**Exhibit 10.5**

 

**Confidential Materials omitted and filedseparately with the Securities and Exchange Commission. Asterisks denote omissions.**

 

**SHAREPURCHASE AGREEMENT**

 

THIS SHARE PURCHASE AGREEMENT, dated as of December 15,2005, is among

 

SansRosa Pharmaceutical Development, Inc. (“SansRosa”),a corporation established under the laws of Delaware, with offices at One TowerBridge, Suite 1350, 100 Front Street, West Conshohocken, PA 19428 (“SansRosa”),

 

Those individuals listed on Exhibit A to thisAgreement (the “Shareholders”); and

 

CollaGenex Pharmaceuticals Inc., a corporationestablished under the laws of Delaware with offices at 41 University Drive,Newtown, PA 18940, (“CollaGenex”).

 

CollaGenex, SansRosa and the Shareholders are fromtime to time referred to as “Parties” (and each a “Party”) to this Agreement.

 

WHEREAS, the Shareholders own all the issued andoutstanding shares of SansRosa (the “Shares”); and

 

WHEREAS, SansRosa owns all the rights title andinterest in the Patent Applications (as defined below);

 

WHEREAS, CollaGenex wishes to purchase all of theShares on the terms and conditions set out in this Agreement; and

 

WHEREAS, the Shareholders are willing to sell theShares.

 

The Shareholders, SansRosa and CollaGenex agree asfollows:

 

CERTAIN DEFINITIONS

 

In addition to those terms used and defined inparticular sections of this Agreement, the following terms shall have thefollowing meaning wherever they may be used in this Agreement:

 

“Patent Applications” means the applications currentlypending under #’s [**] with the USPTO, and corresponding foreign orinternational applications having the same priority dates and filed, or to befiled within applicable deadlines under the PCT or equivalent regimen(collectively, the “Patent Applications”).  “Patent Applications” shall also mean UnitedStates patent applications that claim priority in whole or in part from thespecified patent applications including but not limited to continuations,continuations-in-part, divisionals, reexamination certificates and reissues ofthe specified patent applications.

 

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“Patent Issuance” means issuance of a notice ofallowance of the first US patent that includes a claim relating to thetreatment or prevention of rosacea or the symptoms associated therewith and thatarises out of the Patent Applications.

 

“SansRosa Product” means a product the making, using,selling, offering for sale, or importing of which is covered by at least one ofthe claims set forth in any of the Patent Applications (a “SansRosa Product”),irrespective of whether any of the Patent Applications is then pending orwhether any claim set forth therein is then valid.

 

“SansRosa Rosacea Product” means a SansRosa Productthat treats or prevents rosacea or symptoms associated therewith.

 

“SansRosa Patented Product” means a SansRosa Productthe making, using, selling, offering for sale, or importing of which is coveredby any claim under an issued U.S. patent arising out of the PatentApplications, which U.S. patent is in force and which claim has not beendeclared invalid or unenforceable by a U.S. court from which no appeal is orcan be taken.

 

1.                                       PURCHASEOF THE SHARES

 

## (a)                                  Agreementto Purchase and Sell.  CollaGenexagrees to buy from the Shareholders, and the Shareholders agree to sell toCollaGenex, all the Shares, being the aggregate of all the Shares identified toeach Shareholder on the Schedule of Shareholders and Ownership attached asExhibit A to this Agreement.

##  

## (b)                                 Closings.  The sale shall take effect at a series ofclosings, each of which shall take place at the offices of CollaGenex on suchdate as may be agreed between the Parties, but in no event later than 30 daysfollowing the occurrence of each of the respective events identified asmilestones below.

##  

## (c)                                  FirstClosing.  The first closing (the “FirstClosing”) shall take place at the offices of CollaGenex on Thursday, December 8,2005, or at such other time or location as may be necessary to ensure timelyreview and delivery of the items referenced as deliveries in Article 5 ofthis Agreement (the “First Closing”).  Atthe First Closing CollaGenex shall purchase, and the Shareholders shall deliverto CollaGenex, 51% of the Shares at a price per share that results in theaggregate consideration payable at such time to the Shareholders being $750,000less the $50,000 paid by CollaGenex as a non-refundable deposit to be appliedtoward the Purchase Price at the FirstClosing pursuant to the term sheet executed August 17, 2005, and less theamount by which SansRosa’s obligations payable on the date of the First Closingexceed SansRosa’s cash on such date.  ThePurchase Price shall be paid to such accounts as the Shareholders shallnominate or by check issued at the First Closing.  All obligations of SansRosa that are due andpayable on the date of the First Closing shall be paid or provided for in fullat the First Closing, such that as of the time immediately following the FirstClosing SansRosa shall have no cash and no obligations payable, and CollaGenexshall have paid out, at the First Closing, no more than $700,000. Theallocation of such $700,000 

 

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## amongsuch payments to the Shareholders and to creditors shall be reflected in theClosing Memorandum attached as Exhibit B to this Agreement.

##  

## (d)                                 SubsequentClosings.  Subsequent Closings shalltake place within 30 days after the occurrence of each of the followingmilestone events (regardless of the order in which they occur), with CollaGenexpurchasing, and the Shareholders delivering, the following percentages of theShares in consideration for the following payments:

##  

### (i)                                     INDFiling.  Upon filing of the first INDwith FDA that relates to a SansRosa Product, CollaGenex shall purchase, and theShareholders shall deliver to CollaGenex, 10% of the Shares at a price pershare that results in the aggregate consideration payable at such time being$[**];

###  

### (ii)                                  PhaseI Studies.  When the last Phase Istudy relating to the first SansRosa Product is clinically complete, andCollaGenex has determined that the results of the Phase I studies support adecision to move on to Phase II studies, CollaGenex shall purchase, and theShareholders shall deliver to CollaGenex, 10% of the Shares at a price pershare that results in the amount of aggregate consideration payable at suchtime being $[**].

###  

### (iii)                               PhaseII Studies.  When the last Phase IIstudy relating to the first SansRosa Product is clinically complete, andCollaGenex has determined that the results of the Phase II studies support adecision to move on to Phase III studies, CollaGenex shall purchase, and theShareholders shall deliver to CollaGenex, 5% of the Shares at a price per sharethat results in the aggregate consideration payable at such time being $[**];

###  

### (iv)                              PhaseIII Studies.  When the last Phase IIIstudy relating to the first SansRosa Product is clinically complete, andCollaGenex has determined that the results of the Phase III studies support adecision to assemble and submit a New Drug Application to the U.S. Food andDrug Administration (the “FDA), CollaGenex shall purchase, and the Shareholders shall deliver to CollaGenex, 4% of theShares at a price per share that results in the aggregate consideration payableat such time being $[**];

###  

### (v)                                 PatentMilestones.

###  

#### A.                                   Uponreceipt of notice from the United States Patent and Trademark Office that anyof the claims relating to the treatment or prevention of rosacea or symptomsassociated therewith in the Patent Applications are allowable, but for the needto complete an interference proceeding (“Patent Allowability”), CollaGenexshall purchase, and the Shareholders shall deliver to CollaGenex, 7% of theShares at a price per share that results in the aggregate consideration payableat such time being as follows:

 

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##### (1)                                  IfPatent Allowability occurs before [**], the amount will be $[**];

#####  

##### (2)                                  IfPatent Allowability occurs after [**], but on or before [**], the amount willbe $[**];

#####  

##### (3)                                  IfPatent Allowability occurs after [**], but on or before [**], the amount willbe $[**];

#####  

##### (4)                                  IfPatent Allowability occurs after [**] but on or before the Last Closing, theamount will be $[**];

#####  

##### (5)                                  IfPatent Allowability has not occurred as of the date of the Last Closing (asdefined below), no payment will be made in respect of Patent Allowability, andthe Shares that would otherwise have been delivered to CollaGenex upon PatentAllowability shall be delivered at the Last Closing.

#####  

#### B.                                     UponPatent Issuance, CollaGenex shall purchase, and the Shareholders shall deliverto CollaGenex, 5% of the Shares at a price per share that results in theaggregate consideration payable at such time being as follows:

####  

##### (1)                                  IfPatent Issuance occurs before [**], the amount will be $[**];

#####  

##### (2)                                  IfPatent Issuance occurs after [**], but on or before [**], the amount will be$[**];

#####  

##### (3)                                  IfPatent Issuance occurs after [**], but on or before [**], the amount will be$[**];

#####  

##### (4)                                  IfPatent Issuance occurs after [**] but on or before the Last Closing, the amountwill be $[**];

#####  

##### (5)                                  IfPatent Issuance has not occurred as of the date of the Last Closing (as definedbelow), no payment will be made in respect of Patent Issuance, and the Sharesthat would otherwise have been delivered to CollaGenex upon Patent Issuanceshall be delivered at the Last Closing.

