Exhibit 10-Z
CONFIDENTIAL TREATMENT REQUESTED
SECURITY AGREEMENT
Dated as of January 17, 2006
between
[***][an affiliate of Xxxx Royalty Fund II, L.P.,
a Delaware limited partnership]
and
A.P. PHARMA, INC.
(in favor of [***][an affiliate of Xxxx Royalty Fund II,
L.P., a Delaware limited partnership])
[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
TABLE OF CONTENTS
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Page
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Section 1 Definitions 1
Section 2 Grant of Security 1
Section 3 Security for Obligations 2
Section 4 APP to Remain Liable 2
Section 5 Representations and Warrants 2
Section 6 Further Assurances 3
Section 7 Certain Covenants of APP 3
Section 8 Special Covenants With Respect
to the Collateral 4
Section 9 PRF Appointed Attorney-in-Fact 5
Section 10 Standard of Care 5
Section 11 Remedies Upon Event of Default 6
Section 12 Application of Proceeds 6
Section 13 Expenses 6
Section 14 Continuing Security Interest;
Termination and Release 7
Section 15 Amendments; Etc 7
Section 16 Notices 7
Section 17 Failure or Indulgence Not Waiver;
Remedies Cumulative 7
Section 18 Severability 7
Section 19 Interpretation 8
Section 20 Headings 8
Section 21 Governing Law 8
Section 22 Waiver of Jury Trial 8
Section 23 Counterparts; Effectiveness 8
Section 24 Successors and Assigns 8
[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement") is made and
entered into as of January 17, 2006 (the "Effective Date") by and
between A.P. Pharma, Inc., a Delaware corporation (including its
successors and assigns, "APP"), [***][an Affiliate of Xxxx
Royalty Fund II, L.P., a Delaware limited partnership] (including
its successors and assigns, "PRF"), an Affiliate of Xxxx Royalty
Fund II, L.P., a Delaware limited partnership.
W I T N E S S E T H:
WHEREAS, APP and PRF are parties to the Royalty Interest
Agreement between the parties of even date herewith (the "Royalty
Interest Agreement");
WHEREAS, APP has covenanted pursuant to the terms of the
Royalty Interest Agreement to enter into this Agreement, under
which APP grants to PRF a security interest in and to the
Collateral as general and continuing security for the due
performance and payment of all of APP's obligations to PRF under
the Royalty Interest Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein
contained, and intending to be legally bound, the parties hereto
agree as follows:
Section 1 Definitions. For purposes of this Agreement,
capitalized terms and certain other terms used herein shall have
the meanings set forth in Schedule 1 hereto. Capitalized terms
used herein and not otherwise defined herein or in Schedule 1
shall have the meanings given such terms in the Royalty Interest
Agreement or the UCC, as applicable.
Section 2 Grant of Security. APP hereby grants PRF a
security interest in the following personal property, whether now
or hereafter existing, and wherever the same may be located
(collectively, the "Collateral"):
(a) the Royalty Interest;
(b) the Intellectual Property, including the Patents and
Know-How;
(c) the License Agreements, including the Aventis License
Agreement and the Ortho License Agreement;
[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
(d) the RPS Agreements;
(e) the Transaction Documents; and
(f) all Regulatory Approvals.
The Royalty Interest has been sold, assigned, transferred
and conveyed to PRF pursuant to the Royalty Interest Agreement
and it is the intention of the parties that such transaction be
treated as a "true sale". The security interest granted in this
Section 2 is granted as a precaution against the possibility,
contrary to the parties' intentions, that the transaction be
characterized as other than a "true sale". In no event shall the
security interest granted in this Section 2 hereof attach to any
personal property of APP other than the Collateral.
Section 3 Security for Obligations. This Agreement
secures, and the Collateral pledged by APP is collateral security
for, the due and punctual payment or performance in full
(including, without limitation, the payment of amounts that would
become due but for the operation of the automatic stay under
Subsection 362(a) of the United States Bankruptcy Code) of all
Secured Obligations of APP.
