Exhibit 10.6
SECURITY
AGREEMENT
THIS SECURITY
AGREEMENT (this
“ Agreement ”) dated as of April 3, 2008,
is made by and between VIVUS, INC. , a Delaware corporation
(the “ Debtor ”), and DEERFIELD ED
CORPORATION , a Delaware corporation (the “ Secured
Party ”).
WHEREAS , the Debtor and the Secured Party
have entered into that certain Funding and Royalty Agreement dated
as of April 3, 2008 (the “ Royalty Agreement
”) pursuant to which the Secured Party has agreed to provide
funds to the Debtor in consideration of the payment by the Debtor
of a royalty on future sales of certain pharmaceutical products
specified therein;
WHEREAS , it is a condition precedent to the
Secured Party’s execution of the Royalty Agreement that the
Debtor execute and deliver to the Secured Party a security
agreement in substantially the form hereof;
WHEREAS , the Debtor wishes to grant a
security interest in favor of the Secured Party on the terms and
subject to the conditions set forth herein; and
WHEREAS , the Debtor intends to enter into a
separate Security Agreement (the “ Option Security
Agreement ”) with the stockholders of the Secured Party
(including such stockholders’ successors and assigns, the
“ Stockholders ”), pursuant to which the Debtor
will grant to the Stockholders a security interest in the same
Collateral (as defined herein) as the Debtor grants a security
interest to the Secured Party pursuant to this Agreement, which
security interest shall have priority over the security interest
granted to the Secured Party under this Agreement.
NOW, THEREFORE
, in consideration of the
promises contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1
UCC Terms
. The following
terms that are defined in the Uniform Commercial Code (as
hereinafter defined) are used in this Agreement as so defined (and,
in the event any such term is defined differently for purposes of
Article 9 of the Uniform Commercial Code than for any other
purpose or purposes of the Uniform Commercial Code, the
Article 9 definition shall govern): Account, Documents,
Equipment, Inventory, Proceeds and Records.
1.2
Royalty Agreement
Terms .
All other capitalized terms not otherwise defined herein shall have
the meanings ascribed to such terms in the Royalty
Agreement.
1.3
Other Defined
Terms .
In addition, the following terms shall have the meanings set forth
below:
“ Collateral ” means and
includes the Registrations, the Intellectual Property and all of
the Accounts, Equipment and Inventory arising out of or relating
specifically to the Royalty
Products, wherever located, of the Debtor now
or hereafter held or received by, in transit to, or in the
possession or control of the Debtor or the Secured Party, and any
substitutions or replacements thereof and any products and proceeds
thereof, including without limitation, insurance proceeds.
Equipment of which Debtor makes significant use for purposes
unrelated to the Royalty Products is not Collateral.
“ Collateral Accounts ”
means any Accounts comprising any or all of the
Collateral.
“ Collateral Collection Accounts
” has the meaning set forth in Section 5.4
.
“ Collateral Equipment ”
means Equipment comprising part of the Collateral.
“ Collateral Inventory ”
means any Inventory comprising any or all of the
Collateral.
“ Copyright ” means the
legal right provided by the Copyright Act of 1976, as amended, to
the expression contained in any work of authorship fixed in any
tangible medium of expression together with any similar rights
arising in any other country as a result of statute or treaty, and
any right that may exist to obtain a registration with respect
thereto from any Governmental Authority and any rights arising
under any such application.
“ Event of Default ” shall
mean any failure of the Debtor to make Royalty payments in
accordance with the Royalty Agreement, which failure constitutes a
breach of the Royalty Agreement, within fifteen (15) days after the
Debtor receives written notice of such failure to pay from the
Secured Party.
“ Governmental Authority ”
means any nation or government, any state or other political
subdivision thereof, any municipal, local, city or county
government, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government and any corporation or other entity owned or controlled,
through capital stock or otherwise, by any of the
foregoing.
“ Intellectual Property ”
means all Patents, Marks, Trade Names, Copyrights, Software, Trade
Secrets, Know-How, tests, protocols, standard operating procedures,
results and data owned, licensed, possessed, used or useful by the
Debtor specifically relating to or necessary for the Royalty
Products or the composition, manufacture, quality control, testing,
packaging, storage or use of the Royalty Products.