#####  

### (vi)                              NDAFiling.  Upon acceptance for filingby the FDA of the first New Drug Application that relates to a SansRosaProduct, CollaGenex shall purchase, and the Shareholders shall deliver toCollaGenex, 3% of the Shares at a price per share that results in the aggregateconsideration payable at such time being $[**];

 

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### (vii)                           NDAApproval.  Upon approval of the firstNew Drug Application by the FDA that relates to a SansRosa Product, CollaGenexshall purchase, and the Shareholders shall deliver to CollaGenex, all of theremaining Shares at a price per share that results in the aggregateconsideration payable for such Shares being $[**], plus the Earn OutConsideration described in section 2(c). The $[**] shall be payable at such closing (this closing is sometimesreferred to in this Agreement as the “Last Closing”) and the Earn OutConsideration shall be payable as described in section 2(c).

###  

2.                                       PURCHASEPRICE

 

## (a)                                  PurchasePrice.  The aggregate purchase price(the “Purchase Price”) for the Shares shall be the combination of up to U.S.$6,800,000 in cash as base payment described in sections 1(c) and 1(d) (“BaseConsideration”), plus the Earn Out Consideration described below, less anyoffsets applied pursuant to Article 3 below.  The Base Payment shall be payable to theShareholders in installments, one of which shall be due at each Closingdescribed in Article 1, in consideration for the Shares purchased at suchClosing, and the remainder of the Purchase Price shall be payable by way of theEarn Out Consideration described below.

##  

## (b)                                 Allocationof Purchase Price among Shareholders. At each Closing, each Shareholder shall sell to CollaGenex that numberof shares identified to such Shareholder with respect to such Closing on Exhibit Cto this Agreement, and shall be paid the consideration indicated on suchExhibit.

##  

## (c)                                  EarnOut Consideration Payments.  Inconsideration for the Shares delivered by the Shareholders to CollaGenex at theLast Closing, CollaGenex shall pay to the Shareholders, in addition to thepayment made at the Last Closing, an earn out consideration (the “Earn OutConsideration”) based on

##  

### (i)                                     NetSales in the U.S. of SansRosa Patented Products, whether sold directly byCollaGenex or through a third party, as follows:

###  

#### A.                                   CollaGenexshall pay the Shareholders an amount equal to [**]% of the U.S. Net Sales ofSansRosa Patented Products within [**] days after each calendar quarter, and

####  

#### B.                                     CollaGenexshall pay the Shareholders a one-time payment of $[**], within [**] days afterthe end of the calendar year in which the Net Sales of SansRosa PatentedProducts in the USA for the first time exceed $[**]; and

####  

#### C.                                     CollaGenexshall pay the Shareholders a further one-time payment of $[**], within [**]days after the end of the calendar year in which the Net Sales of SansRosaPatented Products in the U.S. for the first time exceed $[**].

####  

and

 

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### (ii)                                  NetSales in the U.S. of SansRosa Products, whether sold directly by CollaGenex orthrough a third party, if during any portion of any calendar year no SansRosaPatented Products were being sold, and Net Sales of SansRosa Products in theU.S. exceeded $[**] in such calendar year, as follows:

###  

CollaGenexshall pay to the Shareholders, within [**] days of the end of each suchcalendar year, an amount equal to:

 

#### A.                                   $[**];PLUS

####  

#### B.                                     [**]%of the amount by which Net Sales of SansRosa Products in the U.S. exceeded$[**] in such calendar year; MINUS

####  

#### C.                                     anyconsideration paid pursuant to subparagraph 2(c)(i) above with respect tosuch calendar year.

####  

and

 

### (iii)                               NetSales outside the U.S.  of SansRosaProducts , where such sales are made directly by CollaGenex in a jurisdictionwhere a patent arising out of the Patent Applications is either issued orpending as follows:

###  

CollaGenex shallpay the Shareholders an amount equal to [**]% of the Net Sales of SansRosaProducts in such jurisdictions within [**] days after each calendar quarter (orafter issuance of a patent which causes the amounts accrued pursuant to section 2(d) belowto be released),

 

and

 

### (iv)                              Out-LicensePayments received from licensees outside the U.S., as follows:

###  

CollaGenex shall pay the Shareholders [**]% of any royalty, milestonepayments and other consideration, including the fair market value of anynon-monetary consideration, received from partners granted any license or otherright to manufacture, produce, distribute, market, sell or otherwisecommercially exploit any SansRosa Product(s) in a jurisdiction outside theUnited States where a patent arising out of the Patent Applications is eitherissued or pending, within [**] days after receipt by CollaGenex of suchpayments (or after issuance of a patent which causes the amounts accrued pursuantto section 2(d) below to be released);

 

Provided, however,that CollaGenex shall have no obligation to pay Shareholders any portion of anysuch payments received by CollaGenex

 

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that are inconsideration of or reimbursement for specific non-U.S. development activity tobe performed by CollaGenex.

 

## (d)                                 Accrual.  Any Earn Out Consideration earned pursuant toparagraphs 2(c)(iii) or (iv) in jurisdictions outside the UnitedStates where a patent arising out of the Patent Applications is pending but notissued, shall be accrued and held in a separate account by CollaGenex untilsuch time as the patent in question is issued, at which time all such Earn OutConsideration shall be released and become payable to the Shareholders.  In the event that any such patent shall beabandoned or finally adjudged not issuable in any jurisdiction, then the EarnOut Consideration accrued in respect of it in such jurisdiction, shall be releasedto CollaGenex.

##  

## (e)                                  LimitedDuration.  The obligation to make anypayments of Earn Out Consideration shall expire on the earlier of the [**]anniversary of the Last Closing or [**].

##  

## (f)                                    NetSales.  For the purposes of thisAgreement, “Net Sales” shall mean revenues less all trade or quantity discountsor rebates actually allowed, Government, HMO or PBM discounts or rebatesactually allowed, wholesale distribution fees paid by CollaGenex, returns,freight, or other transportation costs paid or allowed, sales and excise taxpaid by CollaGenex, and prompt payment discounts, calculated according to GAAPconsistently applied.

##  

## (g)                                 Recordsand Audit.  CollaGenex shall keeprecords in sufficient detail to permit the determination of Earn OutConsideration payable hereunder and, at the request and expense of theShareholders, shall permit an independent certified public accountant,reasonably acceptable to both parties, to examine, in confidence, duringordinary business hours once in each calendar year such records as may benecessary to verify or determine Earn Out Consideration paid or payable underthis Agreement.  The Parties agree thatGoldenberg Rosenthal LLP shall be acceptable to them to conduct theseexaminations.

##  

## (h)                                 Reconciliation.  If any such review results in a determinationof any underpayment of Earn Out Consideration and other amounts payable underthis Agreement to the Shareholders, such underpayment shall be promptlyremitted to the Shareholders with accrued interest from the last day of theapplicable calendar quarter at the prime rate of interest published in *The Wall Street Journal* plus 2%, compounded daily. If such review determines that actual Earn Out Consideration or otherpayments were more than 105% of the Earn Out Consideration reported byCollaGenex for any calendar quarter under review, CollaGenex shall pay all ofthe actual costs of such review.  If suchreview results in a determination of any overpayment of Earn Out Considerationto the Shareholders, the amount of such overpayment less the costs of the auditshall be credited against future Earn Out Payments to be made by CollaGenexhereunder.

 

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3.                                       OFFSETSAGAINST THE PURCHASE PRICE

 

## (a)                                  Expenses.  In the event that CollaGenex incursExceptional Patent Expenses (as defined in paragraph 3(c) below) duringthe period commencing on the date of this Agreement and continuing until thefifth anniversary of the first commercial sale of a SansRosa Product, suchexpenses shall be offset against the payments due to the Shareholders asfollows:

##  

### (i)                                     PrePurchase.  Any Exceptional PatentExpenses incurred before the purchase of all the Shares shall be offset [**]%against the consideration due for the next purchase of Shares, and [**]%against the Earn Out Consideration; and

###  

### (ii)                                  PostPurchase.  Any Exceptional PatentExpenses incurred after the purchase of all the Shares shall be offset [**]%against the Earn Out Consideration

###  

Exceptional PatentExpenses are payable only out of future payments to be made by CollaGenex underthis Agreement as provided above, and in no event shall the Shareholders berequired to pay or reimburse any Exceptional Patent Expenses out of amountspreviously paid by CollaGenex to the Shareholders.

