EXHIBIT B Pledge, Security and Collateral Agent Agreement
EXHIBIT B
Pledge, Security and Collateral Agent Agreement
ANESIVA, INC.
This Securities Purchase Agreement (this “Agreement”) is made as of the 20th day of
January, 2009 (the “Effective Date”), by and among Anesiva, Inc., a Delaware corporation (the
“Company”), and the investors set forth on Schedule 1 hereto (each an “Investor” and
collectively, the “Investors”).
WHEREAS:
A. The Company requires additional financial support to enable the Company to maintain its operations, including continued payment of creditors and to secure additional
time to try to effect a long-term solution to the Company’s financial needs or a sale or other
liquidation of the Company in a manner to maximize the available return to creditors and stockholders of
the Company. The Company, having explored all reasonable alternatives has, therefore, requested that the Investors enter into this Agreement for the purpose of providing additional financial
support upon the terms of this Agreement. The Company, after diligent exploration, believes the terms offered by this Agreement are the only terms available to it. The Company believes that the entry of this Agreement will provide the Company with necessary financial support, helping to preserve the going concern value of the Company for the benefit of all creditors and other parties in interest, enabling the pay down of existing obligations and maximizing the returns
to creditors as compared to any of the alternatives (including any bankruptcy proceedings — which would necessarily entail substantial adverse effects to the business of the Company and
diminish value for all creditors, stockholders and other parties in interest).
B. Each of the Investors, other than entities managed or advised by CMEA Development Co. LLC, is a current stockholder of the Company.
C. Subject to the terms and conditions of this Agreement, the Investors have agreed
upon the terms of this Agreement to purchase from the Company, and the Company has agreed
to sell to the Investors, securities in the form set forth in Exhibit A.
D. In connection with the execution of this Agreement, the Company, each of the
Company’s Subsidiaries (other than Anesiva Hong Kong Limited) (the “Subsidiary
Guarantors”), CMEA Ventures VII, L.P., as collateral agent of the Investors, and the Investors
are also entering into a Pledge, Security and Collateral Agent Agreement (as such may be
amended or modified from time to time, the “Security Agreement”) in the form set forth in Exhibit B. The Security Agreement, among other things, provides that the Securities
(as defined below) issued hereunder shall be secured obligations under such Security Agreement.
E. In connection with the execution of this Agreement, each of the Subsidiary
Guarantors shall guaranty the obligations of the Company arising under this Agreement and the
Related Documents (as defined below) pursuant to a form of Guaranty (as such may be amended
or modified from time to time, the “Guaranty”) in the form set forth in Exhibit C.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and
for other consideration, the receipt and adequacy of which is hereby acknowledged,
the parties hereby agree as follows:
1. Amount And Terms of the Securities
Subject to the terms and conditions of this Agreement, the Company agrees to sell and issue
to the Investors, severally and not jointly, and the Investors agree to purchase from the Company
securities in the form attached hereto as Exhibit A (each, as amended or otherwise
modified from time to time, a “Security” and collectively, the “Securities”) in the aggregate
principal amount of up to Seven Million Dollars ($7,000,000.00) (the “Aggregate Commitment”) with
the Company issuing Securities in aggregate principal amount of up to Three Million Dollars
($3,000,000.00) in the Initial Closing (as defined below) and issuing Securities in aggregate
principal amount of up to Four Million Dollars ($4,000,000.00) in the Subsequent Closings (as
defined below) on the terms and conditions set forth in Section 2.2 below. All Securities shall be
issued in the same form (with such changes as may be necessary to reflect the different Investors,
principal amounts and issuance dates) and shall rank pari passu among themselves. No Securities
shall be issued at a discount. The Lenders’ obligations hereunder are several and not joint
obligations and no Lender shall have any liability to any Person for the performance or
non-performance by any other Lender hereunder.
2. The Closings
2.1 Initial Closing. The initial closing (the “Initial Closing”) of the purchase and sale of the Securities to the Investors shall take place at the offices of Cooley Godward
Kronish LLP, Five Palo Alto Square, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ on the date hereof, or at such other time and place as the Company and the Investors mutually agree upon orally or in writing (the “Initial Closing Date”) .At the Initial Closing, the Company agrees
to issue and sell to the Investors and the Investors, severally and not jointly, agree, subject to the
satisfaction or waiver of the conditions set forth in Section 5, to purchase Securities in the
aggregate principal amount of Three Million Dollars ($3,000,000.00), with each Investor
purchasing Securities in the principal amount equal to such Investor’s commitment as set forth
under the heading “Initial Closing Commitment” on Schedule 1 (in each case, their
“Initial Closing Commitment”).
2.2 Subsequent Closings. At any time prior to April 1, 2009, the Board of Directors
(the “Board”) of the Company may, in its discretion, request a subsequent closing (each, a
“Subsequent Closing,” and, together with the Initial Closing, the “Closings”); provided that
(i) the amount requested by the Company in any Subsequent Closing shall not exceed Two Million
Dollars ($2,000,000.00) per Closing; (ii) the Company may not request more than two
Subsequent Closings; and (iii) the request for a Subsequent Closing must be approved in
writing by the Majority Investors (as defined below). In the event that a Subsequent Closing is
triggered in accordance with this Section 2.2, then, subject to Section 5, each Investor (or its
Affiliates, designees or successor funds, as the case may be) may, in its sole discretion, purchase a
Security in the principal amount equal to the product of (i) the amount requested by the Company in the
Subsequent Closing multiplied by (ii) the quotient obtained by dividing (a) such Investor’s Initial
Closing Commitment by (b) the aggregate Initial Closing Commitment of all of the Investors
(with respect to each Investor, the “Investor Allocation Ratio”) or in such other amounts as
the Investors shall agree or in such lesser amount as such Investor, in its sole discretion, may
elect.
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To the extent that any Investor fails to purchase its full principal amount of Securities pursuant
to its Investor Allocation Ratio in a Subsequent Closing, then all other Investors purchasing
Securities in such Subsequent Closing shall have the right (but not the obligation) to purchase
such unsold Security amounts pursuant to their respective Investor Allocation Ratios or in such
other amounts as the Investors shall agree. All sales at a Subsequent Closing shall be made on the
terms and conditions set forth in this Agreement. In the event that a Subsequent Closing is
triggered in accordance with this Section 2.2, the Subsequent Closing shall take place at such
location and at such time as the Company and the Majority Investors shall mutually agree.
2.3 Delivery. At each Closing: (i) each Investor participating in such Closing will deliver
to the Company in immediately available funds an amount equal to its investment amount calculated
in accordance with this Section 2 and (ii) the Company shall deliver to each such Investor a
Security dated the date of such Closing in a principal amount equal to the amount invested by such
Investor.
3. Representations and Warranties of the Company
Except as disclosed by the Company in the disclosure schedule delivered to the Investors on
the date hereof (the “Disclosure Schedule”), the Company hereby represents and warrants to each
Investor that the representations and warranties contained in this Section 3 are true, complete
and correct and accurate in all respects. The Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section 3, and the
disclosures in any paragraph of the Disclosure Schedule shall qualify only the corresponding
paragraph of this Section 3, unless it is reasonably clear from a reading of the disclosure that
such disclosure is applicable to such other sections and subsections.
3.1 Organization, Good Standing and Qualification. The Company and each of its Subsidiaries is
a corporation duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company and each of the Subsidiary Guarantors has the corporate
power and authority to own and operate its properties and assets, to execute and deliver (to the
extent that it is a party to such agreement) (i) this Agreement, (ii) the Securities to be issued
in connection with this Agreement, (iii) the Security Agreement, (iv) any Guaranty, (v) any
Management Rights Letters requested by any Investors and (vi) all other agreements related to this
Agreement and the Securities (the preceding clauses (ii) through (vi), collectively, together with
all other agreements, instruments and documents delivered from time to time in connection herewith
and therewith, as any or all of the foregoing may be supplemented or amended from time to time, the
“Related Documents”), to issue and sell the Securities and to carry out the provisions of this
Agreement and the Related Documents and to carry on its business as presently conducted and as
proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in all jurisdictions in
which the nature of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do so has not, or would
not have, individually or in the aggregate, a material adverse effect on the business, assets,
liabilities, financial condition or prospects of the Company and its Subsidiaries (a “Material
Adverse Effect”).
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3.2 Capitalization; Voting Rights.
(a) The capitalization of the Company as of September 30, 2008 is as set forth
in the Form 10-Q for the period ended September 30, 2008 (the “Q3 Form 10-Q”), increased as
set forth in the next sentence. The Company has not issued any Capital Stock since that date
other than pursuant to (i) employee benefit plans disclosed in the Company’s Annual Report on Form
10-K for the year ended December 31, 2007 (the “10-K”) or (ii) outstanding warrants, options
or other securities disclosed in the Q3 Form 10-Q. The authorized Capital Stock of each
Subsidiary of the Company is set forth on Schedule 3.2.
(b) Except as set forth in or contemplated by the Q3 Form 10-Q or the 10-K or
as disclosed on Schedule 3.2 and other than the shares reserved for issuance under the
Company’s stock option plans and stock purchase plan, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy or stockholder
agreements to which the Company is a party, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as disclosed on
Schedule 3.2, neither the offer, issuance or sale of the Securities, nor the consummation of
any transaction contemplated hereby or by the Related Documents will result in a change in the
price or number of any securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company’s Common Stock: (i)
have been duly authorized and validly issued and are fully paid and nonassessable and (ii)
were issued in compliance with all applicable laws concerning the issuance of securities.
3.3 Authorization; Binding Obligations. All corporate action on the part of the
Company and each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Documents, the performance of all
obligations of the Company and its Subsidiaries hereunder and under the Related Documents at
the Closing and, the authorization, sale, issuance and delivery of the Securities has been
taken or will be taken prior to the Closing. This Agreement and the Related Documents, when executed
and delivered and to the extent it is a party thereto, will be valid and binding obligations
of each of the Company and each of its Subsidiaries, enforceable against each such Person in
accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of creditors’ rights and
general principles of equity that restrict the availability of equitable or legal remedies.
The offer, sale and issuance of the Securities are not subject to any preemptive rights or rights of
first refusal that will not have been properly waived or complied with. No vote of the stockholders
of the Company is required in connection with the issuance and sale of the Securities or any of
the other transactions contemplated by this Agreement and the Related Documents.
3.4 Liabilities. None of the Company nor any Subsidiary has liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other, except for those which (i) have been
reflected in the SEC Reports or (ii) have arisen in the ordinary course of business consistent with past
practices since September 30, 2008.
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3.5 Agreements; Action. Except as set forth on Schedule 3.5:
(a) the Company has filed as an exhibit to an SEC Report all agreements and
contracts required to be filed by Item 601 of Regulation S-K.
(b) Since December 31, 2007, neither the Company nor any of its Subsidiaries
has: (i) declared or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock; (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than ordinary course obligations) individually in excess of
Fifty Thousand Dollars ($50,000.00) or, in the case of indebtedness and/or liabilities individually
less than Fifty Thousand Dollars ($50,000.00), in excess of One Hundred Fifty Thousand Dollars
($150,000.00) in the aggregate; (iii) made any loans or advances to any person not in excess,
individually or in the aggregate, of One Hundred Thousand Dollars ($100,000.00), other than
ordinary course advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the ordinary course of
business.
(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed transactions
involving the same Person (including Persons the Company has reason to believe are affiliated therewith)
shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.
3.6 Obligations to Related Parties. Except as set forth on Schedule 3.6, there are no
obligations of the Company or any of its Subsidiaries to officers, directors, stockholders or
employees of the Company or any of its Subsidiaries other than (a) for payment of salary for
services rendered and for bonus payments; (b) reimbursement for reasonable expenses incurred
on behalf of the Company and its Subsidiaries; and (c) for other standard employee benefits
made generally available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board).
3.7 Changes. Since December 31, 2007, there has not been:
(a) any material change, except in the ordinary course of business, in the
obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement,
indemnity,warranty or otherwise;
(b) any damage, destruction or loss, whether or not covered by insurance, that
has had, or could have, individually or in the aggregate, a Material Adverse Effect;
(c) any waiver not in the ordinary course of business by the Company or any of
its Subsidiaries of a valuable right or of a material debt owed to it;
(d) any material change in any compensation arrangement or agreement with
any officer or director of the Company or any of its Subsidiaries;
(e) any labor organization activity related to the Company or any of its
Subsidiaries; or
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(f) any arrangement or commitment by the Company or any of its Subsidiaries to do any
of the acts described in subsection (a) through (e) above.
3.8 Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule 3.8,
each of the Company and each of its Subsidiaries has good and marketable title to its
respective properties and assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes which
have not yet become delinquent; (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the
Company or any of its Subsidiaries; (c) those that have otherwise arisen in the ordinary course of
business and (d) the Permitted Liens. All facilities, machinery, equipment, fixtures, vehicles and
other properties owned, leased or used by the Company and its Subsidiaries are in reasonably good
operating condition and repair and are reasonably fit and usable for the purposes for which
they are being used. Except as set forth on Schedule 3.8, the Company and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound.
