EXHIBIT A
NOTE AND SECURITY AGREEMENT
$1,200,000 Date: November 4, 1996
FOR VALUE RECEIVED, the undersigned Debtor, CYPROS PHARMACEUTICAL
CORPORATION, a California corporation (the "Debtor"), hereby
promises to pay to the order of XXXXXXX PHARMA, INC., a Delaware
corporation (the "Secured Party"), in Mequon, Wisconsin, the
principal amount of ONE MILLION TWO HUNDRED THOUSAND DOLLARS
($1,200,000) in lawful money of the United States, together with
interest, in like money, on the outstanding principal amount
hereof at the rate of 8% per annum, or as otherwise provided in,
this Note and Security Agreement (as amended, supplemented or
otherwise modified from time to time, this "Note and Security
Agreement"). The entire unpaid principal balance hereof and all
accrued interest hereon shall be due and payable on November 3,
1997 (the "Maturity Date").
1. PREPAYMENTS; TAXES; CALCULATION OF INTEREST. (a)
The Debtor may prepay, without premium or penalty, all of the
principal and accrued and unpaid interest due hereunder. Debtor
shall deliver written notice of any prepayment to the Secured
Party not later than 12:00 Noon, local time in Mequon, Wisconsin,
on the third business day prior to the date of prepayment.
(a) Notwithstanding anything in this Note and Security
Agreement to the contrary, after an Event of Default described in
Section 5 hereof shall have occurred and be continuing, the rate
of interest accruing on the outstanding principal amount hereof
shall bear interest for each day until paid (before and after
judgment) at a rate per annum (the "Default Rate") which shall be
the lower of (x) 14% and (y) the highest rate permitted by law.
(b) If any applicable law or regulation or the interpretation
or administration thereof by any governmental authority shall
change the basis of taxation of payments to the Secured Party of
any amounts payable by Debtor pursuant to the provisions of this
Note and Security Agreement (other than federal income taxes or
other taxes imposed on the overall net income of the Secured
Party), or in the event that applicable law or regulations or any
change therein or in the interpretation or administration thereof
by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall impose any other condition with respect to this Note and
Security Agreement, and the result of any of the foregoing is to
increase the cost to, reduce the payments hereunder receivable
by, or impose any expense upon, the Secured Party, then the
Debtor shall from time to time, upon demand of the Secured Party,
pay to the Secured Party additional amounts sufficient to
compensate the Secured Party for such increased cost or expenses
or reduction. A statement as to the amount of such increased
cost or expenses or reduction in payments, prepared in good faith
by the Secured Party and submitted to the Debtor, shall be
conclusive and binding as to the amount of any such payment
absent manifest error.
(c) All interest due hereunder shall be computed for the
actual number of days elapsed on the basis of a 365 day year.
2. GRANT OF SECURITY INTEREST. In order to secure the
prompt payment of the principal and the interest hereunder and of
all other monies payable and to be payable to the Secured Party
under this Note and Security Agreement (collectively, the
"Indebtedness"), Debtor does hereby grant, convey, pledge, sale,
mortgage, assign, transfer and set over a security interest and a
lien in and to the Secured Party and its successors and assigns
in all estate, right, title and interest of the Debtor in and to
the assets listed on Schedule 1 hereto (the "Collateral") to have
and to hold all and every part of the Collateral unto the Secured
Party, and its successors and assigns, for its and their own use
and benefit forever;
PROVIDED, HOWEVER, if the Debtor, or its successors or assigns,
shall pay or cause to be paid to the Secured Party all of the
Indebtedness in accordance with the terms of this Note and
Security Agreement, then all estate, right, title and interest of
the Secured Party in and to the Collateral shall revert to the
Debtor, and this Note and Security Agreement and rights and
powers granted herein and hereby shall cease to be binding and
shall be of no further force and effect.
