SCHEDULE 13D
EXHIBIT 1
Debenture Purchase Agreement
DECEMBER 20, 2002
To the Purchaser(s) Set Forth on Exhibit A hereto:
XXXXXX DRUG CO., INC., a New York corporation (the "Company"),
agrees with you as follows (capitalized terms used in this Agreement without
definition have the meanings assigned to them in Article XX):
ARTICLE I
AUTHORIZATION OF THE SECURITIES;
ADJUSTMENT OF CONVERSION PRICE
1.1. Authorization of Securities. (a) The Company represents
that it has taken all corporate action necessary to authorize the issuance and
sale of its 5% Convertible Senior Secured Debentures due March 31, 2006 in the
aggregate principal amount of up to $35 million substantially in the form of
Exhibit B hereto (such Debentures, together with the Debenture instruments
evidencing interest payments on the Debentures in accordance with Section 1.1,
as they may be amended, supplemented or otherwise modified from time to time in
accordance with their terms, the "Debentures" or the "Securities").
(b) The Debentures are to be sold severally, and not
jointly, pursuant to this Agreement to you (each of you is sometimes referred to
herein as a "Purchaser").
(c) Interest on the Debentures (including on Debenture
instruments issued pursuant to this sentence) is payable at the rate of 5% per
annum in the form of Debenture instruments substantially identical to the
Debentures; provided, however, that fifty percent (50%) of the interest payments
payable under the Debentures issued to Care Capital Investments II, LP shall be
paid in cash with the balance of such interest payments payable in like
Debentures, all as more particularly specified in the Debenture. Each Debenture
held by Xxxxx, Xxxxx Partners International III, L.P., Xxxxx Employee Fund III,
L.P. and any Additional Investor, or any affiliate thereof is convertible, at
any time after the Shareholders Meeting Date, (i) in whole or in part at any
time or from time to time at the option of the holder of such Debenture into a
number of shares of the Company's Common Stock (the "Common Stock") initially at
the rate of one share of Common Stock for each $.34 in principal amount of the
respective Debenture to be converted and (ii) following the third anniversary of
the issuance of the respective Debenture, in whole at the option of the Company
in the circumstances set forth in Section 3.2 of the respective Debenture. Each
Debenture held by Care Capital Investments II, LP or Essex Woodlands Health
Ventures V, L.P. is convertible (i) in whole or in part at any time or from time
to time at the option of the holder of such Debenture into a number of shares of
Common Stock initially at the rate of one share of Common Stock for each $.34 in
principal amount of the respective Debenture to be converted and (ii) following
the third anniversary of the issuance of the respective Debenture, in whole at
the option of the Company in the circumstances set forth in Section 3.2 of the
respective Debenture. For purposes of this Agreement, the term "Shares" shall
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TABLE OF CONTENTS
Page
ARTICLE I AUTHORIZATION OF THE SECURITIES; ADJUSTMENT OF CONVERSION PRICE...................................... 1
1.1. Authorization of Securities.................................................................. 1
1.2. Adjustment of Conversion Price............................................................... 2
ARTICLE II SALE AND PURCHASE OF THE SECURITIES; SECURITY DOCUMENTS............................................. 3
2.1. Sale and Purchase of the Securities.......................................................... 3
2.2. Company Security Documents................................................................... 3
2.3. Guaranties................................................................................... 3
2.4. Guarantor Security Documents................................................................. 4
ARTICLE III CLOSING............................................................................................ 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................................... 5
4.1. Organization and Existence, etc.............................................................. 5
4.2. Subsidiaries and Affiliates.................................................................. 5
4.3. Capitalization............................................................................... 6
4.4. Authorization................................................................................ 6
4.5. Binding Obligations; No Material Adverse Contracts, etc...................................... 7
4.6. Compliance with Instruments, etc............................................................. 7
4.7. Litigation................................................................................... 7
4.8. Financial Information; SEC Documents......................................................... 8
4.9. Offering Exemption........................................................................... 9
4.10. Permits; Governmental and Other Approvals.................................................... 9
4.11. Sales Representatives, Customers and Key Employees........................................... 10
4.12. Copyrights, Trademarks and Patents; Licenses................................................. 11
4.13. Inventory.................................................................................... 11
4.14. Registration Rights.......................................................................... 12
4.15. No Discrimination; Labor Matters............................................................. 12
4.16. Environmental Matters........................................................................ 12
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4.17. Taxes........................................................................................ 13
4.18. Employee Benefit Plans and Similar Arrangements.............................................. 13
4.19. Personal Property............................................................................ 15
4.20. Real Property................................................................................ 16
4.21. Disclosure................................................................................... 16
4.22. Solvency..................................................................................... 16
4.23. Insurance.................................................................................... 17
4.24. Non-Competes................................................................................. 17
4.25. Product Warranty............................................................................. 17
4.26. Minute Books................................................................................. 17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..................................................... 17
ARTICLE VI CONDITIONS TO CLOSING OF THE PURCHASERS............................................................. 18
6.1. Representations and Warranties Correct; No Default........................................... 18
6.2. Performance.................................................................................. 18
6.3. Compliance Certificate....................................................................... 18
6.4. No Impediments............................................................................... 18
6.5. Waivers/Elections of Rights of First Refusal................................................. 18
6.6. Xxxxxx Consent; Amendment to Xxxxxx Term Loans; Subordination Agreement...................... 18
6.7. Consent of Holders of Existing Debentures.................................................... 19
6.8. Consent of Xxxxx Bridge Lenders.............................................................. 19
6.9. Recapitalization Agreement................................................................... 19
6.10. Other Agreements and Documents............................................................... 20
6.11. Consents..................................................................................... 21
6.12. Legal Investment............................................................................. 21
6.13. Proceedings and Other Documents.............................................................. 21
6.14. Opinion of Counsel........................................................................... 21
6.15. Reconstitution of the Board of Directors..................................................... 21
6.16. Authorized Shares............................................................................ 22
ARTICLE VII CONDITIONS TO CLOSING OF THE COMPANY............................................................... 22
7.1. Representations.............................................................................. 22
7.2. Legal Investment............................................................................. 22
7.3. Payment of Purchase Price.................................................................... 23
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ARTICLE VIII PREPAYMENT........................................................................................ 23
ARTICLE IX AFFIRMATIVE COVENANTS............................................................................... 23
9.1. Maintenance of Corporate Existence, Properties and Leases; Taxes; Insurance.................. 23
9.2. Basic Financial Information.................................................................. 24
9.3. Notice of Adverse Change..................................................................... 26
9.4. Compliance With Agreements; Compliance With Laws............................................. 26
9.5. Protection of Licenses, etc.................................................................. 27
9.6. Accounts and Records; Inspections............................................................ 27
9.7. Board Members and Meetings................................................................... 28
9.8. Maintenance of Office........................................................................ 28
9.9. Use of Proceeds.............................................................................. 29
9.10. Payment of Debentures........................................................................ 29
9.11. Reporting Requirements....................................................................... 29
9.12. Amendments to the Company's Certificate of Incorporation..................................... 29
9.13. Director and Officer Insurance Coverage...................................................... 30
9.14. Further Assurances........................................................................... 30
ARTICLE X NEGATIVE COVENANTS................................................................................... 30
10.1. Stay, Extension and Usury Laws............................................................... 30
10.2. Reclassification............................................................................. 30
10.3. Liens........................................................................................ 31
10.4. Indebtedness................................................................................. 32
10.5. Arm's Length Transactions.................................................................... 33
10.6. Immaterial Subsidiaries...................................................................... 33
10.7. Loans and Advances........................................................................... 33
10.8. Intercompany Transfers; Transactions With Affiliates; Diversion of Corporate Opportunities... 34
10.9. Investments.................................................................................. 34
10.10. Other Business............................................................................... 34
10.11. Employee Benefit Plans and Compensation...................................................... 34
10.12. Capital Expenditures......................................................................... 34
10.13. Amendment, Etc. of Certain Document.......................................................... 35
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10.14. Formation of Subsidiaries.................................................................... 35
10.15. Prohibition on Certain Cash Interest Payments................................................ 35
ARTICLE XI Intentionally omitted............................................................................... 35
ARTICLE XII EVENTS OF DEFAULT.................................................................................. 35
12.1. Events of Default............................................................................ 35
12.2. Remedies..................................................................................... 38
12.3. Enforcement.................................................................................. 39
ARTICLE XIII INDEMNIFICATION................................................................................... 39
ARTICLE XIV AMENDMENT AND WAIVER............................................................................... 40
ARTICLE XV EXCHANGE OF DEBENTURES.............................................................................. 41
ARTICLE XVI TRANSFER OF DEBENTURES............................................................................. 41
16.1. Notification of Proposed Sale................................................................ 41
16.2. Intentionally Omitted........................................................................ 41
ARTICLE XVII RIGHT OF FIRST REFUSAL; ADDITIONAL INVESTMENT..................................................... 41
17.1. Right of First Refusal....................................................................... 41
ARTICLE XVIII CO-SALE RIGHTS................................................................................... 44
ARTICLE XIX MISCELLANEOUS...................................................................................... 45
19.1. Governing Law................................................................................ 45
19.2. Survival of Representations.................................................................. 45
19.3. Successors and Assigns....................................................................... 45
19.4. Entire Agreement............................................................................. 46
19.5. Notices, etc................................................................................. 46
19.6. Delays, Omissions or Waivers................................................................. 46
19.7. Independence of Covenants and Representations and Warranties................................. 47
19.8. Rights and Obligations; Severability......................................................... 47
19.9. Agent's Fees................................................................................. 47
19.10. Expenses..................................................................................... 47
19.11. Jurisdiction................................................................................. 48
19.12. Waiver of Jury Trial......................................................................... 48
19.13. Confidentiality.............................................................................. 48
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19.14. Prohibition on Certain Cash Interest Payments................................................ 49
19.15. Titles and Subtitles......................................................................... 49
19.16. Counterparts................................................................................. 50
ARTICLE XX CERTAIN DEFINED TERMS............................................................................... 50
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XXXXXX DRUG CO., INC.
$ 35,000,000
5% CONVERTIBLE SENIOR SECURED DEBENTURE
DUE MARCH 31, 2006
XXXXXX DRUG CO., INC.
DEBENTURE PURCHASE AGREEMENT
DATED AS OF DECEMBER 20, 2002
mean the shares of Common Stock which may be issued upon conversion of all or a
portion of the principal amount of the Debentures. The term Shares does not
include any other shares of Common Stock or other capital stock of the Company.
(d) The Company and the Purchasers acknowledge and agree
that the conversion price of the Debentures shall be calculated on the Closing
Date and on any subsequent issuance of Debentures pursuant to Article III hereof
(i) based on a fully-diluted valuation of the Company of $47.4 million prior to
the Closing of the transactions provided in this Debenture Purchase Agreement,
assuming a per share value of Common Stock equal to the conversion price of the
Debentures, and (ii) to provide that the Debentures issued to the Purchasers
shall be convertible into such number of Shares as shall represent forty two and
four tenths percent (42.4%) (the "Aggregate Ownership Percentage") of the
Company's Common Stock on the Closing Date, assuming the Company's issuance of
Debentures in an aggregate principal amount of $35 million. The Aggregate
Ownership Percentage shall be proportionately adjusted to the extent the Company
issues Debentures in an aggregate principal amount less than $35 million. For
purposes of the foregoing calculations, excluding common stock purchase options
exercisable for up to 5,031,950 shares of Common Stock issued and outstanding on
the Closing Date and listed on Section 1.1 of the Schedule of Exceptions, all
shares of Common Stock underlying any convertible debentures, warrants, options
and other convertible securities of the Company outstanding at the Closing Date
shall be included, including, without limitation, the Xxxxxx Warrant, after
giving effect to any change in the number of shares of Common Stock issuable
under such convertible securities as a result of the completion of the
transactions set forth in this Debenture Purchase Agreement and the application
of the anti-dilution provisions contained in any such convertible securities.
1.2. Adjustment of Conversion Price. (a) The prices at
which Shares may be acquired upon conversion of the Debentures are subject to
adjustment as set forth in the Debentures. Without limiting the anti-dilution
provisions contained in the Debentures, including, without limitation, Section
3.7 thereof, the Purchasers and the Company acknowledge and agree that in the
event the common stock purchase warrants described in Exhibit O hereto
exercisable for an aggregate of 11,475,116 shares of Common Stock (collectively,
the "Remaining Xxxxx Warrants") are exercised, converted, recapitalized or
otherwise exchanged or substituted (the "Warrant Exchange Transaction") on or
before December 15, 2003 for an aggregate number of shares which is less than or
greater than 11,475,116 shares of Common Stock, the conversion price of the
Debentures shall be adjusted in order to provide that the number of Shares
issuable upon conversion of the Debentures shall equal the Aggregate Ownership
Percentage as if the Warrant Exchange Transaction had been completed immediately
prior to the Closing Date and the Company had issued the resulting shares of
Common Stock in such transaction as of the Closing Date.
(b) In accordance with Article III hereof, the Company,
from time to time, may issue additional Debentures pursuant to this Agreement;
provided, however, that (i) the aggregate principal amount of the Debentures
shall not exceed $35 million, and (ii) that no Debentures (other than the
Debenture instruments evidencing interest payments on the Debentures in
accordance with Section 1.1) shall be issued after August 30, 2003 (the
"Termination Date"). Upon the execution of the Joinder Agreement appended as
Exhibit J hereto by a Purchaser and the Company's issuance of a Debenture to
such Purchaser, the conversion price of the Debentures issued on the Closing
Date and the conversion price of any Debenture
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issued at any time after the Closing Date as provided in this Section 1.2 (b)
and Article III hereof, shall be adjusted to give effect to the requirements of
Section 1.1(d) hereof, including, without limitation, after giving effect to any
change in the number of shares of Common Stock issuable under the Company's
outstanding convertible securities (exclusive of the Debentures) as a result of
the Company's issuance of additional Debentures following the Closing Date and
the application of the anti-dilution provisions contained in the Company's
convertible securities.
ARTICLE II
SALE AND PURCHASE OF THE SECURITIES; SECURITY DOCUMENTS
2.1. Sale and Purchase of the Securities. At the Closing,
on the terms and subject to the conditions and in reliance on the
representations and warranties contained herein, or made pursuant hereto, the
Company shall issue, sell and deliver to each Purchaser and such Purchaser's
designees, and each Purchaser, severally and not jointly, will purchase from the
Company, the Debentures for the purchase prices set forth opposite such
Purchaser's name on Exhibit A.
2.2. Company Security Documents. All of the obligations of
the Company under the Transaction Documents to or for the benefit of the
Purchasers (or their agents and respresentatives) shall be secured by the
following items (collectively, the "Company Debenture Collateral"), each of
which, except for Permitted Liens, shall be (i) junior and subordinate to the
lien granted to Xxxxxx pursuant to the Xxxxxx Term Loans, and (ii) senior and
superior to those liens granted to the investors in the Existing Debentures, all
as more specifically set forth in the Subordination Agreement:
(a) A lien on all the personal property and assets of the
Company now existing or hereinafter acquired granted pursuant to a Company
General Security Agreement substantially in the form attached as Exhibit E
hereto and dated of even date herewith between the Company and Xxxxx Partners
III, L.P. ("Xxxxx"), as agent for the Purchasers (such agreement, as
supplemented, amended or otherwise modified from time to time in accordance with
its terms, the "Company General Security Agreement"), including, without
limitation, a lien on and security interest in all of the issued and outstanding
shares of common stock of Houba, Inc. and Xxxxxx Pharmaceuticals, Inc. pursuant
to a separate Stock Pledge Agreement substantially in the form attached as
Exhibit L hereto and dated of even date herewith between the Company and Xxxxx,
as agent for the Purchasers (such agreement, as supplemented, amended or
otherwise modified from time to time in accordance with its terms, the "Stock
Pledge Agreement"):
(b) Collateral assignments of all leases, contracts,
patents, copyrights, trademarks and service marks of the Company.
2.3. Guaranties. All of the obligations of the Company
under the Debentures shall be guaranteed pursuant to Continuing Unconditional
Secured Guaranties substantially in the form of Exhibit F attached hereto (each,
a "Guaranty" and collectively, the "Guaranties") by each of the following
subsidiaries of the Company (each, a "Guarantor"):
(a) Houba, Inc.; and
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(b) Xxxxxx Pharmaceuticals, Inc.
2.4. Guarantor Security Documents. All of the obligations
of the Guarantors under the Guaranties shall be secured by the following
(collectively, the "Guarantor Debenture Collateral") each of which, except for
Permitted Liens, shall be a lien ranking (i) junior and subordinate to the lien
granted to Xxxxxx pursuant to the Xxxxxx Term Loans, and (ii) senior and
superior to those liens granted to the investors in the Existing Debentures, all
as more specifically set forth in the Subordination Agreement:
(a) A lien on all of the personal property and assets of
the respective Guarantors now existing or hereinafter acquired, granted pursuant
to a Guarantors General Security Agreement dated of even date herewith between
the Guarantors and Xxxxx, as agent for the Purchasers substantially in the form
of Exhibit G attached hereto (such agreement, as supplemented, amended or
otherwise modified from time to time in accordance with its terms, the
"Guarantors Security Agreement").
(b) Collateral assignments of all leases, contracts,
patents, copyrights, trademarks and service marks of the Guarantors.
(c) A mortgage granted by Houba Inc. on real property
owned by Houba Inc. located at 00000 Xxxxx Xxxx 00, Xxxxxx, Xxxxxxx (the
"Mortgage").
ARTICLE III
CLOSING
The closing of the purchase and sale of the Securities (the
"Closing") will take place at the offices of St. Xxxx & Xxxxx, L.L.C., Xxx Xxxx
Xxxxx Xxxx, Xxxxxx, Xxx Xxxxxx 00000 simultaneously with the execution of this
Agreement, or such other place, time and date as shall be mutually agreed to by
the Company and the Purchasers. Such time and date is herein referred to as the
"Closing Date". The Company and the Purchasers acknowledge and agree that the
Debentures may be sold by the Company on one or more Closing Dates. Upon the
issuance of additional Debentures under this Agreement, any additional Purchaser
(each an "Additional Investor") shall be required to execute a Joinder Agreement
in the form attached as Exhibit J hereto (such agreement, as supplemented,
amended or otherwise modified from time to time in accordance with its terms,
the "Joinder Agreement"), which Joinder Agreement shall include the aggregate
principal amount of the Debentures issued to such Purchaser, provided that so
long as Care Capital Investments II, LP or Essex Woodlands Health Ventures V,
L.P. (or their respective affiliates (as such term is defined in Rule 501(b)
under the Securities Act ("Rule 501(b)")) shall hold Debentures (each such
person a "2002 Holder"), the prior written consent of all 2002 Holders shall be
required prior to the issuance of any Debentures to any Additional Investors,
which consent shall be within their sole and absolute discretion. Any Additional
Investors in the Debentures executing a Joinder Agreement shall be deemed a
Purchaser for all purposes of this Agreement. Upon the issuance of any Debenture
following the Closing Date, the conversion price of the Debentures shall be
adjusted as provided in Section 1.2(b) hereof. Notwithstanding anything else
contained herein or in the Transaction Documents to the contrary, the Company
shall issue no Debentures (other than the Debenture instruments evidencing
interest payments on the Debentures in accordance with Section 1.1) after the
Termination Date.
