Document:

ex10-30.htm

Exhibit 10.30

LOAN AND SECURITY AGREEMENT

    THIS LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of May 21, 2013 (the "Effective Date") between SILICON VALLEY BANK, a California corporation ("Bank"), and AUGME TECHNOLOGIES, INC., a Delaware corporation, HIPCRICKET, INC., a Delaware corporation, and GEOS COMMUNICATIONS IP HOLDINGS, INC., a Delaware corporation (each a "Co-Borrower" and collectively "Co-Borrowers"), provides the terms on which Bank shall lend to Co-Borrowers and Co-Borrowers shall repay Bank. The parties agree as follows:

    1  ACCOUNTING  AND OTHER TERMS

    Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

    2  LOAN AND TERMS OF PAYMENT

 

    2.1  Promise to Pay.  Co-Borrowers  hereby  unconditionally  promise  to  pay  Bank  the  outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

    2.2  Revolving Advances.

       (a)  Availability. Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. Amounts bmrnwed under  the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

       (b)  Termination; Repayment.  The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

    2.3  Overadvances.  If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Co-Borrowers shall immediately pay to Bank in cash the amount of such excess (such excess, the "Overadvance"). Without limiting Co-Borrowers' obligation to repay Bank any Overadvance, Co-Borrowers agree to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

    2.4  Intentionally Omitted.

    2.5  Payment of Interest on the Credit Extensions.

       (a)  Advances. Subject to Section 2.5(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to (a) at all times when a Streamline Period is in effect, three quarters of one percentage point (0.75%) above the Prime Rate, and (b) at all  times  when  a Streamline Period is not in effect, one and one quaiter percentage points (1.25%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.5(d) below.

       (b)  Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate that is  otherwise applicable thereto (the "Default Rate"). Fees and  expenses which are required to be paid by Co-Borrowers pursuant to the Loan Documents (including, without limitation,  Bank  Expenses)  but  are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance  of the  increased  interest  rate provided  in this  Section 2.5(b)  is not  a permitted  alternative  to timely payment  and shall not constitute  a waiver  of any Event of Default  or otherwise prejudice  or limit any rights  or remedies of Bank.

 

  

-1-

  

 

       (c)  Adjustment to Interest Rate.  Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

       (d)  Payment; Interest Computation. Interest is payable monthly on the first calendar day of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.

    2.6  Fees.  Co-BolTowers shall pay to Ban1c:

       (a)  Commitment  Fee.  A fully earned, non-refundable commitment fee of Twenty Five Thousand Dollars ($25,000), on the Effective Date;

       (b)  Unused Revolving Line Facility Fee. A fee (the "Unused Revolving Line Facility Fee") in an amount equal to one quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined by Bank, charged quarterly in arrears. The unused portion of the Revolving Line, for purposes of this calculation, shall be calculated on a calendar year basis and shall equal the difference between (i) the Revolving Line, and (ii) the average for the period of the daily closing balance of the Revolving Line outstanding; and

       (c)  Bank Expenses. All Bank Expenses  (including reasonable attorneys' fees and expenses for documentation and negotiation of this Agreement) incuned through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).

       (d)  Fees Fully Earned. Unless otherwise provided in this Agreement or in a separate writing by Bank, Co-Bonowers shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank's obligation to make loans and advances hereunder. Bank may deduct amounts owing by Co-Borrowers under the clauses of this Section 2.6 pursuant to the terms of Section 2.7(c). Bank shall provide Co-Borrowers written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.6.

 

    2.7  Payments; Application of Payments; Debit of Accounts.

       (a)  All payments to be made by Co-Borrowers under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after  12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

       (b)  Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied. Co-Borrowers shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Co-Borrowers to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

       (c)  Bank may debit any of Co-Borrowers' deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Co-Borrowers  owe Bank when  due. These debits shall not constitute a set-off.

 

  

-2-

  

 

    2.8  Withholding. Payments received by Bank from  Co-Borrowers  under  this Agreement  will be made free and clear of and without deduction for any and all present or future taxes, levies,  imposts,  duties, deductions, withholdings, assessments,  fees or other charges imposed  by any Governmental Authority  (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time  any Governmental Authority, applicable law, regulation or international agreement requires Co-Borrowers to make any withholding or deduction from any such payment or other sum payable hereunder to Bank, Co-Borrowers hereby covenant and agree that the amount due from Co-Borrowers with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Co-Borrowers shall pay the full amount withheld or deducted to the relevant Governmental Authority. Co-Borrowers will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Co-Borrowers have made such withholding payment; provided, however, that  Co-Borrowers need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Co-Borrowers. The agreements and obligations of Co-Borrowers contained in this Section 2.8 shall survive the termination of this Agreement.

    3  CONDITIONS OF LOANS

    3.1  Conditions Precedent to Initial Advance. Bank's obligation to  make  the  initial Advance  is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

       (a)  duly executed original signatures to the Loan Documents;

       (b)  each Co-Borrower's Operating Documents and  long-form good standing certificates of each Co-Borrower and their Subsidiaries certified by the Secretary of State (or equivalent agency) of such Co-Borrower and such Subsidiaries' jurisdiction of organization or formation and each jurisdiction in which such Co-Borrower and each Subsidiary is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;

 

       (c)  duly  executed  original  signatures  to  the  completed  Borrowing  Resolutions   for  each Co-Borrower;

       (d)  certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with  the  initial Advance, will be terminated or released;

 

       (e)  the Perfection  Certificate of each Co-Borrower, together with the duly executed original signatures thereto;

       (f)  the  completion  of the  Initial  Audit  with  results  satisfactory  to  Bank  in  its  sole  and absolute discretion; and

 

       (g)  payment of the fees and Bank Expenses then due as specified in Section 2.6 hereof.

 

    3.2  Conditions  Precedent  to  all  Credit  Extensions.  Bank's  obligations  to  make  each  Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

       (a)  timely receipt of an executed Transaction Report;

       (b)  the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects  on the date of the Transaction Report and on the Funding Date of each Credit Extension;

provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is each Co-Borrower's representation and wmTanty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, fu1ther that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

 

  

-3-

  

 

       (c)  Bank determines to its satisfaction that there has not been a Material Adverse Change.

    3.3  Postclosing  Conditions.   No  later than  sixty (60) days after the Effective Date,  Co-Borrowers shall deliver to Bank:

       (a)  a landlord's consent in favor of Bank for each leased location by the respective landlord thereof, together with the duly executed original signatures thereto;

       (b)  a bailee's waiver in favor of Bank for each location where a Co-Borrower maintain property with a third party, by each such third party, together with the duly executed original signatures thereto; and

       (c)  evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.7 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank.

    3.4  Covenant to Deliver.   Co-Borrowers agree to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Co-Borrowers expressly agree that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Co-Borrowers' obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank's sole discretion.

    3.5  Procedures for Borrowing.   Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Co-Borrowers shall notify  Bank (which notice shall be irrevocable) by electronic mail by 12:00 p.m. Pacific time on the Funding  Date  of the Advance. In connection with such notification, Co-BmTOwers must promptly deliver to Bank by electronic mail a completed Transaction Report executed by an Authorized Signer together with such other reports and information, including without limitation, sales journals, cash receipts journals, accounts receivable aging reports, as Bank may request in its sole discretion. Bank shall credit proceeds of an Advance to the Designated Deposit Account.  Bank may make Advances under this Agreement based on instructions from an Authorized Signer or without instructions ifthe Advances are necessary to meet Obligations which have become due.

    4  CREATION OF SECURITY INTEREST.

    4.1  Grant of Security Interest. Co-Borrowers hereby grant Bank,  to  secure  the  payment  and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

    Each Co-Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank  Services  Agreement, Co-Borrowers agree that any amounts Co-Borrowers owe Bank thereunder shall be deemed to be  Obligations hereunder and that it is the intent of Co-Borrowers and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank's Lien in this Agreement).

    If this Agreement is terminated, Bank's Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full  in  cash  of the Obligations (other than inchoate indemnity obligations) and at such time as Bank's obligation to make Credit Extensions has terminated, Bank shall, at the sole cost and expense of Co-Borrowers, release its Liens in the Collateral and all rights therein shall revert to Co-Borrowers. In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Co-Borrowers providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Co-Borrowers shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its business judgment), to secure all of the Obligations relating  to such  Letters of Credit.

  

-4-

  

 

    4.2  Priority of Security Interest. Co-Borrowers represent, warrant, and covenant that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank's Lien under this Agreement). If any Co-Borrower shall acquire a commercial tort claim, such Co-Bmrnwer shall promptly notify Bank in a writing signed by Co-Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds  thereof, all upon the terms  of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

    4.3  Authorization to File Financing Statements. Co-Borrowers hereby authorize Bank  to  file financing statements, without notice to Co-Borrowers, with all appropriate jurisdictions to perfect or protect Bank's interest or rights hereunder, including a notice that any disposition of the Collateral, by any Co-Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code. Such fmancing statements may indicate the Collateral as "all assets of the Debtor" or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank's discretion.

    5  REPRESENTATIONS  AND WARRANTIES

    Each Co-Borrower represents and warrants as follows:

    5.1  Due Organization, Authorization; Power and Authority.   Co-Borrower  is duly  existing and  in good standing as a Registered Organization in its jurisdiction of formation and is qualified and  licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Co-Bmrnwer's business.   In connection with this Agreement, Co-Borrower has delivered to Bank a completed certificate signed by Co-Borrower, entitled "Perfection Certificate". Co-Borrower  represents  and warrants to Bank that (a) Co-Borrower's exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Co-Borrower is an organization of the type and are organized in the jurisdiction  set forth in the Perfection Certificate; (c) the Perfection Ce1tificate accurately sets forth Co-Borrower's organizational identification number or accurately states that Co-Borrower has none; (d) the Perfection Certificate accurately sets fmth Co-Borrower's place of business, or, if more than one, its chief executive office as well as Co-Borrower's mailing address (if different than its chief executive office); (e) Co-Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational strncture or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the  Perfection Certificate pertaining to Co-Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Co-Borrower may from time to time update ce1tain information in the Perfection  Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Co-Borrower is not now a Registered Organization but later become one, Co-Borrower shall promptly notify Bank of such occurrence and provide Bank with Co-Borrower's organizational identification number.

    The execution, delivery and performance by Co-Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Co-Borrower's organizational documents, contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Co-Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement  by which Co-Borrower is bound. Co-Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Co-Borrower's business.

    5.2  Collateral. Co-Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which  it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Co-Borrower has no Collateral Accounts at or with any bank or financial  institution other than Bank or Bank's Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank  in connection herewith and which Co-Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the term of Section 6.8. The Accounts are bona fide, existing obligations of the Account Debtors.

    The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

 

  

-5-

  

 

    All Inventory is in all material respects of good and marketable quality, free from material defects.

    Co-Borrower is the sole owner of the Intellectual Property which it owns or purp01ts to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Co-Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Co-Borrower's business is valid and enforceable, and no part of the Intellectual Property which Co-Borrower owns or purports to own and which is material to Co-Borrower's business has been judged invalid or unenforceable, in whole or in part. To the best of Co-Borrower's knowledge, no claim has been made that any pait of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Co-Borrower's business.

    Except as noted on the Perfection Certificate, Co-Borrower is not a party to, nor is it bound by, any Restricted License.

    5.3  Accounts Receivable.

       (a)  For each Account with respect to which Advances are requested, on the date each Advance is requested and made, such Account shall be an Eligible Account.

       (b)  All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Eligible Accounts are and shall be true and conect and all such invoices, instruments and other documents, and all of Co-Borrower's Books are genuine and in all respects what they purp01t to be. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Co-Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible  Accounts in any Transaction Report. To the best of Co-Borrower's knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

    5.4  Litigation. There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Co-Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).

    5.5  Financial Statements; Financial Condition. All consolidated financial statements for Co-Borrower and any of its Subsidiaries  delivered  to Bank fairly present in all material respects Co-Borrower's consolidated financial condition and Co-Borrower's consolidated results of operations. There has  not been any material deterioration in Co-Borrower's consolidated financial condition since the date of the most recent financial statements submitted to Bank.

    5.6  Solvency. The fair salable value of Co-B01rower's consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Co-Borrower's liabilities; Co-Borrower is not left with unreasonably small capital after the h·ansactions in this Agreement; and Co-Borrower is able to pay its debts (including h·ade debts) as they mature.

    5.7  Regulatory Compliance. Co-Borrower is not an  "investment company"  or  a  company "controlled" by an "investment company" under the Investment Company Act of 1940, as amended.   Co-BolTower is not engaged as one of its imp01tant activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Co-Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business. None of Co-Borrower's or any of its Subsidiaries' properties or assets has been used by Co-Borrower or any Subsidiary or, to the best of Co-Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or h·anspo1ting any hazardous substance other than legally. Co-B01rnwer and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

    5.8  Subsidiaries; Investments.  Co-Borrower does not own any stock, paitnership,  or  other ownership interest or other equity securities except for Permitted Investments.

    5.9  Tax Returns and Payments; Pension Contributions. Co-Borrower has timely filed all required tax returns and reports, and Co-Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Co-Borrower  except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed One Hundred Thousand Dollars ($100,000).

 

  

-6-

  

 

    To the extent Co-Borrower defers payment of any contested taxes, Co-Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a "Permitted Lien." Co-Borrower is unaware of any claims or adjustments proposed for any of Co-Borrower's prior tax years which could result in additional taxes becoming due and payable by Co-Borrower in excess of One Hundred Thousand Dollars ($100,000). Co-Borrower has paid all  amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Co-Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Co-Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

    5.10  Use of Proceeds. Co-Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household  or  agricultural purposes.

    5.11  Full Disclosure. No written representation, warranty or other statement of Co-Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together  with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the ce1tificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Co-Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

    5.12  Definition of "Knowledge." For purposes of the Loan Documents, whenever a representation or warranty is made to Co-Borrower's knowledge or awareness, to the "best of' Co-Borrower's knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

    6  AFFIRMATIVE  COVENANTS

    Co-Borrowers shall do all of the following:

    6.1  Government  Compliance.

       (a)  Maintain their and all their Subsidiaries' legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on a Co-Borrower's business or operations. Each Co-Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject.

       (b)  Obtain all of the Governmental Approvals necessary for the performance by Co-B01Towers of their obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. Co-Borrowers shall promptly provide copies of any such obtained Governmental Approvals to Bank.

    6.2  Financial Statements, Reports, Certificates.  Provide Bank with the following:

       (a)  a Transaction Report (and any  schedules related thereto) (i) with each request for an Advance, and (ii) within twenty (20) days after the end of each month;

       (b)  within twenty (20) days after the end of each month,  (A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (C) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger;

       (c)  as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet  and  income  statement  covering  Co-Borrowers'  consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the "Monthly Financial    Statements");

 

  

-7-

  

 

       (d)  within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, ce1tifying that as of the end of such month, Co-Borrowers were in full compliance with all of the terms and conditions of  this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request, including, without limitation, a statement that at the end of such month there were no held checks;

       (e)  within thirty (30) days  after the end of each fiscal year of Co-Borrowers, (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Co-Borrowers, and (B) annual financial projections for the following fiscal year (on a quarterly basis) as approved by each Co-Borrowers' board of directors, together with any related business forecasts used in the preparation of such annual financial projections;

       (f)  as soon as available, and in any event within one hundred twenty (120) days following the end of Co-Borrowers' fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank;

       (g)  in the event that a Co-Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by such Co-Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such Co-Bonower posts such documents, or provides a link thereto, on Co-Bonower's website on the Internet at such  Co-Bonower's  website  address;  provided,  however,  Co-Bonower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;

       (h)  within five (5) days of delivery, copies of all statements, reports and notices made available to each Co-Bonower's security holders or to any holders of Subordinated Debt;

       (i)  prompt report of any legal actions pending or threatened in  writing  against  a Co-Borrower or any of its Subsidiaries that could result in damages or costs to such Co-Bonower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or more; and

       (j)  other financial information reasonably requested by Bank.

    6.3  Accounts Receivable.

       (a)  Schedules and Documents Relating to Accounts. Co-Bonowers shall deliver to Bank transaction reports and schedules of collections, as provided in Section 6.2, on Bank's standard foims; provided, however, that Co-Bonowers' failure to execute and deliver the same shall not affect or limit Bank's Lien and other rights in all of Co-Borrowers' Accounts, nor shall Bank's failure to advance or lend against a specific Account affect or limit Bank's Lien and other rights therein. If requested by Bank, Co-Bonowers shall furnish Bank with copies (or, at Bank's request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts. In addition, Co-Bonowers shall deliver to Bank, on its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos.

       (b)  Disputes. Co-Borrowers shall promptly notify Bank of all disputes or claims relating to Accounts. Co-Borrowers may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Co-Borrowers do so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm's-length transactions, and report the same to Bank in the regular repmts provided to Bank; (ii) no Event of Default has occmred and is continuing; and after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the lesser of the Revolving Line or the Borrowing Base.

 

  

-8-

  

 

       (c)  Collection of Accounts. Co-Borrowers shall have the right to collect all Accounts, unless and until an Event of Default has occuned and is continuing. Bank shall require that, no later than ninety (90) days after the Effective Date, and at all times thereafter, Co-Borrowers direct Account Debtors to deliver or transmit all proceeds of Accounts into a lockbox account, or via electronic deposit capture into a "blocked account" as specified by Bank (either such account, the "Cash Collateral Account"), pursuant to a blocked account agreement in form and substance satisfactory to as Bank. If such proceeds are not delivered or transmitted into the Cash Collateral Account within sixty (60) days of the Effective Date, Co-Bonowers shall provide evidence, in form and substance satisfactory to Bank, that Co-Borrowers have directed Account Debtors to deliver or transmit proceeds of Accounts into such Cash Collateral Account. Whether or not an Event of Default has occuned and is continuing, Co-Borrowers shall immediately deliver all payments on and proceeds of Accounts to the Cash Collateral Account to  be  applied  to  immediately  reduce  the  Obligations  when  a  Streamline  Period  is  not  effect,  or  (ii) to  be transfened on a daily basis to Co-Borrowers' operating account with Bank when a Streamline Period is in effect.

 

       (d)  Returns. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to a Co-Borrower, such Co-Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Bank, upon request  from Bank. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, such Co-Borrower shall hold the returned Inventory in trust for Bank, and immediately notify Bank of the return of the Inventory.

       (e)  Verification. Bank may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of the relevant Co-Borrower or Bank or such other name as Bank may choose, and notify any Account Debtor of Bank's security interest in such Account.

       (f)  No Liability. Bank shall not be responsible or liable for any shmtage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Co-Borrowers' obligations under any contract or agreement giving rise to an Account. Nothing herein shall,  however, relieve Bank from liability for its own gross negligence or willful misconduct.

    6.4  Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Co-Borrower not later than the following Business Day after receipt by Co-Borrower, to be applied to the Obligations (a) prior to an Event of Default, pursuant to the terms of Section 2.7(b) hereof, and (b) after the occmTence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if no Event of Default has occurred and is continuing, Co-Borrowers shall not be obligated to remit to Bank the proceeds of the sale of worn out or obsolete Equipment disposed of by Co-Borrowers in good faith in an arm's length transaction for an aggregate purchase price of Twenty Five Thousand Dollars ($25,000) or less (for all such transactions in any fiscal year). Each Co-Borrower agrees that it will not commingle proceeds of Collateral with any of Co-Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Bank. Nothing in this Section limits the restrictions on disposition of Collateral set fmth elsewhere in this Agreement.

    6.5  Taxes; Pensions. Timely file all  required tax returns and repmis  and timely  pay  all  foreign, federal, state and local taxes, assessments, deposits and contributions owed by a Co-Borrower, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and defe1Ted compensation plans in accordance with their terms.

    6.6  Access to Collateral; Books and Records. At  reasonable  times,  on  one  (1) Business  Day's notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy each Co-Borrower's Books. The foregoing inspections and audits shall be conducted at such Co-Borrower's expense and no more often than once every six (6) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary. The charge therefor shall be Eight Hundred Fifty Dollars ($850) per person per day (or such higher amount as shall represent Bank's then-current standard charge for the same), plus reasonable out-of-pocket  expenses. In the event a Co-Borrower and Bank schedule an audit more than ten (10) days in advance, and such Co-Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank's rights or remedies) Co-BmTOwers shall pay Bank a fee of One Thousand Dollars ($1,000) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

  

-9-

  

 

    6.7  Insurance.

       (a)  Keep its business and the Collateral insured for risks and in amounts standard for companies in Co-Borrowers' industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Co-Borrowers, and in amounts that are satisfactory to Bank. All property policies shall have a lender's loss payable endorsement showing Bank as an additional lender loss payee. All liability policies shall show, or have endorsements showing, Bank as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.

       (b)  Ensure that proceeds payable under any property policy are, at Bank's option, payable to Bank on account of the Obligations.

       (c)  At Bank's request, Co-Borrowers shall deliver ce1tified copies of insurance policies and evidence of all premium payments. Each provider of any such insurance required under this Section 6.7 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thiity (30) days prior written notice before any such policy or policies shall be materially altered or canceled. If Co-Borrowers fail to obtain insurance as required under this  Section 6.7 or to pay  any  amount  or furnish any required proof of payment to third persons and Bank, Bank may make all or pait of such payment  or obtain such insurance policies required in this Section 6.7, and take any action under the policies Bank deems prndent.

 

    6.8  Operating Accounts. No later than sixty (60) days after the Effective Date and  at  all  times thereafter, maintain all of their and their Subsidiaries operating and other deposit accounts with Bank and securities accounts with Bank and Bank's Affiliates.

 

    6.9  Financial Covenants. Maintain at all times, subject to periodic  reporting  as of the  last  day of each month, unless otherwise noted, on a consolidated basis with respect to Co-Borrowers:

       (a)  Tangible Net Worth. A Tangible  Net W01th of at least negative One  Million  Two Hundred Fifty Thousand Dollars ($1,250,000), increasing (i) at the end of each month by fifty percent (50%) of the proceeds of issuances of equity securities and the principal amount of Subordinated Debt received  during  such month, (ii) at the end of each calendar qumter by fifty percent (50%) of Net Income for such quarter (with no adjustments for net losses) and (iii) immediately by one and one half times (l .5x) the cash received by a Co­ Borrower from the sale of any Intellectual Property minus any realized gain or plus any realized loss associated with the sale of such Intellectual Property.

    6.10  Protection of Intellectual Property Rights.

       (a)  (i) Protect, defend and maintain the validity and enforceability of its Intellectual Property; promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property; and (iii) not allow any Intellectual Property material to a Co-Borrower's business to be abandoned, forfeited or dedicated to the public without Bank's written consent.

       (b)  Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Co-Borrowers shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed "Collateral" and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into  in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank's rights and remedies under this Agreement and the other Loan Documents.

    6.11  Litigation Cooperation. From the date hereof and continuing through the  termination of this Agreement, make available to Bank, without expense to Bank, Co-Borrowers and their officers,  employees and agents and each Co-Borrower's books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to a Co-Borrower.

 

  

-10-

  

 

    6.12  Formation or Acquisition of Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that a Co-BmTower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, such Co-Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a Co-Borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority  Lien  (subject  to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactmy to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.12 shall be a Loan Document.

    6.13  Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received, copies of all con-espondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance  of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations ofCo-Bon-owers or any of their Subsidiaries.

    7  NEGATIVE COVENANTS

    Co-Borrowers shall not do any of the following without Bank's prior written consent:

    7.1  Dispositions. Convey, sell, lease, transfer, assign, or otherwise  dispose  of  (collectively, "Transfer"), or permit any of their Subsidiaries to Transfer, all or any part of their businesses or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment that is, in the reasonable judgment of a Co-Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of a Co-Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any stock of a Co-BmTower permitted under Section 7.2 of this Agreement; (e) consisting of a Co-Borrower's use or transfer of money or Cash Equivalents in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; and (t) of non-exclusive licenses for the use of the property of a Co-Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than ten-itory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States.

    7.2  Changes in Business, Management,  Ownership,  or  Business  Locations.  (a) Engage   in  or permit any of their Subsidiaries to engage in any business other than the businesses currently engaged in by Co-Borrowers and their Subsidiaries, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person depmting from or ceasing to be employed by a Co-Borrower within five (5) days after his departure from such Co-Bon-ower; or (ii) enter into any transaction or series ofrelated transactions in which the stockholders of a Co-Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of such Co-Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of such Co-Borrower's equity securities in a public offering or to venture capital or private equity investors so long as such Co-BmTower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).

 

    No Co-Borrower shall, without at least thhty (30) days prior written notice to Bank: (1) add any  new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in such Co-Borrower's assets or prope1ty) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction   of  organization,  (3) change  its  organizational  structure  or  type,  (4)  change  its  legal  name,  or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Co-Borrower intends to deliver any pmtion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee, and Bank and such bailee are not already paities to a bailee agreement governing both the Collateral and the location to which Co-Borrower intends to deliver the Collateral, then Co-Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank.

 

  

-11-

  

 

    7.3  Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property  of another Person (including, without limitation, by the formation of any Subsidimy). A Subsidiary may merge or consolidate into another Subsidiary or into a Co-Borrower.

    7.4  Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiaiy to do so, other than Permitted Indebtedness.

    7.5  Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting any Co-Borrower from assigning, mmtgaging, pledging, granting a security interest in or upon, or encumbering any of a  Co-Borrower's  Intellectual  Property, except as is otherwise permitted in Section 7. 1hereof and the definition of "Permitted Liens" herein.

    7.6  Maintenance of Collateral Accounts. Maintain any Collateral  Account  except pursuant  to the terms of Section 6.8 hereof.

    7.7  Distributions; Investments. (a) Pay any dividends or make any  distribution  or  payment  or redeem, retire or purchase any capital stock, provided that (i) Co-Borrower may convert any of its conve1tible securities into other securities pursuant to the terms of such conve1tible securities or otherwise in exchange thereof, (ii) Co-Borrower may pay dividends solely in common stock; and (iii) Co-Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided that the aggregate amount of all such repurchases does not exceed Fifty Thousand Dollars ($50,000) per fiscal year; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so.

    7.8  Transactions with Affiliates. Directly or indirectly enter into or permit to exist  any material transaction with any Affiliate of a Co-Bonower, except for transactions that are in the ordinary course of a Co-Borrower's business, upon fair and reasonable terms that are no less favorable to such Co-Borrower than would be obtained in an arm's length transaction with a non-affiliated Person.

    7.9  Subordinated Debt. (a) Make or permit  any payment  on any  Subordinated  Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.

    7.10  Compliance. Become an "investment company" or a company controlled by an "investment company", under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction as defined in ERISA, or (c) comply with the Federal Fair Labor Standards Act, the failure of any of the conditions in clauses (a) through (c) which could reasonably  be expected to have a material adverse effect on Co-Borrower's business, or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect  on Co­ Borrower's business or permit any Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation  in, permit partial or complete termination of, or permit the occunence of any other event with respect to, any present pension, profit sharing and defelTed compensation plan which could reasonably be expected to result in any liability of Co-BolTower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

    8  EVENTS OF DEFAULT

    Any one of the following shall constitute an event of default (an "Event of Default") under this Agreement:

 

  

-12-

  

 

    8.1  Payment Default.  Co-Borrowers  fail to (a) make any payment  of principal  or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

    8.2  Covenant Default.

       (a)  Co-Borrowers fail or neglect to perform any obligation in Sections 6.2, 6.5, 6.7, 6.8, 6.9, 6.1O(b), 6.12, 6.13 or violate any covenant in Section 7; or

       (b)  Co-Borrowers fail or neglect to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, have failed to cure the default within ten (10) days after the occulTence thereof; provided, however, that ifthe default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Co-Borrowers be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Co-Borrowers shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

    8.3  Material Adverse Change.  A Material Adverse Change occurs;

    8.4  Attachment; Levy; Restraint on Business.

       (a)  (i) The service of process seeking to attach, by trustee or similar process, any funds of a Co-BolTower or of any entity under the control of a Co-BolTower (including a Subsidiary), or (ii) a notice of lien or levy is filed against any of a Co-BotTower's assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (1O) days after the occutTence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

       (b)  (i) any material portion of a Co-BotTower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents a Co-Borrower from conducting all or any material part of its business;

    8.5  Insolvency.   (a) a Co-BotTower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) a Co-Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against a Co-Borrower and is not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

    8.6  Other Agreements.   There is, under any agreement to which any Co-BolTower or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Fifty Thousand Dollars ($50,000); or (b) any breach or default by a Co-Borrower or Guarantor, the result of which could have a material adverse effect on such Co-BoITower's or any Guarantor's business;

    8.7  Judgments; Penalties. One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance caITier) shall be rendered against a Co-B01Tower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment,  order or decree);

 

  

-13-

  

 

    8.8  Misrepresentations. A Co-Borrower or any Person acting for a Co-Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incotTect in any material respect when made;

    8.9  Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation  thereunder, or the  Obligations shall for  any reason be subordinated or shall not have the priority contemplated by this Agreement or the Subordination Agreement; or

    8.10  Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non­ renewal (i) causes, or could reasonably be expected to cause, a Material Adverse Change, or (ii) adversely affects the legal qualifications of a Co-Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to  affect the status of or legal qualifications of a Co-Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction.

    9  BANK'S RIGHTS AND REMEDIES

    9.1  Rights and Remedies. Upon the occuITence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:

       (a)  declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

       (b)  stop advancing money or extending credit for Co-B01Towers' benefit under this Agreement or under any other agreement between Co-Borrowers and Bank;

       (c)  demand that Co-Borrower (i) deposit cash with Bank in an amount equal to at least one hundred ten percent (110%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Co-BoITower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

       (d)  verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing a Co-Borrower money of Bank's security interest in such funds;

       (e)  make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Co-Bonowers shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take  and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incuned. Each Co-Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies;

       (f)  apply to the Obligations any (i) balances  and deposits of a Co-Bonower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of a Co-Borrower;

       (g)  ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, a Co-Bonower's labels, Patents, Copyrights, mask works, rights  of use of any name, trade secrets, trade names, Trademarks, and adve1tising matter, or any similar property  as it pe1tains  to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section, Co-Borrowers'  rights under all licenses and all franchise agreements inure to Bank's benefit;

 

  

-14-

  

 

       (h)  place a "hold" on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control  Agreement or similar agreements providing control of any Collateral;

       (i)  demand and receive possession of each Co-Bonower's Books; and

       (j)  exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

    9.2  Power of Attorney. Each Co-Bonower hereby inevocably appoints Bank as its lawful attorney- in-fact, exercisable upon the occmTence and during the continuance of an Event of Default, to: (a) endorse Co-Bonower's name on any checks or other forms of payment or security; (b) sign Co-Borrower's name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Co-Borrower's insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based  thereon,  or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Each Co-Bonower hereby appoints Bank as its lawful attorney-in-fact to sign Co-Bonower's name on any documents necessary to perfect or continue the perfection of Bank's security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank's foregoing appointment as each Co-Bonower's attorney in fact, and all of Bank's rights and powers, coupled with an interest, are in·evocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates.

    9.3  Protective Payments. If a Co-Borrower fails to obtain the insurance called for by Section 6.7 or fails to pay any premium thereon or fails to pay any other amount which such Co-Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Co-Bonowers with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default.

