Exhibit 10.20

 

 

EXECUTION VERSION

 

ROYALTY AGREEMENT

 

This Royalty Agreement (“Agreement”), dated as of November 30, 2012 (the
“Effective Date”), is entered into between SNC Holdings Corp., a Delaware
corporation (“Seller”), and VeriTeQ Acquisition Corporation (d/b/a VeriTeQ
Corporation), a Florida corporation (“Buyer”) (hereinafter collectively referred
to as the “Parties” and individually referred to as a “Party”).

 

RECITALS

 

WHEREAS, the Parties having entered into an Asset Purchase Agreement dated the
date hereof (the “Asset Purchase Agreement”), pursuant to which Buyer purchased
from Seller substantially all of the assets and properties of Seller, including
certain Purchased IP (as such term is defined in the Asset Purchase Agreement),
as well as a Non-Negotiable Secured Convertible Subordinated Promissory Note
(the “Note”) and Security Agreement (the “Security Agreement”), each of the same
date;

 

WHEREAS, pursuant to Section 1.05 of the Asset Purchase Agreement, this
Agreement is partial consideration for the purchase and sale of the Purchase
Assets (as such term is defined in the Asset Purchase Agreement);

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements set forth in the Asset Purchase Agreement and
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

 

ARTICLE I
DEFINITIONS

 

As used in this Agreement, the following terms, whether used in the singular or
plural, shall have the respective meanings set forth below. If a term used in
this Agreement is not defined herein, the term shall have the meaning assigned
to it in the Asset Purchase Agreement. In the case of a conflict between this
Agreement and the Asset Purchase Agreement with respect to the definition of a
term, this Agreement shall govern and such term shall be given the meaning
ascribed to it by this Agreement.

 

Section 1.01     “Acquired Patents” means collectively any (i) patent included
within the Purchased IP and owned by Buyer as of the Closing, (ii) patent that
issues from a pending patent application included within the Purchased IP and
owned by Buyer as of the Closing, or (iii) patent that issues from a divisional,
continuation, or reissue (but not continuation-in-part) of a patent or pending
patent application included within the Purchased IP and owned by Buyer as of the
Closing.

 

Section 1.02     “Covered Product” shall mean a device or component that is sold
within a country that is covered by (and therefore such sale would infringe) at
least one valid and subsisting Acquired Patent in such country. For the
avoidance of doubt, a device or component shall not be a Covered Product if it
is sold in a country where it is not covered by an Acquired Patent, regardless
of whether such device or component would otherwise fall within the definition
of a Covered Product had it been sold in another country where it is covered by
an Acquired Patent.

 

 
 

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Section 1.03     “First Commercial Sale” shall mean the first sale of a Covered
Product by Buyer for consideration to any third party.

 

Section 1.04     “Gross Revenue” shall mean the gross revenue recognized by
Buyer in accordance with GAAP for the sale of Covered Products to a third party,
less discounts, credits or allowances on account of any rejections, refunds or
returns of Covered Products; provided, however, (i) that to the extent that such
sum includes amounts received in a currency other than U.S. dollars which Buyer
does not exchange into U.S. dollars within five (5) business days of receipt,
Gross Revenue shall include such amounts in non-U.S. currency converted as
provided in Section 3.01 of this Agreement and (ii) to the extent Buyer’s Past
Due Revenue (as defined below) exceeds one percent (1%) of Buyer’s Gross Revenue
for the sale of Covered Products (calculated on a monthly basis and cumulative
basis), such excess shall be included in Gross Revenues in the month such excess
occurs. “Past Due Revenue” shall mean any amount invoiced by Buyer for the sale
of Covered Products that remains past due for more than ninety (90) days and
calculated on a monthly and cumulative basis. Once Past Due Revenue is included
within Gross Revenue, it shall no longer be considered Past Due Revenue. The
calculation of whether Buyer’s Past Due Revenue exceeds one percent (1%) of
Buyer’s Gross Revenue shall be conducted on a monthly and cumulative basis and
any excess resulting therefrom shall be added to the Gross Revenue for the month
in which such calculation occurs.

 

Section 1.05     “Minimum Royalties” shall have the meaning ascribed to it in
Section 2.01(b) of this Agreement.

 

Section 1.06     “Royalties” shall have the meaning ascribed to it in Section
2.01(b) of this Agreement.

 

Section 1.07     “Term” shall have the meaning ascribed to it in Section 5.01 of
this Agreement.

 

ARTICLE II
ROYALTY

 

Section 2.01     Royalty.