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On the Closing Date, the Company shall deliver to each
Purchaser a Debenture, dated the Closing Date, in the principal amount set forth
opposite the name of such Purchaser in Exhibit A. The Company shall deliver the
foregoing Debentures against receipt by the Company from each Purchaser of an
amount equal to the aggregate purchase price for the Debentures to be purchased
by such Purchaser at the Closing, as set forth opposite the name of such
Purchaser on Exhibit A, in each case by wire transfer in immediately available
funds in U.S. dollars to an account designated by the Company or a certified or
official bank check payable to the order of the Company drawn upon or issued by
a bank which is a member of the New York Clearinghouse for banks.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to each Purchaser to enter into and
perform its obligations under this Agreement, except as set forth in the
Schedule of Exceptions attached hereto as Exhibit C (the "Schedule of
Exceptions"), the Company hereby represents and warrants to you as follows:
4.1. Organization and Existence, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York and is qualified to do business in such other jurisdictions as the
nature or conduct of its operations or the ownership of its properties require
such qualification. The Company does not own or lease any property or engage in
any activity in any jurisdiction that might require qualification to do business
as a foreign corporation in such jurisdiction and where the failure to so
qualify could reasonably be expected to have a Material Adverse Effect or
subject the Company to a material liability. The Company has furnished the
Purchasers with true, correct and complete copies of its Certificate of
Incorporation, By-Laws and all amendments thereto, as of the date hereof.
As used in this Agreement, "Material Adverse Effect" means (a)
a material adverse effect on, or change in, the business, prospects, properties,
operations, condition (financial or other) or results of operations of the
Company and its Subsidiaries, taken as a whole or (b) a material adverse effect
on (i) the ability of the Company or any of the Guarantors to perform its
respective obligations or (ii) the rights or remedies of any Purchaser under any
Transaction Document.
4.2. Subsidiaries and Affiliates. Section 4.2 of the
Schedule of Exceptions sets forth the name, jurisdiction of incorporation and
authorized and outstanding capitalization of each entity in which the Company
owns securities having a majority of the voting power in the election of
directors or persons serving equivalent functions (each a "Subsidiary"). Except
as disclosed in Section 4.2 of the Schedule of Exceptions, all of the
outstanding shares of capital stock of each of the Subsidiaries are duly and
validly authorized, are validly issued and are fully paid and nonassessable and
have been offered, issued, sold and delivered in compliance with applicable
Federal and state securities laws. Except as set forth in Section 4.2 of the
Schedule of Exceptions, the Company has, and upon the Closing will have, no
Subsidiaries and will not own of record or beneficially any capital stock or
equity interest or investment in any corporation, association or business
entity. Except as disclosed in Section 4.2 of the Schedule of Exceptions, each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to
5
carry on its business as now conducted and proposed to be conducted. Except as
set forth in Section 4.2 of the Schedule of Exceptions, no Subsidiary owns or
leases any property or engages in any activity in any jurisdiction which might
require such Subsidiary to qualify to do business as a foreign corporation in
such jurisdiction and where the failure to so qualify could reasonably be
expected to have a Material Adverse Effect or subject such Subsidiary to a
material liability.
4.3. Capitalization. (a) As of the date hereof, the
Company's authorized capital stock consists of 80,000,000 shares of Common
Stock, par value $.01 per share, of which 15,065,240 shares are outstanding and
66,037,354 shares are reserved for issuance for the purposes set forth in
Section 4.3 of the Schedule of Exceptions. Set forth in Section 4.3 of the
Schedule of Exceptions is a complete and correct list, as of the date hereof,
and as of the Closing Date, of the number of shares of Common Stock held by the
Company's public shareholders generally, shareholders holding in excess of 5% of
the Company's Common Stock and all holders of options, warrants, debentures and
other securities convertible or exercisable for Common Stock. Such schedule is
complete and correct in all respects.
(b) All the issued and outstanding shares of capital
stock of the Company are (i) duly authorized and validly issued, (ii) fully paid
and nonassessable and (iii) have been offered, issued, sold and delivered by the
Company in compliance with applicable Federal and state securities laws. Other
than as set forth in Section 4.3 of the Schedule of Exceptions there are no
outstanding preemptive, conversion or other rights, options, warrants, calls,
agreements or commitments granted or issued by or binding upon the Company or
any Subsidiary, for the purchase or acquisition of any shares of its capital
stock or securities convertible into or exercisable or exchangeable for capital
stock.
4.4. Authorization. (a) Each of the Company and the
Guarantors has all requisite corporate power and authority (i) to execute and
deliver, and to perform and observe their respective obligations under, this
Agreement, the Debentures, the Company General Security Agreement, the Stock
Pledge Agreement, the Guarantors Security Agreement, the Guaranties, the
Mortgage, the Mortgage Subordination Agreement, the Recapitalization Agreement,
the Xxxxxx Term Loan Amendment, the 2002 Xxxxxx Term Loan, the Registration
Rights Agreement, the Xxxxxx Consent, the Xxxxxx Supply Agreement, the Xxxxxx
Supply Agreement Amendment, the Xxxxxx Warrant, the Subscription Agreement with
each Purchaser, the Debentureholders Agreement, the Subordination Agreement, the
Xxxxx Bridge Lenders Consent, the Existing Debenture Amendments, the Xxxxx
Bridge Lenders Consent and the Existing Debentureholder Consent (collectively,
the "Transaction Documents") to which it is a respective party, and (ii) to
consummate the transactions contemplated hereby and thereby, including, without
limitation, the grant of any security interest, mortgage, payment trust,
guaranty or other security arrangement by the Company in, on or in respect of
the Company Debenture Collateral, and by any and all of the Guarantors in, on or
in respect of the Guarantor Debenture Collateral.
(b) All corporate action on the part of (i) the Company
and the directors and, except as set forth in Section 4.4(b) of the Schedule of
Exceptions or as otherwise provided in Sections 9.7 and 9.12 hereof, the
stockholders of the Company necessary for the authorization, execution, delivery
and performance by the Company of the Transaction Agreements and the
transactions contemplated therein, and for the authorization, issuance and
delivery of the Securities, has been taken and (ii) each Guarantor and their
respective directors and stockholders necessary for the authorization,
execution, delivery and performance by each Guarantor of the
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Guarantors General Security Document, the Guaranties and, in the case of Houba,
Inc. the Mortgage, and the transactions contemplated therein or in any other
Transaction Document with respect to the Guarantors, has been taken.
4.5. Binding Obligations; No Material Adverse Contracts,
etc. The Transaction Documents constitute valid and binding obligations of the
Company and the Guarantors enforceable in accordance with their respective
terms. Except as set forth in Section 4.5 of the Schedule of Exceptions and as
provided in Section 9.12 hereof, the execution, delivery and performance by the
Company and the Guarantors of the Transaction Documents and compliance therewith
will not result in any violation of and will not conflict with, or result in a
breach of any of the terms of, or constitute a default, or accelerate or permit
the acceleration of any rights or obligations, under, any provision of state,
local, Federal or foreign law to which the Company or either of the Guarantors
is subject, the Certificate of Incorporation, as amended, or the By-Laws, as
amended, of the Company or either of the Guarantors, the Xxxxxx Term Loans(as
amended by the Xxxxxx Term Loan Amendment and the Xxxxxx Consent, as
applicable), the Xxxxxx Supply Agreement Amendment, and the Existing Debentures
(as amended by the Existing Debentures Amendments and the Existing
Debentureholder Consent) or any other mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restriction to
which the Company or either of the Guarantors is a party or by which it is
bound, and except for Permitted Liens, result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company or either of the Guarantors pursuant to any such term. Except as set
forth in Section 4.3 of the Schedule of Exceptions, no stockholder of the
Company or either Guarantor has or will have any preemptive rights or rights of
first refusal by reason of the issuance of the Securities or Shares issuable
upon conversion or exercise of the Securities.
4.6. Compliance with Instruments, etc. Neither the Company
nor any Subsidiary (a) is in violation of its organizational documents, (b) is
in default, and no event has occurred which, with the giving of notice, or the
lapse of time, or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any material
agreement, including, without limitation, the Xxxxxx Term Loans, the Xxxxxx
Supply Agreement, the Xxxxxx Supply Agreement Amendment and the Existing
Debentures, any license, indenture or other instrument to which it is a party or
by which it is bound or to which any of its property or assets is subject or (c)
is in violation of any law, ordinance, governmental rule, regulation or court
decree to which it or its property may be subject (including without limitation
any laws and regulations relating to the biotechnology and pharmaceutical
industry) except for such violations under clause (b) and (c) that would not,
individually or in the aggregate, have a Material Adverse Effect.
4.7. Litigation. Except as set forth in Section 4.7 of the
Schedule of Exceptions, there are no actions, suits or proceedings (including
governmental or administrative proceedings), investigations, third-party
subpoenas or inquiries by any regulatory agency, body or other governmental
authority, to which the Company or any of the Subsidiaries is a party or is
subject, or to which any of their authorizations, consents and approvals or
other properties or assets, is subject, which is pending, or, to the best
knowledge of the Company, threatened or contemplated against the Company or any
Subsidiary, or any of such property or assets, that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect. The
Company is not subject to any actions, suits or proceedings (including
governmental or administrative proceedings), investigation, third-party
subpoenas or inquiries by any regulatory
7
agency, body or other governmental authority or any third Person regarding its
accounting practices or policies.
4.8. Financial Information; SEC Documents. (a) The Company
has furnished to the Purchasers complete and correct copies of the consolidated
financial statements of the Company and its Subsidiaries, including consolidated
balance sheets as of December 31, 2001 and 2000 and consolidated statements of
operations, changes in cash flows and stockholders' equity, covering the three
years ended December 31, 2001, all of which statements have been certified by
Xxxxx Xxxxxxxx LLP, independent accountants within the meaning of the Securities
Act of 1933, as amended (the "Securities Act") and the rules and regulations
thereunder, and all of which statements are included or incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 filed with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such financial statements have been prepared in conformity with
generally accepted accounting principles in the United States ("US GAAP")
applied on a consistent basis throughout the periods involved, except as
otherwise stated therein and fairly present the consolidated financial position
of the Company and its Subsidiaries as of the dates thereof and their
consolidated results of operations for such periods. The Company's auditors have
raised no material issues nor delivered any material correspondence with respect
to any of the Company's financial statements or financial affairs.
(b) The Company has also furnished to the Purchasers the
unaudited consolidated balance sheet of the Company and its Subsidiaries as of
September 30, 2002, and the related unaudited consolidated statements of
operations, consolidated statements of cash flow and consolidated statements of
stockholders' equity for the nine months ended September 30, 2002 and September
30, 2001. Such financial statements were prepared in conformity with US GAAP
applied on a basis consistent with the financial statements referred to in
paragraph (a) of this Section and fairly present the consolidated financial
position of the Company and its Subsidiaries as of such date and their
consolidated results of operations for such periods (subject to normal year-end
adjustments).
(c) None of the documents filed by the Company with the
Commission since December 31, 1997 contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements contained therein not false or misleading in
light of the circumstances in which they were made. There are no facts which the
Company has not disclosed to the Purchasers which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(d) Except as set forth in Section 4.8 of the Schedule of
Exceptions or in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002, subsequent to December 31, 2001, (i) none of the
Company or any Guarantor has incurred any liability or obligations, direct or
indirect, or entered into any transactions not in the ordinary course of
business, in either case which is material to the Company or any Guarantor, as a
whole, (ii) there has not been any material change in the short-term debt or
long-term debt of any of the Company or any Guarantor, (iii) there has been no
material change in the Company's accounting principles and (iv) none of the
Company or any Guarantor has taken any actions which would have been prohibited
under Article X if taken after the date hereof.
8
(e) Except as set forth in the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2002, since December 31, 2001,
there has been no Material Adverse Effect with respect to the Company and its
Subsidiaries.
4.9. Offering Exemption. (a) None of the Company, its
affiliates, as such term is defined in Rule 501(b)) or any Person acting on its
or their behalf has engaged or will engage, in connection with the offering and
sale of the Securities, in any form in general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act, and none
of the Company, or any of its affiliates, as such term is defined in Rule 501(b)
has, directly or indirectly, solicited any offer to buy, sell or offer to sell
or otherwise negotiate in respect of, in the United States or to any United
States citizen or resident, any security which is or would be integrated with
the sale of the Securities in a manner that would require the Securities to be
registered under the Securities Act. Assuming the accuracy of the
representations and warranties given by the Purchasers in Article V below, the
offering, sale and issuance of the Securities have been, are, and will be exempt
from registration under the Securities Act, and such offering, sale and issuance
is also exempt from registration under applicable state securities and "blue
sky" laws.
(b) None of the Company or any Guarantor is, or upon
consummation of the transactions contemplated under the Transaction Documents,
will be, subject to registration as an "investment company" under the Investment
Company Act of 1940, as amended.
4.10. Permits; Governmental and Other Approvals. (a) Other
than as set forth in Section 4.10 of the Schedule of Exceptions or in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001
or the Company's Quarterly Report on Form 10-Q for the nine months ended
September 30, 2002 (collectively, the "Company Reports") each of the Company and
its Subsidiaries possesses all necessary consents, approvals, authorizations,
orders, registrations, stamps, filings, qualifications, licenses, permits or
other analogous acts by, of, from or with all public, regulatory or governmental
agencies, bodies and authorities and all other third parties, to own, lease and
operate its respective properties and to carry on its business as now conducted
and proposed to be conducted except to the extent that the failure to obtain any
such consents, approvals, authorizations, orders, registrations, stamps,
filings, qualifications, licenses or permits would not have a Material Adverse
Effect. Other than as set forth in Section 4.10 of the Schedule of Exceptions,
or as otherwise contemplated in Article VI and IX hereof, no approval, consent,
authorization or other order of, and no designation, filing, registration,
qualification or recording with, any governmental authority or any other Person
is required in connection with the Company's valid execution, delivery and
performance of this Agreement or the offer, issuance and sale of the Securities
by the Company to the Purchasers or the consummation of any other transaction
contemplated on the part of the Company hereby.
(b) Without limiting the generality of the
representations and warranties made in Section 4.10(a), the Company represents
and warrants that (i) it and the Guarantors are in compliance with all
applicable provisions of the Federal Food, Drug, and Cosmetic Act (the "FDC
Act"), except where any such noncompliance could not reasonably be expected to
have a Material Adverse Effect; (ii) its products and those of the Guarantors
are not adulterated or misbranded and are in lawful distribution; and (iii) it
and the Guarantors are, and will be, in compliance with the following specific
requirements: (A) the Company and the Guarantors have registered all of their
facilities with the United States Food and Drug Administration (the "FDA"), (B)
the Company and the Guarantors have listed their drug products with the FDA, (C)
9
each drug product marketed by the Company or any Guarantor is the subject of an
application approved by the FDA, (D) all drug products marketed by the Company
or either Guarantor comply with any conditions of approval and the terms of the
application submitted to the FDA, (E) all of the Company's and the Guarantors'
drug products are manufactured in compliance with the FDA's good manufacturing
practice regulations, (F) all of the Company's and the Guarantors' products are
labeled and promoted in accordance with the terms of the marketing application
and the provisions of the FDC Act, (G) all adverse events relating to the
Company and the Guarantors that were required to be reported to the FDA have
been reported to the FDA in a timely manner, (H) each of the Company and the
Guarantors is in compliance with the terms of the consent agreement entered into
by the Company with the United States Attorney for the Eastern District of New
York on behalf of the FDA on June 29, 1993, as amended, (I) to the Company's
best knowledge, neither the Company nor any Guarantor is employing or utilizing
the services of any individual who has been debarred under the FDC Act, (J) all
stability studies required to be performed for products distributed by the
Company or a Guarantor have been completed or are ongoing in accordance with the
applicable FDA requirements, (K) none of the Company's or a Guarantors' products
have been exported for sale outside the United States, and (L) each of the
Company and the Guarantors is in compliance with the provisions of the
Prescription Drug Marketing Act, to the extent applicable; except, with respect
to subclause (iii)(E), (iii)(H), (iii)(G), (iii)(K) and (iii)(L) above, where
any such noncompliance could not reasonably be expected to have a Material
Adverse Effect.
(c) Without limiting the generality of the
representations and warranties made in Section 4.10(a), the Company also
represents and warrants that it and the Guarantors are in compliance with all
applicable provisions of the Controlled Substances Act (the "CSA") and that the
Company and the Guarantors are in compliance with the following specific
requirements, except where such noncompliance could not reasonably be expected
to have a Material Adverse Effect: (i) the Company and the Guarantors are
registered with the Drug Enforcement Administration (the "DEA") at each facility
where controlled substances are exported, imported, manufactured or distributed;
(ii) all controlled substances are stored and handled pursuant to DEA security
requirements; (iii) all records and inventories of receipt and distributions of
controlled substances are maintained in the manner and form as required by DEA
regulations; (iv) all reports, including, but not limited to, XXXXX,
manufacturing quotas, production quotas, and disposals, have been submitted to
the DEA in a timely manner; (v) all adverse events, including thefts or
significant losses of controlled substances, have been reported to the DEA in a
timely manner; (vi) to the Company's best knowledge, neither the Company nor any
Guarantor is employing any individual, with access to controlled substances, who
has previously been convicted of a felony involving controlled substances; and
(vii) any imports or exports of controlled substances have been conducted in
compliance with the CSA and DEA regulations.
4.11. Sales Representatives, Customers and Key Employees.
(a) To the best knowledge of the Company, no independent sales representatives,
customers, officers or key employees or group of key employees of the Company or
any Guarantor has any intention to terminate his, her or its relationship with
the Company or such Guarantor on or after the Closing or in the case of
employees, leave, , the employ of the Company or any of the Guarantors on and
after the Closing, nor has the Company or any of the Guarantors discussed or
taken any steps to terminate the employment of any officer or key employee or
group of key employees. Other than as set forth in Section 4.11 of the Schedule
of Exceptions, all personnel of the Company and any of the Guarantors are
employed on an "at will" basis and may be terminated upon notice of not more
than 30 days.
10
(b) To the Company's best knowledge, no employee of the
Company or any of the Guarantors, or any consultant (including any scientific
advisor) with whom the Company or any of the Guarantors has contracted, is in
violation of any term of any employment contract, proprietary information
agreement, licenses, or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company or any of the
Guarantors because of the nature of the business conducted by the Company and
the Guarantors; and the continued employment by the Company or any of the
Guarantors of their present employees, and the performance of the Company's and
the Guarantor's contracts with its independent contractors, will not result in
any such violation, except where any such violation could not reasonably be
expected to have a Material Adverse Effect. None of the Company or any of the
Guarantors has received any written, or to the best knowledge of the Company,
oral notice alleging that any such violation has occurred.
(c) All of the Company's and any of the Guarantor's
consultants (including scientific advisors), officers and key employees are
subject to customary non-disclosure, non-competition and assignment of invention
agreements.
4.12. Copyrights, Trademarks and Patents; Licenses. (a)
Section 4.12 of the Schedule of Exceptions sets forth a list of all of the
Company's and any Guarantor's patents, patent applications, trademarks,
copyrights, trademark registrations and applications therefor, patent, trademark
or trade name licenses, service marks, domain names, contracts with employees or
others relating in whole or in part to disclosure, assignment or patenting of
any inventions, discoveries, improvements, processes, formulae or other
know-how, and all patent, trademark or trade names or copyright licenses which
are in force (referred to collectively as "Intellectual Property Rights"). The
Intellectual Property Rights are, to the best of the Company's best knowledge,
fully valid and are in full force and effect.
(b) The Company or a Guarantor owns outright all of the
Intellectual Property Rights listed on Section 4.12 of the Schedule of
Exceptions attached hereto free and clear of all liens and encumbrances except
for the Permitted Liens, and does not pay, and is not required to pay, any
royalty to anyone under or with respect to any of them.
(c) Neither the Company nor any Guarantor has licensed
anyone to use any of such Intellectual Property Rights and has no knowledge of,
nor has it received any notice relating to, the infringing use by the Company or
any Guarantor of any Intellectual Property Rights.