 

    9.4  Application of Payments and Proceeds. Pursuant to the terms of Section 6.3(c), Bank shall have the right to apply in any order any funds in its possession, whether from Co-Borrowers' account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to Co-Borrowers by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Co-Borrowers shall remain liable to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

    9.5  Bank's Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Co-Borrowers bear all risk of loss, damage or destrnction of the Collateral.

    9.6  No Waiver; Remedies Cumulative. Bank's failure, at any  time  or times,  to  require  strict performance by Co-Borrowers of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank's rights and remedies under this Agreement and the other Loan Documents  are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay in exercising any remedy is not a waiver, election, or acquiescence.

 

  

-15-

  

 

    9.7  Demand Waiver. Each Co-Borrower waives  demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise,  settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which such Co-Borrower is liable.

    9.8  Co-Borrower  Liability.   Either Co-Borrower may, acting singly, request Advances hereunder. Each Co-Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Advances hereunder. Each Co-Borrower hereunder shall be jointly and severally obligated to repay all Advances made hereunder, regardless of which Co-Borrower actually receives said Advance, as  if  each Co-Borrower hereunder directly received all Advances. Each Co-Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections  1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433, and (b) any right to require  Bank  to: (i) proceed  against  any  Co-Borrower  or any  other person;  (ii) proceed  against or exhaust  any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Co-B01rower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Co-Borrower's liability. Notwithstanding any other provision of this Agreement or other related document, each Co-Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law  subrogating Co-Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Co-Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Co-B01rower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Co-Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Co-Borrower in contravention of this Section, such Co-Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

    10  NOTICES

    All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission;  (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or any Co-Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

	 	
If to Co-Borrowers:

 

 

	
AUGME TECHNOLGIES, INC. (on behalf of all Borrowers)

4400 Carillon Point

Kirkland, WA 98033

	 	 	 
	 	
If to Bank:

 

 

 

 

	Silicon Valley Bank 

901 5th Avenue, Suite 3900

Seattle, WA 98164

Attn: Nathan Sackett

Email: nsackett@svb.com

 

    11  CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

    California law governs the Loan Documents without regard to principles of conflicts of law. Co-Borrowers and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Each Co-Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Co-Bonower hereby waives any objection that it may have based upon  lack  of personal jurisdiction,  improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Each Co-Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or ce1tified mail addressed to such Co-B01TOwer at the address set forth in, or subsequently provided by such Co-Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of such Co-Bonower's actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

  

-16-

  

 

    TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH  CO-BORROWER AND BANK WAIVE ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF  ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.   EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

    WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, ifthe above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the patties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction  of the federal courts), sitting without a jury,  in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure Sections 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such pmty may apply to the Santa Clara County, California Superior Cou1t for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a comt under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a comt under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The pmties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure Section 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall  also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

    This Section 11 shall survive the termination of this Agreement.

    12  GENERAL  PROVISIONS

    12.1  Termination Prior to  Revolving  Line  Maturity  Date;  Survival.  All  covenants,  representations and wananties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied. So long as Co-Bonowers have satisfied the Obligations (other than inchoate indemnity obligations, and any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), this Agreement may be te1minated prior to the Revolving Line Maturity Date by Co-Bonowers, effective three (3) Business Days after written notice of termination is given to Bank. Those obligations that are expressly specified in this Agreement as surviving this Agreement's termination  shall continue to survive notwithstanding this Agreement's termination.

    12.2  Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Co-Borrower may assign this Agreement or any rights or obligations under it without Bank's prior written consent (which may be granted or withheld in Bank's discretion). Bank has the right, without the consent of or notice to Co-Bonowers, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights, and benefits under this Agreement and the other Loan Documents.

 

  

-17-

  

 

    12.3  Indemnification.

 

       (a)  General Indemnification. Co-Bonowers  agree to indemnify,  defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an "Indemnified Person") harmless against: (i) all obligations, demands, claims, and liabilities (collectively, "Claims") claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Co-Borrowers (including reasonable attorneys' fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person's gross negligence or willful misconduct.

    This Section 12.3 shall survive until all statutes of limitation with respect to the Claims,  losses,  and expenses for which indemnity is given shall have run.

    12.4  Time of Essence. Time is of the essence for the performance of all Obligations  in  this Agreement.

    12.5  Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

    12.6  Correction of Loan Documents.  Bank may correct patent errors and fill in any blanks  in the Loan Documents consistent with the agreement of the parties so long as Bank provides Co-Borrowers with written notice of such correction and allows Co-Borrower at least ten (l0) days to object to such correction. In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Co-Borrower.

    12.7  Amendments  in Writing;  Waiver;  Integration.   No purported  amendment  or modification  of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the pmty against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise  or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any  waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about  this  subject matter  and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties,  and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

    12.8  Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

    12.9  Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank's Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, "Bank Entities"); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use its best efforts to obtain any prospective transferee's or purchaser's agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank's regulators or as otherwise required in connection with Bank's examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and  (t) to third-pa1ty service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank's possession  when disclosed to Bank, or becomes pmt of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

    Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Co-Borrower. The provisions of the immediately preceding sentence shall survive termination of this Agreement.

 

  

-18-

  

 

    12.10  Attorneys' Fees, Costs and Expenses. In any action or proceeding between Co-Borrowers and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs and expenses incmTed, in addition to any other relief to which it may be entitled.

    12.11  Electronic Execution of Documents. The words "execution," "signed," "signature" and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

    12.12  Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

    12.13  Construction of Agreement. The parties mutually  acknowledge  that they  and  their  attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

    12.14  Relationship. The relationship of the pmties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture,  trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm's-length contract.

    12.15  Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

    13  DEFINITIONS

    13.1  Definitions. As used in the Loan Documents, the word "shall" is mandatory, the word "may" is permissive, the word "or" is not exclusive, the words "includes" and "including" are not  limiting,  the  singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:

    "Account" is any "account" as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Co-Borrowers.

    "Account Debtor" is any "account debtor" as defined in the Code with such additions to such term as may hereafter be made.

    "Advance" or "Advances" means a revolving credit loan (or revolving credit loans) under the Revolving Line.

    "Affiliate" is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members.

    "Agreement" is defined in the preamble hereof.

    "Authorized Signer" is any individual listed in a Co-BotTower's BotTowing Resolution who is authorized to execute the Loan Documents, including any Advance request, on behalf of such Co-BotTower.

    "Availability Amount" is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any Advances.

 

  

-19-

  

 

    "Bank" is defined in the preamble hereof.

    "Bank Entities" is defined in Section 12.9.

    "Bank Expenses" are all audit fees and expenses, costs, and expenses (including reasonable attorneys' fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency  Proceedings) or otherwise incutTed with respect to Co-Borrowers.

    "Bank Services" are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Co-BotTower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management  services (including, without limitation, merchant  services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank's various agreements related thereto (each,  a  "Bank Services Agreement").

    "Borrowing Base" is ninety percent (90%) of Eligible Accounts, as determined by  Bank  from Co-Borrowers' most recent Transaction Report; provided, however, that at all times after the earlier of (i) nine (9)months from the Effective Date or (ii) January 31, 2014, such percentage shall be reduced to eighty  percent (80%) and provided fmther that Bank has the right to decrease the foregoing percentages in its good faith business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the Collateral or its value.

    "Borrowing Resolutions" are, with respect to any Person, those resolutions substantially in  the  form attached hereto as Exhibit C.

    "Business Day" is any day that is not a Saturday, Sunday or a day on which Bank is closed.

    "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one ( 1) year after its creation and having the highest rating from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (c) Bank's certificates of deposit issued maturing no more than one (I) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) tln·ough (c) of this definition.

    "Claims" is defined in Section 12.3.

    "Co-Borrower(s)" is defined in the preamble hereof.

    "Co-Borrower's Books" are all of a Co-Borrower's books and records including ledgers, federal and state tax returns, records regarding such Co-Borrower's assets or liabilities, the Collateral, business operations  or financial condition, and all computer programs or storage or any equipment containing such information.

    "Code" is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in A1ticle or Division 9 shall govern; provided fmther, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank's Lien on any Collateral is governed  by the Uniform Commercial Code  in  effect in a jurisdiction other than the State of California, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereofrelating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

    "Collateral" is any and all properties, rights and assets of Co-Borrowers described on Exhibit A. "Collateral Account" is any Deposit Account,  Securities Account, or Commodity Account.

 

  

-20-

  

 

    "Commodity Account" is any "commodity account" as defined  in the Code with such additions to such term as may hereafter be made.

    "Compliance Certificate" is that certain certificate in the form attached hereto as Exhibit D.

    "Contingent Obligation" is, for any Person, any direct or indirect  liability,  contingent  or  not,  of  that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account  of that Person;  and  (c) all  obligations  from  any  interest rate,  currency  or  commodity  swap agreement, interest rate cap or collar agreement, or other  agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

    "Control Agreement" is any control agreement entered into among the depository institution at which  a Co-Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which a Co-BoITower maintains a Securities Account or a Commodity Account, such Co-BoITower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

    "Copyrights" are any and all  copyright rights, copyright applications, copyright  registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

    "Credit Extension" is any Advance or any other extension of credit by Bank for Co-Borrowers' benefit.

    "Default Rate" is defined in Section 2.5(b).

    "Deposit Account" is any "deposit account" as defined in the Code with such additions to such term as may hereafter be made.

    "Designated  Deposit  Account" is the multicurrency account denominated in Dollars, account number __________, maintained by a Co-Borrower with Bank.

    "Dollars," "dollars" or use of the sign"$" means only lawful money of the United States and not any other currency, regardless of whether that currency uses the "$" sign to denote its currency or may be readily converted into lawful money of the United States.

    "Dollar Equivalent" is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign CuITency for transfer to the country issuing such Foreign Currency.

    "Effective Date" is defined in the preamble hereof.

 

  

-21-

  

 

    "Eligible Accounts" means Accounts which arise in the ordinary course of a Co-Borrower's business that meet all Co-Borrower's representations and warranties in Section 5.3. Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment.  Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

       (a)  Accounts for which the Account Debtor is a Co-Borrower's Affiliate, officer, employee, or agent;

       (b)  Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

       (c)  Accounts with credit balances over ninety (90) days from invoice date;

       (d)  Accounts owing from an Account Debtor, including Affiliates, whose total obligations to a Co-Borrower exceed twenty-five percent (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;

       (e)  Accounts  owing from an Account Debtor if fifty percent  (50%) or more of the Accounts owing from such Account Debtor have not been paid within ninety (90) days of invoice date;

       (f)  Accounts owing from an Account Debtor which does not have its principal place of business in the United States unless such Accounts are otherwise Eligible Accounts and (i) covered in full by credit insurance satisfactory to Bank, less any deductible, (ii) supported by letter(s) of credit acceptable to Bank, or (iii) that Bank otherwise approves of in writing;

       (g)  Accounts billed from and/or payable to a Co-Borrower outside of the United States unless Bank has a first priority, perfected security interest or other enforceable Lien in such Accounts under all applicable laws, including foreign laws (sometimes called foreign invoiced accounts);

       (h)  Accounts owing from an Account Debtor to the extent that a Co-Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise -  sometimes  called  "contra" accounts, accounts payable, customer deposits or credit accounts);

       (i)  Accounts owing from an Account Debtor which is a United States government entity or any depmiment, agency, or instrumentality thereof unless a Co-Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

       (j)  Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a "sale guaranteed", "sale or return", "sale on approval", or other terms if Account Debtor's payment may be conditional;

       (k)  Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

       (l)  Accounts subject to contractual arrangements between a Co-Bonower and an Account  Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of such Co-Borrower's failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress  billings,  milestone  billings,  or fulfillment contracts);

       (m)  Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor's satisfaction of a Co-Borrower's complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

       (n)  Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

       (o)  Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, the relevant Co-Borrower, and the Account Debtor have entered into an agreement acceptable to Bank wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from such Co-Borrower (sometimes called "bill and hold" accounts);

 

  

-22-

  

 

       (p)  Accounts for which the Account Debtor has not been invoiced;

       (q)  Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of a Co-Borrower's business;

 

       (r)  Accounts for which a Co-Borrower has permitted Account Debtor's payment to extend beyond 90 days;

       (s)  Accounts  arising  from  chargebacks,  debit  memos  or  other  payment  deductions  taken  by  an Account Debtor;

       (t)  Accounts arising from product returns and/or exchanges (sometimes called "warranty" or "RMA" accounts);

       (u)  Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; and

       (v)  Accounts for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation, accounts represented by "refreshed" or "recycled" invoices.

    "Equipment" is all "equipment" as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures,  goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

    "ERISA" is the Employee Retirement Income Security Act of 1974, and its regulations.

    "Event of Default" is defined in Section 8.

    "Exchange Act" is the Securities Exchange Act of 1934, as amended.

    "Foreign Currency" means lawful money of a country other than the United States.

    "Funding Date" is any date on which a Credit Extension is made to or for the account of Co-Borrowers which shall be a Business Day.

    "GAAP" is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

    "General Intangibles" is all "general intangibles" as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment  intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

    "Governmental Approval" is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

    "Governmental Authority" is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

  

-23-

  

 

    "Guarantor" is any Person providing a Guaranty in favor of Bank.

    "Guaranty" is any guarantee of all or any part of the Obligations, as the same may from time to time be amended, restated, modified or otherwise supplemented.

    "Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

    "Indemnified Person" is defined in Section 12.3.

    "Initial Audit" is Bank's inspection of Co-Borrowers' Accounts, the Collateral, and Co-Borrowers'  Books.

    "Insolvency Proceeding" is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

    "Intellectual Property" means, with respect to any Person, means all of such Person's right, title, and interest in and to the following:

       (a)  its Copyrights, Trademarks and Patents;

       (b)  any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;

       (c)  any and all source code;

       (d)  any and all design rights which may be available to such Person;

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

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

    "Inventory" is all "inventory" as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of a Co-Borrower's custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

    "Investment" is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

    "Key Person" is any of a Co-Borrower's (a) Chief Executive Officer, who is Ivan Braiker as  of the Effective Date, and (b) Chief Financial Officer, who is Tom Virgin as of the Effective Date.

    "Letter of Credit" is a standby or commercial letter of credit issued by Bank upon request of a Co-Borrower based upon an application, guarantee, indemnity, or similar agreement.

    "Lien" is a claim, mmtgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

  

-24-

  

 

    "Loan Documents" are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, any subordination agreement, any note, or notes or  guaranties executed by a Co-Borrower or any Guarantor, and any other present or future agreement by a Co-Borrower and/or any Guarantor with or for the benefit of Bank in  connection with this Agreement, all as amended, restated, or otherwise modified.

    "Material Adverse Change" is (a) a material impairment in the perfection or priority of Bank's Lien in the Co!lateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) ofa Co-Borrower; (c) a material impairment of the prospect ofrepayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment,  that there is a reasonable likelihood that a Co-Borrower shall fail to comply with one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.

    "Monthly Financial Statements" is defined in Section 6.2(c).

    "Net Income" means, as calculated on a consolidated basis for Co-Borrowers for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Co-Borrowers for such period taken as a single accounting period.

    "Obligations" are Co-Borrowers' obligations to pay when due any debts, principal, interest, fees, Bank Expenses, and other amounts Co-Borrowers owe Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Co-Borrowers assigned to Bank, and to perform Co-Borrowers' duties under the Loan Documents.

    "Operating Documents" are, for any Person, such Person's formation documents, as certified by the Secretary of State (or equivalent agency) of such Person's jurisdiction of organization  on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in cmrent form,

if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and

if such Person is a pattnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

    "Overadvance" is defined in Section 2.2.

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

    "Perfection Certificate" is defined in Section 5.1.

    "Permitted Indebtedness" is:

       (a)  Co-Borrowers' Indebtedness to Bank under this Agreement and the other Loan Documents;

       (b)  Indebtedness existing on the Effective Date and shown on the Perfection Ce1tificate;

       (c)  Subordinated Debt;

       (d)  unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

       (e)  Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

       (f)  Indebtedness  secured by Liens permitted under clauses (a) and (c) of the definition of"Permitted Liens" hereunder; and

       (g)  extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (t) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon a Co-Borrower or its Subsidiary, as the case may be.

 

  

-25-

  

 

    "Permitted Investments" are:

       (a)  Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate;

       (b)  (i) Investments consisting of Cash Equivalents, and (ii) any Investments permitted by Co- Borrower's investment policy, as amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved in writing by Bank;

       (c)  Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of a Co-Borrower;

       (d)  Investments consisting of deposit accounts in which Bank has a perfected security interest;

       (e)  Investments accepted in connection with Transfers permitted by Section 7. 1;

       (f)  Investments consisting of the creation of a Subsidiary for the purpose of consummating a merger transaction permitted by Section 7.3 of this Agreement, which is otherwise a Permitted Investment;

       (g)  Investments (i) by a Co-Borrower in Subsidiaries not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any  fiscal year and (ii) by Subsidiaries in other Subsidiaries not to exceed  One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year or in a Co-Borrower;

       (h)  Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of a Co-B01TOwer or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by such Co-Borrower's Board of Directors;

       (i)  Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; and

       (j)  Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph G) shall not apply to Investments ofa Co-Borrower in any Subsidiary.

 

  

-26-

  

 

    "Permitted Liens" are:

       (a)  Liens existing on the Effective Date and shown on the Perfection Ce1iificate or arising under this Agreement and the other Loan Documents;

       (b)  Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which a Co-Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

       (c)  purchase money Liens (i) on Equipment acquired or held by a Co-Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

       (d)  Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the prope1iy subject thereto;

       (e)  Liens to secure payment of workers' compensation, employment insurance, old-age  pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

       (f)  Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

       (g)  leases or subleases ofreal property granted in the ordinary course of a Co-Borrower's business (or, if referring to another Person, in the ordinary course of such Person's business), and leases, subleases, non-exclusive licenses or sublicenses of personal property  (other than Intellectual Property)  granted  in the ordinary course of a

Co-Borrower's business (or, if referring to another Person, in the ordinary course of such Person's business), if the

leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

       (h)  non-exclusive license of Intellectual Property granted to third  parties in the ordinary course of business, and licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property that may be exclusive in respects other than territory  and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; and

       (i)  Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7.

    "Person" is any individual, sole proprietorship, pattnership, limited liability company, joint  venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

    "Prime Rate" is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the "prime rate" then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the "Prime Rate" shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors).

    "Registered Organization" is any "registered organization" as defined in the Code with such additions to such term as may hereafter be made.

 

  

-27-

  

 

    "Regulatory Change" means, with respect to Bank, any change on or after the date of this Agreement in United States federal, state, or foreign laws or regulations, including Regulation D, or the adoption or making on or after such date of any interpretations, directives, or requests  applying to a class of lenders including Bank, of or under any United States federal or state, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

    "Requirement of Law" is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

    "Reserves" means, as of any date of determination, such amounts as Bank may from time to time establish and revise in its good faith business judgment, reducing the amount of  Advances  and  other  financial accommodations which would otherwise be available to Co-Borrowers (a) to  reflect  events,  conditions, contingencies or risks which, as determined by Bank in its good faith business judgment, do or may adversely affect the Collateral or any other prope1ty which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of a Co-Borrower or any Guarantor, or (iii) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Bank's reasonable belief that any collateral report or  financial  information furnished by or on behalf of a Co-Borrower or any Guarantor to Bank is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Bank determines constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default.

    "Responsible Officer" is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of a Co-Borrower.

    "Restricted License" is any material license or other agreement with respect to which a Co-Borrower is the licensee (a) that prohibits or otherwise restricts a Co-Borrower from granting a security interest in such Co-Borrower's interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank's right to sell any Collateral.

    "Revolving Line" is an aggregate principal amount equal to Five Million Dollars ($5,000,000).

    "Revolving Line Maturity Date" is May_, 2015.

    "SEC" shall mean the Securities and  Exchange Commission, any successor thereto, and  any analogous Governmental Authority.

    "Securities Account" is any "securities account" as defined in the Code with such additions to such term as may hereafter be made.

    "Streamline Period" is, on and after the Effective Date, provided no Event of Default has occurred and is continuing, the period (a) commencing on the first day of the month following the day that a Co-Borrower provides to Bank a written repmt that such Co-Borrower has, for each consecutive day in the immediately preceding fiscal quarter umestricted cash at Bank plus the unused Availability Amount, as determined by Bank in its discretion, in an amount at all times greater than Four Million Dollars ($4,000,000) (the "Streamline Balance"); and (b) terminating on the earlier to occur of (i) the occurrence of an Event of Default, and (ii) the first day thereafter in which such Co-Borrower fails to maintain the Streamline Balance, as determined by Bank in its discretion. Upon  the termination of a Streamline Period, Co-Borrower must maintain the Streamline Balance each consecutive day for one (1) fiscal qumter as determined by Bank in its discretion, prior to entering into a subsequent Streamline Period. A Co-Borrower shall give Bank prior written notice of such Co-Borrower's election to enter into any  such Streamline Period.

    "Subordinated Debt" is indebtedness incurred by a Co-Borrower subordinated to all  of  such Co-Borrower's now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

  

-28-

  

 

    "Subsidiary" is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, pmtnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of a Co-Borrower.

    "Tangible Net Worth" is, on any date, the consolidated total assets of Co-Borrowers minus (a) any net intangible assets (including capitalized software development costs), minus (b) Total Liabilities (excluding  any deferred tax liabilities that are directly a result of the valuation of the intangible assets), plus (c) Subordinated Debt.

    "Total Liabilities" is on any day, obligations that should, under GAAP, be  classified as liabilities on Co-Borrower's consolidated balance sheet, including all Indebtedness.

    "Trademarks" means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of a Co-Borrower connected with and symbolized by such trademarks.

    "Transaction Report" is that certain report of transactions and schedule of collections in the form attached hereto as Exhibit B.

    "Transfer" is defined in Section 7.1.

    "Unused Revolving Line Facility Fee" is defined in Section 2.6(b).

[Balance of Page Intentionally Left Blank]

 

  

-29-

  

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

CO-BORROWERS:

 

AUGME TECHNOLOGIES, INC.

 

By:  /s/ Ivan Braiker

Name:  Ivan Braiker

Title:  CEO

 

 

HIPCRICKET, INC.

 

By:  /s/ Ivan Braiker

Name:  Ivan Braiker

Title:  CEO

 

 

GEOS COMMUNICATIONS IP HOLDINGS, INC.

 

By:  /s/ Ivan Braiker

Name:  Ivan Braiker

Title:  CEO

 

 

BANK:

 

SILICON VALLEY BANK

 

By:  /s/ Nathan Sackett

Name:  Nathan Sackett

Title:  VP

 

[Signature Page to Loan and Security Agreement]

  

-30-

  

 

EXHIBIT A

 

COLLATERAL DESCRIPTION

 

    The Collateral consists of all of Co-Borrowers'  right, title and interest in and to the following personal property:

    All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except  as  provided below), commercial tort claims, documents, instruments (including any promissory  notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

    all Co-Borrower's Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and  improvements  to  and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

    Notwithstanding the foregoing, the Collateral does not include any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to pennit perfection of Bank's security interest in such Accounts and such other prope1ty of Co­ Borrowers that are proceeds of the Intellectual Property.

    Pursuant to the terms of a certain negative pledge arrangement with Bank, Co-Borrowers have agreed not to encumber any of its Intellectual Property without Bank's prior written consent.ex10-1.htm

Exhibit 10.1

 

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked “* * *” and has been filed separately with the Securities and Exchange Commission.

 

 

 

 

CREDIT AGREEMENT

 

dated as of July 10, 2012

 

among

 

MERUS LABS INTERNATIONAL INC.,

 

as Borrower,

 

 

MERUS LABS LUXCO S.À R.L,

 

 

MERUS LABS INC.,

 

 ECG HOLDINGS INC.,

 

and

 

MERUS LABS NETHERLANDS B.V.

 

as Loan Parties,

 

PDL BIOPHARMA, INC.,

 

as Lender,

 

and

 

PDL BIOPHARMA, INC.,

as Agent

  

  

  

 

TABLE OF CONTENTS

Page

 

	
Section 1.

	Definitions; Interpretation.	
1

	 	 	 	 
	 	
1.1.

	Definitions	
1

	 	 	 	 	 
	 	
1.2.

	Interpretation	
19

	 	 	 	 	 
	 	
1.3.

	UCC References; Dutch Terms	
20

	 	 	 	 	 
	 	
1.4.

	Pro Forma Calculation	
20

	 	 	 	 	 
	
Section 2.

	Credit Facilities.	
22

	 	 	 	 
	 	
2.1.

	Loans	
22

	 	 	
2.1.1.

	
Initial Loan

	
22

	 	 	
2.1.2.

	
Additional Loan

	
22

	 	 	
2.1.3.

	
General

	
22

	 	 	 	 	 
	 	
2.2.

	Loan Accounting	
22

	 	 	
2.2.1.

	
Recordkeeping

	
22

	 	 	
2.2.2.

	
Notes

	
22

	 	 	 	 	 
	 	
2.3.

	Interest	
23

	 	 	
2.3.1.

	
Interest Rate

	
23

	 	 	
2.3.2.

	
Interest Payments

	
23

	 	 	
2.3.3.

	
Computation of Interest

	
23

	 	 	
2.3.4.

	
Interest Act (Canada)

	
23

	 	 	
2.3.5.

	
Maximum Lawful Rate.

	
23

	 	 	 	 	 
	 	
2.4.

	Prepayment	
24

	 	 	
2.4.1.

	
Voluntary Prepayment

	
24

	 	 	
2.4.2.

	
Mandatory Prepayment

	
24

	 	 	
2.4.3.

	
Prepayments

	
24

	 	 	 	 	 
	 	
2.5.

	Scheduled Repayment	
25

	 	 	
2.5.1.

	
First Scheduled Payment of the Initial Loan

	
25

	 	 	
2.5.2.

	
Second Scheduled Payment of the Initial Loan

	
25

	 	 	
2.5.3.

	
Third Scheduled Payment

	
25

	 	 	
2.5.4.

	
Payment on Maturity Date

	
25

	 	 	 	 	 
	 	
2.6.

	Payment	
25

	 	 	
2.6.1.

	
Making of Payments

	
25

	 	 	
2.6.2.

	
Application of Payments and Proceeds.

	
25

	 	 	
2.6.3.

	
Payment Dates

	
26

	 	 	
2.6.4.

	
Set-off

	
26

	 	 	
2.6.5.

	
Currency Matters

	
26

	 	 	 	 
	
Section 3.

	Yield Protection.	
27

	 	 	 	 
	 	
3.1.

	Taxes	
27

 

  

i

  

 

	 	
3.2.

	Increased Cost	
28

	 	 	 	 	 
	 	
3.3.

	Mitigation of Circumstances	
29

	 	 	 	 	 
	 	
3.4.

	Conclusiveness of Statements; Survival	
29

	 	 	 	 	 
	
Section 4.

	Conditions Precedent.	
29

	 	 	 	 
	 	
4.1.

	Initial Loan	
29

	 	 	
4.1.1.

	
Consummation of Purchase

	
29

	 	 	
4.1.2.

	
Delivery of Loan Documents

	
30

	 	 	
4.1.3.

	
Payment of Fees and Expenses

	
31

	 	 	
4.1.4.

	
Representations and Warranties

	
31

	 	 	
4.1.5.

	
No Default

	
31

	 	 	
4.1.6.

	
No Material Adverse Change

	
31

	 	 	 	 
	
Section 5.

	Representations and Warranties.	
31

	 	 	 	 
	 	
5.1.

	Organization	
31

	 	 	 	 	 
	 	
5.2.

	Authorization; No Conflict	
32

	 	 	 	 	 
	 	
5.3.

	Validity; Binding Nature	
32

	 	 	 	 	 
	 	
5.4.

	Financial Condition	
32

	 	 	 	 	 
	 	
5.5.

	No Material Adverse Change	
33

	 	 	 	 	 
	 	
5.6.

	Litigation	
33

	 	 	 	 	 
	 	
5.7.

	Ownership of Properties; Liens	
33

	 	 	 	 	 
	 	
5.8.

	Capitalization; Subsidiaries	
33

	 	 	 	 	 
	 	
5.9.

	Pension Plans	
34

	 	 	 	 	 
	 	
5.10.

	Compliance with Law; Investment Company Act; Other Regulated Entities	
35

	 	 	 	 	 
	 	
5.11.

	Margin Stock	
36

	 	 	 	 	 
	 	
5.12.

	Taxes	
36

	 	 	 	 	 
	 	
5.13.

	Solvency	
37

	 	 	 	 	 
	 	
5.14.

	Environmental Matters	
37

	 	 	 	 	 
	 	
5.15.

	Insurance	
37

	 	 	 	 	 
	 	
5.16.

	Information	
38

	 	 	 	 	 
	 	
5.17.

	Intellectual Property	
38

	 	 	 	 	 
	 	
5.18.

	Labor Matters	
38

	 	 	 	 	 
	 	
5.19.

	Canadian Labour Matters	
38

	 	 	 	 	 
	 	
5.20.

	No Default	
39

	 	 	 	 	 
	 	
5.21.

	Foreign Assets Control Regulations and Anti-Money Laundering	
39

 

  

ii

  

 

	 	 	
5.21.1.

	
OFAC

	
39

	 	 	
5.21.2.

	
Patriot Act

	
39

	 	 	 	 	 
	 	
5.22.

	Senior Debt	
40

	 	 	 	 	 
	 	
5.23.

	Withholdings and Remittances	
40

	 	 	 	 	 
	 	
5.24.

	Asset Purchase Documentation	
40

	 	 	 	 	 
	 	
5.25.

	Inactive Subsidiaries	
40

	 	 	 	 	 
	
Section 6.

	Affirmative Covenants.	
40

	 	 	 
	 	
6.1.

	Information	
40

	 	 	
6.1.1.

	
Annual Report

	
41

	 	 	
6.1.2.

	
Quarterly Reports

	
41

	 	 	
6.1.3.

	
[Reserved]

	
41

	 	 	
6.1.4.

	
Compliance Certificate

	
41

	 	 	
6.1.5.

	
[Reserved]

	
41

	 	 	
6.1.6.

	
Notice of Default; Litigation; ERISA Matters

	
41

	 	 	
6.1.7.

	
Management Report

	
42

	 	 	
6.1.8.

	
Projections

	
42

	 	 	
6.1.9.

	
Other Information

	
42

	 	 	 	 	 
	 	
6.2.

	Books; Records; Inspections	
42

	 	 	 	 	 
	 	
6.3.

	Maintenance of Property; Insurance	
43

	 	 	 	 	 
	 	
6.4.

	Compliance with Laws and Contractual Obligations; Payment of Taxes and Liabilities	
43

	 	 	 	 	 
	 	
6.5.

	Maintenance of Existence	
44

	 	 	 	 	 
	 	
6.6.

	Employee Benefit Plans	
44

	 	 	 	 	 
	 	
6.7.

	Environmental Matters	
45

	 	 	 	 	 
	 	
6.8.

	Asset Purchase	
45

	 	 	 	 	 
	 	
6.9.

