EXHIBIT 10.1
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 $.34 in principal amount of the respective
Debenture to be converted and (ii) following the third anniversary of the
issuance of the respective Debenture, in whole at the option of the Company in
the circumstances set forth in Section 3.2 of the respective Debenture. Each
Debenture held by Care Capital Investments II, LP or Essex Woodlands Health
Ventures Fund V is convertible (i) in whole or in part at any time or from time
to time at the option of the holder of such Debenture into a number of shares of
Common Stock initially at the rate of one share of Common Stock for each [$___]
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
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
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price of the Debentures issued on the Closing Date and the conversion price of
any Debenture 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 representatives) 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., Two Penn Plaza East,
Newark, New Jersey 07105 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 Fund V (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.
4
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
5
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to 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
6
necessary for the authorization, execution, delivery and performance by each
Guarantor of the 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.
7
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 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
8
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.
(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
9
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) 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
10
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.
(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.
11
(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 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
12
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.
(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
13
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) 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
14
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.
(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.
15
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.
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,
16
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 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.
17
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 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
18
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, 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 March 31, 2006,
(ii) 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.
19
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 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;
20
(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;
(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
21
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 Fund V, (c) up to two members, who shall be executive officers of the
Company, (d) three members, who shall be designees of the holders of 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 Fund V. 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 Fund
V, 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 Fund V.
22
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.
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
23
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 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
24
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 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
25
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;
(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:
26
(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 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
27
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
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 Fund V 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
28
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 Fund V 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.
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 10-K, 10-Q, 8-K 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
29
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 Fund V, 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) 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
30
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.
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;
31
(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 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
32
(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;
(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
33
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.
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
34
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 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.
35
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
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
36
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;
(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
37
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
(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
38
(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 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).
39
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 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
40
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 Fund V, 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, 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.
41
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 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
42
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 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
43
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;
(ii) Common Stock issued as a stock dividend or upon any
stock split or other subdivision or combination of
shares of Common Stock;
44
(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
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
45
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.
46
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., Two Penn Plaza East, Newark, New Jersey 07105-2249
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.,
Xxxxxxxxx: (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
47
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.
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
48
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 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
49
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 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.
50
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.
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
51
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 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.
52
"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.
"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.
53
"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.
"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.
54
"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.
"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.
55
"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.
"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
56
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 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.
57
"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 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]
58
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: XXXXXXXX, L.L.C., GENERAL PARTNER
By:
------------------------------------
Xxxxx Xxxxxxxxxxx
General Partner
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: Xxxxxxxx, 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
59
ORACLE STRATEGIC PARTNERS, L.P.
By:
------------------------------------
Name:
Title:
XXXXXXX XXXXXXX TRUST
c/x Xxxxxx Drug Co., Inc.
000 Xxxxx Xxxxxxxxxx Xx.
Crimson Building #2
Rockford, Ill. 61107
----------------------------------------
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.
Crimson Building #2
Rockford, Ill. 61107
----------------------------------------
By: Xxxxxx X. Xxxxx
Its: Trustee
----------------------------------------
Xxxxx Xxxxxxx
60
PURCHASERS
XXXXX PARTNERS III, L.P. GALEN PARTNERS INTERNATIONAL, III, L.P.
By: Xxxxxxxx, L.L.C., General Partner By: Xxxxxxxx, 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
By: Wesson Enterprises, Inc. VENTURES V, L.P.