3.9 Intellectual Property.
(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes reasonably necessary
for its business as now conducted and to the Company’s knowledge, as presently proposed to be
conducted (the “Intellectual Property”), without any known infringement of the rights of
others.
(b) Neither the Company nor any of its Subsidiaries has received any written
communications alleging that the Company or any of its Subsidiaries has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of
any basis therefor.
3.10 Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Certificate of Incorporation, Bylaws
or other organizational documents or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound or of any judgment,
decree, order or writ, which violation or default, in the case of this clause (y), has had, or
could have, either individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Related Documents to which
it is a party, and the issuance and sale of the Securities by the Company will not, with or without
the passage of time or giving of notice, result in any such violation, or be in conflict with or
constitute a default under any such term or provision, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of
its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its Subsidiaries, their businesses or
operations or any of their assets or properties.
3.11 Litigation. Except as described in the SEC Reports, (i) there are no legal or
governmental actions, suits, proceedings or investigations pending and (ii) to the Company’s
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knowledge, there are no legal or governmental actions, suits, proceedings or investigations
threatened, to which the Company or any of its Subsidiaries is or may be a party or subject or of
which property of the Company or any of its Subsidiaries is or may be the subject, or related to
applicable environmental or discrimination matters, or instituted by the Securities and Exchange
Commission (the “SEC”), the Financial Industry Regulatory Authority, any state securities
commission or other governmental or regulatory entity; and, to the Company’s knowledge, no labor
disturbance by the employees of the Company or any of its Subsidiaries exists, or is imminent
which is reasonably expected to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to or subject to the provisions of any injunction, judgment, decree or
order of any court, regulatory body, administrative agency or other governmental body.
3.12 Tax Returns and Payments. Each of the Company and each of its Subsidiaries
has timely filed all tax returns required to be filed by it. All taxes shown to be due and
payable on such returns, any assessments imposed and all other taxes due and payable by the Company
or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to
the time they become delinquent. Except as set forth on Schedule 3.12, neither the Company nor
any of its Subsidiaries has been advised (a) that any of its returns have been or are being
audited or (b) of any deficiency in assessment or proposed judgment to its taxes.
3.13 Employees. Except as set forth on Schedule 3.13, neither the Company nor any
of its Subsidiaries has any collective bargaining agreements with any of its employees. There
is no labor union organizing activity pending or, to the Company’s knowledge, threatened with
respect to the Company or any of its Subsidiaries. To the knowledge of the Company, no
employee of the Company or any of its Subsidiaries has plans to terminate his or her
employment relationship with the Company and its Subsidiaries. No director, officer or
employee of or consultant to the Company or any of its Subsidiaries is in violation of any
terms of any employment contract, non-competition agreement, non-disclosure agreement, patent
disclosure or assignment agreement or other contract or agreement containing restrictive
covenants relating to the right of any such director, officer, employee or consultant to be
employed or engaged by the Company and its Subsidiaries because of the nature of the business
conducted or proposed to be conducted by the Company and its Subsidiaries, or relating to the
use of trade secrets or proprietary information of others. The Company and each of its
Subsidiaries is in compliance with all applicable laws, rules and contracts relating to
employment, employment practices, wages, overtime, severance pay, bonuses and terms and
conditions of employment, including employee compensation matters and required contributions
to managers insurance and pension funds.
3.14 Registration Rights and Voting Rights. Except as set forth on Schedule 3.14,
neither the Company nor any of its Subsidiaries is presently under any obligation, and neither
the Company nor any of its Subsidiaries has granted any rights, to register any of the Company’s
or its Subsidiaries’ presently outstanding securities or any of its securities that may hereafter
be issued. Except as set forth on Schedule 3.14, to the Company’s knowledge, no stockholder of
the Company or any of its Subsidiaries has entered into any agreement with respect to the
voting of equity securities of the Company or any of its Subsidiaries.
3.15 Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of
any
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domestic or foreign government or any instrumentality or agency thereof in respect of the conduct
of its business or the ownership of its properties which has had, or would have, either
individually or in the aggregate, a Material Adverse Effect. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and delivery of this
Agreement or any Related Documents and the issuance of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. Each of the Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it.
3.16 Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no expenditures are or will
be required in order to comply with any such existing statute, law or regulation. Except as set
forth on Schedule 3.16, no Hazardous Materials (as defined below) are used or have been used,
stored or disposed of by the Company or any of its Subsidiaries or, to the Company’s knowledge, by
any other person or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials” shall mean (a)
materials that are listed or otherwise defined as “hazardous” or “toxic” under any applicable
local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy
of contamination on property, the protection of the environment from contamination, the control of
hazardous wastes or other activities involving hazardous substances, including building materials,
or (b) any petroleum products or nuclear materials.
3.17 Valid Offering. Assuming the accuracy of the representations and warranties of
the Investors contained in this Agreement, the offer, sale and issuance of the Securities will
be exempt from the registration requirements of the Securities Act of
1933, as amended (the “Securities Act”), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all
applicable state securities laws.
3.18 SEC Reports. The Company has filed all proxy statements, reports and other
documents required to be filed by it under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), since January 1, 2008. The Company has furnished or made available to the
Investors copies of: (i) its Annual Report on Form 10-K for its
fiscal year ended December 31, 2007; (ii) its Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 2008,
June 30, 2008 and September 30, 2008, and (iii) the Form 8-K filings which it has made during the fiscal year 2008 and fiscal year 2009 to date (collectively, the “SEC Reports” and, together
with this Agreement and the Disclosure Schedule, the “Disclosure Materials”). Each SEC Report was, at the time of its filing, in compliance in all material respects with the
requirements of its respective form and none of the SEC Reports, nor the financial statements (and the
notes thereto) included in the SEC Reports, as of their respective filing dates, contained any
untrue statement of a material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under which they were
made, not misleading. As of the date hereof, the Company satisfies
the registrant requirements set forth in General Instruction I.A. to Form S-3 for the use of a Registration Statement on
Form
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S-3.
3.19 Internal Accounting Controls. The Company and its Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in accordance with management’s
general or specific authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13 a-14 and 15d-14) for the Company and designed such disclosures
controls and procedures to ensure that material information relating to the Company and its
Subsidiaries is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being
prepared.
3.20 No Integrated Offering. Neither the Company, nor any of its Subsidiaries or
Affiliates, nor any Person acting on its or their behalf, has directly or indirectly made any
offers
or sales of any security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this Agreement to be integrated with
prior
offerings by the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of its
Affiliates
or Subsidiaries take any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
3.21 Food and Drug Administration.
(a) Neither the Company nor any of its Subsidiaries is debarred under the
Generic Drug Enforcement Act of 1992 or otherwise excluded from or restricted in any manner
from participation in, any government program related to pharmaceutical products and, to the
knowledge of the Company, does not employ or use the services of any individual who is
debarred or otherwise excluded or restricted.
(b) Each of the product candidates of the Company and its Subsidiaries is
being, and at all times has been, developed, tested, manufactured and stored, as applicable,
in substantial compliance in all material respects with all applicable statutes, laws or
regulations.
(c) Neither the Company nor any of its Subsidiaries is subject to any pending
or, to the knowledge of the Company, threatened, investigation by: (A) the FDA pursuant to
its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” set forth in 56
Fed.
Reg. 46191 (September 10, 1991); (B) Department of Health and Human Services Officer of
Inspector General or Department of Justice pursuant to the Federal Anti-Kickback Statute (42.
U.S.C. Section 1320a-7(b)) or the Civil False Claims Act (31
U.S.C. Section 3729 et seq.); or
(C) any equivalent statute of any other country. Neither the Company nor any of its Subsidiaries,
nor, to the knowledge of the Company, (1) any officer or employee of the Company or any of its
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Subsidiaries, (2) any authorized agent of the Company or any of its Subsidiaries or (3) any
principal investigator or sub-investigator of any clinical investigation sponsored by the Company
or any of its Subsidiaries has, in the case of each of (1) through (3) on account of actions taken
for or on behalf of the Company or any of its Subsidiaries, been convicted of any crime under 21
U.S.C. Section 335a(a) or any similar state or foreign statute, law or regulation or under 21
U.S.C. Section 335a(b) or any similar state or foreign statute, law or regulation.
(d) No clinical trial of a product of the Company or any of its Subsidiaries has been
suspended, put on hold or terminated prior to completion.
3.22 Accounts Receivable; Accounts Payable.
(a) All of the accounts receivable of the Company and its Subsidiaries are
reflected on the Company’s balance sheet (the “Balance Sheet”) at December 31, 2007 (the
“Balance Sheet Date”) in accordance with U.S. generally accepted accounting principles and
represent bona fide completed sales made in the ordinary course of business, are valid claims
and, to the Company’s best knowledge, are not subject to any set offs or counterclaims and are
fully collectible in the normal course of business after deducting the reserve set forth in
the Company’s Balance Sheet. Since the Balance Sheet Date, the Company and its Subsidiaries
have collected their respective accounts receivable in the ordinary course and in a manner
that is consistent with their prior practices. Neither the Company nor any of its Subsidiaries has
any accounts receivable or loans receivable from any Person that is an Affiliate of the Company or
any of its Subsidiaries or from any director, officer or employee of the Company or any of its
Subsidiaries or any Affiliate thereof.
(b) All of the accounts payable and notes payable of the Company and each of
its Subsidiaries arose in bona fide arms’ length transactions in the ordinary course of
business, and no such account payable or note payable is delinquent by more than sixty (60) days in its
payment. Since the Balance Sheet Date, the Company and its Subsidiaries have paid their
respective accounts payable in the ordinary course and in a manner that is consistent with
their
respective prior practices. As of the date hereof, neither the Company nor any of its
Subsidiaries
have any accounts payable to any Person that is an Affiliate of the Company or any of its
Subsidiaries or to any director, officer or employee of the Company or any of its Subsidiaries
or any Affiliate thereof.
3.23 Foreign Corrupt Practices Act. Neither the Company nor any of its Subsidiaries has
engaged, nor has any officer, director, employee or agent of the Company or any
of its Subsidiaries engaged, in any act or practice that would constitute a violation of the
Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated thereunder. There
is not now, and there never has been, any employment by the Company or any of its Subsidiaries by,
any governmental or political official in any country in the world.
3.24 Solvency. After giving effect to the transactions contemplated by this Agreement
and the Related Documents, including, without limitation, the expenses to be incurred by the
Company and its Subsidiaries in connection herewith and therewith, none of the Company or any
of its Subsidiaries: (i) will be insolvent; (ii) will be left with unreasonably small capital
with which to engage in its business; or (iii) will have incurred debts beyond its ability to pay
such
10
debts as they mature.
3.25 Change of Control Benefits. Neither the consummation of any Change of
Control (either alone or in connection with any other event, including any termination of
employment or service), will (i) result in any payment (including any bonus, golden parachute
or
severance payment) becoming due to any employee or consultant of the Company or any of its
Subsidiaries; (ii) result in any forgiveness of indebtedness owing by any employee or
consultant
of the Company or any of its Subsidiaries to the Company or any of its Subsidiaries or, to the
knowledge of the Company, owing by any employee of the Company or any of its Subsidiaries
to any third party; (iii) materially increase the benefits payable by the Company or any of
its
Subsidiaries, or (iv) result in any acceleration of the time of payment or vesting of any such
benefits.
3.26 Full Disclosure. Neither this Agreement, the Related Documents or the exhibits
and schedules hereto and thereto or any other information provided by the Company or its
agents
to the Investors in connection with the transactions contemplated by this Agreement and the
Related Documents contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
4. Representations and Warranties of the Investors
Each Investor hereby, severally and not jointly, represents and warrants to the Company, as
of the date hereof, as to itself only, as follows:
4.1 Purchase for Own Account. Such Investor represents that it is acquiring the
Securities solely for its own account and beneficial interest for investment and not for sale
or
with a view to distribution of the Securities or any part thereof, has no present intention of
selling
(in connection with a distribution or otherwise), granting any participation in or otherwise
distributing the same. Such Investor is not a registered broker-dealer under Section 15 of
the
Exchange Act or an entity engaged in a business that would require it to be so registered as a
broker-dealer. Such Investor further represents that it has full power and authority to enter
into
this Agreement and the Related Documents to which it is a party and all such agreements, when
executed and delivered by such Investor, shall constitute valid and legally binding
obligations of
the Investor, enforceable against the Investor in accordance with their respective terms
except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent
conveyance and other laws of general application affecting enforcement of creditor’s rights
generally and as limited by laws relating to the availability of specific performance,
injunctive
relief or other equitable remedies.
4.2 Information and Sophistication. Such Investor represents that it has reviewed
the Disclosure Materials and has had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of the offering of the Securities. Such
Investor
further represents that it has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risk of this investment. The foregoing,
however,
shall not be deemed in any way to limit the scope of the representations and warranties of the
Company in Section 3 or the ability of the Investors to rely thereupon.