 

(a)     Subject to Section 2.02, during the Term hereof, Buyer shall pay to
Seller a royalty of twelve percent (12%) of Gross Revenue starting from the date
of First Commercial Sale (“Earned Royalties”). For the avoidance of doubt, no
additional royalty is due by reason of a Covered Product being covered by more
than one Acquired Patent, whether in the same or different jurisdictions.
Notwithstanding the foregoing, any Earned Royalty due for the sale of a Covered
Product shall be reduced by the amount of any other royalties payable for any
Intellectual Property right required for the manufacture, use or sale of such
Covered Product if (i) Debtor designed such Covered Product; or (ii) such
Covered Product is a modified version of a Debtor design for which such third
party royalty would have been due notwithstanding the modification.

 

 
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(b)     Subject to Section 2.02, during the Term hereof, Buyer shall pay each
Minimum Royalty (as set forth below) to the extent it exceeds the Earned
Royalties accrued in the twelve (12) months preceding the date on which the
Minimum Royalty accrues. “Minimum Royalties” (which, collectively with Earned
Royalties shall be referred to herein as “Royalties”) shall be:

 

Minimum Royalty Amount

Date Accrued

$35,000

June 30, 2014

$70,000

March 31, 2015

$70,000

March 31, 2016

$70,000

March 31, 2017

 

Section 2.02     Payment of Royalty.

 

(a)     Except as provided in Section 2.02(c), during the Term, Buyer shall pay
the Earned Royalties due under Section 2.01(a) for Gross Revenue accrued each
calendar quarter within thirty (30) days after the end of each such calendar
quarter beginning with the first calendar quarter following the First Commercial
Sale.

 

(b)     Except as provided in Section 2.02(c), during the Term, Buyer shall pay
the Minimum Royalties due under Section 2.01(b), if any, within thirty (30) days
after the end of the calendar quarter in which they accrue.

 

(c)     Any sum required under the laws of any governmental authority to be
withheld by Buyer from payment for the account of Seller under shall be promptly
paid for and on behalf of Seller to the appropriate tax or other governmental
authorities and Buyer shall furnish Seller with copies of official tax receipts
or other appropriate evidence issued by the appropriate tax or other
governmental authorities to enable Seller to support a claim for tax or other
credit or refund in respect of any sum so withheld.

 

(d)     All payments by Buyer to Seller due in a calendar quarter under this
Agreement shall be made in U.S. dollars. All payments by Buyer to Seller under
this Agreement shall be made by wire transfer of same day funds to Seller’s bank
account.

 

(e)     Payment to Seller shall be made by wire transfer as follows or as Seller
may hereafter instruct by written notice to Buyer:

 

 
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RBC Bank (USA)

804 Green Valley Rd.

Greensboro, NC 27408

ABA #053100850

 

For the account of: Nexsen Pruet, PLLC

Special Trust Account

701 Green Valley Rd., Ste. 100

Greensboro, NC 27408

Account #0411748718

 

SNC Wire Info: Please note that 1) SNC must be referenced in wire info as well
as 2) wire info should include the additional note that a contact person at RBC
Bank in Greensboro, NC is Connie Jernigan who can be reached at 336-433-6816 for
any additional info.

 

Section 2.03     Late Payments. All payments due Seller under Section 2.01 which
are received later than the due date specified therein, shall be subject to an
additional payment of one percent (1.0%) compounded monthly, of the amount due
per month or portion thereof as late payment penalty for payments received later
than the due date.

 

ARTICLE III
RepORTING AND RECORD KEEPING

 

Section 3.01     Quarterly Reports. Commencing upon the first calendar quarter
following the First Commercial Sale, within thirty (30) days after the end of
each calendar quarter, whether or not a royalty payment is due for that period,
Buyer shall, for the Term of this Agreement, provide Seller with a written
statement with respect to such period on a country-by-country basis, specifying
the Gross Revenue of Covered Product during the period, and the amount of
royalty due Seller, if any. The written statement for the first calendar quarter
following the First Commercial Sale shall include any Gross Revenue for the
period of the previous calendar quarter following the First Commercial Sale. The
exchange rate for foreign currency where Buyer, itself, has not exchanged such
foreign currency after receipt shall be the average of the exchange rates listed
in the Wall Street Journal on the fifteenth and last day of each month of each
calendar quarter. Within thirty (30) days following the end of each calendar
quarter during the Term, Buyer shall provide Seller with an update on Buyer’s
business, including a reasonably detailed summary of current and planned
material business activities and initiatives, if any, as it relates to the
Covered Products and planned Covered Products.

 

Section 3.02     Records. Buyer shall keep complete and accurate records
pertaining to the sale of Covered Products appropriate to determine royalties
payable under Article II of this Agreement for the preceding three (3) years.