	Further Assurances	
45

	 	 	 	 	 
	 	
6.10.

	Post-Closing Obligations	
46

	 	 	 	 	 
	 	
6.11.

	Board Observer	
47

	 	 	 	 	 
	
Section 7.

	Negative Covenants.	
47

	 	 	 
	 	
7.1.

	Debt	
47

	 	 	 	 	 
	 	
7.2.

	Liens	
49

	 	 	 	 	 
	 	
7.3.

	[Omitted]	
50

	 	 	 	 	 
	 	
7.4.

	Restricted Payments	
50

	 	 	 	 	 
	 	
7.5.

	Mergers; Consolidations; Asset Sales	
51

	 	 	 	 	 
	 	
7.6.

	Modification of Asset Purchase and Organizational Documents	
52

 

  

iii

  

 

	 	
7.7.

	Use of Proceeds	
52

	 	 	 	 	 
	 	
7.8.

	Transactions with Affiliates	
52

	 	 	 	 	 
	 	
7.9.

	Inconsistent Agreements	
53

	 	 	 	 	 
	 	
7.10.

	Business Activities	
53

	 	 	 	 	 
	 	
7.11.

	Investments	
53

	 	 	 	 	 
	 	
7.12.

	Fiscal Year	
54

	 	 	 	 	 
	 	
7.13.

	Financial Covenants	
54

	 	 	
7.13.1.

	
EBITDA

	
54

	 	 	
7.13.2.

	
Maximum Total Leverage Ratio

	
55

	 	 	
7.13.3.

	
Minimum Net Sales

	
56

	 	 	
7.13.4.

	
Sinking Fund Deposit Cure

	
57

	 	 	
7.13.5.

	
Principal Repayment

	
58

	 	 	 	 	 
	 	
7.14.

	Deposit Accounts and Securities Accounts	
58

	 	 	 	 	 
	 	
7.15.

	Sale-Leasebacks	
58

	 	 	 	 	 
	 	
7.16.

	Hazardous Substances	
58

	 	 	 	 	 
	 	
7.17.

	Asset Purchase Agreement Indemnity	
59

	 	 	 	 	 
	 	
7.18.

	Establishment of Defined Benefit Plan	
59

	 	 	 	 	 
	 	
7.19.

	ERISA Liability	
59

	 	 	 	 	 
	 	
7.20.

	Inactive Subsidiaries	
59

	 	 	 	 	 
	
Section 8.

	Events of Default; Remedies.	
59

	 	 	 	 
	 	
8.1.

	Events of Default	
59

	 	 	
8.1.1.

	
Non-Payment of Credit

	
59

	 	 	
8.1.2.

	
Default Under Other Debt.

	
59

	 	 	
8.1.3.

	
Bankruptcy; Insolvency

	
60

	 	 	
8.1.4.

	
Plan of Arrangement

	
60

	 	 	
8.1.5.

	
Non-Compliance with Loan Documents.

	
60

	 	 	
8.1.6.

	
Representations; Warranties

	
60

	 	 	
8.1.7.

	
[Reserved]

	
60

	 	 	
8.1.8.

	
Canadian Pensions Plans

	
61

	 	 	
8.1.9.

	
Judgments.

	
61

	 	 	
8.1.10.

	
Invalidity of Collateral Documents

	
61

	 	 	
8.1.11.

	
Invalidity of Subordination Provisions

	
61

	 	 	
8.1.12.

	
Change of Control

	
61

	 	 	 	 	 
	 	
8.2.

	Remedies	
61

	 	 	 	 	 
	 	
8.3.

	Borrower’s Right to Cure	
62

	 	 	 	 	 
	
Section 9.

	Agent.	
62

	 	 	 	 
	 	
9.1.

	Appointment; Authorization	
62

 

  

iv

  

 

	 	
9.2.

	Delegation of Duties	
62

	 	 	 	 
	 	
9.3.

	Limited Liability	
63

	 	 	 	 
	 	
9.4.

	Successor Agent	
63

	 	 	 	 
	 	
9.5.

	Collateral Matters	
63

	 	 	 	 
	
Section 10.

	Miscellaneous.	
64

	 	 	 
	 	
10.1.

	Waiver; Amendments	
64

	 	 	 	 
	 	
10.2.

	Notices	
64

	 	 	 	 
	 	
10.3.

	Computations	
64

	 	 	 	 
	 	
10.4.

	Costs; Expenses	
65

	 	 	 	 
	 	
10.5.

	Indemnification by Borrower	
65

	 	 	 	 
	 	
10.6.

	Marshaling; Payments Set Aside	
66

	 	 	 	 
	 	
10.7.

	Nonliability of the Lender	
66

	 	 	 	 
	 	
10.8.

	Anti-Money Laundering.	
66

	 	 	 	 
	 	
10.9.

	Currency Indemnity	
67

	 	 	 	 
	 	
10.10.

	Confidentiality	
68

	 	 	 	 
	 	
10.11.

	Captions	
68

	 	 	 	 
	 	
10.12.

	Nature of Remedies	
68

	 	 	 	 
	 	
10.13.

	Counterparts	
68

	 	 	 	 
	 	
10.14.

	Severability	
69

	 	 	 	 
	 	
10.15.

	Entire Agreement	
69

	 	 	 	 
	 	
10.16.

	Successors; Assigns	
69

	 	 	 	 
	 	
10.17.

	Governing Law	
69

	 	 	 	 
	 	
10.18.

	Forum Selection; Consent to Jurisdiction; Service of Process	
69

	 	 	 	 
	 	
10.19.

	Waiver of Jury Trial	
70

	 	 	 	 
	 	
10.20.

	Collateral Agent	
70

 

  

v

  

 

Annexes

	
Annex I

	
Commitments

	
Annex II

	
Addresses

 

Exhibits

	
Exhibit A

	
Form of Compliance Certificate

	
Exhibit B

	
Form of Note

 

Schedules

	
Schedule 4.1.6

	
Material Adverse Changes

	
Schedule 5.4

	
Consolidated Financial Projections

	
Schedule 5.6

	
Litigation

	
Schedule 5.7

	
Real Property

	
Schedule 5.8

	
Capitalization

	
Schedule 5.9(b)

	
Canadian Employees

	
Schedule 5.10

	
Authorizations, Permits, Licenses and Approvals

	
Schedule 5.12

	
Taxes

	
Schedule 5.14

	
Environmental Matters

	
Schedule 5.15

	
Insurance

	
Schedule 5.18

	
Labor Matters

	
Schedule 5.19

	
Canadian Labour Matters

	
Schedule 5.25

	
Certificated Inactive Subsidiaries

	
Schedule 7.1

	
Existing Debt

	
Schedule 7.2

	
Permitted Liens

	
Schedule 7.5

	
Mergers, Consolidations, Asset Sales

	
Schedule 7.9

	
Existing Agreements

	
Schedule 7.11

	
Existing Investments

	
Schedule 7.14

	
Bank Accounts

  

vi

  

 

CREDIT AGREEMENT

 

This Credit Agreement dated as of July 10, 2012, (as amended, restated or otherwise modified from time to time, this “Agreement”) is made among MERUS LABS INTERNATIONAL INC., a corporation organized under the laws of British Columbia (“Borrower”), the Loan Parties named herein, PDL BIOPHARMA, INC. (the “Lender”),  and PDL BIOPHARMA, INC., not individually, but as Agent (as defined below).

 

Borrower and the other Loan Parties have agreed to enter into this Agreement with the Lender and Agent evidencing their agreement to incur the Loans, and in connection therewith, to make the representations and warranties, covenants and undertakings as hereinafter set forth.

 

	
Section 1.

	
Definitions; Interpretation.

 

1.1.           Definitions.  When used herein the following terms shall have the following meanings:

 

“Acceleration Event” means the occurrence of any of the following:  (i) an Event of Default under Section 8.1.3; (ii) an Event of Default under Section 8.1.1 and the termination of the Commitments pursuant to Section 8.2; or (iii) any other Event of Default under Section 8.1 and the election by the Lender to declare the Obligations to be due and payable pursuant to Section 8.2.

 

“Acquired Person” has the meaning set forth in Section 1.4.

 

“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or a substantial portion of the assets of a Person, or of all or a substantial portion of any business or division of a Person, (b) the acquisition of in excess of 50% of the Stock of any Person, or otherwise causing any Person to become a Subsidiary, (c) a merger, consolidation, amalgamation or any other combination with another Person (other than a combination between two Persons that prior to the merger, consolidation, amalgamation or combination were already Loan Parties) and (d) the acquisition of a brand, line of business, division, branch, product line, marketing rights with respect to a product line, operating division or other unit operation of any Person.

 

“Additional Commitment” means, as to the Lender, the Lender’s commitment to provide the Additional Loan pursuant to Section 2.1.2.  The amount of the Additional Commitment shall be set forth on Annex I.

 

“Additional Loan” has the meaning given in the definition of “Loans”.

 

“Affiliate” of any Person means (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person and (b) any officer or director of such Person.  A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly, power to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managers or power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.  Unless expressly stated otherwise herein, neither Agent nor the Lender shall be deemed an Affiliate of any Group Member.

 

  

1

  

 

“Agent” means PDL BioPharma, Inc. in its capacity as administrative agent for the Lender hereunder and any successor thereto in such capacity.

 

“Agreement” has the meaning set forth in the Preamble.

 

“AML Legislation” has the meaning set forth in Section 10.8.

 

“Asset Purchase” means the purchase of the “Transferred Assets” (as defined in the Asset Purchase Agreement) pursuant to the Asset Purchase Agreement.

 

“Asset Purchase Agreement” means the Asset Purchase Agreement dated as of July 11, 2012 between Novartis and Merus Labs Luxco S.à r.l.

 

“Asset Purchase Documents” means the Asset Purchase Agreement and the other material documents, agreements and instruments executed and delivered in connection therewith, including, without limitation, the License Agreement, the Supply Agreement, the TM Assignment Documents, the Patent Assignment Documents and the Domain Name Assignment Documents (in each case as defined in the Asset Purchase Agreement).

 

“Asset Purchase Transactions” means the transactions contemplated by the Asset Purchase Documents.

 

“Asset Purchaser” means Merus Labs Luxco S.à r.l.

 

“Board Observer” has the meaning as set forth in Section 6.11.

 

“Board Meeting” has the meaning as set forth in Section 6.11.

 

“Borrower” has the meaning set forth in the Preamble.

 

“Business Day” means any day on which commercial banks are open for commercial banking business in New York, New York, and on which dealings are carried on in the London interbank eurodollar market.

 

“Canadian Dollars” and “CDN$” each mean lawful currency of Canada.

 

“Canadian Employee” means any employee or former employee of a Canadian Loan Party.

 

“Canadian Employee Benefits Legislation” means the Canada Pension Plan (Canada), the Pension Benefits Standards Act (British Columbia), and any Canadian federal, provincial or local counterparts or equivalents, in each case, as applicable and as amended from time to time.

 

“Canadian Employee Plan” means any employee benefit, health, welfare, supplemental unemployment benefit, bonus, pension, supplemental pension, profit sharing, retiring allowance, severance, deferred compensation, stock compensation, stock purchase, retirement, life, hospitalization insurance, medical, dental, disability or other employee group or similar benefit or employment plans or supplemental arrangements applicable to the Canadian Employees.

 

  

2

  

 

“Canadian Guarantee and Collateral Agreement” means the Guarantee and Collateral Agreement, dated as of the Closing Date, made by each Loan Party (other than Merus Labs Luxco S.à r.l) and other grantor or pledgor signatory thereto in favor of Agent, and governed by the laws of British Columbia, as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

“Canadian Loan Parties” means each Loan Party organized under the laws of Canada or a province thereof, including, for greater certainty, the Borrower and Merus Labs Inc.

 

“Canadian Pension Plan” means any pension plan required to be registered under the Income Tax Act (Canada) or any Canadian federal or provincial law and or contributed to by a Canadian Loan Party for its Canadian Employees or former Canadian Employees, including any pension benefit plan within the meaning of the Pension Benefits Standards Act (British Columbia), but does not include the Canada Pension Plan maintained by the Government of Canada or the Quebec Pension Plan maintained by the Province of Quebec.

 

“Capital Lease” means, with respect to any Person, any lease of (or other agreement conveying the right to use) any real or personal property by such Person that, in conformity with IFRS, is accounted for as a capital lease on the balance sheet of such Person.

 

“Cash Equivalent Investment” means, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the Canadian or the United States Government or any agency thereof, (b) commercial paper, or corporate demand notes, in each case rated at least A-l by Standard & Poor’s Ratings Group or P-l by Moody’s Investors Service, Inc., (c) any certificate of deposit (or time deposit represented by a certificate of deposit) or banker’s acceptance maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, (d) any repurchase agreement entered into with any commercial banking institution of the nature referred to in clause (c) above which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder, (e) money market accounts or mutual funds which invest predominantly in assets satisfying the foregoing requirements and (f) other short term liquid investments approved in writing by Agent.

 

“Change of Control” means an event or series of events by which:

 

(a) any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13-d and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all Stock that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of fifty percent (50%) or more of the Stock and Stock Equivalents of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully diluted basis (and taking into account all such securities that such person or group has the right acquire pursuant to any option right); or

 

  

3

  

 

(b) individuals who on the Closing Date constituted the board of directors or similar governing body of the Borrower (together with any new directors whose election or appointment by such board of directors or similar governing body or whose nomination for election by the shareholders of the Borrower was approved by a vote of a majority of the directors of the Borrower then still in office who were either directors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors or similar governing body of the Borrower then in office.

 

“Closing Date” means the date on which the conditions set forth in Section 4.1 have been satisfied or waived by the Lender.

 

“Closing Date Commitment” means, as to the Lender, the Lender’s commitment to provide the Initial Loan pursuant to Section 2.1.1.  The amount of the Closing Date Commitment shall be set forth on Annex I.

 

“Collateral” means all property and interests in property and proceeds thereof now owned or hereafter acquired by any Loan Party and any other Person who has granted a Lien to the Agent, in or upon which a Lien now or hereafter exists in favor of the Lender or the Agent for the benefit of the Agent and the Lender, whether under this Agreement or under any other documents executed by any such Persons and delivered to the Agent.

 

“Collateral Access Agreement” means an agreement in form and substance satisfactory to Agent in its reasonable discretion pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of Inventory or other property owned by any Loan Party, acknowledges the Liens of Agent and waives (or, if approved by Agent, subordinates) any Liens held by such Person on such property, and, in the case of any such agreement with a mortgagee or lessor, permits Agent reasonable access to and use of such real property during the continuance of an Event of Default to assemble, complete and sell any Collateral stored or otherwise located thereon.

 

“Collateral Documents” means, collectively, the Guarantee and Collateral Agreements, each Mortgage, the Luxembourg Collateral Documents, the Netherlands Collateral Documents and each other agreement or instrument pursuant to or in connection with which any Loan Party or any other Person grants a security interest in any Collateral to Agent for the benefit of the Lender or pursuant to which any such security interest in Collateral is perfected, each as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

“Commitment” means the Closing Date Commitment and/or the Additional Commitment, as applicable.

 

“Compliance Certificate” means a certificate substantially in the form of Exhibit A.

 

  

4

  

 

“Computation Period” means each period of two consecutive Fiscal Quarters ending on the last day of a Fiscal Quarter.

 

“Consideration” means the value of all cash, Cash Equivalent Investments, Stock (which in the case of Qualified Preferred Stock is the aggregate liquidation preference of such Qualified Preferred Stock), Stock Equivalents, securities and “earn-outs” and other similar agreements representing purchase consideration paid or payable for any Permitted Acquisition, whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, and includes any and all payments representing the purchase price and any assumptions of Debt, with “earn-outs” and other similar agreements valued at the maximum amount reasonably anticipated to be paid therefor.

 

“Consolidated Net Income” means, with respect to Borrower and its Subsidiaries for any period, the consolidated net income (or loss) of Borrower and its Subsidiaries for such period, excluding (i) consolidated net income of any Person for any period prior to such Person becoming a Subsidiary, (ii) any gains or losses from dispositions of any assets, (iii) any extraordinary gains or extraordinary losses, (iv) any net income of any Subsidiary to the extent that such Subsidiary is unable, by virtue of any legal or contractual prohibition, from distributing such net income to the Borrower, and (iv) any gains or losses from discontinued operations.

 

“Contingent Obligation” means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, to provide security for the obligations of a debtor or otherwise to assure a creditor against loss) any indebtedness, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the Stock of any other Person.  The amount of any Person’s obligation in respect of any Contingent Obligation shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability supported thereby or the amount of the dividends or distributions guaranteed, as applicable.

 

“Control Agreement” means a tri-party deposit account, securities account or commodities account Control Agreement by and among the applicable Loan Party, Agent and the depository, securities intermediary or commodities intermediary, and each in form and substance  satisfactory in all respects to Agent in its reasonable discretion and in any event providing to Agent either (i) “control” of such deposit account, securities or commodities account within the meaning of Articles 8 and 9 of the UCC or (ii) “control” of such securities account within the meaning of the PPSA.   For certainty for any Canadian deposit account, such term shall also refer to a “blocked account agreement” with respect to such deposit account, notwithstanding that the execution and delivery of such agreement is not a perfection requirement.

 

“Copyrights” means all rights, title and interests (and all related IP Ancillary Rights) arising under any requirement of law in copyrights and all mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith.

 

  

5

  

 

“Curable Default” has the meaning set forth in Section 8.3.

 

“Current Ratio” means, as of any date of determination, the ratio of (a) cash to (b) current accounts payable (as determined in accordance with IFRS).

 

“DCC” means the Dutch Civil Code (Burgerlijk Wetboek).

 

“Dutch Loan Party” means a Loan Party incorporated under Dutch law, including, for greater certainty, Merus Labs Netherlands B.V., with corporate seat in Amsterdam, the Netherlands.

 

“Debt” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all indebtedness evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person as lessee under Capital Leases which have been or should be recorded as liabilities on a balance sheet of such Person in accordance with IFRS, (d) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business), (e) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (with the amount thereof being measured as the fair market value of such property), (f) all obligations, contingent or otherwise, with respect to letters of credit (whether or not drawn), banker’s acceptances and surety bonds issued for the account of such Person, (g) all Hedging Obligations of such Person, (h) all Contingent Obligations of such Person, (i) all non-compete payment obligations and earn-out, purchase price adjustment and similar obligations, (j) all obligations of such Person in respect of Disqualified Capital Stock issued by such Person, (k) all indebtedness of the types listed in (a) through (j) and (l) of any partnership of which such Person is a general partner and (l) all obligations of such Person under any synthetic lease transaction, where such obligations are considered borrowed money indebtedness for tax purposes but the transaction is classified as an operating lease in accordance with IFRS.

 

“Default” means any event that, if it continues uncured, will, with the lapse of time or the giving of notice or both, constitute an Event of Default.

 

“Default Rate” has the meaning set forth in Section 2.3.1.

 

“Defined Benefit Plan” means any Canadian Pension Plan which contains a “defined benefit provision” as defined in subsection 147.1(1) of the Income Tax Act (Canada).

 

“Disposition” means, as to any asset or right of any Group Member, (a) any sale, lease, assignment or other transfer pursuant to Section 7.5(b)(ii), (b) any loss, destruction or damage of property or (c) any condemnation, confiscation, requisition, seizure or taking of property.

 

  

6

  

 

“Disqualified Capital Stock” means any Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the 365th day after the Maturity Date, (b) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Stock referred to in (a) above, in each case at any time on or prior to the 365th day after the Maturity Date, or (c) contains any repurchase obligation which may come into effect prior to the Obligations being Paid in Full; provided that any Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof (or the holders of any security into or for which such Stock is convertible, exchangeable or exercisable) the right to require the issuer thereof to redeem or repurchase such Stock upon the occurrence of a change in control or an asset sale occurring prior to the 365th day after the Maturity Date shall not constitute Disqualified Capital Stock if such Stock provides that the issuer thereof will not redeem or repurchase any such Stock pursuant to such provisions prior to the repayment in full of the Obligations.

 

“Dollar” and “$” mean lawful currency of the United States of America.

 

“Domain Name Assignment Documents” has the meaning set forth in the Asset Purchase Agreement.

 

“EBITDA” means, for any period, Consolidated Net Income for such period plus, to the extent deducted in determining such Consolidated Net Income for such period, without duplication, (i) Interest Expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) transaction expenses incurred in connection with the Asset Sale and the financing contemplated by this Agreement, (v) non-cash stock compensation expense, (vi) any non-cash non-recurring charges or expenses, and (vii) any extraordinary or non-recurring charges or expenses approved in writing by the Agent minus, to the extent included in determining Consolidated Net Income for such period, all non-cash gains for such period.

 

“Environmental Claims” means all claims, however asserted, by any governmental, regulatory or judicial authority or other Person alleging potential liability or responsibility under or for violation of any Environmental Law, or for release or injury to the environment or any Person or property or natural resources.

 

“Environmental Laws” means all present or future federal, state, provincial or local laws, statutes, common law duties, rules, regulations, ordinances and codes, including all amendments, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case relating to any matter arising out of or relating to health and safety, or pollution or protection of the environment, natural resources or workplace, including any of the foregoing relating to the presence, use, production, recycling, reclamation, generation, handling, transport, treatment, storage, disposal, distribution, discharge, release, emission, control, cleanup or investigation or management of any Hazardous Substance.

 

“Equivalent Amount” means, on any date of determination, with respect to obligations or valuations denominated in one currency (the “first currency”), the amount of another currency (the “second currency”) which would result from the Agent converting the first currency into the second currency at approximately 12:00 noon (New York time) in a commercially reasonable manner.

 

  

7

  

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Event of Default” means any of the events described in Section 8.1.

 

“Excess Cash” means, as of any date of determination, Unrestricted Cash in excess of the amount of Unrestricted Cash that would be required to maintain a Current Ratio of 1.2 to 1.0.

 

“Excluded Taxes” has the meaning set forth in Section 3.1(a).

 

“Fee Letter” means the Fee Letter, dated as of or before the Closing Date, signed by the Lender and Agent, accepted and agreed to by the Borrower, and governed by the laws of New York.

 

“Fiscal Quarter” means a fiscal quarter of a Fiscal Year.

 

“Fiscal Year” means the fiscal year of Borrower and its Subsidiaries, which period shall be the 12-month period ending on September 30 of each year.

 

“Fixed Charges” means, for any period, and with respect to the Borrower and its Subsidiaries determined on a consolidated basis in accordance with IFRS, the sum, without duplication, of (a) Interest Expense accrued (other than interest paid-in-kind, amortization of financing fees, and other non-cash Interest Expense) during such period, (b) principal payments in respect of Debt that are required to be paid during such period, (c) all federal, state, and local income taxes paid in cash with respect to such period and (d) all Restricted Payments paid (whether in cash or other property, other than common Stock) during such period.

 

“Fixed Charges Coverage Ratio” means, for any Computation Period, the ratio of (a) the total for such Computation Period of EBITDA to (b) the total for such Computation Period of Fixed Charges.

 

“Fixed Charges Coverage Ratio Requirement” means, for any Computation Period, the  applicable Fixed Charges Coverage Ratio set forth below at the end of each such Computation Period:

 

  

8

  

 

	
Computation  Period

	
Amount

	 	 
	
September 30, 2012

	
2.3:1.0

	 	 
	
December 31, 2012

	
2.3:1.0

	 	 
	
March 31, 2013

	
2.3:1.0

	 	 
	
June 30, 2013

	
2.3:1.0

	 	 
	
September 30, 2013

	
2.3:1.0

	 	 
	
December 31, 2013

	
2.3:1.0

	 	 
	
March 31, 2014

	
2.3:1.0

	 	 
	
June 30, 2014

	
2.3:1.0

	 	 
	
September 30, 2014

	
2.3:1.0

	 	 
	
December 31, 2014

	
2.3:1.0

	 	 
	
March 31, 2015

	
2.3:1.0

 

“Foreign Lender” means the Lender to the extent that it is not resident in Canada for purposes of the Tax Act.

 

“FRB” means the Board of Governors of the Federal Reserve System or any successor thereto.

 

“Governmental Authority” means any nation or government, any state, province, municipality or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank), and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

 

“Gross Sales” means, with respect to the Products for any Computation Period, the gross revenue from the sale of such Products as shown or as would be shown in the consolidated financial statements of the Loan Parties prepared for such period in accordance with IFRS applied on a consistent basis.  For the avoidance of doubt, no Disposition shall be included in Gross Sales.

 

“Group Member” means Borrower and each Subsidiary of Borrower.

 

“Guarantee and Collateral Agreements” means the U.S. Guarantee and Collateral Agreement and the Canadian Guarantee and Collateral Agreement.

 

  

9

  

 

“Hazardous Substances” means any waste, chemical, substance, or material listed, defined, classified, or regulated as a hazardous waste, hazardous substance, pollutant, contaminant, toxic substance, or hazardous, dangerous or radioactive material, chemical or waste or otherwise regulated by any Environmental Law, including, without limitation, any petroleum or any derivative, waste, or byproduct thereof, radon, asbestos, and polychlorinated biphenyls, and any other substance, the storage, manufacture, disposal, treatment, generation, use, transportation, remediation, release into or concentration in the environment of which is prohibited, controlled, regulated or licensed by any governmental authority under any Environmental Law.

 

“Hedging Obligation” means, with respect to any Person, any liability of such Person under any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.  The amount of any Person’s obligation in respect of any Hedging Obligation shall be deemed to be the incremental obligation that would be reflected in the financial statements of such Person in accordance with IFRS.

 

“IFRS” means the International Financial Reporting Standards and applicable accounting requirements set by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants, the Canadian Accounting Standards Board, or any successor to any such Board, or the Securities and Exchange Commission, as the case may be), as in effect from time to time.

 

“Inactive Subsidiaries” means the following Subsidiaries:  ECG Properties Inc., Envoy Securities Corp., and Orbis Pharma Inc.

 

“Indemnified Liabilities” has the meaning set forth in Section 10.5.

 

“Initial Loan” has the meaning given in the definition of “Loans”.

 

“Insolvency Regulation” means the Council Regulation (EC) n°1346/2000 of 29 May 2000 on insolvency proceedings.

 

“Intellectual Property” means all rights, title and interests in intellectual property arising under any Requirement of Law and all IP Ancillary Rights relating thereto, including all Copyrights, Patents, Trademarks, Internet Domain Names, Trade Secrets, industrial designs, integrated circuit topographies, plant breeders’ rights and rights under IP Licenses.

 

“Interest Expense” means for any period the consolidated interest expense of Borrower and its Subsidiaries for such period (including all imputed interest on Capital Leases).

 

“Internet Domain Name” means all right, title and interest (and all related IP Ancillary Rights) arising under any requirement of law in internet domain names.

 

“Inventory” means all the “inventory” (as such term is defined in the UCC or the PPSA, as applicable) of the Borrower and its Subsidiaries, including, but not limited to, all merchandise, raw materials, parts, supplies, work-in-process and finished goods intended for sale, together with all the containers, packing, packaging, shipping and similar materials related thereto, and including such inventory as is temporarily out of the Borrower’s or such Subsidiary’s custody or possession, including inventory on the premises of others and items in transit.

 

  

10

  

 

“Investment” means, with respect to any Person, (a) the purchase of any debt or equity security of any other Person, (b) the making of any loan or advance to any other Person, (c) becoming obligated with respect to a Contingent Obligation in respect of obligations of any other Person or (d) the making of an Acquisition.

 

“IP Ancillary Rights” means, with respect to an item of Intellectual Property all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of, such Intellectual Property and all income, royalties, proceeds and liabilities at any time due or payable or asserted under or with respect to any of the foregoing or otherwise with respect to such Intellectual Property, including all rights to sue or recover at law or in equity for any past, present or future infringement, misappropriation, dilution, violation or other impairment thereof, and, in each case, all rights to obtain any other IP Ancillary Right.

 

“IP License” means all contractual obligations (and all related IP Ancillary Rights), whether written or oral, granting any right, title and interest in any Intellectual Property.

 

“IRC” means the Internal Revenue Code of 1986, as amended.

 

“Issuing Bank” means Wells Fargo Bank, N.A., the issuing bank of the Novartis Letter of Credit.

 

“Legal Costs” means, with respect to any Person, (a) all reasonable fees and charges of any counsel, accountants, auditors, appraisers, consultants and other professionals to such Person, (b) the reasonable allocable cost of internal legal services of such Person and all reasonable disbursements of such internal counsel and (c) all court costs and similar legal expenses.

 

“Lender Party” has the meaning set forth in Section 10.5.

 

“Lender” has the meaning set forth in the Preamble.

 

“License Agreement” has the meaning set forth in the Asset Purchase Agreement.

 

“Lien” means, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.

 

“Loan Documents” means this Agreement, the Notes, the Collateral Documents, the Fee Letter, and all other documents, instruments and agreements delivered in connection with the foregoing, all as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

  

11

  

 

“Loan Party” means Borrower and each Subsidiary of Borrower that is not an Inactive Subsidiary.

 

“Loan Party Subsidiary” means each Subsidiary of Borrower that is not an Inactive Subsidiary.

 

“Loans” means the term loan from the Lender in a principal amount equal to the Closing Date Commitment (subject to the terms and conditions herein) made to Borrower on the Closing Date pursuant to Section 2.1.1 (such term loan, the “Initial Loan”) and the additional term loan from the Lender in a principal amount equal to the Additional Commitment (subject to the terms and conditions herein) made to the Borrower pursuant to Section 2.1.2 in order to satisfy the obligations of the Borrower to reimburse the Lender for amounts drawn under  the Novartis Letter of Credit pursuant to the last sentence of Section 4 (such term loan, the “Additional Loan”).

 

“Luxembourg Collateral Documents” means the Luxembourg law governed share pledge agreement, in favor of the Agent over the shares of Merus Labs Luxco S.à r.l., and the Luxembourg law governed first demand guarantee agreement, whereby Merus Labs Luxco S.à r.l. provides a guarantee in favor of the Agent.

 

“Margin Stock” means any “margin stock” as defined in Regulation T, U or X of the FRB.

 

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, assets, business, prospects, properties or condition (financial or otherwise) of Loan Parties taken as a whole, (b) a material impairment of the ability of any Loan Party to perform in any material respect any of its Obligations under any Loan Document to which it is a party or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

 

“Maturity Date” means March 31, 2015.

 

“Maximum Total Leverage Ratio” means, for any Computation Period, the ratio of (a) the total Debt outstanding less the amount of Unrestricted Cash that is Excess Cash, in each case as of the last date of such Computation Period to (b) the total for such Computation Period of EBITDA.