11
4.3 Ability to Bear Economic Risk. Such Investor acknowledges that investment in
the Securities involves a high degree of risk, and represents that it is able, without
materially
impairing its financial condition, to hold the Securities for an indefinite period of time and
to
suffer a complete loss of the investment.
4.4 Further Limitations on Disposition. Such Investor understands that the
Securities are characterized as “restricted securities” for the purposes of federal securities
laws
and are being acquired in a transaction not involving a public offering, have not been
registered
under the Securities Act and that such securities may only be resold only if registered
pursuant to
the provisions of the Securities Act or if an exemption from registration is available and
that the
Company is not required to register the Securities under the Securities Act. Such Investor
acknowledges that it is familiar with Rule 144 promulgated under the Securities Act and
understands the resale limitation imposed thereby.
4.5 Experience. Such Investor is an “accredited investor” as such term is defined in
Rule 501 under the Securities Act.
4.6 No Governmental Review. Such Investor understands that no United States
federal or state agency or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Securities or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
4.7 Certain Trading Activities. Other than with respect to the transactions
contemplated herein, since the time that such Investor was first
contacted by the Company or any
other Person regarding the transactions contemplated hereby, neither such Investor nor any
Affiliate of such Investor which (i) had knowledge of the transactions contemplated hereby,
(ii)
has or shares discretion relating to such Investor’s investments or trading or information
concerning such Investor’s investments, including in respect of the Securities, and (y) is
subject
to such Investor’s review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”) has directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with such Investor or Trading Affiliate, effected
or
agreed to effect any transactions in the securities of the Company (including, without
limitation,
any Short Sales (as defined below) involving the Company’s securities). Notwithstanding the
foregoing, in the case of an Investor and/or Trading Affiliate that is, individually or
collectively,
a multi-managed investment vehicle whereby separate portfolio managers manage separate
portions of such Investor’s or Trading Affiliate’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers managing other
portions of such Investor’s or Trading Affiliate’s assets, the representation set forth above
shall
apply only with respect to the portion of assets managed by the portfolio managers that have
knowledge about the financing transaction contemplated by this Agreement. Other than to other
Persons party to this Agreement and to advisors, such Investor has maintained the
confidentiality
of all disclosures made to it in connection with this transaction (including the existence and
terms of this transaction). For purposes of this Section 4.7, “Short Sales” include, without
limitation, (i) all “short sales” as defined in Rule 200 promulgated under Regulation SHO
under
the Exchange Act, whether or not against the box, and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent
positions”
12
(as defined in Rule 16a-l(h) under the Exchange Act) and similar arrangements (including on a
total return basis), and (ii) sales and other transactions through non-U.S. broker dealers or
foreign regulated brokers.
4.8 Regulation M. Such Investor is aware that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of the Company’s Common Stock and
other activities with respect to the Company’s Common Stock by the Investors.
4.9 California Securities Laws. Such Investor acknowledges and agrees that the
sale of the Securities has not been qualified with the Commissioner of Corporations of the
State
of California and the issuance of such securities or the payment or receipt of any part of the
consideration for such securities prior to such qualification is unlawful, unless the sale of
securities is exempt from qualification by Section 25100, 25102 or 25105 of the California
Corporations Code. The rights of all parties to this agreement are expressly conditioned upon
such qualification being obtained, unless the sale is so exempt.
4.10 Legends. Each Security may bear a form of the following legends:
(a) “THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES
LAW. NO SALE, PLEDGE OR DISPOSITION MAY BE EFFECTED EXCEPT IN
COMPLIANCE WITH RULE 144 UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAW OR AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAW.”
(b) Any legend required by applicable corporations or securities laws of any
state.
5. Conditions to Each Closing of Investors
The Investors’ obligation to lend money to the Company at each Closing is subject to the
satisfaction or waiver, each at the discretion of the Investors, of the following conditions:
5.1 Representations and Warranties. Subject to receipt by the Investors of an
update to the Disclosure Schedule in a form acceptable to the Investors, the representations
and
warranties of the Company contained in Section 3 shall be true and correct on and as of the
applicable Closing.
5.2 Performance. The Company and its Subsidiaries shall have performed and
complied with all covenants, agreements, obligations and conditions contained in this
Agreement
and the Related Documents that are required to be performed or complied with by it on or
before
the applicable Closing, including the filing of UCC-1 financing statements and appropriate
filings with the Patent and Trademark Office.
5.3 Compliance Certificate. The Company shall have delivered to each Investor a
certificate of the Company executed by its Chief Executive Officer and Chief Financial
Officer,
13
dated as of the applicable Closing, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement.
5.4 Security Agreement. The Company, the Subsidiary Guarantors and the Investors
shall have executed and delivered the Security Agreement and such
agreement shall be in full
force and effect.
5.5 Guaranty. Each of the Subsidiary Guarantors shall have executed and delivered
a Guaranty for the benefit of the Investors and such agreement shall be in full force and
effect.
5.6 Consents and Approvals. All consents, approvals, waivers, authorizations,
licenses or orders of, registrations, qualifications, designations, declarations or filings
with, or
notice to any governmental entity or any other Person necessary to be obtained, made or given
as
of the applicable Closing in connection with the transactions contemplated hereby shall have
been duly obtained, made or given and shall be in full force and effect, without the
imposition
upon the Company of any condition, restriction or required undertaking.
5.7 Proceedings. All corporate and other proceedings taken or required to be taken
by the Company and in connection with the transactions contemplated hereby, including the
approvals by the Board and the Special Committee, shall be reasonably satisfactory in form and
substance to the Investors and all documents incident thereto shall have been executed and
delivered to the Investors or their counsel, and shall be reasonably satisfactory in form and
substance to the Investors and their counsel. In addition, the Company shall have delivered
good
standing certificates and tax good standing certificates with respect to the Company and its
Subsidiaries from each jurisdiction in which such Person is incorporated and in which such
Person is qualified to do business.
5.8 Legal Opinion. The Investors shall have received from ▇▇▇▇▇▇ Godward
Kronish LLP, corporate counsel for the Company, an opinion, dated as of the applicable
Closing,
in substantially the form agreed to as of the date hereof.
5.9 Secretary’s Certificate. The Secretary of the Company shall have delivered to
the Investors at the applicable Closing a certificate certifying: (a) the Company’s
Certificate of
Incorporation as in effect as of the applicable Closing; (b) the Bylaws of the Company as in
effect as of the applicable Closing; (c) resolutions of the Board approving this Agreement,
the
Related Documents and the transactions contemplated hereby and thereby; and (d) resolutions of
the Special Committee of the Board recommending to the Board this Agreement, the Related
Documents and the transactions contemplated hereby and thereby.
5.10 Due Diligence. The Investors shall be satisfied in their sole discretion at the
applicable Closing with the diligence review of the business, legal, accounting and other
investigations undertaken by the Investors and their advisors and agents with respect to the
Company, and each Investor shall have obtained the approval of such Investor’s investment
committee.
5.11 Financing Statements. The Company shall have authorized the Collateral Agent
(as defined in the Security Agreement), for the benefit of the Investors, to prepare and file
such
financing statements and other instruments, including, without limitation, the filing of UCC-1
14
financing statements and appropriate filings with the Patent and Trademark Office (collectively,
“Financing Statements”), as the Collateral Agent shall require in order to perfect and maintain
the continued perfection of the first priority security interest created by the Security Agreement
and the other applicable Related Documents and the Company hereby authorize the Collateral Agent
to prepare and file such Financing Statements.
5.12 Search Results; Lien Terminations. The Collateral Agent shall have received
search reports of filings with appropriate government agencies, dated a date reasonably near
to
the applicable Closing, showing that there are no Liens on the assets of the Company or any of
its Subsidiaries (in each case, under their present names or any previous names) other than
Permitted Liens.
5.13 Existing Creditors. The Company shall have obtained settlement with (or be
actively conducting negotiations with) its existing creditors to the satisfaction, in their
sole
discretion, of the Investors.
5.14 Employee Plans. The Company shall have amended the existing executive
change in control and severance benefit plan or other similar payment arrangements of the
Company (collectively, the “Employee Plans”) that would be triggered by a Change in Control
as directed in the sole discretion of the Investors. The Company shall have adopted the
Amended and Restated Executive Change In Control and Severance Benefit Plan in the form
attached hereto as Exhibit D.
5.15 Management Rights Letters. The Company and each Investor requesting one
shall have entered into a Management Rights Letter in a form acceptable to such Investor
(each,
a “Management Rights Letter” and, collectively, the “Management Rights Letters”).
5.16 Indemnification Agreements. The Company shall enter into an indemnification
agreement with each member of the Board and their affiliated funds in a form satisfactory to
the
Investors in their sole discretion.
5.17 D&O Insurance. As of each applicable Closing, the Company shall have in full
force and effect directors’ and officers’ liability insurance with coverage satisfactory to
the
Investors in their sole discretion.
5.18 Stock Certificates. The Collateral Agent shall have received all certificates,
instruments and other documents representing all Capital Stock being pledged pursuant to the
Security Agreement and stock powers for such certificates, instruments and other documents
executed in blank.
5.19 No Event of Default. No event shall have occurred and be continuing or would
result from the consummation of the applicable Closing that would constitute an Event of
Default.
6. Registration, Transfer and Exchange of Securities
6.1 Register. The Company shall keep, at its sole cost and expense, books for the
registration of the Securities as to both principal and returns on such principal, the name and
15
address of each holder of the Securities and the registration of any transfer of the Securities
(the “Register”). Included in the Register shall be notations as to whether the Securities have
been accelerated or prepaid or otherwise paid or cancelled, and, in the case of a mutilated,
destroyed, lost or stolen Security, whether such Security has been replaced. The failure of the
Company to make a notation in the Register shall in no way affect the validity of any sale,
transfer or assignment of the Security made in compliance with this Agreement.
6.2 Transfer. Subject to Section 4.2, each Investor shall be entitled to transfer its
Security(ies) in any manner permitted by applicable law and to the registration of such transfer by
the Company in the name of such transferee or transferees as shall be specified by the Investor. In
the event of a proposed transfer, the transferring Investor shall give written notice to the
Company of such Investor’s intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company
so requests, be accompanied by either: (i) a written opinion of legal counsel, who shall be
reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in
form and substance to the Company’s counsel, to the effect that the proposed transfer of the
Security may be effected without registration under the Securities Act or (ii) a “no action” letter
from the SEC to the effect that the transfer of such Security without registration will not result
in a recommendation by the staff of the SEC that action be taken with respect thereto, whereupon
the holder of such restricted securities shall be entitled to transfer such restricted securities
in accordance with the terms of the notice delivered by such holder to the Company;
provided, however, that no opinion or “no action” letter need be obtained with
respect to a transfer to: (a) an affiliate (as such term is defined in the Securities Act) of the
Investor; (b) a partner, active or retired, of the Investor; (c) the estate of any such partner; or
(d) the spouse, children, grandchildren or spouse of such children or grandchildren of any holder
or to trusts for the benefit of the Investor or such Persons. In connection with any transfer in
accordance with this Section 6.2 and at all other times hereunder, the Investor shall be entitled
to surrender its Security to the Company together with a written request for the issuance of one or
more new Securities, specifying the denomination or denominations thereof and, in the case of a
transfer of a Security, the name and address of the new transferee or transferees. As soon as
reasonably practicable, the Company shall issue a new Security bearing the same rate or return and
in the same form, in the same aggregate principal amount as the Security being surrendered,
registered in the name specified in the written request from such Investor. Each such new Security
shall be dated and bear a rate of return from the date to which returns shall have been paid on the
surrendered Security or dated the date of the surrendered Security if no returns shall have been
paid thereon. Each Security presented or surrendered for reissuance and registration of a new
Security shall be endorsed, or, in the case of a transfer of a Security, shall be accompanied by a
duly executed written instrument of transfer in an appropriate form. The applicable Investor shall
be responsible for any transfer taxes associated with the transfer of any Security. Any transferee,
by its acceptance of a Security registered in its name (or the name of its nominee), shall be
deemed to have made the representations set forth in Section 4. Notwithstanding the foregoing, any
such transferee shall execute and deliver a counterpart of this Agreement, the Security Agreement
and the Guaranty to the Company and the Investors, in form and substance satisfactory to the
Majority Lenders, and, by delivering such counterpart, such transferee shall be deemed to agree to
be bound by the provisions of this Agreement, the Security Agreement, the Guaranty and the other
Related Documents.
16
6.3 Reliance of Register. The Company and the Investors may treat the Person in
whose name any Security is registered on the Register as the absolute owner of such Security
for
all purposes, and all payments in respect of a Security made to any such Person or upon such
Person’s order shall satisfy and discharge the liability of the Company or the Investor (as
the
case may be) on such Security to the extent of the sum or sums so paid.
