This PLEDGE
AGREEMENT, dated as of January 20, 2009 (the “
Agreement ”), is by and among BMP Sunstone
Corporation, a Delaware corporation (the “ Company
”), the Noteholders identified on the signature pages hereto
(each, a “ Noteholder ” and collectively, the
“ Noteholders ”) and Les Baledge, as agent for
the Noteholders (in such capacity, together with his successors in
such capacity, the " Agent ”).
WHEREAS, the
Company and each of the Noteholders are parties to note exchange
agreements, each dated as of the date hereof (collectively, as
modified and supplemented and in effect from time to time, the
“ Note Exchange Agreements ”), that provide,
subject to the terms and conditions thereof, for the issuance by
the Company to each of the Noteholders, severally and not jointly,
certain 12.5% Secured Convertible Notes due July 1, 2011
(collectively, the “ Exchange Notes ”) as more
fully described in the Note Exchange Agreements.
To induce each of
the Noteholders to enter into the applicable Note Exchange
Agreements, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Company has agreed to pledge and grant a security interest in the
Collateral (as hereinafter defined) as security for the Secured
Obligations (as hereinafter defined). Accordingly, the parties
hereto agree as follows:
Each capitalized
term used herein and not otherwise defined shall have the meaning
assigned to such term in the Note Exchange Agreements. In addition,
as used herein:
1.1 “
2009 Notes ” means the outstanding 10.0% Senior
Secured Promissory Note due May 1, 2009 of the
Company.
1.2 “
Collateral ” shall have the meaning ascribed thereto
in Section 3.1 hereof.
1.3 “
Event of Default ” shall have the meaning ascribed
thereto in Section 7 of the Exchange Notes.
1.4 “
Escrow Agent ” shall mean CSC Trust Company of
Delaware, as escrow agent under the Escrow Agreement.
1.5 “
Escrow Agreement ” shall mean the Share Escrow
Agreement, dated as of the date hereof, by and among the Company,
the Agent and Escrow Agent.
1.6 “
Lien ” shall mean any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, lien,
charge, claim, security interest, easement or encumbrance, or
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing
lease having
substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or
comparable law of any jurisdiction).
1.7 “
Permitted Indebtedness ” shall mean any future
capitalized leases or purchase money indebtedness, the 2009 Notes
and the Exchange Notes.
1.8 “
Pledged Stock ” shall have the meaning ascribed
thereto in Section 3.1.1 hereof.
1.9 “
Secured Obligations ” shall mean, collectively, the
principal of and interest on and all other amounts due and payable
under the Exchange Notes issued or issuable (as applicable) by the
Company.
1.10 “
Stock Collateral ” shall have the meaning ascribed
thereto in Section 3.1.3 hereof.
1.11 “
Uniform Commercial Code ” or “ UCC
” shall mean the Uniform Commercial Code as in effect in the
State of Delaware.
REPRESENTATIONS AND
WARRANTIES.
The Company
represents and warrants to each of the Noteholders that:
2.1 the Company,
by and through its wholly-owned subsidiary, Sunstone China Limited
(formerly named Hong Kong Fly International Company)
(“Sunstone China”) is, or as and when additional
Collateral is later acquired the Company will be, the sole
beneficial owner of the Collateral and no Lien exists or will exist
upon any Collateral at any time (and, with respect to the Stock
Collateral, no right or option to acquire the same exists in favor
of any other Person), except for the pledge and security interest
in favor of each of the Noteholders created or provided for herein
which pledge and security interest constitutes a first priority
perfected pledge and security interest in and to all of the
Collateral;
2.2 the Pledged
Stock is duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens (except for the pledge
and security interest in favor of each of the Noteholders to be
created or provided for herein) and none of such Pledged Stock is
or will be subject to any contractual restriction, preemptive and
similar rights, or any restriction under the charter or by-laws or
other governing or organizational documents or agreements of the
respective issuer of such Pledged Stock, upon the transfer of such
Pledged Stock (except for the pledge and security interest in favor
of each of the Noteholders to be created or provided for herein);
and
2.3 the Company is
the sole beneficial owner of 100% of the issued and outstanding
shares of capital stock or equity securities of Sunstone China, and
no right or option to acquire such stock exists in favor of any
Person, and Sunstone China is the sole beneficial owner of 100% of
the issued and outstanding shares of capital stock or equity
securities of Sunstone
2
Pharmaceutical
Co., Ltd., a Hong Kong corporation (“Sunstone Pharma”),
and no right or option to acquire such stock exists in favor of any
Person.