 

## (b)                                 Inputof JDC.  Before CollaGenex incurs anyExceptional Patent Expenses, it shall notify the Joint Development Committeeand provide such committee with a summary thereof and the opportunity tocomment on the merits and amounts thereof. The requirement to solicit the comments of the committee shall in no eventbe interpreted to mean that CollaGenex must obtain the consent of the committeebefore it incurs such expenses.

##  

## (c)                                  ExceptionalPatent Expenses.  “Exceptional PatentExpenses” shall mean

##  

### (i)                                     legalfees incurred in prosecuting, dismissing or settling an interference oropposition proceeding (or the imminent prospect thereof) in the U.S. relatingto the Patent Applications; and

###  

### (ii)                                  amountspaid in settlement of interference or opposition proceedings (or the prospectthereof), or other allegations of unpatentability of, or assertions of priorityto or ownership of, the technology covered by the claims of the PatentApplications in the U.S., provided, however, that such amounts shall notconstitute Exceptional Patent Expenses to the extent they exceed $[**].

###  

Exceptional PatentExpenses shall not include Patent Defense Costs.

 

## (d)                                 AnnualLimit of Exceptional Patent Expenses. In any year when there is an offset of Exceptional Patent Expensesagainst Earn Out Consideration, the amount of such offset shall not exceed [**]percent of the Earn Out Consideration that would otherwise be payable in suchyear, and the remaining Exceptional Patent Expenses that are subject to offsetshall be offset against the Earn Out Consideration in future years, subject, inturn, to the same [**] percent limitation

 

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## in each succeedingyear.  In no event shall the Shareholders have any furtherfinancial responsibility for payment of Exceptional Patent Expenses.

##  

## (e)                                  PatentDefense Costs.  In the event thatafter Patent Issuance CollaGenex incurs costs (“Patent Defense Costs”) by wayof

##  

### (i)                                     legalfees incurred in defending in litigation any patent that issues out of thePatent Applications and covers a SansRosa Rosacea Product, against allegationsof invalidity in the U.S., and or

###  

### (ii)                                  legalfees incurred in asserting any such patent in litigation against an allegedinfringer of such patent in the U.S., and or

###  

### (iii)                               paymentsin settlement of litigation arising in either of the contexts described above,where the settlement maintains CollaGenex as the exclusive or co-exclusiveseller of a SansRosa Rosacea Product in the U.S..

###  

such Patent Defense Costs to the extent not recovered as provided in Section 3(g) shallbe offset [**] percent ([**]%) against the Earn Out Consideration.

 

## (f)                                    AnnualLimit of Patent Defense Costs.  Inany year when there is an offset of Patent Defense Costs against Earn OutConsideration, the amount of such offset shall not exceed [**] percent of theEarn Out Consideration that would otherwise be payable in such year, and theremaining Patent Defense Costs that are subject to offset shall be offsetagainst the Earn Out Consideration in future years, subject, in turn, to thesame [**] percent limitation in each succeeding year.  In no event shall the Shareholders have anyfurther responsibility for payment of Patent Defense Costs.

##  

## (g)                                 DamageAwards.  In the event that CollaGenexreceives damages as a result of any litigation described in paragraph (e) above,it shall allocate such damages, to the extent sufficient funds exist:

##  

### (i)                                     firstto itself to fund any Patent Defense Costs that it incurred but did not offsetagainst Earn Out Consideration that would otherwise have been due and payable;

###  

### (ii)                                  secondto the Shareholders, to the extent that it did offset any Patent Defense Costsagainst Earn Out Consideration that would otherwise have been due and payable;and

###  

### (iii)                               anybalance shall be distributed [**]% to CollaGenex and [**]%, collectively, tothe Shareholders on a pro rata basis in accordance with their respectiveownership as shown on Exhibit A.

###  

## (h)                                 Royaltiesto Third Parties.  In the event that

 

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### (i)                                     CollaGenexis required to pay:

###  

#### A.                                   royaltiesor equivalent payments to a third party or parties in order to settle anydisputes with third parties, arising from interference or oppositionproceedings (or the prospect thereof), and or

####  

#### B.                                     royaltiesor equivalent payments to a third party or parties in order in any othercontext to obtain freedom to operate in connection with the sale of anySansRosa Product,

####  

and

 

### (ii)                                  thecombination of such royalties and CollaGenex obligation to pay the Earn OutConsideration under paragraph 2(c)(i)A to the Shareholders with respect to suchSansRosa Product, exceeds [**]% of the Net Sales of such SansRosa Product inany jurisdiction in any calendar year,

###  

then theShareholders and CollaGenex shall in good faith renegotiate the Earn OutConsideration, provided, however, that in determining whether or not the [**]%threshold has been met, royalties or equivalent payments payable to a thirdparty or parties in order to settle any disputes arising from interference oropposition proceedings (or the prospect thereof) shall not be included to theextent they exceed [**]% of Net Sales.

 

4.                                       PRE-CLOSINGCOVENANTS

 

## (a)                                  Access.  Shareholders shall give to CollaGenex and itsrepresentatives, from the date of this Agreement until the First Closing, suchaccess as is reasonably requested by CollaGenex to the books, records,premises, and consultants of SansRosa, to enable CollaGenex to inspect andevaluate the assets, properties and operations of SansRosa.

##  

## (b)                                 Conductof Business.  From the date of thisAgreement until the First Closing, Shareholders shall, in consultation withCollaGenex, cause SansRosa to continue to:

##  

### (i)                                     OrdinaryCourse.  Operate and conduct itsbusiness diligently in the ordinary course for businesses of the same type; and

###  

### (ii)                                  Warranties.  Conduct its business in such a manner thatall the warranties and representations of Shareholders in this Agreement willbe true, complete and accurate in all respects as of the date of the FirstClosing.

###  

### (iii)                               Deliveries.  Ensure that it will obtain and deliver toCollaGenex all the documents identified below as deliverable at or before theFirst Closing.

###  

## (c)                                  NoSolicitation.  From the date of thisAgreement until the Last Closing, SansRosa’s officers, shareholders, employees,financial advisors, agents or other

 

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## advisors orrepresentatives shall not, directly or indirectly, at any time prior to thesale of all the Shares

##  

### (i)                                     solicit,initiate or encourage the submission of any Acquisition Proposal (as definedbelow),

###  

### (ii)                                  enterinto any agreement with respect to or approve any Acquisition Proposal,

###  

### (iii)                               participatein any discussions or negotiations regarding any Acquisition Proposal,

###  

### (iv)                              furnishto any person any information with respect to SansRosa or the terms of thisAgreement, or

###  

### (v)                                 takeany other action to cooperate in any way, or facilitate any inquiries or themaking of any proposal that constitutes, or may reasonably be expected to leadto, any Acquisition Proposal.

###  

Any violation ofthe restrictions described in the preceding sentence, whether or not the actingperson is purporting to act on behalf of SansRosa, will be deemed to be abreach of this clause by SansRosa and the Shareholders.

 

## (d)                                 AcquisitionProposal.  For purposes of thisAgreement, “Acquisition Proposal” means

##  

### (i)                                     anyproposal to take as security or otherwise in any way encumber any of theShares; or

###  

### (ii)                                  anyproposal or offer to transfer or to acquire in any manner, directly orindirectly, any Shares or other equity interest in or any securities ofSansRosa or any rights in the same; or

###  

### (iii)                               anyoffer to acquire in any manner, directly or indirectly, any interest in anyintellectual property or any other asset of SansRosa.

###  

5.                                       DELIVERIESAT CLOSINGS

 

## (a)                                  FirstClosing Deliveries by Shareholders.  Ator before the First Closing, and as a condition to the obligation of CollaGenexto complete the First Closing, Shareholders shall deliver to CollaGenex:

##  

### (i)                                     PreferredShares.  Such documentation as may bereasonably acceptable to CollaGenex counsel as being sufficient to indicatethat all shares of SansRosa’s Series A Convertible Preferred Stock havebeen converted into, Common shares as of the date of First Closing, and that noperson or entity has any surviving rights and SansRosa has no surviving obligationsunder any subscription or other agreement related to such preferred stock.