000 Xxxxx Xxxxxx, 5th Floor By: Essex Woodlands Health Ventures V, L.L.C.,
New York, New York 10020 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, L.P. XXXXXXX XXXX
By: Care Capital, L.L.C., General Partner c/o Xxxxxx Xxxx
Princeton Overlook One 000 Xxxx Xxxxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 000 Xxx Xxxx, Xxx Xxxx 00000
Xxxxxxxxx, Xxx Xxxxxx 00000
------------------------------------- -------------------------------------
By:
Its:
XXXXXXX XXXXXXXX XXXXX XXXXXXXX
0000 Xxxx Xxxxx Xxxx 0000 Xxxx Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000 Xxxxxxxx, Xxxxxxxxxxxx 19035
------------------------------------- -------------------------------------
61
XXXX XXXX XXXXX XXXXXX
c/o D.R. International c/o Xxx Xxxxxxxx
7474 No. Xxxxxxxx Street 0000 Xxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000 Xxxxx 000
Xxxxxxxx, XX 00000
------------------------------------- -------------------------------------
XXXXXX X. XXXXXXXX
000 Xxxxx Xxxx
Xxxxxxxxx, XX 00000
-------------------------------------
62
EXHIBIT A
LIST OF PURCHASERS AND
ALLOCATION OF SECURITIES
63
EXHIBIT B
FORM OF DEBENTURE
EXHIBIT C
SCHEDULE OF EXCEPTIONS
EXHIBIT D
SUBSCRIPTION AGREEMENT
EXHIBIT E
COMPANY GENERAL SECURITY AGREEMENT
EXHIBIT F
GUARANTY AGREEMENT
EXHIBIT G
GUARANTORS SECURITY AGREEMENT
EXHIBIT H
LEGAL OPINION
EXHIBIT I
VOTING AGREEMENT
EXHIBIT J
FORM OF JOINDER AGREEMENT
EXHIBIT K
DEBENTUREHOLDERS AGREEMENT
EXHIBIT L
STOCK PLEDGE AGREEMENT
EXHIBIT M
SUBORDINATION AGREEMENT
EXHIBIT N
RECAPITALIZATION AGREEMENT
EXHIBIT O
REMAINING XXXXX ENTITIES WARRANTS
TABLE OF CONTENTS
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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.................................................................................. 12
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.......................................................................... 16
4.20. Real Property.............................................................................. 16
4.21. Disclosure................................................................................. 16
4.22. Solvency................................................................................... 17
4.23. Insurance.................................................................................. 17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................................................... 18
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............................................... 19
6.6. Xxxxxx Consent; Amendment to Xxxxxx Term Loans; Subordination Agreement.................... 19
6.7. Consent of Holders of Existing Debentures.................................................. 19
6.8. Consent of Xxxxx Bridge Lenders............................................................ 20
6.9. Recapitalization Agreement................................................................. 20
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......................................................................... 22
6.15. Reconstitution of the Board of Directors................................................... 22
6.16. Authorized Shares.......................................................................... 22
ARTICLE VII CONDITIONS TO CLOSING OF THE COMPANY............................................................. 23
7.1. Representations............................................................................ 23
7.2. Legal Investment........................................................................... 23
7.3. Payment of Purchase Price.................................................................. 23
ARTICLE VIII PREPAYMENT...................................................................................... 23
ARTICLE IX AFFIRMATIVE COVENANTS............................................................................. 23
Page
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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........................................... 27
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...................................................................... 29
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
ARTICLE X NEGATIVE COVENANTS................................................................................. 31
10.1. Stay, Extension and Usury Laws............................................................. 31
10.2. Reclassification........................................................................... 31
10.3. Liens...................................................................................... 31
10.4. Indebtedness............................................................................... 33
10.5. Arm's Length Transactions.................................................................. 34
10.6. Immaterial Subsidiaries.................................................................... 34
10.7. Loans and Advances......................................................................... 34
10.8. Intercompany Transfers; Transactions With Affiliates;
Diversion of Corporate Opportunities....................................................... 34
10.9. Investments................................................................................ 34
10.10. Other Business............................................................................. 35
10.11. Employee Benefit Plans and Compensation.................................................... 35
10.12. Capital Expenditures....................................................................... 35
10.13. Amendment, Etc. of Certain Document........................................................ 35
10.14. Formation of Subsidiaries.................................................................. 36
ARTICLE XI Intentionally omitted............................................................................. 36
ARTICLE XII EVENTS OF DEFAULT................................................................................ 36
12.1. Events of Default.......................................................................... 36
12.2. Remedies................................................................................... 39
Page
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12.3. Enforcement................................................................................ 40
ARTICLE XIII INDEMNIFICATION................................................................................. 40
ARTICLE XIV AMENDMENT AND WAIVER............................................................................. 41
ARTICLE XV EXCHANGE OF DEBENTURES............................................................................ 42
ARTICLE XVI TRANSFER OF DEBENTURES........................................................................... 42
16.1. Notification of Proposed Sale.............................................................. 42
16.2. Intentionally Omitted...................................................................... 42
ARTICLE XVII RIGHT OF FIRST REFUSAL; ADDITIONAL INVESTMENT................................................... 42
17.1. Right of First Refusal..................................................................... 42
ARTICLE XVIII CO-SALE RIGHTS................................................................................. 45
ARTICLE XIX MISCELLANEOUS.................................................................................... 46
19.1. Governing Law.............................................................................. 46
19.2. Survival of Representations................................................................ 46
19.3. Successors and Assigns..................................................................... 46
19.4. Entire Agreement........................................................................... 47
19.5. Notices, etc............................................................................... 47
19.6. Delays, Omissions or Waivers............................................................... 47
19.7. Independence of Covenants and Representations and Warranties............................... 48
19.8. Rights and Obligations; Severability....................................................... 48
19.9. Agent's Fees............................................................................... 48
19.10. Expenses................................................................................... 48
19.11. Jurisdiction............................................................................... 49
19.12. Waiver of Jury Trial....................................................................... 49
19.13. Confidentiality............................................................................ 49
ARTICLE XX CERTAIN DEFINED TERMS............................................................................. 51
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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