(d) The Company has no knowledge, nor has it received any
notice (i) of any conflict with the asserted rights of others with respect to
any Intellectual Property Rights used in, or useful to, the operation of the
business conducted by the Company and the Guarantors or with respect to any
license under which the Company or a Guarantor is licensor or licensee; or (ii)
that the Intellectual Property Rights infringe upon the rights of any third
party.
(e) Except as set forth in Section 4.12 of the Schedule
of Exceptions, neither the Company nor any Guarantor is a party to any license
agreement pursuant to which the Company is the licensor or licensee of any
Intellectual Property Rights.
4.13. Inventory. All inventory of the Company and the
Subsidiaries consists of a quality and quantity usable and salable in the
ordinary course of business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
11
net realizable value on the consolidated balance sheet of the Company and its
Subsidiaries as of June 30, 2002. The quantities of each type of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable and warranted in the present circumstances of the Company.
4.14. Registration Rights. Except as provided for in this
Agreement or as set forth in Section 4.14 of the Schedule of Exceptions, neither
the Company nor any Guarantor is under any obligation to register any of its
currently outstanding securities or any of its securities which may hereafter be
issued under the Securities Act in connection with any sale thereof.
4.15. No Discrimination; Labor Matters. Neither the Company
nor any Guarantor in any manner or form discriminates, fosters discrimination or
permits discrimination against any Person based on gender or age, or belonging
to any minority race or believing in any minority creed or religion. No charge
of discrimination in employment, whether by reason of age, gender, race,
religion or other legally protected category that has been asserted or is now
pending or, to the best knowledge of the Company and the Guarantors, threatened
before the United States Equal Employment Opportunity Commission or other
federal or governmental authorities. The Company and each Guarantor is in
compliance with all applicable laws respecting employment practices, terms and
conditions of employment and wages and hours and is not and has not engaged in
any unfair labor practice. The Company and each Guarantor has withheld and paid
to the appropriate governmental authorities or is holding for payment not yet
due to governmental authorities, all amounts required to be withheld from such
employees of the Company or the Guarantors and is not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. Except as set forth in Section 4.15 of the Schedule of Exceptions, in
connection with the operation of the Company's and each Guarantor's business,
(a) there is no unfair labor practice charge or complaint against the Company or
any Guarantor pending before the National Labor Relations Board or any other
governmental agency arising out of the Company's or any Guarantor's activities
and the Company has no knowledge, nor has it received notice of any facts or
information that would give rise thereto; (b) there is no significant labor
trouble, labor strike, material controversy, material unsettled grievance,
dispute, request for representation, slowdown or stoppage actually pending
against or affecting the Company or any of the Guarantors and, to the best
knowledge of the Company, none is or has been threatened; and (c) none of the
Company or any of the Guarantors has any collective bargaining agreements with
respect to any personnel nor is the Company aware of any current attempts to
organize or establish any labor union or employee association with respect to
any personnel, nor is there any certification, interim certifications or
voluntary recognition of any such union with regard to a bargaining unit.
4.16. Environmental Matters. (a) Without limiting the
generality of the representations and warranties given in Section 4.10(a), each
of the Company and the Subsidiaries has obtained all environmental, health and
safety permits, licenses and other authorizations necessary or required for the
operation of its business, except where the failure to possess such franchises,
licenses, permits or other authority could not reasonably be expected to have a
Material Adverse Effect, and all such permits, licenses and other authorizations
are in full force and effect and each of the Company and, except as set forth in
Section 4.16 of the Schedule of Exceptions, the Subsidiaries is in compliance
with all terms and conditions of such permits, except where such noncompliance
could not reasonably be expected to have a Material Adverse Effect.
12
(b) There is no proceeding pending or, to the best
knowledge of the Company, threatened, which may result in the denial,
rescission, termination, modification or suspension of any environmental or
health or safety permits, licenses or other authorizations necessary for the
operation of the business of the Company and the Subsidiaries.
(c) During the occupancy by the Company or any Subsidiary
of any real property owned or leased by the Company or such Subsidiary, neither
the Company nor any Subsidiary, and to the best knowledge of the Company, no
other Person, has caused or permitted materials to be generated, released,
stored, treated, recycled, disposed of on, under or at such parcels, which
materials, if known to be present, would require cleanup, removal or other
remedial or responsive action under any environmental laws. To the best
knowledge of the Company, there are no underground storage tanks and no
polychlorinated biphenyls ("PCB's"), PCB contaminated oil or asbestos on any
property leased by the Company or any Subsidiary.
(d) Except as set forth in Section 4.16 of the Schedule
of Exceptions, neither the Company nor any Subsidiary is subject to any
judgment, decree, order or citation related to or arising out of environmental
laws, or has received notice that it has been named or listed as a potentially
responsible party by any Person in any matter arising under environmental laws.
(e) To the Company's best knowledge, each of the Company
and the Subsidiaries has disposed of all waste in full compliance with all
environmental laws.
4.17. Taxes. The Company and each of the Guarantors have
(a) filed all necessary income, franchise and other material tax returns,
domestic and foreign, (b) paid all taxes shown as due thereunder and (c)
withheld and paid to the appropriate tax authorities all amounts required to be
withheld from wages, salaries and other remuneration to employees. The Company
has no knowledge, nor has it received notice, of any tax deficiency which might
be assessed against the Company or any Guarantor which, if so assessed, could
reasonably be expected to have a Material Adverse Effect.
4.18. Employee Benefit Plans and Similar Arrangements. (a)
Section 4.18 of the Schedule of Exceptions lists all employee benefit plans and
collective bargaining, labor and employment agreements or other similar
arrangements in effect to which the Company, the Guarantors, and any of their
respective ERISA Affiliates are a party or by which the Company, the Guarantors,
and any of respective ERISA Affiliates are bound, legally or otherwise,
including, without limitation, any profit-sharing, deferred compensation, bonus,
stock option, stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or arrangement; any plan,
agreement or arrangement providing for fringe benefits or perquisites to
employees, officers, directors or agents, including but not limited to benefits
relating to employer-supplied automobiles, clubs, medical, dental,
hospitalization, life insurance and other types of insurance, retiree medical,
retiree life insurance and any other type of benefits for retired and terminated
employees; any employment agreement; or any other "employee benefit plan"
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended through the date of this Agreement ("ERISA")) (herein
referred to individually as "Plan" and collectively as "Plans"). For purposes of
this Agreement, "ERISA Affiliate" means (i) any corporation which at any time on
or before the Closing Date is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Internal Revenue Code
of 1986, as amended (the "Code")) as the Company, its Subsidiaries, or any ERISA
Affiliate; (ii) any partnership, trade or business (whether or not incorporated)
13
which at any time on or before the Closing Date is or was under common control
(within the meaning of Section 414(c) of the Code) with the Company, its
Subsidiaries, or any ERISA Affiliate; and (iii) any entity which at any time on
or before the Closing Date is or was a member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as the Company, its
Subsidiaries or any ERISA Affiliate, or any corporation described in clause (i)
or any partnership, trade or business described in clause (ii) of this
paragraph.
(b) True and complete copies of the following documents
with respect to any Plan of the Company, its Subsidiaries, and each ERISA
Affiliate, as applicable, have been made available to each of the Purchasers:
(i) the most recent Plan document and trust agreement (including any amendments
thereto and prior plan documents, if amended within the last two years), (ii)
the last two Form 5500 filings and schedules thereto, (iii) the most recent
Internal Revenue Service ("IRS") determination letter, (iv) all summary plan
descriptions, (v) a written description of each material non-written Plan, (vi)
each written communication to employees intended to describe a Plan or any
benefit provided by such Plan, (vii) the most recent actuarial report, and
(viii) all correspondence with the IRS, the Department of Labor and the Pension
Benefit Guaranty Corporation (the "PBGC") concerning any controversy. Each
report described in clause (vii) accurately reflects the funding status of the
Plan to which it relates and subsequent to the date of such report there has
been no adverse change in the funding status or financial condition of such
Plan.
(c) Each Plan is and has been maintained in compliance
with applicable law, including but not limited to ERISA, and the Code and with
any applicable collective bargaining agreements or other contractual
obligations.
(d) With respect to any Plan that is subject to Section
412 of the Code ("412 Plan"), there has been no failure to make any contribution
or pay any amount due as required by Section 412 of the Code, Section 302 of
ERISA or the terms of any such Plan, and no funding waiver has been requested or
received from the IRS. The assets of the Company, its Subsidiaries, or and ERISA
Affiliates are not now, nor will they after the passage of time be, subject to
any lien imposed under Section 412(n) of the Code by reason of a failure of the
Company, any Subsidiary, or any ERISA Affiliate to make timely installments or
other payments required under Section 412 of the Code.
(e) No Plan subject to Title IV of ERISA has any Unfunded
Pension Liability. For purpose of this Agreement, "Unfunded Pension Liability"
means, as of any determination date, the amount, if any, by which the present
value of all benefit liabilities (as that term is defined in Section 4001(a)(16)
of ERISA) of a plan subject to Title IV of ERISA exceeds the fair market value
of all assets of such plan, all determined using the actuarial assumptions that
would be used by the PBGC in the event of a termination of the plan on such
determination date.
(f) Except as shown on Section 4.18 of the Schedule of
Exceptions, there are no pending, or to the best knowledge of the Company, its
Subsidiaries, and ERISA Affiliates, threatened claims, investigations, actions
or lawsuits, other than routine claims for benefits in the ordinary course,
asserted or instituted against (i) any Plan or its assets, (ii) any ERISA
Affiliate with respect to any 412 Plan, or (iii) any fiduciary with respect to
any Plan for which the Company, its Subsidiaries, or any ERISA Affiliate may be
directly or indirectly liable, through indemnification obligations or otherwise.
14
(g) Except as set forth in Section 4.18 of the Schedule
of Exceptions, none of the Company, any Subsidiary, or any ERISA Affiliate has
incurred and or reasonably expects to incur (i) any withdrawal liabilities as
defined in Section 4201 of ERISA ("Withdrawal Liability") and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in Withdrawal Liabilities, or any liability under Section 4063, 4064, or
4243, or (ii) any outstanding liability under Title IV of ERISA with respect to
any 412 Plan.
(h) Except as shown on Section 4.18 of the Schedule of
Exceptions, within the last five years, none of the Company, any Subsidiary or
any ERISA Affiliate has transferred any assets or liabilities of a 412 Plan
subject to Title IV of ERISA which had, at the date of such transfer, an
Unfunded Pension Liability or has engaged in a transaction which may reasonably
be subject to Section 4212(c) or Section 4069 of ERISA.
(i) None of the Company, any Subsidiary, or any ERISA
Affiliate has engaged, directly or indirectly, in a non-exempt prohibited
transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in
connection with any Plan.
(j) No "reportable event" (within the meaning of Section
4043 of ERISA) has occurred with respect to any Plan.
(k) Neither the Company nor any of its Subsidiaries
provides, or has provided, retiree welfare benefits for the benefit of any
present or former employee or director.
(l) Neither the Company nor any of its Subsidiaries has
made any commitment or any formal plan to create any additional Plan or to
modify or terminate (except to the extent required by applicable law) any
existing Plan.
(m) Neither the Company nor any of its Subsidiaries is a
party to any plan, agreement or arrangement pursuant to the terms of which the
consummation or announcement of any transaction contemplated by this Agreement
will result (either alone or in connection with the occurrence of any additional
or further acts or events) in any benefit under any Plan being established or
becoming accelerated or immediately vested and payable.
(n) The provisions of Section 280G of the Code will not
apply with respect to any payment made or to be made pursuant to or in
connection with any Plan.
4.19. Personal Property. The Company and the Guarantors
have good and marketable title to each item of equipment, machinery, furniture,
fixtures, vehicles, structures and other personal property, tangible and
intangible, included as an asset in the Financial Statements filed as part of
the Company Reports, free and clear of any security interests, options, liens,
claims, charges or encumbrances whatsoever, except as set forth in Section 4.19
of the Schedule of Exceptions and as disclosed in the Company General Security
Agreement and the Guarantors General Security Agreement. The tangible personal
property owned or used by the Company and each of the Guarantors on the date
hereof in the operation of its business is adequate for the business conducted
by the Company and each of the Guarantors.
15
4.20. Real Property. (a) The Company and the Guarantors do
not own any fee simple interest in real property other than as set forth in
Section 4.20 of the Schedule of Exceptions (the "Owned Property"). The Company
and the Guarantors do not lease or sublease any real property other than as set
forth on Schedule 4.20 (the "Leased Property"). The Company has previously made
available to the Purchasers a true and complete copy of all of the lease and
sublease agreements, as amended to date (the "Leases") relating to the Owned
Property and the Leased Property. The Company and each Guarantor enjoys a
peaceful and undisturbed possession of the Owned Property and Leased Property.
No Person other than the Company or any Guarantor has any right to use or occupy
any part of the Owned Property and the Leased Property. The Leases are valid,
binding and in full force and effect, all rent and other sums and charges
payable thereunder are current, no notice of default or termination under any of
the Leases is outstanding, no termination event or condition or uncured default
on the part of the Company or, to the best of the Company's knowledge, on the
part of the landlord, sublandlord, as the case may be, thereunder, exists under
the Leases, and no event has occurred and no condition exists which, with the
giving of notice, or the lapse of time, or both, would constitute such a default
or termination event or condition. There are no subleases, licenses or other
agreements granting to any Person other than the Company or the Guarantors any
right to possession, use, occupancy or enjoyment of the Premises demised by the
Leases. Each Owned Property and Leased Property is used in the conduct of the
Company's or the Guarantors' business.
(b) Without limiting the generality of the
representations and warranties given in Section 4.10(a), all permits, licenses,
franchises, approvals and authorizations (collectively, the "Real Property
Permits") of all governmental authorities having jurisdiction over each Leased
Property and from all insurance companies and fire rating and other similar
boards and organizations (collectively, the "Insurance Organizations"),
required have been issued to the Company and the Guarantors to enable each
Leased Property or Owned Property to be lawfully occupied and used for all the
purposes for which they are currently occupied and used and have been lawfully
issued and are in full force and effect, except where the failure to possess
such permits, licenses, franchises, approvals and authorizations, individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
(c) Neither the Company nor the Guarantors have received
any notice nor have they any knowledge of any pending, threatened or
contemplated condemnation proceeding affecting any Leased Property or the Owned
Property or any part thereof.
4.21. Disclosure. The information heretofore provided and
to be provided in connection with this Agreement, including, without limitation,
the Schedule of Exceptions and the Exhibits hereto, the Transaction Documents
and each of the agreements, documents, certificates and writings previously
furnished to the Purchasers or their representatives, do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state a material fact necessary in order to make the statements and writings
contained herein and therein not false or misleading in the light of the
circumstances under which they were made. There are no facts that (individually
or in the aggregate) could reasonably be expected to have a Material Adverse
Effect, which has not been set forth herein or in the Company Reports.
4.22. Solvency. On the Closing Date (both before and after
giving effect to its Guaranty and the transactions contemplated by the
Transaction Documents), Houba, Inc. will be Solvent. As used herein, the term
"Solvent" means, with respect to Houba, Inc. on a particular date, that on and
as of such date (a) the fair market value of the assets of such Guarantor is
16
greater than the total amount of liabilities (including, without limitations,
contingent liabilities) of such Guarantor, (b) the present fair saleable value
of the assets of such Guarantor is greater than the amount that will be required
to pay the probable liabilities of such Guarantor on its debts as they become
absolute and matured, (c) such Guarantor is able to realize upon its assets,
through sale, use or borrowing, and is able to pay its debts and other
liabilities, including contingent obligations, as they mature and (d) such
Guarantor does not have unreasonably small capital.
4.23. Insurance. Each of the Company and the Guarantors
maintains, with financially sound and reputable insurers, insurance against loss
or damage by theft, fire, explosion and other risks customarily insured against
by companies in the line of business of the Company or the Guarantors, in
amounts sufficient to prevent the Company or the Guarantors from becoming a
co-insurer of the property insured as well as insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated or as may be
required by law, including, without limitation, general liability, fire and
business interruption insurance, and product liability insurance as may be
required pursuant to any license agreement to which the Company or the
Guarantors is a party or by which it is bound.
4.24 Non-Competes. Except as set forth in Section 4.24 of
the Schedule of Exceptions, and as contemplated by Section 4.11(c), the Company
and its Subsidiaries are not subject to any non-compete or similar arrangements
with any Persons that restrict or may restrict the Company and its Subsidiaries
from carrying on its business as now conducted and as it is proposed to be
conducted.
4.25 Product Warranty. Except as set forth in Section 4.25
of the Schedule of Exceptions, or as reflected or reserved against in the
Financial Statements, (a) to the knowledge of the Company, each product
manufactured by the Company or any Subsidiary has been in material conformity
with all applicable contractual commitments of the Company or any Subsidiary,
and (b) no product currently manufactured by the Company or any Subsidiary is
subject to any guaranty, warranty or indemnity of a contractual nature other
than the applicable standard terms and conditions, if any, applicable to the
sale or delivery of such product.
4.26. Minute Books. The minute books of the Company and the
Subsidiaries furnished to the Purchasers for review are accurate and complete.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As a material inducement to the Company to enter into and
perform its obligations under this Agreement, each Purchaser severally (as to
itself and not with respect to any other Purchaser) represents and warrants to
the Company that it is acquiring the Securities for investment for its own
account and is not acquiring any of the Securities with the view to, or for
resale in connection with, any distribution thereof. Each Purchaser understands
that none of the Securities have been registered under the Securities Act. If
any Purchaser should in the future decide to dispose of any Securities, it is
understood that the Purchaser may do so only in compliance with the Securities
Act. Each Purchaser will be required to complete and execute the
17
form of Subscription Agreement attached as Exhibit D hereto. Each Purchaser
acknowledges that the Company will rely upon the representations made by such
Purchaser in the Subscription Agreement in connection with the issuance of the
Securities to be sold hereunder.
ARTICLE VI
CONDITIONS TO CLOSING OF THE PURCHASERS
The obligation of each Purchaser to purchase the Securities at
the Closing is subject to the fulfillment to such Purchaser's satisfaction on or
prior to the Closing Date of each of the following conditions, unless otherwise
waived by such Purchaser:
6.1. Representations and Warranties Correct; No Default.
The representations and warranties of the Company set forth in Article IV hereof
shall be true and correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had been made on and as
of the Closing Date. No Event of Default, or any other event which, with the
giving of notice, the lapse of time, or both, would constitute an Event of
Default, shall have occurred and be continuing on the date of this Agreement or
on the Closing Date.
6.2. Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company on
or prior to the Closing Date shall have been performed or complied with by the
Company.
6.3. Compliance Certificate. The Company shall have
delivered to the Purchaser a certificate of the Company, executed by the
Company's President, dated the Closing Date, certifying to the fulfillment of
the conditions specified in Sections 6.1 and 6.2 of this Agreement and other
matters as the Purchaser shall reasonably request.
6.4. No Impediments. None of the Company, or any of the
Guarantors, or any Purchaser shall be subject to (a) any order, decree or
injunction of a court or administrative or governmental body or agency of
competent jurisdiction directing that the transactions provided for in the
Transaction Documents or any material aspect thereof not be consummated as
contemplated by the Transaction Documents or (b) there shall not be any action,
suit, proceeding, complaint, charge, hearing, inquiry or investigation before or
by any court or administrative or governmental body or agency pending or, to the
Company's best knowledge, threatened, wherein an unfavorable order, decree or
injunction would prevent the performance of any of the Transaction Documents or
the consummation of any material aspect of the transactions or events
contemplated thereby, declare unlawful any aspect of the transactions or events
contemplated by the Transaction Documents, cause any material aspect of the
transactions contemplated by the Transaction Documents to be rescinded or have a
Material Adverse Effect.
6.5. Waivers/Elections of Rights of First Refusal. The
Company shall have obtained from each Person other than a Purchaser and who has
any current effective right of first refusal with respect to the Securities, a
written waiver or election of such right in form and substance reasonably
satisfactory to the Purchasers.