3.1 As collateral
security for the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the Secured Obligations,
the Company pledges, grants, assigns, hypothecates and transfers to
the Agent on behalf of the Noteholders as hereinafter provided, a
security interest in and Lien upon all of the Company’s
right, title and interest in the following (all being collectively
referred to herein as “ Collateral
”):
3.1.1
the Company’s direct ownership interest in 49% of the issued
and outstanding shares of capital stock or equity securities of
Sunstone China, together with the certificates evidencing the same
duly endorsed in blank or accompanied by appropriate and undated
stock powers duly executed in blank (the “ Initial Pledged
Stock ”), and, following payment in full of the
outstanding principal amount and accrued interest with respect to
the 2009 Notes or the earlier cancellation or prepayment of the
2009 Notes (the “ 2009 Note Satisfaction ”),
such additional shares directly or indirectly owned by the Company
as shall in the aggregate constitute 51% in aggregate of the then
issued and outstanding shares of capital stock of Sunstone China,
together with the certificates evidencing the same duly endorsed in
blank or accompanied by appropriate and undated stock powers duly
executed in blank (the “ Additional Pledged Stock
” and, collectively with the Initial Pledged Stock, the
“ Pledged Stock ”);
3.1.2
other than as contemplated by Sections 4.4.2 and 4.4.3, all
shares, securities, moneys or property representing a dividend on
any of the Pledged Stock, or representing a distribution or return
of capital upon or in respect of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of
the Pledged Stock or otherwise received in exchange therefor, and
any subscription warrants, rights or options issued to the holders
of, or otherwise in respect of, the Pledged Stock;
3.1.3
without affecting the obligations of the Company under any
provision prohibiting such action hereunder or under the Note
Exchange Agreements or the Exchange Notes, in the event of any
consolidation or merger in which Sunstone China is not the
surviving corporation, the shares of each class of the capital
stock of the successor corporation (unless such successor
corporation is the Company itself) formed by or resulting from such
consolidation or merger and received by the Company in exchange for
the Pledged Stock (the Pledged Stock, together with all other
certificates, shares, securities, properties or moneys as may from
time to time be pledged hereunder pursuant to Sections 3.1.1
or 3.1.2 above and this Section 3.1.3 being herein
collectively called the “ Stock Collateral ”);
and
3.1.4
other than as contemplated by Sections 4.4.2 and 4.4.3, all
proceeds, products and accessions of and to any of the property of
the Company described in Sections 3.1.1, 3.1.2 or
3.1.3.
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FURTHER ASSURANCES;
REMEDIES.
In furtherance of
the grant of the pledge and security interest pursuant to
Article 3 hereof, the Company hereby agrees with the Agent and
each of the Noteholders as follows:
4.1 Delivery
and Other Perfection . The Company shall:
4.1.1
as soon as practicable (but in any event within thirty
(30) days after the date hereof), (x) transfer and
deliver to the Escrow Agent for maintaining in escrow pursuant to
the Escrow Agreement, (1) the Initial Pledged Stock (together
with the certificates for all such shares and securities duly
endorsed in blank or accompanied by appropriate and undated stock
powers duly executed in blank) and (2) within thirty
(30) days following the 2009 Note Satisfaction, the Additional
Pledged Stock, (together with the certificates for all such shares
and securities duly endorsed in blank or accompanied by appropriate
and undated stock powers duly executed in blank), and no later than
thirty (30) days after receipt of any other Stock Collateral
by the Company, all of which thereafter shall be held by the Escrow
Agent, pursuant to the terms of this Agreement and the Escrow
Agreement, as part of the Collateral, and (y) take such other
action as the Agent shall reasonably deem necessary or appropriate
to duly record the Lien created hereunder in such Stock Collateral;
the Company hereby acknowledges and agrees that time shall be of
the essence with respect to its obligations under this
Section 4.1.1, and the failure to timely deliver the Stock
Collateral into the possession of the Escrow Agent in the time
required by this Section 4.1.1 shall be specific breach of
this Agreement by the Company; and
4.1.2
give, execute, deliver, file and/or record any financing statement,
notice, instrument, document, agreement or other papers that may be
necessary or desirable (in the reasonable judgment of the Agent,
whether within the United States, Hong Kong or China) to create,
preserve, perfect or validate any security interest granted
pursuant hereto or to enable the Agent to exercise and enforce
their rights hereunder with respect to such security interest,
provided however that this shall not include causing any or all of
the Stock Collateral to be transferred of record into the name of
the Agent or its nominee.