 

 
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Section 3.03     Auditing. At the request and expense of Seller, no more than
once every twelve (12) months, an independent certified public accountant,
selected by Seller and approved by Buyer, shall have access, at Buyer’s
principal place of business during ordinary business hours, to such records
maintained by Buyer as may be necessary to: l) determine, with respect to any of
the current year or the three (3) preceding years the correctness of any report
or payment made under this Agreement, or 2) obtain information as to the royalty
payable in the case of Buyer’s failure to report or pay such royalty pursuant to
this Agreement. The accountant shall agree in writing to maintain in confidence
and not disclose to any third parties any information relating to the business
of Buyer, and may share with Seller only information relating solely to the
accuracy of the reports and payments under this Agreement. In the event that the
dollar amount of Gross Revenue reported by Buyer for any quarter differs by more
than 5% from actual as determined by said accountant or consultant, then Buyer
shall pay to Seller the actual royalty due plus the cost to Seller for the
accountant and/or consultant, as applicable.

 

Section 3.04     Confidentiality.   All quarterly reports, records, results of
audit, including the information contained therein, and other information
(whether written or oral) provided by Buyer to Seller hereunder shall be
consider Buyer’s “Confidential Information.” Seller shall not, without Buyer's
prior written consent, disclose to any third party, any Confidential
Information. Seller shall employ the same standard of care in protecting the
Confidential Information as it would employ to protect its own confidential
information, but shall in no event use less than reasonable care. Seller shall
disseminate Confidential Information only to its employees and legal and
financial representatives on a “need-to-know” basis. Seller shall cause each of
its employees and representatives who has access to Confidential Information to
comply with the terms of this Section in the same manner as it is bound by this
Section, with Seller remaining responsible for the actions and disclosures of
any such employees or representatives.

 

ARTICLE IV
LIMITATION OF LIABILITY

 

Section 4.01     IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
ANY CONSEQUENTIAL, SPECIAL, OR INDIRECT DAMAGES, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL EITHER PARTY’S
LIABILITY UNDER THIS AGREEMENT EXCEED THE ROYALTIES DUE UNDER ARTICLE II OF THIS
AGREEMENT. This Section 4.01 shall not limit the amount of Royalties otherwise
due to Seller under this Agreement.

 

ARTICLE V
TERM

 

Section 5.01     This Agreement and all obligations of Buyer hereunder will
expire upon expiration, lapsing, or termination of the last to expire, lapse, or
terminate Acquired Patent (“Term”). This Agreement shall be deemed terminated
automatically and without further action of any Party in the case of any
foreclosure on the Pledged Collateral (as defined in the Security Agreement) or
similar exercise of remedies under the Security Agreement (as defined in the
Asset Purchase Agreement). Termination of this Agreement pursuant to this
Section 5.01 shall terminate all rights and obligations of the Parties, provided
that Buyer shall be given a reasonable amount of time after termination of this
Agreement to sell any remaining inventory of Covered Products (provided such
inventory amounts are such amounts as could reasonably be expected given the
Buyer’s past ordinary course of business and operations) and further provided
that nothing herein shall relieve any Party from liability or other obligation
arising prior to such termination, including the obligation of Buyer to pay the
Royalties that have accrued prior to the expiration or earlier termination of
this Agreement and any Royalties accruing after the expiration or earlier
termination of this Agreement with respect to Covered Products permitted to be
sold under this Section 5.01 as remaining inventory.

 

 
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ARTICLE VI
MISCELLANEOUS

 

Section 6.01     Consultancy. In the event Buyer raises the financing
contemplated by Section 1(e) of the Note during the Term of this Agreement, then
Buyer will negotiate in good faith to promptly enter into a commercially
reasonable, consultant agreement with Jonathan Gelles (“Gelles”) pursuant to
which Buyer will pay Gelles $7,000 per month during the consulting period, which
shall be terminable by either party for convenience upon ninety (90) days prior
written notice.

 

Section 6.02     Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
Party incurring such costs and expenses.

 

Section 6.03     Notices. All notices, requests, consents, claims, demands,
waivers and other communications hereunder shall be in writing and shall be
deemed to have been given (a) when delivered by hand (with written confirmation
of receipt); (b) when received by the addressee if sent by a nationally
recognized overnight courier (receipt requested); (c) on the date sent by
facsimile or e-mail of a PDF document (with confirmation of transmission) if
sent during normal business hours of the recipient, and on the next business day
if sent after normal business hours of the recipient; or (d) on the fifth day
after the date mailed, by certified or registered mail, return receipt
requested, postage prepaid. Such communications must be sent to the respective
Parties at the following addresses (or at such other address for a Party as
shall be specified in a notice given in accordance with this Section 7.02):

 

If to Seller:

c/o Nexsen Pruet LLC

 

701 Green Valley Road

 

Suite 100

 

Greensboro, NC 27408

 

Facsimile: (336) 387-8923

 

E-mail: cmyatt@nexsenpruet.com

 