6.4 Mutilated, Destroyed, Lost or Stolen Securities. In case any Security shall
become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and
deliver a new Security of like principal amount in exchange and substitution for the mutilated
or
defaced Security, or in lieu of and in substitution for the destroyed, lost or stolen
Security. In the
case of a mutilated or defaced Security, the relevant Investor shall surrender such Security
to the
Company. In the case of any destroyed, lost or stolen Security, such Investor shall furnish to
the
Company: (i) evidence to the Company’s satisfaction of the destruction, loss or theft of such
Note and (ii) such security or indemnity as may be reasonably required by the Company.
7. Affirmative Covenants
The Company hereby covenants that so long as any portion of any Security remains outstanding:
7.1 Notices. The Company shall notify each Investor within five (5) Business Days
after the Board of Directors or senior officers of the Company has knowledge or becomes aware
of the occurrence of: (i) any action, suit or proceeding before any arbitrator, court or
governmental department, domestic or foreign, pending, or to the Company’s knowledge,
threatened against or affecting the Company or any Subsidiary of the Company, which if
adversely determined could have a Material Adverse Effect or (ii) any material dispute or
default
by the Company, any of its Subsidiaries or any other party under any joint venture,
partnering,
distribution, cross-licensing, strategic alliance, collaborative research or manufacturing,
license
or similar agreement which would reasonably be expected to have a Material Adverse Effect.
7.2 Existence. The Company shall maintain and preserve the existence, present form
of business and all rights and privileges necessary or desirable in the normal course of
business
of the Company and its Subsidiaries; and keep all of the property of the Company and its
Subsidiaries in good working order and condition, ordinary wear and tear excepted.
7.3 Insurance. The Company shall (and shall cause its Subsidiaries to) obtain and
keep in force insurance in such amounts and types as is usual in the type of business
conducted
by the Company or such Subsidiary, as applicable, with insurance carriers having a
policyholder
rating of not less than “A” and financial category rating of Class VII in “Best’s Insurance
Guide,” unless otherwise approved by the Majority Investors. Such insurance policies must be
in
form and substance reasonably satisfactory to the Majority Investors, and shall list the
Collateral
Agent as an additional insured or loss payee, as applicable, on endorsement(s) in form
reasonably acceptable to the Majority Investors. The Company shall furnish to the Collateral
Agent such endorsements, and upon the Collateral Agent’s request, copies of any or all such
policies. If no Event of Default has occurred and is continuing, proceeds payable under any
casualty policy will, at the Company’s option, be payable to the Company to replace the
property
subject to the claim, provided that such replacement property shall be deemed part of the
17
Collateral (as defined in the Security Agreement). If an Event of Default has occurred and is
continuing, then, at the Majority Investors’ option, the proceeds payable under any casualty
policy will be payable to the Investors and applied toward satisfaction of the Securities Amounts.
7.4 Accounting Records. On and after the date of this Agreement, the Company
shall (and shall cause its Subsidiaries to) maintain adequate books, accounts and records, and
prepare all financial statements in accordance with U.S. generally accepted accounting
principles, and in compliance with the regulations of any governmental or regulatory authority
having jurisdiction over the Company, such Subsidiary or the business of the Company or such
Subsidiary.
7.5 Compliance with Laws. The Company shall (and shall cause its Subsidiaries to)
comply with all laws, rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, the Company, such Subsidiary or
the business of the Company or such Subsidiary, and with all material agreements to which the
Company or such Subsidiary is a party, except where the failure to so comply would not have a
Material Adverse Effect.
7.6 Taxes and Other Liabilities. The Company shall (and shall cause its
Subsidiaries to) pay all of Indebtedness (as defined below) of the Company or such Subsidiary
when due; pay all taxes and other governmental or regulatory assessments before delinquency or
before any penalty attaches thereto, except as may be contested in good faith by the
appropriate
procedures and for which the Company shall maintain appropriate reserves; and timely file all
required tax returns.
7.7 Special Collateral Covenants. The Company shall (and shall cause its
Subsidiaries to):
(a) do all things reasonably necessary to maintain, preserve, protect and keep
all Collateral in good working order and saleable condition, ordinary wear and tear excepted,
deal
with the Collateral in all ways as are considered good practice by owners of like property and
use
the Collateral lawfully and, to the extent applicable, only as permitted by the insurance
policies of
the Company and its Subsidiaries;
(b) maintain, or cause to be maintained, complete and accurate Records (as
defined below) relating to the Collateral;
(c) upon reasonable prior notice at reasonable times during normal business
hours with reasonable prior notice, permit the Investors’ officers, employees, representatives
and
agents to inspect the Collateral and to discuss the Collateral and the Records relating
thereto with
the officers and employees of the Company and its Subsidiaries, and, in the case of any Rights
to
Payment (as defined below), with any Person which is or may be obligated thereon;
(d) at the request of the Majority Investors, firmly affix a decal, stencil or other
marking to designated items of Equipment (as defined below), indicating thereon the security
interest of the Investors; and
18
(e) obtain and maintain such acknowledgments, consents, waivers and agreements from the
owner, lienholder, mortgagee and landlord with respect to any real property on which Collateral is
located as the Majority Investors may reasonably require, all in form and substance satisfactory
to the Majority Investors.
7.8 Financing Statements and Other Actions. The Company shall execute and
deliver to the Collateral Agent all financing statements, notices and other documents
(including,
without limitation, any filings with the Patent and Trademark Office) from time to time as may
be reasonably requested by the Majority Investors to maintain a first priority perfected
security
interest in the Collateral in favor of the Investors; and perform such other acts, and execute
and
deliver to the Investors such additional conveyances, assignments, agreements and instruments,
as the Majority Investors may at any time reasonably request in connection with the
administration and enforcement of this Agreement or the Investors’ rights, powers and remedies
hereunder.
7.9 Tax Characterization. The Company and each Investor agree (and agree to
cause their respective owners or Affiliates) to treat the Securities as equity, not debt, for
all U.S.
tax purposes and not to take any position inconsistent with such U.S. tax treatment for U.S.
tax
purposes to the extent permitted by law.
7.10 Rights Offering. The Company and the Investors acknowledge and agree that
the Company anticipates, upon approval by the Board of Directors, to offer to its stockholders
non-transferable subscription rights to purchase Securities in an aggregate principal amount
of up
to Three Million Dollars ($3,000,000.00). In such event, each Investor hereby agrees to waive
any right to participate in any such rights offering, except to the extent that not all of the
principal amount of Securities offered in any such rights offering are purchased by the
Company’s stockholders (excluding the Investors).
7.11 Further Assurances. The Company shall, and shall cause any of its Subsidiaries
to, take such actions as are necessary or as the Collateral Agent or the Majority Lenders may
reasonably request from time to time (including the execution and delivery of joinders and/or
guaranties to this Agreement and any other applicable Related Documents, termination
statements, deposit account control agreements, securities account control agreement and other
documents, the filing or recording of any of the foregoing, and the delivery of stock
certificates
and other collateral with respect to which perfection is obtained by possession) to ensure
that the
obligations of the Company and its Subsidiaries hereunder and under the other Related
Documents are secured by substantially all of the assets, equity securities and personal
property
of the Company and its Subsidiaries (whether now existing or promptly upon the acquisition or
creation thereof after the date hereof).
7.12 Additional Subsidiaries. If any additional Subsidiary of the Company is formed
or acquired after the Effective Date, the Company shall, within three Business Days after such
Subsidiary is formed or acquired, (i) notify the Collateral Agent and the Lenders thereof,
(ii)
cause such Subsidiary to execute and become a party to a guaranty of the obligations
hereunder,
the Security Agreement or any other security agreement, and such other Related Documents in
favor of the Collateral Agent as the Collateral Agent may request and (iii) pledge one hundred
percent (100%) of the Capital Stock of such Subsidiary (except that the Company or any of its
19
Subsidiaries shall not be required to pledge more than 65% of the outstanding voting Capital Stock
of any Subsidiary organized under the laws of any jurisdiction outside the United States of
America) to the Collateral Agent pursuant to the Security Agreement or any other security
agreement. The Company agrees to provide such evidence as the Collateral Agent shall request as to
the perfection and priority status of each security interest and Lien created by such security
documents.
8. Negative Covenants
8.1 Restrictions on Fundamental Changes. Except with the prior written approval
of the Majority Investors, neither the Company nor any of its Subsidiaries will merge with or
consolidate into, or acquire all or substantially all of the assets of, any Person, or sell,
transfer,
lease or otherwise dispose of (whether in one transaction or in a series of transactions) all
or
substantially all or any material amount of its assets or commence any Insolvency Proceeding
with respect to itself; or a custodian, receiver, trustee, assignee for the benefit of
creditors, or other
similar official shall be appointed to take possession, custody or control of the properties
of the
Company or any Subsidiary, and such involuntary Insolvency Proceeding, petition or appointment
is acquiesced to by the Company or such Subsidiary as applicable or is not dismissed within
sixty
(60) days; or dissolve or terminate of the business of the Company or any Subsidiary.
8.2 Change of Control. In the event of a Change of Control of the Company, the
Company agrees to pay to the Investors an amount equal to seven (7) times the sum of the
outstanding principal amount of the Securities, plus all accrued but unpaid returns thereon.
Except as otherwise set forth herein, the payments on the Securities pursuant to this Section
8.2
shall constitute the payment in full of the Securities. The Company acknowledges and agrees
that this Section 8.2 is a material inducement to incent the Investors to lend funds to the
Company at a time when the Company requires additional financial support to enable the
Company to maintain its operations, and after the Company, having diligently explored all
reasonable alternatives, has requested that the Investors provide additional capital for the
Company to meet its short-term obligations, help to preserve the going concern value of the
Company for the benefit of all creditors, stockholders and other parties in interest, enable
the pay
down of existing obligations and maximize the returns to creditors as compared to any of the
alternatives (including any bankruptcy proceedings — which would necessarily entail
substantial
adverse effects to the business of the Company and diminish value for all creditors,
stockholders
and other parties in interest).
8.3 Distributions. Except with the prior approval of the Majority Investors, neither
the Company nor any of its Subsidiaries will declare or pay any dividends in respect of their
Capital Stock, or purchase, redeem, retire or otherwise acquire for value any of their Capital
Stock now or hereafter outstanding, return any capital to their stockholders as such, or make
any
distribution of assets to their stockholders as such, or permit any of its Subsidiaries to
purchase,
redeem, retire or otherwise acquire for value any stock of the Company, except that the
Company may: (i) declare and deliver dividends and distributions payable solely in Common
Stock of the Company and (ii) purchase shares or options of employees, consultants and other
service providers in accordance with stock option, stock issuance or other stock purchase
plans
and employment contracts of the Company.
20
8.4 Indebtedness. Except with the prior approval of the Majority Investors, neither
the Company nor any Subsidiary will create, incur, assume or otherwise become liable for or
suffer to exist any Indebtedness (including under existing facilities), other than: (i)
Indebtedness
for borrowed money to the Investors hereunder; (ii) Guaranty and any other guarantees by any
Subsidiaries of the Company of Indebtedness of the Company incurred hereunder; (iii)
Indebtedness consisting of guarantees resulting from endorsement of negotiable instruments for
collection by the Company in the ordinary course of business; (iv) Indebtedness incurred for
the
purpose of financing the acquisition of equipment provided that the principal amount therefore
does not exceed the purchase price of such equipment; and (v) Indebtedness consisting of
accounts payable to trade creditors for goods and services and expenses (other than for
borrowed
money), in each case incurred in the ordinary course of business as presently conducted.
8.5 Liens. Except with the prior written approval of the Majority Investors, neither
the Company nor any Subsidiary will create, incur, assume or suffer to exist any Lien upon or
with respect to any of its properties, revenues or assets, whether now owned or hereafter
acquired except for any of the following (“Permitted Liens”): (i) Liens in favor of the
Investors
in respect of the indebtedness hereunder and under the Security Agreement and in connection
with the Rights Offering; (ii) Liens for taxes, fees, assessments or other governmental
charges or
levies, either not delinquent or being contested in good faith by appropriate proceedings and
which are adequately reserved for in accordance with U.S. generally accepted accounting
principles; (iii) Liens of materialmen, mechanics, warehousemen, carriers or employees or
other
like Liens arising in the ordinary course of business and securing obligations either not
delinquent or being contested in good faith by appropriate proceedings; (iv) Liens consisting
of
deposits or pledges to secure the payment of worker’s compensation, unemployment insurance
or other social security benefits or obligations, or to secure the performance of bids, trade
contracts, leases, public or statutory obligations, surety or appeal bonds or other
obligations of a
like nature incurred in the ordinary course of business; (v) easements, rights of way,
servitudes
or zoning or building restrictions and other minor encumbrances on real property and
irregularities in the title to such property which do not in the aggregate materially impair
the use
or value of such property or risk the loss or forfeiture of title thereto; (vi) non-exclusive
licenses
granted in the ordinary course of business and consistent with past practices; and (vii) Liens
upon or in any equipment acquired or held by the Company or any Subsidiary to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose of financing
the acquisition of such equipment, provided that the Lien is confined solely to the equipment
so
acquired and accessions thereon.
