exv10w42






Exhibit 10.42




SECURITY AGREEMENT




Name and Address of Debtor:



Cornerstone Biopharma Holdings, Inc.

2000 Regency Parkway, Ste 255, Cary, NC 27511




Name and Address of Secured Party:



Paragon Commercial Bank

3605 Glenwood Avenue

Suite 100

Raleigh, NC 27612

Attn: Brian K. Reid, Senior Vice President



Cornerstone Biopharma Holdings, Inc., referred to herein as the “Debtor, the Debtor who is or who
expects to be either directly or indirectly obligated to Paragon Commercial Bank, referred to
herein as the “Bank” or the “Secured Party,” agrees as follows:



(1) CREATION OF SECURITY INTEREST: Debtor grants to Secured Party a security interest in the
Collateral described or referred to herein to secure the performance of all direct, contingent,
present and future obligations of Debtor to Secured Party (the “Obligations”).



(2) COLLATERAL The Collateral is classified generally as:





	 	 	þ Accounts. Any and all accounts, accounts receivable, receivables, contract rights,
book debts, checks, notes, drafts, instruments, chattel paper, acceptances, chooses in
action, any and all amounts due to Debtor from a factor or other forms of obligations and
receivables now existing or hereafter arising out of the business of the Debtor, as well as
any and all returned, refused and repossessed goods, and the cash or non-cash proceeds
resulting therefrom.
	 
	 	 	þ Inventory. Any and all of Debtor’s inventory, including without limitation any and
all goods held for sale or lease or being processed for sale or lease in Debtor’s business
as now or hereafter conducted, whether now owned or hereinafter acquired, including all
materials, goods and work in process, finished goods, and other tangible property held for
sale or lease or furnished or to be furnished under contracts of service or used or consumed
in Debtor’s business, along with all documents (including documents of title) covering
inventory and all cash and non-cash proceeds from the sale of inventory, including proceeds
from insurance.
	 
	 	 	þ Equipment and Furnishings. Any and all of Debtor’s furnishings and equipment,
wherever located, whether now owned or hereafter acquired, together with all increases,
parts, fittings, accessories, equipment, and special tools now or hereafter affixed to any
part thereof or used in connection therewith, and all products, additions, substitutions,
accessions, and all cash and non-cash proceeds, including proceeds from insurance thereof
and thereto.
	 
	 	 	o Fixtures. All of Debtor’s fixtures now existing or hereafter acquired, together
with all substitutes and replacements therefor, all accessions and attachments thereto, and
all
tools, parts and equipment now or hereafter added to or used in connection therewith. These
goods are or will become fixtures on the following described real estate in County, (State),
owned by (name of owner) more particularly described as follows:
	 
	 	 	o Instruments and/or Investment Documents. The following described instruments and
documents including, without limitation, negotiable instruments, promissory notes, and
documents of title owned or to be owned by Debtor, certificates of deposit, and all liens,
security agreements, leases and other contracts




 









 






	 	 	securing or otherwise relating to any of
such instruments or documents, and all cash and non-cash proceeds and products thereof and
such additional property receivable or distributed in respect of or in exchange for all or
any of such instruments or documents.
	 
	 	 	þ General Intangibles. All patents, trademarks, service marks, trade secrets,
copyrights and exclusive licenses (whether issued or pending) and all documents,
applications, materials and other matters related thereto, all inventions, and all
manufacturing, engineering and production plans, drawings, specifications, processes and
systems, all trade names, computer programs, databases, systems and software (including
source and object codes), goodwill, chooses in action and all other general intangibles of
Debtor whether now owned or hereafter acquired and all cash and non-cash proceeds thereof.
	 
	 	 	o Timber. All of Debtor’s uncut timber growing or to be grown on the following
described property, and all cash and non-cash proceeds including proceeds from insurance,
and all products thereof (property description):
	 
	 	 	o Other — Description of Collateral listed in box below:





Description of Collateral





	 	 	Check here o if Debtor has no place of business in North Carolina but resides in North
Carolina. Check here o if Debtor has more than one place of business in North Carolina.
Check here þ if Debtor has only one place of business in North Carolina, give county
of business here: Wake.




If checked here o the Collateral described above includes all after-acquired Consumer Goods
acquired by the Debtor within ten (10) days after the Secured Party has given value pursuant to
this Agreement. 


If checked here o this is a
purchase money security agreement.




       Any additional Collateral acquired hereafter by the Debtor shall be Collateral subject to this
Agreement. All Collateral now or hereafter subject to this Agreement includes the proceeds thereof
and any additions and accessions thereto. Nothing contained herein shall be deemed consent to the
sale of any Collateral.