 

“Mortgage” means a mortgage, deed of trust, leasehold mortgage or similar instrument granting Agent a Lien on a real property interest of any Loan Party, each as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

“Net Cash Proceeds” means:

 

  

12

  

 

(a)           with respect to any Disposition, the aggregate cash proceeds (including cash proceeds received pursuant to policies of insurance and by way of deferred payment of principal pursuant to a note, installment receivable or otherwise, but only as and when received) received by any Group Member pursuant to such Disposition net of (i) the reasonable direct costs relating to such Disposition (including sales commissions and legal, accounting and investment banking fees, commissions and expenses), (ii) any portion of such proceeds deposited in an escrow account pursuant to the documentation relating to such Disposition (provided that such amounts shall be treated as Net Cash Proceeds upon their release from such escrow account to the applicable Group Member), (iii) taxes paid or reasonably estimated by Borrower to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iv) amounts required to be applied to the repayment of any Debt secured by a Lien (permitted hereunder) prior to the Lien of Agent on the asset subject to such Disposition, and (v) so long as no Event of Default exists (or if an Event of Default exists, only with the prior written consent of the Lender) (A) with respect to any Disposition described in clause (a) of the definition thereof, all money actually applied within 180 days, or within 360 days pursuant to a binding agreement executed within 180 days, to replace such assets with assets performing the same or similar functions, and (B) with respect to any Disposition described in clause (b) or (c) of the definition thereof, all money actually applied within 180 days, or within 360 days pursuant to a binding agreement executed within 180 days, to repair, replace or reconstruct damaged property or property affected by loss, destruction, damage, condemnation, confiscation, requisition, seizure or taking; and

 

(b)           with respect to any issuance or incurrence of Debt, the aggregate cash proceeds received by Borrower or any Subsidiary of Borrower pursuant to such issuance or incurrence, net of the reasonable direct costs relating to such issuance or incurrence.

 

“Netherlands Collateral Documents” means the Dutch law governed share pledge agreement, in favor of the Agent over the shares of Merus Labs Netherlands B.V.

 

“Net Sales” means, with respect to any Computation Period, Gross Sales minus Net Sales Deductions.

 

“Net Sales Deductions” means, with respect to the Products for any Computation Period, the sum of all applicable (i) freight, insurance and other transportation and shipping charges, in each case included in the gross invoice price for such Products; (ii) sales, use, value-added, excise taxes and duties, in each case included in the gross invoice price for such Products; (iii) billbacks, chargebacks, customer adjustments (including payment discounts and customer pricing), performance allowances, promotional monies, trade, quantity, cash discounts, volume incentives, off invoice discounts, government and other third-party rebates, and product service fees; (iv) allowances or credits, including those in respect of rejection, defects, damaged item credits, sales returns, retroactive price reduction, shipping charges, shipment shortages, shelf-stock adjustments, invoice errors, and replacement costs; (v) bad debt; and (vi) such other discounts and other deductions customary in the trade, each as accrued or required to be accrued by the Borrower with respect to such Products for such period in accordance with IFRS consistently applied.

 

“Non-Excluded Taxes” has the meaning set forth in Section 3.1(a).

 

  

13

  

 

“Note” means a promissory note substantially in the form of Exhibit B, as the same may be replaced, substituted, amended, restated or otherwise modified from time to time.

 

“Novartis” means Novartis Pharma AG, a company organized under the laws of Switzerland, and its successors and assigns under the Novartis Letter of Credit.

 

“Novartis Letter of Credit” means the Irrevocable Standby Letter of Credit, dated as of or before the Closing Date, identifying Novartis as the beneficiary, issued by the Issuing Bank, in the amount of $20 million.

 

“Obligations” means all liabilities, indebtedness and obligations (monetary (including interest accrued at the rate provided in the applicable Loan Document after the commencement of a bankruptcy proceeding whether or not a claim for such interest is allowed) or otherwise) of any Group Member under this Agreement, any other Loan Document, any Collateral Document or any other document or instrument executed in connection herewith or therewith, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due.

 

“OFAC” has the meaning set forth in Section 5.21.1.

 

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document.

 

“Paid in Full” or “Payment in Full” means, with respect to any Obligations, the payment in full in cash and performance of all such Obligations.

 

“Patent Assignment Documents” has the meaning set forth in the Asset Purchase Agreement.

 

“Patents” means all rights, title and interests (and all related IP Ancillary Rights) arising under any requirement of law in or relating to letters patent and applications therefor.

 

“Permitted Acquisition” means any Acquisition, in each case to the extent that each of the conditions precedent set forth below shall have been satisfied in a manner reasonably satisfactory to the Agent:

 

(a)           with respect to an acquisition involving Consideration of greater than CDN$2,500,000, the Agent shall receive not less than twenty (20) days’ prior written notice of such acquisition or such lesser number of days as the Agent may agree, which notice shall include a reasonably detailed description of the proposed terms of such acquisition and identify the anticipated closing date thereof;

 

(b)           with respect to an acquisition involving Consideration of greater than CDN$10,000,000, the Agent shall receive, not less than five (5) Business Days prior to the consummation of such acquisition, a due diligence package with respect to the Proposed Acquisition Target;

 

  

14

  

 

(c)           if applicable, the Agent shall receive an officer’s certificate from the Borrower that (i) (x) the Proposed Acquisition Target has in place or will have within 30 days following the closing of such acquisition insurance satisfying the provisions of Section 6.3 and (y) pursuant to endorsements and/or assignments in form and substance reasonably satisfactory to the Agent, the Agent has been named as lender’s loss payee, for its benefit and the benefit of the Lender, in the case of casualty insurance, and the Agent has been named as additional insured, for its benefit and the benefit of the Lender, in the case of all liability insurance, or will have been within 30 days following the closing of such acquisition or (ii) the Borrower’s insurance will cover the Proposed Acquisition Target or the acquired assets following the acquisition and the requirements in clause (y) are satisfied;

 

(d)           if applicable, the Agent, for the benefit of the Lender, (i) receives a guaranty of payment of the Obligations of the Borrower from the Proposed Acquisition Target and is granted Liens satisfying the provisions of Section 6.9, and (ii) will be provided such other documents and instruments as the Agent shall reasonably request to perfect or maintain the perfection of its Lien on all personal property of the applicable Proposed Acquisition Target, as the case may be;

 

(e)           at the time of, and after giving effect to, such acquisition and the incurrence of any Debt in connection therewith, (i) no Default or Event of Default shall exist and (ii) (x) the Borrower and its Subsidiaries shall be in compliance, on a Pro Forma Basis, with the financial covenants set forth in Section 7.13 (but, in the case of the Maximum Total Leverage Ratio, determining the maximum permissible Maximum Total Leverage Ratio as 0.25 less than the applicable Maximum Total Leverage Ratio set forth in Section 7.13.2 for the applicable Computation Period), in each case for the most recently ended Computation Period for which financial statements are available (and disregarding the qualifications in Section 7.13 that limit the applicability of the financial covenants therein to Computation Periods ending on or after March 31, 2013), and (y) with respect to any acquisition involving Consideration in excess of CDN$2,500,000, the Borrower can demonstrate to the Agent projected compliance, on a Pro Forma Basis, with the financial covenants set forth in Section 7.13 (but, in the case of the Maximum Total Leverage Ratio, determining the maximum permissible Maximum Total Leverage Ratio as 0.25 less than the applicable Maximum Total Leverage Ratio set forth in Section 7.13.2 for the applicable Computation Period), for the Computation Period immediately following the consummation of the proposed acquisition based on the combined operating results of the applicable Proposed Acquisition Target and of the Borrower and its Subsidiaries for the most recently ended Computation Period for which financial statements are available (and disregarding the qualifications in Section 7.13 that limit the applicability of the financial covenants therein to Computation Periods ending on or after March 31, 2013);

 

(f)           all material consents necessary for such acquisition have been acquired, and such acquisition shall not be hostile and shall have been approved by the Proposed Acquisition Target’s board of directors or similar governing body, if applicable;

 

  

15

  

 

(g)           the Proposed Acquisition Target must be engaged in a business satisfying the requirements of Section 7.10;

 

(h)           with respect to an acquisition involving Consideration of greater than CDN$1,000,000, as soon as practicable after the closing of such acquisition, and in any event within twenty (20) Business Days after such closing, the Borrower shall deliver copies of all documents executed in connection with such acquisition to the Agent; and

 

(i)           promptly after obtaining knowledge thereof, the Borrower shall provide notice of any material change to any of the documents or information previously provided pursuant to clauses (a) through (h) above.

 

 

“Permitted Joint Venture” means any partnership, association, community of interest or joint venture entered into by the Borrower or any other Loan Party with an unrelated, non-Affiliated third party on an arm’s length basis to engage in the joint undertaking of a business, which business shall be in the same, or in a substantially similar or related, line of business as the Loan Parties, or any business reasonably related thereto; provided (a) the maximum liability of the Loan Parties with respect thereto (including any liability it may have as a general partner) shall be limited to, as a matter of contract and applicable requirements of law, to Investments permitted to be made pursuant Section 7.11(h) and (j), and (b) the Person in whom such Investment is made is not a Subsidiary.

 

“Permitted Lien” means any Lien expressly permitted by Section 7.2.

 

“Permitted Refinancing” means any replacement, renewal, refinancing or extension of any existing Debt, in any such case, permitted by this Agreement that (i) does not exceed the aggregate principal amount (plus accrued interest and any applicable premium and associated fees and expenses) of the Debt being replaced, renewed, refinanced or extended, (ii) does not have a weighted average life to maturity at the time of such replacement, renewal, refinancing or extension that is less than the weighted average life to maturity of the Debt being replaced, renewed, refinanced or extended, (iii) does not rank at the time of such replacement, renewal, refinancing or extension senior to the Debt being replaced, renewed, refinanced or extended, and (iv) does not contain terms (including, without limitation, terms relating to security, amortization, interest rate, premiums, fees, covenants, subordination, event of default and remedies) that are less favorable to any Loan Party or adverse to the interests of the Agent and the Lender than those applicable to the Debt being replaced, renewed, refinanced or extended.

 

“Permitted Seller Debt” means unsecured Debt of the Borrower incurred in connection with, and as part of the consideration payable in respect of, any Permitted Acquisition; provided that (i) there shall be no scheduled payments of principal in respect of such Debt prior to the first anniversary of the Maturity Date, (ii) the final maturity of such Debt shall not be earlier than the first anniversary of the Maturity Date, (iii) interest or yield (including payment in kind interest and original issue discount) payable in respect of such Debt shall not exceed 12% per annum and (iv) such Debt is subordinated in right of payment to the Obligations on terms acceptable to the Agent.

 

  

16

  

 

“Person” means any natural person, corporation, partnership, trust, limited liability company, association, Governmental Authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity.

 

“PPSA” means the Personal Property Security Act (British Columbia) and the Regulations thereunder, as from time to time in effect, provided, however, if attachment, perfection or priority of the Agent’s security interests in any Collateral is governed by the personal property security laws of any jurisdiction other than British Columbia, PPSA shall mean those personal property security laws in such other jurisdiction for the purposes of the provisions hereof relating to such attachment, perfection or priority and for the definitions related to such provisions (including the Civil Code of Quebec).

 

“Pro Forma Basis” means, with respect to compliance with any test or covenant or calculation of any financial ratio hereunder, the determination or calculation of such test, covenant or ratio (including in connection with Specified Transactions) in accordance with Section 1.4.

 

“Product” means Enablex, Factive, Vancomycin, Collacare, and any other product sold by the Loan Parties in the ordinary course of business that (x) constitutes a brand, line of business, division, branch, product line, marketing rights with respect to a product line, operating division or other unit operation of any Person acquired by the Loan Parties in a Permitted Acquisition, and (y) is elected by the Borrower to be a “Product” for purposes of this Agreement, by written notice to the Agent.

 

“Proposed Acquisition Target” means any Person or any brand, product, marketing rights with respect to a product, line of business, division, branch, operating division or other unit operation of any Person.

 

“Public Record” means the public filings made by the Borrower pursuant to requirements of law, in each case as available on SEDAR.

 

“Qualified Capital Stock” of any person shall mean any Stock of such person that is not Disqualified Capital Stock.

 

“Reference Computation Period” has the meaning set forth in Section 7.13.4.

 

“Required Deposit Date” has the meaning set forth in Section 7.13.4.

 

“Restricted Payment” has the meaning set forth in Section 7.4.

 

“Retroactive Effect Deposit” has the meaning set forth in Section 7.13.4.

 

“Seller” means Novartis Pharma AG.

 

  

17

  

 

“Sinking Fund Account” means a deposit account of Borrower that is subject to a Control Agreement in favor of the Agent that is satisfactory to the Agent in its sole discretion, which Control Agreement shall provide that (1) the Group Members shall have no right to issue any instructions to the depository concerning the funds credited to such deposit account, and (2) all funds credited to such deposit account shall be used solely to satisfy the Obligations (x) upon an optional prepayment of Loans, at the option of Borrower, permitted by Section 2.4.1., (y) upon an Event of Default, at the option of Agent, or (z) upon and in connection with Payment in Full of all Obligations, in each case with any excess remaining after Payment in Full of all Obligations to be returned to Borrower or such other party as may be entitled thereto.

 

“Sinking Fund Deposit Cure Notice” has the meaning set forth in Section 7.13.4.

 

“Specified Transaction” has the meaning set forth in Section 1.4.

 

“Stock” means all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in, or equivalents (regardless of how designated) of, a Person (other than an individual), whether voting or non-voting.

 

“Stock Equivalents” means all securities convertible into or exchangeable for Stock or any other Stock Equivalent and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any Stock or any other Stock Equivalent, whether or not presently convertible, exchangeable or exercisable.

 

“Subsidiary” means, with respect to any Person, a corporation, partnership, limited liability company or other entity of which such Person owns, directly or indirectly, such number of outstanding shares of voting Stock or Stock Equivalents as to have more than 50% of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity.  Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of Borrower.

 

“Supply Agreement” has the meaning set forth in the Asset Purchase Agreement.

 

“Tax Act” means the Income Tax Act (Canada), as amended.

 

“Taxes” has the meaning set forth in Section 3.1(a).

 

“Tax Returns” has the meaning set forth in Section 5.12.

 

“TM Assignment Documents” has the meaning set forth in the Asset Purchase Agreement.

 

“Trade Secrets” means all right, title and interest (and all related IP Ancillary Rights) arising under any requirement of law in or relating to trade secrets.

 

“Trademark” means all rights, title and interests (and all related IP Ancillary Rights) arising under any requirement of law in trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers and, in each case, all goodwill associated therewith, all registrations and recordations thereof and all applications in connection therewith.

 

  

18

  

 

“UCC” means the Uniform Commercial Code as in effect in from time to time in the State of New York, provided that where the context so requires any term defined by reference to “UCC” shall also have any extended, alternative or analogous meaning given to such term in applicable Canadian personal property security and other laws (including without limitation, the PPSA of each applicable province of Canada, the Civil Code of Quebec, the Bills and Exchange Act (Canada) and the Depository Bills and Notes Act (Canada), in each case for the extension, preservation or betterment of the security and rights of the Agent and the Lender under the Loan Documents.

 

“Unrestricted Cash” means, as of any date of determination, the aggregate amount of cash credited as of such date to all deposit accounts of the Loan Parties that are subject to Control Agreements in favor of the Agent, which cash is subject to no restriction on its use, transfer or distribution pursuant to any requirement of law or contractual obligation (other than this Agreement, the Collateral Documents and the applicable Control Agreement) and is subject to no Liens other than Liens securing obligations under the Loan Documents, and shall include, for the avoidance of doubt, the amount of cash credited as of such date to the Sinking Fund Account, if any.

 

“U.S. Guarantee and Collateral Agreement” means the Guarantee and Collateral Agreement, dated as of the Closing Date, made by each Loan Party and other grantor or pledgor signatory thereto in favor of Agent, and governed by the laws of New York, as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

“Wholly-Owned Subsidiary” means, as to any Subsidiary, all of the Stock and Stock Equivalents of which (except directors’ qualifying shares) are at the time directly or indirectly owned by Borrower and/or another Wholly-Owned Subsidiary of Borrower.

 

1.2.           Interpretation.  In the case of this Agreement and each other Loan Document, (a) the meanings of defined terms are equally applicable to the singular and plural forms of the defined terms; (b) Annex, Exhibit, Schedule and Section references in each Loan Document are to the particular Annex, Exhibit, Schedule and Section of such Loan Document unless otherwise specified; (c) the term “including” is not limiting and means “including but not limited to”; (d) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including”; (e) unless otherwise expressly provided in such Loan Document, (i) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation; (f) this Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters, all of which are cumulative and each shall be performed in accordance with its terms; and (g) this Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to Agent, Borrower, Lender and the other parties hereto and thereto and are the products of all parties; accordingly, they shall not be construed against Agent or the Lender merely because of Agent’s or the Lender’s involvement in their preparation.  Any reference in any Loan Document to a Permitted Lien is not intended to subordinate or postpone, and shall not be interpreted as subordinating or postponing, or as any agreement to subordinate or postpone, any Lien created by any of the Loan Documents to any Permitted Lien.

 

  

19

  

 

1.3.           UCC References; Dutch Terms.  Notwithstanding the foregoing, and where the context so requires, (i) any term defined in this Agreement by reference to the “Code”, the “UCC” or the “Uniform Commercial Code” shall also have any extended, alternative or analogous meaning given to such term in applicable Canadian personal property security and other laws (including, without limitation, the Personal Property Security Act of each applicable province of Canada, the Civil Code of Quebec, the Bills and Exchange Act (Canada) and the Depository Bills and Notes Act (Canada)), in all cases for the extension, preservation or betterment of the security and rights of the Collateral, (ii) all references in this Agreement to “Article 8” shall be deemed to refer also to applicable Canadian securities transfer laws (including, without limitation, the Securities Transfer Act (British Columbia), (iii) all references in this Agreement to a financing statement, continuation statement, amendment or termination statement shall be deemed to refer also to the analogous documents used under applicable Canadian personal property security laws, (v) all references to the United States of America, or to any subdivision, department, agency or instrumentality thereof shall be deemed to refer also to Canada, or to any subdivision, department, agency or instrumentality thereof, and (vi) all references to federal or state securities law of the United States shall be deemed to refer also to analogous federal and provincial securities laws in Canada.  In this Agreement , where it relates to a Dutch entity, a reference to: (a) unless a contrary indication appears, a “director”, in relation to a Dutch Loan Party, means a managing director (bestuurder) and “board of directors” means its managing board (bestuur); (b) a “necessary action to authorise” where applicable, includes without limitation: (i) any action required to comply with the Dutch Works Councils Act (Wet op de ondernemingsraden); and (ii) obtaining an unconditional positive advice (advies) from the competent works council(s); (c) “financial assistance” means any act contemplated by: (i) (for a besloten vennootschap met beperkte aansprakelijkheid) section 2:207(c) DCC; or (ii) (for a naamloze vennootschap) Article 2:98(c) DCC; (d) “Security” includes any mortgage (hypotheek), pledge (pandrecht), right of retention (recht van retentie), and, in general, any right in rem (beperkt recht), created for the purpose of granting security (goederenrechtelijk zekerheidsrecht); (e) (i) a “winding-up”, “administration” or “dissolution” includes a Dutch entity being declared bankrupt (failliet verklaard) or dissolved (ontbonden); (ii) a “moratorium” includes surseance van betaling and noodregeling and “a moratorium is declared” or “occurs” includes surseance verleend and noodregeling uitgesproken; (iii) any “step” or “procedure” taken in connection with insolvency proceedings includes a Dutch entity having filed a notice under Section 36 of the Dutch 1990 Tax Collection Act (Invorderingswet 1990) (whether or not pursuant to section 60 of the Act on the Financing of Social Insurances (Wet financiering sociale verzekeringen); (iv) a “trustee in bankruptcy” includes a curator; (v) an “administrator” includes a bewindvoerder; and (vi) an “attachment” includes a beslag.

 

1.4.           Pro Forma Calculation.

 

  

20

  

 

(a)           For purposes of calculating EBITDA, Fixed Charges Coverage Ratio, Maximum Total Leverage Ratio and Net Sales, any Specified Transactions (and the incurrence or repayment of any Debt in connection therewith) that have been made (i) during the applicable Computation Period and (ii) (except when calculating EBITDA, Maximum Total Leverage Ratio and Net Sales for purposes of determining actual compliance (and not pro forma compliance or compliance on a pro forma basis) with Section 7.13) subsequent to such Computation Period and prior to or simultaneously with the event for which the calculation of any such ratio is made shall be calculated on a pro forma basis, in accordance with this Section 1.4, assuming that all such Specified Transactions (and any increase or decrease in  EBITDA and the component financial definitions used therein attributable to any Specified Transaction) had occurred on the first day of the applicable Computation Period.  If since the beginning of any applicable Computation Period any Person (each, an “Acquired Person”) that subsequently became a Subsidiary of the Borrower or was merged, amalgamated or consolidated with or into the Borrower or any of its Subsidiaries since the beginning of such Computation Period shall have made any Specified Transaction (treating for this purpose references to the Borrower in such definition as a reference to such Acquired Person) that would have required adjustment pursuant to this Section 1.4, then EBITDA, Fixed Charges Coverage Ratio, Maximum Total Leverage Ratio and Net Sales shall be calculated to give pro forma effect thereto in accordance with this Section 1.4.

 

(b)           Whenever pro forma effect is to be given to a Specified Transaction, the pro forma calculations shall be made in good faith by, and shall be set forth in a reasonably detailed certificate (to be delivered to the Agent) of, a responsible financial or accounting officer of the Borrower, and include as an increase to EBITDA, for the avoidance of doubt, the amount of cost savings, operating expense reductions and synergies projected by the Borrower in good faith to be realized as a result of specified actions taken during such period (calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of such period as if such cost savings, operating expense reductions and synergies were realized during the entirety of such period) relating to such Specified Transaction, net of the amount of actual benefits realized during such period from such actions; provided, that (i) such amounts are reasonably identifiable and factually supportable in the good faith judgment of the Borrower, (ii) such actions are taken within six (6) months after the date of such Specified Transaction, (iii) any cost savings, operating expense reductions and synergies that are not actually realized during such period may no longer be added pursuant to this clause (iii) after the end of the second full fiscal quarter ending after the date of such Specified Transaction, (iv) no amounts shall be added pursuant to this clause (c) to the extent duplicative of any amounts that are otherwise added back in computing EBITDA, whether through a pro forma adjustment or otherwise, with respect to such period, and (v) such amounts added to or included in EBITDA pursuant to this Section 1.4 for any Computation Period shall not exceed an amount equal to 10% of the amount of EBITDA for the relevant Computation Period without giving effect to any pro forma adjustments pursuant to this Section 1.4.

 

(c)           In the event that the Borrower or any of its Subsidiaries incurs (including by assumption or guarantees) or repays (including by redemption, repayment, retirement or extinguishment) any Debt included in the calculations of the Maximum Total Leverage Ratio and Fixed Charges Coverage Ratio, (i) during the applicable Computation Period and (ii) (except when calculating Maximum Total Leverage Ratio for purposes of determining actual compliance (and not pro forma compliance or compliance on a pro forma basis) with Section 7.13) subsequent to the end of the applicable Computation Period and prior to or simultaneously with the event for which the calculation of any such ratio is made, then the Maximum Total Leverage Ratio and Fixed Charges Coverage Ratio shall be calculated giving pro forma effect to such incurrence or repayment of Debt, to the extent required, as if the same had occurred on the last day of the applicable Computation Period.

 

  

21

  

 

For purposes of this Section 1.4, “Specified Transaction” means any Permitted Acquisition, any permitted Investment constituting an acquisition of assets constituting a business unit, line of business or division of another Person or any Disposition of a business unit, line of business or division of the Borrower or any of its Subsidiaries, in each case whether by merger, consolidation, amalgamation or otherwise.

 

	
Section 2.

	
Credit Facilities.

 

2.1.              Loans.

 

2.1.1.           Initial Loan.  On the terms and subject to the conditions of this Agreement, the Lender agrees to lend to Borrower on the Closing Date the entire amount of its Closing Date Commitment, after which the Closing Date Commitment shall terminate.

 

2.1.2.           Additional Loan.  On the terms and subject to the conditions of this Agreement, upon a draw by the Seller under the Novartis Letter of Credit (which draw cannot be made until one year after the Closing Date pursuant to the terms of the Asset Purchase Agreement) to satisfy the remaining purchase price obligations of the Asset Purchaser under Section 9.2 of the Asset Purchase Agreement, the Lender agrees to lend to Borrower  the entire amount of its Additional Commitment.  The Borrower agrees that the Additional Loan shall be made on behalf of Borrower but the proceeds of the Additional Loan shall be funded directly to the Issuing Bank to reimburse the Issuing Bank for the Seller’s draw under the Novartis Letter of Credit, if any.  The Additional Commitment shall immediately terminate upon the funding of the Additional Loan.  If the Additional Loan is not funded on the first anniversary of the Closing Date, the Additional Commitment shall immediately terminate.  The Agent shall provide written notice to the Borrower of the funding of the Additional Loan within one Business Day of such funding.

 

2.1.3.           General.  No portion of the Loans may be re-borrowed once repaid.  The proceeds of the Loans shall be used to finance the consummation of the Asset Purchase.

 

2.2.              Loan Accounting.

 

2.2.1.           Recordkeeping.  Agent, on behalf of the Lender, shall record in its records the date and amount of the share of the Loans made by the Lender and each repayment thereof.  The aggregate unpaid principal amount so recorded shall be rebuttably presumptive evidence of the principal amount of the Loans owing and unpaid.  The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the Obligations of Borrower hereunder or under any Note to repay the principal amount of the Loans hereunder, together with all interest accruing thereon.

 

2.2.2.           Notes.  At the request of the Lender, the Loans shall be evidenced by one or more Notes, with appropriate insertions, payable to the order of the Lender in a face principal amount equal to the Loans and payable in such amounts and on such dates as are set forth herein.

 

  

22

  

 

2.3.              Interest.

 

2.3.1.           Interest Rate.  Borrower promises to pay interest on the unpaid principal amount of the Initial Loan for the period commencing on the Closing Date until the Initial Loan is Paid in Full at a rate per annum equal to 13.50% simple interest per annum.  Borrower promises to pay interest on the unpaid principal amount of the Additional Loan for the period commencing on the date that the Lender advances the Additional Loan to or on behalf of the Borrower until the Additional Loan is Paid in Full at a rate per annum equal to 14.00% simple interest per annum.  The foregoing notwithstanding, (i) at any time an Event of Default exists, if requested by the Agent or the Lender, the interest rate then applicable to the Initial Loan and the Additional Loan shall be increased by two percent (2.00%) simple interest per annum (and, in the case of Obligations other than the Loans, such Obligations shall bear interest at two percentage points per annum in excess of their contract interest rate) (any such increased rate, the “Default Rate”), (ii) any such increase may thereafter be rescinded by the Lender, and (iii) upon the occurrence of an Event of Default under Section 8.1.1 or 8.1.3, any such increase described in the foregoing clause (i) shall occur automatically.  In no event shall interest payable on the Loans by Borrower to the Lender hereunder exceed the maximum rate permitted under applicable law, and if any such provision of this Agreement is in contravention of any such law, such provision shall be deemed modified to limit such interest to the maximum rate permitted under such law.

 

2.3.2.           Interest Payments.  Interest accrued on the Loans during the period from the Closing Date until the Maturity Date shall be paid on a monthly basis, in cash, in arrears, on the last day of each calendar month, and, to the extent not paid in advance, upon a prepayment of the Loans in accordance with Section 2.4 and at maturity, in each case, in cash.  After maturity and at any time an Event of Default exists, all accrued interest on the Loans shall be payable in cash on demand at the rates specified in Section 2.3.1.

 

2.3.3.           Computation of Interest.  Interest shall be computed for the actual number of days elapsed on the basis of a year of 360 days consisting of twelve 30-day months.

 

2.3.4.           Interest Act (Canada).  For the purposes of Interest Act (Canada) and disclosure thereunder, whenever any interest or any fee to be paid hereunder or in connection herewith is to be calculated on the basis of a 360-day or 365-day year, the yearly rate of interest to which the rate used in such calculation is equivalent is the rate so used multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or 365, as applicable.  The rates of interest under this Agreement are nominal rates, and not effective rates or yields.  The principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement.

 

2.3.5.           Maximum Lawful Rate.  If any provision of this Agreement would oblige a Canadian Loan Party to make any payment of interest or other amount payable to the Agent in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by the Agent of “interest” at a “criminal rate” (as such terms are construed under the Criminal Code (Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by applicable law or so result in a receipt by the Agent of “interest” at a “criminal rate”, such adjustment to be effected, to the extent necessary (but only to the extent necessary), as follows:

 

  

23

  

 

	 	(A) 	first, by reducing the amount or rate of interest; and
	 	 	 
	 	
(B)

	
thereafter, by reducing any fees, commissions, costs, expenses, premiums and other amounts required to be paid which would constitute interest for purposes of section 347 of the Criminal Code (Canada).

 

Any provision of this Agreement that would oblige a Canadian Loan Party to pay any fine, penalty or rate of interest on any arrears of principal or interest secured by a mortgage on real property or hypothec on immovables that has the effect of increasing the charge on arrears beyond the rate of interest payable on principal money not in arrears shall not apply to such Canadian Loan Party, which shall be required to pay interest on money in arrears at the same rate of interest payable on principal money not in arrears.

 

 

2.4.          Prepayment.

 

2.4.1.       Voluntary Prepayment.

 

(a)           Borrower may, beginning on June 30, 2014, on at least three (3) Business Days’ written notice to Agent, not later than 12:00 noon New York City time on such day, without penalty or premium, prepay the Initial Loan so long as the aggregate principal amount of the Initial Loan outstanding after any such prepayment equal at least $12,500,000.  Such notice to Agent shall specify the date and amount of prepayment.  Any such prepayment shall be in an amount greater than or equal to $1,000,000 or a higher integral multiple of $500,000.  For the avoidance of doubt, Borrower may not make any voluntary prepayment of the Initial Loan prior to June 30, 2014.

 

(b)           Borrower may, beginning on June 30, 2013, on at least one (1) Business Days’ written notice to Agent, not later than 12:00 noon New York City time on such day, without penalty or premium, prepay the Additional Loan in full or in part.  Such notice to Agent shall specify the date and amount of prepayment.  Any such prepayment shall be in an amount greater than or equal to $1,000,000 or a higher integral multiple of $500,000.

 

2.4.2.       Mandatory Prepayment.  Borrower shall prepay the Loans until Paid in Full at the following times and in the following amounts:

 

(a)           concurrently with the receipt by any Group Member of any Net Cash Proceeds from any Disposition, in an amount equal to such Net Cash Proceeds; and

 

(b)           concurrently with the receipt by any Group Member of any Net Cash Proceeds from the issuance or incurrence of Debt (other than Debt permitted by Section 7.1 hereof), in an amount equal to such Net Cash Proceeds.

 

2.4.3.       Prepayments.  Mandatory prepayments on the Loans shall be applied first to reduce the next scheduled repayment (and not any subsequent scheduled repayment) of the Initial Loan under Section 2.6, and then, if the amount of the next scheduled repayment of the Initial Loan is fully satisfied, to reduce the principal amounts outstanding of the Additional Loan.  Any prepayment of a Loan, whether voluntary or mandatory, on any day other than the first day of a calendar month shall include interest on the principal amount being repaid.

 

  

24

  

 

2.5.          Scheduled Repayment.

 

2.5.1.       First Scheduled Payment of the Initial Loan.  The lesser of (a) $5,000,000 in aggregate principal amount of the Initial Loan and (b) the aggregate principal amount of the Initial Loan then outstanding shall be repaid on December 31, 2012.