8.6 Capital Expenditures. Except with the prior written approval of the Majority
Investors, neither the Company nor any Subsidiary shall make any Capital Expenditures in
excess of One Hundred Thousand Dollars ($100,000.00) in any one instance or series of related
instances.
8.7 Use of Proceeds. Except with the prior written approval of the Majority
Investors, neither the Company nor any Subsidiary shall use any proceeds from any of the
Securities hereunder, directly or indirectly, for the purposes of repaying any pre-existing
debt of the Company or any of its Subsidiaries.
8.8 Affiliate Transactions. Except with the prior written approval of the Majority
21
Investors, neither the Company nor any Subsidiary shall enter into any transaction, including the
purchase, sale or exchange of property or the rendering of any services, with any Affiliate or
enter into, assume or suffer to exist any employment or consulting contract with any Affiliate,
except a transaction or contract which is in the ordinary course of the business of the Company or
such Subsidiary, as applicable, and which is upon fair and reasonable terms not less favorable to
the Company or such Subsidiary, as applicable, than it would obtain in a comparable arm’s length
transaction with a Person not an Affiliate.
8.9 Investments. Except with the prior written approval of the Majority Investors,
neither the Company nor any Subsidiary shall make loans to, investments in or purchase
securities of any Person or Subsidiary, or otherwise extend credit to any Person or Subsidiary
(other than extensions of trade credit arising from the sale of goods or services in the
ordinary
course of business) or loans or advances to employees for travel expenses as approved by the
Board, in amounts in excess of Ten Thousand Dollars ($10,000.00) individually or Twenty-Five
Thousand Dollars ($25,000.00) in the aggregate.
8.10 Sales of Assets. Except with the prior written approval of the Majority Investors,
neither the Company nor any Subsidiary shall sell, transfer, lease, license or otherwise
dispose of
(a “Transfer”) any of its assets except: (i) non-exclusive licenses of Intellectual Property
in the
ordinary course of business consistent with industry practice; (ii) Transfers of worn-out,
obsolete
or surplus property (each as determined by the Company in its reasonable judgment); (iii)
Transfers of Inventory (as defined below); (iv) Transfers constituting Permitted Liens; and
(v)
Transfers of assets (other than Intellectual Property) for fair consideration and in the
ordinary
course of its business.
8.11 Other Business. Except with the prior written approval of the Majority Investors,
neither the Company nor any Subsidiary shall engage in any material line of business other
than
the business that the Company or such Subsidiary conducts or intends to conduct as of the
Effective Date.
8.12 Deposit Accounts and Securities Accounts. Except with the prior written
approval of the Majority Investors, neither the Company nor its Subsidiaries shall maintain
any
Deposit Accounts or accounts holding securities owned by the Company or any Subsidiary
except for Deposit Accounts and securities/investment accounts, in each case, with respect to
which the Company or the Subsidiary, as applicable, and the Investors shall have taken such
action as the Majority Investors reasonably deem necessary to obtain a perfected first
security
interest therein, including the execution and delivery of control agreements in favor of the
Collateral Agent.
8.13 Documents of Title. Except with the prior written approval of the Majority
Investors or with respect to Permitted Liens, neither the Company nor any Subsidiary shall
sign
or authorize the signing of any financing statement or other document naming the Company or
such Subsidiary, as applicable, as debtor or obligor, or acquiesce or cooperate in the
issuance of
any ▇▇▇▇ of lading, warehouse receipt or other document or instrument of title with respect to
any
Collateral, except those negotiated to the Collateral Agent, or those naming the Collateral
Agent
as secured party.
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8.14 Debt or Equity Offering. Except with the prior written approval of the Majority
Investors, neither the Company nor any of its Subsidiaries shall issue, deliver, sell,
authorize,
grant, pledge or otherwise encumber any shares of Capital Stock or any securities convertible
into shares of Capital Stock, or any debt or convertible debt securities, or subscriptions,
rights,
warrants or options to acquire any shares of Capital Stock or any securities convertible into
shares of Capital Stock, or enter into other agreements or commitments of any character
obligating it to issue any such shares, debt or convertible securities, other than (i) the
issuance,
delivery and/or sale of shares of the Company’s Common Stock pursuant to the exercise of stock
options therefor outstanding as of the date of this Agreement; (ii) the issuance or delivery
of
shares of the Company’s Common Stock pursuant to the exercise of warrants outstanding on the
date of this Agreement; and (iii) as contemplated by this Agreement.
8.15 Certain Agreements on Rights to Payment. Except with the prior written
approval of the Majority Investors or as done in the ordinary course of business, neither the
Company nor any Subsidiary shall make any material discount, credit, rebate or other reduction
in the original amount owing on a Rights to Payment or accept in satisfaction of a Rights to
Payment less than the original amount thereof.
9. Events of Default; Acceleration
9.1 Events of Default. The occurrence of any of the following, upon written notice by the
Majority Investors to the Company, shall constitute an “Event of Default.” An Event of Default
that has not been cured within the applicable period of time or waived by the Majority Investors
in accordance with the terms hereof shall, at the option of the Majority Investors (1) make all
sums of unpaid principal and returns on the Securities and any Securities Amounts and other
amounts due and owing under this Agreement or any Related Document immediately due and payable
(including, in the case where the underling Event of Default would trigger the Company’s
obligations set forth in Section 8.2 hereof, the sums due pursuant to Section 8.2) and (2) give
the Investors the right to exercise any other right or remedy provided by contract or applicable
law:
(a) the Company shall fail to pay any principal or returns due under the
Securities, or fail to pay any fees or other charges when due under this Agreement or any of
the
Related Documents, and such failure continues for three (3) Business Days or more after the
same
first becomes due;
(b) any representation or warranty made, or financial statement, certificate or
other document provided, by the Company or any Subsidiary under this Agreement or any Related
Document shall prove to have been false or misleading in any material respect when made or
deemed made herein;
(c) any registration statement, proxy statement, report or other document filed
by the Company under the Securities Act or the Exchange Act shall contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which they were made, not
misleading;
23
(d) the Company or any Subsidiary shall fail to pay or admit its inability to pay
its debts generally as they become due or shall commence any Insolvency Proceeding with
respect
to itself; an involuntary Insolvency Proceeding shall be filed against the Company or any
Subsidiary, or a custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar
official shall be appointed to take possession, custody or control of the properties of the
Company
or any Subsidiary, and such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by the Company or such Subsidiary as applicable or is not dismissed within sixty
(60) days; or the dissolution or termination of the business of the Company or any Subsidiary;
(e) the Company or any Subsidiary shall be in default beyond any applicable
period of grace or cure under any other agreement involving the borrowing of money, the
purchase
of property, the advance of credit or any other monetary liability of any kind to any Investor
or to
any other Person that results in the acceleration of payment of such obligation in an amount
in
excess of One Hundred Thousand Dollars ($100,000.00);
(f) any governmental or regulatory authority shall take any judicial or
administrative action, or any defined benefit pension plan maintained by the Company or any
Subsidiary shall have any unfunded liabilities, any of which, in the reasonable judgment of
the
Majority Investors, would reasonably be expected to have a Company Material Adverse Effect;
(g) any sale, transfer or other disposition of all or a substantial or material part
of the assets of the Company or any Subsidiary, including, without limitation, to any trust or
similar entity, shall occur, except where such transaction is consented to by the Majority
Investors;
(h) any judgment(s) singly or in the aggregate in excess of One Hundred Thousand Dollars
($100,000.00) shall be entered against the Company or any Subsidiary that remain unsatisfied,
unvacated or unstayed pending appeal for forty-five (45) or more days after entry thereof;
(i) the Company or any Subsidiary shall fail to perform or observe any covenant contained in
this Agreement;
(j) the Company’s Cash and Cash Equivalents (as defined below) shall fall below Two Hundred
Fifty Thousand Dollars ($250,000.00);
(k) there shall be a Material Adverse Effect on the Company and its Subsidiaries (for the
avoidance of doubt, the departure of key members of the Company’s management shall constitute a
Material Adverse Effect) or the Collateral shall be impaired; and
(l) the Company or any Subsidiary shall fail to perform or observe any covenant or agreement
contained in this Agreement or any Related Document (other than a covenant that is dealt with
specifically elsewhere in this Article 9) and, if capable of being cured, the breach of such
covenant is not cured within thirty (30) days after the sooner to occur of the Company’s receipt of
notice of such breach from the Majority Investors or the date on which such breach first becomes
known to any officer of the Company; provided, however, that if such breach is not
capable of being cured within such thirty (30)-day period and the Company timely notifies
24
the Majority Investor of such fact and the Company diligently pursues such cure, then the cure
period shall be extended to the date requested in the Company’s notice but in no event more than
ninety (90) days from the initial breach; provided, further, that such additional
sixty (60)-day opportunity to cure shall not apply in the case of any failure to perform or
observe any covenant which has been the subject of a prior failure within the preceding one
hundred eighty (180) days or which is a willful and knowing breach by the Company or any
Subsidiary.
No delay or omission to exercise any right, power or remedy accruing to any party under this
Agreement, upon any breach or default of any other party under this Agreement, will impair any
such right, power or remedy of such non-breaching or non-defaulting party nor will 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 will 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 party of any breach or
default under this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and will 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 party, will be cumulative and not alternative.
9.2 Remedies Upon Default. (a) Upon the occurrence and during the continuance of
an Event of Default described in Section 9.1(c), each of (i) the unpaid principal amount of
and
accrued returns on the Securities and (ii) all other Securities Amounts shall automatically
become
immediately due and payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Company, and (b) upon the occurrence and
during the continuance of any other Event of Default, the Investors shall be entitled to, at
their
option, exercise any or all of the rights and remedies available to a secured party under the
UCC or
any other applicable law, and exercise any or all of their rights and remedies provided for in
this
Agreement and in any Related Document. The obligations of the Company under this Agreement
shall continue to be effective or be reinstated, as the case may be, if at any time any
payment of
any Securities Amounts is rescinded or must otherwise be returned by a Investor upon, on
account
of or in connection with, the insolvency, bankruptcy or reorganization of the Company, any
Subsidiary or otherwise, all as though such payment had not been made.
9.3 Sale of Collateral. In addition to any other rights set forth in this Agreement or
any of the Related Documents, upon the occurrence and during the continuance of an Event of
Default, the Investors may sell all or any part of the Collateral, at public or private sales,
to
themselves, a wholesaler, retailer or investor, for cash, upon credit or for future delivery,
and at
such price or prices as the Investors may deem commercially reasonable. To the extent
permitted
by law, the Company hereby specifically waives all rights of redemption and any rights of stay
or
appraisal that it has or may have under any applicable law in effect from time to time. Any
such
public or private sales shall be held at such times and at such place(s) as the Investors may
determine. In case of the sale of all or any part of the Collateral on credit or for future
delivery, the
Collateral so sold may be retained by the Investors until the selling price is paid by the
purchaser,
but the Investors shall not incur any liability in case of the failure of such purchaser to
pay for the
Collateral and, in case of any such failure, such Collateral may be resold. The Investors
may,
instead of exercising their power of sale, proceed to enforce their security interest in the
Collateral
25
by seeking a judgment or decree of a court of competent jurisdiction. Without limiting the
generality of the foregoing, if an Event of Default is in effect:
(a) Subject to the rights of any third parties, the Investors may, in compliance
with applicable law, license, or sublicense, whether general, special or otherwise, and
whether on
an exclusive or non-exclusive basis, any Copyrights, Patents, Trademarks or other Intellectual
Property included in the Collateral throughout the world for such term or terms, on such
conditions
and in such manner as the Investors shall in their sole discretion determine;
(b) The Investors may (without assuming any obligations or liability
thereunder), at any time and from time to time, enforce (and shall have the exclusive right to
enforce) against any licensee or sublicensee all rights and remedies of the Company in, to and
under any Copyright Licenses, Patent Licenses, Trademark Licenses or other Intellectual
Property
and take or refrain from taking any action under any thereof, and the Company hereby releases
the
Investors from, and agrees to hold the Investors free and harmless from and against any claims
arising out of, any lawful action so taken or omitted to be taken with respect thereto other
than
claims arising out of an Investor’s gross negligence or willful misconduct; and
(c) Upon request by the Majority Investors, the Company will execute and
deliver to the Investors a power of attorney, in form and substance reasonably satisfactory to
the
Majority Investors, for the implementation of any lease, assignment, license, sublicense,
grant of
option, sale or other disposition of a Copyright, Patent, Trademark or other Intellectual
Property.
In the event of any such disposition pursuant to this clause (c), the Company shall supply its
know-how and expertise relating to the products or services made or rendered in connection with
Patents,
the manufacture and sale of the products bearing Trademarks and its customer lists and other
records relating to such Copyrights, Patents, Trademarks or other Intellectual Property and to
the
distribution of said products, to the Investors.