“Intellectual Property” includes the contents of the
drug master file, all adverse event reports made or received by the
Debtor and all submissions made to the FDA relating to the Royalty
Products.
“ Know-How ” means ideas,
designs, inventions, discoveries, concepts, compilations of
information, methods, techniques, procedures and processes, whether
confidential or not, whether patentable or not and whether reduced
to practice or not.
“ Lien ” means any mortgage,
claim, lien, security interest, pledge, escrow, charge, option,
restriction or encumbrance of any kind or character
whatsoever.
“ Mark ” means any word,
name, symbol or device used by a Person to identify its goods or
services, whether or not registered, all goodwill associated
therewith, and any right that may
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exist to obtain a registration with respect
thereto from any Governmental Authority and any rights arising
under any such application. “Mark” includes
trademarks and service marks.
“ Obligations ” means all of
the obligations and liabilities of the Debtor to make Royalty
payments to the Secured Party pursuant to the Royalty
Agreement.
“ Patent ” means any patent
granted by the U.S. Patent and Trademark Office or by the
comparable agency of any other country, and any renewal thereof,
and any rights arising under any patent application filed with the
U.S. Patent and Trademark Office or the comparable agency of any
other country and any rights that may exist to file any such
application.
“ Permitted Liens ” means
(i) Liens for current Taxes not yet delinquent or Liens for
Taxes being contested in good faith and by appropriate proceedings
for which adequate reserves have been made, (ii) possessory
Liens on personal property imposed by law, such as the Liens of
carriers, warehousemen, mechanics, materialmen and landlords,
incurred in the ordinary course for sums not constituting borrowed
money, that are not overdue or which are being contested in good
faith and by appropriate proceedings, (iii) the Liens granted
pursuant to this Agreement (iv) Liens in favor of the
Stockholders and (v) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of
customs duties in connection with the importation of
goods.
“ Person ” means any
corporation, association, joint venture, partnership, limited
liability company, organization, business, individual, trust,
Governmental Authority or other legal entity.
“ Registrations ” has the
meaning given such term in the Royalty Agreement.
“ Royalty Products ” has the
meaning given such term in the Royalty Agreement.
“ Software ” means, with
respect to a Person, all types of computer software programs owned,
licensed, used or usable by such Person, including operating
systems, application programs, software tools, firmware and
software imbedded in equipment, including both object code and
source code versions thereof. The term “Software”
also includes all written or electronic materials that explain the
structure or use of the Software or that were used in the
development of the Software, including logic diagrams, flow charts,
procedural diagrams, error reports, manuals and training
materials.
“ Trade Names ” means any
words, names or symbols used by a Person to identify its
business.
“ Trade Secrets ” means the
business or technical information of any Person including, but not
limited to, customer lists, marketing data and Know-How that is not
generally known to other Persons who are not subject to an
obligation of nondisclosure and that derives actual or potential
commercial value from being not generally known to other
Persons.
“ Uniform Commercial Code ”
means the Uniform Commercial Code as the same may be in effect from
time to time in the State of Delaware; provided that if, by reason
of applicable law, the validity or perfection of any security
interest in any Collateral granted under this Agreement is governed
by the Uniform Commercial Code as in effect in another
jurisdiction, then as to the
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validity or perfection, as the case may be, of
such security interest, “Uniform Commercial Code” means
the Uniform Commercial Code as in effect from time to time in such
other jurisdiction.
1.4
Construction
. Unless the context
requires otherwise, words in the singular include the plural, words
in the plural include the singular, and words importing any gender
shall be applicable to all genders. If a term is defined as
one part of speech (such as a noun), it shall have a corresponding
meaning when used as another part of speech (such as a
verb).
ARTICLE 2
GRANT OF SECURITY
INTEREST
2.1
Pledge and Grant of
Security Interest . The Debtor hereby pledges, assigns and
delivers to the Secured Party and grants to the Secured Party, to
secure the payment and performance in full of all of the
Obligations, a lien upon and security interest in all of its right,
title and interest in and to the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all
proceeds and products thereof.
2.2
Security for
Debtor’s Obligations . This Agreement and the Collateral
secure the full and prompt payment, at any time and from time to
time as and when due (whether at the stated maturity, by
acceleration or otherwise), of all of the Obligations of the
Debtor.