4.2.1
Company/Sunstone China Covenants . The Company shall not
file or suffer to be on file, or authorize or permit to be filed or
to be on file, in any jurisdiction, any financing statement or like
instrument with respect to the Collateral in which the Agent is not
named as the sole secured party for the benefit of each of the
Noteholders. Except as herein provided, the Company shall not sell,
assign, exchange, grant a security interest in, or otherwise
dispose of the Collateral or any interest therein, and any
attempted transfer (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) which
violates the provisions of this Agreement shall be void, and the
purported buyer, assignee, transferee, pledgee, mortgagee or other
recipient shall have no interest in or rights to the
Company’s assets, profits, losses or distributions, and the
Noteholders shall not be required to recognize any such interest or
rights. With respect to the Stock Collateral, the Company shall not
grant any right or option to acquire the same to any other Person.
The Company shall pay or
4
cause Sunstone
China to (a) pay all of its indebtedness and obligations in
accordance with normal terms and (b) pay and discharge or
cause to be paid and discharged promptly all taxes, assessments and
other charges or levies of governmental authorities imposed upon
the Company or Sunstone China, before the same shall be in default.
The Company (I) shall do or cause to be done all things
necessary to preserve and keep in full force and effect its and
Sunstone China’s existence and comply with all governmental
requirements applicable to the Company and Sunstone China, and
(II) shall at all times maintain, preserve and protect all
franchises, licenses and trade names and preserve all the remainder
of Company’s and Sunstone China’s property used or
useful in the conduct of their businesses and keep the same in good
repair, working order and condition, and from time to time make, or
cause to be made, all needful and proper repairs and improvements
thereto, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times. Further,
the Company shall not permit the issuance by Sunstone China of
(i) any additional shares of capital stock or equity
securities of any class, (ii) any debentures, bonds or other
securities of any nature, whether or not convertible into or
exchangeable for equity in Sunstone China, or (iii) any
warrants, options, contracts or other commitments entitling any
person or entity to purchase or otherwise acquire any such interest
in Sunstone China.
4.2.2
Sunstone Pharma Covenants . The Company shall not permit
Sunstone China to sell, assign, exchange, grant a security interest
in, or otherwise dispose of, its ownership interest in Sunstone
Pharma, and any attempted transfer (whether with or without
consideration and whether voluntarily or involuntarily or by
operation of law) which violates the provisions of this Agreement
shall be void, and the purported buyer, assignee, transferee,
pledgee, or other recipient shall have no interest in or rights to
its ownership interest in Sunstone Pharma, and the Noteholders
shall not be required to recognize any such interest or rights. The
Company shall pay or cause Sunstone Pharma to (a) pay all of
its indebtedness and obligations in accordance with normal terms
and (b) pay and discharge or cause to be paid and discharged
promptly all taxes, assessments and other charges or levies of
governmental authorities imposed upon Sunstone Pharma, before the
same shall be in default. The Company (I) shall do or cause to
be done all things necessary to preserve and keep in full force and
effect Sunstone Pharma’s existence and comply with all
governmental requirements applicable to Sunstone Pharma, and
(II) shall at all times maintain, preserve and protect all
franchises, licenses and trade names and preserve all Sunstone
Pharma’s property used or useful in the conduct of its
businesses and keep the same in good repair, working order and
condition, and from
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