Section 4 APP to Remain Liable. Notwithstanding anything
to the contrary contained herein, (a) APP shall remain liable to
perform all of its duties and other obligations under the Royalty
Interest Agreement to the same extent as if this Agreement had
not been executed, and (b) the exercise by PRF of any of its
rights hereunder shall not release APP from any of its duties or
other obligations under the Royalty Interest Agreement.
Section 5 Representations and Warranties. APP represents
and warrants as follows as of the date hereof:
(a) Ownership of Collateral. APP has the power to
transfer and xxxxx x xxxx and security interest in each item of
Collateral upon which it purports to xxxxx x xxxx or security
interest hereunder and the grant of such security interest shall
not constitute or result in (i) the abandonment, invalidation or
unenforceability of any right, title or interest of APP under any
lease, license or contract to which it is a party or (ii) a
breach or termination pursuant to the terms of, or a default
under, any such lease, license, contract or agreement (other than
to the extent that any such term would be rendered ineffective
pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC).
Other than such as may have been filed in favor of PRF relating
to this Agreement or as contemplated by the Royalty Interest
Agreement, no effective UCC financing statement or other
instrument similar in effect covering all or any part of the
Collateral or the Patents is on file in any filing or recording
office.
(b) Validity. This Agreement, when executed and
delivered, will create a valid security interest in the
Collateral under the laws of the State of New York, and upon the
filing of the appropriate UCC financing statements naming PRF as
secured party and describing the Collateral in the applicable
filing office(s) in the jurisdiction(s) listed in Schedule 5(b),
such security interest will be perfected under the laws of the
State of Delaware and all filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect
the security interest granted by APP to PRF in the Collateral
will have been accomplished, including the execution and filing
of the Collateral Assignment and Security Agreement set forth on
Exhibit B herein at the United States Patent and Trademark
Office.
(c) Authorization, Approval. No authorization, approval,
or other action by, and no notice to or filing with, any
government or agency of any government or other Person is
required either (i) for the assignment, pledge and grant by APP
of the security interest granted hereby or for the execution,
delivery and performance of this Agreement by APP; or (ii) for
the perfection of, the pledge, assignment and grant of the
security interest created hereby or the exercise by PRF of its
rights and remedies hereunder, other than (A) the filing of
financing statements in the appropriate office(s) located in the
jurisdiction(s) listed on Schedule 5(b), and (B) such as has been
obtained on or prior to the date hereof.
(d) Enforceability. This Agreement is the legally valid
and binding obligation of APP, enforceable against APP in
accordance with its terms, subject, as to enforcement of
remedies, to bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally or general
equitable principles.
(e) Office Locations; Type and Jurisdiction of
Organization. The chief place of business, the chief executive
office and the office where APP keeps its records regarding the
Collateral are, as of the date hereof, located at the locations
set forth on Schedule 5(e); APP's type of organization (i.e.,
corporation, limited partnership, etc.), jurisdiction of
organization and organization number provided by the applicable
government authority of the jurisdiction of organization are also
listed on Schedule 5(e).
(f) Names. APP (or any predecessor by merger or
otherwise) has not, within the four (4) month period preceding
the date hereof, had a different name from the name listed on the
signature pages hereof.
(g) Intellectual Property, License Agreements and Related
Agreements. APP confirms the representations and warranties made
by APP pursuant to Sections 3.12 (to the extent of the Patents
existing as of the date hereof), 3.18 and 3.19 of the Royalty
Interest Agreement.
Section 6 Further Assurances. APP agrees that, from time
to time, at its expense, APP will promptly execute and deliver
all further instruments and documents, and take all further
action that may be necessary or desirable, or that PRF may
reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable
PRF to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality
of the foregoing, APP will: (i) (A) execute and file such
financing or continuation statements, or amendments thereto, (B)
execute and deliver, and cause to be executed and delivered,
agreements establishing that PRF has control of specified items
of Collateral, and (C) deliver such other instruments or notices,
in each case, as may be necessary or desirable, or as PRF may
reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (ii) furnish
to PRF from time to time statements and schedules further
identifying and describing the Collateral and such other reports
in connection with the Collateral as PRF may reasonably request,
all in reasonable detail, (iii) at PRF's request, appear in and
defend any action or proceeding that may affect APP's title to or
PRF's security interest in all or any part of the Collateral, and
(iv) use commercially reasonable efforts to obtain any necessary
consents of third parties to the assignment and perfection of a
security interest to PRF with respect to any Collateral. APP
hereby authorizes PRF to file one or more financing or
continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of APP. APP
agrees that a carbon, photographic or other reproduction of this
Agreement or of a financing statement signed by APP shall be
sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions.
