.
(D) Interest Rate and Payments of Interest. Interest on the unpaid
balance of principal from time to time outstanding shall be payable at the rate
of twelve percent (12%) per annum and shall be payable quarterly, in arrears on
June 30, September 30, December 31 and March 31 of every year, and at maturity
(whether by acceleration or otherwise) and upon the making of the mandatory
prepayment as provided for in Section 2.3. hereof.
2.2 COMPUTATION OF INTEREST.
(A) Interest on the Convertible Loan shall be calculated on the basis
of a 360-day year, consisting of twelve (12) thirty (30) day months, counting
the actual number of days elapsed. All accrued and unpaid interest shall be
payable upon the maturity of the Convertible Loan, whether by mandatory
prepayment, acceleration or otherwise.
(B) If, at any time, the interest rate applicable to the Convertible
Loan shall be deemed by any competent court of law, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, then, for such time as the applicable rate of interest would be deemed
excessive, its application shall be suspended and there shall be charged instead
the maximum rate of interest permissible under such Laws.
2.3 MANDATORY PREPAYMENT. In the event that the Purchase Transaction is
consummated as contemplated in the Purchase Agreement no later than June 30,
1999, Borrower shall be required to prepay the Convertible Loan and the
Convertible Note in whole, but not in part, out of the proceeds of the Purchase
Transaction. Except as expressly set forth in this Section 2.3, under no
circumstances shall Borrower be permitted to prepay the Convertible Loan and the
Convertible Note.
2.4 PAYMENT TO LENDER. All sums payable to Lender hereunder shall be paid
directly to Lender by confirmed wire transfer of immediately available funds. If
any payment of principal, interest or other sum shall be due and payable on a
day other than a banking day, then such payment shall be due and payable on the
next banking day preceding the due date for such payment. Lender shall send
Borrower statements of all amounts due hereunder, which statements shall be
considered correct and conclusively binding on Borrower, unless Borrower
notifies Lender of any statement which it deems to be incorrect within thirty
(30) calendar days of the mailing of such statement by Lender to Borrower.
SECTION 3 - CONDITIONS PRECEDENT
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3.1 DELIVERY OF DOCUMENTS. The obligation of Lender to enter into this Agreement
and to make the financial accommodations described herein is, except as
otherwise provided below, subject to the delivery by Borrower to Lender, at the
date of closing hereunder (the "Closing"), the following, in form and substance
satisfactory to Lender:
(A) this Agreement, properly executed by Borrower;
(B) the Stockholders and Registration Rights Agreement, properly
executed by Borrower;
(C) the Purchase Agreement, properly executed by Borrower;
(D) the Convertible Note in the form attached hereto as Exhibit A,
properly executed by Borrower and dated the date of this Agreement;
(E) the Financing Statements required by Section 4.3 hereof;
(F) the Special Power of Attorney in the form attached hereto as
Exhibit B;
(G) copies of the resolutions of the Board of Directors of Borrower
(certified as of the date of Closing by the secretary of Borrower), authorizing
the execution, delivery and performance of this Agreement, the Loan Documents
and each other document to be delivered by Borrower pursuant hereto;
(H) a copy, certified as of the most recent date practicable by the
Secretary of State of the State of Delaware, of the certificate of incorporation
of Borrower and of registration of fictitious names, together with a copy
(certified by the secretary of Borrower) of Borrower's bylaws, and a certificate
(dated as of the date of the Closing) of the secretary of Borrower to the effect
that such certificate of incorporation and bylaws have not been amended since
the date of the aforesaid certifications;
(I) a certificate (dated as of the date of the Closing) of the
secretary of Borrower as to the incumbency and signatures of the officers
thereof;
(J) a certificate of good standing with respect to Borrower dated
within two (2 ) business days prior to the date of Closing, from the State of
Delaware and from each state in which it is qualified to transact business;
(K) a certificate (dated as of the date of the Closing) signed by the
chief financial officer of Borrower to the effect that all representations and
warranties of Borrower contained herein are true, correct and complete in all
material respects;
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(L) the opinion of Borrower's counsel in the form attached hereto as
Exhibit C-1;
(M) the opinion of Borrower's patent counsel in the form attached
hereto as Exhibit C-2;
(N) Uniform Commercial Code, Judgment, Federal Tax Lien and Franchise
Tax Searches satisfactory to Lender; and
(O) such other certificates and documents as may be reasonably
required by Lender.
SECTION 4 - COLLATERAL SECURITY
4.1 Rights in Property Held by Borrower. As security for the prompt satisfaction
of all Obligations, including payment of the indebtedness evidenced by the
Convertible Note, Borrower hereby grants Lender a lien upon and continuing
security interest in all of the following, wherever located, whether now owned
or existing or hereafter acquired, together with all replacements therefor and
all proceeds (including, but without limitation, insurance proceeds thereof):
(A) all of Borrower's Inventory, including existing Inventory and all
Inventory hereafter coming into existence;
(B) all of Borrower's Accounts, including all existing Accounts and
all Accounts hereafter coming into existence, together with all documents,
contracts, lien and security instruments and guarantees relating thereto;
(C) all interest of Borrower now existing or hereafter arising in
goods as to which an Account for goods sold or delivered has arisen (herein
sometimes called "Goods"), including the rights of reclamation and stoppage in
transit;
(D) all of Borrower's right, title and interest in and to all
fixtures, appliances, machinery, equipment, furniture, leasehold improvements,
tools and supplies now owned or hereafter acquired, together with (i) all
additions, parts, fittings, accessories, special tools, attachments and
accessories now and hereafter affixed thereto and/or used in connection
therewith, and (ii) all replacements thereof and substitutions therefor;
(E) all of Borrower's General Intangibles (including, without
limitation, Intellectual Property, things in action, contractual rights,
goodwill, rights to performance, licenses, distributorship rights, copyrights,
trademarks and patents) now existing or hereafter in existence;
(F) all notes, drafts, acceptances, instruments, documents of title,
policies and certificates of insurance (including, without limitation, credit
insurance), chattel paper,
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guarantees and securities (domestic and foreign) now or hereafter received by
Borrower or in which Borrower has or acquires an interest pertaining to the
foregoing;
(G) all other rights of Borrower now existing or hereafter arising to
the payment of money (including, without limitation, tax refunds, choses in
action, settlements and judgments);
(H) all cash and non-cash proceeds, products and insurance proceeds of
the foregoing; and
(I) all Records pertaining to the foregoing.
4.2 PRIORITY OF LIENS. The Borrower shall take all actions necessary so
long as any Obligations are outstanding to ensure that the foregoing Liens in
favor of Lender shall be first and prior to any other Liens in favor of any
other Person.
4.3 FINANCING STATEMENTS.
(A) Borrower will:
(1) immediately execute such financing statements (including
amendments thereto and continuation statements thereof) and other documents in
form satisfactory to Lender as Lender may specify to perfect or continue the
perfection of any security interest granted to Lender (the "Financing
Statements");
(2) pay or reimburse Lender for all costs of filing or recording
the same in such public offices as Lender may designate; and
(3) take such other steps as Lender may reasonably direct, to
perfect Lender's interest in the Collateral.
(B) In addition to the foregoing, and not in limitation thereof, to
the extent lawful, Borrower hereby appoints Lender as its attorney-in-fact
(without requiring Lender to act as such) to execute and file any schedules,
assignments, instruments, documents and financing statements in its name, and to
perform all other acts that Lender deems appropriate to perfect and continue its
security interest in, and to protect and preserve, the Collateral. Borrower
shall execute and deliver to lender at Closing the Special Power of Attorney in
the form attached hereto as Exhibit B (the "Special Power of Attorney").
SECTION 5 - BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, from and after the date of this
Agreement and so long as Borrower shall be indebted to Lender, unless Lender
shall otherwise consent in writing,
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it shall comply with each of the covenants in the Purchase Agreement, which are
hereby incorporated by reference herein and made a part hereof, and. in
addition, comply with the following covenants:
5.1 NOTATION OF SECURITY INTEREST. If requested by Lender, Borrower shall mark
its Records concerning the Collateral in a manner satisfactory to Lender to show
Lender's security interest therein; and shall, at Lender's request, notify all
warehouses, warehousemen, agents, landlords, processors or others in possession
of Collateral of Lender's security interest in such Collateral, and instruct
them to hold such Inventory for Lender's account and subject to Lender's
instructions.
5.2 PAYMENT OF TAXES, ASSESSMENT, CHARGES AND CLAIMS. Borrower shall duly
pay or discharge or cause to be paid or discharged, and shall cause each of its
subsidiaries duly to pay or discharge the following before they shall become
delinquent: (a) all material taxes, assessments and governmental charges levied
or imposed upon Borrower or any of its subsidiaries or upon the income, profit
or property of Borrower or any of its subsidiaries, and (b) all material lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
material lien upon the property of Borrower or any of its subsidiaries;
provided, however, that Borrower shall not be required to pay or discharge or
cause to be paid or discharged (but shall make adequate provision for) any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which adequate
provision has been made.
5.3 BOOKS AND RECORDS AND OTHER DOCUMENTS. Borrower shall, at all times and
in accordance with generally accepted accounting principles, consistently
applied, if applicable, keep complete and accurate Records concerning its
business, affairs and operations and concerning its properties and assets,
including, but not limited to, its corporate minute books and bylaws and shall
deliver to Lender promptly upon the Lender's request (i) all instruments and
chattel paper (including all executed copies thereof, except such executed
copies retained by the obligors thereunder) representing proceeds of Collateral,
and (ii) such other information with respect to any of the Collateral and
additional copies of any or all of such papers or writings related thereto, as
the Lender may in its sole discretion deem to be necessary, all of which shall
be at the sole expense of Borrower.
5.4 INSPECTIONS. Borrower shall, upon reasonable notice and during normal
business hours, permit a person designated by Lender to inspect or examine the
properties and assets of Borrower, including, but not limited to, the
Collateral, and further, to examine, check, audit, make copies of or extracts
from any of the Records of Borrower or other data relating to the Collateral,
all without hindrance or delay.
5.5 COLLECTION AND RECORDS OF ACCOUNTS. Borrower shall collect its Accounts
only in the ordinary course of business, and shall keep accurate and complete
Records of its Accounts, consistent with sound business practices.
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5.6 Notifications. Borrower shall promptly notify Lender in writing of the
following and, if requested by Lender, shall deliver to Lender copies of all
documents relating thereto:
(A) any litigation affecting Borrower, whether or not the claim is
covered by insurance, or any suit or administrative proceeding which may
materially and adversely affect the Collateral or Borrower's business, assets,
operations or condition, financial or otherwise;
(B) the occurrence of any event described in Section 4043 of the
Employee Income Security Act of 1974, as amended ("ERISA"), or receipt by
Borrower of any notice that it is not in full compliance with the requirements
of ERISA and regulations thereunder; or receipt by Borrower of notice from the
administrator of any multiemployer plan to which Borrower or any Commonly
Controlled Entity (as defined in Section 6.18 of this Agreement) has an
obligation to contribute that such plan has been placed in reorganization;
(C) any labor dispute to which Borrower is or may become subject which
could have a Material Adverse Effect, individually or in the aggregate, on
Borrower's business, or the expiration of any labor contract to which Borrower
is a party or bound;
(D) any violation of any law, statute, regulation or ordinance of any
governmental entity, or of any agency thereof, applicable to Borrower which
could have a Material Adverse Effect, individually or in the aggregate, on the
Collateral or Borrower's business, assets, operations or condition, financial or
otherwise;
(E) Borrower's default under any note, indenture, loan agreement,
mortgage, lease or other agreement to which Borrower is a party or bound;
(F) any default under any Indebtedness or under any indebtedness owing
to Borrower, except trade receivables which in the aggregate do not exceed
$250,000;
(G) any summons, citation, directive, information request, notice of
potential responsibility, notice of violation or deficiency, order, claim,
complaint, investigation, proceeding, judgment, letter or other communication,
written or oral, to Borrower from the United States Environmental Protection
Agency or other federal, state or local agency or authority, or any other entity
or individual, public or private, concerning any intentional or unintentional
act or omission which involves generation, use, storage, transport, disposal or
release of hazardous or toxic substances; and
(H) any change in Borrower's business, assets, operations or
condition, financial or otherwise that could, individually or in the aggregate,
have a Material Adverse Effect on Borrower or any of its Affiliates or on the
ability of Borrower to repay the Convertible Loan and the Convertible Note, as
set forth in this Agreement.
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5.7 OTHER LIENS, SECURITY INTERESTS; FINANCING STATEMENT JURISDICTIONS.
Borrower shall keep Collateral free from all Liens, of every kind and nature,
other than Permitted Liens and Liens in favor of Lender. Lender shall have the
absolute right at any time and from time to time to obtain, at Borrower's
expense, financing statements and lien searches to verify the liens on, security
interests in and claims against all or a portion of the Collateral. Schedule 5.7
sets forth a complete and accurate list of (i) all jurisdictions in which any of
the Collateral is situated; and (ii) all jurisdictions in which Lender will be
required to file Financing Statements to perfect its security interest in such
Collateral.
5.8 NOTICE OF DEFAULT. If any officer of Borrower knows or should have
known after due inquiry of any Event of Default which shall have occurred or
knows of the occurrence of any event which, upon notice or passage of time, or
both, would constitute an Event of Default, Borrower shall immediately, upon
acquiring knowledge of same, furnish to Lender a statement as to such
occurrence, specifying the nature and extent thereof. If Borrower receives a
notice of default from any creditor other than Lender, Borrower shall deliver to
Lender a copy of such notice of default immediately upon its receipt thereof.
5.9 DEFENSE OF TITLE AND FURTHER ASSURANCES. Borrower shall, at its sole
expense, defend the title to the Collateral and promptly, upon Lender's request,
do, execute, acknowledge and deliver or cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, instruments, transfers, powers of
attorney, mortgages or assurances as may be required in connection with the
transactions contemplated by this Agreement, including any security agreement,
financing statement or other writing necessary to evidence, preserve, protect or
enforce Lender's rights and interests to or in the Collateral or in any other
collateral security agreed to by the parties hereto.
5.10 AUTHORIZATION TO ACCOUNTANTS. Borrower hereby irrevocably authorizes
and directs all accountants and auditors employed by it at any time while there
are any sums owed during the term of this Agreement, and until all of the
Obligations have been fully paid and discharged, to exhibit and deliver to
Lender, at Lender's request, copies of Borrower's financial statements, trial
balances or other accounting records of any sort in their possession.
5.11 COMPLIANCE WITH AGREEMENT. Borrower shall observe, perform and comply
with all of Borrower's covenants made in this Agreement, the Convertible Note
and with all material agreements to which it is subject.
5.12 DEPRECIATION OF COLLATERAL. Borrower shall promptly notify Lender of
any event causing material loss or depreciation in the value of the Collateral
and set forth the amount of such loss or depreciation. In the event Lender so
determines that such loss or depreciation in value could have, individually or
in the aggregate, a Material Adverse Effect on Borrower, Borrower shall, upon
Lender's request, pay such amount as Lender shall so have determined in its
reasonable
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judgment represents the value of such loss or depreciation in value. The making
of such payment shall not affect Lender's security interest in any Collateral.
5.13 COMPUTER REPORTS. Borrower irrevocably empowers Lender, upon Lender's
request, to have full access to and to have, at Borrower's expense, printouts
and all information maintained by its outside computer service company, if any,
respecting any and all financial records now or hereafter maintained by the same
on account of Borrower. If Borrower is currently using a service company,
Borrower agrees not to terminate the present arrangement with any service
company or acquire any other service with any other such firm without prior
written notification to Lender. If Borrower does not currently use a service
company, Borrower shall notify Lender in writing at least ten (10) calendar days
in advance of entering into any agreement with or delivering any of its business
records to such service company.
5.14 CHANGE IN LOCATION. Borrower shall notify Lender in writing thirty
(30) calendar days in advance of the opening of any new place of business, the
closing of any existing place of business or the changing of any location at
which Collateral is currently situated.
5.15 CHANGE IN BUSINESS PRACTICES, OFFICERS AND DIRECTORS. Borrower shall
notify Lender of any and all proposed material changes in its business
practices, properties and methods, and of any proposed changes in the officers
and directors of Borrower or of any Affiliate of Borrower.
5.16 SALES AGREEMENTS. Borrower shall notify Lender in writing of any
agreement under which any terms of sales (written or oral) different from normal
operating procedures may have been or will be granted.
5.17 ADDITIONAL TRADE NAMES. Borrower shall give Lender thirty (30)
calendar days advance notice of the intention of Borrower to use any trade name
other than a trade name disclosed in Schedule 5.18. Borrower shall execute any
and all documents reasonably required to perfect Lender's security interest in
said trade names.
5.18 TENNESSEE FINANCING STATEMENT. At Borrower's request, Lender has
agreed to limit the value of the Financing Statements filed in Tennessee to One
Million Dollars ($1,000,000.00), based on Borrower's representation as to the
aggregate value of the Inventory that will be located in Tennessee at any time
during the term of this Agreement; provided, that if at any time the aggregate
value of such Inventory is greater than One Million Dollars ($1,000,000.00),
Borrower shall (i) immediately amend the applicable Financing Statements to
reflect the higher aggregate value of such Inventory and (ii) take all necessary
actions to ensure that Lender's security interest remains at all times a first
priority perfected security interest in all of the Inventory situated in the
State of Tennessee.
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5.19 VCOC QUALIFICATION. So long as this Agreement or the Convertible Note
remain outstanding (or assuming conversion of the Convertible Note, Lender owns
any fully-diluted voting stock of the Corporation), such investment shall
qualify as a venture capital operation company under applicable ERISA laws
("VCOC"). The Corporation covenants and agrees Lender shall therefore be
entitled to meet periodically with the management of Corporation on a timely
basis to discuss financial results, business prospects and other matters upon
Lender's reasonable request and that Lender or its designated representative
shall be afforded free and full access, at all reasonable times, and with
reasonable prior notice, to all of the books, records and properties of the
Corporation and to all officers, employees and accountants or auditors of the
Corporation and to make proposals to the Corporation, the Board of Directors of
the Corporation and/or senior management of the Corporation.
SECTION 6 - BORROWER'S NEGATIVE COVENANTS
Borrower hereby covenants and agrees that, from and after the date of
this Agreement and so long as Borrower shall be indebted to Lender, unless
Lender shall consent otherwise in writing, it will comply with each of the
covenants in the Purchase Agreement, which are hereby incorporated by reference
herein and made a part hereof, and, in addition, with the following covenants:
6.1 INDEBTEDNESS. Borrower shall not incur any Indebtedness other than the
obligations to Lender represented by this Agreement and the Convertible Note.