     (3) DEBTOR’S UNDERTAKINGS: The Debtor agrees:




     (A) that time is of the essence of this Agreement, and Debtor shall promptly perform all
Obligations of Debtor including the payment, when due, of all amounts owed to Secured Party secured
by this Agreement;



     (B) that Debtor will protect and properly care for the Collateral and no Collateral will be
misused, wasted or allowed to deteriorate except for normal wear and tear;



     (C) to use the Collateral principally within the State of North Carolina and not to affix the
Collateral to other personal property (unless other provision regarding the location or affixation
of the Collateral is noted herein) and not to affix the Collateral to real property unless it is
classified as a fixture hereinabove and the requisite information is supplied;



     (D) that Secured Party may act as attorney for Debtor in adjusting and canceling any such
insurance coverage and in endorsing any insurance draft and may retain for the satisfaction of the
Debtor’s Obligations any insurance proceeds and/or unearned premium on such insurance;



     (E) that upon the request of Secured Party, Debtor will (i) provide an updated appraisal of
the Collateral and (ii) give to or deposit with Secured Party additional Collateral to Secured
Party’s satisfaction;



     (F) that Collateral will not be changed, transferred, or otherwise disposed of (except for
sale of inventory in the ordinary course of Debtor’s business) or be subjected to any unpaid
charge, unless the Secured Party consents in advance in writing to such change, transfer or charge;



1



 









 





     (G) to procure or execute any Financing Statement or other document and do any act or pay any
costs which Secured Party deems necessary to protect or perfect its security interest under this
Agreement;



     (H) that the Collateral will not be used for illegal purposes; and



     (I) that Secured Party shall have the light to examine and inspect the Collateral and the books
and records relating thereto, if any, at any reasonable tame and, upon demand. Debtor shall
assemble the Collateral at such place or places as Secured Party may designate for the purpose of
allowing Bank to examine same.



(4) DEFAULT AND REMEDIES:




     (A) The happening of any of the following events shall constitute a default under this
Agreement: (i) the occurrence of a default under any note or other agreement secured hereby, (ii)
the failure of Debtor to perform any of the terms, stipulations and conditions written into this
Agreement; (iii) the insolvency of Debtor, or the application for the appointment of a receiver for
Debtor, the filing of a petition under any provision of the Bankruptcy Code by or against Debtor or
an assignment for the benefit of creditors by or against Debtor; (iv) the entry of a judgment
against Debtor or the issuance or service of any attachment, levy or garnishment against Debtor or
the Collateral; (v) the failure of Debtor to furnish from time to time at Bank’s request financial
information with respect to Debtor, (vi) a determination by Bank that the Obligations are insecure
or that a material adverse change in the financial condition of Debtor has occurred since the date
hereof; (vii) failure of Debtor to perform any other agreement with Bank; (viii) any representation
or affirmation by the Debtor to Bank herein or by separate writing is incorrect or false.



     (B) Upon the occurrence of a default as set forth in (A) above, at the option of Bank, all or
any one of the Obligations secured hereby shall become immediately due and payable without demand
or notice, and Bank shall have at any time after default the rights and remedies provided in the
Uniform Commercial Code as enacted in the State of North Carolina or other applicable law, or by
any note or other agreement secured hereby, and may, without limiting or waiving in any way the
aforesaid rights:



          1. Enter upon Debtor’s premises to take possession of the Collateral or render it unusable, or
require Debtor to assemble the Collateral at any place designated by the Bank reasonably convenient
to both parties;




          2. Give any notice or notification to the Debtor required by the Uniform Commercial Code by
mailing such notice, at least five (5) days before the event, if any, which is the subject of the
notice to the Debtor’s address shown herein. Five (5) days’ notice to Debtor of any proposed action
by Bank shall be deemed reasonable and sufficient notice for all purposes, provided, this provision
shall not require a longer period of notice than shall be reasonable under the circumstances then
existing;




          3. Use the proceeds of the disposition of any Collateral to pay and discharge all or any of
the Obligations of Debtor set forth herein;




          4. Cure the default and the expense of curing such default shall thereupon become part of the
Obligations secured hereby and shall be payable by Debtor to Bank upon demand of Bank, together
with interest thereon at the highest rate allowed by law.




