EXHIBIT 10.1
DEBENTURE AND SHARE PURCHASE AGREEMENT
This Debenture and Share Purchase Agreement ("Agreement") is made as of
February 6, 2004 by and among Halsey Drug Co., Inc., a New York corporation
("Company"), Essex Woodlands Health Ventures V, L.P., a Delaware limited
partnership ("Essex"), Care Capital Investments, L.P., a Delaware limited
partnership ("Care Capital"), Galen Partners III, L.P., a Delaware limited
partnership ("Galen and, together with Essex, Care Capital, Galen and the
Additional Investors joining the Agreement in accordance with its terms, the
"Purchasers").
PRELIMINARY STATEMENTS
The Company desires to sell to the Purchasers, and the Purchasers
desire to purchase from the Company, the Convertible Senior Secured Debentures
in the aggregate principal amount of up to $14 million, subject to increase as
provided herein, substantially in the form of Exhibit A attached to this
Agreement (as they may be amended, supplemented or otherwise modified from time
to time in accordance with their terms, the "Debentures"), all on the terms and
subject to the conditions set forth in this Agreement.
AGREEMENT
In consideration of the mutual covenants contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
INTENTIONALLY OMITTED
ARTICLE II
SALE AND PURCHASE OF DEBENTURES; SECURITY DOCUMENTS
2.1. SALE AND PURCHASE OF DEBENTURES
At the initial Closing, on the terms and subject to the conditions and
in reliance on the representations and warranties contained in this Agreement,
or made pursuant to this Agreement, the Company shall issue, sell and deliver to
each Purchaser and such Purchaser's designees, and each Purchaser, severally and
not jointly, will purchase from the Company, the Debentures for the purchase
prices set forth opposite such Purchaser's name on Exhibit B. Such purchase
price may be paid in a combination of cash payments and the exchange of Bridge
Notes plus accrued and unpaid interest, in each case as specified on Exhibit B.
2.2 COMPANY SECURITY DOCUMENTS
All of the obligations of the Company under the Transaction Documents
to or for the benefit of the Purchasers (or their agents and representatives)
shall be secured by the following items (collectively, the "Company Debenture
Collateral"), each of which, except for Permitted Liens, shall be (i) junior and
subordinate to the lien granted to the holders of the Senior Notes, and (ii)
senior and superior to those liens granted to the investors in the Existing
Debentures, all as more specifically set forth in the Subordination Agreement:
(a) a lien on all the personal property and assets of the Company
now existing or hereinafter acquired granted pursuant to the Company General
Security Agreement, including, without limitation, a lien on and security
interest in all of the issued and outstanding shares of common stock of the
Guarantors pursuant to a separate Stock Pledge Agreement; and
(b) collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Company.
Notwithstanding the foregoing, each of the Purchasers acknowledge and
agree that the liens and security interests granted by the Company to secure the
Company's obligations under the Debentures and the Transaction Documents shall
be released upon the written consent of the holders of at least 60% of the
outstanding principal amount of the Debentures, and that upon receipt of such
consent, the Company shall be authorized to file UCC-3 Termination Statements
(or such other filings as shall be necessary) in the appropriate jurisdictions
to release the lien and security interests granted by the Company in favor of
the Purchasers under the Transaction Documents.
2.3. GUARANTIES
All of the obligations of the Company under the Debentures shall be
guaranteed pursuant to the Guaranties by the Guarantors.
2.4. GUARANTOR SECURITY DOCUMENTS
All of the obligations of the Guarantors under the Guaranties shall be
secured by the following (collectively, the "Guarantor Debenture Collateral")
each of which, except for Permitted Liens, shall be a lien ranking (i) junior
and subordinate to the lien granted to the holders of the Senior Notes, and (ii)
senior and superior to those liens granted to the investors in the Existing
Debentures, all as more specifically set forth in the Subordination Agreement:
(a) a lien on all of the personal property and assets of the
respective Guarantors now existing or hereinafter acquired, granted pursuant to
the Guarantors General Security Agreement; and
(b) collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Guarantors.
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Notwithstanding the foregoing, each of the Purchasers acknowledge and
agree that the liens and security interests granted by the Guarantors to secure
each such Guarantor's obligations under the Transaction Documents shall be
released upon the written consent of the holders of at least 60% of the
outstanding principal amount of the Debentures, and that upon receipt of such
consent, the Company shall be authorized to file UCC-3 Termination Statements
(or such other filings as shall be necessary) in the appropriate jurisdictions
to release the liens and security interests granted by the Guarantors in favor
of the Purchasers under the Transaction Documents.
ARTICLE III
CLOSING; ADJUSTMENTS TO CONVERSION PRICE
3.1. CLOSING
The initial Closing will take place at the offices of St. John & Wayne,
L.L.C., Two Penn Plaza East, Newark, New Jersey 07105 simultaneously with the
execution of this Agreement, or such other place, time and date as shall be
mutually agreed to by the Company and the Purchasers. The Company and the
Purchasers acknowledge and agree that the Debentures may be sold by the Company
on one or more Closing Dates; provided, however, that (i) the aggregate
principal amount of the Debentures shall not exceed $14 million without the
prior written consent of the holders of at least 60% of the principal amount of
the Debentures then held by Capital Investment II, LP, Essex Woodlands Health
Ventures V, L.P., Galen Partners III, L.P. and (ii) that no Debentures shall be
issued after the Termination Date. Upon the issuance of additional Debentures
under this Agreement, any additional Purchaser (each an "Additional Investor")
shall be required to execute a Joinder Agreement, which Joinder Agreement shall
include the aggregate principal amount of the Debentures issued to such
Purchaser. Any Additional Investors in the Debentures executing a Joinder
Agreement shall be deemed a "Purchaser" for all purposes of this Agreement. Each
issuance to an Additional Investor shall be made on the terms and conditions of
this Agreement.
3.2. CLOSING DELIVERIES
On the Closing Date, the Company shall deliver to each Purchaser a
Debenture, dated the Closing Date, in the principal amount set forth opposite
the name of such Purchaser in Exhibit B. The Company shall deliver the foregoing
Debentures against receipt by the Company from each Purchaser of an amount equal
to the aggregate purchase price for the Debentures to be purchased by such
Purchaser at the Closing, as set forth opposite the name of such Purchaser on
Exhibit B, in each case by surrender of Bridge Notes and/or wire transfer in
immediately available funds in U.S. dollars to an account designated by the
Company or a certified or official bank check payable to the order of the
Company drawn upon or issued by a bank which is a member of the New York
Clearinghouse for banks.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to each Purchaser to enter into and perform
its obligations under this Agreement, except as set forth in the Schedule of
Exceptions, the Company hereby represents and warrants to each Purchaser as
follows:
4.1. ORGANIZATION AND EXISTENCE
The Company is a corporation duly organized, validly existing and in
good standing under the laws of New York and is qualified to do business in such
other jurisdictions as the nature or conduct of its operations or the ownership
of its properties require such qualification. The Company does not own or lease
any property or engage in any activity in any jurisdiction that might require
qualification to do business as a foreign corporation in such jurisdiction and
where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect or subject the Company to a material liability. The Company has
furnished the Purchasers with true, correct and complete copies of its
Certificate of Incorporation, By-Laws and all amendments thereto, as of the date
hereof.
4.2. SUBSIDIARIES AND AFFILIATES
Section 4.2 of the Schedule of Exceptions sets forth the name,
jurisdiction of incorporation and authorized and outstanding capitalization of
each Subsidiary. Except as disclosed in Section 4.2 of the Schedule of
Exceptions, all of the outstanding shares of capital stock of each of the
Subsidiaries are duly and validly authorized, are validly issued and are fully
paid and nonassessable and have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws. Except as set
forth in Section 4.2 of the Schedule of Exceptions, the Company has, and upon
the Closing will have, no Subsidiaries and will not own of record or
beneficially any capital stock or equity interest or investment in any
corporation, association or business entity. Except as disclosed in Section 4.2
of the Schedule of Exceptions, each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and proposed to be conducted. Except as set forth
in Section 4.2 of the Schedule of Exceptions, no Subsidiary owns or leases any
property or engages in any activity in any jurisdiction which might require such
Subsidiary to qualify to do business as a foreign corporation in such
jurisdiction and where the failure to so qualify could reasonably be expected to
have a Material Adverse Effect or subject such Subsidiary to a material
liability.
4.3. CAPITALIZATION
(a) As of the date hereof, the Company's authorized capital stock
consists of 80,000,000 shares of Common Stock, of which 21,601,704 shares are
outstanding and approximately 239,200,000 shares are reserved for issuance for
the purposes set forth in Section 4.3 of the Schedule of Exceptions. Set forth
in Section 4.3 of the Schedule of Exceptions is a complete and correct list, as
of the date hereof, and as of the Closing Date, of the number of shares of
Common Stock held by the Company's public stockholders generally, stockholders
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holding in excess of 5% of the Company's Common Stock and all holders of
options, warrants, debentures and other securities convertible or exercisable
for Common Stock. Such schedule is complete and correct in all material
respects.
(b) Upon the effectiveness of the Charter Amendment, the Company's
authorized capital stock will consist of (i) 650,000,000 shares of Common Stock,
and (ii) 290,000,000 shares of Preferred Stock, of which (1) 45,000,000 shares
will be Series A Preferred, (2) 25,000,000 shares will be Series B Preferred,
(3) 70,000,000 shares will be Series C-1 Preferred, (4) 50,000,000 shares will
be Series C-2 Preferred and (5) 100,000,000 shares will be Series C-3 Preferred.
(c) All the issued and outstanding shares of capital stock of the
Company are (i) duly authorized and validly issued, (ii) fully paid and
nonassessable and (iii) have been offered, issued, sold and delivered by the
Company in compliance with applicable federal and state securities laws. Other
than as set forth in Section 4.3 of the Schedule of Exceptions, there are no
outstanding preemptive, conversion or other rights, options, warrants, calls,
agreements or commitments granted or issued by or binding upon the Company or
any Subsidiary, for the purchase or acquisition of any shares of its capital
stock or securities convertible into or exercisable or exchangeable for capital
stock.
4.4. AUTHORIZATION
(a) Each of the Company and the Guarantors has all requisite
corporate power and authority (i) to execute and deliver, and to perform and
observe their respective obligations under, the Transaction Documents to which
it is a respective party, and (ii) to consummate the transactions contemplated
hereby and thereby, including, without limitation, the grant of any security
interest, mortgage, payment trust, guaranty or other security arrangement by the
Company in, on or in respect of the Company Debenture Collateral, and by any and
all of the Guarantors in, on or in respect of the Guarantor Debenture
Collateral.
(b) All corporate action on the part of (i) the Company and the
directors and, except as set forth in Section 4.4(b) of the Schedule of
Exceptions or as otherwise provided in Sections 9.7 and 9.17 of this Agreement,
the stockholders of the Company necessary for the authorization, execution,
delivery and performance by the Company of the Transaction Documents and the
transactions contemplated therein, and for the authorization, issuance and
delivery of the Debentures and Shares, has been taken and (ii) each Guarantor
and their respective directors and stockholders necessary for the authorization,
execution, delivery and performance by each Guarantor of the Guarantors General
Security Document, the Guaranties and the transactions contemplated therein or
in any other Transaction Document with respect to the Guarantors, has been
taken.
4.5. BINDING OBLIGATIONS; NO MATERIAL ADVERSE CONTRACTS
The Transaction Documents constitute valid and binding obligations of
the Company and the Guarantors enforceable in accordance with their respective
terms. Except as set forth in Section 4.5 of the Schedule of Exceptions and as
provided in Section 9.17 of this Agreement, the execution, delivery and
performance by the Company and the Guarantors of the Transaction
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Documents and compliance therewith will not result in any violation of and will
not conflict with, or result in a breach of any of the terms of, or constitute a
default, or accelerate or permit the acceleration of any rights or obligations,
under, any provision of state, local, federal or foreign law to which the
Company or either of the Guarantors is subject, the Certificate of
Incorporation, as amended, or the By-Laws, as amended, of the Company or either
of the Guarantors, the Watson Term Loan and the Existing Debentures or any other
mortgage, indenture, agreement, instrument, judgment, decree, order, rule or
regulation or other restriction to which the Company or either of the Guarantors
is a party or by which it is bound, and except for Permitted Liens, result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company or either of the Guarantors pursuant to
any such term. Except as set forth in Section 4.3 of the Schedule of Exceptions,
no stockholder of the Company or either Guarantor has or will have any
preemptive rights or rights of first refusal by reason of the issuance of the
Debentures or Shares issuable upon conversion or exercise of the Debentures.
4.6. COMPLIANCE WITH INSTRUMENTS
Neither the Company nor any Subsidiary (a) is in violation of its
organizational documents, (b) is in default, and no event has occurred which,
with the giving of notice, or the lapse of time, or both, would constitute such
a default, in the due performance or observance of any term, covenant or
condition contained in any material agreement, including, without limitation,
the Watson Term Loan, and the Existing Debentures, any license, indenture or
other instrument to which it is a party or by which it is bound or to which any
of its property or assets is subject or (c) is in violation of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property may be subject (including without limitation any Legal Requirements
relating to the biotechnology and pharmaceutical industry) except for (x) such
defaults and violations set forth in Section 4.6 of the Schedule of Exceptions,
and (y) such violations under clause (b) and (c) that would not, individually or
in the aggregate, have a Material Adverse Effect.
4.7. LITIGATION
Except as set forth in Section 4.7 of the Schedule of Exceptions, there
are no actions, suits or proceedings (including governmental or administrative
proceedings), investigations, third-party subpoenas or inquiries by any
regulatory agency, body or other governmental authority, to which the Company or
any of the Subsidiaries is a party or is subject, or to which any of their
authorizations, consents and approvals or other properties or assets, is
subject, which is pending, or, to the best knowledge of the Company, threatened
or contemplated against the Company or any Subsidiary, or any of such property
or assets, that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect. The Company is not subject to any actions,
suits or proceedings (including governmental or administrative proceedings),
investigation, third-party subpoenas or inquiries by any regulatory agency, body
or other governmental authority or any third Person regarding its accounting
practices or policies.
4.8. FINANCIAL INFORMATION; SEC DOCUMENTS
(a) The Company has furnished to the Purchasers complete and
correct copies of the
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consolidated financial statements of the Company and its Subsidiaries,
including consolidated balance sheets as of December 31, 2002 and 2001 and
consolidated statements of operations, changes in cash flows and stockholders'
equity, covering the three years ended December 31, 2002, all of which
statements have been certified by Grant Thornton LLP, independent accountants
within the meaning of the Securities Act and the rules and regulations
thereunder, and all of which statements are included or incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 filed with the SEC under the Exchange Act. Such financial
statements have been prepared in conformity with GAAP applied on a consistent
basis throughout the periods involved, except as otherwise stated therein and
fairly present the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and their consolidated results of
operations for such periods. The Company's auditors have raised no material
issues nor delivered any material correspondence with respect to any of the
Company's financial statements or financial affairs.
(b) The Company has also furnished to the Purchasers the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 2003, and the related unaudited consolidated statements of operations,
consolidated statements of cash flow and consolidated statements of
stockholders' equity for the nine months ended September 30, 2003. Such
financial statements were prepared in conformity with GAAP applied on a basis
consistent with the financial statements referred to in Section 4.8(a) and
fairly present the consolidated financial position of the Company and its
Subsidiaries as of such date and their consolidated results of operations for
such periods (subject to normal year-end adjustments).
(c) None of the documents filed by the Company with the SEC since
December 31, 1997 contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements contained therein not false or misleading in light of the
circumstances in which they were made. There are no facts which the Company has
not disclosed to the Purchasers which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(d) Except as set forth in Section 4.8 of the Schedule of
Exceptions or in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003, subsequent to December 31, 2002, (i) none of the
Company or any Guarantor has incurred any liability or obligations, direct or
indirect, or entered into any transactions not in the ordinary course of
business, in either case which is material to the Company or any Guarantor, as a
whole, (ii) there has not been any material change in the short-term debt or
long-term debt of any of the Company or any Guarantor, (iii) there has been no
material change in the Company's accounting principles and (iv) none of the
Company or any Guarantor has taken any actions which would have been prohibited
under Article X if taken after the date hereof.
(e) Except as set forth in Section 4.8 of the Schedule of
Exceptions or in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003, since December 31, 2002, there has been no Material
Adverse Effect with respect to the Company and its Subsidiaries.
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4.9. OFFERING EXEMPTION
(a) None of the Company, its Affiliates or any Person acting on
its or their behalf has engaged or will engage, in connection with the offering
and sale of the Debentures, in any form in general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act, and none
of the Company, or any of its Affiliates has, directly or indirectly, solicited
any offer to buy, sell or offer to sell or otherwise negotiate in respect of, in
the United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Debentures in a manner that
would require the Debentures to be registered under the Securities Act. Assuming
the accuracy of the representations and warranties given by the Purchasers in
Article V below, the offering, sale and issuance of the Debentures and Shares
have been, are, and will be exempt from registration under the Securities Act,
and such offering, sale and issuance is also exempt from registration under
applicable state securities and "blue sky" laws.
(b) None of the Company or any Guarantor is, or upon consummation
of the transactions contemplated under the Transaction Documents, will be,
subject to registration as an "investment company" under the 1940 Act.
4.10. PERMITS; GOVERNMENTAL AND OTHER APPROVALS
(a) Other than as set forth in Section 4.10 of the Schedule of
Exceptions or in the Company Reports, each of the Company and its Subsidiaries
possesses all necessary consents, approvals, authorizations, orders,
registrations, stamps, filings, qualifications, licenses, permits or other
analogous acts by, of, from or with all public, regulatory or governmental
agencies, bodies and authorities and all other third parties, to own, lease and
operate its respective properties and to carry on its business as now conducted
and proposed to be conducted except to the extent that the failure to obtain any
such consents, approvals, authorizations, orders, registrations, stamps,
filings, qualifications, licenses or permits would not have a Material Adverse
Effect. Other than as set forth in Section 4.10 of the Schedule of Exceptions,
or as otherwise contemplated in Article VI and IX hereof, no approval, consent,
authorization or other order of, and no designation, filing, registration,
qualification or recording with, any governmental authority or any other Person
is required in connection with the Company's valid execution, delivery and
performance of this Agreement or the offer, issuance and sale of the Debentures
by the Company to the Purchasers or the consummation of any other transaction
contemplated on the part of the Company hereby.