6.2 INVESTMENTS. Borrower shall not purchase or acquire the obligations,
securities or stock of, or any other additional interest in any Person, except:
(i) obligations of the US Treasury, US federal agencies and obligations
guaranteed by the United States of America or its agencies; (ii) repurchase
agreements with major banks and authorized broker dealers, fully collateralized
by US Treasury or US government agency securities; (iii) certificates of deposit
issued by major commercial banks having credit rating no lower that AA; and (iv)
commercial paper rated no lower than A1/P1 of major industrial and financial
corporations, shares of traditional money market funds for short term investment
of uninvested funds, which (x) mature within 365 days from the date of
acquisition thereof, and (y) are not in default as to principal or interest.
6.3 DIVIDENDS AND PURCHASE OF STOCK. Borrower shall not declare or pay any
dividend, in cash or otherwise, on any shares of any class of, nor make any
distribution on account of, nor redeem, retire, purchase or otherwise acquire
directly or indirectly, any of its capital stock.
6.4 MISLEADING STATEMENTS. Borrower shall not furnish Lender any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not misleading
in light of the circumstances under which it was furnished.
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6.5 EVENT OF DEFAULT. Borrower shall not suffer to exist any event of
default under any material provision of any other financing agreements binding
on it.
6.6 SALE OF ACCOUNTS. Borrower shall not sell, discount, transfer, assign
or otherwise dispose of any of its Accounts, notes receivable, installment or
conditional sales agreements or any other rights to receive income, revenues or
money, however evidenced.
6.7 LINE OF BUSINESS. Borrower shall not enter into any lines or areas of
business substantially different from the business activities in which it is
presently engaged.
6.8 SUBSIDIARIES. Borrower shall not create or acquire any Subsidiaries;
provided, however, that Borrower is currently evaluating whether to establish
two (2) separate Delaware Investment Holding Companies through which Borrower
would separately hold and manage its intellectual property and its cash and
liquid investment balances; and provided, further, that Borrower notifies Lender
at least thirty (30) calendar days prior to any such Investment Holding Company
Subsidiary being created and takes all steps necessary to preserve all of
Lender's rights in and to the Collateral.
6.9 ADVANCES AND LOANS. Borrower shall not make any loan or advance or give
credit to any officer, director or shareholder of Borrower or of any Affiliate
of Borrower or to any other Person, including Subsidiaries and Affiliates.
6.10 COMPENSATION AND FEES. Borrower shall not pay salary or other
compensation or fees, including but not limited to bonuses, consulting fees and
management fees, to any officer, shareholder, director or any Person, including
Subsidiaries and Affiliates, except in reasonable amounts for service actually
rendered.
6.11 ERISA COMPLIANCE. Borrower shall not (a) engage in any "prohibited
transaction," as defined in Section 406 or Section 203(a) of ERISA, incur any
"accumulated funding deficiency," as defined in Section 302 of ERISA, whether or
not waived, or terminate any pension plan in a manner which could result in the
imposition of a lien on the property of Borrower pursuant to Section 4068 of
ERISA, (b) "terminate," as that term is defined in ERISA, any multiemployer plan
to which Borrower or any trade or business (whether or not incorporated), which
is under common control as defined in the Internal Revenue Code and of which
Borrower is a part (a "Commonly Controlled Entity"), has an obligation to
contribute, (c) "withdraw," as that term is defined in ERISA, from any
multiemployer plan to which Borrower or any Commonly Controlled Entity has an
obligation to contribute, or (d) "partially withdraw," as that term is defined
in ERISA, from any multiemployer plan to which Borrower or any Commonly
Controlled Entity has an obligation to contribute.
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6.12 TRANSFER OF COLLATERAL. Borrower shall not transfer, or permit the
transfer, to another location of any of the Collateral or of any Records related
to any of the Collateral except in the ordinary course of business.
6.13 SALE OF SUBSIDIARY STOCK. Borrower shall not transfer, assign, pledge
or otherwise dispose of shares of stock of any Subsidiary other than to Lender.
6.14 PREPAYMENT. Borrower shall not prepay any Indebtedness, except as
contemplated in Section 2.3 of this Agreement.
6.15 TRANSACTIONS. Borrower shall not enter into any transaction that
could, individually or in the aggregate, have a Material Adverse Effect on the
Collateral or Borrower's ability to repay the Obligations.
SECTION 7 - REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement and to make the
Convertible Loan, Borrower hereby represents and warrants to Lender as follows:
7.1 PURCHASE AGREEMENT. Borrower hereby acknowledges and agrees that the
representations and warranties set forth in Article 2 of the Purchase Agreement
are incorporated by reference herein and made a part hereof.
7.2 BINDING EFFECT. This Agreement, the Note and the other Loan Documents
delivered pursuant hereto have been duly executed and delivered, are valid and
legally binding obligations of Borrower, and are fully enforceable against
Borrower in accordance with their respective terms.
7.3 TITLE TO ASSETS. Borrower has good and marketable title to all of its
assets, subject to no security interest, encumbrance or lien, or claim of any
Person except for the Permitted Liens. The security interests granted in Section
4 hereof constitute valid liens subject to no equal or prior liens.
7.4 CORPORATE AUTHORITY. Borrower has the corporate power and authority to
execute, deliver and perform this Agreement, to borrow hereunder and to incur
the Obligations, and has taken all action necessary to authorize the execution,
delivery and performance of this Agreement, the Notes and other Loan Documents.
7.5 NO VIOLATION. The execution, delivery and performance of this
Agreement, the Notes and other Loan Documents will not immediately, or with the
passage of time, the giving of notice, or both, constitute a violation of any
applicable law or of Borrower's articles of incorporation, bylaws or other
incorporation papers or of any indenture, agreement undertaking to which
Borrower is a party or by which its properties may be bound; terminate or give
any Person
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the right to terminate any contract, agreement or instrument in which Borrower
is a party or by which its properties may be bound; or result in the creation or
imposition of any security interest in, or lien or encumbrance upon, any of the
assets of Borrower, except in favor of Lender.
7.6 SOLVENCY. Borrower is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and all businesses in
which it is about to engage, and now owns property having a value both at fair
valuation and at present fair saleable value greater than the amount required to
pay Borrower's debts. Borrower will not be rendered insolvent by the execution
and delivery of this Agreement or by completion of the transactions contemplated
hereunder.
7.7 COMMISSIONS. Borrower has not made any agreement or taken any action
which may cause anyone to become entitled to a commission or finder's fee as a
result of the making of the Convertible Loan.
7.8 OTHER CORPORATE NAMES. Borrower has not used any corporate or
fictitious name (including any trade name, trade style, assumed name, division
name or any similar name), other than the corporate name shown on Borrower's
certificate of incorporation.
7.9 PLACES OF BUSINESS. Borrower's principal place of business and all
other places of business and/or locations where inventory is situated at 301
South State Street, Newtown, PA 19940. All the Collateral and the Records
pertaining to the Collateral are and will be located at the principal places of
business of Borrower set forth hereinabove.
7.10 LOANS TO OFFICERS. With the exception of that certain outstanding loan
to Mr. Robert Ashley, in the amount of $56,195.00, there is no outstanding and
unpaid loans, advances or guaranties to or for the benefit of any officer or
director of Borrower.
7.11 NO DEFAULTS. There is no Event of Default as defined in Section 8.1
hereof and no event has occurred and no condition exists which upon the giving
of notice or the passage of time, or both, would constitute an Event of Default.
SECTION 8 - DEFAULT
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder:
(A) Borrower shall fail to pay when due, on demand or at maturity
(whether as stated or by acceleration) any payment of principal or interest, or
any fee or charge, payable hereunder or under the Convertible Note.
(B) Borrower shall fail to observe or perform any obligation, other
than the obligation for payment of money hereunder or under the Convertible
Note, and such failure
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shall continue for 10 days after the earlier of: (1) the date written notice of
such failure is mailed by Lender, or (2) the date Lender is notified of such
failure or should have been so notified pursuant to the provisions hereof.
(C) Borrower shall fail to pay any Indebtedness when due to any
Person, and such failure shall continue beyond any applicable grace period, or
Borrower shall incur any other event of default under any agreement binding upon
it.
(D) Any financial statement, representation, warranty or certificate
made or furnished by or on behalf of Borrower to Lender in connection with this
Agreement, the Purchase Agreement and the Stockholders and Registration Rights
Agreement, or as an inducement to Lender to enter into this Agreement, or in any
separate statement or document to be delivered hereunder to Lender, shall be
materially false, incorrect, incomplete or misleading when made.
(E) Borrower shall admit its inability to pay its debts as they
mature, or shall make an assignment for the benefit of its creditors.
(F) Proceedings in bankruptcy, or for reorganization of Borrower, or
for the readjustment of any of its debts, under the Bankruptcy Code or any part
thereof, or under any other laws, whether state or federal, for the relief of
debtors, now or hereafter existing, shall be commenced by Borrower, or shall be
commenced against Borrower, which proceedings against Borrower shall not be
discharged within sixty (60) calendar days of their commencement.
(G) A receiver or trustee shall be appointed for Borrower or any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower and such receiver or
trustee shall not be discharged within sixty (60) calendar days of his
appointment, or such proceedings shall not be discharged within sixty (60)
calendar days of their commencement, or Borrower shall discontinue business or
materially change the nature of its business.
(H) Borrower shall suffer a final judgment for the payment of money
and shall not discharge the same within a period of thirty (30) calendar days
unless execution thereon is effectively bonded or stayed pending further
proceedings.
(I) Any execution or attachment shall be levied against the Collateral
or any properties of Borrower, and such execution or attachment shall not be set
aside, discharged or stayed within thirty (30) calendar days after the same
shall have been levied.
(J) The validity or enforceability of this Agreement, the Convertible
Note, the other Loan Documents delivered pursuant hereto, the Purchase
Agreement, the Stockholders and Registration Rights Agreement or the Certificate
of Designation shall be
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contested in any judicial forum by Borrower, or Borrower shall deny that it has
any or further liability or obligation hereunder or thereunder.
(K) Any material adverse change shall occur in the condition
(financial or otherwise) of Borrower or in the quality or quantity of the
Collateral.
(L) Borrower shall have breached any of the covenants or agreements
contained in this Agreement, the Convertible Note, the other Loan Documents, the
Purchase Agreement or the Stockholders and Registration Rights Agreement and
such breach shall not have been cured to the satisfaction of Lender within
thirty (30) calendar days after the date of giving of notice of such breach to
Borrower.
(M) Any court of competent jurisdiction shall find that any of the
patents owned or licensed by Borrower are invalid in any material respect; or
any of the patents owned or licensed by Borrower materially infringe upon any
other patent; provided, however, that in either event, Lender, in good faith,
determines that such finding will have a Material Adverse Effect on Borrower.
(N) At any time after the date of this Agreement, shares of Borrower's
Common Stock are not actively publicly traded on the American Stock Exchange,
NASDAQ or NYSE.
(O) Borrower consolidates or merges Borrower with or into any other
corporation or corporations, or sells, conveys or disposes of all or
substantially all of the assets of Borrower or a enters into a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of Borrower is sold or otherwise disposed of.
SECTION 9 - LENDER'S RIGHTS AND REMEDIES UPON DEFAULT.
9.1 ACCELERATION. Upon the occurrence of an Event of Default, and in every such
event and at any time thereafter, Lender may, at its option, declare all
Obligations due and payable, without presentment, demand, protest or any notice
of any kind, all of which are hereby expressly waived, anything contained herein
or in any of the other Loan Documents to the contrary notwithstanding.
9.2 REMEDIES. Lender shall have, in addition to the rights and remedies
given it by this Agreement, all those allowed by all applicable Laws, including,
without limitation, the Uniform Commercial Code of Commonwealth of Pennsylvania.
Without limiting the generality of the foregoing, upon the occurrence of an
Event of Default, Lender may immediately, without demand or notice of any kind
to Borrower (except as specifically required by this Agreement), all of which
are hereby expressly waived, and without advertisement, sell at public or
private sale or otherwise realize upon the whole or, from time to
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time, any part of the Collateral, or any interest which Borrower may have
therein. After deducting from the proceeds of sale or other disposition of the
Collateral all expenses (including all expenses for legal services), Lender
shall apply such proceeds toward the satisfaction of the Obligations, in such
order as it shall determine in its sole discretion. Any remainder of the
proceeds after satisfaction in full of the Obligations shall be distributed as
required by applicable laws. At any such sale or other disposition, Lender may,
to the extent permissible under applicable laws, purchase the whole or any part
of the Collateral, free from any rights of redemption or appraisement on the
part of Borrower, which rights are hereby waived and released. Notice of any
sale or other disposition shall be given to Borrower at the address hereinafter
set forth, or such other address of Borrower as may from time to time be shown
on Lender's records, at least five days before the time of any intended public
sale or the time after which any intended private sale or other disposition of
the Collateral is to be made, which Borrower hereby agrees shall be reasonable
notice of such sale or other disposition. Borrower agrees to assemble, or to
cause to be assembled, at its own expense, the Collateral at such place or
places as Lender shall designate. Without limiting the generality of any of the
rights and remedies conferred upon Lender under this section, Lender may, to the
full extent permitted by applicable laws:
(A) enter upon the premises of Borrower, exclude and remove therefrom
all officers, directors and employees of Borrower and take immediate possession
of the Collateral, either personally or through any agent, or by means of a
receiver appointed by a court of competent jurisdiction, using all necessary
force to do so, which means shall be in Lender's sole discretion;
(B) at Lender's option, use, operate, manage and control the
Collateral in any lawful manner;
(C) collect, receive and administer all rents, income, revenue,
earnings, issues and profits (including the Accounts), and proceeds therefrom;
(D) maintain, repair, renovate, alter or remove all or any part of the
Collateral, as Lender may determine in its sole discretion;
(E) make exchanges, substitutions or surrenders of all or any part of
the Collateral;
(F) compromise, extend or renew any of the Collateral or deal with the
same as it may deem advisable;
(G) notify postal authorities to change the address for the delivery
of mail to Borrower to such address or post office box as Lender may designate
and receive and open all mail addressed to Borrower;
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(H) remove from Borrower's place of business all Records relating to
or evidencing any of the Collateral or without cost or expense to Lender make
such use of the Borrower's place of business as may be reasonably necessary to
administer, manage and collect the Collateral;
(I) institute and prosecute legal and equitable proceedings to enforce
collection of the Obligations of Borrower to Lender, or to realize upon any of
the Collateral;
(J) settle, renew, extend, compromise, compound, exchange or adjust
claims in respect of any of the Collateral or any legal proceedings brought in
respect thereof;
(K) subrogate to all of Borrower's interests, rights and remedies in
respect to the Collateral, including the right to stop delivery and to reclaim
Goods which the account debtor has returned, rejected, revoked acceptance of or
failed to return, and which have been consigned or diverted, to take possession
of and to sell or dispose of the Goods;
(L) set off and apply to all or any part of the Obligations all
moneys, credits and other property of any nature whatsoever of Borrower now or
any time hereafter in the possession of Lender or of any Person on behalf of
Lender, in transit to or from Lender, or under the control or custody of or on
deposit with Lender;
(M) if Borrower shall fail to pay the Obligations or otherwise fail to
perform, observe or comply with any of the conditions, covenants, terms,
stipulations or agreements contained in this Agreement, Lender, without notice
to or demand upon Borrower and without waiving or releasing any of the
Obligations or any Event of Default, may (but shall be under no obligation to)
at any time thereafter make such payment or perform such act for the account and
at the expense of Borrower, and may enter upon the premises of Borrower for that
purpose and take all such action thereon as the Lender may consider necessary or
appropriate for such purpose. All sums so paid or advanced by Lender and all
costs and expenses (including, without limitation, attorneys' fees and expenses)
incurred in connection therewith, together with interest thereon at the highest
interest rate charged on the Note from the date of payment, advance or incurring
until paid in full, shall be paid by Borrower to Lender, on demand, and shall
constitute and become a part of the Obligations; and
(N) such other and further acts and deeds in the name of Borrower as
Lender may deem necessary or advisable to the extent necessary for the Lender to
realize upon any of the Collateral.
9.3 CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and
empowers any attorney of any court of record within the United States of America
or elsewhere to appear for Borrower and with or without complaint filed, upon
the occurrence of an Event of Default, confess judgment or a series of judgments
in favor of Lender and against Borrower for the
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<PAGE>
Obligations to Lender hereunder and all other amounts due Lender by Borrower as
evidenced by an affidavit signed by an officer of Lender, setting forth the
amount then due, plus costs of suit and an attorneys' commission of 5% of the
foregoing sums, but in no event less than $2,000.00, on which judgment or
judgments one or more executions may issue forthwith; and for so doing, this, or
a copy hereof verified by affidavit, shall be good and sufficient warrant; and
the said judgment shall bear interest at the highest rate of interest charged on
the Note, or if lower, at the highest rate of interest a judgment may bear under
the laws of Commonwealth of Pennsylvania. Borrower hereby waives and
relinquishes all errors, defects and imperfections in the entry and all benefits
under any law or rule of court relating to a stay of execution or exempting any
property from any sale under execution. The authority herein granted to confess
judgment shall not be exhausted by any exercise thereof but shall continue from
time to time and at all times until the Obligations to Lender have been paid in
full.
9.4 ENFORCEMENT AND WAIVER BY THE LENDER. Lender shall have the right at
all times to enforce the provisions of this Agreement and the documents
delivered pursuant hereto in strict accordance with the terms hereof and
thereof, notwithstanding any conduct or custom on the part of Lender in
refraining from so doing at any time or times. The failure or delay of Lender at
any time or times to enforce its rights and remedies under such provisions,
strictly in accordance with the same, shall not be construed as having created a
custom in any way or manner contrary to specific provisions of this Agreement or
as having in any way or manner modified or waived the same. All rights and
remedies of Lender are cumulative and concurrent, may be exercised by Lender
singly, successively or together, or at such time or times and in such order of
preference as the Lender may so determine, and the exercise of one right or
remedy by Lender shall not be deemed a waiver of any other right or remedy.
SECTION 10 - MISCELLANEOUS
10.1 CONSTRUCTION. The provisions of this Agreement shall be in addition to
those of any guaranty, security agreement, note or other evidence of liability
held by Lender, all of which shall be construed as complementary to each other.
In the event of ambiguity or inconsistency between this Agreement and any
agreement, document or instrument made pursuant hereto, the terms of this
Agreement shall govern. Nothing herein contained shall prevent Lender from
enforcing any or all other notes, guarantees or security agreements in
accordance with their respective terms.
10.2 FURTHER ASSURANCE. From time to time, Borrower will execute and
deliver to Lender such additional documents and will provide such additional
information as Lender may reasonably require, to carry out the terms of this
Agreement and to be informed of Borrower's status and affairs.