2.3
Security Interests
Absolute . All rights of the Secured Party and
security interests hereunder, and all obligations of the Debtor
hereunder, shall be absolute and unconditional and, without
limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a)
any extension, renewal,
settlement, compromise, waiver or release in respect of any
Obligation, the Royalty Agreement or any other document evidencing
or securing such Obligation, by operation of law or
otherwise;
(b)
any modification,
amendment or supplement to the Royalty Agreement or any other
document evidencing or securing any Obligation;
(c)
any release,
non-perfection or invalidity of any direct or indirect security for
any Obligation;
(d)
any insolvency,
bankruptcy, reorganization or other similar proceeding affecting
the Debtor or its assets or any resulting disallowance, release or
discharge of all or any portion of the Obligations;
(e)
the existence of any
claim, set-off or other right which the Secured Party may have at
any time against the Debtor or any other Person, whether in
connection herewith or any unrelated transactions; provided
, that nothing herein shall prevent the assertion of any such claim
by separate suit or compulsory counterclaim;
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(f)
any invalidity or
unenforceability relating to or against the Debtor for any reason
of any Obligation, or any provision of applicable law or regulation
purporting to prohibit the payment by the Debtor of the
Obligations;
(g)
any failure by the Secured
Party (A) to file or enforce a claim against the Debtor (in a
bankruptcy or other proceeding), (B) to give notice of the
existence, creation or incurrence by the Debtor of any new or
additional indebtedness or obligation under or with respect to the
Obligations, (C) to commence any action against the Debtor or
(D) to proceed with due diligence in the collection,
protection or realization upon any collateral securing the
Obligations; or
(h)
any other act or omission
to act or delay of any kind by the Secured Party or the Debtor or
any other corporation or Person or any other circumstance
whatsoever which might, but for the provisions of this clause,
constitute a legal or equitable discharge of the Debtor’s
obligations hereunder.
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES
Debtor hereby represents and warrants as
follows:
3.1
Ownership of
Collateral . The Debtor owns, or has valid rights as
a lessee or licensee with respect to, all Collateral purported to
be pledged by it hereunder, free and clear of any Liens except for
Permitted Liens. No mortgage, security agreement, financing
statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any government or public
office, and the Debtor has not filed or consented to the filing of
any such mortgage, agreement, statement or notice, except
(i) Uniform Commercial Code financing statements naming the
Secured Party as secured party and (ii) Liens in favor of the
Stockholders.
3.2
Security Interests;
Filings .
This Agreement, together with (i) the filing of duly completed
and executed Uniform Commercial Code financing statements naming
the Debtor as debtor, the Secured Party as secured party, and
describing the Collateral, in the jurisdictions set forth with
respect to the Debtor on Schedule I hereto (which filing is
hereby authorized by the Debtor) and (ii) to the extent
required by applicable law, the filing of duly completed and
executed assignments in the forms required by the U.S. Copyright
Office or the U.S. Patent and Trademark Office, creates, and at all
times shall constitute, a valid and perfected security interest in
and Lien upon the Collateral in favor of the Secured Party, to the
extent a security interest and Lien therein can be perfected by
such filings, recordings or possession, as applicable, superior and
prior to the rights of all other Persons therein except for
Permitted Liens.
3.3
Locations
. Schedule I
lists as to the Debtor, (i) its exact legal name,
(ii) the jurisdiction of its incorporation or organization,
its federal tax identification number, and (if applicable) its
organizational identification number, (iii) the addresses of
its chief executive office and each other place of business and
(iv) the address of each location at which any of the
Collateral Inventory or Collateral Equipment is kept, except for
any new locations established in accordance with the provisions of
Section 4.2 . The Debtor does not presently
conduct business
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under any prior or other corporate or company
name or under any trade or fictitious names, except as indicated
beneath its name on Schedule I , and the Debtor has not
entered into any contract or granted any Lien within the past five
(5) years under any name other than its legal corporate name
or a trade or fictitious name indicated on Schedule I
.
3.4
No
Violations . The signing, delivery and performance
of this Agreement by the Debtor is not prohibited or limited by,
and will not result in the breach of or a default under, any
provision of the certificate of incorporation, bylaws or other
formation documents of the Debtor, any material agreement or
instrument binding on the Debtor or any Legal Requirement
applicable to the Debtor, except for such prohibitions,
limitations, defaults or Legal Requirements as would not prevent or
impair consummation by the Debtor of the transactions contemplated
hereby, the performance by the Debtor of its obligations hereunder
or the exercise of the Secured Party of its rights hereunder.