 

2.5.2.       Second Scheduled Payment of the Initial Loan.  The lesser of (a) $7,500,000 in aggregate principal amount of the Initial Loan and (b) the aggregate principal amount of the Initial Loan then outstanding shall be repaid on June 30, 2013.

 

2.5.3.       Third Scheduled Payment.  The lesser of (a) $10,000,000 in aggregate principal amount of the Initial Loan and (b) the aggregate principal amount of the Initial Loan then outstanding shall be repaid on June 30, 2014.

 

2.5.4.       Payment on Maturity Date.  The outstanding principal balance of the Loans shall be Paid in Full on the Maturity Date.

 

2.6.          Payment.

 

2.6.1.       Making of Payments.  All payments of principal of or interest on the Loans, and of all fees, shall be made by Borrower to Agent without setoff, recoupment or counterclaim and in immediately available funds, in the currency required by Section 2.6.5, at the deposit account of Agent in New York, New York set forth on Annex II or at such other deposit account specified by Agent, in any case, not later than 1:00 p.m. New York City time on the date due, and funds received after that hour shall be deemed to have been received by Agent on the following Business Day.  Agent shall promptly remit to the Lender all principal, interest and fee payments received in collected funds by Agent for the account of such Lender.

 

2.6.2.       Application of Payments and Proceeds.

 

(a)           Except as set forth in Section 2.4.3, and subject to the provisions of Section 2.6.2(b) below, each payment by Borrower hereunder shall be applied to such Obligations as Borrower shall direct by notice to be received by Agent on or before the date of such payment or, in the absence of such notice, as Agent shall determine in its sole discretion.  Concurrently with each remittance to the Lender of its share of any such payment, Agent shall advise such Lender as to the application of such payment.

 

(b)           If an Event of Default or an Acceleration Event shall have occurred and be continuing, notwithstanding anything herein or in any other Loan Document to the contrary, Agent shall apply all or any part of payments in respect of the Obligations and proceeds of Collateral, in each case as received by Agent, to the payment of the Obligations in the following order:

 

  

25

  

 

(i)            FIRST, to (A) the payment of all fees, costs, expenses and indemnities due and owing to Agent under this Agreement or any other Loan Document, and (B) any other Obligations owing to Agent in respect of sums advanced by Agent to preserve or protect the Collateral or to preserve or protect its security interest in the Collateral (whether or not such Obligations are then due and owing to Agent), until Paid in Full;

 

(ii)           SECOND, to the payment of all fees, costs, expenses and indemnities due and owing to the Lender until Paid in Full;

 

(iii)          THIRD, to the payment of all accrued and unpaid interest due and owing to the Lender in respect of the Loans (on a pro rata basis in respect of the Initial Loan and the Additional Loan) until Paid in Full;

 

(iv)          FOURTH, to the payment of all principal then owing in respect of the Loans (on a pro rata basis in respect of the Initial Loan and the Additional Loan) until Paid in Full;

 

(v)           FIFTH, to the payment of all other Obligations owing to the Lender until Paid in Full; and

 

(vi)          SIXTH, the balance to the Borrower or such other Person as may be lawfully entitled thereto.

 

2.6.3.       Payment Dates.  If any payment of principal of or interest on a Loan, or of any fees, falls due on a day which is not a Business Day, then such due date shall be extended to the immediately following Business Day (unless such immediately following Business Day is the first Business Day of a calendar month, in which case such due date shall be the immediately preceding Business Day) and, in the case of principal, additional interest shall accrue and be payable for the period of any such extension.

 

2.6.4.       Set-off.  Borrower agrees that Agent and the Lender and its Affiliates have all rights of set-off and bankers’ lien provided by applicable law, and in addition thereto, Borrower agrees that at any time an Event of Default has occurred and is continuing, Agent and the Lender may apply to the payment of any Obligations of Borrower hereunder, whether or not then due, any and all balances, credits, deposits, accounts or moneys of Borrower then or thereafter maintained with Agent or such Lender.

 

2.6.5.       Currency Matters.  Principal, interest, reimbursement obligations, cash collateral for reimbursement obligations, fees, and all other amounts payable under this Agreement and the other Loan Documents to the Agent and the Lender shall be payable (except as otherwise specifically provided herein) in Dollars.  Unless stated otherwise, all calculations, comparisons, measurements or determinations under this Agreement shall be made in Canadian Dollars.  If the Agent receives a payment in one currency for application to Obligations denominated in another currency (whether as proceeds of Collateral, proceeds of a judgment, or the exercise of control under a Control Agreement or otherwise), the Agent shall convert (or will be deemed to have converted) the payment to the Equivalent Amount thereof in the currency in which the Obligations are due.

 

  

26

  

 

	
Section 3.

	
Yield Protection.

 

3.1.          Taxes.

 

(a)           Except as otherwise provided in this Section 3.1, all payments of principal and interest on the Loans and all other amounts payable under any Loan Document shall be made free and clear of and without deduction or withholding for any present or future income, excise, stamp, documentary, property or franchise taxes or other taxes, fees, duties, levies, withholdings or other charges of any nature whatsoever imposed by any taxing authority, including any interest, additions to tax or penalties applicable thereto (“Taxes”), excluding (i) taxes imposed on or measured by the Lender’s net income by the jurisdiction under which the Lender is organized or conducts business (other than business arising from the Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction with respect to the Loans or  pursuant to or enforced any Loan Document), (ii) any branch profit taxes imposed by Canada, or any similar tax imposed by any other jurisdiction, in each case to the extent the applicable Lender is organized or has its applicable lending office in such jurisdiction, and (iii) in the case of any Foreign Lender, any Canadian withholding tax that would not have been imposed but for such Foreign Lender’s failure (other than as a result of a change in law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority) to provide any form or other certificate or other information required by the Borrower for the purpose of reducing or eliminating the withholding or imposition of the Tax, provided, that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s judgment such completion, execution or submission would not materially prejudice the legal position of such Lender or otherwise impose a material burden on it (collectively, “Excluded Taxes” and all such non-Excluded Taxes, “Non-Excluded Taxes”).  If any withholding or deduction from any payment to be made by Borrower hereunder is required in respect of any Taxes pursuant to any applicable law (as determined in the good faith reasonable discretion of the Borrower or Agent), rule or regulation, then Borrower shall:  (i) timely pay directly to the relevant taxing authority the full amount required to be so withheld or deducted; (ii) within thirty (30) days after the date of any such payment of Taxes, forward to Agent an official receipt or other documentation satisfactory to Agent evidencing such payment to such authority; and (iii) in the case of Non-Excluded Taxes, pay to Agent for the account of the Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by the Lender will equal the full amount the Lender would have received had no such withholding or deduction (including withholdings and deductions applicable to any additional sums payable under this Section 3.1) been required.

 

(b)           Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Agent timely reimburse it for the payment of, any Other Taxes.

 

(c)           The Borrower shall reimburse and indemnify, within 10 days after receipt of demand therefor (with copy to the Agent), Agent and the Lender for all Non-Excluded Taxes and Other Taxes (including any additional Taxes imposed by any jurisdiction on amounts payable under this Section 3.1) paid by the Agent or the Lender, or required to be withheld or deducted from a payment to the Agent or the Lender, and any liabilities arising therefrom or with respect thereto (including any penalty, interest or expense), whether or not such Taxes were correctly or legally asserted.  A certificate of the Agent or the Lender (or of the Agent on behalf of the Lender) claiming any compensation under this clause (c), setting forth the amounts to be paid thereunder and delivered to the Borrower with copy to the Agent, shall be conclusive, binding and final for all purposes, absent manifest error.

 

  

27

  

 

(d)           [Reserved.]

 

The provisions of this Section 3.1 shall survive the termination of this Agreement and repayment of all Obligations.

 

3.2.          Increased Cost.

 

(a)           If, after the Closing Date, the adoption or taking effect of, or any change in, any applicable law, rule, regulation or treaty, or any change in the interpretation or administration of any applicable law, rule, regulation or treaty by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender with any request, rule, guideline or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:  (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by the Lender; (ii) subject the Lender or Agent to any Taxes (other than Taxes indemnified pursuant to Section 3.1); or (iii) shall impose on the Lender any other condition affecting its Loan, its Note or its obligation to make the Loan; and the result of anything described in clauses (i) through (iii) above is to increase the cost to (or to impose a cost on) such Lender of making or maintaining its Loan, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under its Note with respect thereto, then, upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent), Borrower shall pay directly to the Lender such additional amount as will compensate the Lender for such increased cost or such reduction.

 

(b)           If the Lender shall reasonably determine that any change in, or the adoption or phase-in of, any applicable law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by the Lender or any Person controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Lender’s or such controlling Person’s capital as a consequence of such Lender’s Commitments hereunder to a level below that which the Lender or such controlling Person could have achieved but for such change, adoption, phase-in or compliance (taking into consideration the Lender’s or such controlling Person’s policies with respect to capital adequacy) by an amount deemed by the Lender or such controlling Person to be material, then from time to time, upon demand by the Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent), Borrower shall pay to the Lender such additional amount as will compensate the Lender or such controlling Person for such reduction.

 

  

28

  

 

(c)           Notwithstanding anything herein to the contrary, (i) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or by United States or foreign regulatory authorities, in each case pursuant to Basel III, and (ii) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or in implementation thereof, shall in each case be deemed to be a change in law, regardless of the date enacted, adopted, issued or implemented.

 

3.3.          Mitigation of Circumstances.

 

The Lender shall promptly notify Borrower and Agent of any event of which it has knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender’s sole judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, any obligation by Borrower to pay any amount pursuant to Section 3.1 or 3.2.   Borrower hereby agrees to pay all reasonable costs and expenses incurred by Lender in connection with this Section 3.3.

 

3.4.          Conclusiveness of Statements; Survival.  Determinations and statements of the Lender pursuant to Sections 3.1 or 3.2 shall be conclusive absent demonstrable error provided that the Lender or the Agent provides Borrower with written notification of such determinations and statements.  The Lender may use reasonable averaging and attribution methods in determining compensation under Sections 3.1 or 3.2 and the provisions of such Sections shall survive repayment of the Loans, cancellation of the Notes and termination of this Agreement.

 

	
Section 4.

	
Conditions Precedent.

 

4.1.          Initial Loan.  The obligation of the Lender to make the Initial Loan on the Closing Date is subject to the following conditions precedent, each of which shall be satisfactory in all respects to Agent and the Lender:

 

4.1.1.       Consummation of Purchase.  Each of the following shall have occurred:

 

(a)           The Agent shall have received a complete and correct copy of each of the Asset Purchase Agreement, the Supply Agreement, and the License Agreement, in each case including all schedules, exhibits, amendments, supplements, modifications, assignments and all other material documents delivered pursuant thereto or in connection therewith, and all such documentation shall be satisfactory to the Agent; provided that the Agent agrees that the executed versions of each of the Asset Purchase Agreement, the Supply Agreement, and the License Agreement (together with all exhibits and schedules thereto) in the form delivered to it on July 9, 2012, is satisfactory to it.

 

  

29

  

 

(b)           The Asset Purchase and the other transactions contemplated by the Asset Purchase Documents shall have been, or simultaneously with the making of the Initial Loan hereunder shall be, consummated in accordance with applicable law and on the terms described in the Asset Purchase Documents, without material waiver or amendment thereof (or consent thereunder) unless consented to by the Agent (it being understood and agreed that any increase or decrease in the Purchase Price of more than 10% shall be deemed a material amendment).

 

4.1.2.       Delivery of Loan Documents.  Borrower shall have delivered the following documents in form and substance satisfactory to Agent (and, as applicable, duly executed by all Persons named as parties thereto and dated the Closing Date or an earlier date satisfactory to Agent):

 

(a)           Agreement.  This Agreement.

 

(b)           Notes.  A Note in respect of the Initial Loan.

 

(c)           Collateral Documents.  The Guarantee and Collateral Agreements, all other Collateral Documents, and all instruments, documents, certificates and agreements executed or delivered pursuant thereto (including Intellectual Property assignments and pledged equity and limited liability company interests in the Borrower and the Borrower’s Subsidiaries, with undated irrevocable transfer powers executed in blank), in each case, executed and delivered by each Loan Party and each other Person named as a party thereto.

 

(d)           Financing Statements.  Properly completed Uniform Commercial Code financing statements, PPSA filings, and other filings and documents required by law or the Loan Documents to provide Agent perfected Liens (subject only to Permitted Liens) in the Collateral.

 

(e)           Lien Searches.  Copies of Uniform Commercial Code and PPSA search reports listing all effective financing statements or equivalent filings filed against any Loan Party, with copies of such financing statements and filings; and copies of Patent, Trademark, Copyright and Internet Domain Name search reports in material jurisdictions listing all effective collateral assignments in respect of such Intellectual Property filed with respect to any Loan Party, with copies of such collateral assignment documentation.

 

(f)           Authorization Documents.  For each Loan Party, such Person’s (i) charter (or similar formation document), certified by the appropriate Governmental Authority (as applicable) in its jurisdiction of incorporation (or formation) (including, in relation to a Dutch Loan Party, a recent extract from the Dutch Trade Register (handelsregister) relating to it), (ii) good standing certificates in its jurisdiction of incorporation (or formation) and in each other jurisdiction requested by Agent or the Lender, (iii) limited liability company agreement, partnership agreement, bylaws (and similar governing document) (as applicable), (iv) (a) resolutions of its board of directors (or similar governing body) approving and authorizing such Person’s execution, delivery and performance of the Loan Documents to which it is party and the transactions contemplated thereby, (b) in respect of a Dutch Loan Party: (1) a copy of a resolution of its board of supervisory directors (if any) approving its execution and the terms of, and the transactions contemplated by, the Loan Documents to which it is a party; (2) a copy of a resolution of its general meeting of shareholders approving its execution and the terms of, and the transactions contemplated by, the Loan Documents to which it is a party; and (3) if it is required by law or any arrangement binding on it to obtain works council advice in respect of its or any other person’s entry into the Loan Documents, a copy of an unconditional positive advice from its (central) works council; and (v) signature and incumbency certificates of its directors and/or officers executing any of the Loan Documents, all certified by its secretary or an assistant secretary (or similar officer) as being in full force and effect without modification.

 

  

30

  

 

(g)           Opinions of Counsel.  Opinions of New York counsel for each Loan Party, of British Columbia counsel for each Loan Party formed in Canada, of Dutch Counsel for the Dutch Loan Party, and of Luxembourg counsel for each Loan Party formed in Luxembourg, each in form and substance requested by Agent.

 

(h)           Insurance.  Certificates or other evidence of insurance in effect as required by Section 6.3(b), with endorsements naming Agent as lenders’ loss payee and/or additional insured, as applicable.

 

(i)            Other Documents.  Such other certificates, documents and agreements that may be listed on the closing checklist provided by Agent to the Borrower or as Agent or the Lender may request.

 

4.1.3.       Payment of Fees and Expenses.  The Borrower shall have paid, on or prior to the Closing Date, all fees and expenses owing and payable to Agent and the Lender as of the Closing Date (including the fees payable pursuant to the Fee Letter as of the Closing Date) and, subject to Section 10.4 and without duplication, all fees, expenses and other amounts payable set forth herein and costs and expenses incurred by Agent and the Lender in connection with the transactions contemplated hereby which are required to be paid by the Borrower.

 

4.1.4.       Representations and Warranties.  Each representation and warranty by each Loan Party contained herein or in any other Loan Document shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date.

 

4.1.5.       No Default.  No Default or Event of Default shall have occurred and be continuing.

 

4.1.6.       No Material Adverse Change.  Except as set forth in Schedule 4.1.6 hereto, since September 30, 2011, there has been no event or occurrence that has or could reasonably be expected to result in a Material Adverse Effect.

 

	
Section 5.

	
Representations and Warranties.

 

To induce Agent and the Lender to enter into this Agreement and to induce the Lender to advance the Loans hereunder, Borrower represents and warrants to Agent and the Lender that each of the following are, and after giving effect to the Asset Purchase Transactions, will be, true, correct and complete:

 

5.1.          Organization.  Borrower is a corporation validly existing and in good standing under the laws of British Columbia; each other Loan Party is validly existing and in good standing (as applicable) under the laws of the jurisdiction of its organization; and each Loan Party is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for such jurisdictions where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect.  The “centre of main interests” (as that term is used in the Insolvency Regulation) of Merus Labs Luxco S.à r.l. is in Luxembourg, and Merus Labs Luxco S.à r.l has no “establishment” (as that term is used in the Insolvency Regulation) outside Luxembourg.

 

  

31

  

5.2.           Authorization; No Conflict.  Each of Borrower and each other Loan Party is duly authorized to execute and deliver each Loan Document and each Asset Purchase Document to which it is a party, Borrower is duly authorized to borrow monies hereunder, the granting of the security interests pursuant to the Collateral Documents is within the corporate purposes of Borrower and each other Loan Party, and each of Borrower and each other Loan Party is duly authorized to perform its Obligations under each Loan Document to which it is a party and its obligations under each Asset Purchase Document to which it is a party.  The execution, delivery and performance by Borrower of this Agreement and by each of Borrower and each Loan Party of each Loan Document to which it is a party and each Asset Purchase Document to which it is a party, and the borrowings by Borrower hereunder, do not and will not (a) require any consent or approval of any governmental agency or authority (other than (i) any consent or approval which has been obtained and is in full force and effect, (ii) recordings and filings in connection with the Liens granted to the Agent under the Collateral Documents and (iii) with respect to Marketing Authorizations (as defined in the Asset Purchase Agreement) to be obtained after the Closing Date in accordance with the terms of the Asset Purchase Agreement), (b) conflict with (i) any provision of applicable law, (ii) the charter, by-laws, limited liability company agreement, partnership agreement or other organizational documents of any Group Member or (iii) any agreement, indenture, instrument or other document, or any judgment, order or decree, which is binding upon any Group Member or any of their respective properties or (c) require, or result in, the creation or imposition of any Lien on any asset of Borrower or any other Group Member (other than Liens in favor of Agent created pursuant to the Collateral Documents).

 

5.3.           Validity; Binding Nature.  Each of this Agreement, each other Loan Document to which Borrower or any other Loan Party is a party and each Asset Purchase Document to which any Loan Party is a party is the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity.

 

5.4.           Financial Condition.

 

(a)           The audited consolidated financial statements of Borrower and its Subsidiaries (presented on a consolidated basis) as at September 30, 2011, together with the unaudited consolidated financial statements of Borrower and its Subsidiaries (presented on a consolidated basis) as at March 31, 2012, copies of each of which have been delivered pursuant hereto, were prepared in accordance with IFRS (or, in the case of the audited financial statements for the periods ending on or prior to September 30, 2011, Canadian GAAP) (subject, in the case of such unaudited statements, to the absence of footnotes and to normal year-end adjustments) and present fairly the consolidated financial condition of such Persons as at such dates and the results of their operations for the periods then ended.

 

  

32

  

 

(b)           The consolidated financial projections (including an operating budget and a cash flow budget) of Borrower and its Subsidiaries for the period commencing June 30, 2012 through March 31, 2015 delivered to Agent and the Lender on or prior to the Closing Date and attached as Schedule 5.4 were: (i) prepared by Borrower in good faith; (ii) based upon current expectations regarding future events; and (iii)  prepared in accordance with assumptions for which Borrower has a reasonable basis to believe as of the Closing Date, and the accompanying consolidated pro forma balance sheets of Borrower and its Subsidiaries as at the Closing Date, adjusted to give effect to the consummation of the financing contemplated hereby as if such transactions had occurred on such date, is consistent in all material respects with such projections; with the recognition, however, that projections are inherently subject to varying degrees of uncertainty and their achievability, despite the reasonableness upon which they were prepared, depend upon the timing and probability of occurrence of a complex series of future events, both internal and external, certain of which are beyond Borrower’s control, and which may result in future costs, results of operations or outcomes that may be materially different from the projections attached as Schedule 5.4.

 

5.5.           No Material Adverse Change.  Except as set forth in Schedule 4.1.6, since September 30, 2011, there has been no event or occurrence that has or could reasonably be expected to result in a Material Adverse Effect.

 

5.6.           Litigation.  No litigation (including derivative actions), arbitration proceeding or governmental investigation or proceeding is pending or, to any Loan Party’s knowledge, threatened, against any Loan Party or any of their respective properties which (i) purport to affect or pertain to this Agreement, any other Loan Document, any Asset Purchase Document or any of the transactions contemplated hereby or thereby or (ii) except as set forth in Schedule 5.6(a), could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement, any other Loan Document or any Asset Purchase Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided.  As of the Closing Date, except as specifically disclosed in Schedule 5.6(b), no Group Member is the subject of an audit or, to each Group Member’s knowledge, any review or investigation by any Governmental Authority (excluding the IRS and other taxing authorities) concerning the violation or possible violation of any requirement of law.

 

5.7.           Ownership of Properties; Liens.  As of the date hereof, there are no Liens on the Collateral other than those granted in favor of the Agent to secure the Obligations and Permitted Liens.  Each of Borrower and each other Loan Party owns good and, in the case of real property, marketable, title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges and claims (including infringement claims with respect to Intellectual Property), except as permitted by Section 7.2.  As of the Closing Date, Schedule 5.7 lists all of the real property owned, leased, subleased or otherwise owned or occupied by any Group Member.

 

5.8.           Capitalization; Subsidiaries.

 

  

33

  

 

(a)           Equity Interests.  Schedule 5.8 sets forth a list, as of the Closing Date, of (i) all the Subsidiaries of Borrower and their jurisdictions of organization and (ii) the number of each class of its Stock and Stock Equivalents outstanding.  All Stock and Stock Equivalents of each Group Member are duly and validly issued and, in the case of each entity that is a corporation, are fully paid and non-assessable, and, other than the Stock and Stock Equivalents of Borrower, are owned by Borrower, directly or indirectly through Wholly-Owned Subsidiaries.  Each Loan Party is the record and beneficial owner of, and has good and marketable title to, the Stock and Stock Equivalents pledged by it to the Agent under the Collateral Documents, free of any and all Liens, rights or claims of other persons, except the security interest created by the Collateral Documents, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any such Stock and Stock Equivalents. Other than the the security interest created by the Collateral Documents, there is no floating charge (gage sur fonds de commerce) or similar security in existence on the business of the Borrower or Merus Labs Luxco S.à r.l, nor any mandate with a view to the creation thereof.  Except as set forth on Schedule 5.8, as of the Closing Date no Group Member is engaged in any joint venture with any other Person.

 

(b)           No Consent of Third Parties Required.  No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or reasonably desirable (from the perspective of a secured party) in connection with the creation, perfection or first priority status of the security interest of the Agent in any Stock and Stock Equivalents pledged to the Agent for the benefit of the Lender under the Collateral Documents or the exercise by the Agent of the voting or other rights provided for in the Collateral Documents or the exercise of remedies in respect thereof.

 

5.9.          Pension Plans.

 

(a)           U.S. Pension Plans.  No Loan Parties have any liability under ERISA and no Loan Party sponsors any “pension plan” or has any liability subject to Title IV of ERISA.

 

(b)           Canadian Employees.

 

(i)            Except as set forth on Schedule 5.9(b) (as updated from time to time) and as of the date hereof, no Canadian Loan Party maintains or contributes to any plan other than statutory plans required by applicable law.

 

(ii)           Except as set forth in Schedule 5.9(b) and as of the date hereof, no Canadian Loan Party has or is subject to any present or future obligation or liability under any Canadian Employee Plan and any overtime pay, vacation pay, premiums for unemployment insurance, health and welfare insurance premiums, accrued wages, salaries and commissions, severance pay and employee benefit plan payments have been fully paid by each Canadian Loan Party or, in the case of accrued unpaid overtime pay or accrued unpaid vacation pay for Canadian Employees, has been accurately accounted for in the books and records of each Canadian Loan Party or has been reported pursuant to the collateral reporting obligation pursuant to Section 5.9(b).

 

  

34

  

 

(iii)          Schedule 5.9(b) (as updated from time to time) lists all the Canadian Pension Plans and Canadian Employee Plans applicable to the Canadian Employees of each Canadian Loan Party in respect of employment in Canada and which are currently maintained or sponsored by each Canadian Loan Party or to which each Canadian Loan Party contributes or has an obligation to contribute, except, for greater certainty, any statutory plans to which each Canadian Loan Party is obligated to contribute to or comply with under applicable law.

 

(iv)          No improvements to any Canadian Pension Plan or any Canadian Employee Plan have been promised, except such improvements as are described in the collective bargaining agreements listed in Schedule 5.9(b) (as updated from time to time), and no amendments or improvements to a Canadian Employee Plan will be made or promised by any Canadian Loan Party before the Closing Date.

 

(v)           Except as disclosed in Schedule 5.9(b) (as updated from time to time), no Canadian Loan Party provides benefits to retired Canadian Employees or to beneficiaries or dependents of retired Canadian Employees.

 

(vi)          All obligations regarding the Canadian Pension Plans and the Canadian Employee Plans (including current service contributions) have been satisfied, there are no outstanding defaults or violations by any party to any Canadian Pension Plan and any Canadian Employee Plan and no taxes, penalties or fees are owing or exigible under any of the Canadian Employee Plans, except which could not reasonably be expected to result in a Material Adverse Effect.  Except as disclosed in Schedule 5.9(b), as of the date hereof, each Canadian Pension Plan and each Canadian Employee Plan is fully funded or fully insured pursuant to the actuarial assumptions and methodology set out in Schedule 5.9(b) (as updated from time to time) and, in the case of a Canadian Pension Plan, as required under the most recent actuarial valuation filed with the applicable governmental authority pursuant to generally accepted actuarial practices and principles.  To the best knowledge of each Canadian Loan Party, no fact or circumstance exists that could adversely affect the tax-exempt status of a Canadian Pension Plan or Canadian Employee Plan.

 

(vii)         All contributions, assessments, premiums, fees, taxes, penalties or fines in relation to the Canadian Employees have been duly paid and there is no outstanding liability of any kind in relation to the employment of the Canadian Employees or the termination of employment of any Canadian Employee.

 

(viii)        Each Canadian Loan Party is in compliance with all requirements of Canadian Employee Benefits Legislation and health and safety, workers compensation, employment standards, labor relations, health insurance, employment insurance, protection of personal information, human rights laws and any Canadian federal, provincial or local counterparts or equivalents in each case, as applicable to the Canadian Employees and as amended from time to time.

 

5.10.        Compliance with Law; Investment Company Act; Other Regulated Entities.  Except as set out in Schedule 5.10, Borrower and each other Group Member possesses all necessary authorizations, permits, licenses and approvals from all Governmental Authorities in order to conduct their respective businesses as presently conducted.  All business and operations of the Borrower and each other Group Member complies with all applicable federal, state and local laws and regulations, except where the failure so to comply could not reasonably be expected to result in a Material Adverse Effect.  Neither the Borrower nor any other Group Member is operating any aspect of its business under any agreement, settlement, order or other arrangement with any Governmental Authority. Neither Borrower nor any other Group Member is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company”, within the meaning of the Investment Company Act of 1940.  None of any Group Member, any Person controlling any Group Member, or any Subsidiary of any Group Member, is subject to regulation under the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute, rule or regulation limiting its ability to incur Debt, pledge its assets or perform its Obligations under the Loan Documents.

 

  

35

  

 

5.11.           Margin Stock.  Neither Borrower nor any Group Member is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.  No portion of the Obligations is secured directly or indirectly by Margin Stock.

 

5.12.           Taxes.  Except as disclosed in Schedule 5.12, each of Borrower and each other Group Member has filed all federal, state, provincial, local and foreign income, sales, goods and services, harmonized sales and franchise and other material tax returns, reports and statements (collectively, the “Tax Returns”) with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are or were required to be filed. All such Tax Returns are true and correct in all material respects. All Taxes, charges and other impositions reflected therein or otherwise due and payable have been paid prior to the date on which any liability may be added thereto for non-payment thereof, except for those contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves are maintained on the books of the appropriate Group Member, as applicable, in accordance with IFRS.  Except as specifically disclosed in Schedule 5.12, no Tax Return is under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes has been given or made by any Governmental Authority.  Proper and accurate amounts have been withheld by each Group Member, as applicable, from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable requirements of law and such withholdings have been timely paid to the respective Governmental Authorities.  No Group Member has been a member of an affiliated, combined or unitary group other than the group of which a Group Member is the common parent or has liability for Taxes of any other person.  Except as otherwise permitted under the Agreement or as set out in Schedule 5.12, each Group Member has withheld and remitted all required amounts within the prescribed periods to the appropriate governmental authorities, and in particular has deducted, remitted and paid all Canada Pension Plan contributions, Quebec Pension Plan contributions, workers compensation assessments, employment insurance premiums, employee health premiums, and real estate taxes within the prescribed periods to the appropriate governmental authorities.  Borrower is resident in Canada for purposes of the Tax Act, is not resident in any other country, and no other country has asserted residency with respect to Borrower for purposes of the other country’s Tax Laws.

 

  

36

  

 

5.13.           Solvency.  Both immediately before and after giving effect to (a) the Loans made on or prior to the date this representation and warranty is made or remade, (b) the disbursement of proceeds of such Loans, (c) the consummation of the transactions contemplated by the Asset Purchase Documents and (d) the payment and accrual of all transaction costs in connection with the foregoing, with respect to the Borrower and each other Loan Party, on a consolidated basis, (i) the fair value of its assets is greater than the amount of its liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated, (ii) the present fair saleable value of its assets is not less than the amount that will be required to pay the probable liability on its debts as they become absolute and matured, (iii) it is able to realize upon its assets and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (iv) it does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature and (v) it is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which its property would constitute unreasonably small capital.  None of Merus Labs Luxco S.à r.l.’s managers has taken any resolution to effect, and to the best of each such manager’s knowledge no party has initiated, any of the following proceedings against Merus Labs Luxco S.à r.l.: (i) insolvency proceedings (faillite), or (ii) proceedings for voluntary arrangement with its creditors (concordat préventif de faillite), (iii) controlled management (gestion contrôlée) or (iv) suspension of payments (sursis de paiement) or (v) voluntary dissolution or liquidation (dissolution ou liquidation volontaire) or (vi) any similar foreign law proceedings having similar effects.

 

5.14.           Environmental Matters.  The on-going operations of Borrower and each other Group Member comply in all respects with all Environmental Laws, except such non-compliance which could not (if enforced in accordance with applicable law) reasonably be expected to result in a Material Adverse Effect.  Borrower and each other Group Member have obtained, and maintained in good standing, all licenses, permits, authorizations and registrations required under any Environmental Law and necessary for their respective ordinary course operations, and Borrower and each other Group Member are in compliance with all material terms and conditions thereof, except where the failure to do so could not reasonably be expected to result in material liability to Borrower or any other Group Member and could not reasonably be expected to result in a Material Adverse Effect.  Except as set forth on Schedule 5.14, none of Borrower, any other Group Member or any of their respective properties or operations is subject to any outstanding written order from or agreement with any federal, state or local Governmental Authority, nor subject to any judicial or docketed administrative proceeding, nor subject to any indemnification agreement or other contractual obligation, respecting any Environmental Law, Environmental Claim or Hazardous Substance.  There are no Hazardous Substances or other conditions or circumstances existing with respect to any property, or arising from operations prior to the Closing Date, of Borrower or any other Group Member that could reasonably be expected to result in a Material Adverse Effect.  Neither Borrower nor any other Group Member has any underground or above ground storage tanks that are not properly registered or permitted under applicable Environmental Laws or that are leaking or disposing of Hazardous Substances.