3. COVENANTS OF THE DEBTOR. The Debtor agrees:
(i) to keep the Collateral free and clear of all mortgages,
pledges, liens, charges, security interests and all other
encumbrances arising by, through or under the Debtor or any
Affiliate, except those created or permitted by this Note and
Security Agreement;
(ii) to pay all charges including without limitation, all taxes
and assessments levied or assessed against the Debtor, which if
unpaid would constitute a lien on the Collateral or any portion
thereof; provided, that the Debtor shall not be required to pay
or discharge any such charges, taxes or assessments so long as it
shall in good faith and by appropriate legal proceedings, contest
the validity thereof in any reasonable manner which will not
affect or endanger the Secured Party's security interest in the
Collateral pursuant to this Note and Security Agreement;
(iii) to execute and deliver any and all papers or
documents which the Secured Party may reasonably request from
time to time in order to carry out the purposes hereof;
(iv) not to take or omit to take any action which would cause
the Collateral to be moved from the address set forth above
(other than sales made in the ordinary course of business)
without the prior written consent of the Secured Party;
(v) from time to time and at no expense to the Secured Party,
the Debtor shall promptly execute, acknowledge, witness, deliver
and file and/or record, or procure the execution, acknowledgment,
witnessing, delivery and filing and/or recordation of such
documents and instruments, and shall take or cause to be taken
such other actions, as the Secured Party may reasonably request
for the perfection against the Debtor and all third parties
whomsoever of the security interest created by Section 2 hereof,
and the rights and powers herein and therein granted to the
Secured Party and for the continuation and protection thereof,
and promptly give to the Secured Party evidence satisfactory to
the Secured Party of such delivery and filing and/or recording;
(vi) in addition to the other amounts payable hereunder, to
indemnify, defend and hold the Secured Party and its directors,
officers, employees and affiliates (each an "Indemnified Party")
harmless against any loss or liability, damage, judgment, claim,
expense (including interest, penalties, attorneys' fees and
amounts paid in settlement) to which any Indemnified Party may
become subject insofar as such loss, liability, claim, judgment
or expense arises or is based upon any breach by the Debtor of
any of its representations, warranties, covenants and
undertakings set forth in this Note and Security Agreement and
the Debtor shall, within 10 Business Days of its receipt of
notice from the Secured Party of the amount determined in good
faith by the Secured Party (which determination absent manifest
error shall be conclusive) to be necessary to so indemnify any
Indemnified Party, pay such amount to the Secured Party; and
(vii) at any time and from time to time, upon the
reasonable request of the Secured Party, to promptly and duly
execute and deliver any and all such further instruments and
documents as the Secured Party may reasonably deem desirable in
obtaining the full benefits of the security interests created or
continued hereby and of the rights and powers herein granted.
4. RIGHTS OF THE SECURED PARTY. (a) The Debtor hereby
irrevocably constitutes and appoints the Secured Party and any
officer of the Secured Party the true and lawful attorney of the
Debtor, irrevocably and with full power of substitution, in the
name of the Debtor or otherwise, from and after an Event of
Default to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Note and Security
Agreement. The Debtor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. This
power of attorney is a power coupled with an interest, shall be
irrevocable and shall terminate only as provided in subsection
(b) of this Section 4.
(a) The rights, powers and authority granted or conferred upon
the Secured Party pursuant to subsection (a) of this Section 4
shall cease and terminate if and at such time as the Debtor, or
its successors or assigns, shall pay or cause to be paid to the
Secured Party all of the Indebtedness as provided in this Note
and Security Agreement.
5. EVENTS OF DEFAULT. Any of the following events shall
constitute an Event of Default hereunder:
(i) the Debtor shall fail to make any payment due hereunder
and such failure shall continue for five days after notice
thereof from the Secured Party, whether such payment shall become
due at maturity, by acceleration, as part of a prepayment or
otherwise;
(ii) the Debtor shall suffer the imposition upon the Collateral
or any part thereof of any claim, lien, security interest,
encumbrance or charge arising by, through or under Debtor or any
person affiliated therewith which purports to be prior to or on a
parity with the security interest granted hereunder;
(iii) the Debtor shall fail to perform or observe any other
covenant, condition or agreement to be performed or observed by
the Debtor hereunder or in any agreement or certificate furnished
to the Secured Party in connection herewith and such failure
shall continue unremedied for a period of 15 days after written
notice thereof;
(iv) any representation or warranty made by the Debtor herein
or in any document or certificate furnished to the Secured Party
in connection herewith shall have been incorrect or misleading in
any material respect when made;
(v) the Debtor shall have become insolvent or bankrupt or
admit in writing its inability to pay any of its debts as they
mature or make an assignment for the benefit of creditors, or a
receiver or trustee shall have been appointed with respect to the
Debtor or any of the Debtor's estate or Debtor shall institute,
by petition, application, answer, consent or otherwise any
bankruptcy, insolvency, reorganization, arrangement, readjustment
or debt, dissolution, liquidation or similar proceeding relating
to it under the laws of any jurisdiction; or
(vi) bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings for relief under
Title 11 of the United States Code or any bankruptcy law or
similar law now or hereafter in force for the relief of debtors
shall be instituted against the Debtor and the Debtor shall fail
to dismiss or to stay such proceedings within 60 days of such
institution.