          5. Obtain the appointment of a receiver for all or any part of the Collateral, without notice
to Debtor.




(5) ADDITIONAL AGREEMENTS AND AFFIRMATIONS: The Debtor agrees and affirms:




     (A) that all information supplied and statements made by him in any application for credit, or
for the renewal of credit, or in any application for life or disability insurance in connection
with



 









 







any Obligation of Debtor, are true and correct;



     (B) that any loss or destruction of the Collateral shall not release the Debtor from the
payment and performance of the Obligations set forth above;



     (C) that he will assert no claim or defense he may have against Secured Party, against any
assignee of this Agreement;



     (D) that except as provided herein, no Financing Statement covering the Collateral or its
proceeds is on file; that except as stated herein, there is no adverse lien or security interest in
the Collateral; that Debtor is and will continue to be absolute owner of the Collateral and has the
right to transfer a security Interest In the Collateral; and that the Debtor will defend the title
to the Collateral and its proceeds against the claims of others;



     (E) that all equipment, improvements and accessories hereafter attached to the property
(including tires, if a vehicle is involved) shall
become a part thereof by accession;



     (F) that if an automobile is Collateral hereunder, a sale by Secured Party of such vehicle at
a price based upon a recognized automobile
quotation publication or a sale at a recognized automobile wholesale auction shall be deemed
“commercially reasonable;”



     (G) that the address of the residence of each Debtor appears below the signature of each;



     (H) that “Debtor” and “Secured Party” as used in this Security Agreement, shall include the
heirs, executors, administrators, successors and assigns of those parties, and that all masculine
pronouns shall include the feminine and neuter;



     (I) if more than one Debtor executes this Agreement, their obligations under this Security
Agreement shall be joint and several;



     (J) the law governing this secured transaction shall be that of the State of North Carolina;
and



     (K) the Obligations secured hereby include, without limitation, loans which Secured Party has
made or may, from time to time, make to Debtor, and also all other indebtedness or obligations
which are or may hereafter be owed by Debtor to Secured Party, direct or indirect, absolute or
contingent. In whatsoever capacity, whether or not of a like or similar character, whether alone or
with another or others, now existing or hereafter incurred, matured or unmatured, and any and all
extensions, renewals, amendments or modifications thereof, or substitutions or replacements
therefor.



     (L) THIS AGREEMENT IS SUBJECT TO THE TERMS, CONDITIONS, COVENANTS, AGREEMENTS, AFFIRMATIONS
AND STIPULATIONS SET FORTH BELOW, ALL OF WHICH ARE A PART OF THIS AGREEMENT AND BINDING ON THE
PARTIES HERETO; AND



     (M) NO MODIFICATION OR WAIVER OF THE PROVISIONS OF THIS AGREEMENT SHALL BE EFFECTIVE UNLESS IN
WRITING NOR SHALL ANY WAIVER BE APPLICABLE EXCEPT IN THE SPECIFIC INSTANCES FOR WHICH GIVEN.


IN WITNESS WHEREOF, this Agreement is executed (i) If by individuals, by hereunto setting their
hands under seal by adoption of the word “SEAL” appearing next to the individuals’ names,
(ii) if by a corporation, by the duly authorized officers of the corporation on its behalf under
seal by adoption of the facsimile seal printed hereon for such purpose or, if an Impression seal
appears hereon, by affixing such impression seal, (iii) if by a partnership, by the duly authorized
partners of the partnership on its behalf under seal by adoption of the word “SEAL” appearing




 









 







next
to the name of the partnership and/or the signatures of the partners, or (iv) if by a limited
liability corporation, by the duly authorized members and/or manager(s) on its behalf under seal by
adoption of the word “SEAL” appearing
next to the name of the limited liability corporation and/or
the signatures of the members and/or manager(s), as of the 21st Day of April, 2005.




Cornerstone Biopharma Holdings, Inc. (seal)




By:
/s/ Craig A. Collard             (SEAL)

     Craig A. Collard, President




THE ABOVE AGREEMENT IS SUBJECT TO THE FOLLOWING ADDITIONAL 

AGREEMENTS AND AFFIRMATIONS




Collections.