10.3 POWER TO EXECUTE DOCUMENTS. Borrower hereby irrevocably appoints,
constitutes and names Lender, or any of its officers, the true and lawful
attorney for Borrower, with full power of substitution to do the following, upon
the occurrence of an Event of Default:
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<PAGE>
(A) to endorse the name of Borrower or any of Borrower's officers or
agents upon any and all notes, checks, drafts, money orders or other
instruments, for the payment of moneys which are payable to Borrower, including,
without limitation, proceeds under any policy of insurance on the Collateral or
constituting collections on Borrower's Accounts;
(B) to sign and endorse the name of Borrower or any of Borrower's
officers or agents upon any and all invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and any instruments or
documents relative thereto or to Borrower's rights therein;
(C) to give written notice to postal authorities to effect such change
of address so that all mail addressed to Borrower may be delivered directly to
Lender or its designee; and
(D) to do such other and further acts and deeds in the name of
Borrower as Lender may deem necessary or desirable to enforce any Account or
other Collateral for the Obligations.
10.4 COSTS, EXPENSES AND FEES PAID AND PAYABLE TO LENDER.
(A) Borrower agrees to pay on demand all reasonable attorneys' fees
and disbursements of counsel, audit fees, search fees, filing fees and other
expenses incurred by Lender in connection with the preparation, administration
or enforcement of this Agreement or other Loan Documents, or any renewal,
extension, amendment or modification of this Agreement and other Loan Documents,
and all such fees and expenses shall be a part of the Obligations hereunder and
shall be paid at Closing or at such later time as services are performed or
expenses incurred.
(B) Borrower agrees that all costs, expenses and reasonable attorneys'
fees incidental to the custody, care, management, sale or collection of, or
realization upon, any of the Collateral or in any way relating to the care,
enforcement or protection of the Collateral or the enforcement of any and all
rights of Lender either hereunder or under any applicable law or custom, shall
become part of the Obligations, be payable on demand, and be entitled to the
benefit of this Agreement, and Lender may at any time apply to the payment of
all such costs and expenses all moneys of Borrower or other proceeds arising
from the possession or disposition of all or any portion of the Collateral.
10.5 NOTICES. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
as follows, unless such address is changed by written notice hereunder:
(A) If to Lender:
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<PAGE>
OCM Principal Opportunities Fund, L.P.
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Attention: Stephen Kaplan, Principal
Michael Harmon, Vice President
Phone: 213-830-6300
Fax: 213-830-6395
with a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Donna E. Ostroff, Esq.
Phone: 215-994-4000
Fax: 215-994-2222
if to Borrower:
CollaGenex Pharmaceuticals, Inc.
301 South State St.
Newtown, PA 18940
Attention: Nancy Broadbent,
Vice President and Chief Financial Officer
Phone: 215-579-7388
Fax: 215-579-8577
with a required copy to:
Buchanan Ingersoll Professional Corporation
Princeton Forrestal Center
500 College Road East
Princeton, NJ 08540
Attention: David J. Sorin, Esq.
Phone: 609-987-6800
Fax: 609-520-0360
- 24 -
<PAGE>
Any change of address for purposes of notices hereunder shall be
deemed to have been given five days after mailing thereof, by certified mail,
postage prepaid, return receipt requested, to the other party at such party's
then effective address hereunder.
10.6 WAIVER AND RELEASE BY THE BORROWER. To the maximum extent permitted by
applicable Laws, Borrower:
(A) waives (1) demand, protest, presentment and notice of dishonor of
all commercial paper at any time held by Lender on which Borrower is in any way
liable; and (2) notice and opportunity to be heard, after acceleration in the
manner provided in Section 9.1, before exercise by Lender of the remedies of
self-help, set-off or of other summary procedures permitted by any applicable
Laws or by any agreement with Borrower; and
(B) releases Lender and its officers, partners, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them in connection with or arising out of this Agreement, the
other Loan Documents, any transactions contemplated hereunder or thereunder or
the Collateral or otherwise, except for grossly negligent or reckless conduct.
10.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Borrower contained in this Agreement will survive the making and
execution of this Agreement and are material and have been or will be relied
upon by Lender, notwithstanding any investigation made by Lender or by any
Person on its behalf. For purposes of the foregoing, all statements which are in
the nature of or which purport to be representations and warranties and which
are contained in any certificate or other writing required to be delivered or
which is delivered on or after the Closing by or on behalf of Borrower to Lender
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties of Borrower
contained in this Agreement.
10.8 APPLICABLE LAW. The substantive laws of the Commonwealth of
Pennsylvania shall govern the construction of this Agreement and the rights and
remedies of the parties hereto, without regard to principles of conflicts of
law.
10.9 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Borrower hereby
irrevocably appoints each and every officer of Borrower as its attorneys upon
whom may be served any notice, process or pleading in any action or proceeding
against it arising out of or in connection with this Agreement, the Notes or any
of the Loan Documents; and Borrower hereby consents that any action or
proceeding against it may be commenced and maintained in any court within
Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania by service of process on any such officer; and
Borrower agrees that the courts of the Commonwealth of Pennsylvania and the
United States District Court for the Eastern District of Pennsylvania shall have
jurisdiction with respect to the subject matter hereof and the person of
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<PAGE>
Borrower. Notwithstanding the foregoing, Lender in its absolute discretion may
also initiate proceedings in the courts of any other jurisdiction in which
Borrower may be found or in which any of its assets or any of the Collateral may
be located.
10.10 BINDING EFFECT, ASSIGNMENT AND ENTIRE AGREEMENT. This Agreement shall
inure to the benefit of, and shall be binding upon, the respective heirs,
executors, administrators, successors and permitted assigns of the parties
hereto. Borrower shall not assign any of its rights or obligations hereunder
without the prior written consent of Lender. This Agreement, the Note, the other
Loan Documents and any other documents executed and delivered pursuant hereto,
constitute the entire agreement between the parties, superseding all prior
agreements relating to the subject matter hereof.
10.11 MODIFICATIONS. No modification or waiver of any provision of this
Agreement or of the Notes, nor consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in writing, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or future notice or demand in the same,
similar or other circumstance.
10.12 SEVERABILITY. If any provision of this Agreement shall be held
invalid under any applicable law, such invalidity shall not affect any other
provision of this Agreement which can be given effect without the invalid
provision. To this end, the provisions hereof are severable.
10.13 NO RESPONSIBILITY OF LENDER; INDEMNIFICATION. Lender shall not be
deemed to have assumed any liability or responsibility to Borrower or any Person
for the correctness, validity or genuineness of any instruments or documents
that may be released or endorsed to Borrower by Lender (which shall
automatically be deemed to be without recourse to Lender in any event), or for
the existence, character, quantity, quality, condition, value or delivery of any
Goods purporting to be represented by any such documents; and Lender, by
accepting such security interest in the Collateral or by releasing any such
Collateral to Borrower, shall not be deemed to have assumed any obligation or
liability to any supplier or account debtor or to any other Person, and Borrower
agrees to indemnify and defend Lender and hold it harmless in respect to any
claim or proceeding arising out of any matter referred to in this Subsection
10.13.
10.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.15 HEADINGS. The headings in this Agreement are for convenience only and
shall not limit or otherwise affect any of the terms hereof.
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<PAGE>
10.16 WAIVER OF TRIAL BY JURY. Borrower and Lender waive trial by jury in
any suit or proceeding brought in connection with this Agreement or the
transactions contemplated hereunder.
10.17 EXHIBITS AND SCHEDULES. This Agreement includes the following
Exhibits and Schedules, which are attached hereto and incorporated into and made
a part of this Agreement:
Exhibit A Convertible Note
Exhibit B Special Power of Attorney
Exhibit C-1 Opinion of Borrower's Counsel
Exhibit C-2 Opinion of Borrower's Patent Counsel
Exhibit D Security Agreement
Schedule 5.7 Financing Statement Jurisdictions
Schedule 5.18 Trade Names
10.18 ADVICE OF COUNSEL. Borrower acknowledges that it has been advised by
its counsel with respect to this transaction and this Agreement, including,
without limitation, any waivers contained herein.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
COLLAGENEX PHARMACEUTICALS, INC.
By:/s/ Brian M. Gallagher
------------------------------------------
Name: Brian M. Gallagher
Title: President and Chief Executive Officer
By:/s/ Nancy C. Broadbent
------------------------------------------
Name: Nancy C. Broadbent
Title: Vice President and Chief Financial Officer
OAKTREE PRINCIPAL OPPORTUNITIES FUND, L.P.
By: Oaktree Capital Management, LLC,
its general partner
By:/s/ Stephen Kaplan
-------------------------------------
Name: Stephen Kaplan
Title: Principal
By:/s/ Michael Harmon
-------------------------------------
Name: Michael Harmon
Title: Vice President
- 28 -
CONVERTIBLE NOTE
THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
COLLAGENEX PHARMACEUTICALS, INC.
12 % SENIOR SECURED CONVERTIBLE NOTE DUE March 18, 2000
No. 1 $10,000,000.00
COLLAGENEX PHARMACEUTICALS, INC., a Delaware corporation (the
"Corporation," which term includes any successor corporation), with a principal
office at 301 South State Street, Newtown, Pennsylvania 18940, for value
received promises to pay to OCM PRINCIPAL OPPORTUNITIES FUND, L.P. or its
permitted assignees ("Holder"), the principal sum of US Ten Million Dollars (US
$10,000,000.00) on March 18, 2000 and to pay interest on the unpaid principal
amount of this Note at the rate of Twelve Percent (12%) per annum during the
period commencing on the date hereof and thereafter. The Corporation will pay
interest quarterly in arrears on June 30, September 30, December 31, and March
31 of each year, commencing on September 1, 1999 (the "Interest Payment Dates").
Interest on this Note will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date hereof. Interest
will be computed on the basis of a 360-day year of twelve (12) 30-day months.
This Note cannot be prepaid at any time, except for the mandatory prepayment
referred to herein.
This Note is a duly authorized and legally binding instrument of the
Corporation, and was issued to the Holder of this Note (together with its
permitted assignees and transferees, the "Holders") pursuant to the Convertible
Loan and Security Agreement dated the date hereof, by and between the
Corporation and Holder ("Agreement").
This Note is that certain Convertible Note referred to in the
Agreement, and shall evidence the Corporation's obligation to repay the
Convertible Loan, as defined in the Agreement. If the Corporation fails to make
any payment required hereunder or if an Event of Default occurs or is continuing
under the Agreement, Lender may declare the Corporation in default hereunder and
may declare the unpaid principal balance of this Note, including any accrued but
unpaid interest thereon, to be immediately due and payable. Holder shall
thereupon have the option, at any time and from time to time, to exercise all
rights and remedies set forth herein or in the Agreement, as well as all rights
and remedies otherwise available to Holder at law or in equity to collect the
unpaid indebtedness evidenced hereby. Any capitalized term used
<PAGE>
in this Note, and not otherwise defined herein, shall have the meaning ascribed
to such term in the Agreement.
Section 1. Method of Payment.
------------------------------
(a) METHOD OF PAYMENT. The Corporation will pay interest on this Note
to the person who is the registered Holder of this Note at the close of business
on June 30, September 30, December 31, and March 31 of each year, or if such
date is not a banking day then the next banking day preceding the Interest
Payment Date. The Corporation will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts, by confirmed wire transfer of immediately available funds to
an account designated by Holder. If a payment date is a Saturday, a Sunday or a
legal holiday at a place of payment, payment may be made at that place on the
immediately preceding day that is not a Saturday, a Sunday or a legal holiday,
and no interest shall accrue for the intervening period.
(b) NO PREPAYMENTS. Except as expressly set forth in Section 1(c) of
this Note, under no circumstances shall the Corporation be permitted to prepay
this Note.
(c) MANDATORY PREPAYMENT. In the event that Holder consummates the
purchase of shares of the Corporation's Series D Cumulative Convertible
Preferred Stock (the "Purchase Transaction"), as contemplated in the Stock
Purchase Agreement of even date herewith, by and among the Corporation, Holder,
and the Persons named therein, the Corporation shall prepay this Note in full,
out of the proceeds of the Purchase Transaction.
Section 2. Affirmative Covenants.
----------------------------------
(a) PAYMENT. The Corporation shall pay the principal of and interest
on the Note on the dates and in the manner provided in this Note. The
Corporation shall pay interest (including interest accruing after the
commencement of any bankruptcy, insolvency or reorganization proceeding) on
overdue principal of the Note at the rate borne by the Note.
(b) PRESERVATION OF CORPORATE EXISTENCE; ETC. Subject to Section 8,
the Corporation will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and that of each of its
subsidiaries and the material rights (charter and statutory) and franchises of
the Corporation.
(c) LAWS. The Corporation will comply in all material respects with
all material applicable statutes, regulations, orders and restrictions of the
United States, any state, municipality or other governmental division thereof,
and agencies and instrumentalities of the foregoing, in respect of the conduct
of its business and the ownership of its property (including, without
limitation, applicable statutes, regulations, orders and restrictions relating
to equal employment opportunities and environmental standards and controls),
except such as are being contested in good faith, or if the failure so to comply
could not reasonably be expected to have a material adverse effect on the
financial condition of the Corporation and its subsidiaries taken as a whole.
2
<PAGE>
(d) FINANCIAL STATEMENTS. The Corporation will furnish financial
statements and other reports to Holder in accordance with the Agreement.
(e) OTHER COVENANTS. In addition to the covenants set forth in this
Note, the Corporation shall comply with all of the covenants set forth in the
Agreement.
Section 3. Conversion of Note.
-------------------------------
(a) Subject to and upon compliance with this Section 3, Holder shall
have the right, at its option, at any time or from time to time, after June 30,
1999, to convert, in whole or in part, the unpaid principal amount hereof, in
whole or in part (the "Conversion Amount"), into registered, fully paid and
non-assessable shares of the Corporation's common stock, par value $.01 per
share (the "Common Stock") One Million Five Hundred Thirty-Eight Thousand Four
Hundred Sixty-Two (1,538,462) shares of Common Stock. Such conversion shall be
effected at the "Note Conversion Price" of $6.50 per share. In addition, any
accrued and unpaid interest as of the Date of Conversion (as defined below in
Section 3(b) hereof) shall be convertible into additional shares of Common Stock
at the same Note Conversion Price.
(b) In order to exercise the conversion right, Holder shall surrender
this Note during regular business hours at the office of the Corporation stated
above, accompanied by written notice to the Corporation at said office that
Holder elects to convert this Note and shall specify the Conversion Amount. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock deliverable upon such
conversion shall be issued. This Note, upon surrender for conversion, shall,
unless the shares deliverable upon conversion are to be delivered in the same
name as Holder, be accompanied by proper assignments for transfer. As promptly
as practicable after the receipt of such notice and the surrender of this Note,
but subject to Section 3(c), the Corporation shall deliver or cause to be
delivered to Holder a certificate or certificates for the number of registered,
fully paid and non-assessable shares of Common Stock deliverable upon conversion
of this Note in the Conversion Amount pursuant to Holder's notice of conversion.
Certificates evidencing the shares of Common Stock delivered upon conversion of
this Note shall bear a legend (to the extent applicable) similar to the legend
on the face of this Note. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which such notice
shall have been received by the Corporation and this Note shall have been
surrendered (the "Date of Conversion"), and at such time the rights of Holder
shall cease with respect to the Conversion Amount converted and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby unless
the stock transfer books of the Corporation shall be closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record on the next succeeding day on which such stock transfer books
are open, but in any event such conversion shall be at the Note Conversion Price
in effect on the Date of Conversion. No adjustment shall be made for dividends
on any Common Stock that shall be delivered upon the conversion of such Note.
3
<PAGE>
(c) No fractional shares shall be issued upon conversion of this Note,
and the number of shares of Common Stock to be issued shall be rounded upward to
the nearest whole share, and there shall be no payment to Holder. Whether or not
fractional shares result from such conversion shall be determined on the basis
of the Conversion Amount Holder is at the time converting into Common Stock and
the number of shares of Common Stock issuable upon such aggregate conversion of
this Note.
(d) In the event the Corporation at any time or from time to time
after the date of issuance of this Note fixes a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock without
payment of any consideration by such holder for the additional shares of Common
Stock then, as of such record date (or the date of such split or subdivision if
no record date is fixed), the Note Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
the Note shall be increased in proportion to such increase in the aggregate
number of shares issuable of Common Stock.
(e) In the event that the Corporation shall issue Additional Stock to
holders of its outstanding Common Stock, without any charge to such holders,
entitling them to subscribe for or purchase shares of its Common Stock at a
price per share that is lower at the record date for such issuance than the Note
Conversion Price, then the Note Conversion Price in effect immediately prior to
each (such issuance or deemed issuance) shall be adjusted to a price determined
by the following formula: (A + B) / (C + D), where "A" equals the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
multiplied by the then applicable Note Conversion Price, where "B" equals the
consideration, if any, received by the Corporation upon such issuance or sale,
where "C" equals the total number of shares of Common Stock outstanding prior to
issuance of the additional shares and where "D" equals any additional stock or
conversion shares, or any other shares reserved for issuance which are
associated with such financing, immediately after such issuance or sale. Such
adjustment shall become effective at the close of business on the record date
for the determination of stockholders entitled to receive such rights, options
or warrants.
(i) "Additional Stock" shall mean any shares of Common Stock or
shares of Common Stock issuable pursuant to Convertible
Securities issued or Options (or deemed to have been issued
pursuant to Section 3(i) hereof) by the Corporation after the
date of issuance of this Note, except:
(A) Common Stock issued pursuant to a transaction described in
Sections 3(d) hereof;
(B) Common Stock or options to purchase such Common Stock
issued to officers, employees or directors of, or consultants
to, the Corporation, pursuant to any agreement, plan or
arrangement approved by the Board of Directors of the
Corporation; provided, however, that the maximum number of
shares of Common Stock heretofore or hereafter issued or
issuable pursuant to all such agreements, plans and
arrangements shall not
4
<PAGE>
exceed an aggregate (as constituted on the date hereof) of Two
Million Three Hundred Two Thousand (2,302,000) shares of
Common Stock ("Permitted Options"); and
(C) Common Stock issued or issuable upon conversion of this
Note.
(f) No adjustment of the Note Conversion Price shall be made in an
amount less than one-half of One Cent ($0.005) per share, provided that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be taken into account in any subsequent adjustment
to the Note Conversion Price. No adjustment of the Note Conversion Price
pursuant to this Section 3(f) shall have the effect of increasing the Note
Conversion Price in effect immediately prior to such adjustment.
(g) In the case of the issuance of securities of the Corporation for
cash, the amount of consideration received by the Corporation for such
securities shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(h) In the case of the issuance of securities of the Corporation for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to have a dollar value equal to the fair market value of
such non-cash consideration, irrespective of any accounting treatment thereof,
as determined by a vote of the majority of the Board of Directors.