 

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### (ii)                                  BenFranklin Warrants.  Suchdocumentation as may be reasonably acceptable to CollaGenex counsel as beingsufficient to indicate that the Warrant issued pursuant to the Seed CapitalFunding Agreement between Ben Franklin Technology Partners of SoutheasternPennsylvania and SansRosa, dated on or about June 20,2005, has beencancelled, and that SansRosa has no surviving obligations, other than thereporting obligations reflected in the delivered documentation, under orrelated to such agreement and an obligation to maintain a presence in theCommonwealth of Pennsylvania.

###  

### (iii)                               GreenhouseWarrants.  Such documentation as maybe reasonably acceptable to CollaGenex counsel as being sufficient to indicatethat the Warrant issued pursuant to the Funding Agreement between BiotechnologyGreenhouse Corporation of Southeastern Pennsylvania and SansRosa, dated February 25,2005,has been exercised, and that SansRosa has no surviving obligations, other thanthe reporting obligations reflected in the delivered documentation, under orrelated to such agreement and an obligation to maintain a presence in theCommonwealth of Pennsylvania.

###  

### (iv)                              EquityIncentive Plan.  Such documentationas may be reasonably acceptable to CollaGenex counsel as being sufficient toindicate that the 2004 Equity Incentive Plan (effective November 16, 2004)of SansRosa has been terminated and that no person or entity has any survivingrights and SansRosa has no surviving obligations under such Plan

###  

### (v)                                 BenFranklin Financing.  Suchdocumentation as may be reasonably acceptable to CollaGenex counsel as beingsufficient to indicate that the Seed Capital Funding Agreement between BenFranklin Technology Partners of Southeastern Pennsylvania and SansRosa, datedon or about June 20,2005, has been terminated and that no person or entityhas any surviving rights and that SansRosa has no surviving obligations, otherthan the reporting obligations reflected in the delivered documentation, underthe Convertible Promissory Note or the Warrant to Purchase Common Stockreferenced in such Agreement and an obligation to maintain a presence in theCommonwealth of Pennsylvania.

###  

### (vi)                              GreenhouseFinancing.  Such documentation as maybe reasonably acceptable to CollaGenex counsel as being sufficient to indicatethat the Funding Agreement between Biotechnology Greenhouse Corporation ofSoutheastern Pennsylvania and SansRosa, dated February 25, 2005, has beenterminated and that SansRosa has no surviving obligations, other than thereporting obligations reflected in the delivered documentation, under theConvertible Promissory Note or the Warrant to Purchase Common Stock referencedin such Agreement and an obligation to maintain a presence in the Commonwealthof Pennsylvania.

 

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### (vii)                           OtherAgreements.  Such documentation asmay be reasonably acceptable to CollaGenex counsel as being sufficient toindicate that any other agreements referenced on any schedule to thisAgreement have, unless otherwise agreed, been duly terminated and that SansRosahas no further obligations, contingent or otherwise, under such terminatedagreements.

###  

### (viii)                        Certificateof Good Standing.  A long formCertificate of Good Standing for SansRosa, duly certified by the Secretary ofState of Delaware as of a date no more than 48 hours prior to the FirstClosing, together with a certified copy of SansRosa’s Certificate ofIncorporation and SansRosa’s Bylaws appended thereto.

###  

### (ix)                                OfficersCertificate.  A certificate from aduly authorized officer of SansRosa certifying to (i) the existence ofresolutions of SansRosa’s Board of Directors that authorize the execution and performance of this Agreement and thetransactions described in this Agreement; (ii) the incumbency andsignature of the Company’s officers executing this Agreement and (iii) thetruth and correctness of the representations and warranties made by SansRosaand by the Shareholders as of the First Closing.

###  

### (x)                                   DirectorResianations.  Letters of resignationfrom each of the directors of SansRosa, dated as of the date of the FirstClosing, in a form reasonably satisfactory to CollaGenex;

###  

### (xi)                                Proxy.  A Voting Agreement and Irrevokable Proxysubstantially in the form attached as Exhibit D, or such other form ofvoting agreement as may be necessary and appropriate to transfer to CollaGenexall voting rights that attach to the Shares retained by the Shareholders afterthe First Closing.

###  

### (xii)                             PatentAssignments.  Documents reflectingthe proper filing with the relevant patent examining authorities of documentsreflecting the assignment to SansRosa of all the rights in all of the PatentApplications.

###  

### (xiii)                          AdditionalInstruments.  Such other oradditional instruments, consents, endorsements and documents as may bereasonably necessary to transfer to and vest in CollaGenex good and marketabletitle to the Shares to be delivered to CollaGenex at the First Closing.

###  

## (b)                                 Deliveryof Share Certificates by Shareholders. At the First Closing, following delivery of the items referenced in Section 5(a) ofthis Agreement and simultaneously with the delivery of the considerationreferenced in Section 5(c) of this Agreement, Shareholders shalldeliver to CollaGenex a certificate or certificates representing the Shares tobe delivered at the First Closing, duly endorsed for transfer to CollaGenex.

 

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## (c)                                  Paymentof Purchase Price by CollaGenex.  Atthe First Closing, following delivery of the items referenced in Section 5(a) ofthis Agreement and simultaneously with the delivery of the Share Certificatesreferenced in Section 5(b) of this Agreement, CollaGenex shalldeliver to Shareholders such evidence as Shareholders may reasonably request todemonstrate that the portion of the Purchase Price due at the First Closing hasbeen paid according to the terms of Article 2 of this Agreement.

##  

## (d)                                 SubsequentClosings.  At each subsequentClosing:

##  

### (i)                                     Representative’sCertificate.  The Shareholders shalldeliver to CollaGenex a certificate certifying to the continued truth and correctness of those representations andwarranties that are made severally by them in Section 6 hereof, as of suchClosing.

###  

### (ii)                                  ShareCertificates.  The Shareholders shalldeliver to CollaGenex a certificate or certificates representing the Shares tobe delivered at such Closing, and

###  

### (iii)                               PurchasePrice.  CollaGenex shall deliver toShareholders such evidence as Shareholders may reasonably request todemonstrate that the applicable installment of the Purchase Price has been paidaccording to the terms of Article 2 of this Agreement.

###  

6.                                       REPRESENTATIONSAND WARRANTIES OF SHAREHOLDERS

 

SansRosa and Shareholders, jointly and severally(except as otherwise provided with respect to specific warranties), as theowners of all the Shares of SansRosa, make the following representations andwarranties to CollaGenex, which shall be true as of the date of the First Closing:

 

## (a)                                  Organization.  SansRosa is a corporation duly organized,validly existing and in good standing under the laws of Delaware, and is dulyqualified to do business as a foreign corporation and is in good standing ineach of the jurisdictions listed in Schedule 6(a).  No other jurisdiction has indicated thatSansRosa is required to qualify in that jurisdiction.  SansRosa has full corporate power andauthority to carry on its business as now conducted.

##  

## (b)                                 NecessaryActions; Binding Effect.  Shareholdersand SansRosa have taken all actions necessary to authorize the execution,delivery and performance of this Agreement, the sale of the Shares toCollaGenex, and the performance of all transactions to be performed under thisAgreement.  This Agreement constitutesthe valid obligation of SansRosa and Shareholders and is legally binding uponShareholders in accordance with its terms.

##  

## (c)                                  NoConflicts.  The execution, deliveryand performance of this Agreement will not conflict with, or result in thebreach of, the governing corporate documents of SansRosa, any decree or orderof any court or administrative or governmental

 

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## body to whichShareholders or SansRosa are subject, or any agreement, document, indenture orother instrument to which any of the Shareholders or SansRosa is a party or bywhich either is bound.

##  

## (d)                                 Capitalization.  The Shares constitute the only issued andoutstanding shares of capital stock of SansRosa.  None of the Shares have been issued inviolation of any preemptive rights of any shareholders.  There areno outstanding securities convertible into or exchangeable for shares ofSansRosa’s capital stock nor any options, warrants, calls or other rights,obligations or understandings of SansRosa to issue any capital stock, equitysecurities or securities convertible into or exchangeable for SansRosa’scapital stock.  There are no obligationson SansRosa to repurchase, redeem or otherwise acquire any of its capitalstock.

