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EXHIBIT 10.3
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of December 31, 1996 (the "AGREEMENT")
is entered into between CONNECTIVE THERAPEUTICS, INC., a Delaware corporation
("DEBTOR") and SMITHKLINE XXXXXXX CORPORATION, a Pennsylvania corporation
("SECURED PARTY"). For purposes of this Agreement, the term "SECURED PARTY"
includes any subsequent holder of the Note (as defined below).
RECITALS:
A. Debtor and Secured Party are parties to that certain Asset
Purchase Agreement dated as of December 2, 1996 (the "ASSET PURCHASE AGREEMENT")
between Debtor, Secured Party and certain other parties, pursuant to which
Debtor has purchased certain assets from the Secured Party;
B. Part of the purchase price therefore will be paid by delivery
by Debtor of a Secured Promissory Note dated the date hereof (the "NOTE") in an
aggregate amount of $11,000,000;
C. Another part of the purchase price therefore will be paid
pursuant to Section 4.2 of the Asset Purchase Agreement in an aggregate amount
of up to $6,000,000, contingent upon Debtor's net sales of certain products (the
"Deferred Payments");
D. Subject to the occurrence of certain events, another part of
the purchase price theretofore may be paid in cash (the "Equity Payout")
pursuant to Section 2.1(c) of that certain Stock Issuance Agreement of even date
herewith between Debtor and SmithKline Xxxxxxx Properties, Inc., an affiliate of
Secured Party (the "Stock Agreement");
E. The parties intend that Debtor's obligations to repay the Note
and its contingent obligations to make the Deferred Payments and the Equity
Payout be secured by certain of the assets purchased by Debtor from Secured
Party.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and as an inducement to Secured Party to lend Debtor the amounts
reflected by the Note and to enter into the Asset Purchase Agreement, the
parties hereto agree as follows:
1. Creation of a Security Interest. As security for payment of
the Indebtedness (as defined below) of Debtor to Secured Party when and as due,
Debtor hereby grants Secured Party a security interest in the collateral
described in Section 2 below (the "COLLATERAL"). For purposes of this Agreement,
"INDEBTEDNESS" shall mean the Equity Payout, the Deferred Payments and all
obligations and liabilities of Debtor to Secured Party under this Agreement and
the Note in the amount of $11,000,000, including any extensions, modifications
or renewals thereof. The security interest granted hereby shall be and remain a
first and prior security interest in all of the Collateral.
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2. Collateral. The Collateral that is subject to the security
interest created hereby consists of all of Debtor's right, title and interest in
and to the Intellectual Property (as defined in Section 1.1(f) of the Asset
Purchase Agreement), purchased by Debtor from Secured Party pursuant to the
Asset Purchase Agreement.
3. Debtor's Obligation. Debtor shall pay to Secured Party all
amounts due and owing to Secured Party under the Note, Section 4.2 of the Asset
Purchase Agreement and pursuant to the Equity Payout, in accordance with the
terms of same, when, if and as the same become due.
4. Protection of the Collateral. Until such time as the Note has
been paid in full, Debtor shall not create any lien or encumbrance on the
Collateral, except for liens that are subordinated to Secured Party's security
interest in the Collateral in a manner reasonably satisfactory to Secured Party.
5. Default. Each of the following events shall be defined as an
"EVENT OF DEFAULT" hereunder:
(a) Debtor fails to pay any sum due under the
Indebtedness in accordance with the terms hereof, if such nonpayment continues
for thirty (30) days after the date such sum is due;
(b) Debtor files any petition or action for relief under
any bankruptcy, reorganization, insolvency or moratorium law, or any other law
for the relief of, or relating to, debtors, now or hereafter in effect, or makes
any assignment for the benefit of creditors, or takes any corporate action in
furtherance of any of the foregoing;
(c) An involuntary petition is filed against Debtor
(unless such petition is dismissed or discharged within ninety (90) days), under
any bankruptcy statute now or hereafter in effect, or a custodian, receiver,
trustee, assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody, or control of any property of Debtor;
(d) Debtor breaches, or defaults under any material term,
condition or provision contained in this Agreement or the Note not specifically
referred to in this Section 5, if such breach or default continues for thirty
(30) days after receipt of notice from Secured Party; or
(e) Debtor shall (i) default in any payment or payments
on any Senior Indebtedness (as defined in the Note), beyond the period of grace,
if any, provided in the instrument or agreement under which such Senior
Indebtedness was created or (ii) default in the performance of any agreement or
condition relating to any Senior Indebtedness, or any other event shall occur or
condition exist (and continue beyond the applicable grace period, if any), the
effect of which is to cause, or to permit the holders of such Senior
Indebtedness to cause, such Senior Indebtedness to become due prior to its
stated maturity.
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6. Rights of Secured Party.
