Document:

Unassociated Document

 

PLEDGE AND SECURITY AGREEMENT

 

THIS PLEDGE AND SECURITY AGREEMENT (this “Security Agreement”), dated as of February 24, 2012, is made by and between Biozone Pharmaceuticals, Inc., a Nevada corporation (the “Grantor”), and OPKO Health, Inc., as collateral agent (the “Collateral Agent”) on behalf of and for the benefit of the Purchasers as defined in one or more certain Securities Purchase Agreements with the Grantor, dated as of the date hereof (the “Purchase Agreement”) and the Purchasers, together with the Collateral Agent, are collectively referred to herein as the “Secured Parties”).

 

WHEREAS, pursuant to the Purchase Agreement, the Grantor agreed to sell and issue to the Purchasers, and the Purchasers agreed to purchase, secured convertible promissory notes (the “Notes”) and certain other securities;

 

WHEREAS, it is a condition precedent to the issuance of the Notes and such other securities that the Grantor and the Collateral Agent, for the benefit of the Purchasers, enter into this Security Agreement, pursuant to which the Grantor will grant to the Secured Parties a first priority security interest in all of the assets of the Grantor, including the pledge by the Grantor to the Secured Parties of its interests in the Pledged Equity, in order to secure the obligations of the Grantor under the Notes; and

 

WHEREAS, the Purchasers have appointed OPKO Health, Inc. as Collateral Agent under the terms of the Purchase Agreement.

 

In consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor, the Collateral Agent and the Purchasers hereby agree as follows:

 

SECTION 1.                                Grant of Security Interest.   As collateral security for the payment and performance when due of the Obligations (defined below), Grantor hereby collaterally assigns, mortgages, and pledges to the Secured Parties, and hereby grants to the Secured Parties a first priority security interest in all of Grantor’s right, title and interest in, to and under the Collateral (defined below). Grantor agrees that this Security Agreement shall create a first priority continuing security interest in the Collateral which shall remain in effect until the payment and performance in full of all of the Obligations.

 

SECTION 2.                                Collateral Agent’s Rights and Obligations.   Grantor shall remain liable under all accounts, accounts receivable, instruments and documents and general intangibles.  The Collateral Agent shall not have any obligation or liability under any accounts, accounts receivable, instruments and documents or general intangibles by reason of this Security Agreement or the exercise of Collateral Agent’s rights and remedies hereunder, nor shall the Collateral Agent be required to perform Grantor’s obligations pursuant thereto.  At any time, the Collateral Agent shall have the right to verify accounts receivable constituting a portion of the Collateral and Grantor agrees to cooperate with the Collateral Agent in arranging for such verification.  After the occurrence of an Event of Default (defined below), the Collateral Agent may notify account debtors that the accounts receivable have been assigned to the Collateral Agent and that payments may be made directly to the Collateral Agent or as otherwise directed by the Collateral Agent.  At the request of the Collateral Agent at any time after the occurrence of an Event of Default, the Grantor will so notify such account debtors.  Notwithstanding any such action, the Collateral Agent shall have no obligation to inquire as to the sufficiency of any payment received by it on account of any of Grantor’s accounts receivable or to take any action to collect or enforce the payment of any account receivable.

 

SECTION 3.                                Definitions; Interpretation.

 

(a)           As used in this Security Agreement, the following terms shall have the following meanings:

 

“Collateral” means all assets, including without limitations, as described on Exhibit A attached hereto, except to the extent any such property (i) is non-assignable by its terms without the consent of the licensor thereof or another party, (ii) the granting of a security interest therein is contrary to applicable law, or (iii) that is now or hereafter subject to a lien within the meaning of subsection (vii) of the definition of “Permitted Liens” in this Section 4.

 

  

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“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

 

“Event of Default” has the meaning set forth in the Purchase Agreement.

 

“Intellectual Property” means all of Grantor’s right, title, and interest in and to the following, including such intellectual property owned on the date hereof and set forth on Schedule 1 annexed hereto, except to the extent any security interest hereunder would cause any application for a Trademark to be deemed invalidated, canceled or abandoned due to the grant and/or enforcement of such security interest, including, without limitation, all U.S. trademark applications that are based on an intent-to-use, unless and until such time that the grant and/or enforcement of the security interest will not affect the status or validity of such trademark:

 

           (a)           Copyrights, Trademarks and Patents;

 

           (b)           and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

 

           (c)           and all design rights which may be available to Grantor now or hereafter existing, created, acquired or held;

 

           (d)           and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

 

           (e)           licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

 

           (f)           amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

 

           (g)           proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

 

“Lien” means any mortgage, deed of trust, pledge, security interest, assignment, deposit arrangement, charge or encumbrance, lien, or other type of preferential arrangement.

 

“Obligations” means all obligations and liabilities of every nature of Grantor now or hereafter existing under or arising out of or in connection with the Notes, the Purchase Agreement, the Pledge and Security Agreement and all other documents, instruments or certificates required to be delivered by Grantor at or prior to the Closing pursuant to the Purchase Agreement (collectively, the “Purchase Documents”); together with all extensions or renewals thereof, whether for principal, interest, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owned with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Parties as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Grantor now or hereafter existing under this Security Agreement (including, without limitation, interest and other amounts that, but for the filing of a petition in bankruptcy with respect to Grantor, would accrue on such obligations, whether or not a claim is allowed against Grantor for such amounts in the related bankruptcy proceeding).

 

“Patents” means all patents, patent applications and like protections, including, without limitation, improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

  

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“Permitted Liens” mean: (i) Liens in favor of the Secured Parties in respect of the Obligations hereunder; (ii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with U.S. GAAP; (iii) Liens of materialmen, mechanics, warehousemen, carriers or employees or other like Liens arising in the ordinary course of business and securing obligations either not delinquent or being contested in good faith by appropriate proceedings; (iv) Liens consisting of deposits or pledges to secure the payment of worker’s compensation, unemployment insurance or other social security benefits or obligations, or to secure the performance of bids, trade contracts, leases, public or statutory obligations, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business; (v) easements, rights of way, servitudes or zoning or building restrictions and other minor encumbrances on real property and irregularities in the title to such property which do not in the aggregate materially impair the use or value of such property or risk the loss or forfeiture of title thereto; (vi) Liens upon or in any equipment now or hereafter acquired or held by the Grantor to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing or refinancing the acquisition of such equipment, provided that the Lien is confined solely to the equipment so acquired and accessions thereon and proceeds thereof; (vii) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (i) and (ii) and (vi) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase other than for accrued interest and premium on the amount of principal being extended, refinanced or renewed.

 

“Person” means an individual, corporation, partnership, joint venture, trust, unincorporated organization, governmental agency or authority, or any other entity of whatever nature.

 

“Pledged Equity” means all shares of stock, partnership interests, limited liability company interests and all other equity interests in a Person, whether such stock or interests are classified as Investment Property or General Intangibles under the UCC now or hereafter owned by Grantor, including all securities convertible into, and rights, warrants, options and other rights to purchase or otherwise acquire, any of the foregoing, including those owned on the date hereof and set forth on Schedule 2 annexed hereto, the certificates or other instruments representing any of the foregoing and any interest of Grantor in the entries on the books of any securities intermediary pertaining thereto and all distributions, dividends and other property received, receivable or otherwise distributed in respect of or exchanged therefor.

 

 “Purchase Documents” means this Security Agreement, the Purchase Agreement, and the Note, each as amended, modified, renewed, extended or replaced from time to time.

 

“Secured Parties” means the Collateral Agent and all Purchasers.

 

“Trademarks” means any trademark and service mark rights, whether registered or not, applications to register and registrations of the same and like protections, and the parts of the goodwill of the business connected with the use of and symbolized by such marks.

 

“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Nevada.

 

(b)           Where applicable and except as otherwise defined herein, terms used in this Security Agreement shall have the meanings assigned to them in the UCC.  Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Purchase Agreement or if not defined there in the Note.