The execution, delivery and performance of this Agreement by the
Debtor, the Debtor’s compliance with the terms and provisions
hereof and the Secured Party’s exercise of any of its rights
hereunder, do not and will not conflict with or result in a breach
of any of the terms and provisions of or constitute a default or
create a termination right under, with or without the passage of
time and the giving of notice, any material contract or other
instrument or obligation binding or affecting the Debtor, the
Royalty Products or the Collateral including, without limitation,
that certain agreement dated December 28, 2000 between Tanabe
Seiyaku Co., Ltd. and the Debtor (the “ Tanabe
Agreement ”), except as set forth in that certain
disclosure letter of even date herewith delivered by the Debtor to
the Secured Party pursuant to Section 7 of the Royalty
Agreement.
3.5
No
Restrictions . There are no statutory or regulatory
restrictions, prohibitions or limitations on the Debtor’s
ability to grant to the Secured Party a Lien upon and security
interest in the Collateral pursuant to this Agreement or (except
for the provisions of the federal Anti-Assignment Act (41 U.S.C.
15), as amended and the Anti-Claims Act (31 U.S.C. 3727), as
amended) on the exercise by the Secured Party of its rights and
remedies hereunder (including any foreclosure upon or collection of
the Collateral), and there are no contractual restrictions on the
Debtor’s ability to grant such Lien and security
interest.
3.6
Accounts
. Each Collateral
Account is, or at the time it arises will be, (i) a bona fide,
valid and legally enforceable indebtedness of the account debtor
according to its terms, arising out of or in connection with the
sale, lease or performance of goods or services by the Debtor or
any of them, (ii) subject to no offsets, discounts,
counterclaims, contra accounts or any other defense of any kind and
character, other than warranties and discounts customarily given by
the Debtor in the ordinary course of business and warranties
provided by applicable law, (iii) to the extent listed on any
schedule of Collateral Accounts at any time furnished to the
Secured Party, a true and correct statement of the amount actually
and unconditionally owing thereunder, maturing as stated in such
schedule and in the invoice covering the transaction creating such
Collateral Account, and (iv) not evidenced by any other
instrument; or if so, such other instrument (other than invoices
and related correspondence and supporting documentation) shall
promptly be duly endorsed to the order of the Secured Party and
delivered to the Secured Party to be held as Collateral
hereunder. To the knowledge of the Debtor, there are no
facts, events or occurrences that would in any way impair the
validity or enforcement of any Collateral Accounts except as set
forth above.
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ARTICLE 4
COVENANTS
The
Debtor agrees that so long as any Obligation remains
unpaid:
4.1
Use and Disposition of
Collateral . So long as no Event of Default shall
have occurred and be continuing, the Debtor may, in any lawful
manner not inconsistent with the provisions of this Agreement, use,
control and manage the Collateral in the operation of its business,
and receive and use the income, revenue and profits arising
therefrom and the proceeds thereof, in the same manner and with the
same effect as if this Agreement had not been made; provided
, however , that the Debtor will not sell or otherwise
dispose of (other than sales of Royalty Products in the ordinary
course of the Debtor’s business), grant any option with
respect to or grant any Lien with respect to or otherwise encumber
any of the Collateral or any interest therein, except for Permitted
Liens, except as may be otherwise expressly permitted in accordance
with the terms of this Agreement (including any applicable
provisions therein regarding delivery of proceeds of sale or
disposition to the Secured Party) or except in connection with a
permitted assignment under Section 9(f) of the Royalty
Agreement.
4.2
Change of Name,
Locations, etc . The Debtor will not (i) change its
name, identity or corporate structure, (ii) change its chief
executive office from the location thereof listed on Schedule
I , (iii) change the jurisdiction of its incorporation or
organization from the jurisdiction listed on Schedule I
(whether by merger or otherwise) or (iv) remove any
Collateral, or any books, records or other information relating to
such Collateral, from the applicable location thereof listed on
Schedule I , or keep or maintain any Collateral at a
location not listed on Schedule I , (except for Collateral
with an aggregate fair market value not to exceed $250,000 at any
time, in the ordinary course of business, incl
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