6.6. Xxxxxx Consent; Amendment to Xxxxxx Term Loans;
Subordination Agreement. The Company shall have obtained (a) the consent of
Xxxxxx to the consummation of the transactions contemplated by the Transaction
Agreements, including, without limitation,
18
the issuance of the Securities, the incurrence of the Indebtedness evidenced by
the Debentures and the grant of the liens covering the assets of the Company and
the Guarantors in favor of the Purchasers as provided herein, which consent
shall be in form and substance reasonably acceptable to the Purchasers (the
"Xxxxxx Consent"); (b) an amendment to the loan documents evidencing the 2000
Xxxxxx Term Loan, duly executed by the Company, the Guarantors and Xxxxxx,
providing for (i) the extension of the maturity date of the Xxxxxx Term Loan
from March 31, 2003 to Xxxxx 00, 0000, (xx) the Company's issuance of the Xxxxxx
Warrant exercisable for 10,700,665 shares of Common Stock, which amendments to
the Xxxxxx Term Loan shall be in form and substance reasonably acceptable to the
Purchasers and (iii) the issuance of a new term consent to the issuance of a new
term loan to the Company by Xxxxxx to take into account the excess payments made
by Xxxxxx to the Company of approximately $3,901,331 (the "2002 Xxxxxx Term
Loan") (the "Xxxxxx Term Loan Amendment"); (c) consent to the issuance of the
2002 Xxxxxx Term Loan pursuant to the Xxxxxx Term Loan Amendment and the Xxxxxx
Supply Agreement in form and substance reasonably acceptable to the Purchasers
(the "Xxxxxx Supply Agreement Amendment"); and (d) a Subordination Agreement
substantially in the form attached hereto as Exhibit M by and among the Company,
Xxxxxx, the Purchasers, the holders of the Existing Debentures and certain other
parties signatory thereto (such agreement, as supplemented, amended or otherwise
modified from time to time in accordance with its terms, the "Subordination
Agreement") confirming, among other things, their relative rights with respect
to the Company Debenture Collateral and the Guarantors Debenture Collateral,
respectively.
6.7. Consent of Holders of Existing Debentures. The
Company shall have obtained (a) the consent of the holders of the Existing
Debentures to waive the Indebtedness, lien, registration rights, and charter
amendment restrictions contained in each of the Debenture and Warrant Purchase
Agreements pursuant to which the Existing Debentures were issued (the "Existing
Debentureholders Consent"); (b) an amendment to each of the Debenture and
Warrant Purchase Agreements pursuant to which the Existing Debentures were
issued, duly executed by the Company and each holder of the Existing Debentures,
providing for (i) the extension of the maturity date of the Existing Debentures
from March 15, 2003 to March 31, 2006, and (ii) the exercise of any preemptive
rights granted to the holders of the Existing Debentures on a pro rata basis
with the Purchasers of the Debentures under this Agreement (the "Existing
Debenture Amendments"); (c) the Subordination Agreement and; (d) the Debenture
Dilution Waiver. Each of the Existing Debentureholders Consent and the Existing
Debenture Amendments shall be in form and substance reasonably acceptable to the
Purchasers.
6.8. Consent of Xxxxx Bridge Lenders. The Company shall
have (a) obtained from the Xxxxx Bridge Lenders the consent to surrender and
convert the Xxxxx Bridge Notes in exchange for and into Debentures in form and
substance reasonably acceptable to the Purchasers (the "Xxxxx Bridge Lenders
Consent"), and (b) prepaid any Xxxxx Bridge Notes not so surrendered and
converted in accordance with their terms and the terms of the Xxxxx Bridge Loan
Agreement (other than Xxxxx Bridge Notes held by Xxxxx, which must be converted
in accordance with subsection 6.8(a)).
6.9. Recapitalization Agreement. The Company shall have
executed the Recapitalization Agreement in substantially the form of Exhibit N
hereto (the "Recapitalization Agreement") and shall have caused each of the
holders of the Company's Common Stock purchase warrants listed on the signature
page thereto (the "Warrant Holders") to have executed the Recapitalization
Agreement, providing for the Warrant Holders surrender to the Company of
19
the common stock purchase warrants described in Schedule A to the
Recapitalization Agreement in exchange for an aggregate of approximately
5,970,083 shares of the Company's Common Stock and the transaction contemplated
thereby shall have been consummated.
6.10. Other Agreements and Documents. The Company shall
have executed and delivered to each Purchaser this Agreement, issued to such
Purchaser all of the Securities and the Company and each of the Guarantors, as
applicable, shall have executed and delivered the following agreements and
documents:
(a) The Company General Security Agreement;
(b) The Guaranties;
(c) The Guarantors Security Agreement;
(d) The Stock Pledge Agreement;
(e) Financing Statements and Termination Statements on
Form UCC-1 and Form UCC-3 (or the applicable form), respectively, with respect
to all personal property and assets of the Company and each Guarantor;
(f) A certified copy of the Certificate of Incorporation
of the Company and each Guarantor and all amendments thereto;
(g) Resolutions by the Board of Directors of each of the
Company and the Guarantors approving the execution, delivery and performance of
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby;
(h) A copy of the By-Laws of the Company and each
Guarantor as amended to date, certified as being true by a principal officer of
the Company;
(i) A Certificate of Good Standing and Tax Status from
the state of incorporation of the Company and each Guarantor and from every
state in which any of them is qualified to do business;
(j) The Mortgage;
(k) The Mortgage Subordination Agreement;
(l) The Xxxxxx Consent;
(m) The Xxxxxx Term Loan Amendment;
(n) The 2002 Xxxxxx Term Loan
(o) The Xxxxxx Supply Agreement Amendment;
(p) The Subordination Agreement;
(q) The Xxxxxx Warrant;
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(r) The Registration Rights Agreement;
(s) The Xxxxx Bridge Lenders Consent;
(t) The Existing Debentureholders Consent;
(u) The Existing Debenture Amendments;
(v) The Debentureholders Agreement;
(w) The Subscription Agreement with each Purchaser
(x) The Voting Agreement; and
(y) The Recapitalization Agreement.
6.11. Consents. In addition to the consents described in
Section 6.6, 6.7 and 6.8, the Company shall have obtained all necessary consents
or waivers, if any, from all parties governmental and private to any other
material agreements to which the Company is a party or by which it is bound
immediately prior to the Closing in order that the transactions contemplated by
the Transaction Agreements may be consummated and the business of the Company
may be conducted by the Company after the Closing without adversely affecting
the Company.
6.12. Legal Investment. As of the Closing Date, there shall
not have been any change in any law, statute, ordinance, rule, code, approvals,
governmental restriction, regulation, permit, order, writ, injunction, judgment
or decree, applicable to any of the Purchasers that would prevent the
performance of this Agreement or any other Transaction Document or the
consummation of any material aspect of the transactions contemplated hereby or
thereby by such Purchaser, in each case to the extent that it would deprive such
Purchaser of the principal benefits of such transactions.
6.13. Proceedings and Other Documents. All corporate and
other proceedings taken or required to be taken by the Company and any Guarantor
in connection with the transactions contemplated by this Agreement and the other
Transaction Documents to be consummated prior to the Closing shall have been
taken, except as otherwise provided in Sections 9.7 and 9.12 hereof, and the
Purchasers shall have received such other documents, in form and substance
reasonably satisfactory to the Purchasers and their counsel, as to such other
matters incident to the transactions contemplated hereby as the Purchasers may
reasonably request.
6.14. Opinion of Counsel. The Purchasers shall have
received the opinion of St. Xxxx & Xxxxx, L.L.C., counsel to the Company, dated
the Closing Date, substantially in the form of Exhibit H attached hereto.
6.15. Reconstitution of the Board of Directors. The Board
of Directors of the Company shall have been reconstituted to consist of 11
members, comprised as follows: (a) one member, who shall be a designee of Care
Capital Investments II, LP, (b) one member, who shall be a designee of Essex
Woodlands Health Ventures V, L.P., (c) up to two members, who shall be executive
officers of the Company, (d) three members, who shall be designees of the
holders of
21
the March 1998 Debentures, (e) one member, who shall be a designee of the
holders of the May 1999 Debentures, and (f) three members (increased to the
extent of any reduction in the number of Board member also serving as executive
officers of the Company), who shall be independent directors nominated and
elected to the Board by the then current board members, subject to the consent
to the appointment and election of such independent Board members by each Board
member who is a designee of Care Capital Investments II, LP or Essex Woodlands
Health Ventures V, L.P. The Company shall have provided the Purchasers with the
resignation of such members of the Company's current Board of Directors so as to
reconstitute the Board of Directors as provided in this Section 6.15.
Notwithstanding the foregoing, the designees of the holders of the March 1998
Debentures to the Board of Directors shall be reduced from three to two
commencing as of and following the second Annual Meeting of the Company's
shareholders which occurs following the date of this Agreement.
6.16. Authorized Shares. The Company shall have received
from each of Xxxxx, Xxxxx Partners International III, L.P., Xxxxx Employee Fund
III, L.P. and Oracle Strategic Partners, L.P. (collectively, the "Institutional
Existing Debentureholders") a written consent authorizing the Company to
release, on a pro rata basis, (a) from its authorized but unissued reserved
shares of Common Stock such number of shares of Common Stock, otherwise reserved
for the Institutional Existing Debentureholders (the "Institutional Existing
Debentureholders Reserved Shares"), as are necessary to permit the conversion at
any time on or after the Closing of all of the Debentures purchased hereunder by
each of Care Capital Investments II, LP and Essex Woodlands Health Ventures V,
L.P., and (b) from the Institutional Existing Debentureholders Reserved Shares
such number of additional shares of Common Stock as necessary to be reserved to
take into account any change in the Conversion Price (as defined in the
Debenture) of the Debentures purchased hereunder by each of Care Capital
Investments II, LP and Essex Woodlands Health Ventures V, L.P.
ARTICLE VII
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell the Securities at the Closing
is subject to the fulfillment to its satisfaction on or prior to the Closing
Date of each of the following conditions, unless otherwise waived by the
Company:
7.1. Representations. The representations and warranties
of each of the Purchasers set forth in Article V hereof and in the Subscription
Agreement shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date.
7.2. Legal Investment. As of the Closing Date, there shall
not have been any change in any law, statute, ordinance, rule, code, approvals,
governmental restriction, regulation, permit, order, writ, injunction, judgment
or decree, applicable to the Company that would prevent the performance of this
Agreement or any other Transaction Document or the consummation of any material
aspect of the transactions contemplated hereby or thereby by the Company, in
each case to the extent that it would deprive the Company of the principal
benefits of such transactions.
22
7.3. Payment of Purchase Price. The Company shall have
received payment in full of the purchase price for the Securities.
ARTICLE VIII
PREPAYMENT
No Optional Prepayments. Without limiting the Company's
conversion rights as provided in Section 3.2 of the Debentures, the Company may
not at any time, without the prior written consent of the holders of all of the
holders of the outstanding Debentures, prepay any Debenture, the Xxxxxx Term
Loans, the Existing Debentures or any other indebtedness existing now or
hereafter, in whole or in part.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees, so long as any
Securities remain outstanding, as follows:
9.1. Maintenance of Corporate Existence, Properties and
Leases; Taxes; Insurance. The Company shall and shall cause each of the
Guarantors to, maintain in full force and effect its corporate existence, rights
and franchises and all terms of licenses and other rights to use licenses,
trademarks, trade names, service marks, copyrights, patents, processes or any
other Intellectual Property Rights owned or possessed by it and necessary to the
conduct of its business, except where failure to maintain such rights,
franchises and terms of licenses and other rights to use such Intellectual
Property Rights could not reasonably be expected to have a Material Adverse
Effect.
(a) The Company shall, and shall cause the Guarantors to,
keep each of its properties necessary to the conduct of its business in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company shall, and shall cause the
Guarantors to, at all times comply with each provision of all leases to which it
is a party or under which it occupies property, except where any such
noncompliance could not reasonably be expected to have a Material Adverse
Effect.
(b) The Company shall and shall cause each of the
Guarantors to (i) promptly pay and discharge, or cause to be paid and discharged
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, assets, property or business of the
Company and the Guarantors, (ii) withhold and promptly pay to the appropriate
tax authorities all amounts required to be withheld from wages, salaries and
other remuneration to employees, and (iii) promptly pay all claims or
Indebtedness (including, without limitation, claims or demands of workmen,
materialmen, vendors, suppliers, mechanics, carriers, warehousemen and
landlords) which, if unpaid might become a lien upon the assets or property of
the Company or the Guarantors; provided, however, that any such tax, lien,
assessment, charge or levy need not be paid if (i) the validity thereof shall be
contested timely and in good faith by appropriate proceedings, (ii) the Company
or the Guarantors shall have set aside on its books adequate reserves with
respect thereto, and (iii) the failure to pay shall not be prejudicial
23
in any material respect to the holders of the Securities, and provided further
that the Company or the Guarantors will pay or cause to be paid any such tax,
lien, assessment, charge or levy forthwith upon the commencement of proceedings
to foreclose any lien which may have attached as security therefor. The Company
shall and shall cause the Guarantors to pay or cause to be paid all other
Indebtedness incident to the operations of the Company or the Guarantors.
(c) The Company shall and shall cause each of the
Guarantors to, keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by theft, fire,
explosion and other risks customarily insured against by companies in the line
of business of the Company or the Guarantors, in amounts sufficient to prevent
the Company or the Guarantors from becoming a co-insurer of the property
insured; and the Company shall and shall cause the Guarantors to maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated or as may be
required by law, including, without limitation, general liability, fire and
business interruption insurance, and product liability insurance as may be
required pursuant to any license agreement to which the Company or the
Guarantors is a party or by which it is bound.
9.2. Basic Financial Information. The Company shall
furnish the following reports to each Purchaser (or any transferee of any
Securities), so long as the Purchaser is a holder of any Securities:
(a) within 30 days after the end of each of the 12
monthly accounting periods in each fiscal year (or when furnished to
the Company's Board of Directors, if earlier), unaudited consolidated
statements of income and retained earnings and cash flows of the
Company and its Subsidiaries for each monthly period and for the period
from the beginning of such fiscal year to the end of such monthly
period, together with consolidated balance sheets of the Company and
its Subsidiaries as at the end of each monthly period, setting forth in
each case comparisons to budget and to corresponding periods in the
preceding fiscal year, which statements will be prepared in accordance
with US GAAP consistently applied, and will fairly present the
consolidated financial position of the Company and its Subsidiaries as
of the dates thereof and their consolidated results of operations for
such periods;
(b) within 90 days after the end of each fiscal year (or
within five days after being filed with the Commission, if sooner),
consolidated statements of income and retained earnings and cash flows
of the Company and its Subsidiaries for the period from the beginning
of each fiscal year to the end of such fiscal year, and consolidated
balance sheets as at the end of such fiscal year, setting forth in each
case in comparative form corresponding figures for the preceding fiscal
year, which statements will be prepared in accordance with US GAAP,
consistently applied, and will fairly present the consolidated
financial position of the Company and its Subsidiaries as of the dates
thereof and their consolidated results of operations for such periods,
and will be accompanied by:
(i) a report of the Company's independent
certified public accounting firm;
(ii) a report from such accounting firm addressed
to the Purchasers, stating that in making the audit necessary
to express their opinion on the financial
24
statements, nothing has come to their attention which would
lead them to believe that an Event of Default has occurred
with respect to this Agreement or the Debentures or, if such
accountants have reason to believe that any such Event of
Default has occurred, a letter specifying the nature thereof;
and
(iii) the management letter of such accounting
firm;
(c) within 45 days after the end of each quarterly
accounting period in each fiscal year (or within five days after being
filed with the Commission, if sooner) consolidated statements of income
and retained earnings and cash flows of the Company and its
Subsidiaries for such quarterly accounting period and for the period
from the beginning of each fiscal year to the end of such quarterly
accounting period and consolidated balance sheets as at the end of such
quarterly accounting period, setting forth in each case in comparative
form corresponding figures for the preceding quarterly accounting
period, which statements will be prepared in accordance with US GAAP,
consistently applied, and will fairly represent the consolidated
financial position of the Company and its Subsidiaries as of the dates
thereof and their consolidated results of operations for such periods;
(d) within 45 days after the end of each quarterly
accounting period in each fiscal year, a certificate of the Chief
Financial Officer of the Company stating that the Company is in
compliance with the terms of this Agreement and any other material
contract or commitment to which the Company or any of its Subsidiaries
is a party or by which any of them is bound, or if the Company or any
of its Subsidiaries is not in compliance, specifying the nature and
period of noncompliance, and what actions the Company or such
Subsidiary has taken and proposes to take with respect thereto.
Notwithstanding the foregoing, the certificate delivered at the end of
each fiscal year of the Company shall be signed by both the Chief
Executive Officer and the Chief Financial Officer of the Company and
shall be delivered within 90 days after the end of the fiscal year;
(e) promptly upon receipt thereof, but in no event later
than three business days, any additional reports or other detailed
information concerning significant aspects of the operations and
condition, financial or otherwise, of the Company and its Subsidiaries,
given to the Company by its independent accountants;
(f) at least 30 days prior to the end of each fiscal
year, a detailed annual operating budget and business plan for the
Company and its Subsidiaries for the succeeding twelve-month period.
Such budgets shall be prepared on a monthly basis, displaying
consolidated statements of anticipated income and retained earnings,
consolidated statements of anticipated cash flow and projected
consolidated balance sheets, setting forth in each case the assumptions
(which assumptions and projections shall represent and be based upon
the good faith judgment in respect thereof of the Chief Executive
Officer of the Company) behind the projections contained in such
financial statements, and which budgets shall have been approved by the
Board of Directors of the Company prior to the beginning of each
twelve-month period for which such budget shall have been prepared and,
promptly upon preparation thereof, any other budgets that the Company
may prepare and any revisions of such annual or other budgets;
25
(g) within ten days after transmission or receipt
thereof, copies of all financial statements, proxy statements and
reports which the Company sends to its stockholders or directors, and
copies of all registration statements and all regular, special or
periodic reports which it or any of its officers or directors files
with the Commission, the American Stock Exchange (the "AMEX"), the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or with any other securities exchange or over-the-counter
market on which any of the securities of the Company are then listed or
approved for trading, copies of all press releases and other statements
made generally available by the Company to the public concerning
material developments in the business of the Company and its
Subsidiaries and copies of material communications sent to or received
from stockholders, directors or committees of the Board of Directors of
the Company or any of its Subsidiaries and copies of all material
communications sent to and received from any lender to the Company; and
(h) with reasonable promptness such other information and
financial data concerning the Company as any Person entitled to receive
materials under this Section 9.2 may reasonably request.
Notwithstanding the foregoing, all confidential information furnished
at any time by or on behalf of the Company or its Subsidiaries to any
Purchaser (or any transferee of any Securities) shall be subject to the
provisions of Section 19.13.
9.3. Notice of Adverse Change. The Company shall promptly
give notice to all holders of any Securities (but in any event within two days)
after becoming aware of the existence of any condition or event which
constitutes, or the occurrence of, any of the following:
(a) any Event of Default or any default that with the
passage of time or the giving of notice would constitute an Event of
Default;
(b) the institution or threatening of institution of any
action, suit or proceeding against the Company or any Subsidiary before
any court, administrative agency or arbitrator, including, without
limitation, any action of a foreign government or instrumentality,
which, if adversely decided, could reasonably be expected to have a
Material Adverse Effect;
(c) any information relating to the Company or any
Subsidiary which could reasonably be expected to have a Material
Adverse Effect; or
(d) any failure by the Company or any of its Subsidiaries
to comply with the provisions of Section 9.4 below.