##  

## (e)                                  Compliancewith Securities Laws.  All the Sharesare duly authorized, validly issued, fully paid and nonassessable.  All the Shares have been offered and soldpursuant to a valid exemption from registration under the securities laws ofthe United States, and are otherwise in compliance with such laws.

##  

## (f)                                    SpecialRights.

##  

### (i)                                     SansRosais not a party to, or bound by, any arrangement, agreement, instrument or orderrelating to the transfer of, the payment of any dividend or the grant of anyvoting rights in respect of, or the right to register for public sale, anysecurities of SansRosa

###  

### (ii)                                  Eachof the Shareholders represents and warrants for itself, with respect to theShares referenced on Exhibit B as owned by it, that it is not a party to,or bound by, any arrangement, agreement, instrument or order relating to thetransfer of, the encumbrance of or the grant of any voting rights in respectof, any of such Shares.

###  

## (g)                                 Ownershipand Transfer of Shares.  Each of theShareholders represents and warrants for itself, with respect to the Sharesreferenced on Exhibit B as owned by it, that it is the sole record andbeneficial owner of the number of Shares listed next to such Shareholder’s nameon Exhibit A, free and clear of any liens or encumbrances of anysort.  The sale and transfer of theShares to CollaGenex will give CollaGenex valid and marketable title to suchShares free and clear of all restrictions, claims, liens, options, pledges andencumbrances of any kind whatsoever.

##  

## (h)                                 FinancialStatements.  The Balance Sheet andIncome Statements for the period ending October 31, 2005 (the “FinancialStatements”) and attached as Schedule 6(h) fairly state the financialcondition and results of operations of SansRosa as at the dates, and for theperiods stated.  Except as stated in theFinancial Statements or otherwise disclosed in or on a schedule to thisAgreement, SansRosa does not have any liabilities or obligations of any naturewhether accrued, absolute,

 

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## contingent or otherwiseother than those incurred in the ordinary course of business after October 31,2005.

##  

## (i)                                     Absenceof Certain Changes.  Since October 31,2005,except as set forth in Schedule 6(h) or Schedule 6(q):

##  

### (i)                                     Thebusiness of SansRosa has been conducted in all material respects in accordancewith applicable laws and regulations and according to past practice andcustoms.

###  

### (ii)                                  Therehas not been any change in the financial condition, assets, properties,liabilities, or operations of SansRosa which either when taken by itself orwhen taken in conjunction with all other such changes would have an adverseeffect on the business or prospects of SansRosa.

###  

### (iii)                               SansRosahas not paid or committed itself to pay to, or for the benefit of, any of itsofficers, managers, employees or others, any salary, wages, bonuses, profitsharing, pension, retirement or deferred compensation payments, severance payor any other form of direct or indirect compensation or benefits.

###  

### (iv)                              SansRosahas not declared or committed to declare and/or distributed any dividend ormade any distribution of any of its assets to its shareholders of record as ofany date prior to the First Closing.

###  

### (v)                                 Exceptas evidenced by a document delivered at the First Closing, there has not beenany amendment or termination of, or any notice of any proposed amendment ortermination of, any agreement, plan, lease or license to which SansRosa is aparty or by which it may be bound, other than in the ordinary course ofbusiness or as contemplated by the respective agreement.

###  

### (vi)                              Therehas not been any disposal of any property or asset of SansRosa, nor anycommitment made or liability incurred by SansRosa in respect of, or anycancellation or compromise of, any debt of or claim against SansRosa, otherthan with respect to SansRosa’s obligations to its Preferred Stockholders,BioAdvance and Ben Franklin Technology Partners of Southeastern Pennsylvania.

###  

## (j)                                     InternetDisclosures.  Except as set forth on Schedule 6(m),SansRosa has no website and has not through any other internet based disclosuremedium, made any public disclosures of its ideas or other proprietaryinformation relating to, nor made any claims as to the characteristics,composition, safety or effectiveness of, any potential SansRosa Product.

##  

## (k)                                  Disclosure.  No document or other information provided toCollaGenex by Shareholders or SansRosa contains any statement of a materialfact that was

 

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## untrue when made or omitsor omitted any material fact necessary to make the statement or informationmade or contained in such documents not misleading.

##  

## (l)                                     Contracts.  Schedule 6(l) is an accurate andcomplete list of all contracts to which SansRosa is, as of the date of theFirst Closing, a party.  SansRosa is notin default under any such contract, nor has there been any default by any otherparty to any such contract.  Except asset forth on Schedule 6(l), neither Shareholders nor SansRosa knows of anycircumstance (other than the expiration of the term of any such contract) as aresult of which any such contract might cease to be in full force andeffect.  All other contractualrelationships of SansRosa have been duly and properly terminated and except asnoted on Schedule 6(l), SansRosa has no further obligations in respect ofany such terminated relationship.

##  

## (m)                               IntellectualProperty.  Schedule 6(m) is anaccurate and complete list and description of all patents, trademarks, logos,service marks, trade names, domain names, registered copyrights, intellectualproperty licenses from third parties, and registered designs (including anyapplications for any of the foregoing) that are owned or used by SansRosa (“IntellectualProperty”), together with the jurisdiction where such Intellectual Property hasbeen registered, filed or issued, and details of any joint or co-owners, ifany, of such Intellectual Property. Except as noted on Schedule 6(m), SansRosa holds the IntellectualProperty free and clear of all restrictions, liens, options, pledges, claims,security interest, other encumbrances of any kind and all other third partyinterests known to it or to the Shareholders. SansRosa has not entered into any licenses, assignments and othertransfers of rights or interests (including any covenants not to assertsrights) in or in connection any of the Intellectual Property.  None of the Intellectual Property is subjectto termination or cancellation or change in its terms or provisions as a resultof this Agreement or the transactions contemplated by this Agreement.

##  

## (n)                                 PatentApplications.  SansRosa has usedreasonable efforts to ensure that the Patent Applications filed as of the dateof this Agreement include true, complete and correct descriptions of theinventions they describe in all material respects, have been timely filed andcomply with the procedural requirements of the relevant patent offices withrespect to such applications.  SansRosahas used reasonable efforts to comply with its duty of candor and disclosure tothe United States Patent and Trademark Office with respect to such PatentApplications

##  

## (o)                                 InventionAssignments.  Each employee,independent contractor, Shareholder, consultant or other person who has beeninvolved in the discovery ordevelopment of the Intellectual Property has executed valid and binding writtenagreements expressly assigning to SansRosa all right, title and interest in anyinventions and works of authorship, whether or not patentable, that wereinvented, created, developed, conceived and/or reduced to practice during the termof such person’s relationship with SansRosa, and all intellectual propertyrights therein.  All such agreements arelisted on Schedule 6(o).  Withoutlimiting the foregoing, the Invention Assignments of 15 February 2005 and15 July 2005 between SansRosa and Jack DeJovin and Thomas M. Rossi, andthat of 15 July 2005 between Jack

 

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## DeJovinand SansRosa, are valid and in full force and effect, and cover all inventionsmade by employees or consultants of SansRosa and relevant to the use of alphaagonists for the treatment of inflammatory skin disorders, including but notlimited to the prevention or treatment of rosacea or any symptom associatedtherewith.

##  

## (p)                                 ConfidentialityAgreements.  Schedule 6(p) includesa full and complete list of all the Confidentiality Agreements entered into bySansRosa with any person or entity, and accurately identifies the name, addressand occupation of the other party to each agreement and the field of disclosureto which each agreement relates.  To theactual knowledge of the Shareholders, the other party’s obligations of non-useand non-disclosure under such agreements are in full force and effect.  To the actual knowledge of the Shareholdersthere has been no breach, nor any event that with the passage of time or givingof notice would constitute a breach of any of such agreements.

##  

## (q)                                 Litigation.  Except as set forth on Schedule 6(q),SansRosa has not received written notice of any litigations or other judicial,arbitral, administrative or other proceedings to which SansRosa is a party orto which SansRosa or any of its properties or rights is subject or which, tothe actual knowledge of Shareholders or SansRosa are threatened in writingagainst SansRosa.  There are no litigationsor other judicial, arbitral, administrative or other proceedings actually knownto the Shareholders to which any Shareholder, either in his own right or as adirector or officer of SansRosa, is a party and which would have a materialadverse effect on the business of SansRosa. To the actual knowledge of Shareholders or SansRosa no such litigationor other proceeding is threatened in writing. Shareholders have no actual knowledge of any valid basis for any action,proceeding or investigation by or before, or any investigation by, anygovernmental or other agency which could, if adversely decided, have a materialadverse effect on the business, operations, financial conditions, properties,assets, liabilities or property of SansRosa. SansRosa is not subject to any judgement, order or decree entered in anylawsuit or proceeding that could upon enforcement have an adverse effect on itsability to conduct its business.