(b) Without limiting the generality of the representations and
warranties made in Section 4.10(a), the Company represents and warrants that (i)
it and the Guarantors are in compliance with all applicable provisions of the
FDC Act, except where any such noncompliance could not reasonably be expected to
have a Material Adverse Effect; (ii) its products and those of the Guarantors
are not adulterated or misbranded and are in lawful distribution; and (iii) it
and the Guarantors are, and will be, in compliance with the following specific
requirements: (A) the Company and the Guarantors have registered all of their
facilities with the FDA, (B) the Company and the Guarantors have listed their
drug products with the FDA, (C) each drug product marketed by the Company or any
Guarantor is the subject of an
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application approved by the FDA, (D) all drug products marketed by the Company
or either Guarantor comply with any conditions of approval and the terms of the
application submitted to the FDA, (E) all of the Company's and the Guarantors'
drug products are manufactured in compliance with the FDA's good manufacturing
practice regulations, (F) all of the Company's and the Guarantors' products are
labeled and promoted in accordance with the terms of the marketing application
and the provisions of the FDC Act, (G) all adverse events relating to the
Company and the Guarantors that were required to be reported to the FDA have
been reported to the FDA in a timely manner, (H) each of the Company and the
Guarantors is in compliance with the terms of the consent agreement entered into
by the Company with the United States Attorney for the Eastern District of New
York on behalf of the FDA on June 29, 1993, as amended, (I) to the Company's
best knowledge, neither the Company nor any Guarantor is employing or utilizing
the services of any individual who has been debarred under the FDC Act, (J) all
stability studies required to be performed for products distributed by the
Company or a Guarantor have been completed or are ongoing in accordance with the
applicable FDA requirements, (K) none of the Company's or a Guarantor's products
have been exported for sale outside the United States, and (L) each of the
Company and the Guarantors is in compliance with the provisions of the
Prescription Drug Marketing Act, to the extent applicable; except, with respect
to subclauses (iii)(E), (iii)(H), (iii)(G), (iii)(K) and (iii)(L) above, where
any such noncompliance could not reasonably be expected to have a Material
Adverse Effect.
(c) Without limiting the generality of the representations and
warranties made in Section 4.10(a), the Company also represents and warrants
that it and the Guarantors are in compliance with all applicable provisions of
the CSA and that the Company and the Guarantors are in compliance with the
following specific requirements, except where such noncompliance could not
reasonably be expected to have a Material Adverse Effect: (i) the Company and
the Guarantors are registered with the DEA at each facility where controlled
substances are exported, imported, manufactured or distributed; (ii) all
controlled substances are stored and handled pursuant to DEA security
requirements; (iii) all records and inventories of receipt and distributions of
controlled substances are maintained in the manner and form as required by DEA
regulations; (iv) all reports, including, but not limited to, ARCOS,
manufacturing quotas, production quotas, and disposals, have been submitted to
the DEA in a timely manner; (v) all adverse events, including thefts or
significant losses of controlled substances, have been reported to the DEA in a
timely manner; (vi) to the Company's best knowledge, neither the Company nor any
Guarantor is employing any individual, with access to controlled substances, who
has previously been convicted of a felony involving controlled substances; and
(vii) any imports or exports of controlled substances have been conducted in
compliance with the CSA and DEA regulations.
4.11. SALES REPRESENTATIVES; CUSTOMERS AND KEY EMPLOYEES
(a) Except as set forth in Section 4.11 of the Schedule of
Exceptions, to the best knowledge of the Company, no independent sales
representatives, customers, officers or key employees or group of key employees
of the Company or any Guarantor has any intention to terminate his, her or its
relationship with the Company or such Guarantor on or after the Closing or, in
the case of employees, leave the employ of the Company or any of the Guarantors
on and after the Closing, nor has the Company or any of the Guarantors discussed
or taken any steps to
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terminate the employment of any officer or key employee or group of key
employees. Other than as set forth in Section 4.11 of the Schedule of
Exceptions, all personnel of the Company and any of the Guarantors are employed
on an "at will" basis and may be terminated upon notice of not more than 30
days.
(b) To the Company's best knowledge, no employee of the Company or
any of the Guarantors, or any consultant (including any scientific advisor) with
whom the Company or any of the Guarantors has contracted, is in violation of any
term of any employment contract, proprietary information agreement, licenses, or
any other agreement relating to the right of any such individual to be employed
by, or to contract with, the Company or any of the Guarantors because of the
nature of the business conducted by the Company and the Guarantors; and the
continued employment by the Company or any of the Guarantors of their present
employees, and the performance of the Company's and the Guarantor's contracts
with its independent contractors, will not result in any such violation, except
where any such violation could not reasonably be expected to have a Material
Adverse Effect. None of the Company or any of the Guarantors has received any
written, or to the best knowledge of the Company, oral notice alleging that any
such violation has occurred.
(c) All of the Company's and any of the Guarantor's consultants
(including scientific advisors), officers and key employees are subject to
customary non-disclosure, non-competition and assignment of invention
agreements.
4.12. COPYRIGHTS, TRADEMARKS AND PATENTS; LICENSES
(a) Section 4.12 of the Schedule of Exceptions sets forth a list
of all of the Company's and any Guarantor's Intellectual Property Rights. The
Intellectual Property Rights are, to the best of the Company's best knowledge,
fully valid and are in full force and effect.
(b) The Company or a Guarantor owns outright all of the
Intellectual Property Rights listed on Section 4.12 of the Schedule of
Exceptions attached hereto free and clear of all liens and encumbrances except
for the Permitted Liens, and does not pay, and is not required to pay, any
royalty to anyone under or with respect to any of them.
(c) Neither the Company nor any Guarantor has licensed anyone to
use any of such Intellectual Property Rights and has no knowledge of, nor has it
received any notice relating to, the infringing use by the Company or any
Guarantor of any Intellectual Property Rights.
(d) The Company has no knowledge, nor has it received any notice
(i) of any conflict with the asserted rights of others with respect to any
Intellectual Property Rights used in, or useful to, the operation of the
business conducted by the Company and the Guarantors or with respect to any
license under which the Company or a Guarantor is licensor or licensee; or (ii)
that the Intellectual Property Rights infringe upon the rights of any third
party.
(e) Except as set forth in Section 4.12 of the Schedule of
Exceptions, neither the Company nor any Guarantor is a party to any license
agreement pursuant to which the Company is the licensor or licensee of any
Intellectual Property Rights.
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4.13. INVENTORY
All inventory of the Company and the Subsidiaries consists of a quality
and quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value on the consolidated balance
sheet of the Company and its Subsidiaries as of September 30, 2003. The
quantities of each type of inventory (whether raw materials, work-in-process, or
finished goods) are not excessive, but are reasonable and warranted in the
present circumstances of the Company.
4.14. REGISTRATION RIGHTS
Except as provided for in this Agreement or as set forth in Section
4.14 of the Schedule of Exceptions, neither the Company nor any Guarantor is
under any obligation to register any of its currently outstanding securities or
any of its securities which may hereafter be issued under the Securities Act in
connection with any sale thereof.
4.15. NO DISCRIMINATION; LABOR MATTERS
Neither the Company nor any Guarantor in any manner or form
discriminates, fosters discrimination or permits discrimination against any
Person based on gender or age, or belonging to any minority race or believing in
any minority creed or religion. No charge of discrimination in employment,
whether by reason of age, gender, race, religion or other legally protected
category that has been asserted or is now pending or, to the best knowledge of
the Company and the Guarantors, threatened before the United States Equal
Employment Opportunity Commission or other federal or governmental authorities.
The Company and each Guarantor is in compliance with all applicable Legal
Requirements respecting employment practices, terms and conditions of employment
and wages and hours and is not and has not engaged in any unfair labor practice.
The Company and each Guarantor has withheld and paid to the appropriate
governmental authorities or is holding for payment not yet due to governmental
authorities, all amounts required to be withheld from such employees of the
Company or the Guarantors and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. Except
as set forth in Section 4.15 of the Schedule of Exceptions, in connection with
the operation of the Company's and each Guarantor's business, (a) there is no
unfair labor practice charge or complaint against the Company or any Guarantor
pending before the National Labor Relations Board or any other governmental
agency arising out of the Company's or any Guarantor's activities and the
Company has no knowledge, nor has it received notice of any facts or information
that would give rise thereto; (b) there is no significant labor trouble, labor
strike, material controversy, material unsettled grievance, dispute, request for
representation, slowdown or stoppage actually pending against or affecting the
Company or any of the Guarantors and, to the best knowledge of the Company, none
is or has been threatened; and (c) none of the Company or any of the Guarantors
has any collective bargaining agreements with respect to any personnel nor is
the Company aware of any current attempts to organize or establish any labor
union or employee association with respect to any personnel, nor is there any
certification, interim certifications or voluntary recognition of any such union
with regard to a bargaining unit.
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4.16. ENVIRONMENTAL MATTERS
(a) Without limiting the generality of the representations and
warranties given in Section 4.10(a), each of the Company and the Subsidiaries
has obtained all environmental, health and safety permits, licenses and other
authorizations necessary or required for the operation of its business, except
where the failure to possess such franchises, licenses, permits or other
authority could not reasonably be expected to have a Material Adverse Effect,
and all such permits, licenses and other authorizations are in full force and
effect and each of the Company and, except as set forth in Section 4.16 of the
Schedule of Exceptions, the Subsidiaries is in compliance with all terms and
conditions of such permits, except where such noncompliance could not reasonably
be expected to have a Material Adverse Effect.
(b) There is no proceeding pending or, to the best knowledge of
the Company, threatened, which may result in the denial, rescission,
termination, modification or suspension of any environmental or health or safety
permits, licenses or other authorizations necessary for the operation of the
business of the Company and the Subsidiaries.
(c) During the occupancy by the Company or any Subsidiary of any
real property owned or leased by the Company or such Subsidiary, neither the
Company nor any Subsidiary, and to the best knowledge of the Company, no other
Person, has caused or permitted materials to be generated, released, stored,
treated, recycled, disposed of on, under or at such parcels, which materials, if
known to be present, would require cleanup, removal or other remedial or
responsive action under any environmental Legal Requirements. To the best
knowledge of the Company, there are no underground storage tanks and no PCB, PCB
contaminated oil or asbestos on any property leased by the Company or any
Subsidiary.
(d) Except as set forth in Section 4.16 of the Schedule of
Exceptions, neither the Company nor any Subsidiary is subject to any judgment,
decree, order or citation related to or arising out of environmental Legal
Requirements, or has received notice that it has been named or listed as a
potentially responsible party by any Person in any matter arising under
environmental Legal Requirements.
(e) To the Company's best knowledge, each of the Company and the
Subsidiaries has disposed of all waste in full compliance with all environmental
Legal Requirements.
4.17. TAXES
The Company and each of the Guarantors have (a) filed all necessary
income, franchise and other material tax returns, domestic and foreign, (b) paid
all taxes shown as due thereunder and (c) withheld and paid to the appropriate
tax authorities all amounts required to be withheld from wages, salaries and
other remuneration to employees. The Company has no knowledge, nor has it
received notice, of any tax deficiency which might be assessed against the
Company or any Guarantor which, if so assessed, could reasonably be expected to
have a Material Adverse Effect.
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4.18. EMPLOYEE BENEFIT PLANS AND SIMILAR ARRANGEMENTS
(a) Section 4.18 of the Schedule of Exceptions lists all employee
benefit plans and collective bargaining, labor and employment agreements or
other similar arrangements in effect to which the Company, the Guarantors, and
any of their respective ERISA Affiliates are a party or by which the Company,
the Guarantors, and any of respective ERISA Affiliates are bound, legally or
otherwise, including, without limitation, (i) any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer,
consulting, retirement, severance, welfare or incentive plan, agreement or
arrangement; (ii) any plan, agreement or arrangement providing for fringe
benefits or perquisites to employees, officers, directors or agents, including
but not limited to benefits relating to employer-supplied automobiles, clubs,
medical, dental, hospitalization, life insurance and other types of insurance,
retiree medical, retiree life insurance and any other type of benefits for
retired and terminated employees; (iii) any employment agreement; or (iv) any
other "employee benefit plan" (within the meaning of Section 3(3) of ERISA)
(herein referred to individually as "Plan" and collectively as "Plans").
(b) True and complete copies of the following documents with
respect to any Plan of the Company, its Subsidiaries, and each ERISA Affiliate,
as applicable, have been made available to each of the Purchasers: (i) the most
recent Plan document and trust agreement (including any amendments thereto and
prior plan documents, if amended within the last two years), (ii) the last two
Form 5500 filings and schedules thereto, (iii) the most recent IRS determination
letter, (iv) all summary plan descriptions, (v) a written description of each
material non-written Plan, (vi) each written communication to employees intended
to describe a Plan or any benefit provided by such Plan, (vii) the most recent
actuarial report, and (viii) all correspondence with the IRS, the Department of
Labor and the PBGC concerning any controversy. Each report described in clause
(vii) accurately reflects the funding status of the Plan to which it relates and
subsequent to the date of such report there has been no adverse change in the
funding status or financial condition of such Plan.
(c) Each Plan is and has been maintained in compliance with
applicable Legal Requirements, including but not limited to ERISA and the Code,
and with any applicable collective bargaining agreements or other contractual
obligations.
(d) With respect to any 412 Plan, there has been no failure to
make any contribution or pay any amount due as required by Section 412 of the
Code, Section 302 of ERISA or the terms of any such Plan, and no funding waiver
has been requested or received from the IRS. The assets of the Company, its
Subsidiaries, or any ERISA Affiliates are not now, nor will they after the
passage of time be, subject to any lien imposed under Section 412(n) of the Code
by reason of a failure of the Company, any Subsidiary, or any ERISA Affiliate to
make timely installments or other payments required under Section 412 of the
Code.
(e) No Plan subject to Title IV of ERISA has any Unfunded Pension
Liability.
(f) Except as shown on Section 4.18 of the Schedule of Exceptions,
there are no pending, or to the best knowledge of the Company, its Subsidiaries,
and ERISA Affiliates, threatened claims, investigations, actions or lawsuits,
other than routine claims for benefits in the ordinary course, asserted or
instituted against (i) any Plan or its assets, (ii) any ERISA Affiliate
13
with respect to any 412 Plan, or (iii) any fiduciary with respect to any Plan
for which the Company, its Subsidiaries, or any ERISA Affiliate may be directly
or indirectly liable, through indemnification obligations or otherwise.
(g) Except as set forth in Section 4.18 of the Schedule of
Exceptions, none of the Company, any Subsidiary, or any ERISA Affiliate has
incurred and or reasonably expects to incur (i) any Withdrawal Liability and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in Withdrawal Liabilities, or any liability under Section 4063,
4064, or 4243, or (ii) any outstanding liability under Title IV of ERISA with
respect to any 412 Plan.
(h) Except as shown on Section 4.18 of the Schedule of Exceptions,
within the last five years, none of the Company, any Subsidiary or any ERISA
Affiliate has transferred any assets or liabilities of a 412 Plan subject to
Title IV of ERISA which had, at the date of such transfer, an Unfunded Pension
Liability or has engaged in a transaction which may reasonably be subject to
Section 4212(c) or Section 4069 of ERISA.
(i) None of the Company, any Subsidiary, or any ERISA Affiliate
has engaged, directly or indirectly, in a non-exempt prohibited transaction (as
defined in Section 4975 of the Code or Section 406 of ERISA) in connection with
any Plan.
(j) No "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred with respect to any Plan.
(k) Neither the Company nor any of its Subsidiaries provides, or
has provided, retiree welfare benefits for the benefit of any present or former
employee or director.
(l) Neither the Company nor any of its Subsidiaries has made any
commitment or any formal plan to create any additional Plan or to modify or
terminate (except to the extent required by applicable law) any existing Plan.
(m) Neither the Company nor any of its Subsidiaries is a party to
any plan, agreement or arrangement pursuant to the terms of which the
consummation or announcement of any transaction contemplated by this Agreement
will result (either alone or in connection with the occurrence of any additional
or further acts or events) in any benefit under any Plan being established or
becoming accelerated or immediately vested and payable.
(n) The provisions of Section 280G of the Code will not apply with
respect to any payment made or to be made pursuant to or in connection with any
Plan.
4.19. PERSONAL PROPERTY
The Company and the Guarantors have good and marketable title to each
item of equipment, machinery, furniture, fixtures, vehicles, structures and
other personal property, tangible and intangible, included as an asset in the
Financial Statements filed as part of the Company Reports, free and clear of any
security interests, options, liens, claims, charges or encumbrances whatsoever,
except as set forth in Section 4.19 of the Schedule of Exceptions and
14
as disclosed in the Company General Security Agreement and the Guarantors
General Security Agreement. The tangible personal property owned or used by the
Company and each of the Guarantors on the date hereof in the operation of its
business is adequate for the business conducted by the Company and each of the
Guarantors.
4.20. REAL PROPERTY
(a) The Company and the Guarantors do not own any fee simple
interest in real property other than as set forth in Section 4.20 of the
Schedule of Exceptions (the "Owned Property"). The Company and the Guarantors do
not lease or sublease any real property other than as set forth on Schedule 4.20
(the "Leased Property"). The Company has previously made available to the
Purchasers a true and complete copy of all Leases. The Company and each
Guarantor enjoys a peaceful and undisturbed possession of the Owned Property and
Leased Property. No Person other than the Company or any Guarantor has any right
to use or occupy any part of the Owned Property and the Leased Property. Except
as set forth in Section 4.20 of the Schedule of Exceptions, the Leases are
valid, binding and in full force and effect, all rent and other sums and charges
payable thereunder are current, no notice of default or termination under any of
the Leases is outstanding, no termination event or condition or uncured default
on the part of the Company or, to the best of the Company's knowledge, on the
part of the landlord, sublandlord, as the case may be, thereunder, exists under
the Leases, and no event has occurred and no condition exists which, with the
giving of notice, or the lapse of time, or both, would constitute such a default
or termination event or condition. There are no subleases, licenses or other
agreements granting to any Person other than the Company or the Guarantors any
right to possession, use, occupancy or enjoyment of the Premises demised by the
Leases. Each Owned Property and Leased Property is used in the conduct of the
Company's or the Guarantors' business.
(b) Without limiting the generality of the representations and
warranties given in Section 4.10(a), all required permits, licenses, franchises,
approvals and authorizations of all governmental authorities having jurisdiction
over each Leased Property and from all insurance companies and fire rating and
other similar boards and organizations have been issued to the Company and the
Guarantors to enable each Leased Property or Owned Property to be lawfully
occupied and used for all the purposes for which they are currently occupied and
used and have been lawfully issued and are in full force and effect, except
where the failure to possess such permits, licenses, franchises, approvals and
authorizations, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(c) Neither the Company nor the Guarantors have received any
notice nor have they any knowledge of any pending, threatened or contemplated
condemnation proceeding affecting any Leased Property or the Owned Property or
any part thereof.
4.21. DISCLOSURE
The information heretofore provided and to be provided in connection
with this Agreement, including, without limitation, the Schedule of Exceptions
and the Exhibits hereto, the Transaction Documents and each of the agreements,
documents, certificates and writings previously furnished to the Purchasers or
their representatives, do not and will not contain any
15
untrue statement of a material fact and do not and will not omit to state a
material fact necessary in order to make the statements and writings contained
herein and therein not false or misleading in the light of the circumstances
under which they were made. There are no facts that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect, which
has not been set forth herein or in the Company Reports.