(i) In the case of the issuance (whether before, on or after the date
of issuance of this Note) of Options or Convertible Securities, the following
provisions shall apply for all purposes of this Section 3(e) and Section 3(e)(i)
hereof:
(A) With respect to Options to purchase Common Stock, the
aggregate maximum number of shares of Common Stock
deliverable upon exercise of such Options shall be deemed to
have been issued at the time such Options were issued and
for a consideration equal to the consideration (determined
in the manner provided in Section 3(g) and Section 3(h)
hereof), if any, received by the Corporation for such
Options plus the minimum exercise price provided in such
Options for Common Stock issuable thereunder.
(B) With respect to Convertible Securities and Options to
purchase Convertible Securities, the aggregate maximum
number of shares of Common Stock deliverable upon the
conversion or exchange of any such Convertible Securities
and the aggregate maximum number of shares of Common Stock
issuable upon the exercise of such Options to purchase
Convertible Securities and the subsequent conversion or
exchange of such Convertible Securities
5
<PAGE>
shall be deemed to have been issued at the time such
Convertible Securities or such Options were issued and for a
consideration equal to the consideration, if any, received
by the Corporation for any such Convertible Securities and
Options, plus the minimum additional consideration, if any,
to be received by the Corporation upon the conversion or
exchange of such Convertible Securities or the exercise of
such Options and the conversion or exchange of the
Convertible Securities issuable upon exercise of such
Options (the consideration in each case to be determined in
the manner provided in Section 3(g) and Section 3(b)
hereof).
(C) In the event of any change in the number of shares of Common
Stock deliverable, or in the consideration payable to the
Corporation, upon exercise of such Options or upon
conversion or exchange of such Convertible Securities,
including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Note Conversion Price,
to the extent in any way affected by or computed using such
Options or Convertible Securities, shall be recomputed to
reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of
such consideration upon the exercise of any such Options or
the conversion or exchange of such Convertible Securities.
(D) Upon the expiration or termination of any such Options or
any such rights to convert or exchange Convertible
Securities, the Note Conversion Price, to the extent in any
way affected by or computed using such Options or
Convertible Securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and
Options and Convertible Securities which remain in effect)
that were actually issued upon the exercise of such Options
or upon the conversion or exchange of such Convertible
Securities.
(E) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Sections
3(i)(A) and (B) hereof shall be appropriately adjusted to
reflect any change, termination or expiration of the type
described in either Sections 3(i)(C) or (D) hereof.
(j) If at any time or from time to time there shall be a
recapitalization or reclassification of Common Stock, provision shall be made so
that the Holder of this Note shall thereafter be entitled to receive, upon
conversion of this Note, the number of shares of stock or other securities or
property of the Corporation or otherwise, receivable upon such recapitalization
or reclassification by a holder of the number of shares of Common Stock into
which this Note could have been converted immediately prior to such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3 with
6
<PAGE>
respect to the rights of the Holders of this Note after the recapitalization or
reclassification to the end that the provisions of this Section 3. (including
adjustments of the Note Conversion Price then in effect and the number of shares
purchasable upon conversion of this Note) shall be applicable after that event
as nearly equivalent as may be practicable.
(k) In the event the Corporation shall declare a distribution payable
in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in Section 3(d) hereof, then, in each such case for the
purpose of this Section 3(k), the Holders of this Note shall be entitled to a
proportionate share of any such distribution as though such Holder was the
holder of the number of shares of Common Stock into which this Note is
convertible as of the record date fixed for the determination of the holders of
shares of Common Stock entitled to receive such distribution.
(l) Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon the conversion of this Note, the Corporation will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue registered, fully paid and
non-assessable shares of the Common Stock at such adjusted Conversion Price.
(m) Upon the occurrence of each adjustment or readjustment of the Note
Conversion Price pursuant to this Section 3 the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, certified by the Corporation's President or
Chief Financial Officer. The Corporation shall, upon the written request at any
time of Holder, furnish or cause to be furnished to such Holder a like
certificate setting forth (i) such adjustment and readjustment, (ii) the Note
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of this Note.
(n) The Corporation covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
delivery upon conversion of this Note as herein provided such number of shares
of Common Stock as shall then be deliverable upon the conversion of the maximum
amount of principal and accrued but unpaid interest convertible pursuant to this
Note. The Corporation covenants that all the shares of Common Stock which shall
be so deliverable upon conversion of this Note shall be duly and validly issued,
registered, fully paid and non-assessable.
(o) The delivery of certificates for shares of Common Stock upon the
conversion of this Note shall be made without charge to Holder for any
documentary, stamp or similar issue or transfer tax in respect of the issuance
of such certificates, and such certificates shall be delivered in the name of,
or in such names as may be directed by Holder. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or transfer and delivery of shares of Common
Stock in a name
7
<PAGE>
other than that of Holder and no such issue or transfer and delivery shall be
made unless and until the person requesting such transfer has paid to the
Corporation the amount of any such tax or has established to the satisfaction of
the Corporation that such tax has been paid.
(p) If the Common Stock of the Corporation ceases to be listed or
authorized to be quoted on any national securities exchange or the public market
for the Common Stock of the Corporation otherwise ceases to exist, the
Corporation shall engage an investment bank, reasonably acceptable to the
Corporation and Holder, to determine the fair market value price of the Common
Stock, from time to time in connection with this Note.
(q) In the event of any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to Holder,
at least twenty (20) calendar days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such right, and the amount and character of such right.
(r) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3. and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of Holder of this Note
against impairment.
(s) Shares of the Corporation's Common Stock issuable upon conversion
of this Note, shall be subject to the terms and conditions and entitled to
receive the benefits of the Stockholders and Registration Rights Agreement.
(t) "Closing Market Price" for any day means the last sale price
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices regular way, in either case as reported on
American Stock Exchange, National Association of Securities Dealers Automated
Quotation System, or New York Stock Exchange.
(u) "Convertible Securities" means any indebtedness or shares of stock
convertible into or exchangeable for Common Stock.
(v) "Option" means rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.
Section 4. Seniority.
-----------------------
This Note and the obligations evidenced hereby shall rank senior in
priority to any other obligations or indebtedness of the Corporation.
Section 5. Events of Default.
-------------------------------
8
<PAGE>
(a) An "Event of Default" occurs if:
(i) the Corporation shall fail to pay when due, on demand or at
maturity (whether as stated or by acceleration) any payment of
principal or interest, or any fee or charge, payable hereunder or
under the Agreement.
(ii) the Corporation shall fail to observe or perform any
obligation, other than the obligation for payment of money
hereunder or under the Agreement or shall materially breach any
of the covenants or agreements contained herein, in the
Agreement, the other Loan Documents, the Purchase Agreement or
the Stockholders and Registration Rights Agreement, and such
failure or breach shall continue for thirty (30) days after the
earlier of: (1) the date written notice of such failure is mailed
by Holder, or (2) the date Holder is notified of such failure or
should have been so notified pursuant to the provisions hereof.
(iii) the Corporation shall fail to pay any Indebtedness when due
to any Person, and such failure shall continue beyond any
applicable grace period, or the Corporation shall incur any other
event of default under any agreement binding upon it.
(iv) the Corporation shall admit its inability to pay its debts
as they mature, or shall make an assignment for the benefit of
its creditors; or proceedings in bankruptcy, or for
reorganization of the Corporation, or for the readjustment of any
of its debts, under the Bankruptcy Code or any part thereof, or
under any other laws, whether state or federal, for the relief of
debtors, now or hereafter existing, shall be commenced by the
Corporation, or shall be commenced against the Corporation, which
proceedings against the Corporation shall not be discharged
within sixty (60) calendar days of their commencement; or a
receiver or trustee shall be appointed for the Corporation or any
substantial part of its assets, or any proceedings shall be
instituted for the dissolution or the full or partial liquidation
of the Corporation and such receiver or trustee shall not be
discharged within sixty (60) calendar days of his appointment, or
such proceedings shall not be discharged within sixty (60)
calendar days of their commencement, or the Corporation shall
discontinue business or materially change the nature of its
business.
(b) If an Event of Default (other than an Event of Default specified
in Section 5(a)(iv)) occurs and is continuing, then and in every such case
Holder may declare the principal of and accrued interest and unpaid on the Note
to be due and payable immediately by a notice in writing to the Corporation and
upon any such declaration such principal and any accrued but unpaid interest
shall become immediately due and payable. If an Event of Default specified in
Section 5(a)(iv) occurs and is continuing, the principal of and accrued interest
and unpaid interest on the Note shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of Holder. Subject
to Sections 5(c) and 6, Holder, by notice to the Corporation, may waive a
default or Event of Default and its consequences.
(c) Subject to Section 4, the right of Holder of this Note to receive
payment of principal of and interest on this Note, on or after the due dates
expressed herein, or to bring suit
9
<PAGE>
for the enforcement of any such payment on or after such date, shall not be
impaired or affected without the consent of Holder of this Note.
Section 6. Amendment and Waiver.
----------------------------------
This Note may be amended only with express prior written consent of
Holder, and any past default or compliance with any provision may be waived in a
particular instance only with such consent of Holder.
Section 7. No Merger, etc.
----------------------------
So long as this Note or the Agreement remain outstanding, the
Corporation shall not consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an entirety to any
person, and the Corporation shall not permit any person to consolidate with or
merge into the Corporation or convey, transfer or lease its properties and
assets substantially as an entirety to the Corporation.
Section 8. Denominations; Transfer and Exchange.
--------------------------------------------------
This Note may be transferred or assigned, in whole or in part, by
Holder. When the Note is presented or surrendered for registration of transfer
or exchange, it shall be duly endorsed or be accompanied by a written instrument
of transfer in form reasonably satisfactory to the Corporation duly executed by
Holder thereof or its attorney duly authorized in writing. The Corporation shall
bear all costs and expenses associated with any transfer or exchange, including
without limitation, any tax or other governmental charge that may be imposed in
relation thereto.
Section 9. Replacement Securities.
------------------------------------
If the Note is mutilated and is surrendered to the Corporation or if
Holder presents evidence to the reasonable satisfaction of the Corporation that
the Note has been lost, destroyed or wrongfully taken, the Corporation shall
issue a replacement Note of like tenor. The Corporation shall bear all costs and
expenses associated with replacing the Note.
Section 10. No Recourse Against Others.
-----------------------------------------
No director, officer, employee or stockholder, as such, of the
Corporation shall have any liability for any obligations of the Corporation
under the Note or for any claim based on, in respect or by reason of, such
obligations or their creation; provided, however, that nothing in this Section
10 shall in any way diminish or detract from Holder's interest in the Collateral
securing the payment of and performance by the Corporation of this Note. Holder
by accepting this Note waives and releases all such liability. This waiver and
release are part of the consideration for the issue of the Note.
Section 11. Notice.
---------------------
All notices, requests, consents and demands shall be made in writing
and shall be delivered personally or mailed by registered or certified mail,
return receipt requested and
10
<PAGE>
postage prepaid, to the Corporation at 301 South State Street, Newtown, PA
18940, or to such other address as may be furnished in writing to the Holder of
the Note or to the Holder at its address listed on the transfer books of the
Corporation. Unless otherwise indicated herein, notices hereunder shall be
effective when delivered, if delivered personally, or, if sent by mail, when
sent.
The Corporation hereby waives protest, demand, notice of nonpayment
and all other notices in connection with the delivery, acceptance, performance
or enforcement of this Note. Any failure or delay of Holder to exercise any
right hereunder shall not be construed as a waiver of the right to exercise the
same or any other right at any other time or times. The waiver by Holder of a
breach or default of any provision of this Note shall not operate or be
construed as a waiver of any subsequent breach or default thereof. The
Corporation agrees to reimburse Holder for all expenses, including without
limitation, attorneys' fees and disbursements of counsel, incurred by Holder to
enforce the provisions of this Note, protect and preserve Holder's rights under
the Agreement, and collect the Corporation's obligations hereunder.
Section 12. Governing Law.
----------------------------
This Note shall be deemed a contract under, and shall be governed and
construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without giving effect to principles of conflicts of laws. The provisions of this
Note are severable and the invalidity or unenforceability of any provision shall
not alter or impair the remaining provisions of this Note.
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Note to be signed
manually or by facsimile by its duly authorized officers and its corporate seal
or a facsimile thereof to be affixed hereto or imprinted hereon.
Dated: March 19, 1999.
COLLAGENEX PHARMACEUTICALS, INC.
By:/s/ BM Gallagher
-----------------------------------
Name: BM Gallagher
Title: President and CEO
Attest:
/s/ Nancy C. Broadbent
- ----------------------
Secretary
12
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
COLLAGENEX PHARMACEUTICALS, INC.
OCM PRINCIPAL OPPORTUNITIES FUND, L.P.
and
THE PURCHASERS NAMED HEREIN
Dated as of March 19, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I SALE AND PURCHASE OF SECURITIES...................................1
1.1 Sale and Purchase of Preferred Stock..............................1
1.2 Closing...........................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................3
2.1 Certificate of Incorporation Stock...............................3
2.2 Issuance of Series D Preferred Stock and Reservation of
Reserved Shares.................................................3
2.3 Organization and Qualification...................................3
2.4 Capitalization...................................................4
2.5 Authority Relative to this Agreement.............................5
2.6 Absence of Certain Changes.......................................5
2.7 Reports..........................................................6
2.8 Financial Reports................................................7
2.9 No Violation; Consents and Approvals.............................7
2.10 Brokerage Fees and Commissions...................................8
2.11 Litigation.......................................................8
2.12 Absence of Changes in Benefit Plans..............................8
2.13 ERISA Compliance.................................................8
2.14 Taxes...........................................................11
2.15 Permits; Environmental Matters..................................11
2.16 Contracts; Debt Instruments.....................................12
2.17 Title to Properties.............................................13
2.18 Intellectual Property...........................................14
2.19 Certain Agreements..............................................14
2.20 Indemnification Claims..........................................14
2.21 Antitakeover Statute; Shareholder Protection Rights Agreement...14
2.22 Protective Agreements...........................................15
2.23 Other Agreements Containing Non-Disclosure and Non-Competition
Provisions.....................................................15
2.24 Patents.........................................................16
2.25 Related Transactions............................................16
2.26 Amendments to Certificate of Incorporation......................16
2.27 Public Announcements............................................16
2.28 Use of Proceeds.................................................17
2.29 S-8 Amendment...................................................17
2.30 Disclosure......................................................17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR AND PURCHASERS......17
3.2 Authority Relative to this Agreement; No Conflict................18
3.4 Investment Intent................................................18
3.4 Purchasers' Counsel..............................................18
3.5 Economic Risk....................................................18
3.6 Additional Representations.......................................19
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<PAGE>
ARTICLE III-A COVENANTS.....................................................19
3A.1 Conduct of Business of the Company..............................19
3A.2 Existence; Maintenance of Property..............................21
3A.3 No Solicitation.................................................21
3A.4 Access to Information...........................................21
3A.5 Proxy Statement and Stockholder Meeting.........................22
3A.6 NASDAQ Listing..................................................22
3A.7 Reasonable Best Efforts.........................................22
3A.8 Shareholder Litigation..........................................23
3A.9 Financial Reports...............................................23
ARTICLE IV CONDITIONS TO CLOSING...........................................25
4.1 Conditions to Investor's Obligations for Closing.................25
4.2 Conditions to the Company's Obligations for the Closing..........27
ARTICLE V INDEMNIFICATION..................................................27
5.1 Indemnification by the Company...................................27
5.2 Indemnification by Investor and Purchasers.......................27
5.3 Procedure for Indemnification....................................28
5.4 Procedure for Indemnification....................................29
ARTICLE VI MISCELLANEOUS...................................................29
6.1 Termination; Effect of Termination; Expenses.....................29
6.2 Extension; Waiver................................................30
6.3 Entire Agreement; Assignment.....................................30
6.4 Enforcement of the Agreement; Governing Law; Jurisdiction........30
6.5 Validity.........................................................31
6.6 Notices..........................................................31
6.7 Descriptive Headings.............................................33
6.8 Parties in Interest..............................................33
6.9 Counterparts.....................................................33
6.10 Amendment.......................................................33
6.11 Survival........................................................33
6.12 Certain Definitions.............................................34
-ii-
<PAGE>
EXHIBITS
Exhibit A Certificate of Designation, Preferences and Rights of Series D
Cumulative Convertible Preferred Stock
Exhibit B-1 Opinion of Counsel to the Company
Exhibit B-2 Opinion of Patent Counsel to the Company
Exhibit C List of Purchasers
Exhibit D Stockholders and Registration Rights Agreement
Exhibit E Notice Information for Purchasers
SCHEDULES
Schedule 2.3(a) List of Jurisdictions for Foreign Qualification
Schedule 2.4(c) List of Holders of Option Shares; List of Holders
Schedule 2.4(d) Warrants, Options, etc.
Schedule 2.6 Certain Changes
Schedule 2.12 Absence of Changes in Benefit Plans
Schedule 2.13 List of Benefit Plans
Schedule 2.15 Permits; Environmental Matters
Schedule 2.16(a) Material Contracts
Schedule 2.16(b) Indebtedness
Schedule 2.16(c) Agreements Involving the Payment of $50,000 or More per Year
Schedule 2.18 Intellectual Property
Schedule 2.19 Contracts that Limit the Company's Ability to Compete
Schedule 2.22 Protective Agreements with Directors, Officers and Employees
Schedule 2.23 Other Agreements Containing Non-Disclosure and
Non-Competition Provisions
Schedule 3A.1 Conduct of Business of the Company
-iii-
<PAGE>
DEFINED TERMS
affiliate...................................................................34
Agreement....................................................................1
associate...................................................................34
beneficial owner............................................................34
Budget......................................................................24
Closing......................................................................2
Closing Date.................................................................2
COBRA........................................................................9
Code.........................................................................8
Common Stock.................................................................1
Company......................................................................1
confidential information....................................................15
control.....................................................................34
DGCL.........................................................................8
Employee Benefit Plans.......................................................8
Environmental Laws..........................................................11
Environmental Permits.......................................................12
ERISA........................................................................8
Exchange Act.................................................................6
Foundation..................................................................16
fully diluted...............................................................34
Governmental Entity..........................................................7
Hazardous Substance.........................................................12
indemnified party...........................................................28
Intellectual Property.......................................................13
Investor.....................................................................1
Investor Purchase Price......................................................1
Liens........................................................................3
Loss........................................................................27
Material Adverse Effect.....................................................34
NASDAQ.......................................................................1
NCA.........................................................................14
NDA.........................................................................14
NYSE........................................................................22
Opinion of the Company's Counsel............................................26
Opinion of the Company's Patent Counsel.....................................26
Patent Agreements...........................................................16
person......................................................................35
Protective Agreements.......................................................14
Proxy Statement.............................................................22
Purchaser Purchase Price,....................................................2
Related Transactions........................................................16
S-8 Amendment...............................................................17
-iv-
<PAGE>
SEC Documents................................................................6
Securities Act...............................................................6
Series D Certificate of Designation.........................................16
Series D Preferred Stock.....................................................1
Shareholder Protection Rights Agreement.....................................14
subsidiary..................................................................35
Taxes.......................................................................11
Third Party Claim...........................................................28
Total Purchase Price.........................................................2
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS IS A STOCK PURCHASE AGREEMENT, dated as of March 19, 1999 (the
"Agreement."), by and between COLLAGENEX PHARMACEUTICALS, INC., a Delaware
corporation, having its principal office at 301 South State Street, Newtown,
Pennsylvania 19940 (the "Company"), OCM PRINCIPAL OPPORTUNITIES FUND, L.P., a
Delaware limited partnership, having its principal office at c/o Oaktree Capital
Management, LLC, 333 South Grand A5venue, 28th Floor, Los Angeles, California
90071 (the "Investor") and the persons named on Exhibit C to this Agreement
(individually a "Purchaser" and collectively the "Purchasers").