Any notice given under this Section 9.3 shall specify the
nature and period of existence of the condition, event, information, development
or circumstance, the anticipated effect thereof and what actions the Company or
any Guarantor, as the case may be, has taken and proposes to take with respect
thereto.
9.4. Compliance With Agreements; Compliance With Laws. The
Company shall comply and cause its Subsidiaries to comply, with the terms and
conditions of all material agreements, commitments or instruments to which the
Company or any of its Subsidiaries is a party or by which it or they may be
bound. The Company shall and shall cause each of its
26
Subsidiaries to duly comply with any laws, ordinances, rules and regulations of
any foreign, Federal, state or local government or any agency thereof, or any
writ, order or decree, and conform to all valid requirements of governmental
authorities relating to the conduct of their respective businesses, properties
or assets, including, but not limited to, the requirements of the FDA Act, the
Prescription Drug Marketing Act, the CSA, the Employee Retirement Income
Security Act of 1978, the Environmental Protection Act, the Occupational Safety
and Health Act, the Foreign Corrupt Practices Act and the rules and regulations
of each of the agencies administering such acts, in each case except for any
such noncompliance that could not reasonably be expected to have a Material
Adverse Effect.
9.5. Protection of Licenses, etc. The Company shall and
shall cause its Subsidiaries to, maintain, defend and protect to the best of
their ability licenses and sublicenses (and to the extent the Company or a
Subsidiary is a licensee or sublicensee under any license or sublicense, as
permitted by the license or sublicense agreement), trademarks, trade names,
service marks, patents and applications therefor and other proprietary
information or Intellectual Property Rights owned or used by it or them and
shall keep duplicate copies of any licenses, trademarks, service marks or
patents owned or used by it, if any, at a secure place selected by the Company.
9.6. Accounts and Records; Inspections. (a) The Company
shall keep true records and books of account in which full, true and correct
entries will be made of all dealings or transactions in relation to the business
and affairs of the Company and its Subsidiaries in accordance with US GAAP
applied on a consistent basis.
(b) The Company (subject to the terms and conditions
contained in Section 19.13) shall permit each holder of any Securities or any of
such holder's officers, employees or representatives during regular business
hours of the Company, upon reasonable notice and as often as such holder may
reasonably request, to visit and inspect the offices and properties of the
Company and its Subsidiaries and to make extracts or copies of the books,
accounts and records of the Company or its Subsidiaries, and to discuss the
affairs, finances and accounts of the Company and its Subsidiaries, with the
Company's (or Subsidiary's) directors and officers, its independent public
accountants, consultants and attorneys.
(c) Nothing contained in this Section 9.6 shall be
construed to limit any rights that a holder of any Securities may have with
respect to the books and records of the Company and its Subsidiaries, to inspect
its properties or to discuss its affairs, finances and accounts.
(d) The Company will retain a firm of independent
certified public accountants reasonably acceptable to the Purchasers (an
"Approved Accounting Firm") to audit the Company's financial statements at the
end of each fiscal year. In the event the services of an Approved Accounting
Firm or any firm of independent public accountants hereafter employed by the
Company are terminated, the Company will promptly thereafter request the firm of
independent public accountants whose services are terminated to deliver to the
Purchasers a letter of such firm setting forth its understanding as to the
reasons for the termination of their services and whether there were, during the
two most recent fiscal years or such shorter period during which said firm had
been retained by the Company any disagreements between them and the Company on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In its notice, the Company shall
state whether the change of
27
accountants was recommended or approved by the Board of Directors or any
committee thereof. In the event of such termination, the Company will promptly
thereafter engage another Approved Accounting Firm.
9.7. Board Members and Meetings. (a) So long as the
Purchasers own any Debentures, the Board of Directors of the Company shall be
comprised of 11 members. The Company agrees to hold meetings of its Board of
Directors at least four times a year, at no more than three month intervals. So
long as the Purchasers own any Debentures, Care Capital Investments II, LP shall
have the right to designate for nomination one person, and Essex Woodlands
Health Ventures V, L.P. shall have the right to designate for nomination one
person (collectively, the "Designees"), to be members of the Company's Board of
Directors and the Company shall cause (i) such Designees to be elected to the
Board of Directors on the Closing Date, (ii) such Designees to be nominated for
election at each Annual Meeting of Shareholders of the Company, and at each
special meeting of the shareholders of the Company called for the purpose of
electing directors of the Company and at any time at which the shareholders of
the Company have the right to elect directors of the Company, and shall
recommend that the Company's shareholders vote in favor of the election of such
nominees, and (iii) such Designees shall be, if so requested by such Designee in
its sole discretion, appointed to the Company's Executive Committee,
Compensation Committee and any other committee of the Company. So long as the
Purchasers own any Debentures, at each Annual Meeting of the Shareholders of the
Company held thereafter, the Designees shall be, if so requested by such
Designee in its sole discretion, appointed to the Company's Executive Committee
and Compensation Committee and any other committee of the Company. Directors
shall be reimbursed for their reasonable travel and related expenses in
attending Board meetings.
(b) In lieu of having its Designee nominated for election
as a director of the Company as set forth above, each of Care Capital
Investments II, LP and Essex Woodlands Health Ventures V, L.P. may, at its
election and upon written notice to the Company, appoint a nonvoting "observer",
who shall (i) be provided by the Company with all notices of meetings, consents,
minutes and other materials that are provided to the Board of Directors (or any
committee thereof) at the same time as such materials are provided to the Board
of Directors (or any committees thereof) and (ii) be entitled to attend all
meetings of the Board of Directors, including all meetings of the Company's
Executive Committee, Audit Committee and Compensation Committee and any other
committee of the Company; provided, however, that any such information provided
to a nonvoting "observer" shall be subject to the provisions of Section 19.13.
(c) So long as the Purchasers own any Debentures, each of
Care Capital Investments II, LP and Essex Woodlands Health Ventures shall have
the right to have a representative join the Company's Scientific Advisory Board,
subject to the approval of the Company's Board of Directors and subject further
to the provisions of Section 19.13.
9.8. Maintenance of Office. The Company will maintain its
principal office at the address of the Company set forth in Section 19.5 of this
Agreement where notices, presentments and demands in respect of this Agreement
and any of the Securities may be made upon the Company, until such time as the
Company shall notify the holders of the Securities in writing, at least 30 days
prior thereto, of any change of location of such office.
28
9.9. Use of Proceeds. The Company shall use all the
proceeds received from the sale of the Securities pursuant to this Agreement for
general working capital.
9.10. Payment of Debentures. The Company shall pay the
principal of and interest on the Debentures in the time, the manner and the form
provided in the Debentures.
9.11. Reporting Requirements. The Company shall comply with
its reporting and filing obligations pursuant to Section 13 or 15(d) of the
Exchange Act. The Company shall provide copies of such reports, including,
without limitation, reports on Form 00-X, 00-X, 0-X and Schedule 14A promulgated
under the Exchange Act, or substantially the same information required to be
contained in any successor form, to each holder of any Securities promptly upon
filing with the Commission.
9.12. Amendments to the Company's Certificate of
Incorporation. (a) The Company will present to its shareholders and
debentureholders for consideration at the Company's next Annual Meeting of
Shareholders: (i) a proposal to amend the Company's Certificate of Incorporation
to increase the number of authorized shares of the Company's Common Stock
available for issuance from 80,000,000 to such number of shares as shall equal
the sum of (A) the Company's issued and outstanding Common Stock, plus (B) the
number of shares of Common Stock issuable upon the conversion and exercise of
the Company's outstanding convertible securities, plus (C) the number of shares
of Common Stock issuable upon conversion of the Debentures and exercise of the
Xxxxxx Warrant, plus (D) 50 million shares, as shall sum shall be rounded up to
the nearest whole five million shares; (ii) a proposal to amend the Company's
Certificate of Incorporation to provide that holders of the Debentures shall
have the right to vote as part of a single class with all holders of Common
Stock of the Company on all matters to be voted on by such stockholders with the
holders of the Debentures having such number of votes as shall equal the number
of votes they would have had such holders converted the entire outstanding
principal amount of the Debentures into Shares immediately prior to the record
date relating to such vote, provided, however, that any Debentures held by Care
Capital Investments II, LP shall, for so long as they are held by Care Capital
Investments II, LP, have no such voting rights and the Certificate of
Incorporation and the Debentures shall so state; and (iii) a proposal to elect
as directors one Designee of each of Care Capital Investments II, LP and Essex
Woodlands Health Ventures V, L.P., which Designees shall also be appointed, if
so requested by such Designee in its sole discretion, to the Company's Executive
Committee and Compensation Committee and any other committee of the Company,.
Upon receipt of shareholder approval of any such charter amendments, the Company
will promptly file such amendment to its Certificate of Incorporation with the
Secretary of State of the State of New York.
(b) Each of Xxxxx, Xxxxx Partners International III,
L.P., Xxxxx Employee Fund III, L.P., Oracle Strategic Partners, L.P., Xxxxxxx
Xxxxxxx Trust, Xxxxxx X. Xxxxx & Co., Inc., TTEE FBO Xxxxxxx X. Xxxxxxx XXX,
trusts created for the benefit of Xxxxxxx X. Xxxxxxx, the Company's Chairman and
Chief Executive Officer and Xxxxx Xxxxxxx, the Company's Chief Financial
Officer, as investors in the Existing Debentures, has executed and delivered a
Voting Agreement in substantially the form attached hereto as Exhibit I (such
agreement, as supplemented, amended or otherwise modified from time to time in
accordance with its terms, the "Voting Agreement") providing that, among other
things, each such Person shall vote the shares of the Company's Common Stock
(including shares underlying the Existing Debentures)
29
owned by it in favor of the proposals described in Section 9.12(a) above. Each
of Xxxxx, Xxxxx Partners International III, L.P., Xxxxx Employee Fund III, L.P.,
Oracle Strategic Partners, L.P., Xxxxxxx Xxxxxxx and Xxxxx Xxxxxxx severally
represents and warrants that such Voting Agreement has been duly authorized,
executed and delivered by such Person and is such Person's legal, valid and
binding agreement, enforceable against it in accordance with its terms.
Notwithstanding anything to the contrary contained herein, (i)
the Company will use its best efforts to cause the approvals and amendments
provided herein to be obtained in accordance with the terms hereof and otherwise
as soon as reasonably possible, and (ii) the Board of Directors will recommend
to the Company's shareholders and debentureholders the approval of the
amendments to the Company's Certificate of Incorporation as provided in this
Section 9.12.
9.13. Director and Officer Insurance Coverage. As soon as
practicable, but in any event within 30 days following the Closing, the Company
shall obtain "directors and officers" insurance ("D&O Insurance") mutually
acceptable to the Purchasers and the Company covering those persons who are
directors and officers of the Company, which D&O Insurance shall provide at
least a minimum of $5,000,000 of coverage per director. The Company shall
maintain a such D&O Insurance covering its directors and officers with
financially sound and reputable insurers insuring the Company's directors and
officers from the liability and expense customarily insured under such "director
and officer" insurance policies.
9.14. Further Assurances. From time to time the Company
shall execute and deliver to the Purchasers and the Purchasers shall execute and
deliver to the Company such other instruments, certificates, agreements and
documents and take such other action and do all other things as may be
reasonably requested by the other party in order to implement or effectuate the
terms and provisions of this Agreement and the transactions contemplated hereby
and any of the Securities.
ARTICLE X
NEGATIVE COVENANTS
The Company hereby covenants and agrees, so long as any
Purchaser owns any Debentures, it will not (and not allow any of the Guarantors
to), directly or indirectly, without the prior written consent of the holders of
at least 66 2/3% in aggregate principal amount of the Debentures then
outstanding, as follows:
10.1. Stay, Extension and Usury Laws. At any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereinafter in force, which may affect the covenants or the performance of the
Debentures, the Company hereby expressly waiving all benefit or advantage of any
such law, or by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the holders of the Debentures but will suffer and
permit the execution of every such power as though no such law had been enacted.
10.2. Reclassification. Effect any reclassification,
combination or reverse stock split of the Common Stock of the Company.
30
10.3. Liens. Except as otherwise provided in this Agreement
or any other Transaction Document, create, incur, assume or permit to exist any
mortgage, pledge, lien, security interest or encumbrance on any part of its
properties or assets, or on any interest it may have therein, now owned or
hereafter acquired, nor acquire or agree to acquire property or assets under any
conditional sale agreement or title retention contract, except that the
foregoing restrictions shall not apply to:
(a) liens for taxes, assessments and other governmental
charges, if payment thereof shall not at the time be required to be
made, and provided such reserve as shall be required by US GAAP
consistently applied shall have been made therefor;
(b) liens of workmen, materialmen, vendors, suppliers,
mechanics, carriers, warehouseman and landlords or other like liens,
incurred in the ordinary course of business for sums not then due or
that are being contested in good faith and provided that an adverse
decision in such contest would not materially affect the business of
the Company;
(c) liens securing Indebtedness of the Company or any
Subsidiary which are permitted under Section 10.4(b) or (g);
(d) statutory liens of landlords, statutory liens of
banks and rights of set-off, and other liens imposed by law, in each
case incurred in the ordinary course of business (i) for amounts not
yet overdue or (ii) for amounts that are overdue and that are being
contested in good faith by appropriate proceedings, so long as reserves
or other appropriate provisions, if any, as shall be required by US
GAAP, shall have been made for any such contested amounts;
(e) liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts, performance
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(f) any attachment or judgment lien not otherwise
constituting an Event of Default, or an event which, with the giving of
notice, the lapse of time, or both, would not otherwise constitute an
Event of Default;
(g) easements, rights-of-way, restrictions,
encroachments, and other minor defects or irregularities in title, in
each case which do not and will not interfere with the ordinary conduct
of the business of the Company or any of its Subsidiaries, except where
such interference could not reasonably be expected to have a Material
Adverse Effect;
(h) any (i) interest or title of a lessor or sublessor
under any lease, (ii) restriction or encumbrance that the interest or
title of such lessor or sublessor may be subject to, or (iii)
subordination of the interest of the lessee or sublessee under such
lease to any restriction or encumbrance referred to in the preceding
clause (ii), so long
31
as the holder of such restriction or encumbrance agrees to recognize
the rights of such lessee or sublessee under such lease;
(i) liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(j) any zoning or similar law or right reserved to or
vested in any governmental office or agency to control or regulate the
use of any real property;
(k) liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the ordinary
course of business of the Company and its Subsidiaries;
(l) the liens listed in Section 10.3(l) of the Schedule
of Exceptions ("Permitted Liens"); and
(m) the replacement, extension or renewal of any lien
permitted by this Section 10.3 upon or in the same property theretofore
subject or the replacement, extension or renewal (without increase in
the amount or change in any direct or contingent obligor) of the
Indebtedness secured thereby.
10.4. Indebtedness. Create, incur, assume, suffer, permit
to exist, or guarantee, directly or indirectly, any Indebtedness, excluding:
(a) The endorsement of instruments for the purpose of
deposit or collection in the ordinary course of business;
(b) Indebtedness which may, from time to time be incurred
or guaranteed by the Company which in the aggregate principal amount
does not exceed $500,000 and is subordinate to the Indebtedness under
this Agreement on terms reasonably satisfactory to the Purchasers;
(c) Indebtedness existing on the date hereof and
described in Section 10.4 of the Schedule of Exceptions;
(d) Indebtedness relating to contingent obligations of
the Company and its Subsidiaries under guaranties in the ordinary
course of business of the obligations of suppliers, customers, and
licensees of the Company and its Subsidiaries;
(e) Indebtedness relating to loans from the Company to
its Subsidiaries or Indebtedness owed to any of the Guarantors;
(f) Indebtedness relating to capital leases in an amount
not to exceed $500,000;
(g) Indebtedness relating to a working capital line of
credit in an amount not to exceed $10,000,000;
32
(h) Accounts or notes payable arising out of the purchase
of merchandise or services in the ordinary course of business; or
(i) The Debentures.
For purposes hereof, the term "Indebtedness" shall mean and
include (A) all items which would be included on the liability side of a balance
sheet (but also shall include any "off-balance sheet financings") of the Company
(or a Subsidiary) as of the date on which indebtedness is to be determined,
excluding capital stock, surplus, capital and earned surplus reserves, which, in
effect, were appropriations of surplus or offsets to asset values (other than
reserves in respect of obligations, the amount, applicability or validity of
which is, at such date, being contested in good faith by the Company or a
Subsidiary, as applicable), deferred credits of amounts representing
capitalization of leases; (B) the full amount of all indebtedness of others
guaranteed or endorsed (otherwise than for the purpose of collection) by the
Company (or a Subsidiary) for which the Company (or a Subsidiary) is obligated,
contingently or otherwise, to purchase or otherwise acquire, or for the payment
or purchase of which the Company (or a Subsidiary) has agreed, contingently or
otherwise, to advance or supply funds, or with respect to which the Company (or
a Subsidiary) is contingently liable, including, without limitation,
indebtedness for borrowed money and indebtedness guaranteed or supported
indirectly by the Company (or a Subsidiary) through an agreement, contingent or
otherwise (x) to purchase the indebtedness, or (y) to purchase, sell, transport
or lease (as lessee or lessor) property, or to purchase or sell services at
prices or in amounts designed to enable the debtor to make payment of the
indebtedness or to assure the owner of the indebtedness against loss, or (z) to
supply funds to or in any other manner invest in the debtor; and (C)
indebtedness secured by any mortgage, pledge, security interest or lien whether
or not the indebtedness secured thereby shall have been assumed; provided,
however, that such term shall not mean and include any indebtedness (x) in
respect to which monies sufficient to pay and discharge the same in full shall
have been deposited with a depositary, agency or trustee in trust for the
payment thereof, or (y) as to which the Company (or Subsidiary) is in good faith
contesting, provided that an adequate reserve therefor has been set up on the
books of the Company or any of its consolidated Subsidiaries.
10.5. Arm's Length Transactions. Enter into any
transaction, contract or commitment or take any action other than at Arm's
Length. For purposes hereof, the term "Arm's Length" means a transaction or
negotiation in which each party is completely independent of the other, seeks to
obtain terms which are most favorable to it and has no economic or other
interest in making concessions to the other party.
10.6. Immaterial Subsidiaries. The Company shall not permit
any of the Immaterial Subsidiaries to commence any business operations of a type
or scope not currently conducted by them, nor permit any Immaterial Subsidiary
to acquire any rights or property not currently owned by it.
10.7. Loans and Advances. Except for loans and advances
outstanding as of the Closing Date and set forth in Section 10.7 of the Schedule
of Exceptions, directly or indirectly, make any advance or loan to, or guarantee
any obligation of, any person, firm or entity, except for intercompany loans or
advances in the ordinary course of business and those provided for in this
Agreement. The Company and the Guarantors shall comply in all material respects
with the requirements of the Xxxxxxxx-Xxxxx Act of 2002, and the rules and
regulations promulgated thereunder, as amended from time to time.
33
10.8. Intercompany Transfers; Transactions With Affiliates;
Diversion of Corporate Opportunities. (a) Make any intercompany transfers of
monies or other assets in any single transaction or series of transactions,
except as otherwise permitted in this Agreement.
(b) Engage in any transaction with any of the officers,
directors, employees or "affiliates" (as such term is defined in Rule 501(b)) of
the Company or of its Subsidiaries, except on terms no less favorable to the
Company or the Subsidiary as could be obtained at Arm's Length.
(c) Divert (or permit anyone to divert) any business or
opportunity of the Company or any Subsidiary to any other corporate or business
entity.
10.9. Investments. Make any investments in, or purchase any
stock, option, warrant, or other security or evidence of Indebtedness of, any
Person (exclusive of any Subsidiary), other than obligations of the United
States Government or certificates of deposit or other instruments maturing
within one year from the date of purchase from financial institutions with
capital in excess of $100 million.