##  

## (r)                                    Products.  There are no products of SansRosa incirculation.

##  

## (s)                                  Regulatoryand Clinical Compliance.  There is noclinical data assembled by SansRosa that is intended to support an eventualapplication to the FDA in support of a new indication [**].  SansRosa has not filed any IND or similarapplications, nor had any communications with the FDA or similar regulatoryagency,

##  

## (t)                                    Employees.  There are no employees of SansRosa.  There is no labor or employment dispute,grievance, or other controversy pending or threatened against SansRosa arisingout of any previous employment relationship, or alleged employment relationshipbetween SansRosa and any third party. There are no

 

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## pension or benefit plansto which SansRosa is a party, or in respect of which SansRosa may have anyongoing or future liability or obligation.

##  

## (u)                                 Insurance.  Schedule 6(u) is an accurate andcomplete list of insurance policies which SansRosa maintains with respect toits business, including any ongoing clinical trials, and a description of theamount of coverage and types of risks covered by each such policy.  Such policies are in the name of SansRosa orname SansRosa as an additional insured and a beneficiary, and are in full forceand effect.  Such policies, with respectto their types and amounts of coverage, are adequate to insure against therisks to which SansRosa and its property and assets are normally exposed.  All information provided to insurers in orderto induce them to issue such policies was and remains true, complete andcorrect in all material respects.

##  

## (v)                                 Taxes.  SansRosa has delivered to CollaGenex correctand complete copies of all federal, state, and local tax returns filed bySansRosa since SansRosa’s inception. SansRosa has filed all applicable tax returns and reports required to befiled by it, has paid all corporation and other taxes, assessments, fees andother governmental charges shown on such returns, including but not limited tothe payment of social security or similar premiums required by law to theextent due, and has made adequate provision for the payment of all such taxesand fees not currently due and payable. SansRosa is not a party to any pending action and there is no action orproceeding threatened against SansRosa by any governmental authority for theassessment or collection of any taxes, assessments, fees or other governmentalcharges.  SansRosa has not executed orfiled with any taxing authority or governmental agency any agreement which isnow, or may hereafter become, effective extending the period for assessment orcollection of any of the above.

##  

## (w)                               NoBroker.  No agent or broker or otherperson acting pursuant to Shareholders’ authority is entitled to make any claimagainst CollaGenex for any commissionor finder’s fee in connection with the transactions contemplated by thisAgreement.

##  

7.                                       REPRESENTATIONSAND WARRANTIES OF COLLAGENEX

 

CollaGenex makes the following representations andwarranties to Shareholders as of the Closing Date:

 

## (a)                                  Organization.  CollaGenex is a corporation duly organized,validly existing and in good standing under the laws of its jurisdiction ofincorporation and is duly qualified to do business as a foreign corporation andin good standing in each of the jurisdictions listed in Schedule 7(a).  No other jurisdiction has indicated thatCollaGenex is required to qualify in that jurisdiction.  CollaGenex has full corporate power andauthority to carry on its business as now conducted.

##  

## (b)                                 NecessaryActions; Binding Effect.  CollaGenexhas taken all actions necessary to authorize the execution, delivery andperformance of this Agreement, the purchase of the Shares from Shareholders,and the performance of all transactions

 

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## to be performed underthis Agreement.  The Agreementconstitutes the valid obligation of CollaGenex and is legally binding uponCollaGenex in accordance with its terms.

##  

## (c)                                  NoConflicts.  The execution, deliveryand performance of this Agreement will not conflict with, or result in thebreach of, the governing corporate documents of CollaGenex, any decree or orderof any court or administrative or governmental body to which CollaGenex issubject, or any agreement, document, indenture or other instrument to whichCollaGenex is a party or by which it is bound.

##  

## (d)                                 SECFilings; Financial Statements; Compliance. All reports, statements and other documents required to have been filedby CollaGenex with the Securities and Exchange Commission (the “SEC”) pursuantto the Securities Exchange Act of 1934 (the “Exchange Act”) (the “CollaGenexSEC Documents”) have been so filed on a timely basis.  As of the time it was filed with the SEC (or,if amended or superseded by a filing prior to the date of this Agreement, thenon the date of such filing): (i) each of the CollaGenex SEC Documentscomplied in all material respects with the applicable requirements of theExchange Act; and (ii) none of the CollaGenex SEC Documents contained anyuntrue statement of a material fact or omitted to state a material factrequired to be stated therein or necessary in order to make the statementstherein, in the light of the circumstances under which they were made, notmisleading.  The financial statementscontained in the CollaGenex SEC Documents: (i) complied as to form in allmaterial respects with the published rules and regulations of the SEC applicable thereto; (ii) wereprepared in accordance with GAAP applied on a consistent basis throughout theperiods covered (except as may be indicated in the notes to such financialstatements and, in the case of unaudited statements, as permitted by the SEC,and except that unaudited financial statements may not contain footnotes andare subject to normal and recurring year-end audit adjustments which will not,individually or in the aggregate, be material in amount); and (iii) fairlypresent the financial position of CollaGenex as of the respective dates thereofand the results of operations and cash flows of CollaGenex for the periodscovered thereby.  CollaGenex is incompliance in all material respects with (i) the applicable provisions ofSarbanes-Oxley Act of 2002 and the related rules and regulationspromulgated under such act or the Exchange Act as are currently in effect and (ii) theapplicable listing and corporate governance requirements of Nasdaq.

##  

## (e)                                  NoBroker.  No agent, broker or otherperson acting pursuant to CollaGenex’s authority will be entitled to make anyclaim against Shareholders for any commission or finder’s fee in connectionwith the transactions contemplated by this Agreement.

##  

8.                                       POST-CLOSINGCOOPERATION

 

## (a)                                  Post-ClosingShareholders Meeting.  At orimmediately following the First Closing a shareholders meeting shall be held atwhich all the shareholders of SansRosa as of the Closing shall be present inperson or by proxy and

 

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## unanimously resolve thatthe resignations of the incumbent directors be accepted and new nominees ofCollaGenex be elected to the Board of Directors, and shall conduct such otherbusiness as may be necessary to effect the objectives of this Agreement.

##  

## (b)                                 Post-ClosingBoard Meeting.  Immediately followingthe Shareholders meeting referenced in Section 8(a) of thisAgreement, a Board meeting shall be held at which all the Directors of SansRosashall be present in person or by proxy, and at such meeting the signatureauthorities of SansRosa shall be amended and all other delegations of authoritymade by the Board revoked, and shall conduct such other business as may benecessary to effect the objectives of this Agreement.

##  

## (c)                                  Proxies.  The Parties agree that the proxies deliveredat the First Closing provide Collagenex with the power to vote all of theShares with respect to all decisions made after the First Closing and relatingto the operation, administration and organization of SansRosa.  Without limiting the foregoing, Shareholdersacknowledge that CollaGenex shall at all times, in its absolute discretion, befree to cause SansRosa to assign, transfer or license to itself or anycontrolled affiliate of CollaGenex, or otherwise to encumber some or all of, the rights, title and interest in the PatentApplications or the patents that may issue after Patent Issuance.

##  

## (d)                                 FurtherDeliveries.  At any time, upon therequest of CollaGenex, Shareholders shall execute, acknowledge and deliver toCollaGenex all such further bills of sale, assignments, transfers, conveyances,powers of attorney and other documents, in a form reasonably satisfactory toCollaGenex, as may be required under applicable regulations to convey, transferand deliver to CollaGenex, and protect CollaGenex’s right, title and interestin, all of the Shares.  Each party alsoagrees to take such further action and to execute and deliver such furtherdocuments as reasonably may be requested by the other in order to carry out theprovisions and purposes of this Agreement.