9.4 Company’s Obligations Upon Default. Upon the request of the Majority Investors after the
occurrence and during the continuance of an Event of Default, the Company will:
(a) Assemble and make available to the Investors the Collateral at such place(s)
as the Majority Investors shall reasonably designate, segregating all Collateral so that each
item is
capable of identification; and
(b) Subject to the rights of any lessor, permit the Investors, by the Investors’
officers, employees, agents and representatives, to enter any premises where any Collateral is
located, to take possession of the Collateral, to complete the processing, manufacture or
repair of
any Collateral, and to remove the Collateral, or to conduct any public or private sale of the
Collateral, all without any liability of the Investors for rent or other compensation for the
use of the
Company’s premises.
10. Sharing
10.1 Payments on Account of Securities. The Company agrees that all payments on account of
the Securities shall be made ratably among the Investors in accordance with their
26
respective Pro Rata Shares (as defined herein).
10.2 Security Payments on Account of Securities. Each Investor acknowledges and
agrees that all Security Payments (as defined herein) on account of the Securities shall be
made
on a pro rata basis, in accordance with each Investor’s respective Pro Rata Share at the time
of
payment. Without limiting the generality of the foregoing, each Investor agrees that upon
the
occurrence of any Event of Default and so long as such Event of Default continues, any and all
Security Payments shall be applied in the following order: (i) first, for application to the
payment of any fees, costs and expenses of the Investors in connection with the enforcement of
the Securities and the Collateral; and (ii) second, ratably in accordance with their Pro Rata
Shares, for application to the payment of (A) accrued and unpaid returns on the Securities,
then
(B) the outstanding principal of the Securities and (C) the other Securities Amounts.
10.3 Excess Security Payments. If, despite the provisions of this Section 10, any
Investor shall receive any Security Payment in excess of its Pro Rata Share to which it is
then
entitled in accordance with this Agreement, such Investor shall hold such excess Security
Payment in trust for the benefit of the parties entitled thereto and promptly pay over or
deliver
such excess Security Payment to the other Investors for application in accordance with this
Agreement. Additionally, such Investor shall, if so required by the Majority Investors,
purchase
from the other Investors such participations in their respective Securities or other
Securities
Amounts as shall be required by them to permit the sharing of such excess Security Payment in
accordance with the requirements of this Agreement. If all or any portion of such excess
Security Payment is thereafter recovered by or on behalf of the Company from such Investor,
each other party that shares in the benefit thereof shall return to such Investor its portion
of the
payment so recovered.
10.4 Security Payment Defined. For the purposes of this Agreement, “Security
Payment” means any payment or distribution by or on behalf of the Company or any of its
Subsidiaries, directly or indirectly, of assets of the Company or any of its Subsidiaries of
any
kind or character, whether in cash, property or securities, on account of the Securities, any
of the
other Related Documents or any Securities Amounts (including the purchase, redemption or
other acquisition thereof), as a result of any collection, sale or other disposition of
Collateral, or
by setoff, exchange or in any other manner.
10.5 Pro Rata Share Defined. For the purposes of this Agreement, the “Pro Rata
Share” of an Investor means the proportion that the unpaid principal and accrued returns on
such
Investor’s Securities bears to the aggregate unpaid principal and accrued returns on all
outstanding Securities.
10.6 Majority Investors Defined. For the purposes of this Agreement, “Majority
Investors” means at any time Investors holding at least sixty percent (60%) of the aggregate
unpaid principal of the then outstanding Securities purchased pursuant to this Agreement.
10.7 Authority of Majority Investors. Each of the Investors hereby agrees that the
Majority Investors shall have the right, power and authority to direct, on behalf of all
Investors,
the manner of any and all action taken by the Investors in respect of: (i) the demand or
acceleration of the Securities or any other Securities Amounts; (ii) the enforcement of this
27
Agreement and the Related Documents or exercise of any remedial action in respect thereof; (iii)
the exercise or non-exercise of remedies against the Collateral; (iv) the release of any
Collateral; and (v) the granting of waivers, forbearances or making of amendments in respect of
this Agreement, any Related Document or any Event of Default or any Collateral. Any such direction
by or approval of the Majority Investors shall be binding on all Investors and each Investor
agrees to join in any action or proceeding commenced by the Majority Investors hereunder and/or to
otherwise assist the Majority Investors with respect to any such direction or approval. Without
limitation to the foregoing, each of the Investors agrees to execute and deliver such documents or
instruments (including where appropriate powers of attorney) and do all such things as may be
required by the Majority Investors in connection with the exercise of their authority hereunder.
10.8 Prohibited Actions. Without prejudice or limitation to any of the foregoing,
except with the prior written approval of the Majority Investors, no Investor shall commence,
or
if already commenced shall continue in, any of the following actions:
(a) accelerate or otherwise make due and payable prior to the original stated
maturity thereof any of the Securities or other Securities Amounts or bring suit or institute
any
other actions or proceedings to enforce its rights or interests under or in respect of this
Agreement
or any of the Related Documents;
(b) exercise any right of set-off, counterclaim, banker’s lien or other claim it
may have against the Company or any other Person with respect to the Securities or other
Securities Amounts;
(c) exercise any rights under or with respect to (A) guaranties of the Securities
or other Securities Amounts, or (B) any Collateral, including causing or compelling the pledge
or
delivery of any Collateral, any attachment of, levy upon, execution against, foreclosure upon
or the
taking of other action against or institution of other proceedings with respect to any
Collateral,
notifying any account debtors of the Company or asserting any claim or interest in any
insurance
with respect to any Collateral, or release any Collateral or other guaranties; or
(d) commence, or cause to be commenced, or join with any creditor in
commencing, any bankruptcy, insolvency or receivership proceeding against the Company or any
Subsidiary.
Notwithstanding the forgoing, the Collateral Agent may exercise its rights under the Security
Agreement and any other Related Documents.
10.9 Exculpation among Investors. Each Investor acknowledges and agrees that no
other Investor (nor any of their officers, directors, employees, agents, advisors or
attorneys) has
represented it or otherwise been responsible for acting for it in connection with the
preparation,
negotiation or execution and delivery of this Agreement or any of the Related Documents and
that each Investor has made its own independent review and appraisal of, and sought its own
independent advice (and if it has not sought such advice assumes the risks associated with not
obtaining such advice) regarding, the terms of this Agreement and the Related Documents and
the structure of the transactions contemplated hereby and thereby, the scope and nature of the
28
Collateral, the financial or other condition of the Company, its Subsidiaries and all other
matters pertaining to this Agreement and the Related Documents or the transactions contemplated
thereby. No Investor shall have any obligation or duty to ensure the compliance by the Company,
any of its Subsidiaries or any Investor with the conditions specified in any of this Agreement or
the Related Documents for any extension of credit to the Company. Each Investor by executing this
Agreement shall be deemed to have consented to, approved or accepted and to be satisfied with,
each document or other matter required to be consented to or approved by or acceptable or
satisfactory to the Investors. Each Investor acknowledges and agrees that: (i) no Investor has any
implied or other duties to any other Investor or anyone else; (ii) except as otherwise expressly
agreed herein, each Investor can advance its own interests as it sees fit; and (iii) no other role
or position of any Investor or any Affiliate, officer, employee, attorney or agent of any Investor
with respect to the Company, Investor or any other Person, shall impair or alter any of the
Investor’s rights or otherwise create any liability or obligation to the other Investors.
10.10 Independent Investigation. Each Investor has itself been, and will continue to
be, based on such documents and information as it has deemed appropriate, solely responsible
for making its own independent appraisal of, and investigations into, the financial condition,
creditworthiness, condition, affairs, status and nature of the Company or any of its
Subsidiaries
and the nature and value of any the Securities and any other Securities Amounts. Accordingly,
each Investor confirms to the other Investors that it has not relied, and will not hereafter
rely, on
the other Investors: (i) to check or inquire on such Investor’s behalf into the adequacy,
accuracy
or completeness of any information provided by the Company or any other Person under or in
connection with this Agreement or the transactions contemplated by this Agreement and the
Related Documents (whether or not such information has been or is hereafter distributed to
such
Investor) or (ii) to assess or keep under review on such Investor’s behalf, the financial
condition,
creditworthiness, condition, affairs, status or nature of the Company, any Subsidiary or the
nature or value of any Collateral.
10.11 Other Activities. Each of the Investors and its Affiliates may make loans to,
acquire equity interests in, and generally engage in any kind of banking, trust, financial
advisory,
underwriting, equity investment, venture capital or other business with the Company, or the
Investors and their Subsidiaries and Affiliates as though such Investor was not an Investor
hereunder and without notice to or consent of the other Investors. The Investors acknowledge
that, pursuant to such activities, an Investor or its Affiliates may receive information
regarding
the Company and its Subsidiaries or Affiliates (including information that may be subject to
confidentiality obligations in favor of such Person) and acknowledge that such Investor shall
be
under no obligation to provide such information to them.
10.12 Collateral Agent. Each Investor and each subsequent holder of any Security by
its acceptance thereof, hereby designates and appoints the Collateral Agent as the collateral
agent
for such Investor hereunder and under the other Related Documents and authorizes the
Collateral
Agent to take such actions as agent on its behalf and to exercise such powers as are delegated
to
the Collateral Agent by the terms of this Agreement and the Related Documents, together with
such powers as are reasonably incidental thereto. The Collateral Agent shall not have any
duties
or responsibilities, except those expressly set forth herein or in the Related Documents, or
any
fiduciary relationship with any Investor, and no implied covenants, functions,
responsibilities,
duties, obligations or liabilities on the part of the Collateral Agent shall be read into this
29
Agreement or any Related Documents or otherwise exist for the Collateral Agent. In performing its
functions and duties hereunder or under the Related Documents, the Collateral Agent shall act
solely as agent for the Investors and does not assume, nor shall be deemed to have assumed, any
obligation or relationship of trust or agency with or for the Company, any Subsidiary of the
Company or any of their respective successors or assigns. The Collateral Agent shall not be
required to take any action that exposes the Collateral Agent to personal liability or that is
contrary to this Agreement, the Related Documents or applicable laws.
10.13 Sole Benefit of Investors. This Section 10 has been entered into for the sole
protection and benefit of the Investors and their successors and assigns, and no other Person,
including, but not limited to, the Company and its Subsidiaries, shall be a direct or indirect
beneficiary of, or shall have any direct or indirect cause of action or claim in connection with,
this Section 10.
11. Indemnification
The Company hereby agrees to indemnify the Investors and their directors, officers,
employees, agents, counsel, Affiliates and other advisors (each an “Indemnified Person”) against,
and hold each of them harmless from, any and all liabilities, obligations, losses, claims,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever, including the reasonable fees and disbursements of counsel to an Indemnified
Person (including allocated costs of internal counsel), that may be imposed on, incurred by or
asserted against any Indemnified Person (i) in any way relating to or arising out of this
Agreement or any of the Related Documents, the use or intended use of the proceeds of the
Securities, or the transactions contemplated hereby or thereby; (ii) the breach or default by the
Company or any of its Subsidiaries of any representation, warranty, covenant or agreement of the
Company or any of its Subsidiaries contained in this Agreement or any of the Related Documents and
(iii) with respect to any investigation, litigation or other proceeding relating to any of the
foregoing, irrespective of whether the Indemnified Person shall be designated a party thereto (the
“Indemnified Liabilities”); provided, however, that the Company shall not be
liable to any Indemnified Person for any portion of such Indemnified Liabilities to the extent
that they are found by a final decision of a court of competent jurisdiction to have resulted from
such Indemnified Person’s gross negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held unenforceable, the Company agrees to make the
maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that
is permissible under applicable law.
12. Miscellaneous
12.1 Binding Agreement. The terms and conditions of this Agreement shall inure to the benefit
of and be enforceable by the Company and the Investors and their respective successors and assigns.
The Company may not assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder without the prior express written consent of the Majority
Investors. Any such purported assignment, transfer, hypothecation or other conveyance by the
Company without the prior express written consent of the Majority Investors shall be void. Nothing
in this Agreement, express or implied, is intended to confer upon any third party any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
30
except as expressly provided in this Agreement.
12.2 Governing Law; Venue; Arbitration; Dispute Resolution.
(a) This Agreement shall be governed by and construed according to the laws
of the State of California, without regard to conflict of law principles thereof. The
Company
hereby (i) submits to the exclusive jurisdiction of the courts of the County of San Francisco,
State
of California and the Federal courts of the United States sitting in the Northern District of
the State
of California for the purpose of any action or proceeding arising out of or relating to this
Agreement and the Related Documents; (ii) agrees that all claims in respect of any such action
or
proceeding may be heard and determined in such courts; (iii) irrevocably waives (to the extent
permitted by applicable law) any objection that it now or hereafter may have to the laying of
venue
of any such action or proceeding brought in any of the foregoing courts, and any objection on
the
ground that any such action or proceeding in any such court has been brought in an
inconvenient
forum; and (iv) 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 judgment or in any other manner
permitted by law.