BACKGROUND
----------
WHEREAS, the Company currently has issued and outstanding 8,587,204
shares of Common Stock, par value one-cent ($0.01) per share ("Common Stock").
The Company's Common Stock is currently traded on the Nasdaq National Market
("NASDAQ").
WHEREAS, the Company is engaged in the business of developing and
commercializing innovative proprietary therapies for the treatment of
periodontal disease and other pathologies;
WHEREAS, the Company intends to issue the Series D Cumulative
Convertible Preferred Stock, one-cent ($0.01) par value ("Series D Preferred
Stock"); and
WHEREAS, Investor and Purchasers desire to purchase the Series D
Convertible Preferred Stock, subject to the terms and conditions contained
herein.
TERMS
-----
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
SALE AND PURCHASE OF SECURITIES
-------------------------------
1.1 SALE AND PURCHASE OF PREFERRED STOCK.
(a) Subject to the terms and conditions set forth herein, at the
Closing (as defined in Section 1.2(a)), the Company will issue and sell to
Investor, and Investor will purchase from the Company, One Hundred Seventy-Seven
Thousand (177,000) shares of the Series D Preferred Stock. The aggregate
purchase price for the Series D Preferred Stock being purchased hereunder is
Seventeen Million Seven Hundred Thousand Dollars ($17,700,000) (the "Investor
Purchase Price").
<PAGE>
(b) Subject to the terms and conditions set forth herein, at the
Closing, the Company will issue and sell to each Purchaser, and each Purchaser
will purchase from the Company, the number of shares of Series D Preferred Stock
set forth beside the name of each Purchaser on Exhibit C hereto. The aggregate
purchase price for the Series D Preferred Stock being purchased by each Purchase
is set forth on Exhibit C hereto (the "Purchaser Purchase Price," and together
with the Investor Purchase Price, the "Total Purchase Price").
(c) The total number of shares of Series D Preferred Stock to be
purchased from the Company by Investor is One Hundred Seventy-Seven Thousand
(177,000) and the total number of shares of Series D Preferred Stock to be
purchased from the Company by each Purchaser is set forth on Exhibit C hereto.
The per share purchase price for the Series D Preferred Stock to be paid by
Investor and each Purchaser pursuant to this Section 1.1 is One Hundred Dollars
($100) per share. At Closing, Investor shall pay the Investor Purchase Price for
the shares of Series D Preferred Stock purchased by Investor hereunder, and each
Purchaser shall pay the Purchaser Purchase Price for the shares of Series D
Preferred Stock purchased by such Purchaser, by wire transfer of immediately
available funds to an account designated by the Company not less than two (2)
business days prior to Closing.
1.2 CLOSING.
(a) The closing of the purchase and sale of the shares of Series
D Preferred Stock referred to in Section 1.1 above (the "Closing") will take
place as soon as practicable after the Company's 1999 Annual Meeting of
Stockholders and prior to June 30, 1999 at the offices of Dechert Price &
Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania
19103-2793, on such date to be mutually agreed by the parties hereto (the
"Closing Date").
(b) At Closing, the Company will deliver to Investor a stock
certificate representing One Hundred Seventy-Seven Thousand (177,000) shares of
Series D Preferred Stock, registered in the name of Investor or an affiliate or
associate of Investor. Delivery is being made against payment of the Investor
Purchase Price therefor in cash, by wire transfer of immediately available
funds, with confirmed receipt.
(c) At Closing, the Company will deliver to each Purchaser a
stock certificate representing the number of shares of Series D Preferred Stock
set forth beside the name of each Purchaser on Exhibit C hereto, registered in
the name of each Purchaser. Delivery is being made against payment of the
Purchaser Purchase Price therefor in cash, by wire transfer of immediately
available funds, with confirmed receipt.
-2-
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
--------------
The Company hereby represents and warrants to Investor and each
Purchaser as follows:
2.1 CERTIFICATE OF INCORPORATION. The Company has filed with the
Secretary of State of the State of Delaware an amendment to its Certificate of
Incorporation incorporating the Certificate of Designation.
2.2 ISSUANCE OF SERIES D PREFERRED STOCK AND RESERVATION OF RESERVED
SHARES. Subject to the terms and conditions hereof, the Company has authorized
the issuance of the shares of Series D Preferred Stock; and the Company has also
authorized the reservation of the shares of Common Stock reserved for issuance
upon conversion of the Series D Preferred Stock and dividends, when declared,
with respect to the Series D Preferred Stock.
2.3 ORGANIZATION AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
requisite corporate power to carry on its business as it is now being conducted.
The Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified could not reasonably be expected to
result in a Material Adverse Effect (as defined in Section 6.12(e)). Schedule
2.3(a) attached hereto sets forth a list of jurisdictions in which the Company
is so qualified to do business and is in good standing as a foreign corporation.
(b) The only subsidiary of the Company is CollaGenex
International, Ltd., which is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power to carry on its business as it is now being conducted.
The subsidiary of the Company is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities make such
qualification necessary, except where the failure to be so qualified could not
be reasonably expected to result in a Material Adverse Effect. All of the
outstanding shares of capital stock of the subsidiary have been validly issued,
are fully paid and non-assessable and are owned by the Company free and clear of
all pledges, claims, equities, options, liens, charges, rights of first refusal,
"tag" or "drag" along rights, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens"). Except for the capital stock of its
subsidiary, the Company has never had, nor does it presently have, any
subsidiaries, nor has it owned, nor does it presently own, any capital stock or
other proprietary interest or other voting control, directly or indirectly, in
any corporation,
-3-
<PAGE>
association, trust, partnership, limited liability company, joint venture or
other entity. The Company is, however, currently evaluating whether to establish
two (2) separate Delaware Investment Holding Companies through which the Company
would separately hold and manage its intellectual property and its cash and
liquid investment balances.
(c) The Company has delivered to Investor complete and correct
copy of its Certificate of Incorporation, certified by the Secretary of State of
the State of Delaware, and a complete and correct copy of its Bylaws and the
comparable charters and bylaws or other organizational documents of its
subsidiary, in each case as amended to the date of this Agreement.
2.4 CAPITALIZATION. The authorized capital stock of the Company
immediately upon the consummation at Closing of the transactions contemplated
hereby, and giving effect thereto, shall consist of:
(a) Four Million Eight Hundred Thousand (4,800,000) shares of
undesignated preferred stock, $0.01 par value;
(b) Two Hundred Thousand (200,000) shares of Series D Preferred
Stock, of which One Hundred Seventy-Seven Thousand (177,000) shares have been
validly issued to Investor and of which Twenty-Three Thousand (23,000) shares
have been validly issued to Purchasers in the amounts set forth on Exhibit C at
Closing and are outstanding, fully paid and non-assessable upon receipt of the
Total Purchase Price pursuant to Section 1.1 hereof, with only limited liability
attaching solely to the ownership thereof under applicable state law;
(c) Twenty Five Million (25,000,000) shares of Common Stock, of
which (i) Eight Million Five Hundred Eighty-Seven Thousand Two Hundred Four
(8,587,204) shares are validly issued and outstanding, and fully paid and
non-assessable, and (ii) Two Million Two Hundred Seventy-Six Thousand Three
Hundred Sixty-Four (2,276,364) shares are duly reserved for issuance in
connection with the conversion of the Series D Preferred Stock and payment of
dividends on the Series D Preferred Stock as set forth in the Certificate of
Designation. Nine Million Seven Hundred Eighty Four Thousand Six Hundred
Sixty-Three (9,784,663) shares of Common Stock represent the Company's total
common equity on a fully-diluted basis (including without limitation shares
outstanding and shares issuable upon the exercise of the rights outstanding as
of the date of execution of this Agreement referred to in Schedule 2.4(d))
(Schedule 2.4(d) attached hereto lists all of the shares of Common Stock by
holder issuable upon exercise of such rights). Schedule 2.4(c) attached hereto
contains a list of (y) all holders of record owning five percent (5%) or more of
outstanding capital stock of the Company and (z) all other holders known to the
Company, of five percent (5%) or more of outstanding capital stock of the
Company and holders known to the Company to have filed a Schedule 13D or 13G
under the Exchange Act, including, for both (y) and (z) above, the number of
shares of outstanding capital stock of the Company held by each such holder; and
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(d) Schedule 2.4(d) attached hereto contains a list of all
outstanding warrants, options, agreements, convertible securities or other
commitments pursuant to which the Company or its subsidiary are or may become
obligated to issue any shares of their capital stock or other securities of the
Company or its subsidiary, which names all persons entitled to receive such
shares or securities and the shares of capital stock or other securities
required to be issued thereunder. There are no bonds, debentures, notes or other
indebtedness of the Company or its subsidiary having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company or its subsidiary may vote.
Except as set forth on Schedule 2.4(d), there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or its subsidiary is a party or by
which the Company or its subsidiary is bound obligating the Company or its
subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
directly or indirectly, additional shares of capital stock or other voting
securities of the Company or its subsidiary, or obligating the Company or its
subsidiary to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. Except
as set forth on Schedule 2.4(d), there are not any outstanding contractual
obligations of the Company or its subsidiary to repurchase, redeem or otherwise
acquire, or providing preemptive or registration rights with respect to, any
shares of capital stock of the Company or its subsidiary. The Company and its
subsidiary do not have outstanding any loans to any person (as defined in
Section 6.12(f)) in respect of the purchase of securities issued by the Company
and its subsidiary.
2.5 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of the Company, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by the Company, and, assuming this Agreement constitutes
a valid and binding obligation of each Investor and each Purchaser, this
Agreement constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
2.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Documents (as defined in Section 2.7 below) or as contemplated by this Agreement
or as set forth in Schedule 2.6 attached hereto, since December 31, 1997, no
event has occurred, and no circumstances exist, that could reasonably be
expected to result in a Material Adverse Effect (as defined in Section 6.12(e)
below). Except as disclosed in the Company's filings and reports under the
Exchange Act (as defined in Section 2.7 below) or as set forth in Schedule 2.6,
since December 31, 1997, there has not been (a) any declaration, setting aside
or payment of any dividend or other distribution in respect of the capital stock
of the Company or its subsidiary or any redemption or other acquisition by the
Company or its subsidiary of any shares of Common
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Stock or other equity securities of the Company or its subsidiary; (b) any entry
into any agreement, commitment or transaction by the Company or its subsidiary
which is material to the Company and its subsidiary taken as a whole, except
agreements, commitments or transactions in the ordinary course of business,
consistent with prior practice; (c) any split, combination or reclassification
of the Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (d)(i) any granting by the Company or its
subsidiary to any officer of the Company or its subsidiary of any increase in
compensation, except in the ordinary course of business consistent with prior
practice or as was required under employment agreements in effect as of the date
of the most recent audited financial statements included in the SEC Documents,
(ii) any granting by the Company or its subsidiary to any such officer of any
increase in severance or termination pay, except as was required under
employment, severance or termination agreements in effect as of the date of the
most recent audited financial statements included in the SEC Documents, or (iii)
any entry by the Company or its subsidiary into any employment, severance or
termination agreement with any such officer; (e) any damage, destruction or
loss, whether or not covered by insurance, that could reasonably be expected to
have a Material Adverse Effect; or (f) any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting principles, consistently applied.
2.7 REPORTS. Since June 25, 1996, the Company has filed all required
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the rules and regulations promulgated thereunder
(collectively, the "SEC Documents"), all of which have complied as of their
respective filing dates in all material respects with all applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder. None of such forms, reports or
documents at the time filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent that information contained
in any SEC Document has been revised or superseded by a later-filed SEC Document
filed and publicly available prior to the date hereof, none of the SEC Documents
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its subsidiary as of the
dates thereof and the consolidated results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
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2.8 FINANCIAL REPORTS. The audited, consolidated financial statements
for the Company and its subsidiary for the period ended December 31, 1997; the
unaudited quarterly financial statements for the Company and its subsidiary for
each of the quarterly periods ended March 31, 1998, June 30, 1998 and September
30, 1998; and the unaudited monthly financial statements for the months ended
October, 1998, November, 1998, December, 1998 and January, 1999, and the draft
audited annual consolidated financial statements for 1998, previously provided
to Investor are true, correct and complete in all material respects, and comply
as to form in all material respects with applicable accounting requirements and
the rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except to the extent
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of the Company and its subsidiary as
of the date thereof and the consolidated results of their operations and cash
flows for the periods then ended. Since the date of such financial statements,
there have been no changes that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except for
liabilities incurred in the ordinary course of business, which individually and
in the aggregate are not material, the Company and its subsidiary do not have
any liabilities or obligations of any nature (whether absolute, contingent or
otherwise) that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect other than such liabilities reflected on the
financial statements referred to hereinabove in this Section 2.8.
2.9 NO VIOLATION; Consents and Approvals. Neither the execution and
delivery of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will conflict with, or result in any violation
of or default under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or acceleration of any Liens upon
any of the properties or assets or the Company or its subsidiary under, (a) the
Certificate of Incorporation or Bylaws of the Company or its subsidiary, each as
amended, (b) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to the Company or its subsidiary or their properties or assets or (c)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or its subsidiary or their properties or
assets, other than, in the case of clauses (b) or (c), any such conflicts,
violations, defaults, rights or Liens that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. No consent,
approval, order or authorization of, or registration, declaration or filing
with, (x) any Federal, state or local government or any court, administrative or
regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a "Governmental Entity" ), (y) NASDAQ, or (z) any third
party, is required by the Company or its subsidiary in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated by this Agreement, except for (i)
the filing with the SEC of a notice on Form D or such reports under Section
13(a) of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (ii) the filing of the
Series D Certificate of Designation (as such
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term is defined in Section 2.26) with the Secretary of State of the State of
Delaware pursuant to the Delaware General Corporation Law (the "DGCL"), (iii)
applicable state "blue sky" filings, if any, (iv) approval of the transactions
contemplated hereby by the stockholders of the Company, and (v) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings, which have been obtained or made or the failure of which to be obtained
or made, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
2.10 BROKERAGE FEES AND COMMISSIONS. No person or entity, other than
BT Alex. Brown Incorporated, is entitled to receive from the Company or its
subsidiary any investment banking, brokerage or finder's fee in connection with
this Agreement or the transactions contemplated hereby.
2.11 LITIGATION. There is no suit, action or proceeding pending or, to
the knowledge of the Company, threatened against the Company or its subsidiary
that could reasonably be expected to have a Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or its subsidiary that could
reasonably be expected to have a Material Adverse Effect.
2.12 ABSENCE OF CHANGES IN BENEFIT PLANS. Except as set forth in
Schedule 2.12, there has not been any adoption or amendment in any material
respect by the Company or its subsidiary of any collective bargaining agreement
or any Employee Benefit Plan, as defined in Section 2.13(a) of this Agreement.
2.13 ERISA COMPLIANCE.
(a) LIST OF PLANS. Set forth in Schedule 2.13 attached hereto is
an accurate and complete list of all employee benefit plans, as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including any "multiemployer plan" as defined in Section 3(37) of
ERISA), and all other pension, retirement, supplemental retirement, deferred
compensation, excess benefit, profit sharing, bonus, incentive, stock purchase,
stock ownership, stock option, stock appreciation right, employment, severance,
salary continuation, termination, change-of-control, health, life, disability,
group insurance, vacation, holiday and fringe benefit plan, program, contract,
or arrangement (whether written or unwritten, qualified or nonqualified, funded
or unfunded and including any that have been frozen or terminated) maintained,
contributed to, or required to be contributed to, by the Company or any ERISA
Affiliate for the benefit of any employee, former employee, director or officer
of the Company or under which the Company or any ERISA Affiliate has any
liability with respect to any employee, former employee, director or officer of
the Company ("Employee Benefit Plans"). The term "ERISA Affiliate" means (i) any
corporation included with the Company in a controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of 1986, as
amended (the "Code"); (ii) any trade or business (whether or not incorporated)
which is under common control with the Company within the meaning of Section
414(c) of the
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Code; (iii) any member of an affiliated service group of which the Company is a
member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of the Company under Section 414(o) of
the Code.
(b) STATUS OF PLANS. Each Employee Benefit Plan (including any
related trust) complies in form with, and has at all times been maintained and
operated in compliance with its terms and, the requirements of all applicable
laws, including, without limitation, ERISA, the Code and the Consolidated
Omnibus Budget Reconciliation Act ("COBRA"). No condition or circumstance exists
that would prevent the amendment or termination of any Employee Benefit Plan.
(c) LIABILITIES. No Employee Benefit Plan is now or at any time
has been subject to Part 3, Subtitle B of Title I of ERISA or Title IV of ERISA.
Neither the Company or any current ERISA Affiliate is, or within the seven years
immediately preceding the date of this Agreement was, required to contribute to
any multiemployer plan, as defined by section 3(37) of ERISA. Neither the
Company nor any ERISA Affiliate, while an ERISA Affiliate, has incurred any
withdrawal liability, within the meaning of Section 4201 of ERISA to any
multiemployer plan, which liability has not been fully paid as of the date
hereof. No Employee Benefit Plan which is a "group health plan" (as such term is
defined in Section 5000(b)(1) of the Code or Section 607(1) of ERISA) is a
"multiple employer welfare arrangement," within the meaning of Section 3(40) of
ERISA. Neither the Company nor any of its subsidiaries maintains any Employee
Benefit Plan (whether qualified or non-qualified under Section 401(a) of the
Code) providing for post-employment or retiree health, life insurance and/or
other welfare benefits and having unfunded liabilities. Neither the Company nor
any of its subsidiaries has any unfunded liabilities pursuant to any employee
benefit pension plan (as defined in Section 3(2) of ERISA) that is not intended
to be qualified under Section 401(a) of the Code. No asset of the Company or any
of its subsidiaries is subject to any lien arising under Section 302(f) of ERISA
or Section 412(n) of the Code, and, to the knowledge of the Company, no event
has occurred and no condition or circumstance exists that is reasonably likely
to give rise to any such lien. Neither the Company nor any of its subsidiaries
has been required to provide any security under Section 307 of ERISA or Section
401(a)(29) or 412(f) of the Code, and, to the knowledge of the Company, no event
has occurred and no condition or circumstance exists that is reasonably likely
to give rise to any such requirement to provide any such security.