4.22. SOLVENCY
On the Closing Date (both before and after giving effect to its
Guaranty and the transactions contemplated by the Transaction Documents), the
Guarantors will be Solvent.
4.23. INSURANCE
(a) Each of the Company and the Guarantors maintains, with
financially sound and reputable insurers, insurance against loss or damage by
theft, fire, explosion and other risks customarily insured against by companies
in the line of business of the Company or the Guarantors, in amounts sufficient
to prevent the Company or the Guarantors from becoming a co-insurer of the
property insured as well as insurance against other hazards and risks and
liability to Persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated or as may be required by law,
including, without limitation, general liability, fire and business interruption
insurance, and product liability insurance as may be required pursuant to any
license agreement to which the Company or the Guarantors is a party or by which
it is bound.
(b) The Company maintains D&O Insurance as detailed in Section
4.23(b) of the Schedule of Exceptions, which D&O Insurance is in full force and
effect and as to which the Company has not received any notice of default,
termination, change in terms, change in coverage or similar notice.
4.24. NON-COMPETES
Except as set forth in Section 4.24 of the Schedule of Exceptions, and
as contemplated by Section 4.11(c), the Company and its Subsidiaries are not
subject to any non-compete or similar arrangements with any Persons that
restrict or may restrict the Company and its Subsidiaries from carrying on its
business as now conducted and as it is proposed to be conducted.
4.25. PRODUCT WARRANTY
Except as set forth in Section 4.25 of the Schedule of Exceptions, or
as reflected or reserved against in the Financial Statements, (a) to the
knowledge of the Company, each product manufactured by the Company or any
Subsidiary has been in material conformity with all applicable contractual
commitments of the Company or any Subsidiary, and (b) no product currently
manufactured by the Company or any Subsidiary is subject to any guaranty,
warranty or indemnity of a contractual nature other than the applicable standard
terms and conditions, if any, applicable to the sale or delivery of such
product.
16
4.26. MINUTE BOOKS
The minute books of the Company and the Subsidiaries furnished to the
Purchasers for review are accurate and complete.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As a material inducement to the Company to enter into and perform its
obligations under this Agreement, each Purchaser severally (as to itself and not
with respect to any other Purchaser) represents and warrants to the Company as
follows:
5.1. ORGANIZATION AND GOOD STANDING
The Purchaser, if a corporation, partnership, trust or other form of
business entity, is duly organized, validly existing and in good standing under
the laws of the state of its incorporation, formation or organization, as the
case may be, and has, in all material respects, full power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement.
5.2. DUE QUALIFICATION
The Purchaser, if a corporation, partnership, trust or other form of
business entity, is duly qualified to do business and, where necessary, is in
good standing as a foreign corporation or company, as the case may be, (or is
exempt from such requirement) and has obtained all necessary licenses and
approvals in each jurisdiction in which the conduct of its business requires
such qualification except where the failure to so qualify or obtain licenses or
approvals would not have a material adverse effect on its ability to perform its
obligations hereunder.
5.3. DUE AUTHORIZATION
The execution and delivery of this Agreement and the consummation of
the transactions provided for or contemplated by this Agreement have been duly
authorized by Purchaser if a corporation, partnership, trust or other form of
business entity, by all necessary corporate or company (as the case may be)
action on the part of Purchaser.
5.4. INVESTMENT EXPERIENCE; ACCREDITED INVESTOR
(a) The Purchaser must bear the economic risk of investment in the
Debentures for an indefinite period of time, since neither the Debentures nor
the Shares have been registered under the Securities Act or applicable state
securities laws, and, therefore, cannot be resold or otherwise disposed of
unless either they are subsequently registered under the Securities Act and
applicable state securities laws or an exemption from registration is available.
(b) The Purchaser will only have those limited rights to register
the Shares under the
17
Securities Act and applicable state securities laws as are provided in the
Transaction Documents.
(c) There is presently no established public market for the
Debentures and the holders of the Debentures have no registration rights with
respect to such securities.
(d) The Purchaser and his, her or its purchaser representative(s),
if any, have carefully reviewed and understand the risks of and other
considerations relating to a purchase of the Debentures.
(e) The Purchaser and his, her or its purchaser representative(s),
if any, have been afforded the opportunity to obtain any information necessary
to verify the accuracy of any representations or information set forth in the
Term Sheet and this Agreement and have had all of their inquiries to the Company
answered in full, and have been furnished all requested materials relating to
the Company, the offering and sale of the Debentures and any other matter
described in the Term Sheet and this Agreement.
(f) Neither the Purchaser nor his, her or its purchaser
representative(s), if any, have been furnished any offering literature by the
Company or any of its Affiliates, other than the Term Sheet (including the
exhibits and attachments thereto) and this Agreement (including the exhibits and
attachments hereto), and the Purchaser has not received or heard any print or
electronic media advertising with respect to the offering and sale of the
Debentures.
(g) The Purchaser is acquiring the Debentures as principal for its
own investment account, and not (i) with a view to the resale or distribution of
all or any part thereof, or (ii) on behalf of another Person who has not made
the foregoing representations. The Purchaser agrees not to resell or otherwise
dispose of the Debentures or the Shares except as permitted by applicable law,
including, without limitation, any and all provisions of this Agreement and any
applicable regulation under the Securities Act or any state securities laws.
(h) The Purchaser is an "accredited investor," as defined in Rule
501(a) of Regulation D promulgated pursuant to the Securities Act.
(i) The Purchaser has evaluated the risks of investing in the
Company and has substantial experience in making investment decisions of this
type or is relying on his, her or its professional advisors or purchaser
representative(s), if applicable, in making this investment decision.
(j) The Purchaser understands the fundamental aspects of and risks
involved in an investment in the Company, including (i) the speculative nature
of the investment, (ii) the financial hazards involved, including the risk of
losing the entire investment, (iii) the lack of liquidity and the restrictions
on transferability of the Debentures and Shares, (iv) the limited registration
rights regarding the Shares, and (v) the fact that the Company has a history of
losses and limited capital resources.
(k) The address set forth in the signature page to this Agreement
is the Purchaser's true and correct principal address, and the Purchaser has no
present intention of becoming a resident of any other state or jurisdiction.
18
(l) The Purchaser, if a corporation, partnership, trust or other
form of business entity, has not been formed for the specific purpose of
acquiring the Debentures
(m) All of the information that the Purchaser has heretofore
furnished to the Company, or that is set forth herein with respect to itself,
its financial position, and its business and investment experience, is correct
and complete as of the date hereof.
(n) The Purchaser consents to the placement of a legend on any
certificate or other document evidencing the Debentures as well as the Shares
stating that they have not been registered under the Securities Act and setting
forth or referring to the restrictions on transferability and sale thereof. The
Purchaser is aware that the Company will make a notation in its appropriate
records with respect to the restrictions on the transferability of such
securities.
(o) The Purchaser acknowledges that the Company will rely upon the
representations made by such Purchaser in this Agreement in connection with the
issuance of the Debentures to be sold hereunder.
ARTICLE VI
CONDITIONS TO CLOSING OF THE PURCHASERS
The obligation of each Purchaser to purchase the Debentures at the
Closing is subject to the fulfillment to such Purchaser's satisfaction on or
prior to the Closing Date of each of the following conditions, unless otherwise
waived by such Purchaser:
6.1. REPRESENTATIONS AND WARRANTIES CORRECT; NO DEFAULT
The representations and warranties of the Company set forth in Article
IV hereof shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date. No Event of Default, or any other event which, with the
giving of notice, the lapse of time, or both, would constitute an Event of
Default, shall have occurred and be continuing on the date of this Agreement or
on the Closing Date.
6.2. PERFORMANCE
All covenants, agreements and conditions contained in this Agreement to
be performed or complied with by the Company on or prior to the Closing Date
shall have been performed or complied with by the Company.
6.3. COMPLIANCE CERTIFICATE
The Company shall have delivered to the Purchaser a certificate of the
Company, executed by the Company's President, dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 6.1 and 6.2 of this
Agreement and other matters as the Purchaser shall reasonably request.
19
6.4. NO IMPEDIMENTS
None of the Company, or any of the Guarantors, or any Purchaser shall
be subject to (a) any order, decree or injunction of a court or administrative
or governmental body or agency of competent jurisdiction directing that the
transactions provided for in the Transaction Documents or any material aspect
thereof not be consummated as contemplated by the Transaction Documents or (b)
there shall not be any action, suit, proceeding, complaint, charge, hearing,
inquiry or investigation before or by any court or administrative or
governmental body or agency pending or, to the Company's best knowledge,
threatened, wherein an unfavorable order, decree or injunction would prevent the
performance of any of the Transaction Documents or the consummation of any
material aspect of the transactions or events contemplated thereby, declare
unlawful any aspect of the transactions or events contemplated by the
Transaction Documents, cause any material aspect of the transactions
contemplated by the Transaction Documents to be rescinded or have a Material
Adverse Effect.
6.5. WAIVERS/ELECTIONS OF RIGHTS OF FIRST REFUSAL
The Company shall have obtained from each Person other than a Purchaser
and who has any current effective right of first refusal with respect to the
Debentures, a written waiver or election of such right in form and substance
reasonably satisfactory to the Purchasers.
6.6. WATSON DOCUMENTS
The Company shall have obtained and delivered to each Purchaser copies
of (a) the Watson Umbrella Agreement; (b) the amendment to the Watson Term Loan;
(c) the Senior Notes; and (d) the Noteholder Agreement. The initial Purchasers
shall have purchased the amended Senior Notes from Watson on terms acceptable to
them.
6.7. CONSENT OF HOLDERS OF EXISTING DEBENTURES; AGREEMENT TO CONVERT
(a) The Company shall have obtained and delivered to each
Purchaser (i) the Existing Debentureholders Consent; (ii) the Existing
Debentureholders Waiver; (iii) the Debenture and Warrant Dilution Waiver and
(iv) the Conversion Agreement, each fully executed and in form and substance
acceptable to the Purchasers.
6.8. CONSENT OF GALEN ENTITIES
The Company shall have obtained from the Galen Entities and delivered
to each Purchaser the Debenture and Warrant Dilution Waiver.
6.9. OTHER AGREEMENTS AND DOCUMENTS
The Company shall have executed and delivered to each Purchaser this
Agreement, issued to such Purchaser all of the Debentures, and the Company and
each of the Guarantors, as applicable, shall have executed and delivered the
following agreements and documents:
20
(a) the Conversion Agreement;
(b) the Investors Rights Agreement;
(c) the Voting Agreement;
(d) the amendment to the Registration Rights Agreement;
(e) the Company General Security Agreement;
(f) the Guaranties;
(g) the Guarantors Security Agreement;
(h) the Stock Pledge Agreement;
(i) the Subordination Agreement;
(j) a secretary's certificate of the Company, (i) attaching a
certified copy of the Certificate of Incorporation and current bylaws of the
Company and certifying the same as not having been amended and as being in being
in full force and effect, (ii) attaching and certifying resolutions by the Board
of Directors approving the execution, delivery and performance of the
Transaction Documents and the transactions contemplated thereby, and (iii)
certifying as to the incumbency, and attaching specimen signatures of, the
officers or representatives of the Company signing the Transaction Documents to
which the Company is a party;
(k) a secretary's certificate of each of the Guarantors, (i)
attaching a certified copy of the certificate of incorporation and current
bylaws of such Guarantor and certifying the same as not having been amended and
as being in being in full force and effect, (ii) attaching and certifying
resolutions by the board of directors of such Guarantor approving the execution,
delivery and performance of the Transaction Documents and the transactions
contemplated thereby, and (iii) certifying as to the incumbency, and attaching
specimen signatures of, the officers or representatives of such Guarantor
signing the Transaction Documents to which such Guarantor is a party;
(l) a Certificate of Good Standing and Tax Status from the state
of incorporation of the Company and each Guarantor and from every state in which
any of them is qualified to do business; and
(m) Financing Statements and Termination Statements on Form UCC-1
(or the applicable form) with respect to all personal property and assets of the
Company and each Guarantor.
6.10. CONSENTS
In addition to the consents and waivers described in Sections 6.6, 6.7
and 6.8, the Company shall have obtained all necessary consents or waivers, if
any, from all parties governmental and private to any other material agreements
to which the Company is a party or
21
by which it is bound immediately prior to the Closing in order that the
transactions contemplated by the Transaction Documents may be consummated and
the business of the Company may be conducted by the Company after the Closing
without adversely affecting the Company.
6.11. LEGAL INVESTMENT
As of the Closing Date, there shall not have been any change in any
Legal Requirements applicable to any of the Purchasers that would prevent the
performance of this Agreement or any other Transaction Document or the
consummation of any material aspect of the transactions contemplated hereby or
thereby by such Purchaser, in each case to the extent that it would deprive such
Purchaser of the principal benefits of such transactions.
6.12. PROCEEDINGS AND OTHER DOCUMENTS
All corporate and other proceedings taken or required to be taken by
the Company and any Guarantor in connection with the transactions contemplated
by this Agreement and the other Transaction Documents to be consummated prior to
the Closing shall have been taken, except as otherwise provided in Sections 9.7,
9.11, 9.15 and 9.17 of this Agreement, and the Purchasers shall have received
such other documents, in form and substance reasonably satisfactory to the
Purchasers and their counsel, as to such other matters incident to the
transactions contemplated hereby as the Purchasers may reasonably request.
6.13. OPINION OF COUNSEL
The Purchasers shall have received the opinion of St. John & Wayne,
L.L.C., counsel to the Company, dated the Closing Date, substantially in the
form of Exhibit C attached hereto.
6.14. INDEPENDENT COMMITTEE OF BOARD OF DIRECTORS
The Company's independent committee of the Board of Directors (the
"Independent Committee") shall deliver to each of the Purchasers the Independent
Committee's resolutions approving the execution, delivery and performance of the
Transaction Documents to which the Company is a party and the transactions
contemplated thereby, each in form and substance reasonably acceptable to the
Purchasers.
ARTICLE VII
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell the Debentures at the Closing is
subject to the fulfillment to its satisfaction on or prior to the Closing Date
of each of the following conditions, unless otherwise waived by the Company:
22
7.1. REPRESENTATIONS AND WARRANTIES CORRECT
The representations and warranties of each of the Purchasers set forth
in Article V of this Agreement shall be true and correct when made, and shall be
true and correct on the Closing Date with the same force and effect as if they
had been made on and as of the Closing Date.
7.2. LEGAL INVESTMENT
As of the Closing Date, there shall not have been any change in any
Legal Requirements applicable to the Company that would prevent the performance
of this Agreement or any other Transaction Document or the consummation of any
material aspect of the transactions contemplated hereby or thereby by the
Company, in each case to the extent that it would deprive the Company of the
principal benefits of such transactions.
7.3. PAYMENT OF PURCHASE PRICE
The Company shall have received payment in full of the purchase price
for the Debentures.
ARTICLE VIII
PREPAYMENT
Without limiting the Company's conversion rights as provided in Section
3.1 of the Debentures, the Company may not at any time prepay any Debenture, the
Watson Term Loan, the Existing Debentures or any other indebtedness for borrowed
money, in whole or in part, without the prior written consent of the holders of
60% of the then outstanding principal amount of the Debentures.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees, so long as any Debentures
remain outstanding, as follows:
9.1. MAINTENANCE OF CORPORATE EXISTENCE; PROPERTIES AND LEASES; TAXES;
INSURANCE
(a) The Company shall, and shall cause each of the Guarantors to,
maintain in full force and effect its corporate existence, rights and franchises
and all terms of licenses and other rights to use licenses, trademarks, trade
names, service marks, copyrights, patents, processes or any other Intellectual
Property Rights owned or possessed by it and necessary to the conduct of its
business, except where failure to maintain such rights, franchises and terms of
licenses and other rights to use such Intellectual Property Rights could not
reasonably be expected to have a Material Adverse Effect.
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(b) The Company shall, and shall cause the Guarantors to, keep
each of its properties necessary to the conduct of its business in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company shall, and shall cause the Guarantors to,
at all times comply with each provision of all leases to which it is a party or
under which it occupies property, except where any such noncompliance could not
reasonably be expected to have a Material Adverse Effect.
(c) The Company shall, and shall cause each of the Guarantors to,
(i) promptly pay and discharge, or cause to be paid and discharged when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, assets, property or business of the Company
and the Guarantors, (ii) withhold and promptly pay to the appropriate tax
authorities all amounts required to be withheld from wages, salaries and other
remuneration to employees, and (iii) promptly pay all claims or Indebtedness
(including, without limitation, claims or demands of workmen, materialmen,
vendors, suppliers, mechanics, carriers, warehousemen and landlords) which, if
unpaid might become a lien upon the assets or property of the Company or the
Guarantors; provided, however, that any such tax, lien, assessment, charge or
levy need not be paid if (1) the validity thereof shall be contested timely and
in good faith by appropriate proceedings, (2) the Company or the Guarantors
shall have set aside on its books adequate reserves with respect thereto, and
(3) the failure to pay shall not be prejudicial in any material respect to the
holders of the Debentures, and provided further that the Company or the
Guarantors will pay or cause to be paid any such tax, lien, assessment, charge
or levy forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore. The Company shall, and shall
cause the Guarantors to, pay or cause to be paid all other Indebtedness incident
to the operations of the Company or the Guarantors.
(d) The Company shall, and shall cause each of the Guarantors to,
keep its assets which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by theft, fire, explosion and
other risks customarily insured against by companies in the line of business of
the Company or the Guarantors, in amounts sufficient to prevent the Company or
the Guarantors from becoming a co-insurer of the property insured; and the
Company shall, and shall cause the Guarantors to, maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to Persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated or as may be required by law,
including, without limitation, general liability, fire and business interruption
insurance, and product liability insurance as may be required pursuant to any
license agreement to which the Company or the Guarantors is a party or by which
it is bound.
9.2. BASIC FINANCIAL INFORMATION
The Company shall furnish the following reports to each Holder, so long
as such Person is a holder of any Debentures:
(a) within 45 days after the end of each quarterly accounting
period in each fiscal year, a certificate of the Chief Financial Officer of the
Company stating that the Company is in compliance with the terms of this
Agreement and any other material contract or commitment to
24
which the Company or any of its Subsidiaries is a party or by which any of them
is bound, or if the Company or any of its Subsidiaries is not in compliance,
specifying the nature and period of noncompliance, and what actions the Company
or such Subsidiary has taken and proposes to take with respect thereto.
Notwithstanding the foregoing, the certificate delivered at the end of each
fiscal year of the Company shall be signed by both the Chief Executive Officer
and the Chief Financial Officer of the Company and shall be delivered within 90
days after the end of the fiscal year; and
(b) with reasonable promptness such other information and
financial data concerning the Company as any Person entitled to receive
materials under this Section 9.2 may reasonably request. Notwithstanding the
foregoing, all confidential information furnished at any time by or on behalf of
the Company or its Subsidiaries to any Holder shall be subject to the provisions
of Section 19.14.