(b) The parties agree that any dispute, controversy or claim (including any
counterclaim) (each, a “Dispute”) arising out of or relating to this Agreement or any Related
Documents shall be finally resolved by confidential binding arbitration in San Francisco
County,
California as the sole and exclusive method of resolving such dispute, controversy or claim.
Any
Dispute shall be settled by arbitration under the rules then in effect of JAMS/Endispute
conducted
by a single arbitrator reasonably acceptable to the parties. The arbitrator shall have no
power to
amend this Agreement or any Related Documents. The arbitrator shall issue an award in writing
(including an explanation of the grounds for such award) as promptly as practicable that shall
be
final and binding on the parties. Judgment upon any award thus obtained may be entered in any
court having jurisdiction thereof. No action at law or in equity based upon any claim arising
out of
or related to this Agreement or any Related Documents shall be instituted in any court by any
party
except (a) an action to compel arbitration pursuant to this Section 12.2(b); or (b) an action
to
enforce an award obtained in an arbitration proceeding in accordance with this Section
12.2(b).
Pending the submission to arbitration and thereafter until the arbitrator publishes its award,
each
party shall, except in the event of termination, continue to perform all its obligations under
this
Agreement and the Related Documents without prejudice to a final adjustment in accordance with
the award.
12.3 Counterparts. This Agreement may be executed in two or more counterparts,
including counterparts transmitted by facsimile, each of which shall be deemed an original,
but
all of which together shall constitute one and the same instrument.
12.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement.
12.5 Notices. Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery, overnight courier,
facsimile or upon deposit with the United States Post Office, postage prepaid, addressed to
the
Company, or to the Investors at their addresses shown on the signature pages hereto, or at
such
31
other address as such party may designate by ten (10) days advance written notice to the other
party.
12.6 Entire Agreement. This Agreement, the Related Documents and the exhibits
and schedules hereto and thereto constitute the full and entire understanding and agreement
among the parties with regard to the subjects hereof, and supersede any prior agreements among
the parties regarding the subject matter hereof. No party shall be liable or bound to any
other in
any manner by any representations, warranties, covenants and agreements except as specifically
set forth herein.
12.7 Amendments and Waivers. Any term of this Agreement, the Security
Agreement, the Guaranty, the Securities and the other Related Documents may be amended and
the observance of any term of this Agreement, the Security Agreement, the Guaranty, the
Securities and the other Related Documents may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of the Company
and
the Majority Investors. Any amendment or waiver effected in accordance with this Section 12.7
shall be binding upon each Investor and each other holder of any Securities purchased under
this
Agreement at the time outstanding, each future holder of all such Securities and the Company.
12.8 Maximum Interest. Notwithstanding anything to the contrary in this Agreement
or any Related Documents, in no event whatsoever shall the aggregate of all amounts deemed
interest hereunder, under the Securities or under any other Related Documents and charged or
collected pursuant to the terms of this Agreement, the Securities or such Related Document
exceed the highest rate permissible under any law which a court of competent jurisdiction
shall,
in a final determination, deem applicable hereto or thereto. If any provisions of this
Agreement,
the Securities or any other Related Documents are in contravention of any such law, such
provisions shall be deemed amended to conform thereto (the “Maximum Rate”). If at any time,
the amount of interest paid hereunder, under the Securities or any other Related documents is
limited by the Maximum Rate, and the amount at which interest accrues hereunder or thereunder
shall remain at the Maximum Rate, until such time as the aggregate interest paid hereunder or
thereunder equals the amount of interest that would have been paid had the Maximum Rate not
applied.
12.9 Severability. Whenever possible, each provision of this Agreement and the
Related Documents shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or any of the Related Documents is held
to
be prohibited by or invalid under applicable law in any jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without invalidating any
other
provision of this Agreement or the Related Documents. To the extent that any Securities
Amounts otherwise paid or payable by the Company to any Investor hereunder or under any of
the Related Documents shall have been finally adjudicated to exceed the maximum amount
permitted by applicable law, the Investors shall be entitled to the maximum amount allowable
under applicable law.
12.10 Expenses. Irrespective of whether the Initial Closing is effected, the Company
shall pay all costs and expenses that it incurs with respect to the negotiation, execution,
delivery
and performance of this Agreement. If the Initial Closing is effected, the Company agrees to
pay
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promptly: (i) all reasonable costs and expenses of negotiation, preparation and execution of this
Agreement and the Related Documents and any consents, amendments, waivers or other modifications
thereto; (ii) all costs and expenses of furnishing all opinions by counsel for the Company
(including any opinions requested by the Collateral Agent or the Investors as to any legal matters
arising hereunder) and of the Company’s performance of and compliance with all agreements and
conditions on its part to be performed or complied with under this Agreement and the Related
Documents; (iii) all reasonable fees, expenses and disbursements of counsel to the Investors or the
Collateral Agent (including allocated costs of internal counsel) in connection with the
negotiation, preparation, execution and administration of this Agreement and the Related Documents
and any consents, amendments, waivers or other modifications thereto and any other documents or
matters requested by the Company; (iv) all costs and expenses of creating and perfecting Liens in
favor of the Collateral Agent on behalf of the Investors pursuant to any Related Document,
including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees,
title insurance premiums, and reasonable fees, expenses and disbursements of counsel to the
Investors or the Collateral Agent and of counsel providing any opinions that the Collateral Agent
or the Majority Lenders may request in respect of this Agreement and the Related Documents or the
Liens created pursuant hereto and thereto; (v) all costs and expenses incurred by the Collateral
Agent in connection with the custody or preservation of any of the Collateral; (vi) all costs and
expenses, including reasonable attorneys’ fees (including allocated costs of internal counsel) and
fees, costs and expenses of accountants, advisors and consultants, incurred by the Investors or the
Collateral Agent and its counsel relating to efforts to (a) evaluate or assess the Company or any
of its Subsidiaries, their business or financial condition and (b) protect, evaluate, assess or
dispose of any of the Collateral under this Agreement and any Related Documents; (ix) all costs and
expenses, including attorneys’ fees (including allocated costs of internal counsel), fees, costs
and expenses of accountants, advisors and consultants and costs of settlement, incurred by the
Collateral Agent and the Lenders in enforcing any Securities Amounts of or in collecting any
payments due from the Company or any of its Subsidiaries hereunder or under the Related Documents
(including in connection with the sale of, collection from, or other realization upon any of the
Collateral or the enforcement of this Agreement and the Related Documents) or in connection with
any refinancing or restructuring of the credit arrangements provided under this Agreement in the
nature of a “work-out” or pursuant to any insolvency or bankruptcy proceedings, (x) all fees and
expenses of O’Melveny & ▇▇▇▇▇ LLP and all other legal fees and expenses of the Investors incurred
in connection with the transactions contemplated hereby; (xi) the fees and expenses of O’Melveny &
▇▇▇▇▇ LLP and all other legal fees and expenses of the Investors incurred in connection with any
Subsequent Closing; and (xii) the fees and expenses of O’Melveny & ▇▇▇▇▇ LLP and all other legal
fees and expenses of the Investors incurred in connection with the Rights Offering.
13. Definitions
The definitions appearing in this Agreement shall be applicable to both the singular and
plural forms of the defined terms:
“Account” means any “account,” as such term is defined in the UCC, now owned or hereafter acquired
by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all
33
accounts receivable, book debts and other forms of obligations (other than forms of obligations
evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired
by or belonging or owing to the Company or any Subsidiary (including, without limitation, under
any trade name, style or division thereof) whether arising out of goods sold or services rendered
by the Company or any Subsidiary or from any other transaction, whether or not the same involves
the sale of goods or services by the Company or any Subsidiary (including, without limitation, any
such obligation that may be characterized as an account or contract right under the UCC) and all
of the rights of the Company or any of its Subsidiaries in, to and under all purchase orders or
receipts now owned or hereafter acquired by it for goods or services, and all of the rights of the
Company or any of its Subsidiaries to any goods represented by any of the foregoing (including,
without limitation, unpaid seller’s rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become
due to the Company or any Subsidiary under all purchase orders and contracts for the sale of goods
or the performance of services or both by the Company or any Subsidiary or in connection with any
other transaction (whether or not yet earned by performance on the part of the Company or any
Subsidiary), now in existence or hereafter occurring, including, without limitation, the right to
receive the proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
“Affiliate” means any Person which directly or indirectly controls, is controlled by or is under
common control with such Person. “Control,” “controlled by” and “under common control
with” mean direct or indirect possession of the power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by contract or otherwise);
provided, that control shall be conclusively presumed when any Person or affiliated group directly
or indirectly owns five percent (5%) or more of the securities having ordinary voting power for
the election of directors of a corporation.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks
in San Francisco, California or New York City, New York are authorized or required by law to
close.
“Capital Expenditures” shall mean capital expenditures of the Company and its Subsidiaries
determined and consolidated in accordance with U.S. generally accepted accounting principles,
excluding expenditures made in connection with the replacement, substitution or restoration of
assets to the extent financed with insurance proceeds, cash awards arising from a taking by eminent
domain or condemnation or cash proceeds of asset dispositions reinvested in replacement assets.
“Capital Stock” means (a) with respect to any Person that is a corporation, any and all shares,
interests or equivalents in capital stock (whether voting or nonvoting, and whether common or
preferred) of such corporation and (b) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity interests of such
Person (including all economic, voting and other rights related thereto); and in each case, any
and all warrants, rights or options to purchase any of the foregoing.
34
“Cash and Cash Equivalents” means, as at any date of determination: (i) cash; (ii) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest and principal by
the United States government or (b) issued by any agency of the United States the obligations of
which are backed by the full faith and credit of the United States, in each case maturing within
one year after such date; (iii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public instrumentality
thereof, in each case maturing within one year after such date and having, at the time of the
acquisition thereof, investment grade rating from either Standard & Poor’s (“S&P”) or ▇▇▇▇▇’▇
Investors Service, Inc. (“Moody’s”); (iv) commercial paper maturing no more than one year from the
date of creation thereof and having, at the time of the acquisition thereof, a rating of at least
A-l from S&P or at least P-l from Moody’s; (v) certificates of deposit or bankers’ acceptances
maturing within one year after such date and issued or accepted by any commercial bank organized
under the laws of the United States of America or any state thereof or the District of Columbia
that (a) is at least “adequately capitalized” (as defined in the regulations of its primary
Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less
than U.S. $100,000,000; and (vi) shares of any money market mutual fund that (a) has at least 95%
of its assets invested continuously in the types of investments referred to in clauses (ii) and
(iii) above, (b) has net assets of not less than U.S. $500,000,000, and (c) has an investment
grade rating from either S&P or Moody’s.
“Change of Control” means the occurrence of any of the following:
(a) any transaction or series of related transactions resulting in the sale or issuance of
securities or any rights to securities of the Company representing in the aggregate more than
fifty
percent (50%) of the Company’s issued and outstanding voting securities, on a fully diluted
basis, or any transaction or series of related transactions resulting in the sale, transfer,
assignment
or other conveyance or disposition of any securities or any rights to securities of the
Company by
any holder or holders thereof representing in the aggregate more than fifty percent (50%) of
the
issued and outstanding voting securities of the Company;
(b) a merger, consolidation, reorganization, recapitalization or share exchange
(whether or not the Company is the surviving and continuing entity) in which the stockholders
or
equityholders of the Company immediately prior to such transaction receive, in exchange for
securities of the Company owned by them (whether alone or together with cash, property or
other securities), cash, property or securities of the resulting or surviving entity and as a
result
thereof Persons who were holders of voting securities of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the issued and outstanding Capital Stock of
the
resulting or surviving entity entitled to vote in the election of directors, managers or
similar
governing body or otherwise;
(c) a sale, transfer, exclusive license, exclusive partnering arrangement or other
disposition in a single transaction or series of related transactions of fifty percent (50%)
or more
of the assets of the Company and its Subsidiaries, on a consolidated basis, other than sales
of
inventory in good faith to customers for fair value in the ordinary course of business and
dispositions of obsolete equipment not used or useful in the business of the Company and its
Subsidiaries;
35
(d) a sale, transfer, exclusive license, exclusive partnering arrangement or other
disposition in a single transaction or series of related transactions of the Company’s Adlea
assets;
(e) prepayment of the Securities in accordance with the third paragraph of such
Securities;
(f) the Company or any Subsidiary shall fail to pay or admit its inability to pay its
debts generally as they become due or shall commence any insolvency Proceeding with respect to
itself; an involuntary Insolvency Proceeding shall be filed against the Company or any
Subsidiary,
or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar
official shall
be appointed to take possession, custody or control of the properties of the Company or any
Subsidiary, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced
to
by the Company or such Subsidiary as applicable or is not dismissed within sixty (60) days; or
the
dissolution or termination of the business of the Company or any Subsidiary; and
(g) the failure of the Company to own and control, directly or indirectly, through one
or more wholly-owned Subsidiaries, one hundred percent (100%) of the issued and outstanding
Capital Stock of its Subsidiaries.