     A. Bank is authorized and empowered at any time in its sole discretion (i) to require Debtor
to notify or itself to notify, either in its own name or in the name of Debtor, all or any of the
account debtors, or any person obligated to Debtor for any amount, that the accounts and/or general
intangibles have been assigned to Bank or to request in its name, in the name of Debtor or in the
name of a third party, confirmation from any such debtor or person of the amount payable or any
other matter stated therein or relating thereto; (ii) to demand, collect or compromise for any and
all sums which are now or may hereafter become due or owing upon any of the accounts or upon any
other obligation to Debtor; (iii) to enforce payment of any account or any other obligation of any
person to Debtor either in its own name or in the name of Debtor; and (iv) to endorse in the name
of Debtor and to collect any instruments tendered or received in payment of the accounts or any of
Debtor’s general intangibles. But Bank under no circumstances shall be under any duty to act in
regard to any of the foregoing matters. The Debtor hereby appoints Bank and any officer or employee
of Bank as Bank may from time to time designate as attorneys-in-fact for the Debtor, to sign and
endorse in the name of Debtor, to give notices in the name of Debtor and to perform an other
actions necessary or desirable in the reasonable discretion of Bank to effect these provisions and
carry out the intent hereof. The Debtor hereby ratifies and approves ail acts of such
attorneys-in-fact and neither Bank nor any other such attorneys-in-fact will be liable for any acts
of commission or omission nor for any error of judgment or mistake of fact or law. This power,
being coupled with an interest, is irrevocable so long as any account or general Intangible
assigned to Bank remains unpaid and Debtor has any indebtedness to Bank. The costs of such
collection and enforcement, including attorneys’ fees and out-of-pocket expenses, shall be borne
solely by Debtor whether the same are incurred by Bank or Debtor.



     B. At the option of Bank, Debtor will forthwith upon receipt of all checks, drafts, cash and
other remittances in payment or on account of Debtor’s accounts or general intangibles, deposit the
same in a special bank account maintained with Bank, over which Bank has the sole power of
withdrawal and will designate with each such deposit the particular account or general intangible



 









 







upon which the remittance was made. The funds in said account shall be held by Bank as security for
the Obligations. Said proceeds shall be deposited in precisely the form received except for the
endorsement of Debtor where necessary to permit collection of Items, which endorsement Debtor
agrees to make, and which Bank is also hereby authorized to make on Debtor’s behalf. Pending such
deposit, Debtor agrees that it will not commingle any such checks, drafts, cash and other
remittances with any of Debtor’s funds or property, but will hold them separate and apart therefrom
and upon an express trust for Bank until deposit thereof is made in the special account. Bank may
at any time and from time to time, in its sole discretion, apply any part of the credit balance in
the special account to the payment of all or any of the Obligations, whether or not the same be
due. Upon the full and final liquidation of all of the Obligations, Bank will pay over to the
Debtor any excess received by it from Debtor, whether received by it as a deposit in the special
account or received by it as a direct payment on any of the Obligations.



Other Agreements and Affirmations of Debtor.




     A. Each and every account or general intangible now owned or hereafter acquired, is a bonafide
existing obligation, valid and enforceable against the account debtor, or other person obligated to
Debtor, and it is not subject to any dispute, defense or offset Debtor will promptly notify Bank of
any account or general intangible with respect to which the foregoing is untrue.



     B. Debtor will at all times keep accurate and complete records of Debtor’s inventory, accounts
and general intangibles and will upon request furnish Bank a schedule, in form satisfactory to
Bank, describing such accounts, etc. as Bank may require. Debtor will furnish to Bank copies of
contracts and invoices applicable thereto, together with satisfactory evidence of the shipment and
receipt of any goods covered thereby and the performance of any services or obligations covered
thereby as Bank may require if applicable. Bank, or any of its agents, shall have the right to call
at Debtor’s place or places of business at intervals to be determined by Bank and without hindrance
or delay, to inspect Debtor’s inventory and to inspect, audit, check and make extracts from the
books, records, journals, orders, receipts, correspondence and other data relating to Debtor’s
inventory, accounts, general intangibles, or to any other transaction between the parties hereto.



     C. If any of the Debtor’s accounts or general intangibles arise out of contracts with the
United States or any department, agency, or instrumentality thereof, Debtor will immediately notify
Bank in writing and execute any instruments and take any steps required by Bank in order that all
monies due and to become due under such contracts shall be assigned to Bank and notice thereof
given to the Government under the Federal Assignment of Claims Act.



     D. If any of Debtor’s accounts or general intangibles should be evidenced by promissory note,
trade acceptances, or other instruments for the payment of money, Debtor, unless otherwise directed
by Bank will deliver same to Bank within ten days after receipt, appropriately endorsed to Bank’s
order and, regardless of the form of such endorsement, Debtor hereby waives
presentment, demand, notice of dishonor, protest and notice of protest and all other notices
with respect thereto. Bank shall not be bound to take any steps necessary to preserve any right of
Debtor against any prior parties to such instruments which Debtor hereby assumes to do.



 









 





     E. Debtor will not without the prior written consent of Bank borrow from anyone except Bank or
pledge, or grant any security interest in, any of its accounts, general intangibles, or any
inventory, equipment, or other property to anyone except Bank, or permit any lien or encumbrance to
attach to any of the foregoing, or any levy to be made thereon, or any financing statement (except
Bank’s statement) to be on file with respect thereto.



