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Confidential
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EXECUTION VERSION
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This Security
Agreement (as amended, amended and restated, supplemented or
otherwise modified from time to time, this “Agreement”)
dated as of February 14, 2006 (the “Effective
Date”), among Sirion Therapeutics, Inc., a North Carolina
corporation (the “Debtor”), and PharmaBio Development
Inc., a North Carolina corporation (the “Secured
Party”).
A. The Debtor
and the Secured Party have, in connection with the execution and
delivery of this Agreement, entered into the Loan Agreement, dated
as of the date hereof (as amended, amended and restated,
supplemented or otherwise modified from time to time, the
“Loan Agreement”).
B. The Debtor
will receive substantial benefits from the execution, delivery and
performance of the obligations under the Loan Agreement and is,
therefore, willing to enter into this Agreement.
C. The Debtor
is or, as to Collateral (as hereinafter defined) acquired by the
Debtor after the date hereof, will be the legal or beneficial owner
of the Collateral pledged by it hereunder.
D. This
Agreement is given by the Debtor for the benefit of the Secured
Party to secure the payment and performance of all of the
Obligations (as hereinafter defined).
NOW THEREFORE, in
consideration of the foregoing and other benefits accruing to the
Debtor, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
1.1
Definitions. Capitalized terms used but not defined in the
text of this Agreement shall have the meanings ascribed to them on
Exhibit A attached hereto and incorporated herein by
reference.
(a) As
security for the punctual and complete payment and performance in
full of the Obligations, the Debtor hereby grants to the Secured
Party a security interest of first
priority in and
lien on, and pledges and hypothecates, all of the Debtor’s
right, title and interest in, to and under the Collateral. The
security interest granted hereunder to secure the Obligations is
referred to herein as the “Security
Interest.”
(b) Without limiting the foregoing, the Secured Party is
hereby authorized to file one or more financing statements,
continuation statements, filings with the United States Patent and
Trademark Office or United States Copyright Office (or any
successor office or any similar office in any foreign country) or
other documents for the purpose of perfecting or continuing the
Security Interest granted by the Debtor, without the signature of
the Debtor, and naming the Debtor as debtor and the Secured Party
as secured party, or otherwise describing the transactions
contemplated by this Agreement; provided , that, so long as
no Event of Default has occurred and is continuing, the Secured
Party shall provide copies of all such documents to the Debtor a
reasonable time in advance of any such filing (and, in the event
that an Event of Default shall have occurred and be continuing,
such copy shall be provided to the Debtor substantially
concurrently with the filing thereof); provided ,
further , that the failure by the Secured Party to provide
such copies shall not affect the validity of any such
filing.
2.2 No
Assumption of Liability. The Security Interest is granted as
security only and shall not subject the Secured Party to, or in any
way alter or modify, any obligation or liability of the Debtor with
respect to or arising out of the Collateral.
Representations and
Warranties
The Debtor
represents and warrants to the Secured Party that:
3.1 Title and
Authority . The Debtor has good and valid rights in and title
to the Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to
grant to the Secured Party the Security Interest in such Collateral
pursuant hereto and to execute, deliver and perform its obligations
in accordance with the terms of this Agreement, without the consent
or approval of any other Person other than any consent or approval
which has been obtained.
3.2
Filings . Fully completed UCC financing statements or other
appropriate filings, recordings or registrations containing a
description of the Collateral have been filed, or delivered to the
Secured Party for filing, in each governmental, municipal or other
office in which such filings are necessary to perfect the Security
Interest for the benefit of the Secured Party in respect of all
Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and possessions,
and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any
such jurisdiction, except as provided under applicable Law with
respect to the filing of continuation statements.
3.3 Validity
of Security Interest . The Security Interest constitutes
(a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations,
(b) subject to the filings described in Section 3.2
above, a perfected security interest in all
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Collateral in
which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the
United States (or any political subdivision thereof) and its
territories and possessions pursuant to the UCC or other applicable
Law in such jurisdictions, (c) a security interest that shall be
perfected in all Collateral in which a security interest may be
perfected upon the receipt and registering or recording of an
appropriate notice of security interest with the United States
Patent and Trademark Office, as applicable, and (d) a
perfected security interest in all Collateral in which a security
interest may be perfected by possession or control by the Secured
Party, in each case, to the extent required pursuant to the
provisions hereof. The Security Interest is and shall be prior to
any other Lien on any of the Collateral.