“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC, now owned or
hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now
holds or hereafter acquires any interest.
“Copyright License” means any written agreement granting any right to use any Copyright or
Copyright registration now owned or hereafter acquired by the Company or any Subsidiary or in
which the Company or any Subsidiary now holds or hereafter acquires any interest.
“Copyrights” means all of the following now owned or hereafter acquired by the Company or any
Subsidiary or in which the Company or any Subsidiary now holds or hereafter acquires any interest:
(i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United
States, any State thereof or of any other country; (ii) all registrations, applications and
recordings in the United States Copyright Office or in any similar office or agency of the United
States, any State thereof or any other country; (iii) all continuations, renewals or extensions
thereof; and (iv) any registrations to be issued under any pending applications.
“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, now owned or
hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now
holds or hereafter acquires any interest.
“Documents” means any “documents,” as such term is defined in the UCC, now owned or hereafter
acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or
hereafter acquires any interest.
“Equipment” means any “equipment,” as such term is defined in the UCC, now owned or hereafter
acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or
hereafter acquires any interest and any and all additions, substitutions
36
and replacements of any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed thereto.
“Indebtedness” of any Person means at any date, without duplication and without regard to whether
matured or unmatured, absolute or contingent: (i) all obligations of such Person for borrowed
money; (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar
instruments; (iii) all obligations of such Person to pay the deferred purchase price of property
or services, except trade accounts payable arising in the ordinary course of business; (iv) all
obligations of such Person as lessee under capital leases; (v) all obligations of such Person to
reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit,
banker’s acceptance or similar instrument, whether drawn or undrawn; (vi) all obligations of such
Person to purchase securities that arise out of or in connection with the sale of the same or
substantially similar securities; (vii) all obligations of such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such Person or any warrants,
rights or options to acquire such Capital Stock, now or hereafter outstanding, except to the
extent that such obligations remain performable solely at the option of such Person; (viii) all
obligations to repurchase assets previously sold (including any obligation to repurchase any
accounts or chattel paper under any factoring, receivables purchase or similar arrangement); (ix)
obligations of such Person under interest rate swap, cap, collar or similar hedging arrangements;
and (x) all obligations of others of any type described in clause (i) through clause (ix) above
guaranteed by such Person.
“Insolvency Proceeding” means with respect to a Person: (a) any case, action or proceeding before
any court or other governmental authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors with respect to such Person
or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of such Person’s creditors generally or any
substantial portion of its creditors, undertaken under federal, state or foreign law, including the
Bankruptcy Code, but in each case, excluding any avoidance or similar action against such Person
commenced by an assignee for the benefit of creditors, bankruptcy trustee, debtor in possession or
other representative of another Person or such other Person’s estate.
“Instruments” means any “instrument,” as such term is defined in the UCC, now owned or hereafter
acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or
hereafter acquires any interest.
“Inventory” means any “inventory,” as such term is defined in the UCC, wherever located, now owned
or hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary
now holds or hereafter acquires any interest, and, in any event, shall include, without
limitation, all inventory, goods and other personal property that are held by or on behalf of the
Company or any Subsidiary for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process or materials used or
consumed or to be used or consumed in the business of the Company or any Subsidiary, or the
processing, packaging, promotion, delivery or shipping of the same, and all finished goods,
whether or not the same is in transit or in the constructive, actual or exclusive possession of
the Company, any Subsidiary or is held by others for the account of the Company or any Subsidiary,
including, without limitation, all goods covered by purchase orders and contracts with suppliers
and all goods billed and held by suppliers and all such property first may be in the possession or
37
custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or
other Persons.
“knowledge” means the knowledge of the Company’s officers and other manager-level employees, and it
shall be deemed that such persons shall have made due and diligent inquiry of such matter in
question.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security
interest, encumbrance, ▇▇▇▇, ▇▇▇▇ or charge of any kind, whether voluntarily incurred or arising
by operation of law or otherwise, against any property, any conditional sale or other title
retention agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect to a lease that
is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.
“Patent License” means any written agreement granting any right with respect to any invention on
which a Patent is in existence now owned or hereafter acquired by the Company or any Subsidiary or
in which the Company or any Subsidiary now holds or hereafter acquires any interest.
“Patents” means all of the following property now owned or hereafter acquired by the Company or
any Subsidiary or in which the Company or any Subsidiary now holds or hereafter acquires any
interest: (a) all letters patent of, or rights corresponding thereto in, the United States or any
other country, all registrations and recordings thereof, and all applications for letters patent
of, or rights corresponding thereto in, the United States or any other country, including, without
limitation, registrations, recordings and applications in the Patent and Trademark Office or in
any similar office or agency of the United States, any State thereof or any other country; (b) all
reissues, continuations, continuations-in-part or extensions thereof; (c) all ▇▇▇▇▇ patents,
divisionals and patents of addition; and (d) all patents to be issued under any such applications.
“Person” means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, institution,
public benefit corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign or otherwise, including any instrumentality, division, agency, body or
department thereof).
“Records” means all of the computer programs, software, hardware, source codes and data processing
information of the Company and its Subsidiaries, all written documents, books, invoices, ledger
sheets, financial information and statements of the Company and its Subsidiaries, and all other
writings concerning the business of the Company and its Subsidiaries.
“Rights to Payment” means all of the accounts, instruments, contract rights, documents, chattel
paper and all other rights to payment of the Company and its Subsidiaries, including, without
limitation, the Accounts, all negotiable certificates of deposit and all rights to payment under
any Patent License, any Trademark License or any commercial or standby letter of credit.
“Securities Amounts” means all amounts, howsoever arising, owed by the Company or any Subsidiary to
the Investors of every kind and description (whether or not evidenced by any instrument and whether
or not for the payment of money), now existing or hereafter arising
38
under or pursuant to the terms of this Agreement, the Securities and each of the Related
Documents, including, all interest, fees, charges, expenses, attorneys’ fees and costs and
accountants’ fees and costs chargeable to and payable by the Company or any Subsidiary hereunder
and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become
due, and whether or not arising after the commencement of a proceeding under Title 11 of the
United States Code (11 U.S.C. Section 101 et seq.), as amended from time to time (including
post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.
“Subsidiary” means with respect to any Person, (a) any corporation (or similar entity under
foreign law) of which an aggregate of more than fifty percent (50%) of the outstanding Capital
Stock having ordinary voting power to elect a majority of the board of directors (or equivalent
body) of such corporation (irrespective of whether, at the time, Capital Stock of any other class
or classes of such corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time, directly or indirectly, owned legally or beneficially by such
Person or one or more Subsidiaries of such Person, or with respect to which any such Person has
the right to vote or designate the vote of more than fifty percent (50%) of such Capital Stock
whether by proxy, agreement, operation of law or otherwise, and (b) any partnership, limited
liability company, association, joint venture, trust or other entity in which such Person and/or
one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent (50%) or of which any
such Person is a general partner or managing member or may exercise the powers of a general
partner or managing member. Unless the context otherwise requires, each reference to a Subsidiary
shall be a reference to a Subsidiary of the Company.
“Trademark License” means any written agreement granting any right to use any Trademark or
Trademark registration now owned or hereafter acquired by the Company or any of its Subsidiaries
or in which the Company or any of its Subsidiaries now holds or hereafter acquires any interest.
“Trademarks” means all of the following property now owned or hereafter acquired by the Company or
any of its Subsidiaries or in which the Company or any of its Subsidiaries now holds or hereafter
acquires any interest: (a) all trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and labels on which any
of the foregoing have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings thereof, and any
applications in connection therewith, including, without limitation, registrations, recordings and
applications in the Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision thereof and (b)
reissues, extensions or renewals thereof.
“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the
State of Delaware; provided, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with respect to, the
Investors’ Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of Delaware, the term “UCC” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes
39
of the provisions thereof relating to such attachment, perfection, priority or remedies and for
purposes of definitions related to such provisions. Unless otherwise defined herein, terms that are
defined in the UCC and used herein shall have the meanings given to them in the UCC.
[Remainder of page intentionally left blank]
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In Witness Whereof, the parties have executed this Securities Purchase Agreement as
of the date first written above.
| COMPANY: ANESIVA, INC. |
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| By: | /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
| Title: | President and Chief Executive Officer | |||
| Address: | ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ |
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| INVESTORS: SOFINNOVA VENTURE PARTNERS VII, L.P. |
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| By: | Sofinnova Management VII, L.L.C. | |||
| Its General Partner | ||||
| By: | ||||
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing General Partner | ||||
| ALTA CALIFORNIA PARTNERS III, L.P. By: Alta California Management Partners III, LLC |
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| By: | ||||
| Managing Director | ||||
In Witness Whereof, the parties have executed this Securities Purchase Agreement as
of the date first written above.
| COMPANY: ANESIVA, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| Address: | ||||
| INVESTORS: SOFINNOVA VENTURE PARTNERS VII, L.P. |
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| By: | Sofinnova Management VII, L.L.C. | |||
| Its General Partner | ||||
| By: | /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing General Partner | ||||
| ALTA CALIFORNIA PARTNERS III, L.P. By: Alta California Management Partners III, LLC |
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| By: | ||||
| Managing Director | ||||
In Witness Whereof, the parties have executed this Securities Purchase Agreement as
of the date first written above.
| COMPANY: ANESIVA, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| Address: | ||||
| INVESTORS: SOFINNOVA VENTURE PARTNERS VII, L.P. |
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| By: | Sofinnova Management VII, L.L.C. | |||
| Its General Partner | ||||
| By: | ||||
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Managing General Partner | ||||
| ALTA CALIFORNIA PARTNERS III, L.P. By: Alta California Management Partners III, LLC |
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| By: | /s/ Illegible | |||
| Managing Director | ||||
| ALTA EMBARCADERO PARTNERS III, LLC |
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| By: | /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ | |||
| Vice President of Finance & Administration | ||||
| ALTA PARTNERS VIII, LP By: Alta Partners Management VIII, LLC |
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| By: | /s/ Illegible | |||
| Managing Director | ||||
| CMEA VENTURES VII, L.P. |
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| By: | CMEA Ventures VII GP, L.P., | |||
| Its General Partner | ||||
| By: | CMEA Ventures VII GP, LLC, | |||
| Its General Partner | ||||
| By: | ||||
| Name: | ||||
| Title: | Manager | |||
| CMEA VENTURES VII (PARALLEL), L.P. |
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| By: | CMEA Ventures VII GP, L.P., | |||
| Its General Partner | ||||
| By: | CMEA Ventures VII GP, LLC, | |||
| Its General Partner | ||||
| By: | ||||
| Name: | ||||
| Title: | Manager | |||
| ALTA EMBARCADERO PARTNERS III, LLC |
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| By: | ||||
| Vice President of Finance & Administration | ||||
| ALTA PARTNERS VIII, LP By: Alta Partners Management VIII, LLC |
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| By: | ||||
| Managing Director | ||||
| CMEA VENTURES VII, L.P. |
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| By: | CMEA Ventures VII GP, L.P., | |||
| Its General Partner | ||||
| By: | CMEA Ventures VII GP, LLC, | |||
| Its General Partner | ||||
| By: | /s/ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇, M.D. | |||
| Title: | Manager | |||
| CMEA VENTURES VII (PARALLEL), L.P. |
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| By: | CMEA Ventures VII GP, L.P., | |||
| Its General Partner | ||||
| By: | CMEA Ventures VII GP, LLC, | |||
| Its General Partner | ||||
| By: | /s/ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇, M.D. | |||
| Title: | Manager | |||
| INTERWEST PARTNERS VIII, LP INTERWEST INVESTORS VIII, LP INTERWEST INVESTORS Q VIII, LP |
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| By: | InterWest Management Partners VIII, LLC, General Partner |
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| /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||||
| By: | ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Managing Director | ||||
SCHEDULE 1
Initial Closing — January 20, 2009
| Initial Closing | ||||
| Investor | Commitment | |||
Sofinnova Venture Partners VII, L.P. |
$ | 810,000.00 | ||
Alta California Partners III, L.P. |
$ | 81,718.00 | ||
Alta Embarcadero Partners III, LLC |
$ | 2,759.00 | ||
Alta Partners VIII, LP |
$ | 995,523.00 | ||
CMEA Ventures VII, L.P. |
$ | 292,500.00 | ||
CMEA Ventures VII (Parallel), L.P. |
$ | 7,500.00 | ||
InterWest Partners VIII, LP |
$ | 781,407.00 | ||
InterWest Investors VIII, LP |
$ | 6,237.00 | ||
InterWest Investors Q VIII, LP |
$ | 22,356.00 | ||
TOTAL: |
$ | 3,000,000.00 | ||
EXHIBIT A
Form of Security