 

5.15.           Insurance.  Borrower and each other Group Member and their respective properties are insured with financially sound and reputable insurance companies which are not Affiliates of Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where Borrower or such other Group Member operates.  A true and complete listing of such insurance as of the Closing Date, including issuers, coverages and deductibles, is set forth on Schedule 5.15.

 

  

37

  

 

5.16.           Information.  All information heretofore or contemporaneously herewith furnished in writing by Borrower or any other Loan Party to Agent or the Lender for purposes of or in connection with this Agreement and the transactions contemplated hereby is, and all written information hereafter furnished by or on behalf of Borrower or any Loan Party to Agent or the Lender pursuant hereto or in connection herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which made (it being recognized by Agent and the Lender that any projections and forecasts provided by Borrower are based on good faith estimates and assumptions believed by Borrower to be reasonable as of the date of the applicable projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ from projected or forecasted results).

 

5.17.           Intellectual Property.  Each Group Member owns, or is licensed or otherwise has the right to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or have a license or other right to use would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  To the knowledge of each Group Member, (a) the conduct and operations of the businesses of each Group Member do not infringe, misappropriate, dilute or violate any Intellectual Property owned by any other Person and (b) no other Person has contested any right, title or interest of any Group Member in any Intellectual Property, other than, in each case, as cannot reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

5.18.           Labor Matters.  Except as set forth on Schedule 5.18, neither Borrower nor any other Group Member is subject to any labor or collective bargaining agreement.  There are no existing or threatened strikes, lockouts or other labor disputes involving Borrower or any other Group Member that singly or in the aggregate could reasonably be expected to have a Material Adverse Effect.  Hours worked by and payment made to employees of Borrower and the other Group Members are not in violation of the Fair Labor Standards Act or any other applicable law, rule or regulation dealing with such matters.

 

5.19.           Canadian Labour Matters

 

(a)              Except as disclosed in Schedule 5.19,

 

(i)              No Canadian Loan Party is a party to any application, complaint, grievance, arbitration, or other proceeding under any statute or under any collective agreement related to any Canadian Employee or the termination of any Canadian Employee and there is no complaint, inquiry or other investigation by any regulatory or other administrative authority or agency with regard to or in relation to any Canadian Employee or the termination of any Canadian Employee; and

 

  

38

  

 

(ii)              No Canadian Loan Party has engaged in any unfair labor practice, nor is any Canadian Loan Party aware of any pending or threatened complaint regarding any alleged unfair labor practices.

 

5.20.           No Default.  No Default or Event of Default exists or would result from the incurring of any Obligations by any Loan Party or the grant or perfection of the Agent’s Liens on the Collateral or the consummation of the transactions contemplated by the Asset Purchase Documents.  No Group Member is in default under or with respect to any contractual obligation in any respect which, individually or together with all such defaults, would reasonably be expected to have a Material Adverse Effect.

 

5.21.           Foreign Assets Control Regulations and Anti-Money Laundering.

 

5.21.1.        OFAC.  Each Group Member is and will remain in compliance in all material respects with all U.S. and Canadian economic sanctions laws, Executive Orders and implementing regulations as promulgated by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the Criminal Code (Canada), the United Nations Act (Canada) and all applicable anti-money laundering and counter-terrorism financing provisions of the Bank Secrecy Act and all regulations issued pursuant to any of the foregoing.  No Group Member (i) is a Person designated by the U.S. government on the list of the Specially Designated Nationals and Blocked Persons (the “SDN List”) with which a U.S. Person cannot deal with or otherwise engage in business transactions, (ii) is a Person designated by the Canadian government on any list set out in the United Nations Al-Qaida and Taliban Regulations, the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism or the Criminal Code (collectively, the “Terrorist Lists”) with which a Canadian Person cannot deal with or otherwise engage in business transactions, (iii) is a Person who is otherwise the target of U.S. or Canadian economic sanctions laws such that a U.S. Person or Canadian Person cannot deal or otherwise engage in business transactions with such Person or (iv) is controlled by (including without limitation by virtue of such person being a director or owning voting shares or interests), or acts, directly or indirectly, for or on behalf of, any person or entity on the SDN List, a Terrorist List or a foreign government that is the target of U.S. or Canadian economic sanctions prohibitions such that the entry into, or performance under, this Agreement or any other Loan Document would be prohibited under U.S. law or Canadian law.

 

5.21.2.        Patriot Act.  The Group Members and each of their Affiliates are in compliance with (a) the Trading with the Enemy Act, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B Chapter V, as amended) and any other enabling legislation or executive order relating thereto, (b) the Patriot Act and (c) other federal, provincial or state laws or similar foreign laws relating to “know your customer” and anti-money laundering rules and regulations, including without limitation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada).  No part of the proceeds of any Loan will be used directly or indirectly for any payments to any government official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977.

 

  

39

  

 

5.22.           Senior Debt.  The Obligations shall rank pari passu with any other senior Debt of the Loan Parties, and shall constitute senior indebtedness as defined in any other documentation documenting any junior indebtedness of any Loan Party.

 

5.23.           Withholdings and Remittances.  Each Canadian Loan Party has remitted all Canada Pension Plan contributions, provincial pension plan contributions, workers’ compensation assessments, employment insurance premiums, employee health premiums, municipal real estate taxes and other taxes payable under applicable law by them, and, furthermore, have withheld from each payment made to any of its present or former employees, officers and directors, and to all persons who are non-residents of Canada for the purposes of the Tax Act all amounts required by law to be withheld, including without limitation all payroll deductions required to be withheld and has remitted such amounts to the proper governmental authority within the time required under applicable law.

 

5.24.           Asset Purchase Documentation.  As of the Closing Date, the Borrower has delivered to the Agent a complete and correct copy of the Asset Purchase Documents (including all schedules, exhibits, amendments, supplements, modifications, assignments and all other material documents delivered pursuant thereto or in connection therewith).  No Loan Party and, to the best of each Loan Party’s knowledge, no other party thereto is in default in the performance or compliance with any provisions thereof.  The Asset Purchase Agreement complies in all material respects with, and the transactions contemplated by the Asset Purchase Documents have been (or, substantially contemporaneously herewith will be) consummated in all material respects in accordance with, all applicable requirements of law.  The Asset Purchase Agreement is in full force and effect and has not been terminated, rescinded or withdrawn.  All material requisite approvals by Governmental Authorities having jurisdiction over the Seller, any Group Member or the other Persons referenced therein with respect to the transactions contemplated by the Asset Purchase Documents have been obtained, and no such approvals impose any conditions to the consummation of the transactions contemplated by the Asset Purchase Documents or to the conduct by any Loan Party of its business thereafter.  To the best of each Loan Party’s knowledge, the Seller and Asset Purchaser’s representations or warranties in the Asset Purchase Agreement are true and correct in all material respects.

 

5.25.           Inactive Subsidiaries.  No Inactive Subsidiary (x) has any Subsidiaries, assets, properties, rights, liabilities or operations or (y) engages in any business.  Except as set forth in Schedule 5.25, no Stock of any Inactive Subsidiary is evidenced by certificates.1

 

	
Section 6.

	
Affirmative Covenants.

 

Until all Obligations (other than contingent indemnification obligations to the extent no claim giving rise thereto has been asserted) are Paid in Full, each Loan Party agrees that, unless at any time the Lender shall otherwise expressly consent in writing, it will:

 

6.1.             Information.  Unless such information set out below is available in the Public Record, furnish to Agent and the Lender:

 

	
  

	
1       Note:  Any stock disclosed on Schedule 5.25 will be required to be delivered as a closing condition.

 

  

40

  

 

6.1.1.           Annual Report.  Promptly when available and in any event within the time period prescribed by any relevant Governmental Authority:  a copy of the annual audit report for Borrower and its Subsidiaries for such Fiscal Year, along with the audited consolidated financial statements of Borrower and the Subsidiaries as at the end of such Fiscal Year, which audit report is without qualification by independent auditors of recognized standing selected by Borrower and acceptable to Agent in its reasonable discretion (it being understood that as of the Closing Date, the Borrower’s auditor as of the date hereof, Deloitte & Touche LLP, is acceptable to Agent).

 

6.1.2.           Quarterly Reports.  Promptly when available and in any event within the time period prescribed by any relevant Governmental Authority, consolidated balance sheets of Borrower and its Subsidiaries as of the end of such fiscal quarter, together with consolidated financial statements for such period and a customary Management Discussion and Analysis relating to such information, together with a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year, certified by the chief financial officer of Borrower.

 

6.1.3.           [Reserved].

 

6.1.4.           Compliance Certificate.  Contemporaneously with the furnishing of a copy of each annual audit report pursuant to Section 6.1.1 and each set of statements pursuant to Section 6.1.2 for each calendar quarter (beginning with the calendar quarter ending March 31, 2013) a duly completed Compliance Certificate, with appropriate insertions, dated the date of such annual report or such quarterly statements, and signed by the chief financial officer of Borrower, containing a computation of each of the financial ratios and restrictions set forth in Section 7.13 and to the effect that such officer has not become aware of any Event of Default or Default that has occurred and is continuing or, if there is any such Event of Default, describing it and the steps, if any, being taken to cure it.

 

6.1.5.           [Reserved].

 

6.1.6.           Notice of Default; Litigation; ERISA Matters.  Promptly upon becoming aware of any of the following, written notice describing the same and the steps being taken by Borrower or the applicable Loan Party affected thereby with respect thereto:

 

(a)               the occurrence of an Event of Default or a Default;

 

(b)               any litigation, arbitration or governmental investigation or proceeding not previously disclosed by Borrower to the Lender which has been instituted or, to the knowledge of Borrower, is threatened against Borrower or any other Group Member, or to which any of the properties of any thereof is subject, which could reasonably be expected to have a Material Adverse Effect;

 

(c)               [Reserved];

 

(d)               any cancellation or material change in coverage in any insurance maintained by Borrower or any other Group Member; or

 

  

41

  

 

(e)               any other event (including (i) any violation of any Environmental Law or the assertion of any Environmental Claim, (ii) the enactment or effectiveness of any law, rule or regulation, (iii) any violation or noncompliance with any law or (iv) any breach or non-performance of, or any default under, any contractual obligation of any Group Member) which could reasonably be expected to have a Material Adverse Effect.

 

6.1.7.           Management Report.  Promptly upon receipt thereof, copies of all detailed financial and management reports submitted to Borrower or any other Loan Party by independent auditors in connection with each annual or interim audit made by such auditors of the books of Borrower or any other Loan Party.

 

6.1.8.           Projections.  As soon as practicable, and in any event not later than 30 days after the commencement of each Fiscal Year, financial projections for Borrower and its Subsidiaries for such Fiscal Year (including monthly operating and cash flow budgets) prepared in a manner consistent with the projections delivered by Borrower to Agent prior to the Closing Date or otherwise in a manner reasonably satisfactory to Agent, accompanied by a certificate of the chief financial officer of Borrower to the effect that (a) such projections were prepared by Borrower, in good faith, (b) Borrower has a reasonable basis for the assumptions contained in such projections and (c) such projections have been prepared in accordance with such assumptions.

 

6.1.9.           Other Information.  Promptly from time to time, such other information concerning Borrower and any other Group Member as the Lender or Agent may reasonably request.

 

6.2.              Books; Records; Inspections.  Keep, and cause each other Loan Party to keep, its books and records in accordance with sound business practices sufficient to allow the preparation of financial statements in accordance with IFRS; permit, and cause each other Loan Party to permit, Agent (accompanied by the Lender) or any representative thereof to inspect, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), the properties and operations of Borrower or such other Loan Party; and permit, and cause each other Loan Party to permit, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), Agent (accompanied by the Lender) or any representative thereof to visit any or all of its offices, to discuss its financial matters with its directors  or officers and its independent auditors (and Borrower hereby authorizes such independent auditors to discuss such financial matters with the Lender or Agent or any representative thereof), and to examine (and, at the expense of Borrower or the applicable Loan Party, photocopy extracts from) any of its books or other records; and permit, and cause each other Loan Party to permit, Agent and its representatives to inspect, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), the Collateral and other tangible assets of Borrower or such Loan Party, to perform appraisals of the equipment of Borrower or such Party, and to inspect, audit, check and make copies of and extracts from the books, records, computer data, computer programs, journals, orders, receipts, correspondence and other data relating to any Collateral.

 

  

42

  

 

6.3.           Maintenance of Property; Insurance.

 

(a)            Keep, and cause each other Loan Party to keep, all property useful and necessary in the business of Borrower or such other Loan Party in good working order and condition, ordinary wear and tear excepted.

 

(b)            Maintain, and cause each other Group Member to maintain, with responsible insurance companies, such insurance coverage as shall be required by all laws, governmental regulations and court decrees and orders applicable to it and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated; provided that in any event, such insurance shall insure against all risks and liabilities of the type insured against as of the Closing Date and shall have insured amounts no less than, and deductibles no higher than, those amounts provided for as of the Closing Date.  Upon request of Agent or the Lender, Borrower shall furnish to Agent or such Lender a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by Borrower and each other Group Member.  Borrower shall cause each issuer of an insurance policy to provide Agent with an endorsement (i) showing Agent as a loss payee with respect to each policy of property or casualty insurance and naming Agent as an additional insured with respect to each policy of liability insurance, (ii) providing that 30 days’ notice will be given to Agent prior to any cancellation of, or reduction or change in coverage provided by or other material modification to such policy and (iii) acceptable in all other respects to Agent.  Borrower shall execute and deliver to Agent, upon request of Agent, a collateral assignment, in form and substance satisfactory to Agent, of each business interruption insurance policy maintained by the Loan Parties.

 

(c)            Unless Borrower provides Agent with evidence of the continuing insurance coverage required by this Agreement, Agent may purchase insurance (to the extent of such insurance coverage as shall be required by clause (b) above) at Borrower’s expense to protect Agent’s and the Lender’s interests in the Collateral.  This insurance may, but need not, protect Borrower’s and each other Group Member’s interests.  The coverage that Agent purchases may, but need not, pay any claim that is made against Borrower or any other Group Member in connection with the Collateral.  Borrower may later cancel any insurance purchased by Agent, but only after providing Agent with evidence that Borrower has obtained the insurance coverage required by this Agreement.  If Agent purchases insurance for the Collateral, as set forth above, Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance and the costs of the insurance may be added to the principal amount of the Loans owing hereunder.

 

6.4.           Compliance with Laws and Contractual Obligations; Payment of Taxes and Liabilities.

 

  

43

  

 

(a)            Comply, and cause each other Group Member to comply, in all material respects with all applicable laws, rules, regulations, decrees, orders, judgments, licenses and permits and all indentures, agreements and other instruments binding upon it or its property, except where failure to comply could not reasonably be expected to have a Material Adverse Effect; (b) without limiting clause (a) above, ensure, and cause each other Group Member to ensure, that no person who owns a controlling interest in or otherwise controls a Group Member is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC, Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a person designated under Section 1(b), (c) or (d) of Executive Order 13224, any related enabling legislation or any other similar Executive Orders; (c) without limiting clause (a) above, comply and cause each other Group Member to comply, with all applicable Bank Secrecy Act and anti-money laundering laws and regulations; and (d) timely prepare and file all Tax Returns required to be filed by applicable law and pay, and cause each other Group Member to pay, prior to delinquency, all taxes and other governmental charges against it or any of its property, as well as claims of any kind which, if unpaid, could become a Lien on any of its property; provided that the foregoing shall not require Borrower or any other Group Member to pay any such Tax or charge so long as it shall promptly contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with IFRS;

 

6.5.           Maintenance of Existence.  Maintain and preserve, and (subject to Section 7.5) cause each other Loan Party to maintain and preserve, (a) its existence and good standing (as applicable) in the jurisdiction of its organization and (b) its qualification to do business and good standing (as applicable) in each jurisdiction where the nature of its business makes such qualification necessary, other than any such jurisdiction where the failure to be qualified or in good standing could not reasonably be expected to have a Material Adverse Effect.

 

6.6.           Employee Benefit Plans.

 

(a)            Canadian Employees.

 

(i)             Each Canadian Loan Party will cause to be delivered to the Agent, promptly upon the Agent’s written request, a copy of each Canadian Pension Plan and Canadian Employee Plan and, if applicable, related trust agreements or other funding instruments and all amendments thereto.

 

(ii)            Each Canadian Loan Party shall to the extent it receives any correspondence from any Governmental Authority with respect to any revocation of a Canadian Pension Plan or Canadian Employee Plan, promptly provide the Agent with such correspondence.  Each Canadian Loan Party shall ensure that each Canadian Pension Plan or Canadian Employee Plan retains its registered status under and is administered in all material respects in accordance with the terms of the applicable Canadian Pension Plan text, funding agreement and Canadian Employee Benefits Legislation.

 

(iii)           Each Canadian Loan Party will cause all reports and disclosures required by any Canadian Pension Plan or applicable Canadian Employee Benefits Legislation to be filed and distributed as required.

 

  

44

  

 

(iv)           Each applicable Canadian Loan Party shall perform in all material respects all obligations (including (if applicable), funding, investment and administration obligations) required to be performed by such Canadian Loan Party in connection with each applicable Canadian Pension Plan and Canadian Employee Plan and the funding therefore; make and pay all current service and, as applicable, special payments relating to solvency deficiencies under each applicable Canadian Pension Plan and pay all premiums required to be made or paid by it in accordance with the terms of each applicable Canadian Employee Plan and Canadian Employee Benefits Legislation and withhold by way of authorized payroll deductions or otherwise collect and pay into the applicable Canadian Pension Plan or Canadian Employee Plan all employee contributions required to be withheld or collected by it in accordance with the terms of each applicable Canadian Pension Plan or Canadian Employee Plan, and Canadian Employee Benefits Legislation; and ensure that, to the extent that such Canadian Loan Party has a Canadian Pension Plan which is a defined benefit pension plan, that such plan is fully funded, both on an ongoing basis and on a solvency basis (using actuarial methods and assumptions which are consistent with the actuarial valuations last filed with the applicable governmental authorities and which are consistent with Canadian GAAP or IFRS).

 

6.7.           Environmental Matters.  If any release or disposal of Hazardous Substances shall occur or shall have occurred on or from any real property or any other assets of Borrower or any other Group Member, cause, or direct the applicable Group Member to cause, the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as is necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets.  Without limiting the generality of the foregoing, Borrower shall, and shall cause each other Group Member to, comply with each valid Federal or state judicial or administrative order requiring the performance at any real property by Borrower or any other Group Member of activities in response to the release or threatened release of a Hazardous Substance.  If any violation of any Environmental Law shall occur or shall have occurred at any real property or any other assets of Borrower or any other Group Member or otherwise in connection with their operations, cause, or direct the applicable Group Member to cause, the prompt correction of such violation.

 

6.8.           Asset Purchase.  The Borrower shall cause the Asset Purchase to be consummated in accordance with the terms of the Asset Purchase Documents and applicable requirements of law and shall cause compliance by Asset Purchaser in all material respects with its obligations under the Asset Purchase Documents.  The Loan Parties shall deliver such agreements, documents and instruments reasonably requested by Agent to evidence consummation of the transactions contemplated by the Asset Purchase Documents.

 

6.9.           Further Assurances.  Promptly upon request by the Agent, the Loan Parties shall (and, subject to the limitations hereinafter set forth, shall cause each of their Subsidiaries to) take such additional actions as the Agent may reasonably require from time to time in order (i) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests, whether now owned or hereafter acquired, covered or intended to be covered by any of the Collateral Documents, (ii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agent and the Lender the rights granted or now or hereafter intended to be granted to the Agent and the Lender under any Loan Document or under any other document executed in connection therewith.  Without limiting the generality of the foregoing and except as otherwise approved in writing by the Lender, the Loan Parties shall cause each of their Subsidiaries (including any Subsidiary formed or acquired after the Closing Date by any Loan Party, but excluding Inactive Subsidiaries) to guaranty the Obligations and cause each such Subsidiary to grant to the Agent, for the benefit of the Agent and the Lender, a security interest in, subject to the limitations hereinafter set forth, all of such Subsidiary’s property to secure such guaranty, in each case pursuant to documents in form and substance reasonably  satisfactory to Agent.  Furthermore and except as otherwise approved in writing by the Lender, Borrower shall, and shall cause each of its Subsidiaries (except Inactive Subsidiaries) to, pledge all of the Stock and Stock Equivalents of each of its Subsidiaries to the Agent for the benefit of the Agent and the Lender, to secure the Obligations, in each case pursuant to documents in form and substance reasonably satisfactory to Agent.  In connection with each pledge of Stock and Stock Equivalents, Borrower and each such Loan Party Subsidiary shall deliver, or cause to be delivered, to the Agent, irrevocable proxies and stock powers and/or assignments, as applicable, duly executed in blank, in each case pursuant to documents in form and substance satisfactory to Agent.  In the event any Loan Party acquires or leases as lessee any real property, simultaneously with such acquisition, such Person shall execute and/or deliver, or cause to be executed and/or delivered, to the Agent, (x) a fully executed Mortgage, in form and substance reasonably satisfactory to the Agent together with in the case of a lease, such lease amendments, consents and/or estoppels as Agent may reasonably request, and in any event, together with an A.L.T.A. lender’s title insurance policy issued by a title insurer reasonably satisfactory to the Agent, in form and substance and in an amount reasonably satisfactory to the Agent insuring that the Mortgage is a valid and enforceable first priority Lien on the respective property, free and clear of all defects, encumbrances and Liens, (y) then current A.L.T.A. surveys, certified to the Agent and the Lender by a licensed surveyor sufficient to allow the issuer of the lender’s title insurance policy to issue such policy without a survey exception and (z) an environmental site assessment prepared by a qualified firm acceptable to the Agent, in form and substance reasonably satisfactory to the Agent.

 

  

45

  

 

6.10.         Post-Closing Obligations.

 

(a)            Within thirty (30) days after the Closing Date (subject to extension by the Agent in its sole discretion), the Loan Parties shall deliver to Agent a deposit account or securities account, as applicable, Control Agreement for each deposit account and securities account maintained by any Loan Party Subsidiary (other than zero balance payroll and similar accounts), in form and substance satisfactory to the Agent.

 

(b)            Each Loan Party shall use commercially reasonable efforts to obtain a Collateral Access Agreement from the lessor of each leased property, bailee in possession of any Collateral or mortgage of any owned property with respect to each location where any Collateral is stored or located, which Collateral Access Agreement shall be in form and substance reasonably satisfactory to Agent.

 

(c)            Within three (3) months after the Closing Date (subject to extension by the Agent in its sole discretion), the Loan Parties shall cause each Inactive Subsidiary that is then wholly-owned, directly or indirectly, by the Borrower to wind up, liquidate, dissolve or otherwise cease to exist other than Orbis Pharma Inc.

 

  

46

  

 

(d)           Within five (5) Business Days after the Closing Date (subject to extension by the Agent in its sole discretion), Borrower and ECG Holdings Inc. shall deliver to Agent, as Collateral for the Obligations, a certificate evidencing all of the issued and outstanding Stock of ECG Holdings Inc., along with a stock power duly executed in blank, in each case in form and substance satisfactory to Agent.

 

(e)           Within five (5) Business Days after the Closing Date (subject to extension by the Agent in its sole discretion), the Borrower shall cause the PPSA registration (Reference File No. 676936017, Registration No. 20120320105815295321) registered against the Borrower in favor of Royal Bank of Canada in the Ontario Personal Property Registry, to be discharged, and shall provide the Agent with satisfactory evidence of such discharge.

 

(f)            Within three (3) Business Days after the Closing Date (subject to extension by the Agent in its sole discretion), the Borrower shall deliver to Agent, in form and substance satisfactory to Agent, certificates or other evidence of insurance in effect as required by Section 6.3(b), with endorsements naming Agent as lenders’ loss payee and/or additional insured, as applicable.

 

6.11.        Board Observer.  Agent shall have the right to designate one (1) observer (the “Board Observer”) to attend, as a nonvoting observer, two meetings of the board of directors of the Borrower in each Fiscal Year (each, a “Board Meeting”) at which the Borrower’s management is scheduled to present the Borrower’s financial statements and financial and operating results and discuss the marketing of Enablex / Emselex.  The Borrower shall provide the Board Observer with (i) reasonable advance notice of all Board Meetings or notice of such Board Meetings at the same time such notice is delivered to the directors and (ii) provide all documents and other written materials (including consents) delivered to the directors in connection with such meetings at the same time such notice and documents and other written materials are delivered to the directors.  The Borrower shall reimburse the Board Observer for its reasonable, documented out-of-pocket fees, costs, expenses and disbursements (including reasonable and documented travel and lodging expenses) in connection with attending Board Meetings.  The Board Observer shall be subject to the same obligations of confidentiality as a director, except that the Board Observer may disclose or communicate information to the Agent and the Lender notwithstanding such obligations.

 

	
Section 7.

	
Negative Covenants.

 

Until the Obligations (other than contingent indemnification obligations to the extent no claim giving rise thereto has been asserted) are Paid in Full, each Loan Party agrees that, unless at any time the Lender shall otherwise expressly consent in writing, it will:

 

7.1.          Debt.  Not, and not suffer or permit any Group Member to, create, incur, assume or suffer to exist any Debt, except for the following Debt of the Borrower and/or Loan Party Subsidiaries:

 

(a)           Obligations under this Agreement and the other Loan Documents;

 

  

47

  

 

(b)           Debt secured by Liens permitted by Section 7.2(d), and any Permitted Refinancings thereof; provided that the aggregate principal amount of all such Debt at any time outstanding shall not exceed CDN$1,000,000;

 

(c)            Debt which is subordinated to the Obligations under this Agreement and the other Loan Documents, provided that (i) the holder(s) of such Debt enter into a subordination agreement with Agent on behalf of the Lender on terms and conditions satisfactory to Agent and the Lender prior to the incurrence thereof, (ii) the Borrower and its Subsidiaries shall be in compliance, on a Pro Forma Basis giving effect to the incurrence of such Debt and the application of the proceeds thereof, with the financial covenants set forth in Section 7.13 (but, in the case of the Maximum Total Leverage Ratio, determining the maximum permissible Maximum Total Leverage Ratio as 0.25 less than the applicable Maximum Total Leverage Ratio set forth in Section 7.13.2 for the applicable Computation Period), in each case for the most recently ended Computation Period for which financial statements are available (and disregarding the qualifications in Section 7.13 that limit the applicability of the financial covenants therein to Computation Periods ending on or after March 31, 2013), and (iii) the Fixed Charges Coverage Ratio, on a Pro Forma Basis giving effect to the incurrence of such Debt and the application of the proceeds thereof, for the most recently ended Computation Period for which financial statements are available, shall be not less than the Fixed Charges Coverage Ratio Requirement for such Computation Period;

 

(d)           Debt of Borrower to any Loan Party that is a Wholly-Owned Subsidiary of Borrower or Debt of any Loan Party that is a Wholly-Owned Subsidiary of Borrower to Borrower or another Loan Party that is a Wholly-Owned  Subsidiary of Borrower; provided that all such Debt shall be evidenced by a global intercompany demand note in form and substance satisfactory to Agent and pledged and delivered to Agent pursuant to the applicable Collateral Document as additional collateral security for the Obligations, and the obligations under such demand note shall be subordinated to the Obligations hereunder in a manner satisfactory to Agent;

 

(e)            Debt described on Schedule 7.1 as of the Closing Date, and any Permitted Refinancing thereof;

 

(f)            Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions permitted under Section 7.5;

 

(g)           Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Debt is extinguished within two (2) Business Days of notice to Borrower or the relevant Subsidiary of its incurrence;

 

(h)           Debt incurred in connection with the financing of insurance premiums in the ordinary course of business;

 

(i)            guaranties by Borrower of the Debt of any Loan Party that is a Wholly-Owned Subsidiary of Borrower or guaranties by any Subsidiary thereof of the Debt of Borrower in each case so long as such Debt is permitted under this Section 7.1;

 

  

48

  

 

(j)            Debt arising from agreements of the Borrower or any Loan Party Subsidiary of the Borrower providing for indemnification, adjustment of purchase price or similar obligations (including earn-outs), in each case entered into in connection with Permitted Acquisitions or the disposition of any business, assets or Stock permitted by this Agreement;

 

(k)            Debt of a Loan Party Subsidiary of the Borrower issued and outstanding on the date on which such Subsidiary was acquired by the Borrower or a Subsidiary of the Borrower in a transaction constituting a Permitted Acquisition permitted under Section 7.11(g), together with any Permitted Refinancing thereof; provided that, (i) such Debt (x) was not incurred in connection with or in anticipation of such Permitted Acquisition and (y) is not secured by any Lien created in connection with or in anticipation of such Permitted Acquisition or on any property other than that which secured it before such Permitted Acquisition and (ii) the aggregate outstanding principal amount of all such Debt does not exceed CDN$2,000,000 at any time; and

 

(l)            Permitted Seller Debt; provided that (i) the aggregate outstanding principal amount of all such Permitted Seller Debt does not exceed CDN$2,000,000 at any time and (y) no Group Member other than the Borrower will be obligated in respect of Permitted Seller Debt.

 

7.2.          Liens.  Not, and not suffer or permit any Group Member to, create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except:

 

(a)           Liens for Taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves in accordance with IFRS and the execution or other enforcement of which is effectively stayed;

 

(b)           Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics, customs brokers, landlords and materialmen and other similar Liens imposed by law and (ii) Liens consisting of pledges or deposits incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA or similar Canadian Employee Benefits Legislation) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being diligently contested in good faith by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves in accordance with IFRS and the execution or other enforcement of which is effectively stayed;

 

(c)           Liens described on Schedule 7.2 as of the Closing Date;

 

(d)           (i) Liens arising in connection with Capital Leases (and attaching only to the property being leased), and (ii) Liens that constitute purchase money security interests on any property securing debt incurred for the purpose of financing all or any part of the cost of acquiring such property; provided that any such Lien attaches to such property within 60 days of the acquisition thereof and attaches solely to the property so acquired; provided, further, that the aggregate principal amount of all Debt secured by the Liens permitted pursuant to this Section 7.2(d) shall at any time outstanding not exceed CDN$1,000,000;

 

  

49

  

 

(e)           attachments, appeal bonds, judgments and other similar Liens, in connection with judgments the existence of which do not constitute an Event of Default;

 

(f)            easements, encroachments, rights of way, leases, subleases, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of Borrower or any Subsidiary;

 

(g)           any interest or title of a lessor or sublessor under any lease (other than a Capital Lease) or of a licensor or sublicensor under any license, in each case permitted by this Agreement;

 

(h)           Liens arising from precautionary uniform commercial code financing statements filed under any lease (other than a Capital Lease) permitted by this Agreement;

 

(i)             Liens arising under the Loan Documents;

 

(j)             the replacement, extension or renewal of any Lien permitted by clause (c) above upon or in the same property subject thereto arising out of the Permitted Refinancing of the Debt secured thereby;

 

(k)            Liens securing acquired Indebtedness permitted by this Section 7.1(k); provided that such Liens do not extend to property not subject to such Liens at the time of acquisition and were not granted in connection therewith or anticipation thereof (other than improvements thereon); and

 

(l)             Liens on any property of the Borrower or any of its Subsidiaries securing any of their Debt or their other liabilities; provided, however, that the aggregate outstanding principal amount of all such Debt and other liabilities shall not exceed CDN$500,000 at any time.