9.3. NOTICE OF ADVERSE CHANGE
The Company shall promptly give notice to all Holders of the Debentures
(but in any event within two days) after becoming aware of the existence of any
condition or event which constitutes, or the occurrence of, any of the
following:
(a) any Event of Default or any default that with the passage of
time or the giving of notice would constitute an Event of Default;
(b) the institution or threatening of institution of any action,
suit or proceeding against the Company or any Subsidiary before any court,
administrative agency or arbitrator, including, without limitation, any action
of a foreign government or instrumentality, which, if adversely decided, could
reasonably be expected to have a Material Adverse Effect;
(c) any information relating to the Company or any Subsidiary
which could reasonably be expected to have a Material Adverse Effect; or
(d) any failure by the Company or any of its Subsidiaries to
comply with the provisions of Section 9.4 below.
Any notice given under this Section 9.3 shall specify the nature and
period of existence of the condition, event, information, development or
circumstance, the anticipated effect thereof and what actions the Company or any
Guarantor, as the case may be, has taken and proposes to take with respect
thereto.
9.4. COMPLIANCE WITH AGREEMENTS; COMPLIANCE WITH LAWS
The Company shall, and shall cause its Subsidiaries to, comply with the
terms and conditions of all material agreements, commitments or instruments to
which the Company or any of its Subsidiaries is a party or by which it or they
may be bound. The Company shall, and shall cause each of its Subsidiaries to,
duly comply with any Legal Requirements relating to the conduct of their
respective businesses, properties or assets, including, but not limited to, the
requirements of the FDA Act, the Prescription Drug Marketing Act, the CSA,
ERISA, the
25
Environmental Protection Act, the Occupational Safety and Health Act, the
Foreign Corrupt Practices Act, the Sarbanes-Oxley Act of 2002 and the rules and
regulations of each of the agencies administering such acts, in each case except
for any such noncompliance that could not reasonably be expected to have a
Material Adverse Effect.
9.5. PROTECTION OF LICENSES
The Company shall, and shall cause its Subsidiaries to, maintain,
defend and protect to the best of their ability licenses and sublicenses (and to
the extent the Company or a Subsidiary is a licensee or sublicensee under any
license or sublicense, as permitted by the license or sublicense agreement),
trademarks, trade names, service marks, patents and applications therefore and
other proprietary information or Intellectual Property Rights owned or used by
it or them and shall keep duplicate copies of any licenses, trademarks, service
marks or patents owned or used by it, if any, at a secure place selected by the
Company.
9.6. ACCOUNTS AND RECORDS; INSPECTIONS
(a) The Company shall keep true records and books of account in
which full, true and correct entries will be made of all dealings or
transactions in relation to the business and affairs of the Company and its
Subsidiaries in accordance with GAAP applied on a consistent basis.
(b) The Company (subject to the terms and conditions contained in
Section 19.14) shall permit each Holder of Debentures or any of such Holder's
officers, employees or representatives during regular business hours of the
Company, upon reasonable notice and as often as such Holder may reasonably
request, to visit and inspect the offices and properties of the Company and its
Subsidiaries and to make extracts or copies of the books, accounts and records
of the Company or its Subsidiaries, and to discuss the affairs, finances and
accounts of the Company and its Subsidiaries, with the Company's (or
Subsidiary's) directors and officers, its independent public accountants,
consultants and attorneys.
(c) Nothing contained in this Section 9.6 shall be construed to
limit any rights that a Holder of Debentures may have with respect to the books
and records of the Company and its Subsidiaries, to inspect its properties or to
discuss its affairs, finances and accounts.
(d) The Company will retain an Approved Accounting Firm to audit
the Company's financial statements at the end of each fiscal year. In the event
the services of an Approved Accounting Firm or any firm of independent public
accountants hereafter employed by the Company are terminated, the Company will
promptly thereafter request the firm of independent public accountants whose
services are terminated to deliver to the Holders of the Debentures a letter of
such firm setting forth its understanding as to the reasons for the termination
of their services and whether there were, during the two most recent fiscal
years or such shorter period during which said firm had been retained by the
Company any disagreements between them and the Company on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. In its notice, the Company shall state whether the change of
accountants was recommended or approved by the Board of Directors or any
committee thereof. In the event of such termination, the Company will promptly
thereafter engage another Approved Accounting Firm.
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9.7. BOARD MEMBERS AND MEETINGS
(a) So long as the Purchasers own any Debentures, the Board of
Directors shall be comprised in accordance with the Voting Agreement. The
Company agrees to hold meetings of its Board of Directors at least four times a
year, at no more than three month intervals. Directors shall be reimbursed for
their reasonable travel and related expenses in attending meetings of the Board
of Directors.
(b) So long as the Purchasers own any Debentures, each of Care
Capital and Essex shall have the right to have a representative join the
Company's Scientific Advisory Board.
9.8. MAINTENANCE OF OFFICE
The Company will maintain its principal office at the address of the
Company set forth in Section 19.6 of this Agreement where notices, presentments
and demands in respect of this Agreement and any of the Debentures may be made
upon the Company, until such time as the Company shall notify the Holders of the
Debentures in writing, at least 30 days prior thereto, of any change of location
of such office.
9.9. USE OF PROCEEDS
The Company shall use $4.3 million of the proceeds received from the
sale of the Debentures pursuant to this Agreement to retire approximately $16.4
Million of indebtedness owing by the Company to Watson in the aggregate
principal amount of approximately $21.4 Million pursuant to the Watson Term
Loans, on terms and conditions acceptable to the Purchasers. The Company shall
use the remainder of the proceeds received from the sale of the Debentures
pursuant to this Agreement for general working capital.
9.10. PAYMENT OF DEBENTURES
The Company shall pay the principal of and interest on the Debentures
in the time, the manner and the form provided in the Debentures.
9.11. CONVERSION OF DEBENTURES
Upon the Conversion Event, the Company shall take all necessary actions
to convert the Debentures and the Existing Debentures into Preferred Stock,
subject to the terms and conditions in the Conversion Agreement.
9.12. INDEPENDENT COMMITTEE
The review and approval of the Independent Committee shall be required
as a condition to the completion of (a) any transaction between or among the
Company and the Purchasers, and (b) any Liquidation Event.
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9.13. DIRECTOR AND OFFICER INSURANCE COVERAGE
The Company shall maintain with financially sound and reputable
insurers D&O Insurance substantially identical to its existing D&O Insurance
(without any material change thereto, including, without limitation, any
decrease in coverage or additional limitations).
9.14. FURTHER ASSURANCES
From time to time the Company shall execute and deliver to the
Purchasers and the Purchasers shall execute and deliver to the Company such
other instruments, certificates, agreements and documents and take such other
action and do all other things as may be reasonably requested by the other party
in order to implement or effectuate the terms and provisions of this Agreement
and the transactions contemplated hereby and any of the Debentures or Shares.
9.15. PROXY STATEMENT
As promptly as practicable after the execution of this Agreement, the
Company will prepare and file with the SEC a Proxy Statement (the "Proxy
Statement"), which will include for submission to a vote of the stockholders and
Existing Debentureholders of the Company the Charter Amendment. The Purchasers
will provide the Company with any information which may be required in order to
effectuate the preparation and filing of the Proxy Statement pursuant to this
Section 9.15. The Company will promptly respond to any comments from the SEC,
and file amendments or supplements to the Proxy Statement as promptly as
practicable after its receipt of any comments from the SEC. The Company will
notify the Purchasers promptly upon the receipt of any comments from the SEC or
its staff in connection with the filing of the Proxy Statement or any amendments
or supplements thereto. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement, the Company will
promptly inform the Purchasers of such occurrence and cooperate in filing with
the SEC or its staff, and mailing to the stockholders and Existing
Debentureholders of the Company, such amendment or supplement. The Company will
cooperate and provide to each of Essex, Care Capital and Galen (and their
respective counsel) with an adequate and reasonable opportunity to review,
comment upon and consent to Proxy Statement, including any amendment or
supplement, prior to filing such with the SEC, and will provide such Purchasers
with a copy of all such filings made with the SEC. The Company will cause the
Proxy Statement to be mailed to the stockholders and Existing Debentureholders
of the Company at the earliest practicable time after the definitive Proxy
Statement is filed with the SEC and the SEC does not have any comments to the
Proxy Statement.
9.16. DISCLOSURE
The Company agrees that none of the information in the Proxy Statement
will, (a) at the time the Proxy Statement is filed with the SEC, (b) at the time
the Proxy Statement is mailed to the stockholders and Existing Debentureholders
of the Company, and (c) on the Stockholders Meeting Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. The
Company agrees that the
28
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act.
9.17. MEETING OF STOCKHOLDERS; BOARD RECOMMENDATION
(a) As promptly as practicable after the execution of this
Agreement, the Company will take all action necessary in accordance with the New
York Act and its Certificate of Incorporation and By-Laws to call, hold and
convene the Stockholders Meeting to be held as promptly as practicable after
clearance by the SEC of the Company's definitive Proxy Statement as filed
pursuant to Section 9.15 hereof. The Company will use its best efforts to
solicit from its stockholders and Existing Debentureholders proxies in favor of
the Charter Amendment, and will take all other action necessary or advisable to
secure the vote or consent of its stockholders and Existing Debentureholders
required by the rules of any applicable securities exchange, the New York Act or
other Legal Requirements to obtain such approval. Notwithstanding anything to
the contrary contained in this Agreement, the Company may adjourn or postpone
its Stockholders Meeting to the extent necessary to ensure that any necessary
supplement or amendment to the Proxy Statement is provided to its stockholders
and Existing Debentureholders in advance of a vote on the Charter Amendment or,
if as of the time for which the Stockholders Meeting is originally scheduled (as
set forth in the Proxy Statement) there are insufficient shares of the Company's
capital stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of such Stockholders Meeting. The Company will
ensure that its Stockholders Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by its in connection with the
Stockholders Meeting are solicited in compliance with the New York Act, its
Certificate of Incorporation and By-Laws, the rules of any applicable securities
exchange and other Legal Requirements.
(b) Unless the Board of Directors receives a written opinion of
counsel to the Company stating that its recommendation of the Charter Amendment
will violate the directors' fiduciary duties to the Company's stockholders (a
copy of which written opinion of counsel will promptly be delivered by the
Company to the Purchasers and their respective counsel): (i) the Board of
Directors will recommend that the stockholders and Existing Debentureholders of
the Company vote in favor of the Charter Amendment at its Stockholders Meeting,
(ii) the Proxy Statement will include a statement to the effect that the Board
of Directors has recommended that the Company's stockholders and Existing
Debentureholders vote in favor of the Charter Amendment at the Stockholders
Meeting, and (iii) neither the Board of Directors nor any committee thereof will
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify
the recommendation of its Board of Directors that the stockholders and Existing
Debentureholders of the Company vote in favor of the Charter Amendment.
(c) Notwithstanding anything to the contrary contained in this
Agreement, the obligation of the Company to call, give notice of, convene and
hold its Stockholders Meeting will not be limited or otherwise affected by any
change of recommendation by the Board of Directors or by any other matter.
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9.18. SEC REPORTS
The Company will file, on a timely basis, any SEC Reports and keep all
such SEC Reports and public information current. The Company agrees that none of
the SEC Reports filed by the Company will, at the time of filing, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
9.19. PUBLIC DISCLOSURE
Without limiting any other provision of this Agreement, the Company
will consult with each of Essex, Care Capital, and Galen before issuing, and
will provide such Purchasers the opportunity to review, comment upon and consent
to, any press release or public statement with respect to this Agreement and the
transactions contemplated hereby, and will not issue any such press release or
make any such public statement prior to such consultation and (to the extent
practicable) agreement, except as may be required by any applicable securities
exchange or Legal Requirements.
ARTICLE X
NEGATIVE COVENANTS
The Company hereby covenants and agrees, so long as any Debentures
remain outstanding, it will not (and not allow any of the Guarantors to),
directly or indirectly, without the prior written consent of the holders of 60%
of the then outstanding principal amount of the Debentures, as follows:
10.1. STAY, EXTENSION AND USURY LAWS
At any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereinafter in force, which may affect the covenants
or the performance of the Debentures, the Company hereby expressly waiving all
benefit or advantage of any such law, or by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Holders of the
Debentures but will suffer and permit the execution of every such power as
though no such law had been enacted.
10.2. RECLASSIFICATION
Effect any reclassification, combination or reverse stock split of the
Preferred Stock or Common Stock of the Company.
10.3. LIENS
Except as otherwise provided in this Agreement or any other Transaction
Document, create, incur, assume or permit to exist any mortgage, pledge, lien,
security interest or encumbrance on any part of its properties or assets, or on
any interest it may have therein, now
30
owned or hereafter acquired, nor acquire or agree to acquire property or assets
under any conditional sale agreement or title retention contract, except that
the foregoing restrictions shall not apply to:
(a) liens for taxes, assessments and other governmental charges,
if payment thereof shall not at the time be required to be made, and provided
such reserve as shall be required by GAAP consistently applied shall have been
made therefore;
(b) liens of workmen, materialmen, vendors, suppliers, mechanics,
carriers, warehouseman and landlords or other like liens, incurred in the
ordinary course of business for sums not then due or that are being contested in
good faith and provided that an adverse decision in such contest would not
materially affect the business of the Company;
(c) liens securing Indebtedness of the Company or any Subsidiary
which are permitted under Sections 10.4(b) or 10.4(g);
(d) statutory liens of landlords, statutory liens of banks and
rights of set-off, and other liens imposed by law, in each case incurred in the
ordinary course of business (i) for amounts not yet overdue or (ii) for amounts
that are overdue and that are being contested in good faith by appropriate
proceedings, so long as reserves or other appropriate provisions, if any, as
shall be required by GAAP, shall have been made for any such contested amounts;
(e) liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(f) any attachment or judgment lien not otherwise constituting an
Event of Default, or an event which, with the giving of notice, the lapse of
time, or both, would not otherwise constitute an Event of Default;
(g) easements, rights-of-way, restrictions, encroachments, and
other minor defects or irregularities in title, in each case which do not and
will not interfere with the ordinary conduct of the business of the Company or
any of its Subsidiaries, except where such interference could not reasonably be
expected to have a Material Adverse Effect;
(h) any (i) interest or title of a lessor or sublessor under any
lease, (ii) restriction or encumbrance that the interest or title of such lessor
or sublessor may be subject to, or (iii) subordination of the interest of the
lessee or sublessee under such lease to any restriction or encumbrance referred
to in the preceding clause (ii), so long as the holder of such restriction or
encumbrance agrees to recognize the rights of such lessee or sublessee under
such lease;
(i) liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(j) any zoning or similar law or right reserved to or vested in
any governmental
31
office or agency to control or regulate the use of any real property;
(k) liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating, reciprocal
easement or similar agreements entered into in the ordinary course of business
of the Company and its Subsidiaries;
(l) the Permitted Liens; and
(m) the replacement, extension or renewal of any lien permitted by
this Section 10.3 upon or in the same property theretofore subject or the
replacement, extension or renewal (without increase in the amount or change in
any direct or contingent obligor) of the Indebtedness secured thereby.
10.4. INDEBTEDNESS
Create, incur, assume, suffer, permit to exist, or guarantee, directly
or indirectly, any Indebtedness, excluding:
(a) the endorsement of instruments for the purpose of deposit or
collection in the ordinary course of business;
(b) Indebtedness which may, from time to time be incurred or
guaranteed by the Company which in the aggregate principal amount does not
exceed $500,000 and is subordinate to the Indebtedness under this Agreement on
terms reasonably satisfactory to the Holders of the Debentures;
(c) Indebtedness existing on the date hereof and described in
Section 10.4 of the Schedule of Exceptions;
(d) Indebtedness relating to contingent obligations of the Company
and its Subsidiaries under guaranties in the ordinary course of business of the
obligations of suppliers, customers, and licensees of the Company and its
Subsidiaries;
(e) Indebtedness relating to loans from the Company to its
Subsidiaries or Indebtedness owed to any of the Guarantors;
(f) Indebtedness relating to capital leases in an amount not to
exceed $500,000;
(g) Indebtedness relating to a working capital line of credit in
an amount not to exceed $5,000,000;
(h) accounts or notes payable arising out of the purchase of
merchandise or services in the ordinary course of business; or
(i) the Debentures.
32
10.5. ARM'S LENGTH TRANSACTIONS
Enter into any transaction, contract or commitment or take any action
other than at Arm's Length.
10.6. IMMATERIAL SUBSIDIARIES
Permit any e Immaterial Subsidiary to commence any business
operations of a type or scope not currently conducted by them, or permit any
Immaterial Subsidiary to acquire any rights or property not currently owned by
it.
10.7. LOANS AND ADVANCES
Except for loans and advances outstanding as of the Closing Date and
set forth in Section 10.7 of the Schedule of Exceptions, directly or indirectly,
make any advance or loan to, or guarantee any obligation of, any Person, except
for intercompany loans or advances in the ordinary course of business and those
provided for in this Agreement.
10.8. INTERCOMPANY TRANSFERS; TRANSACTIONS WITH AFFILIATES; DIVERSION OF
CORPORATE OPPORTUNITIES
(a) Make any intercompany transfers of monies or other assets in
any single transaction or series of transactions, except as otherwise permitted
in this Agreement.
(b) Engage in any transaction with any of the officers, directors,
employees or Affiliates of the Company or of its Subsidiaries, except on terms
no less favorable to the Company or the Subsidiary as could be obtained at Arm's
Length.
(c) Divert (or permit anyone to divert) any business or
opportunity of the Company or any Subsidiary to any other corporate or business
entity.
10.9. INVESTMENTS
Except as contemplated by Section 18.3, make any investments in, or
purchase any stock, option, warrant, or other security or evidence of
Indebtedness of, any Person (exclusive of any Subsidiary), other than
obligations of the United States Government or certificates of deposit or other
instruments maturing within one year from the date of purchase from financial
institutions with capital in excess of $100 million.
10.10. OTHER BUSINESS
Enter into or engage, directly or indirectly, in any business other
than the business currently conducted or proposed to be conducted as disclosed
to the Purchasers prior to the date hereof by the Company or any Subsidiary.
10.11. EMPLOYEE BENEFIT PLANS AND COMPENSATION
Except as contemplated by this Agreement:
33
(a) enter into or materially amend any agreement to provide for or
otherwise establish any written or unwritten employee benefit plan, program or
other arrangement of any kind, covering current or former employees of the
Company or its Subsidiaries except for any such plan, program or arrangement
expressly permitted under an existing agreement listed in Section 4.18 the
Schedule of Exceptions or as otherwise approved by the Board of Directors;
provided, however, that no such plan, program or arrangement may be established
or implemented if such action would have a material effect on the terms of
employment of the employees of the Company or its Subsidiaries;
(b) except as otherwise approved by the Board of Directors,
provide for or agree to any material increase in any benefit provided to current
or former employees of the Company or its Subsidiaries over that which is
provided to such individuals pursuant to a plan or arrangement disclosed in
Section 4.18 of the Schedule of Exceptions as of the Closing Date; or
(c) except as otherwise approved by the Board of Directors,
provide for or agree to any increase in the annual compensation of any of the
employees of the Company or its Subsidiaries, except for (i) annual salary
increases in the ordinary cause of business consistent with past practice (not
to exceed a 10% increase over such employee's annual salary compensation on the
date hereof), and (ii) normal and customary annual bonuses to employees (not to
exceed $350,000 in the aggregate in any fiscal year).