(d) ABSENCE OF LITIGATION. There are no actions, suits, claims,
or disputes pending, or, to the knowledge of the Company, threatened or
reasonably expected to be asserted against or with respect to any Employee
Benefit Plan or the assets of any such plan (other than routine claims for
benefits and appeals of denied routine claims) or with respect to any fiduciary
with respect thereto.
(e) CONTRIBUTIONS. Full payment has been timely made of all
amounts which the Company or any ERISA Affiliate is required, under applicable
law or under any Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which the
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Company or any ERISA Affiliate is a party, to have paid as contributions or
premiums thereto as of the last day of the most recent fiscal year of such
Employee Benefit Plan ended prior to the Closing.
(f) TAX QUALIFICATION. Each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code has, as currently in effect, been
determined to be so qualified by the IRS or an application for a determination
letter will be submitted to the IRS no later than the end of the applicable
remedial amendment period as described in Section 401(b) of the Code. Since the
date of each most recent determination referred to in this paragraph (f), no
event has occurred and no condition or circumstance has existed that resulted or
is reasonably likely to result in the revocation of any such determination or
that would adversely affect the qualified status of any such Employee Benefit
Plan or the exempt status of any such trust.
(g) TRANSACTIONS. Neither the Company nor any ERISA Affiliate nor
any of their respective directors, officers, employees or, to the knowledge of
the Company, other Persons who participate in the operation of any Employee
Benefit Plan or related trust or funding vehicle, has engaged in any transaction
with respect to any Employee Benefit Plan or breached any applicable fiduciary
responsibilities or obligations under Title I of ERISA that would subject any of
them to a tax, penalty or liability for prohibited transactions or breach of any
obligations under ERISA or the Code or would result in any claim being made
under, by or on behalf of any such Employee Benefit Plan by any party with
standing to make such claim.
(h) TRIGGERING EVENTS. The execution of this Agreement and the
consummation of the transactions contemplated hereby, do not constitute a
triggering event under any Employee Benefit Plan or arrangement, whether or not
legally enforceable, which (either alone or upon the occurrence of any
additional or subsequent event) will or may result in any payment (whether of
severance pay or otherwise), "parachute payment" (as such term is defined in
Section 280G of the Code), acceleration, vesting or increase in benefits to any
employee or former employee or director of the Company or any of its
subsidiaries. No Employee Benefit Plan provides for the payment of severance,
termination, change in control or similar-type payments or benefits.
(i) DOCUMENTS. The Company have delivered or caused to be
delivered to the Investor or its counsel true and complete copies of the
following documents in connection with each Employee Benefit Plan (where
applicable): (i) all Employee Benefit Plans as in effect on the date hereof,
together with all amendments thereto, including, in the case of any Employee
Benefit Plan not set forth in writing, a written description thereof; (ii) all
current summary plan descriptions, summaries of material modifications, and
material communications; (iii) all current trust agreements, declarations of
trust and other documents establishing other funding arrangements (and all
amendments thereto and the latest financial statements thereof); (iv) the most
recent IRS determination letter, obtained with respect to each Employee Benefit
Plan intended to be qualified under Section 401(a) of the Code or exempt under
Section 501(a) of the Code; (v) the annual report on IRS Form 5500-series of
each of the last three years for each
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Employee Benefit Plan required to file such form; (vi) the most recently
prepared financial statements; (vii) all service provider agreements, insurance
contracts, annuity contracts, investment management agreements, subscription
agreements, participation agreements, and recordkeeping agreements and
collective bargaining agreements; and (viii) the most recent response to
auditors' reports for each Employee Benefit Plan.
2.14 TAXES.
(a) The Company and its subsidiary have filed all Federal income
tax returns and all other tax returns and reports (whether foreign, state or
local) required to be filed by them, the failure of which to file could have,
individually or in the aggregate, a Material Adverse Effect. All such returns
are complete and correct in all material respects. The Company and its
subsidiary have paid all taxes due for the periods for which such returns were
filed and all material taxes for which no return was required to be filed, and
the most recent financial statements contained in the SEC Documents reflect an
adequate reserve for all taxes payable by the Company and its subsidiary for all
taxable periods and portions thereof through the date of such financial
statements.
(b) No material deficiencies for any taxes have been proposed,
asserted or assessed against the Company or its subsidiary, and no requests for
waivers of the time to assess any such taxes are pending. No written
notification of intention to examine has been received from, and to the best
knowledge of the Company, no tax return of the Company is being examined by, the
United States Internal Revenue Service or any other taxing authority with regard
to Taxes. The Federal income tax returns of the Company and its subsidiary have
been properly and timely filed with the Internal Revenue Service for all years
through 1997.
(c) As used in this Agreement, "Taxes" shall include all Federal,
state, local and foreign income, property, sales, excise and other taxes,
tariffs or governmental charges of any nature whatsoever.
(d) Neither the Company nor its subsidiary is a "real property
holding corporation" as defined in the Code.
2.15 PERMITS; ENVIRONMENTAL MATTERS. The Company and its subsidiary
have accrued or otherwise provided, in accordance with generally accepted
accounting principles, consistently applied, for all damages, liabilities,
penalties or costs that it may incur in connection with any claim pending or
threatened against them, or any requirement that is or may be applicable to
them, under any Environmental Laws, and such accrual or other provision is
reflected in the Company's most recent SEC Financial Statements, except as
disclosed in Schedule 2.15, which disclosed items could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect with
respect to the Company or its subsidiary:
(a) The Company and its subsidiary are in compliance with all
applicable laws, rules, regulations, ordinances, orders decrees and common law
relating to
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contamination, pollution or the protection or human health or the environment
("Environmental Laws"), and the Company and its subsidiary has all permits,
licenses, registrations and other governmental authorizations required under
such laws ("Environmental Permits") for their operations, and there are no
violations, investigations or proceedings pending or, to the knowledge of
Company or its subsidiary, threatened with respect to Environmental Laws or such
Environmental Permits except where the failure to have such Environmental
Permits or where the violation, investigation or proceeding relating thereto
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company or its subsidiary.
(b) No notice, notification, demand, request for information,
citation, summons, complaint or order is pending or has been received by or, to
the knowledge of the Company or its subsidiary, is threatened by any person
against the Company or its subsidiary under any Environmental Laws or in respect
of any of the properties or facilities now or previously owned, leased or
operated by the Company or its subsidiary. No penalty has been assessed against
the Company or its subsidiary, and no liability has been imposed upon the
Company or its subsidiary, under Environmental Law with respect to any alleged
notification, demand, request for information, citation, summons, complaint or
order except where such matters have been fully resolved, or where resolution
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company or its subsidiary or prevent or materially delay the consummation of
the transactions contemplated by this Agreement.
(c) No hazardous, toxic or regulated substance, waste, materials
or chemical ("Hazardous Substance") has been discharged, generated, treated,
manufactured, handled, stored, transported, emitted, released or is present at
any property now or previously owned, leased or operated by the Company or its
subsidiary in violation of any Environmental Law or under circumstance which,
individually or in the aggregate, would have in a Material Adverse Effect on the
Company or its subsidiary.
2.16 CONTRACTS; DEBT INSTRUMENTS.
(a) Except as disclosed in both the SEC Documents and Schedule
2.16(a), there is no contract or agreement that is material to the business,
financial condition or results of operations of the Company and its subsidiary.
Neither the Company nor its subsidiary is in violation of or in default under
(nor does there exist any condition which upon the passage of time or the giving
of notice, or both, would cause such a violation of or default under) any loan
or credit agreement, note, bond, mortgage, indenture, lease, or any other
contract, agreement, arrangement or understanding, to which they are a party or
by which they or any of their properties or assets are bound, except for
violations or defaults that could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(b) Set forth on Schedule 2.16(b) of the Agreement is (i) a list
of all loan or credit agreements, notes, bonds, mortgages, indentures and other
agreements and instruments pursuant to which any indebtedness of the Company or
its subsidiary in an aggregate
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principal amount in excess of $100,000 is outstanding or may be incurred and
(ii) the respective principal amounts currently outstanding thereunder. For
purposes of this Section 2.16, "indebtedness" shall mean, with respect to any
person, without duplication, (A) all obligations of such person for borrowed
money, or with respect to deposits or advances of any kind to such person, (B)
all obligations of such person evidenced by bonds, debentures, notes or similar
instruments, (C) all obligations of such person upon which interest charges are
customarily paid, (D) all obligations of such person under conditional sale or
other title retention agreements relating to property purchased by such person,
(E) all obligations of such person issued or assumed as the deferred purchase
price of property or services (excluding obligations of such person to creditors
for raw materials, inventory, services and supplies incurred in the ordinary
course of such person's business), (F) all capitalized lease obligations of such
person, (G) all obligations of others secured by any Lien on property or assets
owned or acquired by such person, whether or not the obligations secured thereby
have been assumed, (H) all obligations of such person under interest rate or
currency hedging transactions (valued at the termination value thereof), (I) all
letters of credit issued for the account of such person (excluding letters of
credit issued for the benefit of suppliers to support accounts payable to
suppliers incurred in the ordinary course of business) and (J) all guarantees
and arrangements having the economic effect of a guarantee of such person of any
indebtedness of any other person.
(c) Set forth on Schedule 2.16(c) of this Agreement is a list of
all of the contracts, agreement, leases, subleases, licenses or other similar
arrangements or understandings to which the Company or its subsidiary is a party
which involve payments of more than $50,000 in any one year.
2.17 TITLE TO PROPERTIES. The Company and its subsidiary have good,
valid and marketable title to, or valid leasehold interests in, all their
material properties and assets except for such as are no longer used or useful
in the conduct of their businesses or as have been disposed of in the ordinary
course of business and except for defects in title, easements, restrictive
covenants and similar encumbrances or impediments that, individually or in the
aggregate, do not and will not have a Material Adverse Effect on their ability
to conduct their businesses as currently conducted. All such material properties
and assets, other than properties and assets in which the Company or its
subsidiary has leasehold interests, are free and clear of all Liens, except for
Liens that, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the ability of the Company or its subsidiary to
conduct business as currently conducted. The Company and its subsidiary have
complied in all material respects with the terms of all leases to which they are
a party and under which they are in occupancy, and all such leases are in full
force and effect. The Company and its subsidiary enjoy peaceful and undisturbed
possession under all such leases.
2.18 INTELLECTUAL PROPERTY. For purposes of this Agreement,
"Intellectual Property" shall mean all industrial and intellectual property
rights, including without limitation, patents, patent applications, patent
rights, trademarks, trademark applications, trade names, service marks, service
mark applications, trade mark registrations, copyrights, copyright
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applications, copyright registrations, technology, know-how, licenses, trade
secrets, proprietary processes and formulae owned or licensed by the Company or
its subsidiary. A complete list of the Intellectual Property of the Company and
its subsidiary is set forth on Schedule 2.18 to this Agreement. The Company or
its subsidiary owns, is licensed by the owner or otherwise holds the right to
use and enjoy the rights under the Intellectual Property as set forth in
Schedule 2.18, except where the lack of ownership, license or right to use or
enjoy the rights under the Intellectual Property could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
and the consummation of the transactions contemplated by this Agreement will not
alter or impair any such rights. Except as set forth in Schedule 2.18, no claims
have been asserted by any person or Governmental Entity alleging that any of the
current or contemplated activities of the Company or its subsidiary infringe
upon or violate any patent, copyright, trademark, trade name, trade secret or
other proprietary right of any third party. No person or Governmental Entity has
undertaken a judicial challenge or judicially questioned the validity of the
Intellectual Property set forth in Schedule 2.18 or the effectiveness of any
license or agreement relating thereto to which the Company or its subsidiary is
a party and which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
2.19 CERTAIN AGREEMENTS. Except as set forth in Schedule 2.19, the
Company is not a party to, or bound by, any contract or agreement that
materially limits the ability of the Company directly or indirectly to compete
in any line of business or with any person in any geographic area during any
period of time.
2.20 INDEMNIFICATION CLAIMS. There are no indemnification, breach of
contract or similar claims by or against the Company or its subsidiary which are
filed or pending, and, to the best knowledge of the Company and its subsidiary,
there are no indemnification, breach of contract or similar claims by or against
the Company or its subsidiary threatened, in each case in excess of $100,000.00
in amount.
2.21 ANTITAKEOVER STATUTE; SHAREHOLDER PROTECTION RIGHTS AGREEMENT.
The Board of Directors of the Company has taken all action necessary to approve
the acquisition of shares of Series D Preferred Stock by Investor and each
Purchaser pursuant to this Agreement (which shares represent 15% or more of the
voting stock of the Company) in accordance with and pursuant to Section
203(a)(1) of the DGCL. The actions taken by the Company are sufficient to comply
with Section 203(a)(1) of the DGCL and will result in Investor and each
Purchaser being exempted from the restriction set forth in Section 203 of the
DGCL. The Board of Directors of the Company has taken all action necessary in
accordance with the Shareholder Protection Rights Agreement dated September 15,
1997, between the Company and the American Stock Transfer & Trust Company (the
"Shareholder Protection Rights Agreement") to guarantee that none of the stock
purchase rights distributed pursuant to the Shareholder Protection Rights
Agreement are or will become exercisable as a result of the transactions
contemplated by the Documents.
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2.22 PROTECTIVE AGREEMENTS. Schedule 2.22 hereto contains a list of
all directors, officers and employees of the Company or its subsidiary that have
entered into the standard form of Non-Competition Agreement (the "NCA") and the
standard form of Non-Disclosure Agreement (the "NDA" and together with the NCA,
the "Protective Agreements"), with the Company or its subsidiary, as the case
may be, copies of which have been provided previously to Investor. Each of the
Protective Agreements is (i) in full force and effect; and (ii) enforceable by
the Company against the respective director, officer or employee who is a party
thereto in accordance with its terms, except that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses, if any, and to the discretion of the court before which any
proceeding therefor may be brought. No breach of or event of default under any
Protective Agreement has occurred or is continuing with respect to each
director, officer or employee who is a party to a Protective Agreement and the
Company has not waived any defenses nor allowed any defense to lapse or toll.
2.23 OTHER AGREEMENTS CONTAINING NON-DISCLOSURE AND NON-COMPETITION
PROVISIONS.
(a) Schedule 2.23 attached hereto contains a true, correct and
complete list of all persons (other than directors, officers and employees of
the Company or its subsidiary) who have entered into agreements with the Company
or its subsidiary containing mutual confidentiality and non-use agreements,
mutual non-disclosure agreements, and non-disclosure agreements, which
provisions, individually or in the aggregate, have not had, and are not
reasonably expected to have, a Material Adverse Effect. The Company and its
subsidiary hereby represent and warrant that the Company and its subsidiary have
entered into agreements with all persons with whom the Company or its subsidiary
has shared, disclosed or otherwise made available its confidential information
(as defined below) pursuant to which such persons are bound contractually to
protect from disclosure and keep confidential such information and not to use
any such confidential information for any purpose except as set forth in such
agreements. Each such agreement is (i) in full force and effect; and (ii)
enforceable by the Company or its subsidiary against each respective person who
is a party thereto in accordance with its terms, except that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses, if any, and to the discretion of the court before
which any proceeding therefor may be brought. No breach or event of default
under any such agreement has occurred or is continuing with respect to each
person who is a party thereto and the Company has not waived any defenses nor
allowed any defense to lapse or toll. For purposes of this Section 2.23,
"confidential information" shall mean the Company's or its subsidiary's trade
secrets, business plans, technology, procedures, manuals, confidential reports
and communications, lists of potential customers and clients, any information
and materials received by the Company or its subsidiary from third parties in
confidence (or subject to non-disclosure or similar covenants), production
processes, product designs, marketing techniques and arrangements, mailing
lists, purchasing information, pricing policies, quoting procedures, financial
information, customer and prospect names and requirements, employee, customer,
supplier and distributor data and other materials or information relating to the
Company's
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business and activities and the manner in which the Company does business,
discoveries, concepts, and ideas, including, without limitation, the nature and
results of research and development activities, processes, formulas, inventions,
techniques and "know-how," any other materials or information related to the
business or activities of the Company which are not generally known to others
engaged in similar businesses or activities and all ideas which are derived from
or relate to the Company's access to any of the above mentioned materials and
information.
(b) Neither the Company nor its subsidiary has nor shall disclose
any confidential information of the Company or its subsidiary except pursuant to
those non-disclosure and non-competition provisions described above in this
Section 2.23 or in Section 2.22, or as otherwise may be required to be disclosed
by applicable law; provided, however, to the extent possible, the Company shall
use its best efforts to avoid such disclosures consistent with the exercise of
reasonable business judgment.
2.24 PATENTS. The Company has an exclusive worldwide license to make,
have made, use, sell and have sold the subject matter which is disclosed and
claimed in U.S. Patent Nos. 4,666,897 entitled Inhibition of Mammalian
Collagenolytic Enzymes by Tetracycline, and Re 34,656 entitled Use of
Tetracycline to Enhance Bone Protein Synthesis and/or Treatment of Bone
Deficiency. The license to the above patents was granted pursuant to the option
exercised by the Company in its September 6, 1995 letter to the Research
Foundation of the State University of New York, (the "Foundation"), said option
being granted pursuant to the option granted by the Amended and Restated
Agreement between the Company and the Foundation, effective January 13, 1992, as
amended by the Addendum to Amended and Restated Agreement, dated April 1, 1996,
and the Second Addendum to the Amended and Restated Agreement, dated April 18,
1996 (individually and collectively the "Patent Agreements"). The Company has
not, to the best of its knowledge, breached any provision of the Patent
Agreements and to the best knowledge of the Company there has been no event of
default or claim brought under any of the Patent Agreements. Each of the Patent
Agreements is in full force and effect and is enforceable by the Company in
accordance with its respective terms and may be assigned by the Company, in
whole or in part, without the consent of any other person.