10.10. Other Business. Enter into or engage, directly or
indirectly, in any business other than the business currently conducted or
proposed to be conducted as disclosed to the Purchasers prior to the date hereof
by the Company or any Subsidiary.
10.11. Employee Benefit Plans and Compensation. Except as
contemplated by this Agreement:
(a) enter into or materially amend any agreement to
provide for or otherwise establish any written or unwritten employee
benefit plan, program or other arrangement of any kind, covering
current or former employees of the Company or its Subsidiaries except
for any such plan, program or arrangement expressly permitted under an
existing agreement listed in Section 4.18 the Schedule of Exceptions;
provided, however, that no such plan, program or arrangement may be
established or implemented if such action would have a material effect
on the terms of employment of the employees of the Company or its
Subsidiaries; or
(b) provide for or agree to any material increase in any
benefit provided to current or former employees of the Company or its
Subsidiaries over that which is provided to such individuals pursuant
to a plan or arrangement disclosed in Section 4.18 of the Schedule of
Exceptions as of the Closing Date; or
(c) provide for or agree to any increase in the annual
compensation of any of the employees of the Company or its
Subsidiaries, except for (i) annual salary increases in the ordinary
cause of business consistent with past practice (not to exceed a 10%
increase over such employee's annual salary compensation on the date
hereof), and (ii) normal and customary annual bonuses to employees (not
to exceed $350,000 in the aggregate in any fiscal year in the absence
of the approval of the Board of Directors).
10.12. Capital Expenditures. Other than for capital
expenditures contained in any budget approved by the Board of Directors, make or
commit to make, or permit any of its
34
Subsidiaries to make or commit to make, any capital expenditures in excess of
$250,000 in the aggregate during any fiscal year of the Company.
10.13. Amendment, Etc. of Certain Document. Except as
otherwise specifically provided for herein, amend, modify, change in any manner
any term or condition of the Xxxxxx Term Loans, the Existing Debentures or any
agreement or other instrument or document entered into by the Company or any
Guarantor in connection therewith or pursuant thereto, or give any consent,
waiver or approval thereunder, waive any default under or any breach of any term
or condition thereof, agree in any manner to any other amendment, modification
or change of any term or condition thereof or take any other action in
connection therewith that would impair the value of the interest or the rights
of any Purchaser under this Agreement or any other Transaction Document, or
permit any of the Guarantors to do any of the foregoing without the prior
written consent of all the Purchasers.
10.14. Formation of Subsidiaries. Organize or invest, or
permit any Subsidiary to organize or invest, in any new corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which) (a) more than 50% of the issued and outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at the time capital stock of any other
class of such corporation shall or might have voting power upon the occurrence
of any contingency), the interest in the capital or profits of such partnership,
joint venture or limited liability company or the beneficial interest in such
trust or estate, is at the time directly or indirectly owned or controlled by
the Company, any of its Subsidiaries or any of their respective officers or
directors, or (b) a material minority investment in any such entity is directly
or indirectly owned or controlled by the Company, any of its Subsidiaries or any
of their respective officers or directors.
10.15 Prohibition on Certain Cash Interest Payments. The
Company shall not make any cash interest payments to Xxxxx, Xxxxx Partners
International III, L.P., Xxxxx Employee Fund III, L.P. or Oracle Strategic
Partners, L.P., pursuant to the March 1998 Debentures or the May 1999
Debentures, notwithstanding anything else to the contrary contained therein or
elsewhere, without the prior written consent of all 2002 Holders, which consent
shall be within their sole and absolute discretion.
ARTICLE XI
INTENTIONALLY OMITTED
ARTICLE XII
EVENTS OF DEFAULT
12.1. Events of Default. If any of the following events
shall occur and be continuing on or before the Security Interest Termination
Date, an "Event of Default" shall be deemed to have occurred:
(a) if the Company shall default in the payment of (i)
any part of the principal of any Debenture (including, without
limitation, the principal of any Interest Payment Debenture), when the
same shall become due and payable, whether at maturity or at a date
fixed for prepayment or by acceleration or otherwise, or (ii) the
interest on any
35
Debenture (including, without limitation, interest on any Interest
Payment Debentures), when the same shall become due and payable, and in
the case of an interest payment such default shall have continued
without cure for ten days from the scheduled date of payment of such
interest;
(b) the Company shall fail to issue to a Holder the
Shares issuable upon conversion of a Debenture pursuant to the
instructions provided by such Holder and in accordance with the terms
of such Debenture;
(c) except or provided in Section 12.1(b), if the Company
shall default in the performance of any of the covenants contained in
Articles IX or X, and, in the case of a default under Sections 9.1
through and including 9.8 or Section 10.3 (exclusive of Section
10.3(c)), such default shall have continued without cure for 30 days
after written notice (a "Default Notice") is given to the Company with
respect to such covenant by any holder or holders of the Debentures
(and the Company shall give to all other holders of the Debentures at
the time outstanding prompt written notice of the receipt of such
Default Notice, specifying the default referred to therein); provided,
however, that such 30-day grace period shall not apply in the event the
Company fails to promptly give notice as provided in Section 9.3;
(d) except as provided in Sections 12.1(b) or 12.1(c), if
the Company or any of the Guarantors shall default in the performance
of any other agreement contained in any Transaction Document or in any
other agreement executed in connection with this Agreement and such
default shall not have been remedied to the satisfaction of the holders
of 66 2/3% in aggregate principal amount of the Debentures then
outstanding, within 45 days after a Default Notice shall have been
given to the Company (and the Company shall give to all other holders
of Debentures at the time outstanding prompt written notice of the
receipt of such Default Notice, specifying the default referred to
therein) provided, however, that such thirty-five (35) day grace period
shall not apply in the event the Company fails to give notice as
provided in Section 9.3;
(e) if any representation or warranty made by the
Company, any Guarantor or any of their officers in any Transaction
Document or in or any certificate delivered pursuant thereto shall
prove to have been incorrect when made;
(f) if (i) any default shall occur under any indenture,
mortgage, agreement, instrument or commitment evidencing, or under
which there is at the time outstanding, any Indebtedness of the Company
or a Subsidiary, in excess of $250,000, or which results in such
Indebtedness, in an aggregate amount (with other defaulted
Indebtedness) in excess of $750,000 becoming (or being declared by its
holders or, on its behalf, by an agent or trustee therefor to be) due
and payable prior to its due date; or (ii) irrespective of the monetary
thresholds specified in subclause (i) above, any default, event of
default or any other condition shall occur or exist under the Xxxxxx
Term Loans or any Existing Debentures (as such term is defined in the
Xxxxxx Term Loan and the Existing Debentures, respectively) which shall
be continuing after the respective grace period, if any, specified in
the Xxxxxx Term Loans and the Existing Debentures, and the effect of
which is to accelerate, or to permit the acceleration of, the maturity
of the Indebtedness outstanding thereunder; or (iii) a Change of
Control shall have occurred;
36
(g) if any of the Company or its Subsidiaries shall
default in the observance or performance of any term or provision of an
agreement to which it is a party or by which it is bound which default
could reasonably be expected to have a Material Adverse Effect and such
default is not waived or cured within the applicable grace period;
(h) if the Company shall fail to obtain from the DEA a
raw material import registration authorizing the Company to import raw
poppy for use in the Company's manufacturing operations, on or before
December 31, 2004;
(i) if the Xxxxxx Supply Agreement shall have been
terminated in accordance with its terms and the Company fails, within a
period of 60 days from the effective date of such termination, to
secure alternative supply and distribution arrangements with third
parties or to commence the marketing and sale of the products that are
the subject of such agreement (each an "Alternative Arrangement"),
which Alternative Arrangements are reasonably expected to generate
revenues during the 12-month period commencing with the start of such
Alternative Arrangements of not less than 70% of the revenues derived
form the Core Products Agreement for the fiscal year immediately
preceding the termination of the Core Products Agreement;
(j) if a final judgment which, either alone or together
with other outstanding final judgments against the Company and its
Subsidiaries, exceeds an aggregate of $750,000 shall be rendered
against the Company or any Subsidiary and such judgment shall have
continued undischarged or unstayed for 60 days after entry thereof;
(k) if the Company or any Subsidiary shall generally not
pay its debts as such debts become due or shall make an assignment for
the benefit of creditors generally, or shall admit in writing its
inability to pay its debts generally; or if any proceeding shall be
instituted by or against the Company or any Subsidiary seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors, or seeking entry
of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part
of its property and, in the case of such proceeding instituted against
it (but not instituted by it) that is being diligently contested by it
in good faith, either such proceeding shall remain undismissed or
unstayed for a period of 90 days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or any substantial part of its property)
shall occur; or if any writ of attachment or execution or any similar
process shall be issued or levied against it or any substantial part of
its property which is either not released, stayed, bonded or vacated
within 90 days after its issue or levy or any of the actions sought or
relief sought in any proceeding pursuant to which such writ or similar
process shall be issued or initiated shall occur or be granted; or if
the Company or any Subsidiary takes corporate action in furtherance of
any of the aforesaid purposes or conditions;
(l) if any provision of any Transaction Document shall
for any reason cease to be valid and binding on, or enforceable
against, the Company or any Guarantor, or the Company or any Guarantor
shall so assert in writing; or
37
(m) any Transaction Document (or any financing statement)
which purports:
(i) to create, perfect or evidence a lien on or
security interest in any Company Debenture Collateral or
Guarantor Debenture Collateral in favor of the Purchasers (or
their agents and representatives), or to provide for the
priority of any such lien or security interest over the
interest of any other party in the same Collateral, shall
cease to create, or to preserve the enforceability, perfection
or first priority (subject to the Subordination Agreement and,
if applicable, the Mortgage Subordination Agreement) of, such
lien and security interest; or
(ii) to provide for the priority in right of
payment of the Company's obligations under the Transaction
Documents to or in favor of the Purchasers (or their agents or
representatives) shall cease to preserve such priority.
12.2. Remedies. (a) Except as provided in Section 12.2(b)
or (c) hereof, upon the occurrence and during the continuance of an Event of
Default, any holder or holders of 66 2/3% in aggregate principal amount of the
Debentures at the time outstanding may at any time (unless all defaults shall
theretofore have been remedied) at its or their option, by written notice or
notices to the Company (i) declare all the Debentures to be due and payable,
whereupon the same shall forthwith mature and become due and payable, together
with interest accrued thereon, without presentment, demand, protest or notice,
all of which are hereby waived by the Company; and (ii) declare any other
amounts payable to the Purchasers under this Agreement or as contemplated hereby
due and payable; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to the Company under the Federal
Bankruptcy Code, the Debentures, together with interest accrued thereon, shall
automatically become and be due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Company.
(b) Notwithstanding anything to the contrary contained in
Section 12.2(a), in the event that at any time after the principal of the
Debentures shall so become due and payable and prior to the date of maturity
stated in the Debentures all arrears of principal of and interest on the
Debentures (with interest at the rate specified in the Debentures on any overdue
principal and, to the extent legally enforceable, on any interest overdue) shall
be paid by or for the account of the Company, then the holder or holders of at
least a 66 2/3% in aggregate principal amount of the Debentures then
outstanding, by written notice or notices to the Company, may (but shall not be
obligated to) waive such Event of Default and its consequences and rescind or
annul such declaration, but no such waiver shall extend to or affect any
subsequent Event of Default or impair any right resulting therefrom. If any
holder of a Debentures shall give any notice or take any other action with
respect to a claimed default, the Company, forthwith upon receipt of such notice
or obtaining knowledge of such other action will give written notice thereof to
all other holders of the Debentures then outstanding, describing such notice or
other action and the nature of the claimed default.
(c) Notwithstanding anything to the contrary contained in
Section 12.2(a), upon the occurrence of an Event of Default specified in Section
12.1(b), the Company and the Purchasers agree that a Holder will suffer damages
and that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, the Company agrees to pay liquidated damages
("Liquidated Damages") to each applicable Holder for any such continuing Event
of
38
Default, as follows: Liquidated Damages shall accrue on the principal amount of
the Securities at a rate of $2.00 per calendar day per $1,000 principal amount
of Debentures for the first 90 days immediately following each such Event of
Default, and such Liquidated Damages shall increase by an additional $2.00 per
calendar day per $1,000 principal amount of Debentures at the beginning of each
subsequent 90-day period. As provided in Section 19.6 hereof, the remedy of
Liquidated Damages shall be cumulative, and shall not exclude the availability
of any other remedies hereunder or under the Transaction Documents (including,
without limitation, the payment of late charges and default interest as provided
in the Debentures).
12.3. Enforcement. In case any one or more Events of
Default shall occur and be continuing, the holder of a Debenture then
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement in favor of the Purchasers which is
contained in any of the Transaction Documents or in such Debenture or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law (including,
without limitation, the right to enforce the Company Debenture Collateral, the
Guaranties and the Guarantor Debenture Collateral, each in accordance with its
respective terms). Each such holder agrees that it will give written notice to
the other holders of Debentures prior to instituting any such action. In case of
a default in the payment of any principal of or interest on any Debenture, the
Company will pay to the holder thereof such further amount as shall be
sufficient to cover the cost and the expenses of collection, including, without
limitation, reasonable attorney's fees, expenses and disbursements. No course of
dealing and no delay on the part of any holder of any Debenture in exercising
any rights shall operate as a waiver thereof or otherwise prejudice such
holder's rights. No right conferred hereby or by any Debenture upon any holder
thereof shall be exclusive of any other right referred to herein or therein or
now available at law or in equity, by statute or otherwise.
ARTICLE XIII
INDEMNIFICATION
13.1. To the greatest extent permitted by applicable law,
the Company agrees to indemnify each Purchaser against and hold it harmless from
all claims, losses, damages, liabilities (or actions in respect thereof),
obligations, penalties, awards, judgments, expenses (including, without
limitation, reasonable fees and expenses of counsel) or disbursements (each a
"Loss") arising out of or resulting from: (i) the breach of any representation
or warranty of the Company in any Transaction Document or in any agreement,
certificate or instrument delivered pursuant thereto; (ii) the breach of any
agreement by the Company contained in any Transaction Document or any agreement,
certificate of instrument delivered pursuant thereto; or (iii) Care Capital
Investments II, LP 's and Essex Woodlands Health Ventures' representation on the
Company's Board of Directors and any committees thereof or as an observer
thereon.
13.2. Anything in Section 13.1 to the contrary
notwithstanding, no claim may be asserted nor may any action be commenced
against the Company for breach of any representation or warranty contained
herein, unless notice of such Purchaser's intention to assert any such claim or
commence any such action is received by the Company describing in writing in
reasonable detail the facts and circumstances with respect to the subject matter
of such claim or action on or prior to the date on which the representation or
warranty on which such claim or action is based ceases to survive as set forth
in Section 19.2. With respect to any claim or action
39
as to which such notice shall have been given, the Purchasers shall be entitled
to assert a claim or commence an action for indemnification with respect thereto
at any time after the giving of such notice, regardless of whether any such
claim or action may be asserted or commenced prior to or after the date on which
the representation or warranty on which such claim or action is based ceases to
survive as set forth in Section 19.2.
13.3. Such Purchaser agrees to give the Company prompt
written notice of any claim, assertion, event or proceeding by a third party of
which it has actual knowledge concerning any Losses as to which it intends to
request indemnification hereunder. The Company shall have the right to direct,
through counsel of the Company's own choosing, the defense or settlement of any
such claim or proceeding at the Company's own expense. If the Company elects to
assume the defense of any such claim or proceeding, such Purchaser may
participate in such defense, but in such case the expenses of such Purchaser
shall be paid by such Purchaser. Such Purchaser shall cooperate with the Company
in the defense or settlement thereof, and the Company shall reimburse such
Purchaser for its reasonable out-of-pocket expenses in connection therewith. If
the Company elects to direct the defense of any such claim or proceeding, such
Purchaser shall not pay, or permit to be paid, any part of any claim or demand
arising from such asserted liability, unless the Company consents in writing to
such payment or unless the Company, subject to the last sentence of this Section
13.3, withdraws from the defense of such asserted liability, or unless a final
judgment from which no appeal may be taken by or on behalf of the Company is
entered against such Purchaser for such liability. If the Company shall fail to
defend any such claim or proceeding, or if, after commencing or undertaking any
defense, fails to prosecute or withdraws from such defense, such Purchaser shall
have the right to undertake the defense or settlement thereof, at the Company's
expense. If such Purchaser assumes the defense of any such claim or proceeding
pursuant to this Section 13.3 and proposes to settle such claim or proceeding
prior to a final judgment thereon or to forego appeal with respect thereto, then
such Purchaser shall give the Company prompt written notice thereof and the
Company shall have the right to participate in the settlement or assume or
reassume the defense of such claim or proceeding.
ARTICLE XIV
AMENDMENT AND WAIVER
14.1. No amendment of any provision of this Agreement,
including any amendment of this Article XIV, shall be valid unless the same
shall be in writing and signed by (a) the Company, and each of Xxxxx, Care
Capital Investments II, LP or Essex Woodlands Health Ventures V, L.P., so long
as they (or their affiliates (as such term is defined in Rule 501(b)) shall hold
Debentures, and (b) the holders of at least 51 % in the aggregate principal
amount of the Debentures then outstanding, and no waiver by any party of any
default, misrepresentation, or breach of warranty or covenant hereunder or under
any other Transaction Document, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or thereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
14.2. The Company and each holder of a Debenture and each
holder of a Share, respectively, then or thereafter outstanding shall be bound
by any amendment or waiver effected in accordance with the provisions of this
Article XIV, whether or not such Debenture and Share, respectively, shall have
been marked to indicate such modification, but any Debenture and Share,
40
respectively, issued thereafter shall bear a notation as to any such
modification. Promptly after obtaining the written consent of the holders of
Debentures and the holders of Shares, respectively, herein provided, the Company
shall transmit a copy of such modification to all of the holders of the
Debentures and the holders of Shares, respectively, then outstanding.
ARTICLE XV
EXCHANGE OF DEBENTURES
15.1. Subject to Section 16.2, at any time at the request
of any holder of one or more of the Debentures to the Company at its office
provided under Section 19.5, the Company at its expense (except for any transfer
tax or any other tax arising out of the exchange) will issue in exchange
therefor new Debentures, in such denomination or denominations ($100,000 or any
larger multiple of $100,000, plus one Debenture in a lesser denomination, if
required) as such holder may request, in aggregate principal amount equal to the
unpaid principal amount of the Debenture or Debentures surrendered and
substantially in the form thereof, dated as of the date to which interest has
been paid on the Debenture or Debentures surrendered (or, if no interest has yet
been so paid thereon, then dated the date of the Debenture or Debentures so
surrendered) and payable to such Person or persons or order as may be designated
by such holder.
15.2. Intentionally Omitted.
ARTICLE XVI
TRANSFER OF DEBENTURES
16.1. Notification of Proposed Sale. (a) Subject to Section
16.1(b), each holder of a Debenture by acceptance thereof agrees that it will
give the Company ten days written notice prior to selling or otherwise disposing
of such Debenture. No such sale or other disposition shall be made unless (i)
the holder shall have supplied to the Company an opinion of counsel for the
holder reasonably acceptable to the Company to the effect that no registration
under the Securities Act is required with respect to such sale or other
disposition, or (ii) an appropriate registration statement with respect to such
sale or other disposition shall have been filed by the Company and declared
effective by the Commission.
(b) If the holder of a Debenture has obtained an opinion
of counsel reasonably acceptable to the Company to the effect that the sale of
its Debenture may be made without registration under the Securities Act pursuant
to compliance with Rule 144 (or any successor rule under the Securities Act),
the holder need not provide the Company with the notice required in Section
16.1(a).