10.12. CAPITAL EXPENDITURES
Other than for capital expenditures contained in any budget approved by
the Board of Directors, make or commit to make, or permit any of its
Subsidiaries to make or commit to make, any capital expenditures in excess of
$250,000 in the aggregate during any fiscal year of the Company.
10.13. AMENDMENTS OF CERTAIN DOCUMENTS
Except as otherwise specifically provided for herein or in the
Transaction Documents, amend, modify, change in any manner any term or condition
of the Watson Term Loan, the Existing Debentures or any agreement or other
instrument or document entered into by the Company or any Guarantor in
connection therewith or pursuant thereto, or give any consent, waiver or
approval thereunder, waive any default under or any breach of any term or
condition thereof, agree in any manner to any other amendment, modification or
change of any term or condition thereof or take any other action in connection
therewith that would impair the value of the interest or the rights of any
Purchaser under this Agreement or any other Transaction Document, or permit any
of the Guarantors to do any of the foregoing without the prior written consent
of the holders of 60% of the then outstanding principal amount of Debentures.
10.14. FORMATION OF SUBSIDIARIES
Organize or invest, or permit any Subsidiary to organize or invest, in
any new corporation, partnership, joint venture, limited liability company,
trust or estate of which (or in which) (a) more than 50% of the issued and
outstanding capital stock having ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether at
34
the time capital stock of any other class of such corporation shall or might
have voting power upon the occurrence of any contingency), the interest in the
capital or profits of such partnership, joint venture or limited liability
company or the beneficial interest in such trust or estate, is at the time
directly or indirectly owned or controlled by the Company, any of its
Subsidiaries or any of their respective officers or directors, or (b) a material
minority investment in any such entity is directly or indirectly owned or
controlled by the Company, any of its Subsidiaries or any of their respective
officers or directors.
10.15. CERTAIN CASH INTEREST PAYMENTS
Make any cash interest payments to the Existing Debentureholders,
notwithstanding anything else to the contrary contained therein or elsewhere,
without the prior written consent of the holders of all of the then outstanding
Debentures (the "2004 Holders"), which consent shall be within their sole and
absolute discretion.
ARTICLE XI
INTENTIONALLY OMITTED
ARTICLE XII
EVENTS OF DEFAULT
12.1. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing on or
before the Security Interest Termination Date, an "Event of Default" shall be
deemed to have occurred:
(a) if the Company shall default in the payment of (i) any part of
the principal of any Debenture, when the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise, or (ii) the interest on any Debenture, when the same shall become due
and payable, and in the case of an interest payment such default shall have
continued without cure for ten days from the scheduled date of payment of such
interest;
(b) the Company shall fail to issue to a Holder the Shares
issuable upon conversion of a Debenture pursuant to the instructions provided by
such Holder and in accordance with the terms of such Debenture;
(c) except as provided in Section 12.1(b), if the Company shall
default in the performance of any of the covenants contained in Articles IX or
X, and, in the case of a default under Sections 9.1 through and including 9.8 or
Section 10.3 (exclusive of Section 10.3(c)), such default shall have continued
without cure for 30 days after written notice (a "Default Notice") is given to
the Company with respect to such covenant by any holder or holders of the
Debentures (and the Company shall give to all other holders of the Debentures at
the time outstanding prompt written notice of the receipt of such Default
Notice, specifying the default referred to
35
therein); provided, however, that such 30-day grace period shall not apply in
the event the Company fails to promptly give notice as provided in Section 9.3;
(d) except as provided in Sections 12.1(b) or 12.1(c), if the
Company or any of the Guarantors shall default in the performance of any other
agreement contained in any Transaction Document or in any other agreement
executed in connection with this Agreement and such default shall not have been
remedied to the satisfaction of the holders of 60% of the then outstanding
principal amount of the Debentures, within 35 days after a Default Notice shall
have been given to the Company (and the Company shall give to all other Holders
of the Debentures at the time outstanding prompt written notice of the receipt
of such Default Notice, specifying the default referred to therein); provided,
however, that such thirty-five (35) day grace period shall not apply in the
event the Company fails to give notice as provided in Section 9.3;
(e) if any representation or warranty made by the Company, any
Guarantor or any of their officers in any Transaction Document or in or any
certificate delivered pursuant thereto shall prove to have been incorrect in any
material respect when made;
(f) if (i) any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing, or under which there is at the
time outstanding, any Indebtedness of the Company or a Subsidiary, in excess of
$500,000, or which results in such Indebtedness, in an aggregate amount (with
other defaulted Indebtedness) in excess of $1,000,000 becoming (or being
declared by its holders or, on its behalf, by an agent or trustee therefore to
be) due and payable prior to its due date; (ii) irrespective of the monetary
thresholds specified in subclause (i) above, if any default, event of default or
any other condition shall occur or exist under the Watson Term Loan or any
Existing Debentures (as such term is defined in the Watson Term Loan and the
Existing Debentures, respectively) which shall be continuing after the
respective grace period, if any, specified in the Watson Term Loan and the
Existing Debentures, and the effect of which is to permit the acceleration of
the maturity of the Indebtedness outstanding thereunder; or (III) a Change of
Control shall have occurred;
(g) if any of the Company or its Subsidiaries shall default in the
observance or performance of any term or provision of an agreement to which it
is a party or by which it is bound which default could reasonably be expected to
have a Material Adverse Effect and such default is not waived or cured within
the applicable grace period;
(h) if a final judgment which, either alone or together with other
outstanding final judgments against the Company and its Subsidiaries, exceeds an
aggregate of $2,000,000 shall be rendered against the Company or any Subsidiary
and such judgment shall have continued undischarged or unstayed for 60 days
after entry thereof;
(i) if the Company or any Subsidiary shall generally not pay its
debts as such debts become due or shall make an assignment for the benefit of
creditors generally, or shall admit in writing its inability to pay its debts
generally; or if any proceeding shall be instituted by or against the Company or
any Subsidiary seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors, or seeking entry of an
order for relief or the appointment of a
36
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of such proceeding instituted
against it (but not instituted by it) that is being diligently contested by it
in good faith, either such proceeding shall remain undismissed or unstayed for a
period of 90 days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, it or any
substantial part of its property) shall occur; or if any writ of attachment or
execution or any similar process shall be issued or levied against it or any
substantial part of its property which is either not released, stayed, bonded or
vacated within 90 days after its issue or levy or any of the actions sought or
relief sought in any proceeding pursuant to which such writ or similar process
shall be issued or initiated shall occur or be granted; or if the Company or any
Subsidiary takes corporate action in furtherance of any of the aforesaid
purposes or conditions;
(j) if any provision of any Transaction Document shall for any
reason cease to be valid and binding on, or enforceable against, the Company or
any Guarantor, or the Company or any Guarantor shall so assert in writing;
(k) any Transaction Document (or any financing statement) which
purports:
(i) to create, perfect or evidence a lien on or security
interest in any Company Debenture Collateral or Guarantor Debenture
Collateral in favor of the Holders of the Debentures (or their agents
and representatives), or to provide for the priority of any such lien
or security interest over the interest of any other party in the same
Collateral, shall cease to create, or to preserve the enforceability,
perfection or first priority (subject to the Subordination Agreement)
of, such lien and security interest; or
(ii) to provide for the priority in right of payment of
the Company's obligations under the Transaction Documents to or in
favor of the Holders of the Debentures (or their agents or
representatives) shall cease to preserve such priority; or
(l) if the Conversion Event (and the conversion of the Debenture
and Existing Debentures into Preferred Stock in connection therewith), shall not
have occurred by November 1, 2004.
12.2. REMEDIES
(a) Except as provided in Section 12.2(b), upon the occurrence and
during the continuance of an Event of Default, any holder or holders of 60% of
the then outstanding principal amount of the Debentures may at any time (unless
all defaults shall theretofore have been remedied) at its or their option, by
written notice or notices to the Company (i) declare all the Debentures to be
due and payable, whereupon the same shall forthwith mature and become due and
payable, together with interest accrued thereon, without presentment, demand,
protest or notice, all of which are hereby waived by the Company; and (ii)
declare any other amounts payable to the Purchasers under this Agreement or as
contemplated hereby due and payable; provided, however, that in the event of an
actual or deemed entry of an order for relief with respect to the Company under
the U.S. Bankruptcy Code, the Debentures, together with interest accrued
thereon, shall automatically become and be due and payable, without presentment,
37
demand, protest or notice of any kind, all of which are hereby waived by the
Company.
(b) Notwithstanding anything to the contrary contained in Section
12.2(a), in the event that at any time after the principal of the Debentures
shall so become due and payable and prior to the date of maturity stated in the
Debentures all arrears of principal of and interest on the Debentures (with
interest at the rate specified in the Debentures on any overdue principal and,
to the extent legally enforceable, on any interest overdue) shall be paid by or
for the account of the Company, then the holder or holders of 60% of the then
outstanding principal amount of the Debentures, by written notice or notices to
the Company, may (but shall not be obligated to) waive such Event of Default and
its consequences and rescind or annul such declaration, but no such waiver shall
extend to or affect any subsequent Event of Default or impair any right
resulting therefrom. If any Holder of the Debentures shall give any notice or
take any other action with respect to a claimed default, the Company, forthwith
upon receipt of such notice or obtaining knowledge of such other action will
give written notice thereof to all other Holders of the Debentures, describing
such notice or other action and the nature of the claimed default.
12.3. ENFORCEMENT
In case any one or more Events of Default shall occur and be
continuing, each Holder of the Debentures may proceed to protect and enforce the
rights of such Holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement in favor of
the Purchasers which is contained in any of the Transaction Documents or in such
Debenture or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law (including, without limitation, the right to enforce the Company Debenture
Collateral, the Guaranties and the Guarantor Debenture Collateral, each in
accordance with its respective terms). Each such Holder agrees that it will give
written notice to the other Holders of the Debentures prior to instituting any
such action. In case of a default in the payment of any principal of or interest
on any Debenture, the Company will pay to the holder thereof such further amount
as shall be sufficient to cover the cost and the expenses of collection,
including, without limitation, reasonable attorney's fees, expenses and
disbursements. No course of dealing and no delay on the part of any Holder of
the Debentures in exercising any rights shall operate as a waiver thereof or
otherwise prejudice such Holder's rights. No right conferred hereby or by any
Debenture upon any holder thereof shall be exclusive of any other right referred
to herein or therein or now available at law or in equity, by statute or
otherwise.
ARTICLE XIII
INDEMNIFICATION
13.1. COMPANY INDEMNIFICATION OF PURCHASERS
To the greatest extent permitted by applicable law, the Company agrees
to indemnify each Purchaser, its Affiliates and respective legal counsel, and
each of the officers, directors, partners and stockholders of each, against and
hold it harmless from all Losses arising out of or resulting from: (i) the
breach of any representation or warranty of the Company in any Transaction
Document or in any agreement, certificate or instrument delivered pursuant
thereto;
38
(ii) the breach of any agreement by the Company contained in any Transaction
Document or any agreement, certificate of instrument delivered pursuant thereto;
or (iii) the Purchasers' representation on the Board of Directors and any
committees thereof or as an observer thereon.
13.2. NOTICE OF CLAIMS
Anything in Section 13.1 to the contrary notwithstanding, no claim may
be asserted nor may any action be commenced against the Company for breach of
any representation or warranty contained in this Agreement, unless notice of
such Purchaser's intention to assert any such claim or commence any such action
is received by the Company describing in writing in reasonable detail the facts
and circumstances with respect to the subject matter of such claim or action on
or prior to the date on which the representation or warranty on which such claim
or action is based ceases to survive as set forth in Section 19.3. With respect
to any claim or action as to which such notice shall have been given, the
Purchasers shall be entitled to assert a claim or commence an action for
indemnification with respect thereto at any time after the giving of such
notice, regardless of whether any such claim or action may be asserted or
commenced prior to or after the date on which the representation or warranty on
which such claim or action is based ceases to survive as set forth in Section
19.3.
13.3. THIRD PARTY CLAIMS
Each Purchaser agrees to give the Company prompt written notice of any
claim, assertion, event or proceeding by a third party of which it has actual
knowledge concerning any Losses as to which it intends to request
indemnification under this Agreement. The Company shall have the right to
direct, through counsel of the Company's own choosing, the defense or settlement
of any such claim or proceeding at the Company's own expense. If the Company
elects to assume the defense of any such claim or proceeding, such Purchaser may
participate in such defense, but in such case the expenses of such Purchaser
shall be paid by such Purchaser. Such Purchaser shall cooperate with the Company
in the defense or settlement thereof, and the Company shall reimburse such
Purchaser for its reasonable out-of-pocket expenses in connection therewith. If
the Company elects to direct the defense of any such claim or proceeding, such
Purchaser shall not pay, or permit to be paid, any part of any claim or demand
arising from such asserted liability, unless the Company consents in writing to
such payment or unless the Company, subject to the last sentence of this Section
13.3, withdraws from the defense of such asserted liability, or unless a final
judgment from which no appeal may be taken by or on behalf of the Company is
entered against such Purchaser for such liability. If the Company shall fail to
defend any such claim or proceeding, or if, after commencing or undertaking any
defense, fails to prosecute or withdraws from such defense, such Purchaser shall
have the right to undertake the defense or settlement thereof, at the Company's
expense. If such Purchaser assumes the defense of any such claim or proceeding
pursuant to this Section 13.3 and proposes to settle such claim or proceeding
prior to a final judgment thereon or to forego appeal with respect thereto, then
such Purchaser shall give the Company prompt written notice thereof and the
Company shall have the right to participate in the settlement or assume or
reassume the defense of such claim or proceeding.
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13.4. PURCHASER INDEMNIFICATION OF THE COMPANY
Each Purchaser agrees to indemnify and hold harmless the Company, its
Affiliates and respective legal counsel, and each of the officers, directors,
partners and stockholders of each, from and against any Losses arising out of
the breach of any representation or warranty of such Purchaser in Article V of
this Agreement.
ARTICLE XIV
AMENDMENT AND WAIVER
14.1. AMENDMENT AND WAIVER
No amendment of any provision of this Agreement, including any
amendment of this Article XIV, shall be valid unless the same shall be in
writing and signed by the Company (and the Independent Committee) and the
holders of 60% of the then outstanding principal amount of the Debentures. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder or under any other Transaction Document, whether intentional
or not, shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or thereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
14.2. BINDING EFFECT OF AMENDMENT AND WAIVER
The Company and each Holder shall be bound by any amendment or waiver
effected in accordance with the provisions of this Article XIV, whether or not
such Debenture and Share, respectively, shall have been marked to indicate such
modification, but any Debenture and Share, respectively, issued thereafter shall
bear a notation as to any such modification. Promptly after obtaining the
written consent of the Holders of the Debentures and the holders of Shares,
respectively, herein provided, the Company shall transmit a copy of such
modification to all of the holders of the Debentures and the holders of Shares,
respectively, then outstanding.
ARTICLE XV
EXCHANGE OF DEBENTURES
At any time at the request of any Holder to the Company at its office
provided under Section 19.6, the Company at its expense (except for any transfer
tax or any other tax arising out of the exchange) will issue in exchange
therefore new Debentures, in such denomination or denominations ($100,000 or any
larger multiple of $100,000, plus one Debenture in a lesser denomination, if
required) as such holder may request, in aggregate principal amount equal to the
unpaid principal amount of the Debenture or Debentures surrendered and
substantially in the form thereof, dated as of the date to which interest has
been paid on the Debenture or Debentures surrendered (or, if no interest has yet
been so paid thereon, then dated the date of the Debenture
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or Debentures so surrendered) and payable to such Person or Persons or order as
may be designated by such holder.
ARTICLE XVI
TRANSFER OF DEBENTURES
Subject to the next paragraph of this Article XVI, each Holder by
acceptance thereof agrees that it will give the Company ten days written notice
prior to selling or otherwise disposing of such Debenture. No such sale or other
disposition shall be made unless (i) the holder shall have supplied to the
Company an opinion of counsel for the holder reasonably acceptable to the
Company to the effect that no registration under the Securities Act is required
with respect to such sale or other disposition, or (ii) an appropriate
registration statement with respect to such sale or other disposition shall have
been filed by the Company and declared effective by the SEC.
If the Holder has obtained an opinion of counsel reasonably acceptable
to the Company to the effect that the sale of its Debenture may be made without
registration under the Securities Act pursuant to compliance with Rule 144 (or
any successor rule under the Securities Act), the holder need not provide the
Company with the notice required in the first paragraph of this Article XVI.
ARTICLE XVII
RIGHT OF FIRST REFUSAL; ADDITIONAL INVESTMENT
17.1. RIGHT OF FIRST REFUSAL
Each First Refusal Holder shall be entitled to the following right of
first refusal:
(a) Except in the case of Excluded Securities, the Company shall
not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange any Equity Securities unless in each case,
the Company shall have first offered to sell to the First Refusal Holders the
Equity Securities at a price and on such other terms as shall have been
specified by the Company in writing delivered to each of the First Refusal
Holders (the "Offer"), which Offer by its terms shall remain open and
irrevocable for a period of 30 days from the date it is delivered by the Company
to the First Refusal Holders; provided, however, that such issuance, sale or
exchange of Equity Securities shall result in gross proceeds to the Company
(whether at the time of issuance or upon conversion, exercise, or exchange
thereof) of an amount in excess of $200,000 (the "Minimum Offering Threshold").
For purposes of computing the Minimum Offering Threshold, all offerings,
issuances, sales and exchanges of Equity Securities during any rolling 12-month
period shall be aggregated.
(b) Each of the First Refusal Holders shall have the right to
purchase up to its pro rata share of the Equity Securities determined at the
time of the consummation of the Company's issuance of Equity Securities. The
"pro rata share" of each First Refusal Holder shall be that amount of the Equity
Securities multiplied by a fraction,
41
(i) the numerator of which is the sum of (1) the number
of shares of Common Stock underlying a Debenture held by such Person if
such Person is the holder of a Debenture, (2) the number of shares of
Common Stock underlying the 2002 Debentures held by such Person if such
Person is an Existing 2002 Debentureholder, (3) the number of shares of
Common Stock underlying the 1998 Debentures held by such Person if such
Person is an Existing 1998 Debentureholder, and (4) the number of
shares of Common Stock issued to such Old Common Holder upon conversion
of a 2002 Existing Debenture or 1998 Existing Debenture (as the case
may be) if such Person is an Old Common Holder and has converted the
Debenture, and
(ii) the denominator of which is the sum of (1) the total
number of shares of Common Stock underlying the Debentures issued
pursuant to this Agreement and (2) the total number of shares of Common
Stock underlying the 2002 Debentures and the 1998 Debentures.