##  

## (e)                                  Shareholders’Non-Compete.  For a period that willexpire [**] years after the Last Closing date of this Agreement, or uponpayment of the last installment of the Earn Out Consideration, whichever islonger, each of the Shareholders undertake that he will not, without the priorwritten consent of CollaGenex, directly or indirectly own, manage, operate,control, participate in, perform services for, or otherwise carry on, abusiness that is engaged in the research, development, manufacture or sale inthe United States of America or the European Union, of any products [**] for(x) the treatment of rosacea or (y) the treatment of any acne or rednessrelated disorder of the skin, other than unknowingly as a holder of shareslisted on a recognized stock exchange as a minority shareholder in a companypursuing such activities, and that he will not during such period, or at anytime thereafter, challenge the validity of any patent that arises and issuesout of the Patent Applications.

 

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## (f)                                    JointDevelopment Committee.  Upon theFirst Closing, the Parties shall establish a Joint Development Committee toprovide guidance to CollaGenex in connection with the development andregulatory approval of SansRosa Rosacea Products and the other mattersspecified in this Agreement.  Each of theShareholders, on the one hand, acting by a majority vote, and CollaGenex, onthe other hand, shall appoint two representatives to serve on the JointDevelopment Committee.  The JointDevelopment Committee shall meet in person or by telephone conference at leastonce in every calendar quarter until the completion of the Last Closing.  CollaGenex shall keep the Joint DevelopmentCommittee informed of the status of all regulatory filings and approvals andshall promptly notify the members of the Joint Development Committee appointedby the Shareholders of any notice or other communication from any regulatoryauthority in connection with the SansRosa Rosacea Products and of thecommencement and status of any actions, suits, claim, investigations or proceedings relating to or otherwise affectingthe SansRosa Rosacea Products.

##  

## (g)                                 CollaGenexGood Faith Efforts.  CollaGenexcovenants and agrees that at all times after the First Closing it will exercisecommercially reasonable best efforts to promptly and diligently developSansRosa Rosacea Products, to promptly and diligently pursue all permits andregulations of SansRosa Rosacea Products, to provide to the FDA suchinformation and/or studies regarding the Products as the FDA may reasonablyrequest, and to achieve in a prompt fashion all of the milestones on which theSubsequent Closings are contingent, provided, however, that any decisionsrelated to whether or not at any time it is commercially reasonable to continueto invest time and money in seeking to develop a SansRosa Rosacea Product or toobtain a patent that arises and issues out of the Patent Applications shall bereviewed and ratified no less often than twice a year in good faith by theBoard of Directors of CollaGenex in accordance with its business judgment andafter consultation with the Joint Development Committee.  CollaGenex shall permit the Joint DevelopmentCommittee to assist CollaGenex in complying with any request of FDA, provided,however, that nothing in this paragraph shall imply that any member of theJoint Development Committee has any right to approve, disapprove or otherwiserequire or veto any particular course of action proposed on the part ofCollaGenex.

##  

## (h)                                 Promotion.  CollaGenex also agrees that, from and afterthe date that the FDA issues final regulatory approval of a SansRosa RosaceaProduct, and for as long as the SansRosa Rosacea Product is commerciallyviable, CollaGenex shall use its commercially reasonable best efforts topromote, manufacture and market the SansRosa Rosacea Product, includingmaintaining in good standing all licenses, registrations and permits for theSansRosa Rosacea Product, and pursuing, maintaining, protecting, safeguarding,and defending from challenge and infringement, all rights in and to theintellectual property and all future intellectual property relating to theSansRosa Rosacea Product.  Additionally,CollaGenex will cause the Sansrosa Product to be manufactured in accordancewith good manufacturing practices as promulgated from time to time by the FDAand in accordance with other applicable industry and regulatory standards, and

 

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## will comply with allapplicable regulations relating to the development, manufacture, promotion,marketing and sale of the Sansrosa Product.

##  

## (i)                                     Failureof Good Faith Efforts.  In the eventthat at any time CollaGenex is not exercising commercially reasonable bestefforts to achieve the milestones related to the purchase of Shares or anyother matters specified in paragraph 8(g) above, the Shareholders willhave the right to waive all other rights to receive consideration under thisAgreement and to repurchase all, but not less than all, of those Shares alreadypurchased by CollaGenex, for a priceequal to one fifth of the Purchase Price paid by CollaGenex up to the date ofthe repurchase.  If at such time thePatent Applications or any rights arising out of them are owned by CollaGenex,then CollaGenex shall, immediately upon receipt of the repurchaseconsideration, grant to SansRosa, or another entity that the Shareholders maystipulate, a perpetual, exclusive, royalty free license to exercise all therights arising out of the Patent Applications in order to continue developmentof a SansRosa Rosacea Product.

##  

9.                                       TAXESAND TRANSACTION EXPENSES

 

## (a)                                  TransactionExpenses.  Each of the Parties shallbe responsible for and shall pay all expenses incurred by them in connectionwith the negotiation, execution and performance of this Agreement, whether ornot the transactions contemplated hereby are consummated, including the feesand expenses of counsel.

##  

## (b)                                 Taxes.  The Shareholders shall be responsible forpaying all taxes or other assessments that may be due in connection with thepayments made under this Agreement for the purchase of the Shares, regardlessof how such payments may be characterized by the relevant tax authority.  CollaGenex will provide such documentation asthe Shareholders my reasonably request in connection with the payment of suchtaxes, but CollaGenex makes no representation as to the tax treatment that mayapply to the sale of the Shares.

##  

10.                                 SURVIVALOF REPRESENTATIONS AND WARRANTIES, CLAIMS

 

## (a)                                  Survivalof First Closing Warranties.  Exceptas provided below, all representations, warranties, covenants and otherundertakings contained in this Agreement shall be valid and enforceable afterthe date of the First Closing and shall survive such Closing for a period ofeighteen months.

##  

## (b)                                 Survivalof Warranties Relating to the Shares. The warranties given by SansRosa and the Shareholders with respect tothe Shareholders title to the Shares and the capital structure of SansRosa shallsurvive until such time as SansRosa ceases to have any corporate existence.

##  

## (c)                                  Survivalof CollaGenex Obligations.  Allrepresentations, warranties, covenants and other undertakings given byCollaGenex, including but not limited to those set forth in Section 8(b) shallsurvive for a period of eighteen months after the Last Closing.

 

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## (d)                                 Tax.  SansRosa’s and the Shareholdersrepresentations and warranties with respect to tax matters will survive untilthe date twelve months after expiration of all applicable statute oflimitations periods for assessment, enforcement or collection.

##  

## (e)                                  Indemnityby Shareholders.  The Shareholders,jointly and severally, agree to indemnify CollaGenex on CollaGenex’s firstwritten demand and hold CollaGenex harmless from any loss, damage, obligation,liability, cost or expense incurred because of:

##  

### (i)                                     anymaterial representation or warranty of Shareholders or SansRosa in thisAgreement, or any other written statement furnished by Shareholders toCollaGenex, being breached or misrepresented or proved to be false when made;provided, however, that no Shareholder shall indemnify CollaGenex for anyrepresentation or warranty made by any other Shareholder in paragraphs 6(f) (ii) or6(g) as a representation or warranty made only as to itself and notjointly and severally; or

###  

### (ii)                                  anybreach of a covenant or agreement contained in this Agreement on the part ofany Shareholder; or

###  

### (iii)                               anyevent, fact or omission in the operation of the business which occurred priorto the Closing not expressly disclosed in the Financial Statements or otherwisedisclosed in this Agreement.

###  

Costs or expensescovered by this indemnity shall include, without limitation, all costs,expenses and interest including attorneys’ fees, but shall not include anyconsequential, punitive or other extraordinary damages

 

## (f)                                    Timingand Size of Claims.  CollaGenex may,prior to the expiration of the respective survival period referenced in this Article 10,assert a right to indemnity under this Agreement, provided, however, thatCollaGenex shall not have the right to bring a claim unless the Shareholders’liability is for an aggregate sum exceeding $25,000, at which time theShareholders shall be liable, jointly and severally on a pro rata basis inaccordance with their respective ownership as shown on Exhibit A (unlessotherwise provided in this Agreement), for amounts exceeding such $25,000threshold, to the extent that the claim is duly substantiated.  The Shareholders’ total liability for allsuch claims made, if any, under the representations, warranties or covenantscontained in this Agreement shall not, absent fraud, exceed the amount of themaximum Purchase Price, excluding the Earn Out Consideration, that might bepayable under this Agreement, and shall be payable only out of future amountsthat might be payable by CollaGenex to the Shareholders.

##  

## (g)                                 Offset.  To the extent that any claim arises and isasserted in good faith, CollaGenex may, either as final resolution of suchclaim or as a provisional measure pending such final resolution, offset theamount of such claim against

 

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## future payments ofPurchase Price installments (whether of Base Consideration or Earn OutConsideration).