(a) Upon the occurrence of any Event of Default, Secured
Party shall be entitled to declare any Indebtedness secured hereby immediately
due and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or demands of any
kind or character. In addition to the right of acceleration granted herein, and
all other rights of Secured Party, Secured Party shall be entitled to any and
all remedies available under the Uniform Commercial Code in force in the State
of California as of the date of the event of Default.
(b) Secured Party shall give Debtor notice of the time on
or after which any sale or other intended disposition of the Collateral is to be
consummated, which notice shall be mailed, by first class mail, postage prepaid,
to Debtor in the manner set forth in Section 10(b) hereof at least thirty (30)
days prior to the time of such sale or other intended disposition. Secured Party
shall promptly provide a copy of such notice to all holders of Senior
Indebtedness known to Secured Party, including without limitation Silicon Valley
Bank and MMC/GATX Partnership No. 1.
(c) Each purchaser at any sale of the Collateral shall
hold the property sold free from any claim or right on the part of Debtor. Any
public or private sale of the Collateral or any part of it shall be held at such
time or times within ordinary business hours and at such place or places as
Secured Party may reasonably fix in the notice of sale, and at any such sale the
Collateral, or the portion thereof to be sold, may be sold as an entirety or in
separate parts, as Secured may reasonably determine. If permitted by law, Debtor
or Secured Party may bid (which Secured Party bid may be, in whole or in part,
in the form of cancellation of indebtedness) for the purchase of the Collateral.
7. Application of the Proceeds. All proceeds of any sale of the
Collateral by Secured Party pursuant to Section 6 shall be applied as follows:
First, to the payment of all fees and expenses incurred by
Secured Party in connection with any such sale, including, but
not limited to, the expenses of taking, advertising,
processing and preparing the Collateral to be sold, all court
costs and reasonable fees of counsel for Secured Party in
connection therewith;
Second, to the payment of the outstanding balance of the Note;
Third, to the Deferred Payments;
Fourth, to the Equity Payout; and
Fifth, to Debtor.
8. Further Assurances. At the request of Secured Party, Debtor
will promptly make, execute, deliver, record, register or file all such
financing statements, continuation statements and
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amendments thereto, and other instruments, acts, pledges, assignments and
transfers (or cause the same to be done) and will deliver to Secured Party such
instruments constituting or evidencing items of the Collateral as may be
requested by Secured Party to better assure them with respect to the security
interests granted pursuant to this Agreement. Debtor will cause all security
instruments, notices and financing statements to be duly registered, recorded
and filed and to be duly re-registered, re-recorded and refiled at the time and
in the places now or hereafter required by all applicable laws for the proper
maintenance of the validity and priority of the security interests and liens
given as described above, and will pay all fees, charges, or taxes imposed with
respect to any such registration, recording or filing.
9. Termination of the Security Interest. The security interest
created pursuant to this Agreement shall terminate upon payment, satisfaction,
or cancellation of the Note, regardless of the amount of Deferred Payments that
have been paid by Debtor or whether the Company has become obligated to make the
Equity Payout. Upon payment, satisfaction, or cancellation of the Note, no
security interest shall exist for the Deferred Payments or the Equity Payout.
10. Miscellaneous.
(a) Secured Party may delay exercising, or omit to
exercise, any right or remedy under this Agreement without waiving that or any
past, present or future right or remedy. Neither this Agreement, nor any term
hereof, may be amended, waived, discharged or terminated except by means of an
agreement in writing signed by Debtor and Secured Party.
(b) All notices and other communications required or
permitted hereunder shall be in writing, and shall be delivered personally or
transmitted by facsimile, or, if sent within the United States, mailed by
first-class mail, postage prepaid, addressed (i) if to Secured Party, at Secured
Party's address set forth below its signature, or at such other address as
Secured Party shall have furnished to Debtor in writing, or (ii) if to Debtor,
at its address set forth below, or at such other address as Debtor shall have
furnished to Secured Party in writing. All notices shall be deemed effectively
delivered upon receipt.
(c) This Agreement shall bind and inure to the benefit of
the parties, their legal representatives, successors and assigns.
(d) This Agreement and its performance shall be governed
by the laws of the State of California, without regard to conflicts of law
principles.
(e) This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument, by signing
any such counterpart.
(f) This Agreement and the security interest created
hereby are for the sole and exclusive benefit of Secured Party and their
respective assignees and shall not operate to the benefit of any other third
party.
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(g) This Agreement and the Asset Purchase Agreement (and
all exhibits thereto) constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
DEBTOR: CONNECTIVE THERAPEUTICS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
President and Chief Executive Officer
Address: 0000 Xxxx Xxxxxxxx Xxxx
Xxxx Xxxx, XX 00000
SECURED PARTY: SMITHKLINE XXXXXXX CORPORATION
By: /s/ Xxxxxx Xxxxxx
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Title: Secretary
SIGNATURE PAGE TO SECURITY AGREEMENT