(c) Notice of the intention of each First Refusal Holder to
accept, in whole or in part, an Offer shall be evidenced by a writing signed by
such Person, as the case may be and delivered to the Company prior to the end of
the 30-day period commencing with the date of such Offer (or, if later, within
ten days after the delivery or giving of any written notice of a material change
in such Offer), setting forth such portion (specifying number of shares,
principal amount or the like) of the Equity Securities such Person elects to
purchase (the "Notice of Acceptance").
(d) In the event that all First Refusal Holders do not elect to
purchase all of the Equity Securities, the Persons which have provided notice of
their intention to exercise the refusal rights as provided in Section 17.1(c)
shall have the right to purchase, on a pro rata basis, any unsubscribed portion
of the Equity Securities during a period of ten days following the 30-day period
provided in Section 17.1(c). Following such additional ten-day period, in the
event the First Refusal Holders have not elected to purchase all of the Equity
Securities, the Company shall have 90 days from the expiration of the foregoing
40-day period to sell all or any part of such Equity Securities as to which a
Notice of Acceptance has not been given by any of such Persons (the "Refused
Securities") to any other Person or Persons on the terms provided in the Offer.
Upon the closing of the sale to such other Person or Persons of all the Refused
Securities, which shall include payment of the purchase price to the Company in
accordance with the terms of the Offer, if the First Refusal Holders have timely
submitted a Notice of Acceptance, they shall purchase from the Company, and the
Company shall sell to such Persons, as the case may be, the Equity Securities in
respect of which a Notice of Acceptance was delivered to the Company, at the
terms specified it the Offer. The purchase by the First Refusal Holders of any
Equity Securities is subject in all cases to the preparation, execution and
delivery by the Company to such Persons of a purchase agreement and other
customary documentation relating to such Equity Securities as is satisfactory in
form and substance to such Persons and each of their respective counsel.
(e) In each case, any Equity Securities not purchased by the First
Refusal Holders or by a Person or Persons in accordance with Section 17.1(d) may
not be sold or otherwise disposed of until they are again offered to such
Persons under the procedures specified in Sections 17.1(a), 17.1(c) and 17.1(d)
of this Agreement.
42
(f) The rights of the First Refusal Holders under this Section
17.1 shall not apply to the following securities (the "Excluded Securities"):
(i) Common Stock or options to purchase such Common
Stock, issued to officers, employees or directors of, or consultants
to, the Company, pursuant to any agreement, plan or arrangement
approved by the Board of Directors;
(ii) Common Stock issued as a stock dividend or upon any
stock split or other subdivision or combination of shares of Common
Stock;
(iii) shares issued upon conversion of the Debentures or
the Existing Debentures, exercise of the warrants issued in connection
with the issuance of the Existing Debentures or conversion/exercise of
other convertible securities outstanding on the date hereof;
(iv) any securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition, strategic
alliance or similar business combination approved by the Board of
Directors and at the Company's Annual Meeting of Stockholders; or
(v) any debentures issued in satisfaction of interest
payments under the Existing Debentures, including debentures
instruments issued in satisfaction of interest payments on those
debenture instruments.
(g) Notwithstanding anything to the contrary contained herein, a
holder of a Debenture (other than an initial Purchaser) shall not be considered
a First Refusal Holder for purposes of this Section 17.1 only, unless such
Person then holds Debentures with an outstanding principal amount of at least
$200,000.
ARTICLE XVIII
TRANSFER RESTRICTIONS
18.1. TRANSFER RESTRICTIONS
This Article XVIII shall apply to all Transfers of Restricted
Securities. Notwithstanding any implication to the contrary set forth in this
Agreement, no Transfer shall have any force or effect unless: (a) such a
Transfer is made in accordance with each of the provisions of this Article
XVIII, (b) such a Transfer would not result in the violation of applicable
federal or state securities laws, (c) the transferee in any such Transfer is an
Accredited Investor, and (d) the intended transferee of such Transfer executes
the Joinder Agreement. Any attempt by a Holder to Transfer any Restricted
Securities in violation of any provision of this Agreement will be void and have
no force or effect. The Company will not be required (i) to transfer on its
books any Restricted Securities that have been sold, gifted or otherwise
Transferred in violation of this Agreement or (ii) to treat as the owner of such
Restricted Securities, or to accord the right to vote or pay principal, interest
or dividends to, any purchaser, donee or other transferee to whom such
Restricted Securities may have been so Transferred in violation of this
Agreement.
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18.2. NOTICE OF PROPOSED TRANSFER
Before any Holder may effect any Transfer of any Offered Securities
(other than a Permitted Transfer), such Holder (the "Selling Security Holder")
must give written notice concurrently to the Company and the other Holders
("Seller Notice") stating (a) the Selling Security Holder's bona fide intention
to transfer such Offered Securities, (b) the number of the Offered Securities to
be Transferred, (c) the name, address and relationship to the Selling Security
Holder, if any, of each proposed purchaser or other transferee (the "Proposed
Transferee"), (d) the bona fide cash price per Offered Security (the "Offered
Price"); and (e) the anticipated date of the proposed Transfer, which shall be a
date not earlier than 30 days after the date the Seller Notice is delivered.
Upon the request of the Company or a Holder, the Selling Security Holder will
promptly furnish such information to the Company and to the Holder as may be
reasonably requested to establish that the offer and proposed Transfer are bona
fide.
18.3. PURCHASE RIGHTS
With respect to any Transfer by any Selling Security Holder (other than
a Permitted Transfer), the Company and each Holder shall have the right to
purchase ("Purchase Right") the Offered Securities, exercisable as set forth
below:
(a) The Company shall have the right to purchase all, but not less
than all, of the Offered Securities. If the Company desires to purchase all of
the Offered Securities, the Company must, within the 10 day period (the "Company
Refusal Period") commencing on the date of receipt of the Seller Notice, give
written notice to the Selling Security Holder of the Company's election to
purchase the Offered Securities. In the event that the Company elects not to
purchase all of the Offered Securities, the Offered Securities may be purchased
by the Holders as set forth in Section 18.3(b). On or before the expiration of
the Company Refusal Period, the Company will give written notice (the "Company
Waiver Notice") to the Holders specifying either (i) that all of the Offered
Securities were subscribed by the Company's exercising its Purchase Right or
(ii) that the Company waived its Purchase Right. Notwithstanding any failure by
the Company to deliver a Company Waiver Notice, a failure by the Company to
exercise its Purchase Right within the Company Refusal Period shall be deemed a
waiver of such right.
(b) In the event the Company does not purchase all of the Offered
Securities, each Holder shall have the opportunity to purchase up to such
Holder's pro rata share of the Offered Securities. For purposes of this Section
18.3(b), a Holder's pro rata share shall be determined by dividing the number of
shares of Common Stock (inclusive of all Common Stock underlying the Restricted
Securities) held by such Holder by the total number of shares of Common Stock
(inclusive of all Common Stock underlying the Restricted Securities) held by all
Holders purchasing Offered Securities pursuant to this Section 18.3(b). If any
Holder, or its assignees who are Affiliates of such Holder, desires to purchase
the Offered Securities, such Holder must, within a 5 day period (the "Holder
Refusal Period") commencing on the later date of (i) the Company Waiver Notice
or (ii) the 10th day after the Seller Notice, give written notice ("Holder
Notice") to the Selling Security Holder and to the Company of such Holder's
election to purchase such Holder's pro rata share of the remaining Offered
Securities, or such lesser number as may be stated in such Holder's Holder
Notice. The participating Holders also may allocate
44
the right to purchase the Offered Securities between or among them in any
proportion they choose as reflected in a notice to the Selling Security Holder
within the Holder Refusal Period. In the event that any Holder elects not to
purchase any of the Offered Securities, such Holder shall, prior to the
expiration of the Holder Refusal Period, give written notice ("Holder Waiver
Notice") to the Selling Security Holder that the Holder is waiving such Holder's
right to purchase all such Offered Securities under this Section 18.3(b).
Notwithstanding any failure by a Holder to deliver a Holder Waiver Notice, a
failure by a Holder to exercise such Holder's Purchase Right within the Holder
Refusal Period shall be deemed a waiver of such right.
(c) The purchase price for the Offered Securities to be purchased
by the Company or the Holders exercising their Purchase Right under this
Agreement will be the Offered Price, and will be payable within 10 days after
the date the Purchase Right is first exercised for all of the Offered
Securities. Payment of the purchase price will be made by the exercising Company
or Holders (as the case may be) by check or wire transfer of immediately
available funds.
(d) If the Company or Holders exercise their Purchase Right to
purchase all of the Offered Securities, then, upon consummation of such
purchase, the Selling Security Holder will have no further rights as a holder of
the Offered Securities except the right to receive payment for the Offered
Securities in accordance with the terms of this Agreement, and the Selling
Security Holder will promptly cause all certificate(s) or debentures (as the
case may be) evidencing such Offered Securities, together with such other
instruments and documents of transfer as the Persons acquiring the Offered
Securities shall reasonably request, to be surrendered to the Company for
Transfer to the Persons acquiring the Offered Securities (free and clear of any
and all liens, claims and encumbrances whatsoever except those imposed by this
Agreement and securities laws generally).
(e) If the Company or the Holders have not elected to purchase all
of the Offered Securities, then, subject to the Co-Sale Rights set forth in
Section 18.4, the Selling Security Holder may Transfer the remaining Offered
Securities to the Proposed Transferee, at the Offered Price or at a higher
price, provided that such Transfer (i) is consummated within 90 days after the
date of the Seller Notice and (ii) is in accordance with all the terms of this
Agreement. Any proposed Transfer at a price or on terms and conditions more
favorable than those described in the Seller Notice, as well as any subsequent
proposed Transfer of any of the Offered Securities by the Selling Security
Holder, shall again be subject to this Section 18.3 and shall require full
compliance by the Selling Security Holder with the procedures in this Section
18.3.
18.4. CO-SALE RIGHTS
Notwithstanding Section 18.3(e), no Holder (each, a "Co-Sale Seller")
shall Transfer any of the Offered Securities pursuant to Section 18.3(e) to a
Proposed Transferee until such Co-Sale Seller has given written notice to each
of the Holders of the right (the "Co-Sale Right"), exercisable either within 5
days after the date of such Person's Holder Waiver Notice or within 15 business
days following receipt of the Seller Notice, whichever is later, to sell to a
Proposed Transferee all or part of such Holder's Portion of the Offered
Securities, on the same terms and conditions as set forth in the Seller Notice,
on an as-converted-to-Common-Stock basis. A Holder may exercise the Co-Sale
Right by delivering to the Co-Sale Seller at the closing of the
45
Transfer of Offered Securities to the Proposed Transferee one or more
certificates or debentures (as the case may be), properly endorsed for Transfer,
representing such Offered Securities to be Transferred by the Holder. At the
closing of the Transfer of Offered Securities to the Proposed Transferee, such
certificates, debentures or other instruments will be Transferred and delivered
to the Proposed Transferee as set forth in the Seller Notice in consummation of
the Transfer of the Offered Securities pursuant to the terms and conditions
specified in such notice, and the Co-Sale Seller will remit, or will cause the
Proposed Transferee to remit, to the participating Holder at closing that
portion of the proceeds of the Transfer to which the Holder is entitled by
reason of the Holder's participation in such Transfer pursuant to the Co-Sale
Right. If the Offered Securities consist of debentures or more than one series
or class or type of stock and the Proposed Transferee is not willing to purchase
debentures or shares of a class of preferred stock held by the Holders, then the
Holders exercising a Co-Sale Right will have the opportunity to convert such
Existing Debentures, Debentures or shares of Preferred Stock into Common Stock,
and the Company will cooperate to effect such conversion.
ARTICLE XIX
MISCELLANEOUS
19.1. REGULATORY FILINGS; BEST EFFORTS
(a) The Company and the Purchasers (acting severally and not
jointly) will coordinate and cooperate with one another and will each use its
respective best efforts to comply with, and will each refrain from taking any
action that would impede compliance with, all Legal Requirements, and as
promptly as practicable after the date hereof, each of the Company and the
Purchasers will make all filings, notices, petitions, statements, registrations,
submissions of information, application or submission of other documents
required by any governmental entity in connection with this Agreement and the
transactions contemplated hereby, including, without limitation: any filing
necessary to obtain any consent or approval of any third party or governmental
entity and any filings required under the Securities Act, the Exchange Act, any
applicable state or securities or "blue sky" laws and the securities laws of any
foreign country, any applicable securities exchange or any other Legal
Requirements relating to this Agreement and the transactions contemplated
hereby. In furtherance and not in limitation of the foregoing, promptly upon
receipt of the approval of its stockholders and Existing Debentureholders of the
Charter Amendment, the Company will file the Charter Amendment with the New York
Secretary of State and with any other applicable governmental entity. Each of
the Company and the Purchasers will cause all documents that it is responsible
for filing with any governmental entity under this Section 19.1(a) to comply in
all respects with all applicable Legal Requirements. The Company and the
Purchasers each will promptly supply the other with any information which may be
required in order to effectuate any filings or application pursuant to this
Section 19.1(a).
(b) The Company will notify Essex, Care Capital and Galen promptly
upon the receipt of: (i) any comments from any officials of the SEC or any other
governmental entity in connection with any filings made pursuant to this
Agreement and (ii) any request by any officials of the SEC or any other
governmental entity for amendments or supplements to any filings made
46
pursuant to, or information provided to comply in all material respects with,
any Legal Requirements. Whenever any event occurs that is required to be set
forth in an amendment or supplement to any filing made pursuant to Section
19.1(a) or otherwise pursuant to this Agreement, the Company will promptly
inform Essex, Care Capital and Galen of such occurrence and will file with the
applicable governmental entity such amendment or supplement. Before filing any
document, including the Proxy Statement, with the SEC or other governmental
entity pursuant to Section 19.1(a) or otherwise pursuant to this Agreement, the
Company will provide Essex, Care Capital and Galen and their respective counsel
with a copy of the draft document a reasonable time prior to the filing. Essex,
Care Capital and Galen and their respective counsel will have an adequate and
reasonable opportunity to review, comment upon and consent to the document prior
to such document being filed by the Company with the SEC or other governmental
entity.
(c) Each of the parties to this Agreement agrees to use its best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement,
including using its best efforts to accomplish the following: (i) the taking of
its best efforts necessary to cause the conditions precedent set forth in
Articles VI and VII to be satisfied, (ii) the obtaining of all necessary actions
or nonactions, waivers, consents, approvals, orders and authorizations from
governmental entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
governmental entities, if any) and the taking of its best efforts as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
governmental entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other governmental entity vacated or reversed, and (v) the execution,
delivery and filing of any additional documents, instruments and certificates
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement. In connection with and without limiting the
foregoing, the Company and its Board of Directors will, if any takeover statute
or similar Legal Requirement is or becomes applicable to this Agreement or the
transactions contemplated by this Agreement, use its best efforts to ensure that
the transactions contemplated by this Agreement may be consummated as promptly
as practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such Legal Requirement on this Agreement and the
transactions contemplated hereby.
19.2. GOVERNING LAW
This Agreement and the rights of the parties hereunder shall be
governed in all respects by the laws of the State of New York wherein the terms
of this Agreement were negotiated, excluding to the greatest extent permitted by
law any rule of law that would cause the application of the laws of any
jurisdiction other than the State of New York.
47
19.3. SURVIVAL OF REPRESENTATIONS
Subject to the terms of this Agreement, the representations,
warranties, covenants and agreements contained, in the Transaction Documents and
in any agreements, certificates or other instruments delivered pursuant thereto
shall survive (a) any investigation made by or on behalf the Purchasers and (b)
the Closing until the date that is 24 months after the Closing Date.
19.4. SUCCESSORS AND ASSIGNS
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon and enforceable by and
against, the parties hereto and their respective successors, assigns, heirs,
executors and administrators. No party may assign any of its rights hereunder
without the prior written consent of the other parties; provided, however, that
any Purchaser may assign any of its rights under any of the Transaction
Documents to (a) any Affiliate of such Purchaser or (b) any Person to whom such
Purchaser shall Transfer any Debentures in accordance with the terms of Article
XVIII; provided further, that notwithstanding anything herein or in the
Transaction Documents to the contrary, no opinion of counsel shall be necessary
for a transfer or assignment of the Debentures or any rights under any of the
Transaction Documents (except for the Watson Warrant) by a Purchaser that is a
partnership, corporation or limited liability company to any general partner,
limited partner, retired partner, stockholder, member, retired member, officer,
director or Affiliates of such Purchaser, or the members or retired members of
the foregoing, as applicable, or the estates, beneficiaries and family members
of any such general partner, limited partners, retired partners, stockholders,
members, retired members, officers, directors and Affiliates and any trusts for
the benefit of any of the foregoing Persons, provided, that in each case the
transferee will be subject to the applicable terms of the Transaction Documents
to the same extent as if such transferee were an original Purchaser hereunder.
19.5. ENTIRE AGREEMENT
This Agreement (including the Exhibits and Schedules hereto), the other
Transaction Documents and any other documents delivered pursuant hereto and
simultaneously herewith constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof.
19.6. NOTICES
All notices, demands or other communications given hereunder shall be
in writing and shall be sufficiently given if transmitted by facsimile or
delivered either personally or by a nationally recognized courier service marked
for next business day delivery or sent in a sealed envelope by first class mail,
postage prepaid and either registered or certified, return receipt requested,
addressed as follows:
48
(a) if to the Company:
Halsey Drug Co., Inc.
695 N. Perryville Road
Rockford, Illinois 61107
Attention: Mr. Andrew D. Reddick
President and Chief Executive Officer
Facsimile: (815) 399-9710
(b) if to a Purchaser, to the address set forth on the signature
page hereto, or to such other address with respect to any party hereto as such
party may from time to time notify (as provided above) the other parties hereto.
Any such notice, demand or communication shall be deemed to have been given (i)
on the date of delivery, if delivered personally, (ii) on the date of facsimile
transmission, receipt confirmed, (iii) one business day after delivery to a
nationally recognized overnight courier service, if marked for next day
delivery, or (iv) five business days after the date of mailing, if mailed.
(c) Copies of any notice, demand or communication given to the
Company shall also be delivered to St. John & Wayne, L.L.C., Two Penn Plaza
East, Newark, New Jersey, 07105-2249 Attn.: John P. Reilly, Esq., or such other
address as may be directed.