16.2. Intentionally Omitted.
ARTICLE XVII
RIGHT OF FIRST REFUSAL; ADDITIONAL INVESTMENT
17.1. Right of First Refusal. Each holder of the
Debentures, holder of Shares (provided any Debentures remain outstanding and the
Shares received upon conversion have not been sold, transferred or otherwise
disposed of) (the "Common Holder"), holders of the March
41
1998 Debentures (the "Existing 1998 Debentureholders") and holders of shares of
Common Stock issued upon the conversion of the March 1998 Debentures (provided
any March 1998 Debentures remain outstanding and the shares of Common Stock
received upon conversion have not been sold, transferred or otherwise disposed
of) (the "Old Common Holders") shall be entitled to the following right of first
refusal:
(a) Except in the case of Excluded Securities, the
Company shall not issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance (except as provided in
Section 6.16), sale or exchange (i) any shares of Common Stock, (ii)
any other equity security of the Company, (iii) any debt security of
the Company which by its terms is convertible into or exchangeable for,
with or without consideration, any equity security of the Company, (iv)
any security of the Company that is a combination of debt and equity or
(v) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity security or any such debt security of the
Company (collectively, the "Equity Securities") unless in each case,
the Company shall have first offered to sell to the holders of
Debentures, the Common Holders, the Existing 1998 Debentureholders and
the Old Common Holders, the Equity Securities, at a price and on such
other terms as shall have been specified by the Company in writing
delivered to each of the holders of Debentures, the Common Holders, the
Existing 1998 Debentureholders and the Old Common Holders (the
"Offer"), which Offer by its terms shall remain open and irrevocable
for a period of 30 days from the date it is delivered by the Company to
the holders of Debentures, the Common Holders, the Existing 1998
Debentureholders and the Old Common Holders; provided, however, that
such issuance, sale or exchange of equity securities shall result in
gross proceeds to the Company (whether at the time of issuance or upon
conversion, exercise, or exchange thereof) of an amount in excess of
$200,000 (the "Minimum Offering Threshold"). For purposes of computing
the Minimum Offering Threshold, all offerings, issuances, sales and
exchanges of Equity Securities during any rolling 12-month period shall
be aggregated.
(b) Each of the holders of Debentures, the Common
Holders, the Existing 1998 Debentureholders and the Old Common Holders
shall have the right to purchase up to its pro rata share of the Equity
Securities determined at the time of the consummation of the Company's
issuance of Equity Securities. The "pro rata share" of each holder of
Debentures, Common Holder, Existing 1998 Debentureholders and the Old
Common Holders shall be that amount of the Equity Securities multiplied
by a fraction, the numerator of which is the sum of (i) Shares
underlying the Debenture held by such Person if such Person is the
holder of a Debenture, (ii) the number of Shares of Common Stock issued
to such Common Holder upon conversion of a Debenture if such Person is
a Common Holder, (iii) the number of shares of Common Stock underlying
the March 1998 Debentures held by such Person if such Person is an
Existing 1998 Debentureholder and (iv) the number of shares of Common
Stock issued to an Existing 1998 Debentureholder upon conversion of a
March 1998 Debenture if such Person is an Old Common Holder, and the
denominator of which is the sum of (x) the total number of shares of
Common Stock underlying the Debentures issued pursuant to this
Agreement and (y) the total number of shares of Common Stock underlying
the March 1998 Debentures.
(c) Notice of the intention of each holder of a
Debenture, Common Holder, Existing 1998 Debentureholder or Old Common
Holder to accept, in whole or in part, an
42
Offer shall be evidenced by a writing signed by such person, as the
case may be and delivered to the Company prior to the end of the 30-day
period commencing with the date of such Offer (or, if later within ten
days after the delivery or giving of any written notice of a material
change in such Offer), setting forth such portion (specifying number of
shares, principal amount or the like) of the Equity Securities such
Person elects to purchase (the "Notice of Acceptance").
(d) In the event that all holders of Debentures, Common
Holders, Existing 1998 Debentureholders and Old Common Holders do not
elect to purchase all of the Equity Securities, the persons which have
provided notice of their intention to exercise the refusal rights as
provided in subparagraph (c) above shall have the right to purchase, on
a pro rata basis, any unsubscribed portion of the Equity Securities
during a period of ten days following the 30-day period provided in
subparagraph (c) above. Following such additional ten-day period, in
the event the holders of the Debentures, the Common Holders, Existing
1998 Debentureholders and the Old Common Holders have not elected to
purchase all of the Equity Securities, the Company shall have 90 days
from the expiration of the foregoing 40-day period to sell all or any
part of such Equity Securities as to which a Notice of Acceptance has
not been given by any of such persons (the "Refused Securities") to any
other Person or Persons on the terms provided in the Offer. Upon the
closing of the sale to such other Person or Persons of all the Refused
Securities, which shall include payment of the purchase price to the
Company in accordance with the terms of the Offer, if the holders of
Debentures, the Common Holders, Existing 1998 Debentureholders and Old
Common Holders have timely submitted a Notice of Acceptance, it and
they shall purchase from the Company, and the Company shall sell to
such persons, as the case may be, the Equity Securities in respect of
which a Notice of Acceptance was delivered to the Company, at the terms
specified it the Offer. The purchase by the holders of Debentures,
Common Holders, Existing 1998 Debentureholders and the Old Common
Holders of any Equity Securities is subject in all cases to the
preparation, execution and delivery by the Company to such persons of a
purchase agreement and other customary documentation relating to such
Equity Securities as is satisfactory in form and substance to such
persons and each of their respective counsel.
(e) In each case, any Equity Securities not purchased by
the holders of Debentures, the Common Holders, Existing 1998
Debentureholders and the Old Common Holders or by a Person or Persons
in accordance with Section 17.1(d) hereof may not be sold or otherwise
disposed of until they are again offered to such persons under the
procedures specified in Sections 17.1(a), (c) and (d) hereof.
(f) The rights of the holders of Debentures, the Common
Holders, Existing 1998 Debentureholders and the Old Common Holders
under this Section 17.1 shall not apply to the following securities
(the "Excluded Securities"):
(i) Common Stock or options to purchase such
Common Stock, issued to officers, employees
or directors of, or consultants to, the
Company, pursuant to any agreement, plan or
arrangement approved by the Board of
Directors of the Company;
43
(ii) Common Stock issued as a stock dividend or
upon any stock split or other subdivision or
combination of shares of Common Stock;
(iii) shares issued upon conversion of the
Debentures or the Existing Debentures or
exercise of the warrants issued in
connection with the issuance of the Existing
Debentures;
(iv) any securities issued for consideration
other than cash pursuant to a merger,
consolidation, acquisition, strategic
alliance or similar business combination
approved by the Board of Directors and at
the Company's Annual Meeting of
Shareholders; or
(v) any debentures issued in satisfaction of
interest payments under the Existing
Debentures, including debentures instruments
issued in satisfaction of interest payments
on those debenture instruments.
(g) Notwithstanding anything to the contrary contained
herein, a holder of a Debenture or a Common Holder (other than an
initial Purchaser) shall not be considered as such for purposes of this
Section 17.1 only, unless such Person then holds Debentures with an
outstanding principal amount of at least $200,000 or Shares issued upon
conversion of at least $200,000 in principal of Debentures or a
combination of Debentures and Shares such that the outstanding
principal of the Debentures held by such Person plus the amount of
principal of Debentures converted into Shares held by such Person
equals or exceeds $200,000.
ARTICLE XVIII
CO-SALE RIGHTS
18.1. In the event that Xxxxx Partners, L.P., Xxxxx
Partners International III, L.P., Xxxxx Employee Fund III, L.P., Oracle
Strategic Partners L.P., Xxxxxxx Xxxxxxx, Chief Executive Officer of the Company
or Xxxxx Xxxxxxx, Chief Financial Officer of the Company intends to transfer,
directly or indirectly, in one or in a series of related transactions, any
shares of the Company's Common Stock owned by it/him or any principal amount of
the Existing Debentures or Debentures owned by it/him, such transferor (the
"Selling Security Holder") shall notify the Holders in writing of such proposed
transfer and its terms and conditions and within 15 business days of the date of
such notice, each Holder shall notify the Selling Security Holder if such Holder
elects to participate in the proposed transfer described in the written notice
provided by the Selling Security Holder (a "Transfer"). Any Purchaser that fails
to notify the Selling Security Holder within such 15 business day period shall
be deemed to have waived its rights hereunder with respect to the Transfer
described in the Selling Security Holder's written notice. Each Holder that
notifies the Selling Security Holder that it intends to participate in the
proposed Transfer, shall have the right to sell at the same price and on the
same terms and conditions as the Selling Security Holder (a) in the case of a
sale of shares of the Company's Common Stock by the Selling Security Holder, a
number of shares of Common Stock equal to the shares of Common Stock proposed to
be sold in the Transfer multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock owned by the Holder (inclusive of all
shares underlying the Debentures) and the denominator of which shall be the sum
of (i) the Company's outstanding shares of Common Stock, plus (ii) the shares
underlying
44
the Debentures and the Existing Debentures, and (b) in the case of the proposed
sale of Existing Debentures or Debentures by such Selling Security Holder, the
principal amount of the Existing Debentures or Debentures proposed to be sold in
the Transfer multiplied by a fraction, the numerator of which shall be the
aggregate principal amount of the Debentures owned by the Holder and the
denominator of which shall be the aggregate principal amount of the Company's
outstanding Existing Debentures and Debentures. Nothing in this Article XVIII
shall be construed to limit the ability of the Selling Security Holder to
complete the Transfer prior to the passage of ten business days notice period
provided above, provided that sufficient accommodation is made to permit the
Holders to complete the sale of their Common Stock and Debentures hereunder
within ten business days of the election by such Holders to exercise their
co-sale rights hereunder. The exercise or non-exercise of the rights of any
Holder with respect to any particular Transfer shall not waive any such Holder's
rights to participate in a subsequent Transfer.
ARTICLE XIX
MISCELLANEOUS
19.1. Governing Law. This Agreement and the rights of the
parties hereunder shall be governed in all respects by the laws of the State of
New York wherein the terms of this Agreement were negotiated, excluding to the
greatest extent permitted by law any rule of law that would cause the
application of the laws of any jurisdiction other than the State of New York.
19.2. Survival of Representations. Subject to the terms of
this Agreement, the representations, warranties, covenants and agreements
contained, in the Transaction Documents and in any agreements, certificates or
other instruments delivered pursuant thereto shall survive (a) any investigation
made by or on behalf the Purchasers and (b) the Closing until the maturity date
of the Debentures (as such date may be extended by the parties).
19.3. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon and enforceable by and against, the parties hereto and their
respective successors, assigns, heirs, executors and administrators. No party
may assign any of its rights hereunder without the prior written consent of the
other parties; provided, however, that any Purchaser may assign any of its
rights under any of the Transaction Documents to (a) any "affiliate" (as such
term is defined in Rule 501(b)) of such Purchaser or (b) any Person to whom such
Purchaser shall transfer any Securities in accordance with the terms of the
Transaction Documents; provided further, that notwithstanding anything herein or
in the Transaction Documents to the contrary, no opinion of counsel shall be
necessary for a transfer or assignment of the Debentures or any rights under any
of the Transaction Documents (except for the Xxxxxx Warrant) by a Purchaser that
is a partnership, corporation or limited liability company to any general
partner, limited partner, retired partner, shareholder, member, retired member,
officer, director or affiliates of such Purchaser, or the members or retired
members of the foregoing, as applicable, or the estates, beneficiaries and
family members of any such general partner, limited partners, retired partners,
shareholders, members, retired members, officers, directors and affiliates and
any trusts for the benefit of any of the foregoing persons, provided, that in
each case the transferee will be subject to the applicable terms of the
Transaction Documents to the same extent as such transferee were an original
Purchaser hereunder.
45
19.4. Entire Agreement. This Agreement (including the
Exhibits and Schedules hereto), the other Transaction Documents and any other
documents delivered pursuant hereto and simultaneously herewith constitute the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof and thereof.
19.5. Notices, etc. All notices, demands or other
communications given hereunder shall be in writing and shall be sufficiently
given if transmitted by facsimile or delivered either personally or by a
nationally recognized courier service marked for next business day delivery or
sent in a sealed envelope by first class mail, postage prepaid and either
registered or certified, return receipt requested, addressed as follows:
(a) if to the Company:
Xxxxxx Drug Co., Inc.
000 X. Xxxxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx Xxxxxxx
Chief Executive Officer
Facsimile: (000) 000-0000
(b) if to a Purchaser, to the address set forth on
Exhibit A attached hereto, or to such other address with respect to any party
hereto as such party may from time to time notify (as provided above) the other
parties hereto. Any such notice, demand or communication shall be deemed to have
been given (i) on the date of delivery, if delivered personally, (ii) on the
date of facsimile transmission, receipt confirmed, (iii) one business day after
delivery to a nationally recognized overnight courier service, if marked for
next day delivery or (iv) five business days after the date of mailing, if
mailed. Copies of any notice, demand or communication given to (x) the Company,
shall be delivered to St. Xxxx & Xxxxx, L.L.C., Xxx Xxxx Xxxxx Xxxx, Xxxxxx, Xxx
Xxxxxx 00000-0000 Attn.: Xxxx X. Xxxxxx, Esq., or such other address as may be
directed and (y) any Purchaser, shall be delivered to Wolf, Block, Xxxxxx and
Xxxxx-Xxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 Attn.: Xxxxxx X.
Xxxxxxxx, Esq., Facsimile: (000) 000-0000, or such other address as may be
directed.
19.6. Delays, Omissions or Waivers. No delay or omission to
exercise any right, power or remedy accruing to any holder of any Securities
upon any breach or default of the Company under this Agreement shall impair any
such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence, therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement must be, made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative. Notwithstanding anything set forth herein or in
any Transaction Document, if the consent of or the waiver by any 2002 Holder is
needed or otherwise desirable under any Transaction Document and the Company, or
any affiliate thereof, pays or other gives consideration to any 2002 Holder, or
an affiliate thereof, for such consent or waiver the Company shall offer the
same to all other 2002 Holders.
46
19.7. Independence of Covenants and Representations and
Warranties. All covenants hereunder shall be given independent effect so that if
a certain action or condition constitutes a default under a certain covenant,
the fact that such action or condition is permitted by another covenant shall
not affect the occurrence of such default. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.
19.8. Rights and Obligations; Severability. Unless
otherwise expressly provided herein, each Purchaser's rights and obligations
hereunder are several rights and obligations, not rights and obligations jointly
held with any other person. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
19.9. Agent's Fees. (a) Except as provided in Section 19.9
of the Schedule of Exceptions, the Company hereby (i) represents and warrants
that the Company has not retained a finder or broker in connection with the
transactions contemplated by this Agreement and (ii) agrees to indemnify and to
hold the Purchasers harmless of and from any liability for commission or
compensation in the nature of an agent's fee to any broker, Person, and the
costs and expenses of defending against such liability or asserted liability,
including, without limitation, reasonable attorney's fees, arising from any act
by the Company or any of the Company's employees or representatives; provided,
however, that the Company will have the right to defend against such liability
by representative(s) of its own choosing, which representative(s) shall be
approved by the holders of a majority in aggregate principal amount of the
Debentures and the holders of a majority of the Shares (which approval shall not
be unreasonably withheld or delayed). In the event that the Company shall fail
to undertake the defense within 30 days of any notice of such claim, the
Purchasers shall have the right to undertake the defense, compromise or
settlement of such claim upon written notice to the Company by holders of a
majority in principal amount of the Debentures and the holders of a majority of
the Shares and the Company will be responsible for and shall pay all reasonable
costs and expenses of defending such liability or asserted liability and any
amounts paid in settlement.
(b) Each Purchaser (i) severally represents and warrants
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby severally agrees to indemnify and
to hold the Company harmless from any liability for any commission or
compensation in the nature of an agent's or finder's fee to any broker or other
Person (and the costs, including reasonable legal fees, and expenses of
defending against such liability or asserted liability) for which such
Purchaser, or any of its employees or representatives, are responsible.
19.10. Expenses. The Company shall bear its own expenses and
legal fees incurred on its behalf with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement, and the Company
will reimburse the Purchasers for all of the reasonable expenses incurred by the
Purchasers and their affiliates with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement and the
transactions contemplated hereby and due diligence conducted in connection
47
therewith, including the fees and disbursements of counsel and auditors for the
Purchasers. Such reimbursement shall be paid on the Closing Date.
19.11. Jurisdiction. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or United States Federal
court sitting in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement or any of the
other Transaction Documents to which it is a party or to whose benefit it is
entitled, or for recognition or enforcement of any judgment, and each of the
parties hereto irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in any such New
York State court or, to the fullest extent permitted by law, in such United
States Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the right that any party may otherwise have to bring
any action or proceeding relating to this Agreement or any of the other
Transaction Documents in the courts of any other jurisdiction.
(b) Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or in relation to this Agreement
or any other Transaction Document to which it is a party in any such New York
State or United States Federal court sitting in New York City. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
19.12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY TRANSACTION DOCUMENT OR THE ACTIONS OF ANY PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
19.13. Confidentiality. (a) Each of the Purchasers hereby
agrees to keep (and to cause its affiliates, employees, agents, attorneys,
accountants and other professional advisors to keep) confidential the
confidential information provided to it by or on behalf of the Company or its
Subsidiaries pursuant to or in connection with the Agreement or any other
Transaction Document, provided that, such information may be disclosed (i)
solely in connection with the performance of the transactions contemplated by
this Agreement and any other Transaction Document to (A) its affiliates,
directors, officers and employees who have a need to know such information and
its agents, attorneys, accountants and other professional advisors or (B) the
other Purchasers, (ii) in response to any order of any court or other
governmental or administrative body or agency or as may be required by any law
binding upon any of the Purchasers, (iii) in connection with the exercise of any
remedies under any Transaction Document or the enforcement of rights hereunder
and thereunder, (iv) with the consent of the Company or (v) to the extent such
information (A) is on the date hereof, or at or before the time such disclosure
becomes, publicly available other than as a result of a breach by such
disclosing Person of the obligation set forth in this Agreement or (B) at or
before the time of such disclosure becomes available to any Purchaser on a
nonconfidential basis from a source other than the Company or
48
its Subsidiaries, which source is not known to the recipient of such information
to have breached a confidentiality agreement with the Company or its
Subsidiaries in respect of such information.
(b) Each Purchaser hereby agrees that in the event such
Purchaser is requested or required other than by applicable law (by
interrogatory, request for information or documents, subpoena, deposition, civil
investigative demand or other process) to disclose any information pursuant to
clause (ii) above, such Purchaser will, except to the extent such notice would
cause such Purchaser to be in violation of law, provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or other similar assurance to prevent disclosure of
such information or waive compliance with the provisions of this Section 19.13.
Such Purchaser may not oppose action by the Company to obtain an appropriate
protective order or other reliable assurance that confidential treatment will be
accorded such information, provided that such Purchaser may oppose the Company's
action to obtain an appropriate protective order or other reliable assurance in
the event that, in connection with any action, suit or other legal or equitable
proceeding (including any bankruptcy proceeding), such Purchaser reasonably
believes that the failure to publicly disclose such information would materially
and adversely affect such Purchaser's ability to protect or exercise its rights
and remedies hereunder or under any other Transaction Document.
(c) The Purchasers may also disclose, subject to their
compliance with the requirements of clause (b) above, such information to the
extent the Purchasers reasonably believe it is appropriate to in connection with
any action, suit or other legal or equitable proceeding (including any
bankruptcy proceeding) to protect or otherwise exercise their rights and
remedies hereunder or under any other Transaction Document in any legal or
equitable proceeding.
(d) In furtherance to the foregoing, each of the
Purchasers agrees that its right to request any information pursuant to Section
9.2(g) or to avail itself of the provisions of Section 9.6(b) shall be
conditioned on its continuing compliance with the requirements of this Section
19.13.