Section 7 Certain Covenants of APP. APP shall:
(a) not use or permit any Collateral to be used unlawfully
or in violation of any provision of this Agreement or any
applicable statute, regulation or ordinance or any policy of
insurance covering the Collateral;
(b) notify PRF of any change in its name, identity or
corporate structure within fifteen (15) days of such change;
(c) give PRF thirty (30) days' prior written notice of any
change in its chief place of business, chief executive office or
residence or the office where APP keeps its records regarding the
Collateral or a reincorporation, reorganization or other action
that results in a change of the jurisdiction of organization of
APP;
(d) pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon, and all claims
against, the Collateral, except to the extent the validity
thereof is being contested in good faith; provided, however, that
APP shall in any event pay such taxes, assessments, charges,
levies or claims not later than five (5) days prior to the date
of any proposed sale under any judgment, writ or warrant of
attachment entered or filed against APP or any of the Collateral
as a result of the failure to make such payment; and
(e) not consent to amendments or modifications of any
license, lease, contract or agreement to which it is a party that
contain any provision that contravenes or otherwise prohibits APP
from granting to PRF a security interest in the Collateral.
Section 8 Special Covenants With Respect to the
Collateral.
(a) APP shall:
(i) diligently keep reasonable records respecting
the Collateral at its chief executive office or principal place
of business;
(ii) not create, incur, assume or cause to exist
any Lien, other than Permitted Liens, on the Collateral; and
(iii) not sell, assign (by operation of law or
otherwise), lease, transfer or otherwise dispose of, or grant any
Person an option with respect to, the Collateral.
(b) APP will reasonably process, prosecute and maintain,
or cause to be processed, prosecuted and maintained, the Patents,
subject in each case to the procedures set forth in the License
Agreements.
(c) APP shall, concurrently with the execution and
delivery of this Agreement, execute and deliver to PRF five (5)
originals of a Special Power of Attorney in the form of Exhibit A
annexed hereto for execution of an assignment of the Collateral
to PRF, or the implementation of the sale or other disposition of
the Collateral pursuant to PRF's good faith exercise of the
rights and remedies granted hereunder; provided, however, PRF
agrees that it will not exercise its rights under such Special
Power of Attorney unless an Event of Default has occurred and is
continuing.
(d) APP further agrees that a breach of any of the
covenants contained in this Section 8 will cause irreparable
injury to PRF, that PRF has no adequate remedy at law in respect
of such breach and, as a consequence, that each and every
covenant contained in this Section 8 shall be specifically
enforceable against APP, and APP hereby waives and agrees not to
assert any defenses against an action for specific performance of
such covenants.
Section 9 PRF Appointed Attorney-in-Fact. APP hereby
irrevocably appoints PRF, or any person or agent as PRF may
designate as such, APP's attorney-in-fact, with full authority in
the place and stead of APP and in the name of APP, PRF or
otherwise, from time to time in PRF's discretion to take any
action and to execute any instrument that PRF may in its good
faith sole discretion deem necessary or advisable to accomplish
the following:
(a) upon the occurrence and during the continuance of an
Event of Default, to ask for, demand, collect, xxx for, recover,
compound, receive and give acquittance and receipts for monies
due and to become due under or in respect of any of the
Collateral;
(b) upon the occurrence and during the continuance of an
Event of Default, to receive, endorse and collect any drafts or
other instruments, documents and chattel paper in connection with
clause (a) above;
(c) upon the occurrence and during the continuance of an
Event of Default, to file any claims or take any action or
institute any proceedings that PRF may in its good faith sole
discretion deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of PRF with
respect to any of the Collateral;
(d) upon the occurrence and during the continuance of an
Event of Default, to pay or discharge taxes or liens levied or
placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same
to be determined by PRF in its sole discretion, any such payments
made by PRF to become obligations of APP to PRF, due and payable
immediately without demand;
(e) upon the occurrence and during the continuance of an
Event of Default, to sign and endorse any invoices, drafts
against debtors, assignments, verifications, notices and other
documents relating to the Collateral; and
(f) upon and at any time after the occurrence and during
the continuance of an Event of Default, to prepare, file and sign
APP's name on an assignment document in such form as PRF may in
its sole discretion deem necessary or desirable to transfer
ownership of the Collateral to PRF or an assignee or transferee
of PRF.