19.7. DELAYS, OMISSIONS OR WAIVERS
No delay or omission to exercise any right, power or remedy accruing to
any Holder of the Debentures upon any breach or default of the Company under
this Agreement shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence, therein, or of or in any similar breach or default thereafter
occurring. Any permit, consent or approval of any kind or character on the part
of any holder of any breach or default under this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative. Notwithstanding
anything set forth herein or in any Transaction Document, if the consent of or
the waiver by any 2004 Holder is needed or otherwise desirable under any
Transaction Document and the Company, or any Affiliate thereof, pays or other
gives consideration to any 2004 Holder, or an Affiliate thereof, for such
consent or waiver the Company shall offer the same to all other 2004 Holders.
19.8. INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not
49
breached will not affect the incorrectness of or a breach of a representation
and warranty hereunder.
19.9. RIGHTS AND OBLIGATIONS; SEVERABILITY
Unless otherwise expressly provided herein, each Purchaser's rights and
obligations hereunder are several rights and obligations, not rights and
obligations jointly held with any other Person. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
19.10. AGENT'S FEES
(a) The Company hereby (i) represents and warrants that the
Company has not retained a finder or broker in connection with the transactions
contemplated by this Agreement and (ii) agrees to indemnify and to hold the
Purchasers harmless of and from any liability for commission or compensation in
the nature of an agent's fee to any broker or other Person, and the costs and
expenses of defending against such liability or asserted liability, including,
without limitation, reasonable attorney's fees, arising from any act by the
Company or any of the Company's employees or representatives.
(b) Each Purchaser (i) severally represents and warrants that it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby severally agrees to indemnify and
to hold the Company harmless from any liability for any commission or
compensation in the nature of an agent's or finder's fee to any broker or other
Person (and the costs, including reasonable legal fees, and expenses of
defending against such liability or asserted liability) for which such
Purchaser, or any of its employees or representatives, are responsible.
19.11. EXPENSES
(a) The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement, and, subject to
Section 19.11(b), the Company will reimburse the Purchasers for all of the legal
fees and expenses incurred by Baker & McKenzie on behalf of the Purchasers and
their Affiliates with respect to the negotiation, execution and consummation of
the transactions contemplated by this Agreement and the transactions
contemplated hereby. In addition, subject to Section 19.11(b), the Company will
reimburse each of Care Capital and Galen for up to $20,000 for legal fees and
expenses which such Purchasers respectively incur with respect to the
negotiation, execution and consummation of the transactions contemplated by this
Agreement and the transactions contemplated hereby. Counsel for each of Essex,
Care Capital and Galen shall deliver to the Company in advance of the Closing an
invoice for their respective fees and expenses. Such reimbursement shall be paid
on the Closing Date.
(b) If the transactions contemplated by this Agreement are not
consummated, then each party shall bear its own expenses and legal fees incurred
on its behalf with respect to the negotiation, execution and consummation of the
transactions contemplated by this Agreement.
50
(c) The Company also agrees to reimburse each Purchaser for all
reasonable legal fees and expenses subsequently incurred by the Purchaser and
its Affiliates in connection with (i) the negotiation, execution and
consummation of any amendment, waiver or consent with respect to any agreement
to which the Company and the Purchaser are parties; provided, that such waiver,
amendment or consent (A) is requested by the Company or (B) is required by the
terms of the agreement or is required as a result of any action or inaction of
the Company in violation of any such agreement, and (ii) the review of and
cooperation with respect to the Proxy Statement and the conversion of the
Debentures.
19.12. JURISDICTION
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or United States Federal court sitting
in New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents to which it is a party or to whose benefit it is entitled,
or for recognition or enforcement of any judgment, and each of the parties
hereto irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the fullest extent permitted by law, in such United States Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the right that any party may otherwise have to bring
any action or proceeding relating to this Agreement or any of the other
Transaction Documents in the courts of any other jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or in relation to this Agreement or any
other Transaction Document to which it is a party in any such New York State or
United States Federal court sitting in New York City. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
19.13. WAIVER OF JURY TRIAL
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT OR THE
ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF.
19.14. CONFIDENTIALITY
(a) Each of the Purchasers hereby agrees to keep (and to cause its
Affiliates, employees, agents, attorneys, accountants and other professional
advisors to keep) confidential the confidential information provided to it by or
on behalf of the Company or its Subsidiaries pursuant to or in connection with
the Agreement or any other Transaction Document, provided
51
that, such information may be disclosed (i) solely in connection with the
performance of the transactions contemplated by this Agreement and any other
Transaction Document to (A) its Affiliates, directors, officers and employees
who have a need to know such information and its agents, attorneys, accountants
and other professional advisors or (B) the other Purchasers, (ii) in response to
any order of any court or other governmental or administrative body or agency or
as may be required by any law binding upon any of the Purchasers, (iii) in
connection with the exercise of any remedies under any Transaction Document or
the enforcement of rights hereunder and thereunder, (iv) with the consent of the
Company or (v) to the extent such information (A) is on the date hereof, or at
or before the time such disclosure becomes, publicly available other than as a
result of a breach by such disclosing Person of the obligation set forth in this
Agreement or (B) at or before the time of such disclosure becomes available to
any Purchaser on a nonconfidential basis from a source other than the Company or
its Subsidiaries, which source is not known to the recipient of such information
to have breached a confidentiality agreement with the Company or its
Subsidiaries in respect of such information.
(b) Each Purchaser hereby agrees that in the event such Purchaser
is requested or required other than by applicable law (by interrogatory, request
for information or documents, subpoena, deposition, civil investigative demand
or other process) to disclose any information pursuant to Section 19.14(a)(ii),
such Purchaser will, except to the extent such notice would cause such Purchaser
to be in violation of law, provide the Company with prompt notice of any such
request or requirement so that the Company may seek an appropriate protective
order or other similar assurance to prevent disclosure of such information or
waive compliance with the provisions of this Section 19.14. Such Purchaser may
not oppose action by the Company to obtain an appropriate protective order or
other reliable assurance that confidential treatment will be accorded such
information, provided that such Purchaser may oppose the Company's action to
obtain an appropriate protective order or other reliable assurance in the event
that, in connection with any action, suit or other legal or equitable proceeding
(including any bankruptcy proceeding), such Purchaser reasonably believes that
the failure to publicly disclose such information would materially and adversely
affect such Purchaser's ability to protect or exercise its rights and remedies
hereunder or under any other Transaction Document.
(c) The Purchasers may also disclose, subject to their compliance
with the requirements of Section 19.14(b), such information to the extent the
Purchasers reasonably believe it is appropriate to in connection with any
action, suit or other legal or equitable proceeding (including any bankruptcy
proceeding) to protect or otherwise exercise their rights and remedies hereunder
or under any other Transaction Document in any legal or equitable proceeding.
(d) In furtherance to the foregoing, each of the Purchasers agrees
that its right to request any information pursuant to Section 9.2(g) or to avail
itself of the provisions of Section 9.6(b) shall be conditioned on its
continuing compliance with the requirements of this Section 19.14.
52
19.15. TITLES AND SUBTITLES
The titles of the articles, sections and subsections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
19.16. COUNTERPARTS
This Agreement may be executed in any number of counterparts, including
by facsimile copy, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
19.17. TERMINATION OF CERTAIN PROVISIONS
Articles VIII, IX, X, XII, XV, XVI, XVII and XVIII of this Agreement
shall terminate and be of no further force or effect immediately upon the
conversion of the Debentures in accordance with their terms into Series A
Preferred upon the Conversion Event.
ARTICLE XX
CERTAIN DEFINED TERMS
For purposes of this Agreement, the following terms have the meanings
indicated (unless otherwise expressly provided herein):
"412 Plan" means a Plan that is subject to Section 412 of the Code.
"1940 Act" means the Investment Company Act of 1940, as amended, and
any applicable rules and regulations thereunder, and any successor to such
statute, rules or regulations. Any reference herein to a specific section, rule
or regulation of the 1940 Act shall be deemed to include any corresponding
provisions of future law.
"1998 Debentures" means the 5% convertible secured debentures due March
31, 2006 (as such debentures may be supplemented, amended, or otherwise modified
from time to time) issued pursuant to that certain Debenture and Warrant
Purchase Agreement dated March 10, 1998 between the Company and the purchasers
listed on the signature page thereto.
"1999 Debentures" means the 5% convertible secured debentures due March
31, 2006 (as such debentures may be supplemented, amended, or otherwise modified
from time to time) issued pursuant to that certain Debenture and Warrant
Purchase Agreement dated May 26, 1999 between the Company and the purchasers
listed on the signature page thereto.
"2002 Debentures" means the 5% convertible secured debentures due March
31, 2006 (as such debentures may be supplemented, amended, or otherwise modified
from time to time) issued pursuant to that certain Debenture Purchase Agreement
dated December 20, 2002 between the Company and the purchasers listed on the
signature page thereto, other than the 2003 Debentures.
53
"2003 Debentures" means the 5% convertible secured debentures due March
31, 2006 (as such debentures may be supplemented, amended, or otherwise modified
from time to time) purchased pursuant to that certain Debenture Purchase
Agreement dated December 20, 2002 between the Company and the purchasers listed
on the signature page thereto in accordance with certain Joinder Agreements
dated June 16, 2003, July 1, 2003, July 15, 2003, August 5, 2003, August 19,
2003, September 5, 2003 and October 7, 2003.
"2004 Holders" has the meaning set forth in Section 10.15 of this
Agreement.
"Accredited Investor" has the meaning specified in Rule 501(a) of
Regulation D promulgated pursuant to the Securities Act.
"Additional Investor" has the meaning specified in Section 3.1 of this
Agreement.
"Affiliate" has the meaning specified in Rule 501(b) under the
Securities Act.
"AMEX" means the American Stock Exchange.
"Approved Accounting Firm" means any firm of independent certified
public accountants reasonably acceptable to the Purchasers.
"ARCOS" means the Automation of Reports and Consolidated Orders System
which monitors the flow of DEA controlled substances from their point of
manufacture to point of sale or distribution.
"Arm's Length" means a transaction or negotiation in which each party
is completely independent of the other, seeks to obtain terms which are most
favorable to it and has no economic or other interest in making concessions to
the other party.
"Board of Directors" means the board of directors of the Company.
"Bridge Lenders" means, collectively, Essex, Care Capital and the Galen
Entities pursuant to the Bridge Notes.
"Bridge Lenders' Consent" means the consent of the Bridge Lenders to
surrender and convert the Bridge Notes in exchange for and into Debentures in
form and substance reasonably acceptable to the Purchasers.
"Bridge Notes" means the 2003 Debentures issued by the Company to the
Bridge Lenders thereto in accordance with certain Joinder Agreements dated
November 2, 2003, December 5, 2003 and December 29, 2003.
"Change of Control" means the occurrence of any of the following: (a)
the consummation of any transaction the result of which is that any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act), other than
Galen or any Affiliate thereof or any group comprised of any of the foregoing,
owns, directly or indirectly, 51% of the Common Equity of the Company, (b) the
Company consolidates with, or merges with or into, another
54
Person (other than a direct or indirect wholly owned Subsidiary) or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the Company's assets or the assets of the Company and its
Subsidiaries taken as a whole to any Person, or any Person consolidates with, or
merges with or into, the Company, in any such event pursuant to a transaction in
which the outstanding Voting Stock of the Company, as the case may be, is
converted into or exchanged for cash, securities or other property, other than
any such transaction where the outstanding Voting Stock of the Company, as the
case may be, is converted into or exchanged for Voting Stock of the surviving or
transferee corporation and the beneficial owners of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving or transferee
corporation immediately after such transaction, (c) the Company, either
individually or in conjunction with one or more Subsidiaries sells, assigns,
conveys, transfers, leases or otherwise disposes of, or the Subsidiaries sell,
assign, convey, transfer, lease or otherwise dispose of, all or substantially
all of the properties and assets of the Company and its Subsidiaries, taken as a
whole (either in one transaction or a series of related transactions), including
capital stock of the Subsidiaries, to any Person (other than the Company or a
wholly owned Subsidiary of the Company), or (d) during any two year period
commencing subsequent to the date of this Agreement, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by the directors then
still in office) who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved cease for
any reason to constitute a majority of the Board of Directors then in office;
provided, however, that a Person shall not be deemed to have ceased being a
director for such purpose if such Person shall have resigned or died or if the
involuntary removal of such Person was made at the direction of Persons holding
a majority in principal amount of the outstanding Debentures. For purposes of
this definition, (i) the term "Common Equity" of the Company means all capital
stock of the Company that is generally entitled to vote in the election of
members of the Board of Directors and (ii) the term "Voting Stock" of the
Company means securities of any class of capital stock of the Company entitling
the holders thereof to vote in the election of members of the Board of
Directors.
"Charter Amendment" means the amended and restated Certificate of
Incorporation of the Company in the form attached to this Agreement as
Exhibit D.
"Closing" means the closing of the purchase and sale of the Debentures
contemplated by Section 2.1 of this Agreement to take place on the date of this
Agreement. The date and time of the Closing are hereinafter referred to as the
"Closing Date."
"Code" means the Internal Revenue Code of 1986, as amended, and any
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the Code shall be deemed to include any corresponding provisions
of future law.
"Common Stock" means the common stock, $0.01 par value, of the Company
(now or hereafter issued).
55
"Company Debenture Collateral" has the meaning specified in Section
2.2.
"Company General Security Agreement" means that certain Company General
Security Agreement of even date herewith by and between the Company and Galen,
as agent for the Purchasers, a copy of which is attached to this Agreement as
Exhibit E, as such agreement may be supplemented, amended or otherwise modified
from time to time in accordance with its terms.
"Company Refusal Period" has the meaning specified in Section 18.3 of
this Agreement.
"Company Reports" means, collectively, (a) the Company's Annual Reports
on Form 10-K for the fiscal years ended December 31, 2002, and (b) the Company's
Quarterly Report on Form 10-Q for the nine months ended September 30, 2003.
"Company Waiver Period" has the meaning specified in Section 18.3 of
this Agreement.
"Conversion Agreement" means that certain Debenture Conversion
Agreement of even date herewith by and among the Company, Purchasers and the
holders of the Existing Debentures, a copy of which is attached to this
Agreement as Exhibit F, as such agreement may be supplemented, amended or
otherwise modified from time to time in accordance with its terms.
"Conversion Event" means the conversion of the Existing Debentures and
Debentures into Preferred Stock immediately upon the filing by the Company of
the documents necessary to create the Preferred Stock.
"Co-Sale Right" has the meaning specified in Section 18.4 of this
Agreement.
"Co-Sale Seller" has the meaning specified in Section 18.4 of this
Agreement.
"CSA" means Controlled Substances Act, as amended, and any applicable
rules and regulations thereunder, and any successor to such statute, rules or
regulations. Any reference herein to a specific section, rule or regulation of
the CSA shall be deemed to include any corresponding provisions of future law.
"D&O Insurance" means "directors and officers" insurance.
"DEA" means the United States Drug Enforcement Administration.
"Debentures" has the meaning specified in the Preliminary Statements.
"Debenture and Warrant Dilution Waiver" means the consent of the
holders of the Existing Debentures to the waiver of the anti-dilution provisions
contained in certain Equity Securities held by the holders of the Existing
Debentures in form and substance reasonably acceptable to the Purchasers.
"Default Notice" has the meaning specified in Section 12.1(c) of this
Agreement.
"Designee" means any member of the Board of Directors designated by the
Purchasers as provided in Section 9.7 of this Agreement
56
"Equity Securities" means, collectively, (a) any shares of Common
Stock, (b) any shares of Preferred Stock, (c) any other equity security of the
Company, (d) any debt security of the Company which by its terms is convertible
into or exchangeable for, with or without consideration, any equity security of
the Company, (e) any security of the Company that is a combination of debt and
equity, or (f) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity security or any such debt security of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any applicable rules and regulations thereunder, and any successor
to such statute, rules or regulations. Any reference herein to a specific
section, rule or regulation of ERISA shall be deemed to include any
corresponding provisions of future law.
"ERISA Affiliates" means (a) any corporation which at any time on or
before the Closing Date is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code) as the Company,
its Subsidiaries, or any ERISA Affiliate; (b) any partnership, trade or business
(whether or not incorporated) which at any time on or before the Closing Date is
or was under common control (within the meaning of Section 414(c) of the Code)
with the Company, its Subsidiaries, or any ERISA Affiliate; and (c) any entity
which at any time on or before the Closing Date is or was a member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
the Company, its Subsidiaries or any ERISA Affiliate, or any corporation
described in clause (a) or any partnership, trade or business described in
clause (b) of this paragraph.
"Event of Default" has the meaning specified in Section 12.1 of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any applicable rules and regulations thereunder, and any successor to such
statute, rules or regulations. Any reference herein to a specific section, rule
or regulation of the Exchange Act shall be deemed to include any corresponding
provisions of future law.
"Excluded Securities" has the meaning specified in Section 17.1(f) of
this Agreement.
"Existing 1998 Debentureholders" means the holders of the 1998
Debentures.
"Existing 2002 Debentureholders" means the holders of the 2002
Debentures.
"Existing Debenture Amendments" means amendments to each of the
Debenture and Warrant Purchase Agreements pursuant to which the Existing
Debentures were issued, duly executed by the Company and each holder of the
Existing Debentures.
"Existing Debentureholders" means the holders of the Existing
Debentures.
"Existing Debentures" means, collectively, the 1998 Debentures, the
1999 Debentures, the 2002 Debentures, and the 2003 Debentures, as such
debentures may be supplemented, amended or otherwise modified from time to time,
including, without limitation, by the Existing Debenture Amendments.
57
"Existing Debentureholders Consent" means the consent of the Existing
Debentureholders to waive the Indebtedness, lien, registration rights, and
charter amendment restrictions contained in each of the Debenture and Warrant
Purchase Agreements pursuant to which the Existing Debentures were issued.
"Existing Debentureholders Waiver" means the Consent, Waiver and
Forbearance under the Debentureholders Agreement to be signed by each of the
Existing Debentureholders prior to the Closing Date.
"FDA" means the United States Food and Drug Administration.
"FDC Act" means the federal Food, Drug, and Cosmetic Act, as amended,
and any applicable rules and regulations thereunder, and any successor to such
statute, rules or regulations. Any reference herein to a specific section, rule
or regulation of the FDC Act shall be deemed to include any corresponding
provisions of future law.
"First Refusal Holders" means, collectively, (a) the holders of the
Debentures, (b) the Existing 1998 Debentureholders, (c) the Existing 2002
Debentureholders, and (d) the Old Common Holders.
"GAAP" means generally accepted accounting principles in the United
States.
"Galen Entities" means, collectively, (a) Galen, (b) Galen Partners
International III, L.P., and (c) Galen Employee Fund III, L.P.
"Guaranties" means the Continuing Unconditional Secured Guaranties of
each of the Guarantors substantially in the form of Exhibit G attached hereto.
"Guarantor Debenture Collateral" has the meaning specified in Section
2.4 of this Agreement.
"Guarantors" means Houba, Inc. and Axiom Pharmaceutical Corporation.