2.25 RELATED TRANSACTIONS. No current or former stockholder, director,
officer or employee of the Company (other than Investor and Purchasers) nor any
relative or "associate" (as defined in the rules and regulations promulgated
under the Exchange Act) of any such Person, is presently, directly or indirectly
through his or its affiliation with any other person or entity, a party to any
transaction with the Company providing for the furnishing of services (other
than employment of such individuals by the Company) by or to, or the sale of
products by or to, or rental of real or personal property from or to, or
otherwise requiring cash payments by or to, any such Person in excess of an
aggregate of $60,000. For purposes of this Agreement, a transaction of the type
described in this Section 2.25 is sometimes herein referred to as a "Related
Transaction."
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2.26 AMENDMENTS TO CERTIFICATE OF INCORPORATION. Prior to the Closing,
the Board of Directors of the Company and its subsidiary will have taken all
actions necessary to adopt the resolutions set forth in Exhibit A to this
Agreement, and the Company will have filed a Certificate of Designation,
Preferences and Rights of Series D Cumulative Convertible Preferred Stock in the
form of Exhibit A hereto (the "Certificate of Designation" ) with the Secretary
of State of the State of Delaware.
2.27 PUBLIC ANNOUNCEMENTS. The Company and its subsidiary shall
consult with Investor and obtain the prior approval and consent of Investor
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby, except as may be required by
law, in which case the Company or its subsidiary shall use its good faith
efforts to review the contents of any such announcement with Investor and obtain
the approval and consent of Investor reasonably in advance of the public release
of such announcement.
2.28 USE OF PROCEEDS. The net proceeds received by the Company from
the sale of the shares of Series D Preferred Stock contemplated herein shall be
used by the Company: (i) to repay in full principal and unpaid accrued interest
of that certain 12% Senior Secured Convertible Note due March 18, 2000, issued
by the Company in favor of Investor pursuant to the terms and conditions of that
certain Convertible Loan and Security Agreement, by and between the Company and
Investor, of even date herewith and (ii) for working capital and other general
corporate purposes.
2.29 S-8 AMENDMENT. No future amendment by the Company of its Form S-8
(Registration Statement No. 333-31229) with respect to the registration of
shares on behalf of officers of the Company (the "S-8 Amendment") shall have,
individually or in the aggregate, a Material Adverse Effect on the transactions
contemplated by this Agreement, and the total number of shares subject to the
S-8 Amendment shall at no time exceed Two Hundred Twenty-Seven Thousand
(227,000) shares. The Company shall cause any directors and officers of the
Company who would otherwise be entitled to sell shares of Common Stock pursuant
to such S-8 Amendment to enter into an agreement with the Company, in form and
substance reasonably acceptable to Investor and the Company, whereby such
directors and officers shall be precluded from selling shares in excess of the
amounts that they would otherwise be entitled to sell in accordance with Rule
144(e) promulgated under the Securities Act.
2.30 DISCLOSURE. No representation or warranty by the Company in this
Agreement, and no exhibit, document, statement, certificate or Schedule or
written information furnished by the Company or to be furnished by the Company
to Investor pursuant hereto, or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact necessary to make the statements or
facts contained herein or therein not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF INVESTOR AND PURCHASERS
--------------------------
Investor and each Purchaser, severally and not jointly, hereby
represent and warrant as to itself, himself or herself only to the Company as
follows:
3.1 ORGANIZATION.
(a) Investor is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power to carry on its business as it is now being conducted.
(b) Each Purchaser is duly organized, validly existing and in
good standing under the laws of the state of its organization and has the
requisite power to carry on its business as it is now being conducted. Exhibit C
sets forth the state of organization of each Purchaser.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT; NO CONFLICT. Investor and
each Purchaser has the requisite power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby without the
consent of any other person (except for such consents as have heretofore been
obtained). This Agreement has been duly and validly executed and delivered by
Investor and each Purchaser and, assuming this Agreement constitutes a valid and
binding obligation of the Company, this Agreement constitutes a valid and
binding agreement of Investor and each Purchaser, enforceable against Investor
and each Purchaser in accordance with its terms, and will not conflict with any
other agreement to which Investor or such Purchaser is a party.
3.3 INVESTMENT INTENT. The shares of Series D Preferred Stock being
purchased by Investor and each Purchaser are being purchased by Investor and
each Purchaser for investment for its, his or her own account, and not with a
view to any distribution thereof that would violate the Securities Act, or the
applicable state securities laws of any state. Investor and each Purchaser will
not distribute the shares of Preferred Stock in violation of the Securities Act
or the applicable securities laws of any state. Investor and each Purchaser will
not "sell short" the Common Stock of the Company, but Investor and each
Purchaser may purchase the Company's Common Stock in the open market for long
term investment purposes and as to such purchases, if any, the Company makes no
representations or warranties.
3.4 PURCHASERS' COUNSEL. Each Purchaser hereby represents and warrants
on its own behalf that such Purchaser is not represented by Dechert Price &
Rhoads or Buchanan Ingersoll Professional Corporation.
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3.5 ECONOMIC RISK. Investor and each Purchaser is well versed in
financial matters, has had extensive dealings over the years in securities and
is fully familiar with the operating history and financial results of the
Company and is fully capable of understanding the type of investment being made
pursuant to this Agreement and the risks involved in connection therewith.
Investor and each Purchaser is financially able to hold the Series D Preferred
Stock for long-term investment, believes that the nature and amount of the
Series D Preferred Stock being acquired by Investor and each such Purchaser are
consistent with Investor's and each Purchaser's overall investment program and
financial position, and recognizes that there are substantial risks involved in
the acquisition of the Series D Preferred Stock.
3.6 ADDITIONAL REPRESENTATIONS. Investor and each Purchaser: (i) is an
accredited investor within the meaning of Rule 501(a) under the Securities Act,
(ii) is aware of the limits on resale imposed by virtue of the nature of the
transactions contemplated by this Agreement and is aware that the certificates
representing such Investor's or Purchaser's respective ownership of Series D
Preferred Stock will bear related restrictive legends; (iii) is acquiring the
shares of the Company hereunder without registration under the Securities Act in
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act; (iv) has been given the opportunity to ask questions of, and
receive answers from, the officers of the Company regarding the Company, its
current and proposed business operations and the Series D Preferred Stock, and
the officers of the Company have made available to the Investor and each such
Purchaser all documents and information that the Investor and each such
Purchaser has requested relating to an investment in the Company; (v) has access
to all of the Company's public filings with the Securities and Exchange
Commission; (vi) acknowledges that the Company is entering into this Agreement
in reliance upon Investor's and each such Purchaser's representations and
warranties and other covenants and agreements contained herein; and (vii)
acknowledges that Investor and each of the Purchasers, as the case may be, is
entering into this Agreement in reliance upon Investor's or each such other
Purchaser's, as the case may be, representations and warranties and other
covenants and agreements contained herein.
ARTICLE III-A
COVENANTS
---------
3A.1 Conduct of Business of the Company. During the period from the
date of execution of this Agreement to the Closing Date, the Company and its
subsidiary will each conduct its operations according to its ordinary and usual
course of business and consistent with past practice. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement, neither the Company nor its subsidiary shall, without the prior
written consent of the Investor:
(a) issue, sell or pledge, or authorize or propose the issuance,
sale or pledge of:
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(i) additional shares of capital stock of any class, or
securities convertible into any such shares, or any rights, warrants or options
to acquire any such shares or other convertible securities, or grant or
accelerate any right to convert or exchange any securities of the Company for
shares, other than shares of Common Stock issuable pursuant to the terms of any
option grants under the Company's current stock option plans or commitments
disclosed in Section 2.4(d) and Section 2.13 hereof, or
(ii) any other securities in respect of, in lieu of or in
substitution for shares of Common Stock outstanding on the date thereof;
(b) purchase or otherwise acquire, or propose to purchase or
otherwise acquire, any of its outstanding capital stock or other equity debt
securities;
(c) declare or pay any dividend or distribution on any shares of
capital stock of the Company;
(d) enter into any merger or consolidation or make any
acquisition of a material amount of assets or securities, any disposition
(including by way of mortgage, license, encumbrance or any Lien) of a material
amount of assets or securities, or enter into a material contract, not in the
ordinary course of business, consistent with past practice, or release or
relinquish any material contract rights not in the ordinary course of business,
consistent with past practice, or make any amendments, or modifications thereto;
(e) (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or its
subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing; or (ii) make any loans, advances of capital contributions to,
or investments in, any other person;
(f) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of the Company included in the SEC Documents filed prior to the date of
this Agreement or incurred since the date of such financial statements in the
ordinary course of business consistent with past practice;
(g) propose or adopt any amendments to the Certificate of
Incorporation, as amended, or Bylaws of the Company (or any such similar
organizational documents of its subsidiary), except as contemplated hereby;
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(h) enter into any new employment agreements with any officers,
directors or key employees or grant any material increases in the compensation
or benefits to officers, directors and key employees;
(i) take any of the actions set forth in Section 2.6 (Absence of
Certain Changes) not otherwise specified herein;
(j) settle the terms of any material litigation affecting the
Company or its subsidiary;
(k) make any tax election or settle or compromise any income tax
liability;
(l) make or agree to make any new capital expenditures which
individually are in excess of $300,000 or which in the aggregate are in excess
of $300,000; or
(m) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in this
Agreement untrue or incorrect.
3A.2 EXISTENCE; MAINTENANCE OF PROPERTY. Between the date of execution
of this Agreement and the Closing Date, the Company and its subsidiary shall do
or cause to be done all things necessary to preserve, renew and keep in full
force and effect its respective corporate existence, material rights, licenses,
permits and franchises and comply with all laws and regulations applicable to
the conduct of its respective business and the ownership of its respective
property; at all times maintain and preserve all material property necessary in
the conduct of the business and keep the same in good repair, working order and
condition, and from time to time make, or cause to be made, all needed and
proper repairs, renewals and replacements thereto, so that the business carried
on in connection therewith may be properly conducted at all times.
3A.3 NO SOLICITATION. On or before the Closing Date, the Company and
its subsidiary shall not, nor shall the Company or its subsidiary authorize or
permit any officer, director or employee of or any investment banker, attorney
or other advisor or representative of the Company or its subsidiary to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
confidential or non-public information with respect to the business of the
Company or its subsidiary or permitting access to the assets and properties or
books and records of the Company or its subsidiary), receive, negotiate, assist
or otherwise facilitate any offers or inquiries from any person or entity, other
than Investor or its affiliates, concerning any proposal that constitutes or may
reasonably be expected to lead to any direct or indirect acquisition or takeover
proposal or any financing of the business of the Company or its subsidiary,
other than trade financing in the ordinary course of business consistent with
past practice.
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3A.4 ACCESS TO INFORMATION. Between the date of execution of this
Agreement and the Closing Date, the Company will upon reasonable notice (i) give
Investor and its authorized representatives access during regular business hours
to all of the Company's plants, offices, warehouses and other facilities and to
all books and records of it, (ii) permit Investor to make such inspections as it
may require (and the Company shall cooperate with Investor in any inspections,
including, without limitation, environmental due diligence), and (iii) cause its
officers and those of its subsidiary to furnish Investor with such financial and
operating data and other information with respect to the business and properties
of the Company and its subsidiary as Investor may from time to time request.
Investor shall maintain the confidentiality of any confidential and proprietary
information so obtained by it which is not otherwise available from other
sources that are free from similar restrictions; provided, however, that the
foregoing shall in no way limit or otherwise restrict the ability of Investor or
such authorized representatives to disclose any such information concerning the
Company or its subsidiary which it may be required to disclose (a) to its
partners, board members or stockholders, to the extent required to satisfy its
fiduciary obligations to such persons, or (b) otherwise pursuant to or as
required by law.
3A.5 PROXY STATEMENT AND STOCKHOLDER MEETING. As promptly as
practicable after the execution and delivery of this Agreement, the Company will
prepare and file with the SEC preliminary proxy materials relating to the
adoption of this Agreement and the approval of the transactions contemplated
hereby by the stockholders of the Company. As promptly as practicable after
comments are received from the SEC on the preliminary proxy material, the
Company will file with the SEC the definitive Proxy Statement. As used herein,
"Proxy Statement" means the letter to stockholders, notice of meeting, proxy
statement and form of proxy (and any schedule required to be filed with the SEC
in connection therewith) to be distributed to stockholders of the Company in
connection with the Stockholder Meeting (as defined below). The Company will
make all necessary filings with respect to the transactions contemplated by this
Agreement under the Securities Act, the Exchange Act and the rules and
regulations thereunder, and applicable state securities laws, and will use all
reasonable efforts to obtain any required approvals or clearances with respect
thereto. The Proxy Statement will include the recommendation of the Board of
Directors of the Company in favor of the approval of the transactions
contemplated hereby.
3A.6 NASDAQ LISTING. Between the date of execution of this Agreement
and the Closing Date, the Company shall take all actions necessary or
appropriate to ensure that the shares of Common Stock are listed or authorized
to be quoted on NASDAQ or listed on any national securities exchange on which
shares of Common Stock are then listed and the Company shall take all actions
necessary or appropriate to ensure that it maintains a public market for its
Common Stock on the American Stock Exchange, NASDAQ or the New York Stock
Exchange ("NYSE").
3A.7 REASONABLE BEST EFFORTS.
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(a) Subject to the terms and conditions herein, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Such reasonable best efforts shall include, without limitation, (i) the
obtaining of all necessary consents, approvals or waivers from third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, and (ii) opposing vigorously, to the extent
commercially reasonable, any litigation or administrative proceeding relating to
this Agreement or the transactions contemplated hereby, including, without
limitation, to the extent commercially reasonable, promptly appealing any
adverse court or agency order. Notwithstanding the foregoing or any other
provisions contained in this Agreement to the contrary, neither Investor nor any
of its affiliates shall be under any obligation of any kind to enter into any
negotiations or to otherwise agree with any Governmental Entity, including but
not limited to any governmental or regulatory authority with jurisdiction over
the enforcement of any applicable federal, state, local and foreign antitrust,
competition or other similar laws, or any other party to sell or otherwise
dispose of, hold separate (through the establishment of a trust or otherwise)
particular assets or categories of assets or businesses of any of the Company,
Investor or any of Investor's affiliates.
(b) Between the execution of this Agreement and the Closing Date,
the Company shall give and make all required notices and reports to the
appropriate persons with respect to the Environmental Permits that may be
necessary for the consummation of the transactions contemplated hereby.
(c) Between the execution of this Agreement and the Closing Date,
the Company and its Board of Directors shall (i) take all action necessary to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to this Agreement or any of the transactions contemplated
hereby, and (ii) if any state takeover statute or similar statute or regulation
becomes applicable to this Agreement or any of the transactions contemplated
hereby, take all action necessary to ensure that the transactions contemplated
by this Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the transactions contemplated by this Agreement.
3A.8 STOCKHOLDER LITIGATION. Between the date of execution of this
Agreement and the Closing Date, the Company shall give Investor the opportunity
to participate in the defense or settlement of any stockholder litigation
against the Company and its directors relating to any of the transactions
contemplated by this Agreement until Closing. Thereafter, with regard to such
stockholder litigation that commences after the date of execution but before the
Closing of this Agreement, the Company shall give Investor the opportunity to
participate in the defense
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of such litigation, and if settlement of such litigation could have a Material
Adverse Effect, then no such settlement shall be agreed to without Investor's
consent, which consent shall not be unreasonably withheld. In addition, no
settlement requiring a payment by a director shall be agreed to without such
director's consent, which consent shall not be unreasonably withheld.
3A.9 FINANCIAL REPORTS. Between the date of execution of this
Agreement and the Closing Date, the Company shall furnish Investor with the
following:
(a) PERIODIC REPORTS. As soon as practicable, and in any case
within thirty (30) calendar days after the end of each calendar month, the
Company shall furnish Investor with monthly unaudited financial statements (all
prepared in accordance with generally accepted accounting principles
consistently applied), including (A) an unaudited balance sheet as of the last
day of such month, (B) an unaudited statement of income for such month, together
with a cumulative statement of income from the first day of the then current
fiscal year to the last day of such month, (C) a cash flow statement for such
month, together with a cash flow statement from the first day of the then
current fiscal year to the last day of such month, (D) a schedule showing all
prescription data known to the Company on new and existing users, (E) an aging
schedule (or summary thereof) of all accounts receivable and accounts payable,
and (F) a comparison between the actual figures for such month, the comparable
figures (with respect to clauses (A), (B) and (C) only) for the prior year
period and the comparable figures in the Budget. For the purposes of this
Agreement, "Budget" shall mean the Company's annual operating and capital budget
with monthly breakdowns prepared by management and signed by the President or
the Chief Financial Officer of the Company. As soon as practicable and in any
case within ninety (90) calendar days after the end of the fiscal year ending
December 31, 1998, the Company shall furnish Investor with a balance sheet as of
the end of such fiscal year, a statement of income and a statement of cash flows
of the Company for such year, setting forth in each case in comparative form the
figures from the Company's previous fiscal year, all prepared in accordance with
generally accepted accounting principles consistently applied and audited by
independent auditors. With the annual financial statements referred to in
Section 3A.9(a), there shall be delivered to Investor a certificate of the form
of certified public accountants auditing such financial statements of the
Company, in each case, to the effect that no knowledge has been obtained of any
violation or default by the Company in the performance of its agreements or
covenants contained herein, in the Certificate of Incorporation or in any other
material agreement to which the Company is a party or of the occurrence of any
condition, event or act which, with or without notice or lapse of time, or both,
would constitute a violation or an event of default, or, if such firm or officer
shall have obtained knowledge of any such violation, condition, event or act, it
or he (as the case may be) shall specify in such certificate all such
violations, conditions, events and acts and the nature and status thereof. The
foregoing financial statements shall be certified by the President or Chief
Financial Officer of the Company to the effect that such statements fairly
present the financial position and financial results of the Company for the
fiscal period covered, and shall be accompanied by a written explanation of (A)
any material differences between the operating and financial results and the
Budget, (B) an analysis of any significant problems, changes, events and
achievements, including without limitation, those
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involving sales and marketing activities and staffing and (C) a commentary on
developing changes in the business outlook of the Company, together with a
statement as to their anticipated effect on future operations and previous
forecasts.
(b) AUDITOR'S LETTERS. No later than five (5) business days
following receipt by the Company, the Company shall furnish Investor with each
audit response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with an annual or interim audit of the books of the Company.
(c) NOTICE OF ACTIONS. No later than five (5) business days after
the commencement thereof, the Company shall furnish Investor with written notice
of all actions, suits, claims, proceedings, investigations and that could have,
individually or in the aggregate, a Material Adverse Effect.
(d) OTHER INFORMATION. Promptly, from time to time, the Company
shall furnish Investor with such other information regarding the business,
prospects, financial condition, operations, property or affairs of the Company
as Investor reasonably may request.