 

(c)           In this Security Agreement, (i) the meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined; (ii) the captions and headings are for convenience of reference only and shall not affect the construction of this Security Agreement; (iii) the words “hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer to this Security Agreement as a whole and not merely to the specific Article, Section, subsection, paragraph or clause in which the respective word appears; (iv) the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation;” and (v) the term “or” shall not be limiting.

 

  

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SECTION 4.                                First Priority Security Interest.

 

(a)           Subject to Permitted Liens, as security for the payment and performance of the Obligations, the Grantor hereby pledges, assigns and grants to the Secured Parties, a first priority security interest in all of the Grantor’s right, title and interest in, to and under all of the Collateral that shall remain in effect until terminated in accordance with Section 19 hereof.

 

SECTION 5.                                Financing Statements, Etc.  Grantor shall file within two (2) business days of the date hereof such financing statement in a form reasonably acceptable to Collateral Agent, as is necessary to perfect and maintain the priority of the security interest of the Secured Parties in the Collateral.  The Grantor shall also file from time to time thereafter, all such financing statements, financing statement assignments, continuation financing statements, and UCC filings, in form reasonably satisfactory to the Collateral Agent, and Grantor shall execute and deliver and shall take all other action, as the Collateral Agent may reasonably request, to perfect and continue perfected, maintain the priority of or provide notice of the security interest of the Secured Parties in the Collateral (subject to the terms hereof) and to accomplish the purposes of this Security Agreement.  Without limiting the generality of the foregoing, the Grantor ratifies and authorizes the filing by the Collateral Agent of any financing statements filed prior to the date hereof that accomplish the purposes of this Security Agreement.

 

SECTION 6.                                Representations and Warranties.  The Grantor represents and warrants to the Collateral Agent that:

 

(a)           Grantor’s full legal name, as it appears in official filings in the State of Nevada, is Biozone Pharmaceuticals, Inc.  Grantor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada and has all requisite power and authority to execute, deliver and perform its obligations under this Security Agreement..

 

(b)           The execution, delivery and performance by the Grantor of this Security Agreement has been duly authorized by all necessary corporate action of the Grantor, and this Security Agreement constitutes the legal, valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditors’ rights generally, as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

(c)           Except for the filing of appropriate financing statements, no authorization, consent, approval, license, exemption of, or filing or registration with, any governmental authority or agency, or approval or consent of any other Person, is required for the due execution, delivery or performance by the Grantor of this Security Agreement unless the same has already been obtained or is being obtained simultaneously in connection herewith.

 

(d)           This Security Agreement creates a first priority security interest that is enforceable against the Collateral and will create a first priority security interest that is enforceable against the Collateral in which the Grantor hereafter acquires rights at the time the Grantor acquires any such rights.

 

(e)           The Grantor has the right and power to grant the pledge and security interests in the Collateral to the Secured Parties in the Collateral, and the Grantor is the sole and complete owner of the Collateral, free from any Lien other than the liens and security interests in favor of the Secured Parties, and the other Permitted Liens.

 

(f)           Grantor acknowledges and agrees that the Lien that secures the Obligations (A) is separate and distinct from any and all other Liens on the Collateral, (B) is enforceable without regard to whether or not any other Lien shall be or become void, voidable or unenforceable or the indebtedness, obligations or liabilities secured by any such other Lien shall be discharged, whether by payment, performance, avoidance or otherwise, and (C) shall not merge with or be impaired by any other Lien.

 

(g)           A true and complete list of all Intellectual Property owned by Grantor, in whole or in part; is set forth on Schedule 1 attached hereto.

 

  

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(h)           Schedule 2 attached hereto sets forth all of the Pledged Equity owned by the Grantor, and the percentage ownership in each issuer thereof.

 

SECTION 7.                                Covenants of the Grantor.  Until this Security Agreement has terminated in accordance with Section 19 hereof, the Grantor agrees to do the following:

 

(a)           The Grantor shall give prior written notice to the Collateral Agent (and in any event not later than thirty (30) days prior to any change described below in this subsection) of: (i) any change in the Grantor’s name; (ii) any changes in the Grantor’s identity or structure in any manner which might make any financing statement filed hereunder incorrect or misleading; or (iii) any change in jurisdiction of organization; provided that the Grantor shall not locate any Collateral outside of the United States nor shall the Grantor change its jurisdiction of organization to a jurisdiction outside of the United States.

 

(b)           The Grantor shall continue to operate its business in the ordinary course in accordance with all applicable law and shall not surrender or lose possession of (other than to the Secured Parties), sell, lease, rent or otherwise dispose of or transfer any of the Collateral or any right or interest therein, except in the ordinary course of business consistent with past practice and except to the extent of equipment that is obsolete or no longer useful to its business.

 

(c)           The Grantor shall keep the Collateral free of all Liens except the liens and security interests in favor of the Secured Parties and the other Permitted Liens.

 

(d)           The Grantor shall protect, defend and maintain the validity and enforceability of its material Intellectual Property; (ii) promptly advise Collateral Agent in writing of material infringements of its Intellectual Property; and (iii) not allow any Intellectual Property material to Grantor’s business to be abandoned, forfeited or dedicated to the public without Collateral Agent’s written consent.

 

(e)           So long as no Event of Default shall have occurred and be continuing, the Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Equity or any part thereof for any purpose not inconsistent with the terms or purpose of this Security Agreement.

 

(f)           Grantor shall not use or permit Collateral to be used in violation of any applicable law, rule or regulation or in violation of any policy of insurance covering the Collateral.

 

(g)           Grantor shall maintain such insurance with respect to liabilities, losses or damage in respect of the assets and properties of Grantor as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses in such amounts, with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry.

 

(h)           Grantor shall deliver any and all originals of Collateral consisting of certificates or Instruments to Collateral Agent, accompanied by Grantor’s endorsement, where necessary of transfer or assignments in blank, in form and substance satisfactory to Collateral Agent.

 

(i)           Grantor shall pay promptly when due all property and other taxes, assessments and government charges or levies imposed upon, and all claims (including claims for labor, services, materials and supplies) against, the Collateral except to the extent the validity thereof is being contested in good faith.

 

  

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SECTION 8.                                Authorization; Collateral Agent Appointed Attorney-in-Fact. The Collateral Agent shall have the right, to, in the name of the Grantor, or in the name of the Secured Parties, upon notice to, but without the requirement of assent by the Grantor, and the Grantor hereby constitutes and appoints the Collateral Agent  (and any employees or agents designated by the Collateral Agent) as the Grantor’s true and lawful attorney-in-fact, with full power and authority to (a) upon and during the continuance of an Event of Default: (i) assert, adjust, sue for, compromise or release any claims under any policies of insurance; and (ii) execute any and all such other documents and instruments, and do any and all acts and things for and on behalf of the Grantor, that such Collateral Agent may deem necessary or advisable to maintain, protect, realize upon and preserve the Collateral and the Secured Parties’ security interests therein and to accomplish the purposes of this Security Agreement and (b) to pay or discharge taxes or Liens (other than Liens permitted under this Security Agreement or the Purchase Documents) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Collateral Agent in its sole discretion, any such payments made by Collateral Agent to become obligations of Grantor to Collateral Agent, due and payable immediately without demand.  The foregoing power of attorney is coupled with an interest and is irrevocable so long as the Obligations have not been indefeasibly paid and performed in full and the commitments not terminated.  The Grantor hereby ratifies, to the extent permitted by law, all that the Collateral Agent shall lawfully and in good faith do or cause to be done by virtue of and in compliance with this Section 8.

 

SECTION 9.                                Remedies.

 

(a)           Upon the occurrence and during the continuance of an Event of Default (as defined in the Purchase Agreement), the Collateral Agent as agent for the Secured Parties shall have, in addition to all other rights and remedies granted to the Secured Parties in this Security Agreement, and all other Purchase Documents, all rights and remedies of a Collateral Agent under the UCC and other applicable laws. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent, upon the election of the holders of the majority-in-interest of the Notes, may sell, resell, lease, use, assign, license, sublicense, transfer or otherwise dispose of any or all of the Collateral in its then condition or following any commercially reasonable preparation or processing (utilizing in connection therewith any of Grantor’s assets, without charge or liability to the Secured Parties therefor) at public or private sale, by one or more contracts, in one or more parcels, at the same or different times, for cash or credit, or for future delivery without assumption of any credit risk, all as the Collateral Agent deems advisable; provided, however, that the Grantor shall be credited with the net proceeds of sale only when such proceeds are finally collected by the Secured Parties.  The Collateral Agent, upon the election of the majority-in-interest of the Notes, shall have the right upon any such public sale, and, to the extent permitted by law, upon any such private sale, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption, which right or equity of redemption the Grantor hereby releases, to the extent permitted by law.  The Grantor hereby agrees that the sending of notice by ordinary mail, postage prepaid, to the address of the Grantor set forth herein or subsequent address that the Grantor provides to the Collateral Agent in writing, of the place and time of any public sale or of the time after which any private sale or other intended disposition is to be made, shall be deemed reasonable notice thereof if such notice is sent five (5) business days prior to the date of such sale or other disposition or the date on or after which such sale or other disposition may occur.  Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent that is reasonably convenient to both parties.  Upon the occurrence and during the continuance of an Event of Default, Collateral Agent may (i) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (ii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Collateral Agent deems appropriate, (iii) take possession of Grantor’s premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of Grantor’s equipment for the purpose of completing any work in process, taking any actions described in the preceding clause, and (iv) collecting any Obligation.

 

(b)           The cash proceeds actually received from the sale or other disposition or collection of the Collateral, and any other amounts received in respect of the Collateral the application of which is not otherwise provided for herein shall be applied first, to the payment of the costs and expenses of the Secured Parties in exercising or enforcing its rights hereunder and in collecting or attempting to collect any of the Collateral, and to the payment of all other amounts payable to the Secured Parties pursuant to Section 13 hereof; and second, to the payment of the Obligations.  Any surplus thereof that exists after payment and performance in full of the Obligations shall be promptly paid over to the Grantor or otherwise disposed of in accordance with the UCC or other applicable law.  The Grantor shall remain liable to the Secured Parties for any deficiency that exists after any sale or other disposition or collection of the Collateral and Grantor shall be liable for the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency.

 

  

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(c)           Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, the Secured Parties  may be compelled, with respect to any sale of all or any part of the Pledged Equity conducted without prior registration or qualification of such Pledged Equity under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Equity for their own respective accounts, for investment and not with a view to the distribution or resale thereof.  Grantor acknowledges that any such private placement may be at prices and on terms less favorable than those obtainable through a sale without such restrictions (including an offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, Grantor agrees that any such private placement shall not be deemed, in and of itself, to be commercially unreasonable and that the Secured Parties shall have no obligation to delay the sale of any Pledged Equity for the period of time necessary to permit the issuer thereof to register it for a form of sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it.  If the Secured Parties determine to exercise their right to sell any or all of the Pledged Equity, upon written request, Grantor shall and shall cause each issuer of any Pledged Equity to be sold hereunder from time to time to furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the amount of Pledged Equity which may be sold by the Secured Parties in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect.

 

(d)           Upon the occurrence and during the continuation of an Event of Default, (x) upon written notice from Collateral Agent to Grantor, all rights of Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease, and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to exercise such voting and other consensual rights; (y) except as otherwise specified in the Purchase Documents, all rights of Grantor to receive the dividends, other distributions, principal and interest payments which it would otherwise be authorized to receive and retain pursuant hereto shall cease, and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to receive and hold as Collateral such dividends, other distributions, principal and interest payments; and (z) all dividends, principal, interest payments and other distributions which are received by Grantor contrary to the provisions of clause (y) above shall be received in trust for the benefit of the Secured Parties, shall be segregated from other funds of Grantor and shall forthwith be paid over to the Collateral Agent as Collateral in the same form as so received (with any necessary endorsements).

 

(e)           In order to permit Secured Parties to exercise the voting and other consensual rights which they may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which they may be entitled to receive hereunder, (I) Grantor shall promptly execute and deliver (or cause to be executed and delivered) to Collateral Agent all such proxies, dividend payment orders and other instruments as Collateral Agent may from time to time reasonably request, and (II) without limiting the effect of clause (I) above, Grantor hereby grants to Collateral Agent an irrevocable proxy to vote the Pledged Equity and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Equity would be entitled (including giving or withholding written consents of holders of equity interests, calling special meetings of holders of equity interests and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Equity on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Equity or any officer or agent thereof), upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Obligations, the cure of such Event of Default or waiver thereof as evidenced by a writing executed by Collateral Agent.

 

(f)           Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default, (i) the Secured Parties shall have the right (but not the obligation) to bring suit, in the name of Grantor, the Secured Parties or otherwise, to enforce any Collateral constituting Intellectual Property, in which event Grantor shall, at the request of the Collateral Agent, do any and all lawful acts and execute any and all documents required by the Collateral Agent in aid of such enforcement and Grantor shall promptly, upon demand, reimburse and indemnify the Secured Parties as provided in Section 13 hereof, in connection with the exercise of its rights under this Section, and, to the extent that the Collateral Agent shall elect not to bring suit to enforce any Collateral constituting Intellectual Property as provided in this Section, Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of any of the Collateral constituting Intellectual Property by others and for that purpose agrees to use its commercially reasonable judgment in maintaining any action, suit or proceeding against any Person so infringing reasonably necessary to prevent such infringement; (ii) upon written demand from the Collateral Agent, Grantor shall execute and deliver to Collateral Agent an assignment or assignments of the Collateral constituting Intellectual Property and such other documents as are necessary or appropriate to carry out the intent and purposes of this Security Agreement; and (iii) Grantor agrees that such an assignment and/or recording shall be applied to reduce the Obligations outstanding only to the extent that the Secured Parties receive cash proceeds in respect of the sale of, or other realization upon, the Collateral constituting Intellectual Property.

 

  

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(g)           In addition to, and not by way of limitation of, the granting of a security interest in the Collateral pursuant hereto, Grantor, effective upon the occurrence and during the continuation of an Event of Default, hereby assigns, transfers and conveys to the Secured Parties the nonexclusive right and license to use all Trademarks, Copyrights, Patents or technical processes owned or used by Grantor that relate to the Collateral, together with any goodwill associated therewith, all to the extent necessary to enable the Secured Parties to realize on the Collateral in accordance with this Security Agreement and to enable any transferee or assignee of the Collateral to enjoy the benefits of the Collateral.  This right shall inure to the benefit of all successors, assigns and transferees of the Secured Parties and their successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.  Such right and license shall be granted free of charge, without requirement that any monetary payment whatsoever be made to Grantor.

 

SECTION 10.                                Secured Parties’ Rights; Certain Waivers.  The Grantor waives, to the fullest extent permitted by law:  (i) any right of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling of the Collateral or other collateral or security for the Obligations; (ii) any right to require the Secured Parties to:  (A) proceed against any Person, (B) exhaust any other collateral or security for any of the Obligations, (C) pursue any remedy in the Secured Parties power or (D) except as provided herein or in the Note, make or give any presentments, demands for performance, notices of nonperformance, protests, notices of protests or notices of dishonor in connection with any of the Collateral; and (iii) all claims, damages and demands against the Secured Parties arising out of the repossession, retention, sale or application of the proceeds of any sale of the Collateral.

 

SECTION 11.                                Notices.  All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing, and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made: (i) if delivered by hand, when received,  (ii) if sent by a nationally recognized courier service, one business day after delivery to such courier service, (iii) if transmitted by facsimile or e-mail, at the time such transmission is confirmed to the sender, (iv) if sent by certified mail, four business days after delivery to the postal system, in each case addressed as follows in the case of the Company and the Collateral Agent or to such other address as may be hereafter notified by the respective parties hereto:

 

If to Grantor:

 

Biozone Pharmaceuticals, Inc.

550 Sylvan Avenue

Suite 101

Englewood Cliffs, NJ 07632

(201) 608-5101Attention of Elliott Maza, CEO

Fax:  (___) ___-____

 

With a copy (which shall not constitute notice) to:

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

Attention of Harvey Kesner, Esq.

Tel:  (212) 930-9700

Fax:  (212) 930-9725

 

If to the Collateral Agent:

 

OPKO Health, Inc.

4400 Biscayne Blvd.

Miami, FL 33137

Attention of Steven Rubin, Esq.

Tel: (305) 575-4138

Fax:  (305) 575-6444

 

  

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With a copy (which shall not constitute notice) to:

 

OPKO Health, Inc.

4400 Biscayne Blvd.

Miami, FL 33137

Attn: Legal Department

Fax:  (305) 575-4140

 

SECTION 12.                                No Waiver; Cumulative Remedies.  No failure on the part of the Collateral Agent to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights and remedies under this Security Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges that may otherwise be available to the Secured Parties.

 

SECTION 13.                                Costs and Expenses; Indemnity.  The Grantor agrees to pay all reasonable costs and expenses of the Secured Parties, in connection with the enforcement of any rights or interests under, this Security Agreement and the sale or collection of, or other realization upon, any of the Collateral, including all reasonable expenses of taking, collecting, holding, sorting, handling, preparing for sale, selling or the like and other such expenses of sales and collections of the Collateral.  Grantor agrees to indemnify the Secured Parties from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Security Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Security Agreement), except to the extent such claims, losses or liabilities result solely from the Secured Parties’ gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.  The obligations of Grantor in this Section 13 shall survive the termination of this Security Agreement and the discharge of Grantor’s other obligations under this Security Agreement or the Purchase Documents.

 

SECTION 14.                                Binding Effect.  This Security Agreement shall be binding upon, inure to the benefit of and be enforceable by the Grantor, the Collateral Agent and the Purchasers and their respective successors and assigns.

 

SECTION 15.                                Governing Law. This Security Agreement shall be governed by and construed under the laws of the State of Florida without regard to its principles of conflict of laws.

 

SECTION 16.                                Entire Agreement; Amendment.  This Security Agreement and the Purchase Documents contains the entire agreement of the parties with respect to the subject matter hereof and shall not be amended except by the written agreement of the Grantor and the Collateral Agent.

 

SECTION 17.                                Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

SECTION 18.                                Counterparts.  This Security Agreement may be executed by one or more of the parties to this Security Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

 

SECTION 19.                                Termination.  Upon the payment and performance in full of all Obligations, this Security Agreement shall terminate (except with respect to Section 13 hereof) and the Secured Parties shall promptly, at the cost of the Grantor, execute and deliver to the Grantor such documents and instruments reasonably requested by the Grantor as shall be necessary to evidence termination of all security interests given by the Grantor to the Secured Parties hereunder.

 

  

- 9 -

  

 

SECTION 20.                                Collateral Agent May Perform.  If Grantor fails to perform any agreement contained herein, following notice to Grantor, Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by Grantor.

 

SECTION 21.                                Standard of Care.  The powers conferred on Secured Parties hereunder are solely to protect their interest in the Collateral and shall not impose any duty upon them to exercise any such powers.  Except for the exercise of reasonable care in custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Parties shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  Secured Parties shall be deemed to have exercised reasonable care in custody and preservation of Collateral in their possession if such Collateral in accorded treatment substantially equal to that which Secured Parties accords its own property.

 

SECTION 22.                                Further Assurances.  Grantor agrees that from time to time, at the expense of Grantor, Grantor will promptly execute and deliver all further instruments and documents and take all further action, that may be necessary or desirable, or that Secured Parties may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Parties to exercise and enforce their rights and remedies hereunder with respect to any Collateral.

 

  

- 10 -

  

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Security Agreement, as of the date first above written.

 

 

GRANTOR:

 

BIOZONE PHARMACEUTICALS, INC.

 

	 	 	 
	
 
By: 

	 	 
	 
Name: 

	 	 
	 
Title: 

	 	 
	 	 	 
	 	 	 
	 
COLLATERAL AGENT:

	 
	 	 	 
	 	 	 
	 
By: 

	 	 
	 
Name: 

	 	 
	 
Title: 

	 	 
	 	 	 

 

  

- 11 -

  

 

EXHIBIT A

 

COLLATERAL DESCRIPTION

 

GRANTOR:                                           BIOZONE PHARMACEUTICALS, INC., a Nevada corporation

 

COLLATERAL AGENT:                     OPKO HEALTH, INC.

 

The Collateral consists of all rights, title and interest in and to the following assets of the Grantor:

 

1.   All accounts including, without limitation, all present and future rights of debtor to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance and all rights to payment arising out of the use of a credit or charge card and all information contained on or for use with any such card and all records and evidences of credit card transactions (the “Accounts”);

 

2.   All present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, securities and other investment property, letters of credit, letter of credit rights, commercial tort claims, payment intangibles, software, supporting obligations, bankers’ acceptances and guaranties;

 

3.   All present and future monies, securities, credit balances, deposits, deposit accounts and other property of debtor now or hereafter held or received by or in transit to the secured parties or their affiliates or at any other depository or other institution from or for the account of debtor, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of accounts and other collateral, including, without limitation, (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or Collateral Agent, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, accounts or other collateral, including, without limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors;

 

4.   All of Grantor’s now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located (“Inventory”);

 

5.   All of Grantor’s now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located (“Equipment”);

 

6.   All of Grantor’s now owned and hereafter existing or acquired securities, financial assets, securities accounts, securities entitlements and all other investment property of whatsoever kind or nature, wherever located, including, without limitation, securities issued by any subsidiary of debtor (“Investment Property”);

 

7.   All Intellectual Property, including, without limitation, the Intellectual Property listed on Schedule 1;

 

8.   All securities (including, without limitation, the Pledged Equity);

 

9.   All of Grantor’s present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of debtor with respect to the foregoing maintained with or by any other person) (“Records”); and

 

  

- 12 -

  

 

10.   All rights, claims and interests in any of the foregoing, and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and any claims against third parties for loss or damage to or destruction of any or all of the foregoing.

 

  

- 13 -

  

 

SCHEDULE 1

INTELLECTUAL PROPERTY

List of BZL Patents & Patent Applications

 

Notes:

 

	
  

	
·

	
Issued patents are listed by both application number and patent number.  Cases still pending are listed by application number.

	
  

	
·

	
Column 4 in Tables 1 and 2 lists the country or regional patent office for each patent or application.

	
  

	
·

	
Column 5 in Tables 1 and 2 indicate if the claimed technology is related to QuSomes (Q), Pure-PEG (P) or other areas (O).  Some patents and applications fall into more than one category.  In some cases, the categorization is ambiguous.

 

Table 1:  BIOZ patents and applications

 

	  	
Application

	
Patent info

	
Country

	
Technology

	
 

BIOZ

0101

BioZone Laboratories, Inc.

Brian Keller

 

	  	  	  	  
	
BIOZ-001

“Self Forming, Thermodynamically Stable Liposomes and Their Applications”

	
09/745,292

Dec 20, 2000

	
6,610,322

Aug 26, 2003

	
US

	
Q

	
BIOZ-001 EP

“Self Forming, Thermodynamically Stable Liposomes and Their Applications”

	
App 01992326

WO0249617

	
EP 1343475

29 April 09

 

	
IR, GB, FR, DE, CH

	
Q

	
BIOZ-002

“Self Forming, Thermodynamically Stable Liposomes and Their Applications”

CON of BIOZ-001

	
10/262,284

Sep 30, 2002

	
6,958,160

Oct 25, 2005

	
US

	
Q

	
BIOZ-004

“Self Forming, Thermodynamically Stable Liposomes and Their Applications”

CON of BIOZ-001, BIOZ-002

	
11/178,001

Jul 8, 2005

	
7,150,883

Dec 19, 2006

	
US

	
Q

	
BIOZ-005P

“Nanotechnology for spilled oil encapsulation, remediation, and recovery”

	
60/840,789

Aug 28, 2006

	  	
US

	
Q

 

  

- 14 -

  

 

	
BIOZ-006

“Self Forming, Thermodynamically Stable Liposomes and Their Applications”

CON of BIOZ-001, BIOZ-002, BIOZ-004

	
11/588,068

Filed 10/24/2006

	
7,718,190

May 18, 2010

	
US

	
Q

	
BIOZ-009

“Self Forming, Thermodynamically Stable Liposomes and Their Applications”

	
12/661,987

filed Mar 27, 2010

	  	
US

	
Q

 

Table 2: EQUA patents and applications

 

	
(1)  X-conazoles plus Qusomes

	  	  	  	  
	
EQUA-001 (regular application)

“Enhanced Delivery of Antifungal Agents”

	
12/006,820

Filed Jan. 4, 2008

	  	
US

	
Q

	
EQUA-001 PCT

“Enhanced Delivery of Antifungal Agents”

	
PCT/US2009/000003

Filed Jan 2, 2009

	  	
PCT

	
Q

	
EQUA-001 JP

 

	
2010-541549

	  	
JP

	
Q

	
EQUA-001 EP

 

	
09701160.5

effective date: Jan 2, 2009

	  	
EPO

	
Q

	
EQUA-003 (P)

“Enhanced Delivery of Antifungal Agents”

	
61/128,011

Filed May 16, 2008

	  	
US

	
Q

	
EQUA-012 (R)

	
12/454,387

filed May 15, 2009

	  	
US

	
Q

	  	  	  	  	  
	
(2)  Linkers

	  	  	
US

	
Q, O

	
EQUA-002P

“PEG-lipid conjugates for liposomes and drug delivery”

	
61/131,674

Filed June 11, 2008

	  	  	  
	
EQUA-004P

“PEG-lipid conjugates for liposomes and drug delivery”

	
61/135,515

Filed July 21, 2008

	  	
US

	
Q, O

	
EQUA-015R

“PEG-lipid conjugates for liposomes and drug delivery”

	
12/456,046

filed June 10, 2009

	  	
US

	
Q, O

	  	  	  	  	  

 

  

- 15 -

  

 

	
(3)  New Chemical Entities

(equaconazoles)

	  	  	  	  
	
EQUA-005P

“Novel Triazole Antifungal Agents”

	
61/191,339

Filed Sept 8, 2008

	  	
US

	
O

	
EQUA-006 (P)

“Novel Triazole Antifungal Agents”

	
61/199,821

Filed Nov. 20, 2008

	  	
US

	
O

	
EQUA-007R

“Triazole Antifungal Agents”

	
12/584,486

filed Sept 5, 2009

	  	
US

	
O

	
EQUA-007 PCT

“Triazole Antifungal Agents”

	
PCT/US2009/005012

filed Sept. 5, 2009

 

	  	  	  
	
EQUA-007 CA

	  	  	
CA

	
O

	
EQUA-007 CN (China)

 

	
Natl. App. # 200980144689.2

	  	
CN

	
O

	
EQUA-007 EP

	
EP 09811850.8

Kemp ref:  N.113302 JHS/nw

Pub (patent) no 2343980

	  	
EP

	
O

	
EQUA-007 IN

	
2453/DELNP/2001

	  	
IN

	
O

	
EQUA-007 JP

 

	
2011-526053

 

	  	
JP

	
O

	
EQUA-007 MX

	  	  	
MX

	
O

	  	  	  	  	  
	
(4)  Solubility Enhancers

(non-QuSomes)

	  	  	  	  
	
EQUA-008

“PEG-lipid conjugates for increasing the solubility of drug compounds”

	
Filed Jan 23, 2009

61/205,840

	  	
US

	
Q

	
EQUA-020R

“PEG-lipid conjugates for increasing the solubility of drug compounds”

	
12/657,611

filed Jan 22, 2010

	  	
US

	
Q

	
EQUA-020 PCT

“PEG-lipid conjugates for increasing the solubility of drug compounds”

	
PCT/US2010/000165

filed Jan 22, 2010

	  	  	  
	
EQUA-020 BR

	  	  	
BR

	
Q

	
EQUA-020 CO

	  	  	
CO

	
Q

 

  

- 16 -

  

 

	
EQUA-020 EP

	
10733728.9

	  	
EP

	
Q

	
EQUA-020-JP

 

	  	  	
JP

	
Q

	  	  	  	  	  
	
(5)  Drug-lipid conjugates

(amide-linked drugs)

	  	  	  	  
	
EQUA-009

	
61/210,380

Filed Mar 18, 2009

	  	
US

	
O

	
EQUA-010P

	
61/217,404

filed May 29, 2009

	  	
US

	
O

	
EQUA-021R

	
12/661,465

filed Mar 17, 2010

	  	
US

	
O

	  	  	  	  	  
	
(6)  Polymer-lipid protein conjugates

	  	  	  	  
	
EQUA-011

	
61/212,825

Filed April 16, 2009

	  	
US

	
O

	
EQUA-023R

	
12/799,006

filed April 15, 2010

	  	
US

	
O

	  	  	  	  	  
	
(7)  Pure PEG-Lipid Conjugates

	  	  	  	  
	
EQUA-013

	
61/217,627

Filed June 2, 2009

	  	
US

	
P, Q

	
EQUA-017P

	
61/284,065

filed December 12, 2009

	  	
US

	
P, Q

	
EQUA-024R

	
12/802,197

filed June 1, 2010

	  	
US

	
P, Q

	
EQUA-024 PCT

	
PCT/US2010/001590

filed June 1, 2010

	  	  	  
	
EQUA-024 AP (ARIPO-Africa) 18 states

 

	  	  	
AP

	
P, Q

	
EQUA-024 AU (Australia)

	
App No 2010257181

	  	
AU

	
P, Q

	
EQUA-024 BR

	  	  	
BR

	
P, Q

	
EQUA-024 CA (Canada)

	  	  	
CA

	
P, Q

	
EQUA-024 CL (Chile)

	  	  	
CL

	
P, Q

	
EQUA-024 CN (China)

	
201080030371.4

	  	
CN

	
P, Q

	
EQUA-024 CO (Colombia)

	  	  	
CO

	
P, Q

 

  

- 17 -

  

 

	
EQUA-024 EG

	  	  	
EG

	
P, Q

	
EQUA-024 EA (Eurasia)

	  	  	
EA

	
P, Q

	
EQUA-024 EP (34 states)

	
EP #10783699.1

	  	
EP

	
P, Q

	
EQUA-024 IN (India)

	
10321/DELNP/2011

	  	
IN

	
P, Q

	
EQUA-024 IS (Israel)

	  	  	
IS

	
P, Q

	
EQUA-024 JP

Goichi Takahishi

Kita-Aoyama Intl Patent Bureau

P011455

	  	  	
JP

	
P, Q

	
EQUA-024 MY

 

	
PI 2011005803

	  	
MY

	
P, Q

	
EQUA-024 MX

	  	  	
MX

	
P, Q

	
EQUA-024 ZA (South Africa)

	
2011/09366

	  	
ZA

	
P, Q

	
EQUA-024 KR (South Korea)

	
10-2011-7031713

	  	
KR

	
P, Q

	  	  	  	  	  
	
(8)  Cyclosporin formulation

	  	  	  	  
	  	  	  	  	  
	
EQUA-016P

	
61/273,656

Filed August 5, 2009

	  	
US

	
P, Q

	
EQUA-025R

	
12/802,200

filed June 1, 2010

	  	
US

	
P, Q

	  	  	  	  	  
	
(9)  Rapamycin

	  	  	  	  
	  	  	  	  	  
	
EQUA-018P

	
61/276,953

Filed Sept 19, 2009

	  	
US

	
Q

	
EQUA-027R

"Method of treatment with Rapamycin"

	
12/924,038

Filed Sept 18, 2010

	  	
US

	
Q

	
EQUA-027 PCT

"Pharmaceutical compositions of Rapamycin"

	
PCT/US2010/002547

Filed Sept 18, 2010

	  	
PCT

	
Q

	  	  	  	  	  
	
(10)  Pure PEG-AA-lipid conjugates

	  	  	  	  
	  	  	  	  	  

 

  

- 18 -

  

 

	
EQUA-022P

“Amino Acid Linked PEG-Lipid Conjugates”

	
61/343,396

filed April 28, 2010

 

	  	
US

	
P

	
EQUA-026R

	
13/066,959

Filed April 28, 2011

	  	
US

	
P

	
EQUA-026 PCT

	
PCT/US2011/000745

Filed April 28, 2011

	  	
PCT

	
P

	  	  	  	  	  

 

Table 3: Other

 

	
Number

	
Notes

	
Title

	
Inventor

	
Filing date

	
Issue date

	  	  	  	  	  	  
	
6,495,596

	
Inflacin;  Jeff Smith

	
Compounds and methods for inhibition of phospholipase A2 and cyclooxygenase-2

	
Keller; Brian

	
June 7, 2001

	
December 17, 2002

	
6,998,421

	
Inflacin;  Jeff Smith

	
Compounds and methods for inhibition of phospholipase A.sub.2 and cyclooxygenase - 2

	
Keller; Brian

	
August 26, 2002

	
February 14, 2006

 

  

- 19 -

  

 

SCHEDULE 2

 

PLEDGED EQUITY

 

Biozone Laboratories, Inc. (100%)

Equalan LLC (100%)

Equachem LLC (100%)

Baker Cummins Corp. (100%)

BetaZone Pharmaceuticals, LLC (45% interest)

 

 

- 20 -exa10212012mip.htm

  

  

  

 

EXHIBIT A 10.21

 

 

 

 

 

 

 

CENTRAL VERMONT PUBLIC SERVICE CORPORATION

MANAGEMENT INCENTIVE PLAN

2012

 

 

 

 

 

 

 

  

  

  

CENTRAL VERMONT PUBLIC SERVICE CORPORATION

MANAGEMENT INCENTIVE PLAN

 

Effective January 1, 2012- December 31, 2012

 

 

TABLE OF CONTENTS

 

	
ARTICLE I

	
INTRODUCTION AND PURPOSE

 

	  
	  	
1.1

	
Purpose of the Plan

 

	  
	
ARTICLE II

	
DEFINITIONS

 

	  
	  	
2.1

2.2

2.3

2.4

2.5

2.6

 

	
"Annual Incentive Award"

"Award Payment Date"

"Base Salary"

"Board" or "Board of Directors"

"Change in Control"

"Code"

	  
	  	
2.7

2.8

2.9

2.10

2.11

	
"Committee"

"Company"

"Effective Date"

"Eligible Employees"

"For Cause"

 

	  
	  	
2.12

2.13

2.14

2.15

2.16

	
"Participant"

"Performance Goals"

"Performance Period"

"Permanent and Total Disability"

"Plan"

 

	  
	  	
2.17

	
"Target Potential"

 

	  
	
ARTICLE III

	
PARTICIPATION

 

	  
	  	
3.1

	
Participation

 

	  
	
ARTICLE IV

	
PERFORMANCE GOALS AND AWARD OPPORTUNITIES

 

	  
	  	
4.1

4.2

4.3

4.4

4.5

	
Performance Goals

Performance Levels

Participant Goals

Target Potential

Amount of Award

 

	  
	
ARTICLE V

	
DETERMINATION AND PAYMENT OF ANNUAL INCENTIVE AWARDS

 

	  
	  	
5.1

5.2

5.3

5.4

5.5

5.6

 

	
Timing and Determination of Annual Incentive Awards

Short Performance Year

Death or Permanent and Total Disability

Termination or Retirement

Change in Control

Limitation on Right to Payment of Award

 

	  

  

2

  

 

	
ARTICLE VI

	
ADMINISTRATION

 

	  
	  	
6.1

6.2

6.3

 

	
Committee

Authority of the Committee

Costs

 

	  
	
ARTICLE VII

	
MISCELLANEOUS

 

	  
	  	
7.1

7.2

7.3

7.4

7.5

 

7.6

7.7

7.8

7.9

 

7.10

7.11

7.12

7.13

7.14

 

	
Amendment

Termination

Employment Rights

Nonalienation of Benefits

No Funding

 

Tax Withholding

Controlling Laws

Gender and Number

Action by the Company

 

Mistake of Fact

Severability

Effect of Headings

No Liability

Successors

 

	  

  

3

  

 

	
ARTICLE I

 

INTRODUCTION AND PURPOSE

 

	
1.1

	
Purpose of the Plan. The Central Vermont Public Service Corporation Management Incentive Plan (the "Plan") is an incentive compensation program for eligible officers of Central Vermont Public Service Corporation (the "Company”).  The purpose of the Plan is to focus the efforts of the Executive Team on achieving challenging and demanding annual performance objectives.  The Plan is designed and intended to further the attainment of the customer service, financial, process improvement and employee related objectives of the Company, to assist the Company in attracting and retaining highly qualified executives, and to enhance the mutual interest of customers, shareholders and eligible officers of the Company.  In addition, this Plan supports the Company's performance oriented culture.

  

4

  

 

	
ARTICLE II

 

DEFINITIONS

 

	
2.1

	
"Annual Incentive Award" shall mean a cash incentive payable to a Participant under the terms of this Plan.

 

	
2.2

 

 

	
"Award Payment Date" shall mean, for each Performance Period, the date that the amount of the Annual Incentive Award for that Performance Period shall be paid to the Participant under Article V of the Plan.

	2.3	

"Base Salary" shall mean a Participant's annualized salary for the Performance Period for which the amount of an Annual Incentive Award is being determined.

 

	
2.4

	
"Board" or "Board of Directors" shall mean the Board of Directors of the Company.

 

	
2.5

	
"Change in Control" shall have, in the case of each Participant under the Plan, the meaning provided for in the Change in Control Agreement, if any, between each Participant and the Company.  In the absence of a Change in Control Agreement with a Participant, Change in Control shall have, with respect to such Participant, the meaning provided for in the standard Change in Control Agreement approved by the Board as the same may be amended from time to time.

 

	
2.6

	
"Code" shall mean the Internal Revenue Code of 1986, as amended, and references to particular provisions of the Code shall include any amendments thereto or successor provisions and any rules and regulations promulgated thereunder.

 

	
2.7

	
"Committee" shall mean the Compensation Committee of the Board of Directors of the Company or any other duly established committee or subcommittee appointed by the Board for purposes of this Plan.

 

	
2.8

	
"Company" shall mean Central Vermont Public Service Corporation, a Vermont corporation.

 

  

5

  

 

	
2.9

	
"Effective Date" means January 1, 2012 through December 31, 2012.

 

	
2.10

	
"Eligible Employee" shall mean the Chief Executive Officer (CEO) of Central Vermont Public Service Corporation and other executive officers of the Company.

 

	
2.11

	
"For Cause" shall mean, but is not limited to, (i) the willful failure by executive officer substantially to perform executive officer’s duties with Company or a Subsidiary, (other than any failure resulting from executive officer’s incapacity due to executive officer’s Permanent and Total Disability, or any actual failure after the issuance of a notice of termination for good reason by executive officer that continues for at least 30 calendar days after the Board delivers to executive officer a written demand for performance that identifies specifically and in detail the manner in which the Board believes that executive officer willfully has failed substantially to perform executive officer’s duties,

 

(ii) a conviction, guilty plea or plea of nolo contendere of executive officer for any felony,

 

(iii) the willful engaging by executive officer in misconduct that is demonstrably and materially injurious to Company or any Subsidiary, monetarily or otherwise,

 

(iv) a material violation by executive officer of the corporate governance guidelines and code of ethics of Company or any Subsidiary; or

 

(v) a material violation by executive officer of the requirements of the Sarbanes-Oxley Act of 2002 or other federal or state securities law, rule or regulation.

 

	
2.12

	
"Participant" for a Performance Period shall mean each Eligible Employee who is an Eligible Employee for that Performance Period.

 

	
2.13

	
"Performance Goals" shall mean the measures of the Company's performance as defined in Section 4.1 of this Plan that must be met for any Participant to receive any Annual Incentive Award under this Plan, as provided in Section 4.1.

 

	
2.14

	
"Performance Period" shall mean the taxable year of the Company with respect to which an Annual Incentive Award, if any, may be granted.  The Performance Period will be the one year period extending from January 1 through December 31 which coincides with the effective date per section 2.9.

 

  

6

  

 

	
2.15

	
"Permanent and Total Disability" shall mean any disability that would qualify as permanent and total disability under any long term disability policy sponsored by the Company.

 

	
2.16

	
"Plan" shall mean this Central Vermont Public Service Corporation Management Incentive Plan, as it may be amended from time to time.

 

	
2.17

	
"Target Potential" shall mean the targeted percentage of Base Salary for each Participant.

 

  

7

  

 

	
ARTICLE III

 

PARTICIPATION

 

	
3.1

	
Participation. An Eligible Employee will become a Participant in this Plan as of the later of the Effective Date, the Eligible Employee's date of hire or the date the individual becomes an Eligible Employee.

 

An Eligible Employee who is a Participant for the entire length of a Performance Period shall be eligible for consideration for an Annual Incentive Award, if any, with respect to that Performance Period.

 

The Committee may provide a prorated Annual Incentive Award for an Eligible Employee who becomes a Participant during the Performance Period.

  

8

  

 

	
ARTICLE IV

 

PERFORMANCE GOALS AND AWARD OPPORTUNITIES

 

	
4.1

	
Performance Goals. The measures of Performance Goals are established as follows:

 

(a) Company Balanced Business Performance.  Measures the overall company performance, through a balanced set of measures established annually, including customer satisfaction, financial performance, process improvement and employee measures.

 

(b) Individual Performance. Based on advice and recommendation from the Chief Executive Officer (CEO) for those reporting to him, the Committee and Board evaluate each Participant’s individual performance compared to performance objectives set early in the year.  The Chairman of the Board and Committee evaluate the CEO’s performance versus his performance objectives.  This individual performance measure is at the full discretion of the Board.

 

Company and Individual Performance Goals will be established in writing for each Performance Period by no later than the first quarter of the Performance Period.  The Company Balanced Business Performance is weighted 80%, and Individual Performance has a 20% weight.  The individual performance component is tied to the Company performance.

 

	
4.2

	
Performance Levels.  Company measures described in Section 4.1 will be established for three performance levels: threshold, target and maximum.  To the extent possible, these levels are set based on the following probabilities:  90% probability of achieving the threshold level; 50% probability of achieving target level; and 10% probability of achieving the maximum level.

 

	
4.3

	
Participant Goals. Participants will have a combination of Company Balanced Business Performance and Individual Performance measured goals used in determining any Annual Incentive Award as described in 4.1 above.

 

  

9

  

 

	4.4	
Target Potential.  For each Performance Period, the Committee and Board set the target potential measured as a percentage of Base Salary for each eligible employee.  The target level of incentive award for the Plan is as follows:

 

· 50% of Base Salary for the Company’s CEO;

· 30% of Base Salary for the Company’s Senior Vice Presidents;

· 25% of Base Salary for the Company’s Vice Presidents, and

· 20% of Base Salary for the Company’s Assistant Vice Presidents.

 

The maximum payout is capped at two times Target Potential.

 

	
4.5

	
Amount of Award.  Following the completion of the Performance Period, the Committee shall undertake or direct a calculation of actual performance for each of the Company and individual measures for such Performance Period, based on criteria used in the measures.  The actual award opportunity for each Participant will be determined as follows:

 

(a) For each measure in the scorecard for the Company Balanced Business Performance threshold, target and maximum performance levels are defined.  Actual performance is determined and linear interpolation is used between three points where achieving the threshold level of performance results in no payout; the target level of performance results in 100% of the target payout and achieving the maximum level of performance results in a 200% of the target payout.

(b) A weighted average of the target incentive multiplier for each component of the Company Balanced Business Performance measure will be determined.  A weighted average rating for each component of the Individual Performance measure will also be determined. The overall individual performance is then tied to Company performance where 3.0 is the threshold, 4.2 equals the Company Balanced Business Performance and 5.0 is the maximum.

 

  

10

  

 

	
4.5

	
A weighted average of the target incentive multiplier for the Company and individual performance measures will be determined, based on the weightings described in Section 4.1 for Eligible Employees.

 

(c) The final target incentive multiplier will be multiplied by the Participant's Target potential to determine the Annual Incentive Award percentage.  Unless the financial thresholds are met and the results of the Company’s customer service quality and reliability as measured by our SERVE matrix meet at least 50% between the threshold and target, the final incentive multiplier cannot exceed 100% of the target incentive multiplier overall.  In addition, if the Company does not have enough liquid assets to pay all debts and liabilities resulting in default (i.e. cash flow insolvency), then there will be no payout.

 

(d) The Annual Incentive Award percentage will then be multiplied by the Participant's Base Salary as of the end of the prior year to determine the Participant's Annual Incentive Award, prior to any further reductions as described in this Plan, including Sections 5.2, 5.3, 5.4, 5.5, 5.6 and 6.2.

 

  

11

  

 

 

	
ARTICLE V

 

DETERMINATION AND PAYMENT OF ANNUAL INCENTIVE AWARDS

 

	
5.1

	
Timing and Determination of Annual Incentive Awards.  Following the completion of a Performance Period, the Committee shall undertake or direct an evaluation of performance results as compared to the appropriate performance criteria established for the Performance Period as determined in Article IV.  The Committee will report to the Board with respect to achievement of previously approved Company and individual performance targets for that Performance Period, and will submit to the Board its recommendations as to the appropriate award payment levels, if any, for each eligible participant.

 

Recommendations of the Committee, with such modifications as may be made by the Board, will be binding on all Participants.

 

No Annual Incentive Award may be paid without the prior approval of the Committee.

 

Annual Incentive Awards, if any, will be paid on the Award Payment Date, which shall be no later than March 15th following the Performance Period.

 

	
5.2

	
Short Performance Year.  In the event that a determination of an Annual Incentive Award must be made for a Performance Period of less than 12 months, and the year of termination of employment, the determination shall be made in accordance with the provisions of this Plan, except that:

 

(a) In the year of hire, if hired after the first date a Performance Period begins, or the year of death or permanent and total disability, the amount otherwise determined under the Plan shall be prorated to reflect the period of time during which the Participant was a Participant in the Plan compared to the total period of time of the Performance Period. In the event of termination or retirement of a Participant during the Performance Period, such Participant will not be eligible for a prorated Annual Incentive Award with respect to that Performance Period, unless the Committee deems appropriate.

 

(b) In the year of a Change in Control, the Company will be assumed to have achieved a target performance level prorated by time.

 

  

12

  

 

	
5.3

	
Death or Permanent and Total Disability. In the event of the death or Permanent and Total Disability of a Participant during a Performance Period, such Participant will be eligible for a prorated Annual Incentive Award at target with respect to that Performance Period. Said award shall be paid as close to the date of Death or Permanent and Total Disability as reasonably possible.

 

	
5.4

	
Termination or Retirement. In the event of the termination or retirement of a Participant before the end of the Performance Period, such Participant will not be eligible for a prorated Annual Incentive Award with respect to that Performance Period, unless the Committee deems appropriate. If the Committee deems it appropriate to pay an award in this case, the award will be paid at target as close to the date of termination or retirement as reasonably possible.

 

	
5.5

	
Change-in-Control (CIC).  In the event of a CIC, a Participant shall receive the benefit, if any, as provided for in the CIC Agreement between the Participant and the Company. In the absence of a CIC Agreement, a Participant whose employment is terminated following a CIC shall be entitled to receive an Annual Incentive Award at the target performance level prorated, if necessary, to reflect termination of employment prior to the conclusion of the Performance Period all as more specifically provided for in the standard Change in Control Agreement approved by the Board as the same may be amended from time to time.  

 

	
5.6

	
Limitation on Right to Payment of Award. Notwithstanding any other Plan provision to the contrary, no Participant shall have a right to receive payment of an Annual Incentive Award under the Plan if, subsequent to the commencement of the Performance Period and prior to the date any award would otherwise be payable, is terminated For Cause.

 

 

  

13

  

 

 

 

	
ARTICLE VI

 

ADMINISTRATION

 

	
6.1

	
Committee.  The Plan shall be operated and administered by the Committee.

 

	
6.2

	
Authority of the Committee.  The Committee shall have full power except as limited by it’s Charter, the bylaws of the Company or any restrictions or directions imposed by the Board and subject to the provisions herein, to determine the Performance Goals during each Performance Period, to determine the terms, conditions and amounts of Annual Incentive Awards in a manner consistent with the Plan, and to establish, amend or waive rules and regulations as it deems appropriate for the Plan's administration in a manner consistent with the terms of this Plan. Further, the Committee shall make all other determinations that may be necessary or advisable for the administration of the Plan. The Committee's determinations and interpretations with respect to this Plan shall be binding on all parties. While the Committee may appoint individuals to act on its behalf in the administration of this Plan, the Committee will have the sole, final and conclusive authority to administer, construe and interpret this Plan.

 

The Committee may, for reasons it deems appropriate, in its discretion, determine to disapprove, reduce or eliminate any Participant's Annual Incentive Award as it deems warranted by the Company’s financial condition.

 

	
6.3

	
Costs.  The Company shall pay all costs of administration of the Plan.

 

  

14

  

 

	
ARTICLE VII

 

MISCELLANEOUS

 

	
7.1

	
Amendment. The Committee or the Board may at any time alter or amend any provision of the Plan, provided that no such amendment that would require the consent of the stockholders of the Company pursuant to the Code, or any other applicable law, rule or regulation, shall be effective without such consent.

 

	
7.2

	
Termination. The Board may suspend or terminate this Plan at any time, and in the case of such termination, the following provisions of this Section shall apply notwithstanding any other provisions of the Plan to the contrary.

 

	
7.3

	
Employment Rights. The Plan does not constitute a contract of employment and participation in this Plan will not give an Eligible Employee the right to be rehired or retained in the employ of the Company. This Plan is not a contract between the Company and its Eligible Employees or Participants. No Participant or other person shall have any claim or right to be granted an Annual Incentive Award under this Plan until such Annual Incentive Award is actually granted. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Participant any right to be retained in the employ of the Company. Nothing contained in this Plan shall limit the ability of the Company to make payments or awards to Participants under any other plan, agreement or arrangement. To the extent any provision of this Plan conflicts with any provision of a written agreement between an Employee and the Company, the provisions of the employment agreement shall control.

 

	
7.4

	
Nonalienation of Benefits. A Participant's right and interest under the Plan may not be assigned or transferred and any attempted assignment or transfer shall be null and void and shall extinguish, in the Company's sole discretion, the Company's obligation under the plan to pay Annual Incentive Awards with respect to the Participant.

 

  

15

  

 

	
7.5

	
No Funding. The Plan shall be unfunded. The Company shall not be required to establish any special segregation of assets to assure payment of Annual Incentive Awards.

 

	
7.6

	
Tax Withholding. The Company shall have the right to deduct from Annual Incentive Awards paid any taxes or other amounts required by law to be withheld.

 

	
7.7

	
Controlling Laws. All questions pertaining to the construction, regulation, validity and effect of the provisions of the plan shall be determined in accordance with the laws of the State of Vermont, except to the extent superseded by laws of the United States.

 

	
7.8

	
Gender and Number. Where the context admits, words in the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural.

 

	
7.9

	
Action by the Company. Any action required of or permitted by the Company under this Plan shall be by written resolution of the Board or by a person or persons authorized by written resolution of the Board.

 

	
7.10

	
Mistake of Fact. Any mistake of fact or misstatement of fact shall be corrected when it becomes known and proper adjustment made by reason thereof.

 

	
7.11

	
Severability. In the event any provision of this Plan shall be held to be illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and endorsed as if such illegal or invalid provision had never been contained in this Plan.

 

	
7.12

	
Effect of Headings. The descriptive headings of the Articles and Sections of this Plan are inserted for convenience of reference and identification only and do not constitute a part of this Plan for purposes of interpretation.

 

 

 

  

16

  

 

	
7.13

	
No Liability. No member of the Board or the Committee or any officer or employee of the Company or an affiliate shall be personally liable for any action, omission or determination made in good faith in connection with this Plan. The Company shall indemnify and hold harmless the members of the Committee, the Board and the officers and employees of the Company and any affiliates, and each of them, from and against any and all loss which results from liability to which any of them may be subjected by reason of any act or conduct (except willful misconduct or gross negligence) in their official capacities in connection with the administration of this Plan, including all expenses reasonably incurred in their defense, in case the Company fails to provide such defense. By participating in this Plan, each Eligible Employee agrees to release and hold harmless each of the Company and any affiliates (and their respective directors, officers and employees), the Board and the Committee, from and against any tax or other liability, including without limitation, interest and penalties, incurred by the Eligible Employee in connection with his participation in the plan.

 

	
7.14

	
Successors. All obligations of the Company under the plan with respect to Annual Incentive Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is a result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company.

 

IN WITNESS WHEREOF, the Employer has caused this instrument to be executed by its duly authorized officer as of the 1st day of March, 2012.

 

CENTRAL VERMONT PUBLIC

SERVICE CORPORATION

 

 

By:   /s/ Lawrence J. Reilly     

Title: President & CEO

Attest:

 

By: /s/ Jamie Falco           

 

 

  

17

  

 

	
Measure

	
Threshold

0%

	
Target

100%

	
Maximum

200%

	
MIP

Weight

 

	
 EIP

Weight

	
Service Quality and Reliability as determined by the SERVE matrix. (recommend the same matrix as 2011

 

	
3

	
4

	
5

 

	
30%

	
35%

	
Customer satisfaction compared to other East Region electric utilities measured by JD Power survey results (CV% of the East Region average)

 

[2005-2008 east region phone results- '05= 101%; '06= 105%; '07= 107%; '08= 109% (phone) and 99% (online); only online since 2009- '09= 104%; '10= 103%; ‘11=103%]

 

	
100%

	
104%

	
108%

	
 10%

	
 5%

	
2012 Net Income for Common excluding merger expenses

 

	
$22.2M

	
$23.7M

(2012 Budget)

	
$26.7M

	
35%

	
35%

	
Smart Power project success based on Board discretion for the MIP and management discretion for the EIP using SmartPower® matrix as a guide

 

	
3

	
4

	
5

	
10%

	
10%

	
Employee safety as measured by the aggregate of safety measures on the 2012 safety matrix (recommend the same matrix as 2011)

 

	
3

	
4

	
5

	
15%

	
15%

	
For both the MIP and EIP:

  If the average result of the SERVE matrix does not meet a hurdle of 50% of target then the overall payout can not be above target.

  If the company does not have enough liquid assets to pay all debts and liabilities resulting in default (i.e. cash flow insolvency) then no payout.

  If financial thresholds are not met then the payout will not be above target.

 

  

18

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