6. REMEDIES. Upon the occurrence of an Event of Default
and at any time thereafter so long as the same shall be
continuing, but subject to any mandatory requirements of
applicable law then in effect, the Secured Party may, at its
option, do any one or more or all of the following acts, as
Secured Party in its sole and complete discretion may then elect:
(i) by written notice to Debtor declare the entire principal
amount of the Indebtedness evidenced and secured by this Note and
Security Agreement to be due and payable forthwith, whereupon
such amount shall become due and payable, both as to principal
and interest, without presentment, demand or protest of any kind,
all of which are hereby expressly waived, anything contained
herein to the contrary notwithstanding; provided, however, that
the entire principal amount due under this Note and Security
Agreement shall become immediately due and payable, without
notice of any kind, upon the occurrence of an Event of Default
described in Section 5(v) or Section 5(vi);
(ii) institute legal proceedings to foreclose upon and against
the security interest granted herein to recover the Indebtedness
and all other amounts then due and owing hereunder, and to
collect the same;
(iii) institute legal proceedings for the sale, under the
judgment or decree of any court of competent jurisdiction, of any
of the Collateral;
(iv) institute legal proceedings for the appointment of a
receiver or receivers pending foreclosure hereunder or the sale
of any of the Collateral under the order of a court of competent
jurisdiction or under other legal process;
(v) personally, or by agents or attorneys, enter into and upon
any premises wherein the Collateral or any part thereof may then
be located, and take possession of all or any part thereof or
render it unusable by Debtor, and, without being responsible for
loss or damage to the Collateral (except any loss or damage
resulting from the gross negligence or willful misconduct of the
Secured Party), hold, store and keep idle, or operate, lease or
otherwise use or permit the use of the same or any part thereof
for such time and upon such terms as the Secured Party may
determine in a commercially reasonable manner;
(vi) personally, or by agents or attorneys, enter into and upon
any premises wherein the Collateral or any part thereof may then
be located, and take possession of all or any part thereof with
or without process of law and without being responsible for loss
or damage to the Collateral (except any loss or damage resulting
from the gross negligence or willful misconduct of the Secured
Party), and sell or dispose of all or any part of the same, free
from any and all claims of the Debtor or of any other party
claiming by, through or under the Debtor at law, in equity or
otherwise at one or more public or private sales, in such place
or places, at such time or times and upon such terms as the
Secured Party may determine in a commercially reasonable manner
with or without any previous demand on or notice to Debtor or
advertisement of any such sale or other disposal except that the
Secured Party shall provide the Debtor with 10 business day's
prior notice of any sale of the Collateral and for the aforesaid
purposes, all other notice of sale, advertisement and demand and
any rights or equity of redemption otherwise required by, or
available to the Debtor under, applicable law are hereby waived
by the Debtor to the fullest extent permitted by applicable law;
the power of sale hereunder shall not be exhausted by one or more
sales, and the Secured Party may from time to time adjourn any
sale to be made hereunder;
(vii) demand, collect and retain all hire, earnings and all
other sums due and to become due pursuant to subsections (v) and
(vi) of this Section 5 from any party whomsoever, accounting only
for net earnings arising after charging against all receipts from
the use of and/or sale of the Collateral all unpaid items due
hereunder and all other costs and expenses of, and damages or
losses by reason of, such use and/or sale; and
(viii) exercise any other right, power, privilege or remedy
which may be available to secured party under the Uniform
Commercial Code or any other applicable law.
The Debtor hereby waives a trial by jury and the right to
interpose any offsets of any nature or description in any
litigation between the Debtor and the Secured Party with respect
to the Loan Agreement or this Note and Security Agreement.
The Debtor will reimburse the Secured Party for all reasonable
fees of attorneys and collection agencies and all expenses, costs
and charges paid or payable to third persons or suffered or
incurred by the Secured Party in attempting or effecting
protection or preservation of its security interest in the
Collateral or the enforcement of any provision hereof or the
enforcement of this Note and Security Agreement or in the
collection of the amounts secured hereby or in the exercise of
any authority, right or remedy conferred upon the Secured Party
hereby or by law, together with interest thereon at the Default
Rate from the date of the Secured Party's incurrence of such
expenses, costs and charges until the date of reimbursement.
All rights, remedies and options conferred upon the Secured Party
hereunder or by law shall be cumulative and may be exercised
successively or concurrently and are not alternative to, or
exclusive of, any other such rights, remedies or options. No
express or implied waiver by the Secured Party of any default or
event of default hereunder shall in any way be, or be construed
to be, a waiver of any future or subsequent default or event of
default. The failure or delay of the Secured Party in exercising
any rights granted it hereunder shall not constitute a waiver of
any such right in the future and any single or partial exercise
of any particular right by the Secured Party shall not exhaust
such rights or constitute a waiver of any other right provided
herein.
7. MISCELLANEOUS. (a) Any monies coming into the
possession of the Secured Party hereunder, whether paid by the
Debtor or derived from insurance or the proceeds of any sale of
the Collateral, shall be applied in whole or in part upon the
obligations of the Debtor hereunder in the manner determined by
the Secured Party in its sole discretion and the Debtor's right
to specify any such application is hereby waived. If any monies
at any time be payable to the Debtor hereunder, the same shall be
deposited as the Debtor may direct.