Section 10 Standard of Care. The powers conferred on PRF
hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it to exercise any such
powers. Except for the exercise of good faith and of reasonable
care in the accounting for monies actually received by PRF
hereunder, PRF shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
PRF shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such
Collateral is accorded treatment substantially equal to that
which PRF accords its own property.
Section 11 Remedies Upon Event of Default.
(a) If, and only if, any Event of Default shall have
occurred and be continuing, PRF may, in good faith, exercise in
respect of the Collateral (i) all rights and remedies provided
for herein, under the Royalty Interest Agreement or otherwise
available to it, (ii) all the rights and remedies of a secured
party on default under the UCC (whether or not the UCC applies to
the Collateral), in all relevant jurisdictions, and (iii) the
right to:
(i) require APP to, and APP hereby agrees that it
will at its expense and upon request of PRF forthwith, assemble
all or part of the Collateral as directed by PRF and make it
available to PRF at a place to be designated by PRF that is
reasonably convenient to both parties;
(ii) personally or by agents or attorneys,
immediately take possession of the Collateral or any part
thereof, from APP or any other person who has possession of any
part thereof, with or without notice or process of law, and for
that purpose may enter upon APP's premises where any of the
Collateral is located and remove same;
(iii) foreclose or otherwise enforce PRF's security
interest in any manner permitted by law or provided for in this
Agreement; and
(iv) without notice except as may be required by
applicable law and that cannot be waived, sell the Collateral or
any part thereof in one or more parcels at public or private
sale, at any place or places for cash, on credit, or for future
delivery, and upon such other terms as PRF may deem commercially
reasonable.
(b) Anything contained herein to the contrary
notwithstanding, upon the occurrence and during the continuation
of an Event of Default, PRF shall have the right (but not the
obligation) to bring suit, in the name of APP, PRF or otherwise,
to enforce any Collateral, in which event APP shall, at the
request of PRF, do any and all lawful acts and execute any and
all documents required by PRF in aid of such enforcement and APP
shall promptly, upon demand, reimburse and indemnify PRF as
provided in the Royalty Interest Agreement and Section 13 hereof,
as applicable, in connection with the exercise of its rights
under this Section 11.
Section 12 Application of Proceeds. Except as expressly
provided elsewhere in this Agreement, all proceeds received by
PRF in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be
applied in good faith to satisfy (to the extent of the net
proceeds received by PRF) such item or part of the Secured
Obligations as PRF may designate (with the right to reapply such
proceeds to such other items or part of the Secured Obligations
as PRF may see fit).
Section 13 Expenses.
(a) APP agrees to pay to PRF upon demand the amount of any
and all costs and expenses, including, without limitation, the
reasonable fees and expenses of its counsel and of any experts
and agents, that PRF may incur in connection with (i) the
custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the
Collateral, (ii) the exercise or enforcement of any of the rights
of PRF hereunder, or (iii) the failure by APP to perform or
observe any of the provisions hereof.
(b) The obligations of APP in this Section 13 shall
survive the termination of this Agreement and the discharge of
APP's other obligations under this Agreement and the Royalty
Interest Agreement.
Section 14 Continuing Security Interest; Termination and
Release.