3.4
Limitations on and Absence of Other Liens . Except for
Permitted Liens, the Collateral is owned by the Debtor free and
clear of any Lien. The Debtor has not filed or consented to the
filing of (a) any financing statement or analogous document
under the UCC or any other applicable Laws covering any Collateral,
(b) any assignment in which the Debtor assigns any Collateral
or makes any security agreement or similar instrument covering any
Collateral with the United States Patent and Trademark Office or
(c) any assignment in which the Debtor assigns any Collateral
or makes any security agreement or similar instrument covering any
Collateral with any foreign Governmental or Regulatory Authority,
which financing statement or analogous document, assignment,
security agreement or similar instrument is still in
effect.
3.5
Authority and Consents . The Debtor is a corporation duly
organized, validly existing and in good standing under the laws of
the State of North Carolina. The Debtor has all necessary corporate
power and authority to execute and deliver the Transaction
Documents and to consummate the Transactions. The execution and
delivery of the Transaction Documents and consummation of the
Transactions have been duly authorized by all necessary corporate
action on the part of the Debtor and no other corporate proceedings
on the part of the Debtor are necessary to authorize the
Transaction Documents or to consummate the Transactions. The
Transaction Documents have been duly and validly executed and
delivered by the Debtor and constitute valid, legal and binding
agreements of the Debtor, enforceable against the Debtor in
accordance with their respective terms. No consent, authorization
or order of, or filing or registration with, any Governmental or
Regulatory Authority is required to be obtained or made by the
Debtor for the execution, delivery and performance of the
Transaction Documents or the consummation of the Transactions.
Neither the execution, delivery and performance of the Transaction
Documents by the Debtor nor the consummation by the Debtor of the
Transactions will (a) conflict with or result in any breach of
any provision of the Articles of Incorporation or Bylaws of the
Debtor; (b) violate any Law applicable to the Debtor or the
Transactions; or (c) result in the creation of any Lien upon
any assets of the Debtor pursuant to the terms or provisions of, or
will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time
or both, a default under any agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to
which the Debtor is a party or by which the Debtor or any of its
properties may be bound.
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4.1 Change of
Name; Location of Collateral and Records; Place of Business .
The Debtor agrees promptly to notify the Secured Party in writing
of any change in (a) its corporate name, (b) the location
of its chief executive office or its principal place of business,
or (c) its organizational identification number. The Debtor
agrees not to effect or permit any change referred to in the
preceding sentence unless all filings have been made (or will be
made within one (1) Business Day of such change) under the UCC
or otherwise that are required in order for the Secured Party to
continue at all times following such change to have a valid, legal
and perfected first priority security interest in all the
Collateral subject to no Liens. The Debtor agrees promptly to
notify the Secured Party if any material portion of the Collateral
owned or held by the Debtor is damaged or destroyed.
4.2 Protection
of Security . The Debtor shall, at its own cost and expense,
take any and all actions necessary to defend title to the
Collateral against all Persons and to defend the Security Interest
of the Secured Party in the Collateral and the priority thereof
against any Lien.
4.3 Further
Assurances . The Debtor agrees, at its own expense, promptly to
execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the
Secured Party may from time to time reasonably request to better
assure, preserve, protect and perfect the Security Interest and the
rights and remedies created hereby, including the payment of any
filing or other similar fees required in connection with the
performance of this Agreement, the granting of the Security
Interest and the filing of any financing statements or other
documents in connection herewith or therewith. If any amount
payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note or other instrument,
such note or instrument shall be promptly pledged and delivered to
the Secured Party, duly endorsed in a manner satisfactory to the
Secured Party.