"Guarantors Security Agreement" means that certain Guarantors General
Security Agreement of even date herewith by and among the Guarantors and Galen,
as agent for the Purchasers, a copy of which is attached to this Agreement as
Exhibit H, as such agreement may be supplemented, amended or otherwise modified
from time to time in accordance with its terms.
"Holder Notice" has the meaning specified in Section 18.3 of this
Agreement.
"Holder Refusal Period" has the meaning specified in Section 18.3 of
this Agreement.
"Holder's Portion" means, for purposes of Section 18.4 of this
Agreement, an amount determined by multiplying, (a) in the case of a sale of
shares of the Preferred Stock or Common Stock by the Selling Security Holder,
the number of shares of Preferred Stock or Common Stock equal to the shares of
Preferred Stock or Common Stock proposed to be sold in the Transfer, multiplied
by a fraction, (i) the numerator of which shall be the number of shares of
Common
58
Stock owned by a Holder (inclusive of all Common Stock underlying the Debentures
or Preferred Stock) and (ii) the denominator of which shall be the sum of (1)
the Company's outstanding shares of Common Stock, plus (2) the Common Stock
underlying the Debentures, the Existing Debentures and the Preferred Stock, and
(b) in the case of the proposed sale of Existing Debentures or Debentures by
such Selling Security Holder, the principal amount of the Existing Debentures or
Debentures proposed to be sold in the Transfer multiplied by a fraction, the
numerator of which shall be the aggregate principal amount of the Existing
Debentures and Debentures owned by a Holder and the denominator of which shall
be the aggregate principal amount of the Company's outstanding Existing
Debentures and Debentures.
"Holders" shall mean the Purchasers or any Person to whom a Purchaser
or transferee of a Purchaser has assigned, transferred or otherwise conveyed any
Debenture.
"Holder Waiver Period" has the meaning specified in Section 18.3 of
this Agreement.
"Immaterial Subsidiary" means The Medi-Gum Corporation.
"Indebtedness" means and includes (a) all items which would be
included on the liability side of a balance sheet (but also shall include any
"off-balance sheet financings") of the Company (or a Subsidiary) as of the date
on which indebtedness is to be determined, excluding capital stock, surplus,
capital and earned surplus reserves, which, in effect, were appropriations of
surplus or offsets to asset values (other than reserves in respect of
obligations, the amount, applicability or validity of which is, at such date,
being contested in good faith by the Company or a Subsidiary, as applicable),
deferred credits of amounts representing capitalization of leases; (b) the full
amount of all indebtedness of others guaranteed or endorsed (otherwise than for
the purpose of collection) by the Company (or a Subsidiary) for which the
Company (or a Subsidiary) is obligated, contingently or otherwise, to purchase
or otherwise acquire, or for the payment or purchase of which the Company (or a
Subsidiary) has agreed, contingently or otherwise, to advance or supply funds,
or with respect to which the Company (or a Subsidiary) is contingently liable,
including, without limitation, indebtedness for borrowed money and indebtedness
guaranteed or supported indirectly by the Company (or a Subsidiary) through an
agreement, contingent or otherwise (i) to purchase the indebtedness, or (ii) to
purchase, sell, transport or lease (as lessee or lessor) property, or to
purchase or sell services at prices or in amounts designed to enable the debtor
to make payment of the indebtedness or to assure the owner of the indebtedness
against loss, or (iii) to supply funds to or in any other manner invest in the
debtor; and (c) indebtedness secured by any mortgage, pledge, security interest
or lien whether or not the indebtedness secured thereby shall have been assumed.
"Indebtedness" will not mean and include any indebtedness (1) in respect to
which monies sufficient to pay and discharge the same in full shall have been
deposited with a depositary, agency or trustee in trust for the payment thereof,
or (2) as to which the Company (or Subsidiary) is in good faith contesting,
provided that an adequate reserve therefore has been set up on the books of the
Company or any of its consolidated Subsidiaries.
"Independent Committee" has the meaning specified in Section 6.14 of
this Agreement.
"Intellectual Property Rights" means any and all patents, patent
applications, trademarks, copyrights, trademark registrations and applications
therefore, patent, trademark or trade name
59
licenses, service marks, domain names, contracts with employees or others
relating in whole or in part to disclosure, assignment or patenting of any
inventions, discoveries, improvements, processes, formulae or other know-how,
and all patent, trademark or trade names or copyright licenses which are in
force.
"Investors Rights Agreement" means that certain Investors Rights
Agreement of even date herewith by and among the Company, Purchasers and the
holders of the Existing Debentures, a copy of which is attached to this
Agreement as Exhibit I, as such agreement may be supplemented, amended or
otherwise modified from time to time in accordance with its terms.
"IRS" means the Internal Revenue Service.
"Joinder Agreement" means a Joinder Agreement in the form attached to
this Agreement as Exhibit J, as such agreement may be supplemented, amended or
otherwise modified from time to time in accordance with its terms.
"Leased Property" has the meaning specified in Section 4.20 of this
Agreement.
"Leases" any lease and sublease agreements, as amended to date,
relating to the Owned Property and the Leased Property.
"Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, order, edict, judgment, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any governmental entity.
"Liquidation Event" has the meaning specified in the Charter
Amendment.
"Losses" means any claims, losses, damages, liabilities (or actions in
respect thereof), obligations, penalties, awards, judgments, expenses
(including, without limitation, reasonable fees and expenses of counsel) or
disbursements.
"Material Adverse Effect" means (a) a material adverse effect on, or
change in, the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company and its Subsidiaries, taken as
a whole, or (b) a material adverse effect on (i) the ability of the Company or
any of the Guarantors to perform its respective obligations or (ii) the rights
or remedies of any Purchaser under any Transaction Document.
"Minimum Offering Threshold" has the meaning specified in Section
17.1(a) of this Agreement.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"New York Act" means the New York Business Corporation Law, as amended,
and any applicable rules and regulations thereunder, and any successor to such
statute, rules or
60
regulations. Any reference herein to a specific section, rule or regulation of
the New York Act shall be deemed to include any corresponding provisions of
future law.
"Noteholder Agreement" means that certain Noteholder Agreement of even
date herewith by and among the Company and the other parties thereto, as such
agreement may be supplemented, amended or otherwise modified from time to time
in accordance with its terms.
"Notice of Acceptance" has the meaning specified in Section 17.1(c) of
this Agreement.
"Offer" has the meaning specified in Section 17.1(a) of this Agreement.
"Offered Price" has the meaning specified in Section 18.2 of this
Agreement.
"Offered Securities" means the number of Restricted Securities set
forth in a Seller Notice which a Holder proposes to Transfer.
"Old Common Holders" means the holders of shares of Preferred Stock or
Common Stock issued upon the conversion of the Existing 1998 Debentures or
Existing 2002 Debentures (provided any Existing 1998 Debentures and Existing
2002 Debentures remain outstanding and the shares of Preferred Stock or Common
Stock received upon conversion have not been sold, transferred or otherwise
disposed of).
"Owned Property" has the meaning specified in Section 4.20 of this
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PCB" means polychlorinated biphenyls.
"Permitted Liens" means the liens listed in Section 10.3(l) of the
Schedule of Exceptions.
"Permitted Transfers" means, collectively, (a) any Transfer of
Restricted Securities by a Holder who is an individual to such Holder's spouse,
lineal descendant or antecedent, father, mother, brother or sister of such
Holder, the adopted child or adopted grandchild of such Holder, or the spouse of
any child, adopted child, grandchild or adopted grandchild of such Holder, or to
a trust or trusts or other entity (including family limited partnerships or
family limited liability companies) for the exclusive benefit of or exclusively
controlled by such Holder or such Holder's family members as described in this
clause (a), or Transfers of Restricted Securities by the Holder by devise or
descent so long as such Transfer complies with Section 18.1 of this Agreement;
(b) any Transfer of Restricted Securities by a Holder made pursuant to (i) a
merger or consolidation of the Company with or into another corporation or
corporations, or (ii) the winding up and dissolution of the Company; and (c) any
Transfer of Restricted Securities by a Holder which is an entity to its
Affiliates, partners, limited partners, members or stockholders or any Transfers
to a family member or trust as described in clause (a) above of such partner,
limited partner, member or stockholder so long as such Transfer complies with
Section 18.1 of this Agreement.
61
"Person" means any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" has the meaning specified in Section 4.18(a) of this Agreement.
"Preferred Stock" means the Series A Preferred, the Series B Preferred,
the Series C-1 Preferred, the Series C-2 Preferred and the Series C-3 Preferred.
"Proposed Transferee" has the meaning specified in Section 18.2 of this
Agreement.
"Proxy Statement" has the meaning specified in Section 9.15 of this
Agreement.
"Purchase Right" has the meaning specified in Section 18.3 of this
Agreement.
"Refused Securities" has the meaning specified in Section 17.1(d) of
this Agreement.
"Registration Rights Agreement" means that certain Amended and Restated
Registration Rights Agreement dated the date of this Agreement by and among the
Company, Watson, the holders of the 1998 Debentures, the holders of the 1999
Debentures, the holders of the 2002 Debentures, and the other parties listed on
Schedule 1 thereto, as such agreement may be supplemented, amended or otherwise
modified from time to time in accordance with its terms, including, without
limitation, by the amendment to such agreement of even date herewith.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Restricted Securities" means any shares of the Preferred Stock or
Common Stock or any Existing Debentures or Debentures owned by a Holder.
"Schedule of Exceptions" means the Schedule of Exceptions attached to
this Agreement as Exhibit K.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" means any reports, statements, releases or other
documents required to be filed by the Company with the SEC under the Exchange
Act.
"Securities Act" means the Securities Act of 1933, as amended, and any
applicable rules and regulations thereunder, and any successor to such statute,
rules or regulations. Any reference herein to a specific section, rule or
regulation of the Securities Act shall be deemed to include any corresponding
provisions of future law.
"Security Interest Termination Date" means the first date on which each
of the following events shall have occurred: (a) the occurrence of the
Conversion Event, and (b) Galen, acting as agent for the Purchasers under the
applicable Transaction Documents, shall have delivered
62
written notification to the Company and the Guarantors of the satisfaction of
the condition in subsection (a) above.
"Seller Notice" has the meaning specified in Section 18.2 of this
Agreement.
"Selling Security Holder" has the meaning specified in Section 18.2 of
this Agreement.
"Senior Notes" means that certain Amended and Restated Note in the
principal amount of $5,000,000 issued by the Company as of the date hereof
pursuant to the Watson Term Loan, and any other promissory notes issued by the
Company pursuant to the Watson Term Loan from time to time.
"Series A Preferred" means the Series A Convertible Preferred Stock,
$.01 par value, of the Company (now or hereafter issued).
"Series B Preferred" means the Series B Convertible Preferred Stock,
$.01 par value, of the Company (now or hereafter issued).
"Series C-1 Preferred" means the Series C-1 Convertible Preferred
Stock, $.01 par value, of the Company (now or hereafter issued).
"Series C-2 Preferred" means the Series C-2 Convertible Preferred
Stock, $.01 par value, of the Company (now or hereafter issued).
"Series C-3 Preferred" means the Series C-3 Convertible Preferred
Stock, $.01 par value, of the Company (now or hereafter issued).
"Shares" means the shares of Series A Preferred and Common Stock which
may be issued upon conversion of all or a portion of the principal amount of the
Debentures. The term "Shares" does not include any other shares of Series A
Preferred, Common Stock or other capital stock of the Company.
"Solvent" means, with respect to each Guarantor on a particular date,
that on and as of such date (a) the fair market value of the assets of such
Guarantor is greater than the total amount of liabilities (including, without
limitations, contingent liabilities) of such Guarantor, (b) the present fair
saleable value of the assets of such Guarantor is greater than the amount that
will be required to pay the probable liabilities of such Guarantor on its debts
as they become absolute and matured, (c) such Guarantor is able to realize upon
its assets, through sale, use or borrowing, and is able to pay its debts and
other liabilities, including contingent obligations, as they mature, and (d)
such Guarantor does not have unreasonably small capital.
"Stockholders Meeting" means the special meeting of the Company's
stockholders and Existing Debentureholders to approve the Charter Amendment.
"Stockholders Meeting Date" means the date of the Stockholders Meeting.
63
"Stock Pledge Agreement" means the Stock Pledge Agreement substantially
in the form attached to this Agreement as Exhibit L hereto, as supplemented,
amended or otherwise modified from time to time in accordance with its terms.
"Subordination Agreement" means that certain Subordination Agreement of
even date herewith by and among the Company, the Purchasers, the holders of the
Existing Debentures and certain other parties signatory thereto, a copy of which
is attached to this Agreement as Exhibit M, as supplemented, amended or
otherwise modified from time to time in accordance with its terms.
"Subsidiary" means any entity in which the Company owns securities
having a majority of the voting power in the election of directors or persons
serving equivalent functions.
"Term Sheet" means that certain Confidential Private Place Term Sheet
dated January 10, 2004 prepared by the Company and delivered to the Purchasers.
"Termination Date" means the earlier of (a) the 120th day following the
date of this Agreement, or (b) the Conversion Event.
"Transaction Documents" means, collectively, (a) this Agreement, (b)
the Debentures, (c) the Conversion Agreement, (d) the Charter Amendment, (e) the
Investors Rights Agreement, (f) the Voting Agreement, (g) the Registration
Rights Agreement; (h) the Subordination Agreement; (i) the Company General
Security Agreement, (j) the Guaranties, (k) the Guarantors Security Agreement,
(l) the Stock Pledge Agreement, (m) the Existing Debentureholder Consent, (n)
the Existing Debentureholder Waiver, (o) the Debenture and Warrant Dilution
Waiver, (p) the Joinder Agreement, (q) the Watson Term Loan, (r) the Senior
Notes, (s) the Noteholder Agreement; (t) the Watson Umbrella Agreement, and (u)
the Bridge Lenders' Consent.
"Transfer" means and includes any sale, assignment, encumbrance,
hypothecation, pledge, conveyance in trust, gift, transfer by bequest, devise or
descent, or other transfer or disposition of any kind, including but not limited
to transfers to receivers, levying creditors, trustees or receivers in
bankruptcy proceedings or general assignees for the benefit of creditors,
whether voluntary or by operation of law, directly or indirectly, including,
without limitation, Permitted Transfers.
"Unfunded Pension Liability" means, as of any determination date, the
amount, if any, by which the present value of all benefit liabilities (as that
term is defined in Section 4001(a)(16) of ERISA) of a plan subject to Title IV
of ERISA exceeds the fair market value of all assets of such plan, all
determined using the actuarial assumptions that would be used by the PBGC in the
event of a termination of the plan on such determination date.
"Voting Agreement" means the Voting Agreement in substantially the form
attached to this Agreement as Exhibit I, as such agreement may be supplemented,
amended or otherwise modified from time to time in accordance with its terms.
"Warrant Holders" means the holders of the Company's Common Stock
purchase warrants.
64
"Watson" means Watson Pharmaceuticals, Inc., a Nevada corporation.
"Watson Umbrella Agreement" means the Umbrella Agreement dated the date
of this Agreement by and among the Company, Watson, Essex, Care Capital, the
Galen Entities and the other signatories thereto, in form and substance
reasonably acceptable to the Purchasers.
"Watson Term Loan" means that certain Term Loan Agreement dated March
29, 2000 by and between the Company and Watson, as such agreement may be
supplemented, amended or otherwise modified from time to time in accordance with
its terms, including, without limitation, by the amendment to the Watson Term
Loan as of the date hereof.
"Withdrawal Liability" has the meaning specified in Section 4201 of
ERISA.
[SIGNATURE PAGES TO FOLLOW]
65
IN WITNESS WHEREOF, the parties hereto have executed this Debenture and
Share Purchase Agreement as of the date first written above.
HALSEY DRUG CO., INC.
By:________________________________
Name:
Title:
GALEN PARTNERS III, L.P. CARE CAPITAL INVESTMENTS II, LP
By: Claudius, L.L.C., General Partner By: Care Capital II, LLC, as
610 Fifth Avenue, 5th Fl. general partner
New York, New York 10019 47 Hulfish St., Suite 310
Princeton, NJ 08542
By:_________________________________
___________________________________ Name: David R. Ramsay
By: Srini Conjeevaram Title: Authorized Signatory
Its: General Partner
GALEN PARTNERS INTERNATIONAL, III, L.P. ESSEX WOODLANDS HEALTH
By: Claudius, L.L.C., General Partner VENTURES V, L.P.
610 Fifth Avenue, 5th Floor 190 South LaSalle Street, Suite 2800
New York, New York 10020 Chicago, IL 60603
___________________________________ ____________________________________
By: Srini Conjeevaram By: Immanuel Thangaraj
Its: General Partner Its: Managing Director
GALEN EMPLOYEE FUND III, L.P. DENNIS ADAMS
By: Wesson Enterprises, Inc. 120 Kynlyn Road
610 Fifth Avenue, 5th Floor Radnor, Pennsylvania 19312
New York, New York 10020
___________________________________ ____________________________________
By: Bruce F. Wesson
Its: General Partner
MICHAEL WEISBROT SUSAN WEISBROT
1136 Rock Creek Road 1136 Rock Creek Road
Gladwyne, Pennsylvania 19035 Gladwyne, Pennsylvania 19035
___________________________________ ____________________________________
66
PETER STIEGLITZ GEORGE E. BOUDREAU
RJ Palmer LLC 222 Elbow Lane
156 West 56th Street, 5th Floor Haverford, PA 19041
New York, New York 10019
___________________________________ ___________________________________
JOHN E. HEPPE, JR.
237 W. Montgomery Avenue
Haverford, Pennsylvania 19041
___________________________________
67
EXHIBIT A
FORM OF DEBENTURE
See attached.
68
EXHIBIT B
LIST OF PURCHASERS AND
ALLOCATION OF DEBENTURES
See attached.
EXHIBIT C
LEGAL OPINION
See attached.
EXHIBIT D
CHARTER AMENDMENT
See attached.
EXHIBIT E
COMPANY GENERAL SECURITY AGREEMENT
See attached.
EXHIBIT F
CONVERSION AGREEMENT
See attached.
EXHIBIT G
GUARANTY AGREEMENT
See attached.
EXHIBIT H
GUARANTORS SECURITY AGREEMENT
See attached.
EXHIBIT I
INVESTORS RIGHTS AGREEMENT
See attached.
EXHIBIT J
JOINDER AGREEMENT
See attached.
EXHIBIT K
SCHEDULE OF EXCEPTIONS
See attached.
EXHIBIT L
STOCK PLEDGE AGREEMENT
See attached.
EXHIBIT M
SUBORDINATION AGREEMENT
See attached.
EXHIBIT N
VOTING AGREEMENT
See attached.
81
HALSEY DRUG CO., INC.
$ 14,000,000
CONVERTIBLE SENIOR SECURED DEBENTURE
HALSEY DRUG CO., INC.
DEBENTURE PURCHASE AGREEMENT
DATED AS OF FEBRUARY 6, 2004