Attention: Christy Myatt

   

with a copy to:

Greenberg Traurig, LLP

3333 Piedmont Road NE

Suite 2500

Atlanta, GA 30305

 

Facsimile: (678) 553-2453

 

 
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E-mail: elowew@gtlaw.com

 

Attention: Wayne Elowe

   

If to Buyer:

VeriTeQ Acquisition Corporation

 

Congress Office Park,
220 Congress Park Drive, Suite 200

 

Delray Beach, FL 33445

 

Facsimile:

 

E-mail: ssilverman@veriteqcorp.com

 

Attention: Scott R. Silverman, Chairman and CEO

   

with a copy to:

Stroock & Stroock & Lavan LLP

 

180 Maiden Lane

 

New York, New York 10038

 

Facsimile: (212) 806-6006

 

E-mail: spokotilow@stroock.com

 

Attention: Steven B. Pokotilow, Esq.

 

 

Section 6.04     Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.

 

Section 6.05     Severability. If any term or provision of this Agreement is
invalid, illegal or unenforceable in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement or invalidate or render unenforceable such term or provision in
any other jurisdiction.

 

Section 6.06     Entire Agreement. This Agreement, the Asset Purchase Agreement
together with the exhibits and schedules thereto and the other documents to be
delivered thereunder constitute the sole and entire agreement of the Parties to
this Agreement with respect to the subject matter contained herein, and
supersede all prior and contemporaneous understandings and agreements, both
written and oral, with respect to such subject matter. In the event of any
inconsistency or conflict between the terms of this Agreement and the Asset
Purchase Agreement together with the exhibits and schedules thereto and the
other documents to be delivered thereunder, the terms of this Agreement shall
control.

 

Section 6.07     Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the Parties hereto and their respective
successors and permitted assigns. Neither Party may assign its rights or
obligations hereunder without the prior written consent of the other Party,
which consent shall not be unreasonably withheld or delayed, except that Buyer
may assign this Agreement to (a) any of its affiliates or subsidiaries, (b) any
acquirer in connection with a sale of all or substantially all of the business,
assets, or securities of Buyer relating to the Purchased IP, or (c) any lender
or financing source of Buyer as a result of collateral security, foreclosure, or
transfer in lieu of foreclosure. Nothing shall prevent Buyer from selling or
otherwise disposing of any Purchased IP or Acquired Patent.

 

 
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Section 6.08     No Third-party Beneficiaries. Except as provided in the Asset
Purchase Agreement, this Agreement is for the sole benefit of the Parties hereto
and their respective successors and permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.

 

Section 6.09     Amendment and Modification. This Agreement may only be amended,
modified or supplemented by an agreement in writing signed by each Party hereto.

 

Section 6.10     Waiver; Remedies. No waiver by any Party of any of the
provisions hereof shall be effective unless explicitly set forth in writing and
signed by the Party so waiving. No waiver by any Party shall operate or be
construed as a waiver in respect of any failure, breach or default not expressly
identified by such written waiver, whether of a similar or different character,
and whether occurring before or after that waiver. No failure to exercise, or
delay in exercising, any right, remedy, power or privilege arising from this
Agreement shall operate or be construed as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies provided in this
Article VI are cumulative and are in addition to and not in substitution for any
other rights and remedies available at law or in equity or otherwise.

 

Section 6.11     Representation of Comprehension of Document. In entering into
this Agreement, the Parties warrant and represent that: (i) they have read the
contents of this Agreement; (ii) the terms of this Agreement have been explained
to them by their respective attorneys; (iii) those terms are fully understood
and voluntarily accepted by them; (iv) they have relied upon the legal advice of
their own choosing; and (v) no Party shall deny the validity of this Agreement
on the ground that it/they did not have the advice of its/their counsel.

 

Section 6.12     Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws principles thereof.

 

Section 6.13     Submission to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby may be instituted in the federal courts of the United States
of America or the courts of the State of New York in each case located in the
city of New York, borough of Manhattan, and each Party irrevocably submits to
the exclusive jurisdiction of such courts in any such suit, action or
proceeding.

 

Section 6.14     Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

 
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Section 6.15     Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall be
deemed to be one and the same agreement. A signed copy of this Agreement
delivered by facsimile, e-mail or other means of electronic transmission shall
be deemed to have the same legal effect as delivery of an original signed copy
of this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

 
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.

 

SNC HOLDINGS CORP.

   

By:

/s/ J. Gelles   

Name:

J. Gelles   Title: President        

VERITEQ ACQUISITION CORPORATION

(d/b/a/ VERITEQ CORPORATION)

   

By:

/s/ Scott Silverman  

Name:

Scott Silverman   Title: CEO

 

 

 

 

[SIGNATURE PAGE TO ROYALTY AGREEMENT]