 

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11.                                 FORCEMAJEURE

 

Should either of the Parties to this Agreement beprevented from performing the Agreement or should the operations of CollaGenexbe suspended by force majeure, such as earthquake, typhoon, flood, fire, war,final action of a government agency, interruption of raw material supply orother unforeseen events, and their occurrence and consequences areunpreventable or unavoidable, the prevented Party or SansRosa (as the case maybe) shall notify the other Party without any delay and within fifteen (15) daysexplain to the reasonable satisfaction of the other Party the reasons for itsinability to perform or delay the performance of all or part of the Agreement.  Such event shall then constitute a state offorce majeure and both Parties shall, through consultation, decide whether toexempt part of the obligations for implementation of this Agreement or whetherto delay the performance of this Agreement according to the effects of theevent on performance.

 

## (a)                                  CHANGEOF CONTROL; ASSIGNMENT[**]Change of Control.  This Agreement shall automatically be bindingon the parties’ successors, which in the case of CollaGenex shall mean anyentity that acquires a majority of its shares or assets in a merger oracquisition transaction.

##  

## (b)                                 Assignmentsof Rights.  Except as a result of amerger or acquisition transaction, neither CollaGenex nor Shareholders shallassign this Agreement or any right, benefit or obligation granted herein,without the prior written consent of the other. In the event of any assignment by CollaGenex, CollaGenex shall continueto be liable for all of its obligations under this Agreement unless expresslyreleased by the Shareholders.

##  

## (c)                                  Assignmentof Patents.  CollaGenex shall notassign, transfer or license any rights to the Patent Applications, any patentsissued thereon or any SansRosa Product in the United States, except to itselfor any affiliate of CollaGenex, without the prior written consent of anauthorized representative of the Shareholders, which consent shall be given, ordenied, within 30 days of receipt bysuch representative of a notice from CollaGenex indicating its intention toenter into such a transaction.

##  

12.                                 ENTIREAGREEMENT

 

This Agreement, and all the matters contemplated bythe Exhibits and Schedules attached to it, constitute the entire agreementbetween CollaGenex, Shareholders and SansRosa with regard to the subject matterdescribed in the preamble to this Agreement, and no prior, simultaneous orcollateral promises or representations not expressly contained herein shall beof any force or effect.  Any amendment tothis Agreement must be in writing signed by both parties.

 

13.                                 NOTICES

 

## (a)                                  Address.  All notices or communications to be given orrequired to be given hereunder shall be given by personal delivery or byregistered airmail or facsimile followed by mail confirmation to the Parties’addresses first above given or referenced on Exhibit A.

 

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## (b)                                 Delivery.  Notices and communications shall be deemedreceived by the addressee on the date of delivery if delivered personally, onthe tenth (10th) day from the date of posting if sent by registered airmail, onthe next business day if sent by overnight courier, or on the date immediatelyfollowing the date of transmission if sent by facsimile.

##  

## (c)                                  Changeof Address.  Any of the Parties thatchanges its respective address at any time shall give notice thereof in themanner provided in this Article 14, and the responsibility of anyShareholder to do so shall rest exclusively with that Shareholder.

##  

14.                                 DISPUTERESOLUTION

 

## (a)                                  GoodFaith Negotiation.  The Parties shallattempt in good faith to settle among themselves any and all disputes arisingregarding the validity, interpretation or application of this Agreement, orother disputes arising from legal relationships resulting from this Agreement.

##  

## (b)                                 Mediation.  If the Parties are unable to resolve adispute after good faith negotiation for 60 days, the Parties shall agree toappoint a mediator and attempt in good faith to reach a mediated resolution.

##  

## (c)                                  Courts.  If the Parties are unable to agree amediator, or if mediation fails, then the dispute shall be finally settled bysubmission to the State Courts of the Commonwealth of Pennsylvania.

##  

## (d)                                 InjunctiveRelief.  Nothing in this Article 15shall limit either Party’s right to seek injunctive relief, specificperformance, or other appropriate equitable remedy in appropriate circumstancesin a court of competent jurisdiction.

##  

15.                                 APPLICABLELAW AND INTERPRETATION

 

## (a)                                  Choiceof Law.  This Agreement shall beconstrued in accordance with the substantive law of Pennsylvania, and anydisputes arising under this Agreement that are referred for resolution shall beadjudicated according to such law.

##  

## (b)                                 NoWaiver.  The failure of either Partyat any time to require performance by the other Party of any provision of thisAgreement shall in no way affect the full right to require such performance atany time thereafter, nor shall the waiver by either Party of a breach of anyprovision of this Agreement constitute a waiver of any succeeding breach of thesame or any other such provision nor constitute a waiver of the provisionitself.

##  

## (c)                                  PartialInvalidity.  In the event any term orprovision of this Agreement shall for any reason be held invalid, illegal orunenforceable in any respect, such invalidity, illegality or unenforceabilityshall not affect any other term or provision hereunder, and this Agreementshall be interpreted and construed as if such term

 

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## or provision, to theextent which it is invalid, illegal or unenforceable, had never been containedhereunder.

##  

16.                                 CONFIDENTIALINFORMATION

 

## (a)                                  ConfidentialNature of Information.  Each Partyagrees that it will treat in confidence and not use (except to further thedevelopment of SansRosa Products by CollaGenex) all SansRosa proprietaryinformation and all other proprietary information contained in documents,materials and other information obtained from another Party during the courseof the negotiations leading to carrying out the transactions described in thisAgreement (whether obtained before or after the date of this Agreement), andthe preparation of this Agreement and other related documents, and that suchobligations shall continue until the subject information is in the publicdomain.

##  

## (b)                                 PreviousNon-Disclosure Agreement.  At anytime after the First Closing, CollaGenex may use or disclose any confidentialinformation reasonably related toSansRosa, and its earlier obligations of confidentiality with respect to suchinformation shall terminate; provided, however, that any such disclosure or useshall not compromise the protection of any proprietary rights or trade secretsrelating to the SansRosa Products or the Patent Applications or any of theobligations of CollaGenex under this Agreement.

##  

## (c)                                  Limitationson Confidentiality.  The obligationof each Party to treat the non-public documents, materials and otherinformation disclosed to it in confidence does not apply to any informationthat (A) is or becomes available to the Party from a source other than thedisclosing Party, (B) is or becomes available to the public other than asa result of disclosure by such Party, (C) is required to be disclosedunder applicable law or judicial process, but only to the extent it must bedisclosed, provided prior notice has been provided to the disclosing Party, or (D) suchParty reasonably deems necessary to disclose to obtain any of the consents orapprovals described in this Agreement.

##  

## (d)                                 PublicAnnouncements.  Neither Party shallmake any disclosure of any of the terms of or the existence of this Agreementor the transactions that it contemplates, until CollaGenex has, by way of apress release or other appropriate means, made a public disclosure of the same.

 

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Executed in two (2) original counterparts as ofthe date first above written by their authorized representatives

 

 
| CollaGenex Pharmaceuticals, Inc. | SansRosa Pharmaceutical Development, Inc. |
|---------------------------------------|------------------------------------------------|
|                                  |                                           |   |   |
|                                  |                                           |   |   |
| /s/ Andrew Powell                     |                                           | /s/ Hal S. Broderson |   |
| By: Andrew Powell                     |                                           | By: Hal S. Broderson |   |
| Title: Secretary                      |                                           | Title: V-P |   |
|                                  |                                           |   |   |
|                                  |                                           |   |   |
| /s/ James W. Fay, III            |                                           | /s/ Hal S. Broderson |   |
| James W. Fay, III                |                                           | Hal S. Broderson |   |
|                                  |                                           |   |   |
|                                  |                                           |   |   |
| /s/ Thomas M. Rossi                   |                                           | /s/ Charles G. Hadley |   |
| Thomas M. Rossi                       |                                           | Charles G. Hadley |   |
|                                  |                                           |   |   |
|                                  |                                           |   |   |
| /s/ Jack A. DeJovin                   |                                           | /s/ James A. Mezick |   |
| Jack A. DeJovin                       |                                           | James A. Mezick |   |
|                                  |                                           |   |   |
|                                  |                                           |   |   |
| /s/ Thomas Uhlman                     |                                           |   |   |
| Thomas Uhlman                         |                                           |   |   |

 

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