4.4 Inspection
and Verification . The Secured Party and such Persons as the
Secured Party may reasonably designate shall have the right, at all
reasonable times and upon reasonable notice under the
circumstances, to inspect the Collateral, all records related
thereto (and to make extracts and copies from such records) and the
premises upon which any of the Collateral is located, to discuss
the Debtor’ affairs with the officers of the Debtor and their
independent accountants and to verify under reasonable procedures,
the validity, amount, quality, quantity, value, condition and
status of, or any other matter relating to, the
Collateral.
4.5 Taxes;
Encumbrances . At its option, the Secured Party may discharge
past due Taxes, assessments, charges, fees, Liens, security
interests or other encumbrances at any time levied or placed on the
Collateral, and may pay for the maintenance and preservation of the
Collateral to the extent the Debtor fails to do so as required by
this Agreement, and the Debtor agrees to reimburse the Secured
Party on demand for any payment made or any expense incurred by the
Secured Party pursuant to the foregoing authorization; provided,
however, that nothing in this Section 4.5 shall be interpreted
as excusing the Debtor from the performance of, or imposing any
obligation on the Secured Party to cure or perform, any covenants
or other promises of the
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Debtor with
respect to Taxes, assessments, charges, fees, Liens, security
interests or other encumbrances and maintenance as set forth herein
or in the other Transaction Documents.
4.6 Continuing
Obligations of the Debtor . The Debtor shall observe and
perform in all material respects all the conditions and obligations
to be observed and performed by it under each contract, agreement
or instrument relating to the Collateral, all in accordance with
the terms and conditions thereof, and the Debtor agrees to
indemnify and hold harmless the Secured Party from and against any
and all liability for such performance.
4.7 No Other
Liens . Except for Permitted Liens or as approved by
Debtor’s Board of Directors as set forth in
Section 6.2(k) of the Investors’ Rights Agreement, the
Debtor shall not make or permit to be made an assignment for
security, pledge or hypothecation of the Collateral or grant any
other Lien in respect of the Collateral other than the Security
Interest securing the Obligations.
4.8 Certain
Covenants and Provisions Regarding Patent and Trademark
Collateral .
(a) The
Debtor agrees that it will not do any act, or omit to do any act,
whereby any Patent constituting Collateral that is material to the
conduct of the Debtor’s business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark
any products covered by any such Patent with the relevant patent
number as necessary and sufficient to establish and preserve its
maximum rights under applicable patent Laws.
(b) The
Debtor will, for each Trademark constituting Collateral which is
material to the conduct of the Debtor’s business, use its
commercially reasonable efforts to (i)maintain such Trademark in
full force free from, any claim of abandonment or invalidity for
non-use, (ii) maintain the quality of products and services offered
under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and
sufficient to establish and preserve its rights under applicable
Law and (iv) not knowingly use or knowingly permit the use of
such Trademark in violation of any third party rights.
(c) The
Debtor shall notify the Secured Party as soon as practicable if it
knows or has reason to know that any Patent or Trademark
constituting Collateral which is material to the conduct of its
business may become abandoned, lost or dedicated to the public, or
of any adverse determination or development including the
institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any
court or similar office of any foreign country) regarding the
Debtor’s ownership of any such Patent or Trademark, its right
to register the same, or to keep and maintain the same.
(d) In
no event shall the Debtor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent
or Trademark (or for the registration of any Trademark)
constituting Collateral with the United States Patent and Trademark
Office or any office or agency in any political subdivision of the
United States or in any other country or any political subdivision
thereof, unless it promptly informs the Secured Party after such
filing and, upon request of the Secured Party, executes and
delivers any and all agreements, instruments, documents and papers
as the Secured Party may reasonably request to evidence the Secured
Party’s security interest in such Patent or Trademark or
application therefor, and the
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Debtor hereby
appoints the Secured Party as its attorney-in-fact to execute and
file such writings solely for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed; such power,
being coupled with an interest, is irrevocable while this Agreement
is in effect.