 

7.3.           [Omitted].

 

7.4.           Restricted Payments.  Not, and not suffer or permit any Group Member to, (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any Stock or Stock Equivalent, (ii) purchase, redeem or otherwise acquire for value any Stock or Stock Equivalent now or hereafter outstanding or (iii) make any payment or prepayment of principal of, premium, if any, interest, fees, redemption, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to, Debt that is subordinated by its terms to the payment of the Obligations (the items described in clauses (i), (ii) and (iii) above are referred to as “Restricted Payments”); except that any Subsidiary of the Borrower may declare and pay dividends to, repay intercompany debt owed to, and make internal profit-sharing payments to, the Borrower or any Loan Party that is a Wholly-Owned Subsidiary of the Borrower, and except that:

 

  

50

  

 

(a)            Borrower may repurchase or redeem Qualified Capital Stock of Borrower held by officers, directors or employees or former officers, directors or employees (or their transferees, estates or beneficiaries under their estates) of any Loan Party, upon their death, disability, retirement, severance or termination of employment or service; provided that the aggregate cash consideration paid for all such redemptions and payments of Qualified Capital Stock shall not exceed, in any fiscal year, CDN$1,000,000;

 

(b)            each Loan Party may declare and make dividend payments or other distributions solely in Qualified Capital Stock of such Person;

 

(c)            the Borrower may make cashless repurchases of Stock deemed to occur upon exercise of stock options if such Stock represents a portion of the exercise price of such options;

 

(d)           the Borrower may make cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Stock of the Borrower; and

 

(e)            the Borrower may make regularly scheduled payments of interest on subordinated Debt incurred pursuant to Section 7.1(c) or (d), to the extent such payments are permitted by the subordination provisions applicable to such Debt.

 

7.5.           Mergers; Consolidations; Asset Sales.

 

(a)            Not, and not suffer or permit any Group Member to, be a party to any merger, consolidation or amalgamation, except (1) in connection with a Permitted Acquisition, (2) for any such merger or consolidation of any Subsidiary of Borrower into Borrower (so long as the Borrower survives such merger) or any Loan Party that is a Wholly-Owned Subsidiary of Borrower, as applicable (so long as such Loan Party that is a Wholly-Owned Subsidiary survives such merger) and (3) for any amalgamation of any Subsidiary of Borrower with Borrower or any Wholly-Owned Loan Party Subsidiary of Borrower; provided, in the case of any amalgamation pursuant to clauses (1) or (3) comprising any Loan Party as an amalgamating corporation or company, that (x) by operation of law the automatic result of such amalgamation (without the need for further action by any party) is that, and the amalgamated corporation confirms to the Agent and the Lender in writing that, the amalgamated corporation is liable, by operation of law or otherwise, for the obligations, liabilities and indebtedness of the amalgamating corporations or companies under the Loan Documents (including the Obligations of such amalgamating Loan Party thereunder), and (y) the amalgamated corporation delivers to the Agent any Loan Documents, certificates, opinions and other documents as the Agent may reasonably request in connection therewith.

 

  

51

  

 

(b)           Except as disclosed in Schedule 7.5, not, and not suffer or permit any Group Member to, sell, transfer, dispose of, convey or lease any of its assets or Stock and Stock Equivalents of any Group Member (other than, for the avoidance of doubt, issuance of Stock and Stock Equivalents by the Borrower in a manner otherwise permitted by this Agreement), or sell or assign with or without recourse any receivables, except for (i) sales of inventory or used, worn-out or surplus equipment, all in the ordinary course of business, (ii) sales and dispositions of assets (excluding any Stock and Stock Equivalents of Borrower or any Subsidiary of Borrower) for at least fair market value (as determined by the board of directors of Borrower) so long as at least 75% of the purchase price therefor is in cash and the net book value of all assets sold or otherwise disposed of in any Fiscal Year does not exceed CDN$1,000,000, (iii) the abandonment or other disposition of Intellectual Property that is no longer material to the conduct of the business of the Loan Parties as determined by the Borrower in its reasonable business judgment, (iv) dispositions of cash and Cash Equivalent Investments, (v) licenses, sublicenses, leases or subleases (including any license or sublicense of Intellectual Property) granted to third parties in the ordinary course of business not interfering with the business of the Loan Parties in any material respect as determined by the Borrower in its reasonable business judgment, (vi) the granting of Liens permitted under Section 7.2, Restricted Payments permitted by Section 7.4, transactions permitted by Section 7.5(a) and Investments permitted by Section 7.11 and (vii) dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of any Loan Party provided the proceeds thereof are applied in accordance with Section 2.4.2(i).

 

7.6.          Modification of Asset Purchase and Organizational Documents.  Not, and not suffer or permit any waiver, amendment or modification of any term of any Asset Purchase Document, or any term of the charter, limited liability company agreement, partnership agreement, articles of incorporation, by-laws or other organizational documents of Borrower or any other Group Member,  in each case except for those waivers, amendments and modifications that do not materially adversely affect the interests of the Agent or the Lender under the Loan Documents or in the Collateral (it being understood and agreed that any adverse impact on the effectiveness or validity of any Collateral Document or the Liens granted to the Agent thereunder shall be deemed to materially adversely affect such interests of the Agent and the Lender).

 

7.7.          Use of Proceeds.  Not use the proceeds of the Loans for any purposes other than solely as provided in Section 2.1.3.

 

7.8.          Transactions with Affiliates.  Not, and not suffer or permit any Group Member to, enter into any transaction with any Affiliate of the Borrower or of any such Group Member, except:

 

(a)           Restricted Payments permitted by Section 7.4, Loans permitted by Section 7.1(d), transactions permitted by Section 7.5(a) and Investments permitted by Section 7.11(a) and (e);

 

(b)           in the ordinary course of business and pursuant to the reasonable requirements of the business of such Loan Party or such Subsidiary; provided that, in the case of this clause (b), such transaction shall be upon fair and reasonable terms no less favorable to such Loan Party or such Subsidiary than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of the Borrower or such Subsidiary and which are disclosed in writing to the Agent;

 

  

52

  

 

(c)           payment of compensation and benefits (including customary indemnities) to officers, directors and employees for actual services rendered to the Loan Parties in the ordinary course of business;

 

(d)           payment of reasonable and customary fees to members of the boards of directors (or similar governing body) of the Loan Parties, and the reimbursement of actual out of pocket expenses incurred in connection with attending board of director meetings; and

 

(e)           advances for reasonable travel and entertainment expenses and reasonable relocation costs and expenses and other reasonable loans and advances in the ordinary course of business.

 

7.9.          Inconsistent Agreements.  Not, and not suffer or permit any other Group Member to, enter into any agreement containing any provision which would (i) be violated or breached by any borrowing by Borrower hereunder or by the performance by Borrower or any other Loan Party of any of its Obligations hereunder or under any other Loan Document, (ii) prohibit Borrower or any other Group Member from granting to Agent and the Lender a Lien on any of its assets that constitute Collateral or (iii) other than pursuant to any agreement in effect on the Closing Date and set forth on Schedule 7.9, or pursuant to the Loan Documents, create or permit to exist or become effective any encumbrance or restriction on the ability of any other Subsidiary to (x) pay dividends or make other distributions to Borrower or any Wholly-Owned  Subsidiary, or pay any Debt owed to Borrower or any Wholly-Owned Subsidiary, (y) make loans or advances to Borrower or any Wholly-Owned Subsidiary or (z) transfer any of its assets or properties to Borrower or any Wholly-Owned Subsidiary, except, in the case of clause (ii) and (iii) above: (a) negative pledges and restrictions on Liens in favor of any holder of Debt permitted under Section 7.1(b) and 7.1(k) but solely to the extent any negative pledge or limitation on Liens relates to the property that is the subject of such Debt and the proceeds and products thereof, (b) customary restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto, (c) customary provisions restricting assignment of any agreement entered into in the ordinary course of business, (d) [Reserved], (e) related to any sale, transfer, disposition or conveyance of property permitted by Section 7.5(b) pending such sale, transfer, disposition or conveyance, solely to the assets subject to such sale, transfer, disposition or conveyance of property and (f) prohibitions and limitations that exist pursuant to applicable requirements of law.

 

7.10.        Business Activities.  Not, and not suffer or permit any Group Member to, engage in any line of business other than the businesses engaged in on the Closing Date and businesses reasonably related thereto or such other businesses as could reasonably be contemplated to be engaged in by any Loan Party as a result of such Loan Party carrying out its business strategy as set forth in the Public Record, provided that such businesses are in the biopharmaceuticals and medical devices industry.

 

7.11.        Investments.  Not, and not suffer or permit any Group Member to, make or permit to exist, any Investment in any other Person, except the following:

 

(a)           Investments between or among the Loan Parties;

 

  

53

  

 

(b)           Investments constituting Debt permitted by Section 7.1(d);

 

(c)           Contingent Obligations constituting Debt permitted by Section 7.1;

 

(d)           Cash Equivalent Investments;

 

(e)           loans and advances to employees in the ordinary course of business not to exceed CDN$100,000 in aggregate principal amount at any time outstanding;

 

(f)            Investments listed on Schedule 7.11 as of the Closing Date;

 

(g)           Permitted Acquisitions;

 

(h)           Investments in Permitted Joint Ventures in the aggregate at any time outstanding for all such Investments not to exceed CDN$1,000,000;

 

(i)            extensions of trade credit in the ordinary course of business;

 

(j)            other Investments (excluding any Investments consisting of general partnership interests or other Stock of non-wholly owned Persons in respect of which there is unlimited equity holder liability) in an aggregate amount not to exceed CDN$1,000,000 at any time outstanding.

 

7.12.        Fiscal Year.  Not, and not suffer or permit any other Group Member to, change its Fiscal Year.

 

7.13.        Financial Covenants.

 

7.13.1.     EBITDA. Not and not suffer or permit EBITDA for any Computation Period ending on or after March 31, 2013, to be less than the applicable amount set forth below for such Computation Period (subject to adjustment as described in Section 7.13.5); provided, that with respect to any incurrence of subordinated Debt pursuant to Section 7.1(c), and any Permitted Acquisition, in each case to be consummated prior to the availability of financial statements for the Fiscal Quarter ending March 31, 2013, EBITDA shall not be less than CDN$3,183,144:

 

  

54

  

 

	
Computation  Period

	
Amount

	 	 
	
March 31, 2013

	
CDN$3,742,450

	 	 
	
June 30, 2013

	
CDN$3,754,851

	 	 
	
September 30, 2013

	
CDN$3,306,511

	 	 
	
December 31, 2013

	
CDN$3,451,299

	 	 
	
March 31, 2014

	
CDN$3,940,505

	 	 
	
June 30, 2014

	
CDN$3,827,624

	 	 
	
September 30, 2014

	
CDN$3,365,298

	 	 
	
December 31, 2014

	
CDN$3,516,795

	 	 
	
March 31, 2015

	
CDN$5,003,949

 

7.13.2.      Maximum Total Leverage Ratio.  Not and not suffer or permit the Maximum Total Leverage Ratio for any Computation Period ending on or after March 31, 2013, to be more than the applicable Maximum Total Leverage Ratio set forth below at the end of each such Computation Period:

 

  

55

  

 

	
Computation  Period

	
Ratio

	 	 
	
September 30, 2012

	
7.0:1.0

	 	 
	
December 31, 2012

	
7.0:1.0

	 	 
	
March 31, 2013

	
7.0:1.0

	 	 
	
June 30, 2013

	
7.0:1.0

	 	 
	
September 30, 2013

	
7.0:1.0

	 	 
	
December 31, 2013

	
7.0:1.0

	 	 
	
March 31, 2014

	
7.0:1.0

	 	 
	
June 30, 2014

	
7.0:1.0

	 	 
	
September 30, 2014

	
7.0:1.0

	 	 
	
December 31, 2014

	
7.0:1.0

	 	 
	
March 31, 2015

	
7.0:1.0

 

7.13.3.      Minimum Net Sales.  Not and not suffer or permit Net Sales for any Computation Period ending on or after March 31, 2013, to be less than the applicable Net Sales set forth below at the end of each such Computation Period (subject to adjustment as described in Section 7.13.5); provided, that with respect to any incurrence of subordinated Debt pursuant to Section 7.1(c), and any Permitted Acquisition, in each case to be consummated prior to the availability of financial statements for the Fiscal Quarter ending March 31, 2013, Net Sales shall not be less than CDN$5,886,643:

 

  

56

  

 

	
Computation  Period

	
Amount

	 	 
	
March 31, 2013

	
CDN$6,402,763

	 	 
	
June 30, 2013

	
CDN$6,278,829

	 	 
	
September 30, 2013

	
CDN$5,821,096

	 	 
	
December 31, 2013

	
CDN$6,058,685

	 	 
	
March 31, 2014

	
CDN$6,575,332

	 	 
	
June 30, 2014

	
CDN$6,388,129

	 	 
	
September 30, 2014

	
CDN$5,916,371

	 	 
	
December 31, 2014

	
CDN$6,161,926

	 	 
	
March 31, 2015

	
CDN$7,771,238

 

7.13.4.     Sinking Fund Deposit Cure.  If, at any time, the Borrower deposits cash into the Sinking Fund Account (the amount of such deposit, the “Sinking Fund Deposit Amount”), then:

 

(a)           If such deposit is made after the end of a Fiscal Quarter and prior to 30 days after the date on which financial statements are required to be delivered pursuant to Section 6.1.1 or 6.1.2 with respect to such Fiscal Quarter (such 30th day, the “Required Deposit Date”; and the Computation Period ending on the same date as the last date of such Fiscal Quarter, the “Reference Computation Period”), then Borrower may by written notice to the Agent declare the deposit to be a “Retroactive Effect Deposit” (such notice, the “Sinking Fund Deposit Cure Notice”).  No later than the date on which financial statements are required to be delivered pursuant to Section 6.1.1 or 6.1.2 for the applicable Reference Computation Period, the Borrower shall deliver the Sinking Fund Deposit Cure Notice to the Agent declaring the intention to make a Retroactive Effect Deposit .

 

(b)           Solely in the case of a Retroactive Effect Deposit, for purposes of determining the Maximum Total Leverage Ratio for the Reference Computation Period, the amount of Excess Cash shall be calculated as though the Sinking Fund Deposit Amount were deposited into the Sinking Fund Account on the last date of the Reference Computation Period.

 

(c)           Solely in the case of a Retroactive Effect Deposit, for purposes of determining EBITDA for the Reference Computation Period, the required EBITDA shall be reduced by CDN$500,000 for each CDN$5,000,000 of new Excess Cash deposited in the Sinking Fund Account after the end of the applicable Fiscal Quarter by the Required Deposit Date.

 

  

57

  

 

(d)           Solely in the case of a Retroactive Effect Deposit, for purposes of determining Net Sales for the Reference Computation Period, the required Net Sales shall be reduced by CDN$850,000 for each CDN$5,000,000 of new Excess Cash deposited in the Sinking Fund Account after the end of the applicable Fiscal Quarter by the Required Deposit Date.

 

7.13.5.     Principal Repayment and Excess Cash in Sinking Fund.

 

(a)           The amount set forth opposite each Computation Period in the chart in Section 7.13.1,  commencing with the next following Computation Period ending after a repayment or prepayment of any principal amount of the Loans in accordance with the terms of this Agreement, any deposit of Excess Cash in the Sinking Fund Account or the termination in full of the Additional Commitment (without any advance of Additional Loans) as a result of the expiration of the Novartis Letter of Credit without having been drawn, shall be decreased by CDN$500,000 for each CDN$5,000,000 in aggregate of (i) principal of the Loans so repaid or prepaid, (ii) Excess Cash so deposited in the Sinking Fund Account, and (iii) the amount of the Additional Commitment so terminated, and compliance with the financial covenant in Section 7.13.1 for each Computation Period shall be determined by reference to such new amounts.

 

(b)           The amount set forth opposite each Computation Period in the chart in Section 7.13.3,  commencing with the next following Computation Period ending after a repayment or prepayment of any principal amount of the Loans in accordance with the terms of this Agreement, any deposit of Excess Cash in the Sinking Fund Account or the termination in full of the Additional Commitment (without any advance of Additional Loans) as a result of the expiration of the Novartis Letter of Credit without having been drawn, shall be decreased by CDN$850,000 for each CDN$5,000,000 in aggregate of (i) principal of the Loans so repaid or prepaid, (ii) Excess Cash so deposited in the Sinking Fund Account, and (iii) the amount of the Additional Commitment so terminated, and compliance with the financial covenant in Section 7.13.3 for each Computation Period shall be determined by reference to such new amounts.

 

7.14.        Deposit Accounts and Securities Accounts.  Not, and not suffer or permit any Group Member to, maintain or establish any deposit account or securities account other than the deposit accounts and securities accounts set forth on Schedule 7.14 without prior written notice to Agent and unless Agent, Borrower or such other Group Member and the bank or securities intermediary at which such deposit account or securities account, as applicable, is to be opened or maintained enter into a Control Agreement (blocked account agreement with respect to a deposit account in Canada) regarding such deposit account or securities account, as applicable, on terms satisfactory to Agent.

 

7.15.        Sale-Leasebacks.  Not and not suffer or permit any Group Member to, engage in a sale leaseback, synthetic lease or similar transaction involving any of its assets.

 

7.16.        Hazardous Substances.  Not, and not suffer or permit any other Group Member to, cause or suffer to exist any release of any Hazardous Substances at, to or from any real property owned, leased, subleased or otherwise operated or occupied by any Group Member that would violate any Environmental Law, form the basis for any Environmental Claims or otherwise adversely affect the value or marketability of any real property (whether or not owned by any Group Member), other than such violations, Environmental Claims and effects that would not, in the aggregate, be reasonably be expected to have a Material Adverse Effect.  Notwithstanding the foregoing, under no circumstances will any Group Member cause or suffer to exist any disposal of any Hazardous Substances at, on, under or in any real property owned, leased, subleased, or otherwise operated or occupied by any Group Member.

 

  

58

  

 

7.17.        Asset Purchase Agreement Indemnity.  Not, and not suffer or permit, directly or indirectly, the seeking of pricing and reimbursement for the Product (as defined in the Asset Purchase Agreement) in France, Italy or Spain in contravention of Section 11.5(d) of the Asset Purchase Agreement.

 

7.18.        Establishment of Defined Benefit Plan.  Notwithstanding any other provision of this Agreement or any other Loan Document, not, and not suffer or permit, (i) establishing or contributing to any Defined Benefit Plan or (ii) acquiring an interest in any Person if such Pension sponsors, administers, maintains or contributes to, or has any liability in respect of any Defined Benefit Plan.

 

7.19.        ERISA Liability.  Not, and not suffer or permit, any liability under ERISA and the sponsorship of any “pension plan” or any liability subject to Title IV of ERISA.

 

7.20.        Inactive Subsidiaries.  Not suffer or permit any Inactive Subsidiary (x) to have any Subsidiaries, assets, properties, rights, liabilities or operations, (y) to engage in any business or enter into any transaction except as required by Section 6.10(c), or (z) other than in the case of Orbis Pharma Inc., to have any of its Stock evidenced by certificates.

 

	
Section 8.

	
Events of Default; Remedies.

 

8.1.           Events of Default.  Each of the following shall constitute an Event of Default under this Agreement:

 

8.1.1.       Non-Payment of Credit.  Default, in the payment when due of the principal of the Loan shall occur; or default, and continuance thereof for 5 Business Days, in the payment when due of any interest, fee, or other amount payable by any Loan Party hereunder or under any other Loan Document shall occur.

 

8.1.2.       Default Under Other Debt.

 

(a)           Any default for the payment of principal or interest when due shall occur under the terms applicable to any Debt (other than the Obligations) of any Group Member in an aggregate amount (for all such Debt so affected and including undrawn committed or available amounts and amounts owing to all creditors under any combined or syndicated credit arrangement) exceeding CDN$1,000,000; and

 

(b)           Any default shall occur under the terms applicable to any Debt (other than the Obligations) of any Group Member in an aggregate amount (for all such Debt so affected and including undrawn committed or available amounts and amounts owing to all creditors under any combined or syndicated credit arrangement) exceeding CDN$1,000,000 and such default shall result in the acceleration of the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable (or require Borrower or any other Group Member to purchase or redeem such Debt or post cash collateral in respect thereof) prior to its expressed maturity.

 

  

59

  

 

8.1.3.       Bankruptcy; Insolvency.  Any Loan Party becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or any Loan Party applies for, consents to, or acquiesces in the appointment of a trustee, receiver, ad hoc manager or other custodian for such Loan Party or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver, ad hoc manager or other custodian is appointed for any Loan Party or for a substantial part of the property of any Loan Party and is not discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law (including in respect of Merus Labs Luxco S.à r.l.: (i) insolvency proceedings (faillite), or (ii) proceedings for voluntary arrangement with its creditors (concordat préventif de faillite), (iii) controlled management (gestion contrôlée) or (iv) suspension of payments (sursis de paiement) or (v) voluntary dissolution or liquidation (dissolution ou liquidation volontaire) or (vi) any similar foreign law proceedings having similar effects), or any dissolution or liquidation proceeding, is commenced in respect of any Loan Party, and if such case or proceeding is not commenced by such Loan Party, it is consented to or acquiesced in by such Loan Party, or remains for 60 days undismissed; or any Loan Party takes any action to authorize, or in furtherance of, any of the foregoing.

 

8.1.4.       Plan of Arrangement.  If any Loan Party or any other Person shall take any steps or actions (other than preparation of preliminary legal documentation and similar preparatory actions) to pursue or provide any notice to any Person that they intend to pursue a recapitalization of any Loan Party, whether pursuant to a plan of arrangement under the Canada Business Corporations Act (Canada) or otherwise.

 

8.1.5.       Non-Compliance with Loan Documents.

 

(a)            Failure by Borrower or any other Loan Party to comply with or to perform any covenant set forth in Sections 6.1.1, 6.1.2, 6.1.4, 6.1.6, 6.3(b), 6.5, 6.7, 6.8 and 7; (b) default by the Asset Purchaser in any material respect of any of its obligations under the Asset Purchase Documents or (c) failure by Borrower or any other Loan Party to comply with or to perform any other provision of this Agreement or any other Loan Document applicable to it (and not constituting an Event of Default under any other provision of this Section 8) and continuance of such failure described in this clause (c) for 30 days.

 

8.1.6.       Representations; Warranties.  Any representation or warranty made by any Loan Party herein or any other Loan Document is breached or is false or misleading in any material respect, or any schedule, certificate, financial statement, report, notice or other writing furnished by any Loan Party to Agent or the Lender in connection herewith is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified.

 

8.1.7.       [Reserved].

 

  

60

  

 

8.1.8.       Canadian Pensions Plans.  (a) Any Person institutes steps to terminate a Canadian Pension Plan or causes such Canadian Pension Plan to no longer be registered if required to be registered, if as a result of such termination or de-registration any Loan Party could be required to make a contribution to such Canadian Pension Plan, or could incur a liability or obligation to such Canadian Pension Plan, in excess of CDN$50,000; or (b) a contribution failure occurs with respect to any Canadian Pension Plan sufficient to give rise to a Lien under any Canadian Employee Benefits Legislation.

 

8.1.9.       Judgments.

 

(a)           Final judgments which exceed an aggregate of CDN$1,000,000 shall be rendered against any Group Member and shall not have been paid, discharged or vacated or had execution thereof stayed pending appeal within 30 days after entry or filing of such judgments; or

 

(b)           One or more non-monetary judgments, orders or decrees shall be rendered against any one or more of the Loan Parties or any of their respective Subsidiaries which has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, and there shall be any period of ten (10) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.

 

8.1.10.     Invalidity of Collateral Documents.  Any Collateral Document shall cease to be in full force and effect; or any Group Member or other grantor or pledgor (or any Person by, through or on behalf of any Group Member, grantor or pledgor) shall contest in any manner the validity, binding nature or enforceability of any Collateral Document.

 

8.1.11.     Invalidity of Subordination Provisions.  Any subordination provision in any document or instrument governing Debt that is intended to be subordinated to the Obligations or any subordination provision in any subordination agreement that relates to any such Debt, or any subordination provision in any guaranty by any Loan Party of any such Debt, shall cease to be in full force and effect, or any Person (including the holder of any applicable Debt) shall contest in any manner the validity, binding nature or enforceability of any such provision.

 

8.1.12.     Change of Control.  (a) A Change of Control shall occur, (b) Borrower shall cease to, directly or indirectly, own and control 100% of each class of the outstanding Stock and Stock Equivalents of each Subsidiary of the Borrower, or (c) a “Change of Control” or other similar event shall occur, as defined in, or under, any indenture, agreement, instrument or other documentation evidencing or otherwise relating to any Debt.

 

8.2.          Remedies.  If any Event of Default described in Section 8.1.3 shall occur, the Loans and all other Obligations shall become immediately due and payable and all outstanding Commitments shall terminate, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, Agent may, and upon the written request of the Lender shall, declare all or any part of the Loans and other Obligations to be due and payable and/or all or any part of the Commitments then outstanding to be terminated, whereupon the Loans and other Obligations shall become immediately due and payable (in whole or in part, as applicable), and such Commitments shall immediately terminate (in whole or in part, as applicable), all without presentment, demand, protest or notice of any kind.  Agent shall promptly advise Borrower of any such declaration, but failure to do so shall not impair the effect of such declaration.  Any cash collateral delivered hereunder shall be applied by Agent to any remaining Obligations and any excess remaining after the Obligations shall have been Paid in Full shall be delivered to Borrower or as a court of competent jurisdiction may elect.

 

  

61

  

 

8.3.          Borrower’s Right to Cure.  Notwithstanding anything to the contrary contained in Section 8.1.5, in the event of any Event of Default under Section 7.13 (a “Curable Default”), the Borrower may cure such Event of Default if it complies with the provisions set forth in Section 7.13.4.  From the effective date of the delivery of the Sinking Fund Deposit Cure Notice to Agent until the earlier to occur of the Required Deposit Date and the date on which Agent is notified that the applicable Retroactive Effect Deposit will not be deposited into the Sinking Fund Account, neither Agent nor Lender shall impose the Default Rate, accelerate the Obligations or exercise any enforcement remedy against any Group Member or any of their respective properties solely as a result of the existence of the applicable Curable Default.  In the event that the applicable Retroactive Effect Deposit is deposited into the Sinking Fund Account and the inclusion of the Retroactive Effect Deposit in the calculation of, as applicable, EBITDA, the Maximum Total Leverage Ratio or Net Sales for the Reference Computation Period results in compliance with, respectively, Section 7.13.1, Section 7.13.2 or Section 7.13.3 for the Reference Computation Period, the applicable Curable Default shall be deemed waived.

 

	
Section 9.

	
Agent.

 

9.1.          Appointment; Authorization.

 

(a)           Each Lender hereby irrevocably appoints, designates and authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, Agent shall not have any duty or responsibility except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with the Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent.

 

9.2.          Delegation of Duties.  Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects with reasonable care.

 

  

62

  

 

9.3.           Limited Liability.  None of Agent or any of its directors, officers, employees or agents shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except to the extent resulting from its own gross negligence or willful misconduct as determined in a final non-appealable judgment by a court of competent jurisdiction), or (b) be responsible in any manner to the Lender for any recital, statement, representation or warranty made by any Loan Party or Affiliate of any Loan Party, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (or the creation, perfection or priority of any Lien or security interest therein), or for any failure of any Loan Party or any other party to any Loan Document to perform its Obligations hereunder or thereunder.  Agent shall not be under any obligation to the Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or Affiliate of any Loan Party.

 

9.4.           Successor Agent.  Agent may resign as Agent at any time upon 30 days’ prior notice to the Lender.  If Agent resigns under this Agreement, the Lender shall, with (so long as no Event of Default exists) the consent of Borrower (which shall not be unreasonably withheld or delayed), appoint a successor agent for the Lender.  If no successor agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, on behalf after consulting with the Lender and (so long as no Event of Default exists) Borrower, a successor agent.  Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term “Agent” shall mean such successor agent, and the retiring Agent’s appointment, powers and duties as Agent shall be terminated.  After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 9 and Sections 10.4 and 10.5 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.  If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lender shall perform all of the duties of Agent hereunder until such time as the Lender shall appoint a successor agent as provided for above.

 

9.5.           Collateral Matters.  The Lender irrevocably authorizes Agent, at its option and in its discretion, (a) to release any Lien granted to or held by Agent under any Collateral Document (i) when all Obligations have been Paid in Full; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any sale or other disposition permitted hereunder (it being agreed and understood that Agent may conclusively rely without further inquiry on a certificate of an officer of Borrower as to the sale or other disposition of property being made in compliance with this Agreement); or (iii) subject to Section 10.1, if approved, authorized or ratified in writing by the Lender; or (b) to subordinate its interest in any Collateral to any holder of a Lien on such Collateral which is permitted by clause (d)(i) or (d)(ii) of Section 7.2 (it being understood that Agent may conclusively rely on a certificate from Borrower in determining whether the Debt secured by any such Lien is permitted by Section 7.1(b)).  Upon request by Agent at any time, the Lender will confirm in writing Agent’s authority to release, or subordinate its interest in, particular types or items of Collateral pursuant to this Section 9.5.  The Agent shall have the right, in accordance with the Collateral Documents, to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination thereof, and Agent may purchase any Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of the purchase price, may credit bid and setoff the amount of such price against the Obligations.

 

  

63

  

 

	
Section 10.

	
Miscellaneous.

 

10.1.         Waiver; Amendments.  No delay on the part of Agent or the Lender in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy.  No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement, the Notes or any of the other Loan Documents (or any subordination and intercreditor agreement or other subordination provisions relating to any other Debt) shall in any event be effective unless the same shall be in writing and approved by the Agent and the Lender, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No provision of Section 9 or other provision of this Agreement affecting Agent in its capacity as such shall be amended, modified or waived without the consent of Agent.

 

10.2.         Notices.  All notices hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at its address shown on Annex II or at such other address as such party may, by written notice received by the other parties, have designated as its address for such purpose.  Notices sent by facsimile or other electronic transmission shall be deemed to have been given when sent; notices sent to the Borrower by mail shall be deemed to have been given three Business Days after the date when sent by registered or certified mail, postage prepaid; and notices sent by hand delivery or overnight courier service shall be deemed to have been given when received.