(e) Subsidiaries. If for any period the Company shall have any
subsidiary or subsidiaries whose accounts are consolidated with those of the
Company, then in respect of such period, the Company shall furnish Investor with
the financial statements, letters, notices and other information delivered
pursuant to the foregoing Sections 3A.9(a) through (d) shall be the consolidated
financial statements of the Company and all such consolidated subsidiaries and
the letters, notices and other information relating to the Company and all such
subsidiaries, as well.
ARTICLE IV
CONDITIONS TO CLOSING
---------------------
4.1 CONDITIONS TO INVESTOR'S AND PURCHASERS' OBLIGATIONS FOR CLOSING. The
obligations of Investor and each Purchaser to effect the purchase of shares of
Series D Preferred Stock contemplated by Section 1.1(a) of this Agreement are
subject to the satisfaction or written waiver of the following conditions in
Investor's and each Purchaser's reasonable discretion:
(a) the representations and warranties of the Company contained
in this Agreement shall be true, correct and complete in all material respects,
on and as of the Closing Date (irrespective of any notice delivered after the
date hereof), and the Company shall have performed in all material respects all
of its obligations under this Agreement required to be performed prior to the
Closing Date;
(b) there shall not have occurred any Material Adverse Effect;
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(c) there shall not have occurred any event of default on any of
the Company's indebtedness (as defined in Section 2.16);
(d) there shall not have occurred any violation of law by the
Company which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(e) Investor shall have received a certificate of the President,
Chief Executive Officer or Chief Financial Officer of the Company, on behalf of
the Company, certifying as to the fulfillment of the conditions set forth in
clauses (a) through (d) above;
(f) no statute, rule, regulation, judgment, order or injunction
shall be enacted, entered, promulgated or enforced (i) challenging the
transactions contemplated hereby, seeking to restrain or prohibit the
transactions contemplated hereby or seeking any damages material in relation to
the Company or Investor, (ii) seeking to impose limitations on the ability of
Investor to acquire or hold, or exercise full rights of ownership of any shares
of Series D Preferred Stock, including the right to vote such shares or (iii)
which otherwise could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(g) Investor shall have been provided with evidence satisfactory
to Investor in its reasonable discretion that (i) the Board of Directors of the
Company has approved the transactions contemplated by this Agreement for
purposes of Section 203 of the DGCL, and (ii) the Board of Directors of the
Company has taken all necessary action to guarantee that none of the stock
purchase rights distributed pursuant to the Shareholder Protection Rights
Agreement are or will become exercisable as a result of the transactions
contemplated by this Agreement and excluding any future purchases of the
Company's securities by Investor or any of the Purchasers.
(h) Investor and each Purchaser shall have received a
certificate, dated the Closing Date, duly executed by the Secretary of the
Company certifying as to (i) the attached copy of resolutions of the Board of
Directors of the Company authorizing and approving the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and stating that such resolutions have not been modified,
amended, revoked or rescinded, and (ii) the incumbency, authority and specimen
signature of each officer of the Company executing this Agreement and any other
document or instrument contemplated hereby;
(i) Investor and each Purchaser shall have received a certificate
of the Secretary of State of the State of Delaware certifying as to the
Company's due organization, valid existence and good standing as a domestic
corporation in the State of Delaware as of a date not more than two (2) business
days prior to the Closing Date;
(j) Investor shall have received an opinion of counsel to the
Company (the "Opinion of the Company's Counsel") and an opinion of patent
counsel to the Company (the "Opinion of the Company's Patent Counsel"), each
dated the Closing Date, in the form attached hereto as Exhibit B-1 and Exhibit
B-2, respectively;
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(k) the Company shall have received (and furnished to Investor
evidence thereof reasonably satisfactory to Investor) any necessary or required
approvals or consents from all Governmental Entities and other third parties
(including the Company's stockholders as contemplated in the Proxy Statement at
the Company's 1999 Annual Stockholders Meeting (the "Stockholder Meeting")
necessary or required to complete the transactions contemplated hereby, and such
approvals and consents shall not have been withdrawn or expired as of the
Closing Date and the Series D Certificate of Designation shall have been duly
filed with the Secretary of State of the State of Delaware;
(l) the Company shall have executed and delivered to Investor the
Stockholders and Registration Rights Agreement; and
(m) the Company shall pay Investor's reasonable costs and
expenses in connection with the transactions contemplated hereby, including, but
not limited to: (i) Investor's out-of-pocket costs and expenses related to
Investor's business due diligence, including but not limited to the fees and
expenses of a consultant to evaluate the Company's business and marketing plan,
up to a limit of $25,000; (ii) the reasonable fees and expenses of Investor's
outside counsel incurred in connection with the transactions contemplated
hereby, including Investor's due diligence; and (iii) the reasonable fees of
Investor's patent counsel incurred in connection with Investor's due diligence
investigation and related matters (the costs and expenses referred to in clauses
(i), (ii) and (iii) referred to collectively as the "Investor's Expenses").
4.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS FOR THE CLOSING. The
obligations of the Company to effect the sale of shares of Series D Preferred
Stock contemplated by Section 1.1(a) of this Agreement are subject to the
satisfaction or written waiver of the following conditions:
(a) the representations and warranties of Investor and each
Purchaser contained in this Agreement shall be true and correct in all material
respects, on and as of the Closing Date (irrespective of any notice delivered
after the date hereof), and Investor and each Purchaser shall have performed in
all material respects all of their respective obligations under this Agreement
required to be performed prior to the Closing Date;
(b) the Company shall have received certificates from the
authorized officer of Investor, and from each Purchaser certifying as to the
fulfillment of the condition set forth in clause (a) above; and
(c) the Company shall have obtained all requisite stockholder
approval for the transactions contemplated hereby at the Stockholder Meeting or
otherwise; provided, however, that the Company shall use its best efforts to
obtain stockholder approval by a date no later than June 30, 1999.
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ARTICLE V
INDEMNIFICATION
---------------
5.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify,
defend and hold harmless Investor, each Purchaser and their respective
affiliates and their respective partners, shareholders, directors, officers,
employees and agents from and against any loss, liability, claim, damage or
expense (including court and arbitration fees and costs, and reasonable fees and
expenses of legal counsel, investigators, expert witnesses, consultants,
accountants and other professionals) (a "Loss") suffered or incurred by any such
indemnified party in connection with a third party claim arising from (i) any
untruth, inaccuracy or breach of any representation or warranty of the Company
contained in this Agreement, or (ii) any breach of any covenant or obligation of
the Company contained in this Agreement.
5.2 INDEMNIFICATION BY INVESTOR AND PURCHASERS. Investor and each
Purchaser shall, severally and not jointly, indemnify and hold harmless the
Company and its affiliate and their respective partners, shareholders,
directors, officers, employees and agents from an against any Loss suffered or
incurred by any such indemnified party in connection with a third party claim
arising from (i) any untruth, inaccuracy or breach of any representation or
warranty of Investor or Purchasers contained in this Agreement, or (ii) any
breach of any covenant or obligation of Investor or any Purchaser contained in
this Agreement.
5.3 PROCEDURE FOR INDEMNIFICATION.
(a) In order for a party (the "indemnified party") to be entitled
to any indemnification provided for under this Agreement in respect of, arising
out of or involving a claim or demand, made by any person against the
indemnified party (a "Third Party Claim"), such indemnified party must notify
the indemnifying party in writing of the Third Party Claim within thirty (30)
calendar days after receipt by such indemnified party of written notice of the
Third Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except to the extent the
indemnifying party shall have been actually prejudiced as a result of such
failure (except that the indemnifying party shall not be liable for any expenses
incurred during the period in which the indemnified party failed to give such
notice). Thereafter, the indemnified party shall deliver to the indemnifying
party, within five (5) business days after the indemnified party's receipt
thereof, copies of all notices and documents (including court papers) received
by the indemnified party relating to the Third Party Claim.
(i) If a Third Party Claim is made against an indemnified
party, the indemnifying party will be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the indemnifying party; provided, such counsel is not reasonably
objected to by the indemnified party; and provided, further, that the
indemnifying party first notifies the indemnified party of its intention to
assume such defense within thirty (30) calendar days of receipt of notice of a
Third Party Claim. Should
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the indemnifying party so elect to assume the defense of a Third Party Claim,
the indemnifying party will not be liable to the indemnified party for any legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party elects to assume the defense of a
Third Party Claim, the indemnified party (x) will cooperate in all reasonable
respects with the indemnifying party in connection with such defense, (y) will
not admit any liability with respect to, or settle, compromise or discharge, any
Third Party Claim without the indemnifying party's prior written consent and (z)
will agree to any settlement, compromise or discharge of a Third Party Claim
which the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the indemnified party completely in
connection with such Third Party Claim, which does not obligate the indemnified
party to take or forbear to take any action, and which would not adversely
affect the business, operations or properties of the Company.
(ii) In the event the indemnifying party shall assume the
defense of any Third Party Claim as provided above, the indemnified party shall
be entitled to participate in (but not control) such defense with its own
counsel at its own expense. If the indemnifying party does not so assume the
defense of any such Third Party Claim, the indemnified party may defend the same
in such manner as it may deem appropriate including, but not limited to,
settling such claim or litigation after giving notice of same to the
indemnifying party on such terms as the indemnified party may deem appropriate,
and the indemnifying party promptly will reimburse the indemnified party upon
written request.
(iii) Anything contained in this Agreement to the contrary
notwithstanding, the indemnifying party shall not be entitled to assume the
defense of any Third Party Claim (and shall be liable for counsel's fees and
expenses incurred by the indemnified party in defending such Third Party Claim)
if the Third Party Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against the indemnified party that the
indemnified party reasonably determines, after conferring with its outside
counsel, cannot be separated from any related claim for money damages and which,
if successful, would adversely affect the business, operations or properties of
the indemnified party; provided, however, that if such equitable relief portion
of the Third Party Claim can be so separated from that for money damages, the
indemnifying party shall be entitled to assume the defense of the portion
relating to money damages.
5.4 PERIOD OF INDEMNITY. The indemnities contained in this Article VII
shall expire six (6) years from the Closing Date, except with respect to the
untruth, inaccuracy or breach of any representation or warranty of the Company
contained in Sections 2.12 (Changes in Benefit Plans) and 2.14 (Taxes), in which
cases the indemnification period shall be extended until the running of the
statute of limitations applicable to the taxable period to which a particular
claim relates; or Sections 2.3 (Organization and Qualification), 2.4
(Capitalization), 2.13 (ERISA Compliance), 2.21 (Antitakeover Statute;
Shareholder Protection Rights Agreement), 2.22 (Protective Agreements), 2.23
(Other Agreements Containing Non-Disclosure and Non-
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Competition Provisions) and 2.24 (Patents), in which case the indemnification
period shall not terminate at any time.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 TERMINATION; EFFECT OF TERMINATION; EXPENSES.
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(i) by mutual written consent of the Company and Investor;
(ii) by Investor, if the Closing does not occur by June 30,
1999; provided, however, that the right to terminate this Agreement pursuant to
this Section 6.1(a) shall not be available to any party whose failure to fulfill
any of its obligations under this Agreement results in the failure of any such
condition; or
(iii) by either party if any court of competent jurisdiction
or any other governmental body shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated hereby and such order, decree, ruling
or other action shall have become final and nonappealable.
(b) In the event of termination and abandonment of this Agreement
pursuant to Section 6.1(a), this Agreement, except for the provisions of Section
3A.4 (only with respect to confidentiality), Section 6.1(c) and Article V, shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers or shareholders. Nothing in this Section
6.1(b) shall relieve any party to this Agreement of liability for breach of this
Agreement.
(c) In the event of termination or abandonment of this Agreement
pursuant to Section 6.1(a) above, the Company's liability to pay Investor's
Expenses shall be limited to Seventy Five Thousand Dollars ($75,000.00) in the
aggregate.
6.2 EXTENSION; WAIVER. The parties hereto, may (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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6.3 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including the
Schedules and Exhibits hereto) and the other documents and instruments
contemplated hereby, (a) constitute the entire agreement among the parties with
respect to the subject matter hereof, and supersedes all other prior agreements
and understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof, and (b) shall not be assigned by operation
of law or otherwise; provided, that Investor may assign any of its rights and
obligations hereunder to any affiliate of Investor prior to Closing and after
Closing to any person, but no such assignment shall relieve Investor of its
obligations hereunder unless such assignee or transferee agrees in writing to be
bound by the terms hereof as though an original signatory hereto. Either
Investor or any affiliate or associate of Investor may purchase shares of Series
D Preferred Stock under this Agreement.
6.4 ENFORCEMENT OF THE AGREEMENT; GOVERNING LAW; JURISDICTION. The
parties hereto agree that Investor would suffer irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached by the Company.
It is accordingly agreed that Investor shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any state court located in the State of New
York, or the United States District Court for the Southern District of New York
or any federal court in the State of New York (as to which the Company agrees to
submit to jurisdiction for the purposes of such or any other action), this being
in addition to any other remedy to which Investor is entitled at law or in
equity. This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Delaware regardless of the laws that might
otherwise govern under principles of conflicts of laws applicable thereto.
6.5 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
6.6 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram, facsimile transmission
with confirmation of receipt, or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
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if to Investor:
OCM Principal Opportunities Fund, L.P.
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Attention: Stephen Kaplan, Principal
Phone: 213-830-6350
Michael P. Harmon, Vice President
Phone: 213-830-6352
Fax: 213-830-6395
with a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Donna E. Ostroff, Esq.
Phone: 215-994-4000
Fax: 215-994-2222
If to Purchasers:
See Exhibit E attached hereto
if to the Company:
CollaGenex Pharmaceuticals, Inc.
301 South State St.
Newtown, PA 18940
Attention: Nancy Broadbent,
Vice President and Chief Financial Officer
Phone: 215-579-7388
Fax: 215-579-8577
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with a required copy to:
Buchanan Ingersoll Professional Corporation
Princeton Forrestal Center
500 College Road East
Princeton, NJ 08540
Attention: David J. Sorin, Esq.
Phone: 609-987-6800
Fax: 609-520-0360
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
6.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
6.8 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
6.10 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
6.11 SURVIVAL. The representations, warranties, covenants and
agreements of the Company, Investor and each Purchaser contained in this
Agreement, and all statements contained in this Agreement or any exhibit,
attachment or Schedule hereto or any certificate, financial statement or report
or other document delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby, shall be deemed incorporated in this Agreement
and shall constitute representations, warranties, covenants and agreements of
the respective Party delivering the same. All such representations, warranties,
covenants and agreements shall survive the Closing and (i) with respect to the
representations and warranties in Section 2.12. and 2.14, terminate when the
applicable statute of limitations with respect to the Tax liabilities in
question have expired; (ii) with respect to the representations and warranties
in Sections 2.3, 2.4, 2.13, 2.21, 2.22, 2.23 and 2.24 shall not terminate at any
time; and (iii) with respect to all other representations, warranties, covenants
and agreements, terminate at the close of business on the fourth (4th)
anniversary of the Closing Date. The Company acknowledges that
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its representations and warranties in this Agreement shall not be affected or
mitigated by any investigation conducted by Investor, each Purchaser or their
representatives prior to the Closing or any knowledge of Investor or any
Purchaser.
6.12 Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings ascribed to them below:
(a) "affiliate" of a person shall mean (i) a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first-mentioned person and (ii) an
"associate", as that term is defined in Rule 12b-2 promulgated under the
Exchange Act as in effect on the date of execution of this Agreement.
(b) "beneficial owner" (including the term "beneficially own" or
correlative terms) with respect to any securities means a person that shall be
deemed to be the beneficial owner of such securities (i) that such person or any
of its affiliates beneficially owns, directly or indirectly, (ii) that such
person or any of its affiliates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) that are beneficially owned, directly or indirectly, by
any other person with which such person or any of its affiliates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any of such securities.
(c) "control" (including the terms "controlling", "controlled by"
and "under common control with" or correlative terms) shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through ownership of voting
securities, by contract, or otherwise.
(d) "Documents" means this Agreement, the Stockholders and
Registration Rights Agreement, the Certificate of Designation, the Convertible
Loan and Security Agreement dated as of the date hereof between the Company and
Investor, and the Convertible Note.
(e) "fully diluted" in reference to the shares of Common Stock
means all outstanding securities entitled generally to vote in the election of
directors of the Company on a fully diluted basis, after giving effect to the
exercise or conversion of all options, rights and securities exercisable or
convertible into such voting securities.
(f) "Material Adverse Effect" shall mean (i) any adverse change
in the condition (financial or otherwise), assets (including without limitation,
patents and licenses to patents), liabilities, business, or results of
operations or prospects of the Company and its subsidiary, which change,
individually or in the aggregate, is material to the Company or its subsidiary,
or (ii) any event, matter, condition or effect which impairs the ability of the
Company or its
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<PAGE>
subsidiary to perform on a timely basis its obligations under this Agreement or
the consummation of the transactions contemplated by this Agreement. Materiality
under clauses (i) or (ii) hereof shall be as determined in good faith by
Investor.
(g) "person" shall mean a natural person, company, corporation,
partnership, association, trust or any unincorporated organization.
(h) "Stockholders and Registration Rights Agreement" means the
Stockholders and Registration Rights Agreement dated as of the date hereof,
among the Company, Investor and Purchasers.
(i) "subsidiary" shall mean, when used with reference to a person
means a corporation the majority of the outstanding voting securities of which
are owned directly or indirectly by such person.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, on the day
and year first above written.
COLLAGENEX PHARMACEUTICALS, INC,
By: /s/ Brian M. Gallagher
------------------------------------------
Name: Brian M. Gallagher
Title: President and Chief Executive Officer
By: /s/ Nancy C. Broadbent
------------------------------------------
Name: Nancy C. Broadbent
Title: Vice President and Chief Financial Officer
OAKTREE PRINCIPAL OPPORTUNITIES FUND, L.P.
By: Oaktree Capital Management, LLC, its
general partner
By: /s/ Stephen Kaplan
------------------------------------------
Name: Stephen Kaplan
Title: Principal
By: /s/ Michael Harmon
------------------------------------------
Name: Michael Harmon
Title: Vice President
[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]
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PURCHASERS:
/s/ Richard A. Horstmann
--------------------------------------------
Richard A. Horstmann
MARQUETTE VENTURE PARTNERS II, L.P.
By: /s/ James E. Daverman
----------------------------------------
Name: James E. Daverman
Title:
MVP II AFFILIATES FUND, L.P.
By: /s/ James E. Daverman
-----------------------------------------
Name: James E. Daverman
Title:
/s/ Robert J. Easton
--------------------------------------------
Robert J. Easton
PEBBLEBROOK PARTNERS LTD
By: /s/ Stuart Schube
-----------------------------------------
Name: Stuart Schube
Title:
