Document:

Exhibit
4.1

 

	
   

  	
  

  	
   

  
	
  

  	
  COLLAGENEX PHARMACEUTICALS,
  INC.

  INCORPORATED UNDER THE LAWS
  OF THE STATE OF DELAWARE

  	
  

  
	
  COMMON STOCK

  PAR VALUE $.01 PER SHARE

  	
   

  	
  CUSIP 19419B 10 0

  SEE REVERSE FOR CERTAIN
  DEFINITIONS

  

 

THIS CERTIFIES
that

 

is the owner
of

 

FULLY PAID AND NON-ASSESSABLE SHARES OF THE
COMMON STOCK, $.01 PAR VALUE, OF COLLAGENEX
PHARMACEUTICALS, INC., (the “Corporation”) transferable on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned and registered by the Transfer Agent and Registrar.

 

WITNESS the facsimile seal of the Corporation
and the facsimile signatures of its duly authorized officers.

 

Dated:

 

 

	
  Treasurer

  	
   

  	
  [SEAL]

  	
   

  	
  President
  and Chief Executive Officer

  

 

 

Countersigned and Registered:

 

	
  AMERICAN
  STOCK TRANSFER & TRUST COMPANY

  	
   

  
	
  (New York)

  	
   

  
	
   

  	
   

  
	
  Transfer
  Agent

  and Registrar

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized
  Signature

  	
   

  
			

 

 

COLLAGENEX
PHARMACEUTICALS, INC.

 

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION
AT ITS PRINCIPAL PLACE OF BUSINESS.

 

The following abbreviations, when used in the
inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:

 

	
  TEN COM – as
  tenants in common

  	
   

  	
  UNIT GIFT MIN ACT-                           Custodian                         

  
	
   

  	
   

  	
   

  	
  (Cust)

  	
  (Minor)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TEN ENT 
  – as tenants by the entireties

  	
   

  	
   

  	
  under
  Uniform Gifts to Minors Act

  
	
   

  	
   

  	
   

  	
   

  
	
  JT TEN     – as joint tenants with right

  	
   

  	
   

  	
   

  
	
   

  	
     of survivorship and not as

  	
   

  	
   

  	
  (State)

  
	
   

  	
     tenants
  in common

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Additional abbreviation may also be used though not in the above list

  
	
   

  	
   

  	
   

  
	
  For value
  received,                                                      hereby
  sell, assign and transfer unto

  
	
   

  	
   

  	
   

  
	
  PLEASE INSERT SOCIAL SECURITY OR OTHER

  IDENTIFYING NUMBER OF ASSIGNEE

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
   

  
	
  (Please print or typewrite name and address including postal zip code
  of assignee)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
                                                                                                                                                                                                             

  	
  Shares 

  
	
  of
  the Common Stock represented by the within Certificate, and do hereby
  irrevocably constitute and appoint

  	
   

  	
                                     

  
	
   

  
	
  Attorney to
  transfer the said Shares on the books of the within-named Corporation with
  full power of substitution in the premises.

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NOTICE:  The signature to this assignment must
  correspond with the same as written upon the face of the Certificate, in
  every particular, without alteration or enlargement, or any change whatever.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  THE
  SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
  (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
  MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
  S.E.C. RULE 17Ad-15.Exhibit 10.5

 

Confidential Materials omitted and filed
separately with the 

Securities and Exchange Commission. 
Asterisks denote omissions.

 

SHARE
PURCHASE AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

WHEREAS, the Shareholders are willing to sell the
Shares.

 

The Shareholders, SansRosa and CollaGenex agree as
follows:

 

CERTAIN DEFINITIONS

 

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

 

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

 

 

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

 

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

 

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

 

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

 

1.                                       PURCHASE
OF THE SHARES

 

(a)                                  Agreement
to Purchase and Sell.  CollaGenex
agrees to buy from the Shareholders, and the Shareholders agree to sell to
CollaGenex, all the Shares, being the aggregate of all the Shares identified to
each Shareholder on the Schedule of Shareholders and Ownership attached as
Exhibit A to this Agreement.

 

(b)                                 Closings.  The sale shall take effect at a series of
closings, each of which shall take place at the offices of CollaGenex on such
date as may be agreed between the Parties, but in no event later than 30 days
following the occurrence of each of the respective events identified as
milestones below.

 

(c)                                  First
Closing.  The first closing (the “First
Closing”) shall take place at the offices of CollaGenex on Thursday, December 8,
2005, or at such other time or location as may be necessary to ensure timely
review and delivery of the items referenced as deliveries in Article 5 of
this Agreement (the “First Closing”).  At
the First Closing CollaGenex shall purchase, and the Shareholders shall deliver
to CollaGenex, 51% of the Shares at a price per share that results in the
aggregate consideration payable at such time to the Shareholders being $750,000
less the $50,000 paid by CollaGenex as a non-refundable deposit to be applied
toward the Purchase Price at the First
Closing pursuant to the term sheet executed August 17, 2005, and less the
amount by which SansRosa’s obligations payable on the date of the First Closing
exceed SansRosa’s cash on such date.  The
Purchase Price shall be paid to such accounts as the Shareholders shall
nominate or by check issued at the First Closing.  All obligations of SansRosa that are due and
payable on the date of the First Closing shall be paid or provided for in full
at the First Closing, such that as of the time immediately following the First
Closing SansRosa shall have no cash and no obligations payable, and CollaGenex
shall have paid out, at the First Closing, no more than $700,000. The
allocation of such $700,000 

 

2

 

among
such payments to the Shareholders and to creditors shall be reflected in the
Closing Memorandum attached as Exhibit B to this Agreement.

 

(d)                                 Subsequent
Closings.  Subsequent Closings shall
take place within 30 days after the occurrence of each of the following
milestone events (regardless of the order in which they occur), with CollaGenex
purchasing, and the Shareholders delivering, the following percentages of the
Shares in consideration for the following payments:

 

(i)                                     IND
Filing.  Upon filing of the first IND
with FDA that relates to a SansRosa Product, CollaGenex shall purchase, and the
Shareholders shall deliver to CollaGenex, 10% of the Shares at a price per
share that results in the aggregate consideration payable at such time being
$[**];

 

(ii)                                  Phase
I Studies.  When the last Phase I
study relating to the first SansRosa Product is clinically complete, and
CollaGenex has determined that the results of the Phase I studies support a
decision to move on to Phase II studies, CollaGenex shall purchase, and the
Shareholders shall deliver to CollaGenex, 10% of the Shares at a price per
share that results in the amount of aggregate consideration payable at such
time being $[**].

 

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

 

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

 

(v)                                 Patent
Milestones.

 

A.                                   Upon
receipt of notice from the United States Patent and Trademark Office that any
of the claims relating to the treatment or prevention of rosacea or symptoms
associated therewith in the Patent Applications are allowable, but for the need
to complete an interference proceeding (“Patent Allowability”), CollaGenex
shall purchase, and the Shareholders shall deliver to CollaGenex, 7% of the
Shares at a price per share that results in the aggregate consideration payable
at such time being as follows:

 

3

 

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

 

(2)                                  If
Patent Allowability occurs after [**], but on or before [**], the amount will
be $[**];

 

(3)                                  If
Patent Allowability occurs after [**], but on or before [**], the amount will
be $[**];

 

(4)                                  If
Patent Allowability occurs after [**] but on or before the Last Closing, the
amount will be $[**];

 

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

 

B.                                     Upon
Patent Issuance, CollaGenex shall purchase, and the Shareholders shall deliver
to CollaGenex, 5% of the Shares at a price per share that results in the
aggregate consideration payable at such time being as follows:

 

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

 

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

 

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

 

(4)                                  If
Patent Issuance occurs after [**] but on or before the Last Closing, the amount
will be $[**];

 

(5)                                  If
Patent Issuance has not occurred as of the date of the Last Closing (as defined
below), no payment will be made in respect of Patent Issuance, and the Shares
that would otherwise have been delivered to CollaGenex upon Patent Issuance
shall be delivered at the Last Closing.

 

(vi)                              NDA
Filing.  Upon acceptance for filing
by the FDA of the first New Drug Application that relates to a SansRosa
Product, CollaGenex shall purchase, and the Shareholders shall deliver to
CollaGenex, 3% of the Shares at a price per share that results in the aggregate
consideration payable at such time being $[**];

 

4

 

(vii)                           NDA
Approval.  Upon approval of the first
New Drug Application by the FDA that relates to a SansRosa Product, CollaGenex
shall purchase, and the Shareholders shall deliver to CollaGenex, all of the
remaining Shares at a price per share that results in the aggregate
consideration payable for such Shares being $[**], plus the Earn Out
Consideration described in section 2(c). 
The $[**] shall be payable at such closing (this closing is sometimes
referred to in this Agreement as the “Last Closing”) and the Earn Out
Consideration shall be payable as described in section 2(c).

 

2.                                       PURCHASE
PRICE

 

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

 

(b)                                 Allocation
of Purchase Price among Shareholders. 
At each Closing, each Shareholder shall sell to CollaGenex that number
of shares identified to such Shareholder with respect to such Closing on Exhibit C
to this Agreement, and shall be paid the consideration indicated on such
Exhibit.

 

(c)                                  Earn
Out Consideration Payments.  In
consideration for the Shares delivered by the Shareholders to CollaGenex at the
Last Closing, CollaGenex shall pay to the Shareholders, in addition to the
payment made at the Last Closing, an earn out consideration (the “Earn Out
Consideration”) based on

 

(i)                                     Net
Sales in the U.S. of SansRosa Patented Products, whether sold directly by
CollaGenex or through a third party, as follows:

 

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

 

B.                                     CollaGenex
shall pay the Shareholders a one-time payment of $[**], within [**] days after
the end of the calendar year in which the Net Sales of SansRosa Patented
Products in the USA for the first time exceed $[**]; and

 

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

 

and

 

5

 

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

 

CollaGenex
shall pay to the Shareholders, within [**] days of the end of each such
calendar year, an amount equal to:

 

A.                                   $[**];
PLUS

 

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

 

C.                                     any
consideration paid pursuant to subparagraph 2(c)(i) above with respect to
such calendar year.

 

and

 

(iii)                               Net
Sales outside the U.S.  of SansRosa
Products , where such sales are made directly by CollaGenex in a jurisdiction
where a patent arising out of the Patent Applications is either issued or
pending as follows:

 

CollaGenex shall
pay the Shareholders an amount equal to [**]% of the Net Sales of SansRosa
Products in such jurisdictions within [**] days after each calendar quarter (or
after issuance of a patent which causes the amounts accrued pursuant to section 2(d) below
to be released),

 

and

 

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

 

CollaGenex shall pay the Shareholders [**]% of any royalty, milestone
payments and other consideration, including the fair market value of any
non-monetary consideration, received from partners granted any license or other
right to manufacture, produce, distribute, market, sell or otherwise
commercially exploit any SansRosa Product(s) in a jurisdiction outside the
United States where a patent arising out of the Patent Applications is either
issued or pending, within [**] days after receipt by CollaGenex of such
payments (or after issuance of a patent which causes the amounts accrued pursuant
to section 2(d) below to be released);

 

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

 

6

 

that are in
consideration of or reimbursement for specific non-U.S. development activity to
be performed by CollaGenex.

 

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

 

(e)                                  Limited
Duration.  The obligation to make any
payments of Earn Out Consideration shall expire on the earlier of the [**]
anniversary of the Last Closing or [**].

 

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

 

(g)                                 Records
and Audit.  CollaGenex shall keep
records in sufficient detail to permit the determination of Earn Out
Consideration payable hereunder and, at the request and expense of the
Shareholders, shall permit an independent certified public accountant,
reasonably acceptable to both parties, to examine, in confidence, during
ordinary business hours once in each calendar year such records as may be
necessary to verify or determine Earn Out Consideration paid or payable under
this Agreement.  The Parties agree that
Goldenberg Rosenthal LLP shall be acceptable to them to conduct these
examinations.

 

(h)                                 Reconciliation.  If any such review results in a determination
of any underpayment of Earn Out Consideration and other amounts payable under
this Agreement to the Shareholders, such underpayment shall be promptly
remitted to the Shareholders with accrued interest from the last day of the
applicable calendar quarter at the prime rate of interest published in The Wall Street Journal plus 2%, compounded daily. 
If such review determines that actual Earn Out Consideration or other
payments were more than 105% of the Earn Out Consideration reported by
CollaGenex for any calendar quarter under review, CollaGenex shall pay all of
the actual costs of such review.  If such
review results in a determination of any overpayment of Earn Out Consideration
to the Shareholders, the amount of such overpayment less the costs of the audit
shall be credited against future Earn Out Payments to be made by CollaGenex
hereunder.

 

7

 

3.                                       OFFSETS
AGAINST THE PURCHASE PRICE

 

(a)                                  Expenses.  In the event that CollaGenex incurs
Exceptional Patent Expenses (as defined in paragraph 3(c) below) during
the period commencing on the date of this Agreement and continuing until the
fifth anniversary of the first commercial sale of a SansRosa Product, such
expenses shall be offset against the payments due to the Shareholders as
follows:

 

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

 

(ii)                                  Post
Purchase.  Any Exceptional Patent
Expenses incurred after the purchase of all the Shares shall be offset [**]%
against the Earn Out Consideration

 

Exceptional Patent
Expenses are payable only out of future payments to be made by CollaGenex under
this Agreement as provided above, and in no event shall the Shareholders be
required to pay or reimburse any Exceptional Patent Expenses out of amounts
previously paid by CollaGenex to the Shareholders.

 

(b)                                 Input
of JDC.  Before CollaGenex incurs any
Exceptional Patent Expenses, it shall notify the Joint Development Committee
and provide such committee with a summary thereof and the opportunity to
comment on the merits and amounts thereof. 
The requirement to solicit the comments of the committee shall in no event
be interpreted to mean that CollaGenex must obtain the consent of the committee
before it incurs such expenses.

 

(c)                                  Exceptional
Patent Expenses.  “Exceptional Patent
Expenses” shall mean

 

(i)                                     legal
fees incurred in prosecuting, dismissing or settling an interference or
opposition proceeding (or the imminent prospect thereof) in the U.S. relating
to the Patent Applications; and

 

(ii)                                  amounts
paid in settlement of interference or opposition proceedings (or the prospect
thereof), or other allegations of unpatentability of, or assertions of priority
to or ownership of, the technology covered by the claims of the Patent
Applications in the U.S., provided, however, that such amounts shall not
constitute Exceptional Patent Expenses to the extent they exceed $[**].

 

Exceptional Patent
Expenses shall not include Patent Defense Costs.

 

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

 

8

 

in each succeeding
year.  In no event shall the Shareholders have any further
financial responsibility for payment of Exceptional Patent Expenses.

 

(e)                                  Patent
Defense Costs.  In the event that
after Patent Issuance CollaGenex incurs costs (“Patent Defense Costs”) by way
of

 

(i)                                     legal
fees incurred in defending in litigation any patent that issues out of the
Patent Applications and covers a SansRosa Rosacea Product, against allegations
of invalidity in the U.S., and or

 

(ii)                                  legal
fees incurred in asserting any such patent in litigation against an alleged
infringer of such patent in the U.S., and or

 

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

 

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

 

(f)                                    Annual
Limit of Patent Defense Costs.  In
any year when there is an offset of Patent Defense Costs against Earn Out
Consideration, the amount of such offset shall not exceed [**] percent of the
Earn Out Consideration that would otherwise be payable in such year, and the
remaining Patent Defense Costs that are subject to offset shall be offset
against the Earn Out Consideration in future years, subject, in turn, to the
same [**] percent limitation in each succeeding year.  In no event shall the Shareholders have any
further responsibility for payment of Patent Defense Costs.

 

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

 

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

 

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

 

(iii)                               any
balance shall be distributed [**]% to CollaGenex and [**]%, collectively, to
the Shareholders on a pro rata basis in accordance with their respective
ownership as shown on Exhibit A.

 

(h)                                 Royalties
to Third Parties.  In the event that

 

9

 

(i)                                     CollaGenex
is required to pay:

 

A.                                   royalties
or equivalent payments to a third party or parties in order to settle any
disputes with third parties, arising from interference or opposition
proceedings (or the prospect thereof), and or

 

B.                                     royalties
or equivalent payments to a third party or parties in order in any other
context to obtain freedom to operate in connection with the sale of any
SansRosa Product,

 

and

 

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

 

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

 

4.                                       PRE-CLOSING
COVENANTS

 

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

 

(b)                                 Conduct
of Business.  From the date of this
Agreement until the First Closing, Shareholders shall, in consultation with
CollaGenex, cause SansRosa to continue to:

 

(i)                                     Ordinary
Course.  Operate and conduct its
business diligently in the ordinary course for businesses of the same type; and

 

(ii)                                  Warranties.  Conduct its business in such a manner that
all the warranties and representations of Shareholders in this Agreement will
be true, complete and accurate in all respects as of the date of the First
Closing.

 

(iii)                               Deliveries.  Ensure that it will obtain and deliver to
CollaGenex all the documents identified below as deliverable at or before the
First Closing.

 

(c)                                  No
Solicitation.  From the date of this
Agreement until the Last Closing, SansRosa’s officers, shareholders, employees,
financial advisors, agents or other

 

10

 

advisors or
representatives shall not, directly or indirectly, at any time prior to the
sale of all the Shares

 

(i)                                     solicit,
initiate or encourage the submission of any Acquisition Proposal (as defined
below),

 

(ii)                                  enter
into any agreement with respect to or approve any Acquisition Proposal,

 

(iii)                               participate
in any discussions or negotiations regarding any Acquisition Proposal,

 

(iv)                              furnish
to any person any information with respect to SansRosa or the terms of this
Agreement, or

 

(v)                                 take
any other action to cooperate in any way, or facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal.

 

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

 

(d)                                 Acquisition
Proposal.  For purposes of this
Agreement, “Acquisition Proposal” means

 

(i)                                     any
proposal to take as security or otherwise in any way encumber any of the
Shares; or

 

(ii)                                  any
proposal or offer to transfer or to acquire in any manner, directly or
indirectly, any Shares or other equity interest in or any securities of
SansRosa or any rights in the same; or

 

(iii)                               any
offer to acquire in any manner, directly or indirectly, any interest in any
intellectual property or any other asset of SansRosa.

 

5.                                       DELIVERIES
AT CLOSINGS

 

(a)                                  First
Closing Deliveries by Shareholders.  At
or before the First Closing, and as a condition to the obligation of CollaGenex
to complete the First Closing, Shareholders shall deliver to CollaGenex:

 

(i)                                     Preferred
Shares.  Such documentation as may be
reasonably acceptable to CollaGenex counsel as being sufficient to indicate
that all shares of SansRosa’s Series A Convertible Preferred Stock have
been converted into, Common shares as of the date of First Closing, and that no
person or entity has any surviving rights and SansRosa has no surviving obligations
under any subscription or other agreement related to such preferred stock.

 

11

 

(ii)                                  Ben
Franklin Warrants.  Such
documentation as may be reasonably acceptable to CollaGenex counsel as being
sufficient to indicate that the Warrant issued pursuant to the Seed Capital
Funding Agreement between Ben Franklin Technology Partners of Southeastern
Pennsylvania and SansRosa, dated on or about June 20,2005, has been
cancelled, and that SansRosa has no surviving obligations, other than the
reporting obligations reflected in the delivered documentation, under or
related to such agreement and an obligation to maintain a presence in the
Commonwealth of Pennsylvania.

 

(iii)                               Greenhouse
Warrants.  Such documentation as may
be reasonably acceptable to CollaGenex counsel as being sufficient to indicate
that the Warrant issued pursuant to the Funding Agreement between Biotechnology
Greenhouse Corporation of Southeastern Pennsylvania and SansRosa, dated February 25,2005,
has been exercised, and that SansRosa has no surviving obligations, other than
the reporting obligations reflected in the delivered documentation, under or
related to such agreement and an obligation to maintain a presence in the
Commonwealth of Pennsylvania.

 

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

 

(v)                                 Ben
Franklin Financing.  Such
documentation as may be reasonably acceptable to CollaGenex counsel as being
sufficient to indicate that the Seed Capital Funding Agreement between Ben
Franklin Technology Partners of Southeastern Pennsylvania and SansRosa, dated
on or about June 20,2005, has been terminated and that no person or entity
has any surviving rights and that SansRosa has no surviving obligations, other
than the reporting obligations reflected in the delivered documentation, under
the Convertible Promissory Note or the Warrant to Purchase Common Stock
referenced in such Agreement and an obligation to maintain a presence in the
Commonwealth of Pennsylvania.

 

(vi)                              Greenhouse
Financing.  Such documentation as may
be reasonably acceptable to CollaGenex counsel as being sufficient to indicate
that the Funding Agreement between Biotechnology Greenhouse Corporation of
Southeastern Pennsylvania and SansRosa, dated February 25, 2005, has been
terminated and that SansRosa has no surviving obligations, other than the
reporting obligations reflected in the delivered documentation, under the
Convertible Promissory Note or the Warrant to Purchase Common Stock referenced
in such Agreement and an obligation to maintain a presence in the Commonwealth
of Pennsylvania.

 

12

 

(vii)                           Other
Agreements.  Such documentation as
may be reasonably acceptable to CollaGenex counsel as being sufficient to
indicate that any other agreements referenced on any schedule to this
Agreement have, unless otherwise agreed, been duly terminated and that SansRosa
has no further obligations, contingent or otherwise, under such terminated
agreements.

 

(viii)                        Certificate
of Good Standing.  A long form
Certificate of Good Standing for SansRosa, duly certified by the Secretary of
State of Delaware as of a date no more than 48 hours prior to the First
Closing, together with a certified copy of SansRosa’s Certificate of
Incorporation and SansRosa’s Bylaws appended thereto.

 

(ix)                                Officers
Certificate.  A certificate from a
duly authorized officer of SansRosa certifying to (i) the existence of
resolutions of SansRosa’s Board of Directors that authorize the execution and performance of this Agreement and the
transactions described in this Agreement; (ii) the incumbency and
signature of the Company’s officers executing this Agreement and (iii) the
truth and correctness of the representations and warranties made by SansRosa
and by the Shareholders as of the First Closing.

 

(x)                                   Director
Resianations.  Letters of resignation
from each of the directors of SansRosa, dated as of the date of the First
Closing, in a form reasonably satisfactory to CollaGenex;

 

(xi)                                Proxy.  A Voting Agreement and Irrevokable Proxy
substantially in the form attached as Exhibit D, or such other form of
voting agreement as may be necessary and appropriate to transfer to CollaGenex
all voting rights that attach to the Shares retained by the Shareholders after
the First Closing.

 

(xii)                             Patent
Assignments.  Documents reflecting
the proper filing with the relevant patent examining authorities of documents
reflecting the assignment to SansRosa of all the rights in all of the Patent
Applications.

 

(xiii)                          Additional
Instruments.  Such other or
additional instruments, consents, endorsements and documents as may be
reasonably necessary to transfer to and vest in CollaGenex good and marketable
title to the Shares to be delivered to CollaGenex at the First Closing.

 

(b)                                 Delivery
of Share Certificates by Shareholders. 
At the First Closing, following delivery of the items referenced in Section 5(a) of
this Agreement and simultaneously with the delivery of the consideration
referenced in Section 5(c) of this Agreement, Shareholders shall
deliver to CollaGenex a certificate or certificates representing the Shares to
be delivered at the First Closing, duly endorsed for transfer to CollaGenex.

 

13

 

(c)                                  Payment
of Purchase Price by CollaGenex.  At
the First Closing, following delivery of the items referenced in Section 5(a) of
this Agreement and simultaneously with the delivery of the Share Certificates
referenced in Section 5(b) of this Agreement, CollaGenex shall
deliver to Shareholders such evidence as Shareholders may reasonably request to
demonstrate that the portion of the Purchase Price due at the First Closing has
been paid according to the terms of Article 2 of this Agreement.

 

(d)                                 Subsequent
Closings.  At each subsequent
Closing:

 

(i)                                     Representative’s
Certificate.  The Shareholders shall
deliver to CollaGenex a certificate certifying to the continued truth and correctness of those representations and
warranties that are made severally by them in Section 6 hereof, as of such
Closing.

 

(ii)                                  Share
Certificates.  The Shareholders shall
deliver to CollaGenex a certificate or certificates representing the Shares to
be delivered at such Closing, and

 

(iii)                               Purchase
Price.  CollaGenex shall deliver to
Shareholders such evidence as Shareholders may reasonably request to
demonstrate that the applicable installment of the Purchase Price has been paid
according to the terms of Article 2 of this Agreement.

 

6.                                       REPRESENTATIONS
AND WARRANTIES OF SHAREHOLDERS

 

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

 

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

 

(b)                                 Necessary
Actions; Binding Effect.  Shareholders
and SansRosa have taken all actions necessary to authorize the execution,
delivery and performance of this Agreement, the sale of the Shares to
CollaGenex, and the performance of all transactions to be performed under this
Agreement.  This Agreement constitutes
the valid obligation of SansRosa and Shareholders and is legally binding upon
Shareholders in accordance with its terms.

 

(c)                                  No
Conflicts.  The execution, delivery
and performance of this Agreement will not conflict with, or result in the
breach of, the governing corporate documents of SansRosa, any decree or order
of any court or administrative or governmental

 

14

 

body to which
Shareholders or SansRosa are subject, or any agreement, document, indenture or
other instrument to which any of the Shareholders or SansRosa is a party or by
which either is bound.

 

(d)                                 Capitalization.  The Shares constitute the only issued and
outstanding shares of capital stock of SansRosa.  None of the Shares have been issued in
violation of any preemptive rights of any shareholders.  There are
no outstanding securities convertible into or exchangeable for shares of
SansRosa’s capital stock nor any options, warrants, calls or other rights,
obligations or understandings of SansRosa to issue any capital stock, equity
securities or securities convertible into or exchangeable for SansRosa’s
capital stock.  There are no obligations
on SansRosa to repurchase, redeem or otherwise acquire any of its capital
stock.

 

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

 

(f)                                    Special
Rights.

 

(i)                                     SansRosa
is not a party to, or bound by, any arrangement, agreement, instrument or order
relating to the transfer of, the payment of any dividend or the grant of any
voting rights in respect of, or the right to register for public sale, any
securities of SansRosa

 

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

 

(g)                                 Ownership
and Transfer of Shares.  Each of the
Shareholders represents and warrants for itself, with respect to the Shares
referenced on Exhibit B as owned by it, that it is the sole record and
beneficial owner of the number of Shares listed next to such Shareholder’s name
on Exhibit A, free and clear of any liens or encumbrances of any
sort.  The sale and transfer of the
Shares to CollaGenex will give CollaGenex valid and marketable title to such
Shares free and clear of all restrictions, claims, liens, options, pledges and
encumbrances of any kind whatsoever.

 

(h)                                 Financial
Statements.  The Balance Sheet and
Income Statements for the period ending October 31, 2005 (the “Financial
Statements”) and attached as Schedule 6(h) fairly state the financial
condition and results of operations of SansRosa as at the dates, and for the
periods stated.  Except as stated in the
Financial Statements or otherwise disclosed in or on a schedule to this
Agreement, SansRosa does not have any liabilities or obligations of any nature
whether accrued, absolute,

 

15

 

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

 

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

 

(i)                                     The
business of SansRosa has been conducted in all material respects in accordance
with applicable laws and regulations and according to past practice and
customs.

 

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

 

(iii)                               SansRosa
has not paid or committed itself to pay to, or for the benefit of, any of its
officers, managers, employees or others, any salary, wages, bonuses, profit
sharing, pension, retirement or deferred compensation payments, severance pay
or any other form of direct or indirect compensation or benefits.

 

(iv)                              SansRosa
has not declared or committed to declare and/or distributed any dividend or
made any distribution of any of its assets to its shareholders of record as of
any date prior to the First Closing.

 

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

 

(vi)                              There
has not been any disposal of any property or asset of SansRosa, nor any
commitment made or liability incurred by SansRosa in respect of, or any
cancellation or compromise of, any debt of or claim against SansRosa, other
than with respect to SansRosa’s obligations to its Preferred Stockholders,
BioAdvance and Ben Franklin Technology Partners of Southeastern Pennsylvania.

 

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

 

(k)                                  Disclosure.  No document or other information provided to
CollaGenex by Shareholders or SansRosa contains any statement of a material
fact that was

 

16

 

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

 

(l)                                     Contracts.  Schedule 6(l) is an accurate and
complete list of all contracts to which SansRosa is, as of the date of the
First Closing, a party.  SansRosa is not
in default under any such contract, nor has there been any default by any other
party to any such contract.  Except as
set forth on Schedule 6(l), neither Shareholders nor SansRosa knows of any
circumstance (other than the expiration of the term of any such contract) as a
result of which any such contract might cease to be in full force and
effect.  All other contractual
relationships of SansRosa have been duly and properly terminated and except as
noted on Schedule 6(l), SansRosa has no further obligations in respect of
any such terminated relationship.

 

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

 

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

 

(o)                                 Invention
Assignments.  Each employee,
independent contractor, Shareholder, consultant or other person who has been
involved in the discovery or
development of the Intellectual Property has executed valid and binding written
agreements expressly assigning to SansRosa all right, title and interest in any
inventions and works of authorship, whether or not patentable, that were
invented, created, developed, conceived and/or reduced to practice during the term
of such person’s relationship with SansRosa, and all intellectual property
rights therein.  All such agreements are
listed on Schedule 6(o).  Without
limiting the foregoing, the Invention Assignments of 15 February 2005 and
15 July 2005 between SansRosa and Jack DeJovin and Thomas M. Rossi, and
that of 15 July 2005 between Jack

 

17

 

DeJovin
and SansRosa, are valid and in full force and effect, and cover all inventions
made by employees or consultants of SansRosa and relevant to the use of alpha
agonists for the treatment of inflammatory skin disorders, including but not
limited to the prevention or treatment of rosacea or any symptom associated
therewith.

 

(p)                                 Confidentiality
Agreements.  Schedule 6(p) includes
a full and complete list of all the Confidentiality Agreements entered into by
SansRosa with any person or entity, and accurately identifies the name, address
and occupation of the other party to each agreement and the field of disclosure
to which each agreement relates.  To the
actual knowledge of the Shareholders, the other party’s obligations of non-use
and non-disclosure under such agreements are in full force and effect.  To the actual knowledge of the Shareholders
there has been no breach, nor any event that with the passage of time or giving
of notice would constitute a breach of any of such agreements.

 

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

 

(r)                                    Products.  There are no products of SansRosa in
circulation.

 

(s)                                  Regulatory
and Clinical Compliance.  There is no
clinical data assembled by SansRosa that is intended to support an eventual
application to the FDA in support of a new indication [**].  SansRosa has not filed any IND or similar
applications, nor had any communications with the FDA or similar regulatory
agency,

 

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

 

18

 

pension or benefit plans
to which SansRosa is a party, or in respect of which SansRosa may have any
ongoing or future liability or obligation.

 

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

 

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

 

(w)                               No
Broker.  No agent or broker or other
person acting pursuant to Shareholders’ authority is entitled to make any claim
against CollaGenex for any commission
or finder’s fee in connection with the transactions contemplated by this
Agreement.

 

7.                                       REPRESENTATIONS
AND WARRANTIES OF COLLAGENEX

 

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

 

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

 

(b)                                 Necessary
Actions; Binding Effect.  CollaGenex
has taken all actions necessary to authorize the execution, delivery and
performance of this Agreement, the purchase of the Shares from Shareholders,
and the performance of all transactions

 

19

 

to be performed under
this Agreement.  The Agreement
constitutes the valid obligation of CollaGenex and is legally binding upon
CollaGenex in accordance with its terms.

 

(c)                                  No
Conflicts.  The execution, delivery
and performance of this Agreement will not conflict with, or result in the
breach of, the governing corporate documents of CollaGenex, any decree or order
of any court or administrative or governmental body to which CollaGenex is
subject, or any agreement, document, indenture or other instrument to which
CollaGenex is a party or by which it is bound.

 

(d)                                 SEC
Filings; Financial Statements; Compliance. 
All reports, statements and other documents required to have been filed
by CollaGenex with the Securities and Exchange Commission (the “SEC”) pursuant
to the Securities Exchange Act of 1934 (the “Exchange Act”) (the “CollaGenex
SEC Documents”) have been so filed on a timely basis.  As of the time it was filed with the SEC (or,
if amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing): (i) each of the CollaGenex SEC Documents
complied in all material respects with the applicable requirements of the
Exchange Act; and (ii) none of the CollaGenex SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  The financial statements
contained in the CollaGenex SEC Documents: (i) complied as to form in all
material respects with the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered (except as may be indicated in the notes to such financial
statements and, in the case of unaudited statements, as permitted by the SEC,
and except that unaudited financial statements may not contain footnotes and
are subject to normal and recurring year-end audit adjustments which will not,
individually or in the aggregate, be material in amount); and (iii) fairly
present the financial position of CollaGenex as of the respective dates thereof
and the results of operations and cash flows of CollaGenex for the periods
covered thereby.  CollaGenex is in
compliance in all material respects with (i) the applicable provisions of
Sarbanes-Oxley Act of 2002 and the related rules and regulations
promulgated under such act or the Exchange Act as are currently in effect and (ii) the
applicable listing and corporate governance requirements of Nasdaq.

 

(e)                                  No
Broker.  No agent, broker or other
person acting pursuant to CollaGenex’s authority will be entitled to make any
claim against Shareholders for any commission or finder’s fee in connection
with the transactions contemplated by this Agreement.

 

8.                                       POST-CLOSING
COOPERATION

 

(a)                                  Post-Closing
Shareholders Meeting.  At or
immediately following the First Closing a shareholders meeting shall be held at
which all the shareholders of SansRosa as of the Closing shall be present in
person or by proxy and

 

20

 

unanimously resolve that
the resignations of the incumbent directors be accepted and new nominees of
CollaGenex be elected to the Board of Directors, and shall conduct such other
business as may be necessary to effect the objectives of this Agreement.

 

(b)                                 Post-Closing
Board Meeting.  Immediately following
the Shareholders meeting referenced in Section 8(a) of this
Agreement, a Board meeting shall be held at which all the Directors of SansRosa
shall be present in person or by proxy, and at such meeting the signature
authorities of SansRosa shall be amended and all other delegations of authority
made by the Board revoked, and shall conduct such other business as may be
necessary to effect the objectives of this Agreement.

 

(c)                                  Proxies.  The Parties agree that the proxies delivered
at the First Closing provide Collagenex with the power to vote all of the
Shares with respect to all decisions made after the First Closing and relating
to the operation, administration and organization of SansRosa.  Without limiting the foregoing, Shareholders
acknowledge that CollaGenex shall at all times, in its absolute discretion, be
free to cause SansRosa to assign, transfer or license to itself or any
controlled affiliate of CollaGenex, or otherwise to encumber some or all of, the rights, title and interest in the Patent
Applications or the patents that may issue after Patent Issuance.

 

(d)                                 Further
Deliveries.  At any time, upon the
request of CollaGenex, Shareholders shall execute, acknowledge and deliver to
CollaGenex all such further bills of sale, assignments, transfers, conveyances,
powers of attorney and other documents, in a form reasonably satisfactory to
CollaGenex, as may be required under applicable regulations to convey, transfer
and deliver to CollaGenex, and protect CollaGenex’s right, title and interest
in, all of the Shares.  Each party also
agrees to take such further action and to execute and deliver such further
documents as reasonably may be requested by the other in order to carry out the
provisions and purposes of this Agreement.

 

(e)                                  Shareholders’
Non-Compete.  For a period that will
expire [**] years after the Last Closing date of this Agreement, or upon
payment of the last installment of the Earn Out Consideration, whichever is
longer, each of the Shareholders undertake that he will not, without the prior
written consent of CollaGenex, directly or indirectly own, manage, operate,
control, participate in, perform services for, or otherwise carry on, a
business that is engaged in the research, development, manufacture or sale in
the United States of America or the European Union, of any products [**] for
(x) the treatment of rosacea or (y) the treatment of any acne or redness
related disorder of the skin, other than unknowingly as a holder of shares
listed on a recognized stock exchange as a minority shareholder in a company
pursuing such activities, and that he will not during such period, or at any
time thereafter, challenge the validity of any patent that arises and issues
out of the Patent Applications.

 

21

 

(f)                                    Joint
Development Committee.  Upon the
First Closing, the Parties shall establish a Joint Development Committee to
provide guidance to CollaGenex in connection with the development and
regulatory approval of SansRosa Rosacea Products and the other matters
specified in this Agreement.  Each of the
Shareholders, on the one hand, acting by a majority vote, and CollaGenex, on
the other hand, shall appoint two representatives to serve on the Joint
Development Committee.  The Joint
Development Committee shall meet in person or by telephone conference at least
once in every calendar quarter until the completion of the Last Closing.  CollaGenex shall keep the Joint Development
Committee informed of the status of all regulatory filings and approvals and
shall promptly notify the members of the Joint Development Committee appointed
by the Shareholders of any notice or other communication from any regulatory
authority in connection with the SansRosa Rosacea Products and of the
commencement and status of any actions, suits, claim, investigations or proceedings relating to or otherwise affecting
the SansRosa Rosacea Products.

 

(g)                                 CollaGenex
Good Faith Efforts.  CollaGenex
covenants and agrees that at all times after the First Closing it will exercise
commercially reasonable best efforts to promptly and diligently develop
SansRosa Rosacea Products, to promptly and diligently pursue all permits and
regulations of SansRosa Rosacea Products, to provide to the FDA such
information and/or studies regarding the Products as the FDA may reasonably
request, and to achieve in a prompt fashion all of the milestones on which the
Subsequent Closings are contingent, provided, however, that any decisions
related to whether or not at any time it is commercially reasonable to continue
to invest time and money in seeking to develop a SansRosa Rosacea Product or to
obtain a patent that arises and issues out of the Patent Applications shall be
reviewed and ratified no less often than twice a year in good faith by the
Board of Directors of CollaGenex in accordance with its business judgment and
after consultation with the Joint Development Committee.  CollaGenex shall permit the Joint Development
Committee to assist CollaGenex in complying with any request of FDA, provided,
however, that nothing in this paragraph shall imply that any member of the
Joint Development Committee has any right to approve, disapprove or otherwise
require or veto any particular course of action proposed on the part of
CollaGenex.

 

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

 

22

 

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

 

(i)                                     Failure
of Good Faith Efforts.  In the event
that at any time CollaGenex is not exercising commercially reasonable best
efforts to achieve the milestones related to the purchase of Shares or any
other matters specified in paragraph 8(g) above, the Shareholders will
have the right to waive all other rights to receive consideration under this
Agreement and to repurchase all, but not less than all, of those Shares already
purchased by CollaGenex, for a price
equal to one fifth of the Purchase Price paid by CollaGenex up to the date of
the repurchase.  If at such time the
Patent Applications or any rights arising out of them are owned by CollaGenex,
then CollaGenex shall, immediately upon receipt of the repurchase
consideration, grant to SansRosa, or another entity that the Shareholders may
stipulate, a perpetual, exclusive, royalty free license to exercise all the
rights arising out of the Patent Applications in order to continue development
of a SansRosa Rosacea Product.

 

9.                                       TAXES
AND TRANSACTION EXPENSES

 

(a)                                  Transaction
Expenses.  Each of the Parties shall
be responsible for and shall pay all expenses incurred by them in connection
with the negotiation, execution and performance of this Agreement, whether or
not the transactions contemplated hereby are consummated, including the fees
and expenses of counsel.

 

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

 

10.                                 SURVIVAL
OF REPRESENTATIONS AND WARRANTIES, CLAIMS

 

(a)                                  Survival
of First Closing Warranties.  Except
as provided below, all representations, warranties, covenants and other
undertakings contained in this Agreement shall be valid and enforceable after
the date of the First Closing and shall survive such Closing for a period of
eighteen months.

 

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

 

(c)                                  Survival
of CollaGenex Obligations.  All
representations, warranties, covenants and other undertakings given by
CollaGenex, including but not limited to those set forth in Section 8(b) shall
survive for a period of eighteen months after the Last Closing.

 

23

 

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

 

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

 

(i)                                     any
material representation or warranty of Shareholders or SansRosa in this
Agreement, or any other written statement furnished by Shareholders to
CollaGenex, being breached or misrepresented or proved to be false when made;
provided, however, that no Shareholder shall indemnify CollaGenex for any
representation or warranty made by any other Shareholder in paragraphs 6(f) (ii) or
6(g) as a representation or warranty made only as to itself and not
jointly and severally; or

 

(ii)                                  any
breach of a covenant or agreement contained in this Agreement on the part of
any Shareholder; or

 

(iii)                               any
event, fact or omission in the operation of the business which occurred prior
to the Closing not expressly disclosed in the Financial Statements or otherwise
disclosed in this Agreement.

 

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

 

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

 

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

 

24

 

future payments of
Purchase Price installments (whether of Base Consideration or Earn Out
Consideration).

 

25

 

11.                                 FORCE
MAJEURE

 

Should either of the Parties to this Agreement be
prevented from performing the Agreement or should the operations of CollaGenex
be suspended by force majeure, such as earthquake, typhoon, flood, fire, war,
final action of a government agency, interruption of raw material supply or
other unforeseen events, and their occurrence and consequences are
unpreventable or unavoidable, the prevented Party or SansRosa (as the case may
be) shall notify the other Party without any delay and within fifteen (15) days
explain to the reasonable satisfaction of the other Party the reasons for its
inability to perform or delay the performance of all or part of the Agreement.  Such event shall then constitute a state of
force majeure and both Parties shall, through consultation, decide whether to
exempt part of the obligations for implementation of this Agreement or whether
to delay the performance of this Agreement according to the effects of the
event on performance.