(a) This Note and Security Agreement may not be amended,
waived, or discharged, except by an agreement in writing by the
party against which or whom enforcement of the amendment, waiver
or discharge is sought. Time is of the essence hereunder.
(b) If the Debtor shall be a party to a merger, combination or
consolidation or other corporate reorganization and if it shall
not be the surviving corporation, then the surviving corporation
shall promptly assume the obligations under this Note and
Security Agreement in writing in a manner acceptable to the
Secured Party.
(c) All notices to be made hereunder shall be made in
accordance with Section 13.9 of the Asset Purchase Agreement.
Either party may change the address to which notice to such party
shall be sent by giving written notice of such change to the
other party.
(d) This Note and Security Agreement shall be a contract made
under and governed by the internal laws of the State of New York.
Whenever possible, each provision of this Note and Security
Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Note
and Security Agreement shall be held to be prohibited or invalid
in any jurisdiction, such provision shall be ineffective only to
the extent of such prohibition or invalidity and only in such
jurisdiction, without invalidating the remainder of such
provision or the remaining provisions of this Note and Security
Agreement in such jurisdiction and without invalidating any
provisions of this Note and Security Agreement in any other
jurisdiction. Nothing in this clause (e) shall in any way modify
or waive the requirements contained herein that the Debtor
establish, maintain and continue the perfected security interest
of the Lender in the Collateral according to the local laws
applicable to the Collateral, wherever it may from time to time
be located including, without limitation, local law requirements
for filing and perfection.
(e) Section headings and captions are inserted for convenience
only and shall not affect any construction or interpretation of
this Note and Security Agreement. The words "herein", "hereof",
"hereby", "hereto", "hereunder", and words of similar import
refer to this Note and Security Agreement as a whole and not to
any particular section, subsection, paragraph, clause or other
subdivision hereof.
CYPROS PHARMACEUTICAL CORPORATION
(Signature)
Name/Title
SCHEDULE 1
to Note and
Security Agreement
Collateral
All of the Debtor's right, title and interest in and to the
assets, properties, rights, contracts and claims described below,
wherever located, whether tangible or intangible, held for use in
or related to the Ethamolin product line of Debtor (the "Product
Line"):
(i) all finished goods, works-in-progress, raw materials and
artwork used in the development of advertising brochures and
marketing materials relating to the Product Line;
(ii) all INDs, NDAs, ANDAs and other product authorizations or
registrations, and all files related thereto, held by the Debtor
and pending before the FDA or other Governmental Bodies with
respect to the Product Line;
(iii) (A) any U.S. patents and patent applications and any
non-U.S. patents and patent applications with respect to the
Product Line owned by the Debtor or licensed to the Debtor by
third parties, (B) research, development and commercially
practiced processes, trade secrets, know-how, inventions, and
manufacturing, engineering and other technical information,
whether owned by the Debtor or licensed to the Debtor by third
parties for the Product Line and (C) all notebooks, records,
reports and data directly relating thereto and necessary to
manufacture, distribute or sell the Product Line (the assets
referred to in clauses (A) through (C) are collectively referred
to herein as the "Patent-Related Assets");
(iv) all U.S. trademarks, trade names, service marks and
copyrights, and any applications and registrations with respect
to the Product Line, owned by the Debtor or licensed to the
Debtor by third parties (collectively, the "U.S. Trademarks");
(v) any non-U.S. trademarks, trade names, service marks and
copyrights and any applications and registrations with respect to
the Product Line, owned by the Debtor or licensed to the Debtor
by third parties (collectively, the "Non-U.S. Trademarks", and
together with the Patent-Related Assets and the U.S. Trademarks,
the "Intangible Assets");
(vi) all current customer lists, doctor lists, marketing plans,
call reports, territorial sales reports and analyses and other
printed and written materials relating to the Debtor's ownership
or operation of the Product Line that the Debtor is not required
by law to retain (of which the Debtor may retain duplicates), and
duplicates of any such materials that the Debtor is required by
law to retain;
(vii) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers
and contractors with respect to the Product Line (to the extent
assignable);
(viii) all licenses, approvals and registrations granted by
or pending with any Governmental Body to market any product
within the Product Line or necessary to the operation of the
Product Line (to the extent assignable and permitted by
applicable law to be transferred);
(ix) all permits required in connection with the operation of
the Product Line held by the Debtor (to the extent assignable or
permitted by applicable law to be transferred);
(x) all contracts relating to the Product Line including,
without limitation, the Debtor's entire right to receive goods
and services, to assert claims and to take other action with
respect to breaches, defaults and other violations pursuant to
all of such contracts (to the extent assignable);
(xi) all prepaid royalties, statistical materials, advertising
and research and development payments with respect to the Product
Line; and
(xii) all computer software, books, records or other data
relating to the Debtor's ownership or operation of the Product
Line.