19.14 Prohibition on Certain Cash Interest Payments. Each
of the Company, Xxxxx and Oracle Strategic Partners, L.P., agree that the
Company shall not make any cash interest payments to Xxxxx or Oracle Strategic
Partners, L.P., pursuant to the March 1998 Debentures or the May 1999
Debentures, notwithstanding anything else to the contrary contained therein or
elsewhere, without the prior written consent of all 2002 Holders, which consent
shall be within their sole and absolute discretion.
19.15 Titles and Subtitles. The titles of the articles,
sections and subsections of this Agreement are for convenience of reference only
and are not to be considered in construing this Agreement.
19.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
49
ARTICLE XX
CERTAIN DEFINED TERMS
As used in this Agreement, the following terms shall have the
following meanings:
"Agreement" means this Debenture Purchase Agreement, dated as
of December 20, 2002, between the Company, Care Capital Investments II,
LP, Essex Woodlands Health Ventures and the other Purchasers listed on
the signature page hereto.
"Alternative Arrangement" has the meaning specified in Section
12.1(i) of this Agreement.
"AMEX" has the meaning specified in Section 9.2(g) of this
Agreement.
"Approved Accounting Firm" has the meaning specified in
Section 9.6(d) of this Agreement.
"XXXXX" means the Automation of Reports and Consolidated
Orders System which monitors the flow of DEA controlled substances from
their point of manufacture to point of sale or distribution.
"Arm's Length" has the meaning specified in Section 10.5 of
this Agreement.
"Change of Control" means the occurrence of any of the
following: (a) the consummation of any transaction the result of which
is that any Person or group (as such term is used in Section 13(d)(3)
of the Exchange Act), other than Xxxxx or any affiliate thereof or any
group comprised of any of the foregoing, owns, directly or indirectly,
51% of the Common Equity of the Company, (b) the Company consolidates
with, or merges with or into, another Person (other than a direct or
indirect wholly owned Subsidiary) or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of
the Company's assets or the assets of the Company and its Subsidiaries
taken as a whole to any person, or any Person consolidates with, or
merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company, as
the case may be, is converted into or exchanged for cash, securities or
other property, other than any such transaction where the outstanding
Voting Stock of the Company, as the case may be, is converted into or
exchanged for Voting Stock of the surviving or transferee corporation
and the beneficial owners of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving or transferee
corporation immediately after such transaction, (c) the Company, either
individually or in conjunction with one or more Subsidiaries sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the
Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose
of, all or substantially all of the properties and assets of the
Company and its Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including capital
stock of the Subsidiaries, to any Person (other than the Company or a
wholly owned Subsidiary of the Company), or (d) during any two year
period commencing subsequent to the date of this Agreement, individuals
who at the beginning of such period constituted
50
the Board of Directors of the Company (together with any new directors
whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by the
directors then still in office) who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved cease for any reason to constitute a
majority of the Board of Directors then in office; provided, however,
that a Person shall not be deemed to have ceased being a director for
such purpose if such Person shall have resigned or died or if the
involuntary removal of such Person was made at the direction of persons
holding a majority in principal amount of the outstanding Debentures.
For purposes of this definition, (i) the term "Common Equity" of the
Company means all capital stock of the Company that is generally
entitled to vote in the election of members of the Board of Directors
and (ii) the term "Voting Stock" of the Company means securities of any
class of capital stock of the Company entitling the holders thereof to
vote in the election of members of the Board of Directors.
"Closing" and "Closing Date" have the respective meanings
specified in Article III of this Agreement.
"Code" has the meaning specified in Section 4.18(a) of this
Agreement.
"Commission" has the meaning specified in Section 4.8(a) of
this Agreement.
"Common Holder" has the meaning specified in Section 17.1 of
this Agreement.
"Common Stock" has the meaning specified in Section 1.1 of
this Agreement.
"Company" means Xxxxxx Drug Co., Inc., a New York corporation.
"Company Debenture Collateral" has the meaning specified in
Section 2.2.
"Company General Security Agreement" has the meaning specified
in Section 2.2(a) of this Agreement.
"Company Reports" has the meaning specified in Section 4.10 of
this Agreement.
"Core Products Agreement" has the meaning specified in Section
12.1(i) of this Agreement.
"CSA" has the meaning specified in Section 4.10(c) of this
Agreement.
"D&O Insurance" has the meaning specified in Section 9.14 of
this Agreement.
"DEA" has the meaning specified in Section 4.10(c) of this
Agreement.
"Debenture Dilution Waiver" means the Debenture Dilution
Waiver to be signed by each of the Existing Debentureholders prior to
the Closing Date serving to waive the dilution adjustments provisions
of the Existing Debentures and the common stock purchase warrants
issued with the Existing Debentures relating to the issuance of the
Common Stock by the Company in accordance with the Recapitalization
Agreement.
51
"Debentures" has the meaning specified in Section 1.1 of this
Agreement.
"Debentureholders Agreement" means the Debentureholders
Agreement (as such agreement may be supplemented, amended or otherwise
modified from time to time in accordance with its terms) dated as of
December 20, 2002 between the Company, the holders of the Existing
Debentures and the Purchasers substantially in the form attached as
Exhibit K hereto.
"Default Notice" has the meaning specified in Section 12.1(c)
of this Agreement.
"Designee" has the meaning specified in Section 9.7 of this
Agreement.
"ERISA" has the meaning specified in Section 4.18(a) of this
Agreement.
"ERISA Affiliates" has the meaning specified in Section
4.18(a) of this Agreement.
"Exchange Act" has the meaning specified in Section 4.8(a) of
this Agreement.
"Excluded Securities" has the meaning specified in Section
17.1(f) of this Agreement.
"Existing 1998 Debentureholders" has the meaning specified in
Section 17.1 of this Agreement.
"Existing Debentures" means, collectively, the March 1998
Debentures and the May 1999 Debentures, as such debentures may be
supplemented, amended or otherwise modified from time to time,
including, without limitation, by the Existing Debenture Amendments.
"Existing Debenture Amendments" has the meaning specified in
Section 6.7 of this Agreement.
"Existing Debentureholders Consent" has the meaning specified
in Section 6.7 of this Agreement.
"Event of Default" has the meaning specified in Section 12.1
of this Agreement.
"FDA" has the meaning specified in Section 4.10(b) of this
Agreement.
"FDC Act" has the meaning specified in Section 4.10(b) of this
Agreement.
"412 Plan" has the meaning specified in Section 4.18(d) of
this Agreement.
"Xxxxx" has the meaning specified in Section 2.2(a) of this
Agreement.
"Xxxxx Bridge Lenders" means, collectively, Xxxxx and the
other lenders pursuant to that certain Xxxxx Bridge Loan Agreement.
"Xxxxx Bridge Lenders' Consent" has the meaning specified in
Section 6.8 of this Agreement.
52
"Xxxxx Bridge Loan Agreement" means the Bridge Loan Agreement
dated as of August 15, 2001 (as amended on January 9, 2002, April 15,
2002 and May 8, 2002, and as further supplemented, amended or otherwise
modified from time to time in accordance with its terms) between the
Company, Xxxxx and certain other lenders listed on the signature pages
thereto.
"Xxxxx Bridge Notes" means the 10% convertible senior secured
promissory notes issued by the Company to the Xxxxx Bridge Lenders
under the Xxxxx Bridge Loan Agreement.
"Guaranty" and "Guaranties" has the meaning specified in
Section 2.3 of this Agreement.
"Guarantor" has the meaning specified in Section 2.3 of this
Agreement.
"Guarantor Debenture Collateral" has the meaning specified in
Section 2.4 of this Agreement.
"Guarantors Security Agreement" has the meaning specified in
Section 2.4(a) of this Agreement.
"Holders" shall mean the Purchasers or any Person to whom a
Purchaser or transferee of a Purchaser has assigned, transferred or
otherwise conveyed any Debenture or Shares.
"Immaterial Subsidiaries" means Blue Cross Products, Inc., The
Medi-Gum Corporation, X.X. Xxxxx Laboratories, Inc., and Xxxxx Powder
Products, Inc.
"Indebtedness" has the meaning specified in Section 10.4 of
this Agreement.
"Insurance Organizations" has the meaning specified in Section
4.20 of this Agreement.
"Institutional Existing Debentureholders" has the meaning
provided in Section 6.16 of this Agreement.
"Institutional Existing Debentureholders Reserved Shares" has
the meaning provided in Section 6.16 of this Agreement.
"Intellectual Property Rights" has the meaning specified in
Section 4.12(a) of this Agreement.
"Joinder Agreement" was the meaning specified in Article III
of this Agreement.
"IRS" has the meaning specified in Section 4.18(b) of this
Agreement.
"Leased Property" has the meaning specified in Section 4.20 of
this Agreement.
"Leases" has the meaning specified in Section 4.20 of this
Agreement.
"Loss" has the meaning specified in Section 13.1 of this
Agreement.
53
"March 1998 Debentures" means the 5% convertible secured
debentures due March 15, 2003 (as such debentures may be supplemented,
amended, or otherwise modified from time to time) issued pursuant to
that certain Debenture and Warrant Purchase Agreement dated March 10,
1998 between the Company and the Purchasers listed on the signature
page thereto.
"Material Adverse Effect" has the meaning specified in Section
4.1 of this Agreement.
"May 1999 Debentures" means the 5% convertible secured
debentures due March 15, 2003 (as such debentures may be supplemented,
amended, or otherwise modified from time to time) issued pursuant to
that certain Debenture and Warrant Purchase Agreement dated May 26,
1999 between the Company and the Purchasers listed on the signature
page thereto.
"Minimum Offering Threshold" has the meaning specified in
Section 17.1(a) of this Agreement.
"Mortgage" has the meaning specified in Section 2.4(c) of this
Agreement.
"Mortgage Subordination Agreement" shall mean that certain
Subordination Agreement, dated the date hereof, between Xxxxx, Xxxxx
and Oracle Strategic Partners, L.P. relating to real property owned by
Houba.
"NASDAQ" has the meaning specified in Section 9.2(g) of this
Agreement.
"Offer" has the meaning specified in Section 17.1(a) of this
Agreement.
"Old Common Holders" has the meaning specified in Section 17.1
of this Agreement.
"Owned Property" has the meaning specified in Section 4.20 of
this Agreement.
"PBGC" has the meaning specified in Section 4.18(b) of this
Agreement
"PCB" has the meaning specified in Section 4.16(c) of this
Agreement.
"Permitted Liens" has the meaning specified in Section 10.3(l)
of this Agreement.
"Person" means any individual, corporation, limited liability
company, partnership, association, trust or any other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
"Plan" has the meaning specified in Section 4.18(a) of this
Agreement.
"Purchaser" has the meaning specified in Section 1.1 of this
Agreement.
"Real Property Permits" has the meaning specified in Section
4.20 of this Agreement.
54
"Recapitalization Agreement" has the meaning specified in
Section 6.9 of this Agreement.
"Refused Securities" has the meaning specified in Section
17.1(d) of this Agreement.
"Registration Rights Agreement" means that certain
Registration Rights Agreement, dated the date hereof, between the
Company, the Purchasers, Xxxxxx, the holders of the March 1998
Debentures, the holders of the May 1999 Debentures and the other
parties listed on Schedule 1 thereto.
"Remaining Xxxxx Warrants" has the meaning provided in Section
1.2.
The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules
and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
"Rule 501(b)" has the meaning specified in Article III of this
Agreement.
"Schedule of Exceptions" has the meaning specified in Article
IV of this Agreement.
"Securities" has the meaning specified in Section 1.1 of this
Agreement.
"Securities Act" has the meaning specified in Section 4.8(a)
of this Agreement.
"Security Interest Termination Date" shall mean the first date
on which each of the following events shall have occurred: (a) all of
the Company's and the Guarantors' obligations and liabilities under the
Transaction Documents (except for the Xxxxxx Term Loan Amendment, the
2002 Xxxxxx Term Loan, the Registration Rights Agreement, the Xxxxxx
Consent, the Xxxxxx Supply Agreement, the Xxxxxx Supply Agreement
Amendment, the Xxxxxx Warrant, the Existing Debenture Amendments and
the Existing Debentureholder Consent) shall have been either or both of
(i) indefeasibly paid in full or, as applicable, indefeasibly
discharged, or (ii) irrevocably converted in accordance with this
Agreement and the Debentures, (b) none of the Company's or Guarantors'
obligations or liabilities (whether actual or contingent) shall remain
outstanding, except (with respect to subsection (a) and this subsection
(b)) for the Company's obligations under the Registration Rights
Agreement, and (c) Xxxxx, acting as agent for the Purchasers under the
applicable Transaction Documents, shall have delivered written
notification to the Company and the Guarantors of the satisfaction of
the conditions in subsections (a) and (b) above.
"Selling Security Holder" has the meaning specified in Section
18.1 of this Agreement.
"Shareholders Meeting Date" means that date on which the
shareholders and the debentureholders amend the Company's Certificate
of Incorporation to increase the number of authorized shares of the
Common Stock available for issuance from 80,000,000 to such number of
shares as shall equal the sum of (a) the Company's issued
55
and outstanding Common Stock, plus (b) the number of shares of Common
Stock issuable upon the conversion and exercise of the Company's
outstanding convertible securities, plus (c) the number of shares of
Common Stock issuable upon conversion of the Debentures and exercise of
the Xxxxxx Warrant , plus (d) 50 million shares, as shall sum shall be
rounded up to the nearest whole five million shares.
"Shares" has the meaning specified in Section 1.1 of this
Agreement.
"Solvent" has the meaning specified in Section 4.22 of this
Agreement.
"Stock Pledge Agreement" has the meaning specified in Section
2.2(a) of this Agreement.
"Subordination Agreement" has the meaning specified in Section
6.6 of this Agreement.
"Subsidiary" has the meaning specified in Section 4.2 of this
Agreement.
"Termination Date" has the meaning specified in Section 1.2(b)
of this Agreement.
"2000 Xxxxxx Term Loan" means that certain Term Loan Agreement
for an aggregate principal amount of $17,500,000 between the Company
and Xxxxxx dated March 29, 2000, as such agreement may be supplemented,
amended or otherwise modified from time to time, including, without
limitation, by the Xxxxxx Term Loan Amendment.
"2002 Holder" has the meaning set forth in Article III of this
Agreement.
"2002 Xxxxxx Term Loan" has the meaning specified in Section
6.6 of this Agreement.
"Transaction Documents" has the meaning specified in Section
4.4(a) of this Agreement.
"Transfer" has the meaning specified in Section 18.1 of this
Agreement.
"Unfunded Pension Liability" has the meaning specified in
Section 4.18(e) of this Agreement.
"US GAAP" has the meaning specified in Section 4.8(a) of this
Agreement.
"Voting Agreement" has the meaning specified in Section
9.12(b) of this Agreement.
"Xxxxxx" means Xxxxxx Pharmaceuticals, Inc., a Nevada
corporation.
"Xxxxxx Consent" has the meaning specified in Section 6.6 of
this Agreement.
"Xxxxxx Supply Agreement " means the Finished Goods Supply
Agreement (Core Products) dated March 29, 2000, as amended by that
certain Amendment and
56
Supplement No. 1 to Finished Goods Supply Agreement (Core Products)
dated August 8, 2001.
"Xxxxxx Supply Agreement Amendment" has the meaning specified
in Section 6.6 of this Agreement.
"Xxxxxx Term Loans" mean that certain (a) 2000 Xxxxxx Term
Loan and (b) 2002 Xxxxxx Term Loan for an aggregate principal amount of
$3,901,331.
"Xxxxxx Term Loan Amendment" has the meaning specified in
Section 6.6 of this Agreement.
"Xxxxxx Warrant" means a Common Stock Purchase Warrant issued
by the Company to Xxxxxx on the Closing Date exercisable for 10,700,665
shares of Common Stock at an exercise price per share equal to the
conversion price of the Debentures.
"Withdrawal Liability" has the meaning specified in Section
4.18(g) of this Agreement.
[SIGNATURE PAGES TO FOLLOW]
57
If the Purchaser is in agreement with the foregoing the
Purchaser shall sign where indicated below and thereupon this letter shall
become a binding agreement between such Purchaser and the Company.
XXXXXX DRUG CO., INC.
By:__________________________________
Xxxxxxx Xxxxxxx
Chief Executive Officer
Solely as to the Provisions of
Sections 9.12(b) and 19.14 and Articles XVIII and XIX hereof
XXXXX PARTNERS III, L.P.
BY: CLAUDIUS, L.L.C., GENERAL PARTNER
By:_______________________________
Xxxxx Xxxxxxxxxxx
General Partner
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Manager
By:_______________________________
Xxxxx Xxxxxxxxxxx
General Partner
XXXXX EMPLOYEES FUND III, L.P.
By: Wesson Enterprises, Inc.
By:_______________________________
Xxxxx X. Xxxxxx
General Partner
58
ORACLE STRATEGIC PARTNERS, L.P.
By: ______________________________
Name:
Title:
XXXXXXX XXXXXXX TRUST
c/x Xxxxxx Drug Co., Inc.
000 Xxxxx Xxxxxxxxxx Xx.
Xxxxxxx Xxxxxxxx #0
Xxxxxxxx, Xxx. 00000
__________________________________
By: Xxxxxxx X. Xxxxxxx
Its: Trustee
XXXXXX X. XXXXX & CO., INC., TTEE
FBO Xxxxxxx X. Xxxxxxx XXX
c/x Xxxxxx Drug Co., Inc.
000 Xxxxx Xxxxxxxxxx Xx.
Xxxxxxx Xxxxxxxx #0
Xxxxxxxx, Xxx. 00000
__________________________________
By: Xxxxxx X. Xxxxx
Its: Trustee
__________________________________
Xxxxx Xxxxxxx
59
PURCHASERS
XXXXX PARTNERS III, L.P. GALEN PARTNERS INTERNATIONAL, III,
By: Claudius, L.L.C., General L.P.
Partner By: Claudius, L.L.C., General Partner
000 Xxxxx Xxxxxx, 0xx Xx. 000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
__________________________________ _____________________________________
By: Xxxxx Xxxxxxxxxxx By: Xxxxx Xxxxxxxxxxx
Its: General Partner Its: General Partner
XXXXX EMPLOYEE FUND III, L.P. ESSEX WOODLANDS HEALTH VENTURES V,
By: Wesson Enterprises, Inc. L.P.
000 Xxxxx Xxxxxx, 0xx Xxxxx By: Essex Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Ventures V, L.L.C.,
its General Partner
000 Xxxxx XxXxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
__________________________________ _____________________________________
By: Xxxxx X. Xxxxxx By: Xxxxxxxx Xxxxxxxxx
Its: General Partner Its: Managing Director
CARE CAPITAL INVESTMENTS II, LP XXXXXXX XXXX
By: Care Capital, L.L.C., General c/o Xxxxxx Xxxx
Partner 000 Xxxx Xxxxxx
Xxxxxxxxx Xxxxxxxx Xxx Xxx Xxxx, Xxx Xxxx 00000
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx 00000
__________________________________ _____________________________________
By:
Its:
XXXXXXX XXXXXXXX XXXXX XXXXXXXX
0000 Xxxx Xxxxx Xxxx 0000 Xxxx Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000 Xxxxxxxx, Xxxxxxxxxxxx 00000
__________________________________ _____________________________________
60
XXXX XXXX XXXXX XXXXXX
c/o D.R. International c/o Xxx Xxxxxxxx
0000 Xx. Xxxxxxxx Xxxxxx 0000 Xxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000 Xxxxx 000
Xxxxxxxx, XX 00000
__________________________________ _____________________________________
XXXXXX X. XXXXXXXX
000 Xxxxx Xxxx
Xxxxxxxxx, XX 00000
__________________________________
61