(a) This Agreement shall (i) create a continuing security
interest in the Collateral, (ii) remain in full force and effect
until the indefeasible payment and performance in full of the
Secured Obligations and the termination of the Royalty Interest
Agreement, (iii) be binding upon APP and its respective
successors and assigns, and (iv) inure, together with the rights
and remedies of PRF hereunder, to the benefit of PRF and its
successors, transferees and assigns.
(b) Upon the payment and performance in full of all
Secured Obligations, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to APP.
Upon any such termination PRF will, at APP's expense, execute and
deliver to APP such documents as APP shall reasonably request to
evidence such termination.
Section 15 Amendments; Etc. Any provision of this
Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an
amendment, by APP and PRF or in the case of a waiver, by PRF.
Any single waiver shall be effective only in the specific
instance and for the specific purpose for which it was given.
Section 16 Notices. All notices, consents, waivers and
other communications hereunder shall be in writing and shall be
delivered in person, sent by overnight courier, facsimile
transmission or posted by registered or certified mail, return
receipt requested, with postage prepaid, addressed to the address
of PRF or APP, as applicable, provided in Section 8.03 of the
Royalty Interest Agreement or to such other address or addresses
as PRF or APP may from time to time designate by notice as
provided herein. Any such notice shall be deemed given when
actually received when so delivered personally or by overnight
courier or if mailed, other than during a period of general
discontinuance or disruption of postal service due to strike,
lockout or otherwise, on the fifth (5th) day after its postmarked
date thereof or if sent by facsimile transmission on the date
sent if such day is a Business Day or the next following Business
Day if such day is not a business day.
Section 17 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay by PRF in exercising any right,
power or privilege hereunder shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 18 Severability. If a court deems any part of this
Agreement unenforceable, the parties agree that only the
offending part shall be stricken and that the remaining parts
shall be unaffected, and that any such stricken part of this
Agreement shall be replaced by a valid provision which shall
implement the commercial purpose of such stricken part.
Section 19 Interpretation. When a reference is made in
this Agreement to Articles, Sections, Schedules or Exhibits, such
reference shall be to an Article, Section, Schedule or Exhibit to
this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation."
Neither party hereto shall be or be deemed to be the drafter of
this Agreement for the purposes of construing this Agreement
against one party or the other.
Section 20 Headings. Section and subsection headings in
this Agreement are included herein for convenience of reference
only and shall not constitute a part of this Agreement for any
other purpose or be given any substantive effect.
Section 21 Governing Law. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE
OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES
THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION. The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby shall be
brought exclusively in the United States District Court for the
Southern District of New York or any Common Pleas court sitting
in New York County, so long as one of such courts shall have
subject matter jurisdiction over such suit, action or proceeding,
and that any cause of action arising out of this Agreement shall
be deemed to have arisen from a transaction of business in the
State of New York, and each of the parties hereby irrevocably
consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action
or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that services
of process on such party as provided in Section 8.14(c) of the
Royalty Interest Agreement shall be deemed effective service of
process on such party.
Section 22 Waiver of Jury Trial. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23 Counterparts; Effectiveness. This Agreement may
be executed in two counterparts, each of which shall be an
original, but all of which together shall constitute one and the
same instrument. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by
the other party hereto.
Section 24 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. APP shall
not be entitled to assign any of its obligations and rights under
this Agreement without the prior written consent of PRF. PRF may
assign, without restriction and without the consent of APP, any
of its rights or obligations under this Agreement to any
Person(s).
[Signature page follows]
IN WITNESS WHEREOF, APP and PRF have caused this
Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first written
above.
A.P. PHARMA, INC.
By: /S/ Xxxxxxx X'Xxxxxxx
----------------------
Xxxxxxx X'Xxxxxxx
President and Chief
Executive Officer
[***][an affiliate of Xxxx
Royalty Fund II, L.P., a
Delaware limited
partnership]
By: /S/ Xxxxxx Xxxxx
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Xxxxxx X. Xxxxx
Manager
[SIGNATURE PAGE TO SECURITY AGREEMENT IN FAVOR OF PRF]
[***] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