     F. Debtor will pay and discharge when due all taxes, levies and other charges on the
Collateral, keep the Collateral Insured for the benefit of Bank (to whom loss shall be payable) in
such amounts, in such companies, and against such risks as may be satisfactory to Bank; pay the
cost of all such insurance and deliver certificates evidencing such insurance to Bank; and Debtor
assigns to Bank all rights to receive the proceeds of such insurance, directs any Insurer to pay
all proceeds directly to Bank, and authorizes Bank to endorse any draft for such proceeds and to
apply such proceeds against the Obligations in such manner as Bank may determine from time to time.
All insurance policies shall provide for at least ten days prior written notice of cancellation to
Bank.



     G. Debtor agrees that it will not permit any return of merchandise, the sale of which gave
rise to any of the accounts, except in the usual and regular course of business.





	H.
	 	Debtor shall give Bank written notice of each office of Debtor in which records of
Debtor pertaining to accounts held as Collateral are kept and each location at which
Collateral is or will be kept, and of any change in any such location. If no such notice is
given, all records of Debtor pertaining to the Collateral are and shall be kept at Debtor’s
address shown above, and all Collateral of Debtor will be kept at Debtor’s address shown
above unless otherwise noted as follows:




Debtor will notify Bank immediately of any material change in the Collateral, or of a change in
Debtor’s residence or location or of the location of any Collateral or of the location of the
records related to any Collateral.




     I. Without the written consent of Bank, Debtor will not change its name, change its corporate
partnership or other legal status, use any tradename or engage in any business in which it was not
engaged on the date of this Agreement



     J. Notwithstanding anything here in the contrary, the term “Obligations” includes all costs
incurred by Bank to obtain, preserve, perfect and enforce this Agreement and maintain, preserve,
collect and enforce its rights with respect to the Collateral, including, without limitation, its
reasonable attorneys fees.



     K. Debtor agrees that Bank may sell or assign all or any of the Obligations to a third party
and, in connection therewith, Bank may assign and transfer all of its rights under this Agreement
to such third party who, upon such assignment, shall have all of the rights and benefits
granted to the Bank herein.



     L Notwithstanding anything in this Agreement to the contrary, the proceeds from any
disposition of the Collateral shall be applied toward all or any of the following items in such



 









 







order as the Bank deems necessary and appropriate: (i) the expenses of taking, removing, storing,
repairing, processing, holding and selling the Collateral, including, without limitation,
reasonable attorney’s fees; (ii) at the Bank’s option, to the expense of liquidating and satisfying
any liens, security interests or encumbrances against the Collateral which may be prior to the
Bank’s security interest; (iii) to the unpaid Obligations. If the proceeds realized from the
disposition of the Collateral shall fail to satisfy all of the
foregoing items, Debtor shall be
liable for the remaining deficiency, which shall be payable to Bank on demand. If all of the above
items are paid as a result of the disposition of the Collateral and a surplus exists, the surplus
shall be paid to the persons entitled thereto by law.



     Sale
of Inventory. So long as Debtor is not in default hereunder, Debtor shall have
the right in the regular course of business, to process and sell Debtor’s inventory. Bank’s
security interest hereunder shall attach to all proceeds of all sales or other dispositions of
Debtor’s inventory.



     Term. This Agreement may not be terminated by Debtor while any Obligations remain
unpaid, in whole or in part.



     Financing Statements. Debtor will deliver such instruments of further assignment or
assurance as Bank may from time to time request to carry out the intent hereof, and will join with
Bank in executing financing statements in form satisfactory to Bank and pay the cost of filing the
same and continuation statements and any other documents in any public office deemed advisable by
Bank. Debtor agrees that a carbon, photographic or other reproduction of this Agreement or a
financing statement shall be sufficient as a financing statement.



     Notification to Purchasers of Farm Products. If the Collateral is or includes farm
products, as soon as possible, and in any event not less than 15 days prior to any sale of
livestock or crops, the Debtor will provide to the Secured Party a written list of all buyers,
commission merchants, or selling agents (including addresses and phone numbers) to or through whom
the Debtor intends to sell livestock or crops constituting “farm products” under the Food Security
Act of 1985 (7 U.S.C. Section 1631, as amended) (the FSA), or applicable state law. The Secured
Party is hereby authorized to give written notice to any person of its security interest, as
required or permitted under the Uniform Commercial Code, the FSA, or other applicable law, which
notice may instruct the recipient to make payments jointly to the Debtor and the Secured Party and
may disclose the Debtor’s social security or taxpayer identification number, together with such
other information as must or may be included for an effective notice under such law. The Debtor
agrees to keep the list on a current basis and not to sell crops or livestock to or through any
person not on the list.