(e) The
Debtor will take all necessary steps that are consistent with its
reasonable business judgment and the practice in any proceeding
before the United States Patent and Trademark Office or any office
or agency in any political subdivision of the United States or in
any other country or any political subdivision thereof, to maintain
and pursue each material application relating to the Patents or
Trademarks constituting Collateral (and to obtain the relevant
grant or registration) and to maintain each issued Patent and each
registration of Trademarks constituting Collateral that is material
to the conduct of the Debtor’s business, including timely
filings of applications for renewal, affidavits of use, affidavits
of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition,
interference and cancellation proceedings against third
parties.
(f) In
the event that the Debtor has reason to believe that any Collateral
consisting of a Patent or Trademark has been infringed,
misappropriated or diluted by a third party in any material
respect, the Debtor promptly shall notify the Secured Party and
shall, if consistent with the Debtor’s reasonable business
judgment, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are
appropriate under the circumstances to protect such
Collateral.
5.1 Remedies
upon Default .
(a) Upon
the occurrence and during the continuance of an Event of Default,
it is agreed that the Secured Party shall have the right to
exercise any and all rights afforded to a secured party under the
UCC or other applicable Law and to take any of or all the following
actions at the same or different times: (i) with respect to
any Collateral consisting of Intellectual Property, Contracts or
Contract Rights on demand, to cause the Security Interest to become
an assignment, transfer and conveyance of any of or all such
Collateral by the Debtor to the Secured Party, or to license or
sublicense, whether general, special or otherwise, and whether on
an exclusive or nonexclusive basis, any such Collateral worldwide
on such terms and conditions and in such manner as the Secured
Party shall determine, and (ii) with or without legal process
and with or without prior notice or demand for performance, to take
possession of the Collateral and without liability for trespass to
enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral and the
Debtor agrees to deliver each item of Collateral to the Secured
Party on demand. Without limiting the generality of the foregoing,
the Debtor agrees that the Secured Party shall have the right,
subject to the requirements of applicable Law, to sell or otherwise
dispose of all or any part of the Collateral, at public or private
sale, as the Secured Party shall deem appropriate. Each such
purchaser at any such sale shall hold the property sold absolutely,
free from any claim or right on the part of the Debtor,
and
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the Debtor
hereby waives (to the extent permitted by Law) all rights of
redemption, stay and appraisal which the Debtor now has or may at
any time in the future have under any Law now existing or hereafter
enacted.
(b) At
any public (or, to the extent permitted by applicable Law, private)
sale made pursuant to this Section, the Secured Party may bid for
or purchase, free (to the extent permitted by Law) from any right
of redemption, stay, valuation or appraisal on the part of the
Debtor (all said rights being also hereby waived and released to
the extent permitted by applicable Law), the Collateral or any part
thereof offered for sale and may make payment on account thereof by
using any Obligation then due and payable to the Secured Party from
the Debtor as a credit against the purchase price, and the Secured
Party may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to the
Debtor therefor. For purposes hereof, a written agreement to
purchase the Collateral or any portion thereof shall be treated as
a sale thereof; the Secured Party shall be free to carry out such
sale pursuant to such agreement and the Debtor shall not be
entitled to the return of the Collateral or any portion thereof
subject thereto, notwithstanding the fact that after the Secured
Party shall have entered into such an agreement, all Events of
Default shall have been remedied and the Obligations paid in full;
provided that the Secured Party shall deliver to the Debtor
any monies or Proceeds it receives, from the Debtor or otherwise,
on account of the Obligations in excess of such amount required to
pay in full the Obligations. As an alternative to exercising the
power of sale herein conferred upon it, the Secured Party may
proceed by a suit or suits at law or in equity to foreclose this
Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
5.2 Grant of
License to Use Intellectual Property . For the purpose of
enabling the Secured Party to exercise rights and remedies under
this Article at such time as the Secured Party shall be lawfully
entitled to exercise such rights and remedies, the Debtor hereby
grants to the Secured Party an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to
the Debtor) to use, license or sublicense any of the Collateral now
owned or hereafter acquired by the Debtor, and wherever the same
may be located, and including in such license reasonable access to
all media in which any of the licensed items may be recorded or
stored and to all computer software and programs used for the
compilation or printout thereof, in each case subject to the terms
and conditions and to the extent allowable under any agreement with
a third party pursuant to which such Collateral was initially
licensed. The use of such license by th
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