 

(a)                                  CHANGE
OF CONTROL; ASSIGNMENT[**]Change of Control.  This Agreement shall automatically be binding
on the parties’ successors, which in the case of CollaGenex shall mean any
entity that acquires a majority of its shares or assets in a merger or
acquisition transaction.

 

(b)                                 Assignments
of Rights.  Except as a result of a
merger or acquisition transaction, neither CollaGenex nor Shareholders shall
assign this Agreement or any right, benefit or obligation granted herein,
without the prior written consent of the other. 
In the event of any assignment by CollaGenex, CollaGenex shall continue
to be liable for all of its obligations under this Agreement unless expressly
released by the Shareholders.

 

(c)                                  Assignment
of Patents.  CollaGenex shall not
assign, transfer or license any rights to the Patent Applications, any patents
issued thereon or any SansRosa Product in the United States, except to itself
or any affiliate of CollaGenex, without the prior written consent of an
authorized representative of the Shareholders, which consent shall be given, or
denied, within 30 days of receipt by
such representative of a notice from CollaGenex indicating its intention to
enter into such a transaction.

 

12.                                 ENTIRE
AGREEMENT

 

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

 

13.                                 NOTICES

 

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

 

26

 

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

 

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

 

14.                                 DISPUTE
RESOLUTION

 

(a)                                  Good
Faith Negotiation.  The Parties shall
attempt in good faith to settle among themselves any and all disputes arising
regarding the validity, interpretation or application of this Agreement, or
other disputes arising from legal relationships resulting from this Agreement.

 

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

 

(c)                                  Courts.  If the Parties are unable to agree a
mediator, or if mediation fails, then the dispute shall be finally settled by
submission to the State Courts of the Commonwealth of Pennsylvania.

 

(d)                                 Injunctive
Relief.  Nothing in this Article 15
shall limit either Party’s right to seek injunctive relief, specific
performance, or other appropriate equitable remedy in appropriate circumstances
in a court of competent jurisdiction.

 

15.                                 APPLICABLE
LAW AND INTERPRETATION

 

(a)                                  Choice
of Law.  This Agreement shall be
construed in accordance with the substantive law of Pennsylvania, and any
disputes arising under this Agreement that are referred for resolution shall be
adjudicated according to such law.

 

(b)                                 No
Waiver.  The failure of either Party
at any time to require performance by the other Party of any provision of this
Agreement shall in no way affect the full right to require such performance at
any time thereafter, nor shall the waiver by either Party of a breach of any
provision of this Agreement constitute a waiver of any succeeding breach of the
same or any other such provision nor constitute a waiver of the provision
itself.

 

(c)                                  Partial
Invalidity.  In the event any term or
provision of this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other term or provision hereunder, and this Agreement
shall be interpreted and construed as if such term

 

27

 

or provision, to the
extent which it is invalid, illegal or unenforceable, had never been contained
hereunder.

 

16.                                 CONFIDENTIAL
INFORMATION

 

(a)                                  Confidential
Nature of Information.  Each Party
agrees that it will treat in confidence and not use (except to further the
development of SansRosa Products by CollaGenex) all SansRosa proprietary
information and all other proprietary information contained in documents,
materials and other information obtained from another Party during the course
of the negotiations leading to carrying out the transactions described in this
Agreement (whether obtained before or after the date of this Agreement), and
the preparation of this Agreement and other related documents, and that such
obligations shall continue until the subject information is in the public
domain.

 

(b)                                 Previous
Non-Disclosure Agreement.  At any
time after the First Closing, CollaGenex may use or disclose any confidential
information reasonably related to
SansRosa, and its earlier obligations of confidentiality with respect to such
information shall terminate; provided, however, that any such disclosure or use
shall not compromise the protection of any proprietary rights or trade secrets
relating to the SansRosa Products or the Patent Applications or any of the
obligations of CollaGenex under this Agreement.

 

(c)                                  Limitations
on Confidentiality.  The obligation
of each Party to treat the non-public documents, materials and other
information disclosed to it in confidence does not apply to any information
that (A) is or becomes available to the Party from a source other than the
disclosing Party, (B) is or becomes available to the public other than as
a result of disclosure by such Party, (C) is required to be disclosed
under applicable law or judicial process, but only to the extent it must be
disclosed, provided prior notice has been provided to the disclosing Party, or (D) such
Party reasonably deems necessary to disclose to obtain any of the consents or
approvals described in this Agreement.

 

(d)                                 Public
Announcements.  Neither Party shall
make any disclosure of any of the terms of or the existence of this Agreement
or the transactions that it contemplates, until CollaGenex has, by way of a
press release or other appropriate means, made a public disclosure of the same.

 

28

 

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

 

 

	
  CollaGenex Pharmaceuticals, Inc.

  	
  SansRosa Pharmaceutical Development, Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Andrew Powell

  	
   

  	
  /s/ Hal S. Broderson

  	
   

  
	
  By: Andrew Powell

  	
   

  	
  By: Hal S. Broderson

  	
   

  
	
  Title: Secretary

  	
   

  	
  Title: V-P

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ James W. Fay, III

  	
   

  	
  /s/ Hal S. Broderson

  	
   

  
	
  James W. Fay, III

  	
   

  	
  Hal S. Broderson

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Thomas M. Rossi

  	
   

  	
  /s/ Charles G. Hadley

  	
   

  
	
  Thomas M. Rossi

  	
   

  	
  Charles G. Hadley

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Jack A. DeJovin

  	
   

  	
  /s/ James A. Mezick

  	
   

  
	
  Jack A. DeJovin

  	
   

  	
  James A. Mezick

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Thomas Uhlman

  	
   

  	
   

  	
   

  
	
  Thomas Uhlman

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