 

10.3.         Computations.  Unless otherwise specifically provided herein, any accounting term used in this Agreement (including in Section 7.13 or any related definition) shall have the meaning customarily given such term in accordance with IFRS, and all financial computations (including pursuant to Section 7.13 and the related definitions, and with respect to the character or amount of any asset or liability or item of income or expense, or any consolidation or other accounting computation) hereunder shall be computed in accordance with IFRS consistently applied; provided that if Borrower notifies Agent that Borrower wishes to amend any covenant in Section 7.13 (or any related definition) to eliminate or to take into account the effect of any change after the Closing Date in IFRS on the operation of such covenant (or if the Lender wishes to amend Section 7.13 (or any related definition) for such purpose), then Borrower’s compliance with such covenant shall be determined on the basis of IFRS in effect immediately before the relevant change in IFRS became effective, until either such notice is withdrawn or such covenant (or related definition) is amended in a manner satisfactory to Borrower and the Lender.  The explicit qualification of terms or computations by the phrase “in accordance with IFRS” shall in no way be construed to limit the foregoing.

 

  

64

  

 

10.4.         Costs; Expenses.  Each party shall bear its own costs (including Legal Costs) in connection with the preparation, execution, delivery and administration on or prior to the Closing Date (including perfection and protection of Collateral prior to and on the Closing Date) of this Agreement, the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder or in connection herewith.  After the Closing Date, Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of Agent and the Lender (including Legal Costs) in connection with the administration (including perfection and protection of Collateral subsequent to the Closing Date) of this Agreement, the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder or in connection herewith (including any proposed or actual amendment, supplement or waiver to any Loan Document), and all out-of-pocket costs and expenses (including Legal Costs) incurred by Agent and the Lender in connection with the collection of the Obligations and enforcement of this Agreement, the other Loan Documents or any such other documents.  In addition, Borrower agrees to pay, and to save Agent and the Lender harmless from all liability for, any fees of Borrower’s auditors in connection with any reasonable exercise by Agent and the Lender of their rights pursuant to Section 6.2.  All Obligations provided for in this Section 10.4 shall survive repayment of the Loans, cancellation of the Notes and termination of this Agreement.

 

10.5.         Indemnification by Borrower.  In consideration of the execution and delivery of this Agreement by Agent and the Lender and the agreement to extend the Commitments provided hereunder, Borrower hereby agrees to indemnify, exonerate and hold Agent, the Lender and each of the officers, directors, employees, Affiliates and agents of Agent and the Lender (each a “Lender Party”) free and harmless from and against any and all actions, causes of action, suits, losses, liabilities (including, without limitation, strict liabilities), damages, fines, penalties and expenses, including Legal Costs (collectively, the “Indemnified Liabilities”), incurred by Lender Parties or asserted against the Lender Party by any Person (including in connection with any action, suit or proceeding brought by the Borrower, any other Group Member or any Lender Party) as a result of, or arising out of, or relating to (a) any repayment of Debt, tender offer, merger, purchase of Stock and Stock Equivalents, purchase of assets or other similar or dissimilar transaction financed or proposed to be financed in whole or in part, directly or indirectly, with the proceeds of the Loans, (b) the generation, use, handling, recycling, reclamation, release, emission, discharge, transportation, storage, treatment or disposal of any Hazardous Substance at any property owned or leased by Borrower or any other Group Member, (c) any violation of or liability under any Environmental Laws or any Environmental Claim with respect to conditions at any property owned or leased by any Group Member or the operations conducted thereon, (d) the investigation, cleanup or remediation of offsite locations at which any Group Member or their respective predecessors are alleged to have directly or indirectly released or disposed of Hazardous Substances and any related Environmental Claims or (e) the execution, delivery, performance or enforcement of this Agreement or any other Loan Document by any Lender Party, except to the extent any such Indemnified Liabilities result from the applicable Lender Party’s own gross negligence or willful misconduct as determined by a court of competent jurisdiction.  If and to the extent that the foregoing undertaking may be unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.  All Obligations provided for in this Section 10.5 shall survive repayment of the Loans, cancellation of the Notes, any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

 

  

65

  

 

10.6.         Marshaling; Payments Set Aside.  Neither Agent nor the Lender shall be under any obligation to marshal any assets in favor of Borrower or any other Person or against or in payment of any or all of the Obligations.  To the extent that Borrower makes a payment or payments to Agent or the Lender, or Agent or the Lender enforces its Liens or exercises its rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by Agent or the Lender in its discretion) to be repaid to a trustee, receiver or any other party in connection with any bankruptcy, insolvency or similar proceeding, or otherwise, then (a) to the extent of such recovery, the obligation hereunder or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and (b) the Lender severally agrees to pay to Agent upon demand its ratable share of the total amount so recovered from or repaid by Agent to the extent paid to such Lender.

 

10.7.         Nonliability of the Lender.  The relationship between Borrower on the one hand and the Lender and Agent on the other hand shall be solely that of borrower and lender.  Neither Agent nor the Lender shall have any fiduciary responsibility to Borrower or any other Group Member.  Neither Agent nor the Lender undertakes any responsibility to Borrower or any other Group Member to review or inform Borrower or any other Group Member of any matter in connection with any phase of Borrower’s or any other Group Member’s business or operations.  Execution of this Agreement by Borrower constitutes a full, complete and irrevocable release of any and all claims which Borrower may have at law or in equity in respect of all prior discussions and understandings, oral or written, relating to the subject matter of this Agreement and the other Loan Documents.  Neither Agent nor the Lender shall have any liability with respect to, and Borrower hereby waives, releases and agrees not to sue for, any special, indirect, punitive or consequential damages or liabilities.

 

10.8.         Anti-Money Laundering.

 

(a)            Each Canadian Loan Party acknowledges that, pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and other applicable anti-money laundering, anti-terrorist financing, government sanction and “know your client” Laws, whether within Canada or elsewhere (collectively, including any guidelines or orders thereunder, “AML Legislation”), the Lender and the Agent may be required to obtain, verify and record information regarding each Canadian Loan Party, its directors, authorized signing officers, direct or indirect shareholders or other Persons in control of each Canadian Loan Party, and the transactions contemplated hereby.  Each Canadian Loan Party shall promptly provide all such information, including supporting documentation and other evidence, as may be reasonably requested by the Lender or the Agent, or any prospective assign or participant of the Lender or the Agent, in order to comply with any applicable AML Legislation, whether now or hereafter in existence.

 

  

66

  

 

(b)           If the Agent has ascertained the identity of each Canadian Loan Party or any authorized signatories of each Canadian Loan Party for the purposes of applicable AML Legislation, then the Agent:

 

(i)           shall be deemed to have done so as an agent for the Lender, and this Agreement shall constitute a “written agreement” in such regard between the Lender and the Agent within the meaning of applicable AML Legislation; and

 

(ii)           shall provide to the Lender copies of all information obtained in such regard without any representation or warranty as to its accuracy or completeness.

 

Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, the Lender agrees that the Agent has no obligation to ascertain the identity of each Canadian Loan Party or any authorized signatories of each Canadian Loan Party on behalf of the Lender, or to confirm the completeness or accuracy of any information it obtains from each Canadian Loan Party or any such authorized signatory in doing so.

 

10.9.        Currency Indemnity.  If, for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any other Loan Document, it becomes necessary to convert into a particular currency (the “Judgment Currency”) any amount  due under this Agreement or under any other Loan Document in any currency other than the Judgment Currency (the “Currency Due”), then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which judgment is given.  For this purpose “rate of exchange” means the rate at which the Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in accordance with its normal practice through its bankers.  In the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of receipt by the Agent of the amount due, each Canadian Loan Party will, on the date of receipt by the Agent, pay such additional amounts, if any, or be entitled to receive reimbursement of such amount, if any, as may be necessary to ensure that the amount received by the Agent on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of receipt by the Agent is the amount then due under this Agreement or such other Loan Document in the Currency Due.  If the amount of the Currency Due which the Agent is so able to purchase is less than the amount of the Currency Due originally due under this Agreement or any other Loan Document, each Canadian Loan Party shall indemnify and save the Agent and the Lender harmless from and against all loss or damage arising as a result of such deficiency.  This indemnity shall constitute an obligation separate and independent from the other obligations contained in this Agreement and the other Loan Documents, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Agent or the Lender from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due under this Agreement or any other Loan Document or under any judgment or order.

 

  

67

  

 

10.10.       Confidentiality.  Agent and the Lender agree to use commercially reasonable efforts (equivalent to the efforts Agent or such Lender applies to maintain the confidentiality of its own confidential information) to maintain as confidential all information provided to them by any Loan Party and designated as confidential, except that Agent and the Lender may disclose such information (a) to Persons employed or engaged by Agent or such Lender or any of their Affiliates (including collateral managers of the Lender) in evaluating, approving, structuring or administering the Loan and the Commitments; (b) to any assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 10.10 (and any such assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any federal or state regulatory authority or examiner, or any insurance industry association, or as reasonably believed by Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of Agent’s or such Lender’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which Agent or such Lender is a party; (f) to any nationally recognized rating agency or investor of the Lender that requires access to information about the Lender’s investment portfolio in connection with ratings issued or investment decisions with respect to such Lender; (g) that ceases to be confidential through no fault of Agent or the Lender; (h) to a Person that is an investor or prospective investor in a Securitization (as defined below) that agrees that its access to information regarding Borrower and the Loan and Commitments is solely for purposes of evaluating an investment in such Securitization and who agrees to treat such information as confidential; (i) to a Person that is a trustee, collateral manager, servicer, noteholder or secured party in a Securitization in connection with the administration, servicing and reporting on the assets serving as collateral for such Securitization; or (j) to a Person that is an investor or prospective investor in the Agent or any of its Affiliates.  For purposes of this Section 10.10, “Securitization” means a public or private offering by the Lender or any of its Affiliates or their respective successors and assigns, of securities which represent an interest in, or which are collateralized, in whole or in part, by the Loans or the Commitments.  Notwithstanding the foregoing, Borrower consents to the publication by Agent or the Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement, and Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

 

10.11.       Captions.  Captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

 

10.12.       Nature of Remedies.  All Obligations of Borrower and rights of Agent and the Lender expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law.  No failure to exercise and no delay in exercising, on the part of Agent or the Lender, any right, remedy, power or privilege hereunder, shall operate 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.

 

10.13.       Counterparts.  This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement.  Receipt by telecopy or electronic transmission of any executed signature page to this Agreement or any other Loan Document shall constitute effective delivery of such signature page.

 

  

68

  

 

10.14.       Severability.  The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

 

10.15.       Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof and any prior arrangements made with respect to the payment by Borrower of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of Agent or the Lender

 

10.16.       Successors; Assigns.  This Agreement shall be binding upon Borrower, the Lender and Agent and their respective successors and assigns, and shall inure to the benefit of Borrower, the Lender and Agent and the successors and assigns of the Lender and Agent.  No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents.  Borrower may not assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of Agent and the Lender.

 

10.17.       Governing Law.  THIS AGREEMENT AND EACH NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

10.18.       Forum Selection; Consent to Jurisdiction; Service of Process.  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.  EACH LOAN PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK.  EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  Each Loan Party hereby appoints CT Corporation as such Loan Party’s agent where notices and demands to or upon such Loan Party in respect of this Agreement or any other Loan Document may be served (without prejudice to the right of Agent or Lender  to serve process in any other manner permitted by law).  If for any reason such process agent is unable to act as such, such Loan Party will within 30 days appoint a substitute process agent located in the State of New York and give notice of such appointment to Agent.

 

  

69

  

 

10.19.       Waiver of Jury Trial.  EACH LOAN PARTY, AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

10.20.       Collateral Agent.  Each Lender hereby appoints PDL BIOPHARMA, INC. as its collateral agent under the Guarantee and Collateral Agreement and agrees that in so acting PDL BIOPHARMA, INC. will have all the rights, protections, exculpations, indemnities and other benefits provided to PDL BIOPHARMA, INC. under Section 9 hereof, and authorizes and directs PDL BIOPHARMA, INC. to take or refrain from taking any and all action that it deems necessary or advisable in fulfilling its role as Collateral Agent under each Guarantee and Collateral Agreement.

 

[signature pages follow]

 

  

70

  

 

The parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first set forth above.

 

 

	 	MERUS LABS INTERNATIONAL INC.	 
	 	 	 	 
	 	 	 	 
	 	By:	
/s/ Ahmad Doroudian

	 
	 	
Name:

	Ahmad Doroudian 	 
	 	Title: 	CEO	 
	 	 	 	 
	 	MERUS LABS LUXCO S.À R.L.	 
	 	 	 	 
	 	 	 	 
	 	By:	
/s/ Elias Farah

	 
	 	Name:	
Elias Farah

	 
	 	Title:	
Manager A

	 
	 	 	 	 
	 	ECG HOLDINGS INC.	 
	 	 	 	 
	 	 	 	 
	 	
By:

	
/s/ Andrew Patient

	 
	 	Name:	Andrew Patient	 
	 	Title:	President	 
	 	 	 	 
	 	MERUS LABS INC.	 
	 	 	 	 
	 	 	 	 
	 	By:	
/s/ Elias Farah

	 
	 	Name: 	
Elias Farah

	 
	 	Title: 	
President and Chief Executive Officer

	 

 

[Credit Agreement – Signature Page]

 

  

  

  

 

	 	
MERUS LABS NETHERLANDS B.V.

	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	By: 	
/s/ J.B. Unsworth

	 
	 	Name: 	
J.B. Unsworth

	 
	 	Title: 	
Director A

	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	By:	
/s/ Elie Farah

	 
	 	Name: 	
Elie Farah

	 
	 	Title: 	
Director B

	 

 

[Credit Agreement – Signature Page]

 

  

  

  

 

	 	
PDL BIOPHARMA, INC.,

	 
	 	
as Agent and the Lender

	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	By:	/s/ John P. McLaughlin	 
	 	Name:	John P. McLaughlin	 
	 	Title: 	President and Chief Executive Officer	 

 

[Credit Agreement – Signature Page]

 

  

  

  

 

ANNEX I

 

 

Commitments

 

 

Closing Date Commitment:  $35,000,000.00

Additional Commitment:  $20,000,000.00

  

I-1  

  

 

ANNEX II

 

Addresses

 

LOAN PARTIES

 

Address for Notices:

Merus Labs International Inc.

30 St. Patrick St., Ste. 301,

Toronto, Ontario M5T 3A3

Attention: Chief Executive Officer

Facsimile: (416) 593-4434

 

Copy to:

Clark Wilson LLP

Suite 800 – 885 West Georgia Street

Vancouver, British Columbia V6C 3H1

Attention: Stewart Muglich

Facsimile: (604) 687-6314

 

AGENT

 

PDL BioPharma, Inc.,

as Agent and the Lender

 

Address for Notices:

932 Southwood Boulevard

Incline Village, NV  89451

Attention: General Counsel

Telephone: (775) 832-8500

Facsimile: (775) 832-8501

Bank:

Wells Fargo Bank, N.A.

San Francisco, CA 94136

Account #:

***

ABA Routing #:

***

Swift Code:

***

  

II-1  

  

 

Exhibit A

 

Form of Compliance Certificate

 

Please refer to the Credit Agreement dated as of July __, 2012 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”) among the undersigned (“Borrower”), the other Loan Parties named therein, PDL BIOPHARMA INC., as the Lender, and PDL BIOPHARMA INC., as Agent.  This certificate (this “Certificate”), together with supporting calculations attached hereto, is delivered to Agent and the Lender pursuant to the terms of the Credit Agreement.  Terms used but not otherwise defined herein are used herein as defined in the Credit Agreement.  [Enclosed herewith is a copy of the [annual audited/quarterly] report of Borrower as at ________________ (the “Computation Date”), which report fairly presents in all material respects the financial condition and results of operations [(subject to the absence of footnotes and to normal year-end adjustments)] of Borrower as of the Computation Date and has been prepared in accordance with IFRS consistently applied.]

 

Borrower hereby certifies and warrants that the computations set forth on the schedule attached hereto correspond to the ratios and/or financial restrictions contained in the Credit Agreement and such computations are true and correct as at the [Computation Date].

 

Borrower further certifies that no Event of Default or Default has occurred and is continuing.

 

Borrower has caused this Certificate to be executed and delivered by its officer thereunto duly authorized on _____________.

 

MERUS LABS INTERNATIONAL INC.

 

By:

Title: _______________________________                                                                        

  

A-1

  

 

Schedule to Compliance Certificate1

Dated as of _________________

 

	
A.

	
Section 7.13.1 - Minimum EBITDA

	 
	 	 	 
	
1.

	
Consolidated Net Income

	
$________

	 	 	 
	
2.

	
Plus:

	 
	 	
a. Interest Expense

	
$________

	 	
b. income tax expense

	
$________

	 	
c. depreciation and amortization

	
$________

	 	
d. transaction expenses incurred in connection with the Asset Sale and the financing

	
$________

	 	
e. non-cash stock compensation expense

	
$________

	 	
f. any non-cash non-recurring charges or expenses

	
$________

	 	
g. any extraordinary or non-recurring charges or expenses approved in writing by the Agent

	
$________

	 	 	 
	
3.

	
Minus, to the extent included in determining Consolidated Net Income, all non-cash gains

	
$________

	 	 	 
	
4.

	
Total (EBITDA)

	
$________

	 	 	 
	
5.

	
Minimum required

	
$________

	 	 	 
	 	 	 
	 	 	 
	
B.

	
Section 7.13.2 – Maximum Total Leverage Ratio

	 
	 	 	 
	
1.

	
Total Debt outstanding

	
$________

	 	 	 
	
2.

	
Less the amount of Unrestricted Cash that is Excess Cash

	
$________

	 	 	 
	
3.

	
(1) minus (2)

	
$________

	 	 	 
	
4.

	
EBITDA (from Item A(3) above)

	
$________

	 	 	 
	
5.

	
Ratio of (3) to (4)

	
____ to 1

	 	 	 
	
6.

	
Maximum allowed

	

____ to 1

 

 

	
  

	
1

	 	
All calculations are subject to the provisions of Section 7.13.4 and 7.13.5 of the Credit Agreement.

 

  

A-2

  

 

	
C.

	
Section 7.13.3 – Minimum Net Sales

	 
	 	 	 
	
1.

	
Gross Sales

	
$________

	 	 	 
	
2.

	
Minus:

	 
	 	 	 
	
  

	a. freight, insurance and other transportation and shipping charges	
$________

	 	
b. sales, use, value-added, excise taxes and duties

	
$________

	 	
c. billbacks, chargebacks, customer adjustments (including payment discounts and customer pricing), performance allowances, promotional monies, trade, quantity, cash discounts, volume incentives, off invoice discounts, government and other third-party rebates, and product service fees

	
$________

	 	
d. allowances or credits2

	
$________

	 	
e. bad debt

	
$________

	 	
f. such other discounts and other deductions customary in the trade

	
$________

	 	
g. Total Net Sales Deductions (sum of (a) through (f))

	
$________

	 	 	 
	
3.

	
Net Sales ((1) minus (2)(g))

	
$________

	 	 	 
	
4.

	
Minimum Required

	
$________

	 	 	 
	
D.

	
Section 1.1 – Minimum Fixed Charges Coverage Ratio

	 
	 	 	 
	
1.

	
Fixed Charges

	 
	 	 	 
	 	
a. Interest Expense accrued (other than interest paid-in-kind, amortization of financing fees, and other non-cash Interest Expense)

	
$________

	 	
b. principal payments in respect of Debt that are required to be paid

	
$________

	 	
c. all federal, state, and local income taxes paid in cash

	
$________

	 	
d. all Restricted Payments paid (whether in cash or other property, other than common Stock)

	
$________

	 	
e. Total Fixed Charges (sum of (a) through (d))

	
$________

	 	 	 
	
2.

	
EBITDA (from Item A(3) above)

	
$________

	 	 	 
	
3.

	
Ratio of (2) to (1)(e)

	
____ to 1

	 	 	 
	
4.

	
Minimum allowed

	
____ to 1

 

 

	
  

	
2

	 	
Including those in respect of rejection, defects, damaged item credits, sales returns, retroactive price reduction, shipping charges, shipment shortages, shelf-stock adjustments, invoice errors, and replacement costs.

 

 

  

A-3

  

 

Exhibit B

 

Form of Note

 

	
$__________________ 

	New York, New York

 

_______, 20__

 

The undersigned (“Borrower”), for value received, promises to pay to the order of _____________ (“Lender”) at the office of PDL BIOPHARMA, INC. (the “Agent”) the aggregate unpaid amount of the Loans (herein, the “Loans”) made to Borrower by Lender pursuant to the Credit Agreement referred to below, such principal amount to be payable on the dates set forth in the Credit Agreement.

 

Borrower further promises to pay interest on the unpaid principal amount of the Loans from the date of such Loans until such Loans are Paid in Full, payable at the rate(s) and at the time(s) set forth in the Credit Agreement.  Payments of both principal and interest are to be made in lawful money of the United States of America to the deposit account of the Agent identified in the Credit Agreement.

 

This Note evidences indebtedness incurred under, and is subject to the terms and provisions of, the Credit Agreement, dated as of July __, 2012 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”; terms not otherwise defined herein are used herein as defined in the Credit Agreement), among Borrower, the other Loan Parties named therein, and PDL BIOPHARMA INC., as Agent and Lender, to which Credit Agreement reference is hereby made for a statement of the terms and provisions under which this Note may or must be paid prior to its due date or its due date accelerated.

 

This Note is made under and governed by the laws of the State of New York applicable to contracts made and to be performed entirely within such State.

 

 

	 	
MERUS LABS INTERNATIONAL INC.

	 
	 	 	 	 
	 	 	 	 
	 	By: 	 	 
	 	Title: 	 	 

                                          

  

  B-1

  

                                                            

Schedule 4.1.6 - Material Adverse Changes

 

 

There has been no Material Adverse Change since September 30, 2011, with the exception of the following, both of which were disclosed in the Company’s recent financing prospectus:

On December 20, 2011, Health Canada granted a notice of compliance (“NOC”) to Pharmaceutical Partners of Canada Inc. (“PPC”), which grants PPC the authority to market their generic version of Vancocin® capsules in the Canadian market.  Merus intends to vigorously pursue all avenues at its disposal to challenge the entry of the PPC product.

It was recently announced that the pharmaceutical product DIFICID®, a macrocyclic antibiotic, which may replace the use of Vancocin® will be launched in the Canadian market.  DIFICID® was found to be non-inferior to vancomycin against C. Difficile in a phase III non-inferiority study reported in the February 3, 2011 issue of the New England Journal of Medicine. However, the Corporation expects DIFICID® to be sold in Canada at a much higher price than that of Oral Vancocin® based on the existing DIFICID® pricing in the U.S. market.

  

  

  

 

Schedule 5.4 – Financial Projections

 

Attached hereto.

 

  

  

  

 

Schedule 5.6 – Litigation

 

 

None.

 

  

  

  

 

Schedule 5.7 – Real Property

 

 

The Company currently owns no real property.

 

 

Real property occupied under operating leases is as follows:

 

	
  

	
·

	
Merus Labs International Inc. - 30 St. Patrick St., Ste. 301, Toronto, Ontario, Canada M5T 3A3

 

	
  

	
·

	
Merus Labs Inc. - 100 Alexis-Nihon, Ste. 910, Ville St. Laurent, Quebec, Canada H4M 2P5

 

	
  

	
·

	
Merus Labs Inc. - 470 Granville St., Ste. 503, Vancouver, British Columbia, Canada V6C 1V5

 

  

  

  

 

Schedule 5.8 – Capitalization

 

 

The following is a complete list of the Subsidiaries of the Borrower:

 

 

 

	
Entity

	 	
Jurisdiction

	 	
# of Shares Outstanding

	 	 	% Owned	 
	 	 	 	 	 	 	 	 	 
	
Merus Labs Inc.

	 	
British Columbia

	 	12,619,001	 	 	100%	 
	 	 	 	 	 	 	 	 	 
	
ECG Holdings Inc.

	 	
Delaware

	 	2,000	 	 	100%	 
	 	 	 	 	 	 	 	 	 
	
Merus Labs Luxco S.a r.l

	 	
Luxembourg

	 	12,500	 	 	100%	 
	 	 	 	 	 	 	 	 	 
	
Merus Labs Netherlands B.V.

	 	
Netherlands

	 	18,000	 	 	100%	 
	 	 	 	 	 	 	 	 	 
	
Orbis Pharma Inc.

	 	
Ontario

	 	1,000	 	 	51%	 

 

  

  

  

 

Schedule 5.9 (b) – Canadian Employees

 

 

The following is a complete list of agreements between the Company and its Canadian employees with respect to any benefits or termination:

 

	
  

	
·

	
Employment agreement with Elie Farah dated January 12, 2012

 

	
  

	
·

	
Employment agreement with Ahmad Doroudian dated January 12, 2012

 

	
  

	
·

	
Employment agreement with Ali Moghaddam dated March 1, 2011

 

	
  

	
·

	
Employment agreement with Andrew Patient dated January 1, 2012

 

	
  

	
·

	
Incentive Stock Option Plan dated January 6, 2012

 

  

  

  

 

Schedule 5.10 – Authorizations, Permits, Licenses and Approvals

 

 

The Company possesses all necessary authorizations, approvals and permits necessary to conduct business as presently conducted with the exception of the following:

 

	
  

	
·

	
Medicine License for Merus Labs Luxco S.a r.l,

 

	
  

	
·

	
Wholesale license for Merus Labs Netherland B.V.

 

  

  

  

 

Schedule 5.12 – Taxes

 

 

All corporate tax amounts and returns are in compliance with the exception of the following:

 

Unfiled returns

 

	
  

	
·

	
Canadian corporate tax return for Envoy Capital Group Inc. for the fiscal year ended September 30, 2011

 

	
  

	
·

	
Canadian corporate tax return for Envoy Capital Group Inc. for the stub period ended December 18, 2011 (prior to Amalgamation)

 

	
  

	
·

	
US Federal tax return for ECG Holdings Inc. for the fiscal year ended September 30, 2011

 

No amounts are expected to be owed with respect to these returns.

 

 

Unremitted amounts

 

	
  

	
·

	
Quebec employee deductions for the period January 1 – June 30, 2012

 

The amount withheld but not yet remitted is approximately $22,000, due to the requirement to establish a separate account for Merus Labs International Inc., whereas previously only Merus Labs Inc. was registered in the province.  This is expected to be completed and payment remitted within 30 days.

 

  

  

  

 

Schedule 5.14 – Environmental Matters

 

 

None.

 

  

  

  

 

Schedule 5.15 – Insurance

 

 

The Company maintains the following insurance policies and coverage, for the company and its subsidiaries:

 

	
  

	
·

	
Directors and Officers Liability insurance - $10M coverage ($8M direct, $2M Side A coverage) via Liberty and Axis Insurance (shared coverage), $150,000 deductible

	
  

	
·

	
Product and General Liability insurance – Elliot Special Risks – as follows:

 

PERIOD:

	
  

	
·

	
From 13th May 2012

	
  

	
·

	
To 13th May 2013

	
  

	
·

	
Both days at 12.01AM Local Standard Time at the address of the Insured

INTEREST:

	
  

	
·

	
Section 1 Public Liability

	
  

	
·

	
Section 2 Products Liability

LIMIT OF INDEMNITY:

	
  

	
·

	
Section 1 CAD 10,000,000 any one event.

	
  

	
·

	
Section 2 CAD 10,000,000 any one event and in all.

POLICY TERRITORY:

	
  

	
·

	
World-wide including USA as per Policy Territory below

(A) The Provinces and Territories of Canada;

(B) Anywhere in the world in respect of liability arising from:

i) the Products sold, supplied or distributed by the Insured from any premises within (A) above;

ii) Business travel by Persons Employed ordinarily resident within (A) above.

CONDITIONS:

	
  

	
·

	
Canadian Biotechnology Insurance Form as attached plus Joint Ventures Restriction plus amendments if any as agreed as attached.

	
  

	
·

	
Retroactive Date Section 2: 13th May 2011 but 3rd April 2012 in respect of CAD 5,000,000 in excess of CAD 5,000,000

	
  

	
·

	
Deductible Section 1 CAD 10,000 each and every claim.

	
  

	
·

	
Deductible Section 2 CAD 10,000 each and every claim.

	
  

	
·

	
Deductible: USD 10,000 each and every claim including costs and expenses.

	
  

	
·

	
Employee Benefits Liability – Limit CAD 1,000,000 any one occurrence and including costs and expenses.

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Non-Owned Automobile Coverage – Limit CAD 1,000,000 any one occurrence

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
S.E.F No.94 Legal Liability for Damages to Hired Automobiles

	
  

	
·

	
Limit CAD 50,000 any one occurrence including costs and expenses.

	
  

	
·

	
Deductible CAD 500 any one claim

	
  

	
·

	
Tenants’ Legal Liability Insurance – Limit CAD 1,000,000 any one premises

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Advertising Liability - Limit CAD 1,000,000 any one occurrence

	
  

	
·

	
Deductible CAD 1,000 any one claim

 

  

  

  

 

	
  

	
·

	
Incidental Medical Malpractice Liability

	
  

	
·

	
Additional Insured – Broadform Vendors

	
  

	
·

	
Voluntary Medical Payments

	
  

	
·

	
Limit CAD 50,000 any one occurrence and in all

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Employers Liability Coverage

	
  

	
·

	
Limit CAD 1,000,000 any one occurrence and in all

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Biocontamination Coverage

	
  

	
·

	
Limit CAD 25,000 any one occurrence and in the aggregate

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Extended Pollution Coverage

	
  

	
·

	
Limit CAD 25,000 any one occurrence and in the aggregate

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Barcode Coverage

	
  

	
·

	
Limit CAD 25,000 any one occurrence and in the aggregate

	
  

	
·

	
Deductible CAD 1,000 any one claim

	
  

	
·

	
Product Tampering Extension

	
  

	
·

	
Limit CAD 25,000 any one occurrence and in the aggregate

	
  

	
·

	
Deductible CAD 1,000 any one claim

  

  

  

 

Schedule 5.18 – Labour Matters

 

 

None.

 

  

  

  

 

Schedule 5.19 – Canadian Labour Matters

 

 

None.

 

  

  

  

 

Schedule 5.25 – Certificated Inactive Subsidiaries

 

 

None.

 

  

  

  

 

Schedule 7.1 – Existing Debt

 

 

The Company currently has the following existing debt:

 

The Company is party to a support services agreement with a distribution services provider.  Under the terms of the agreement, the distribution services provider provided the Company with loan of $500,000 to be used for working capital purposes in consideration for being the Company’s exclusive provider of certain distribution services of the Company’s products in Canada.  Payments are made based on net sales of Vancocin. The agreement is for a five year term with automatic renewal terms of two years until terminated. As at June 30, 2012, the carrying value of the loan is $392,076.

  

  

  

 

Schedule 7.2 – Permitted Liens

 

 

None.

 

  

  

  

 

Schedule 7.5 – Mergers, Consolidations, Asset Sales

 

 

None.

 

  

  

  

 

Schedule 7.9 – Existing Agreements

 

 

None.

 

  

  

  

 

Schedule 7.11 – Existing Investments

 

 

The Company currently has the following existing investments:

 

	
 

Account Holder

 

 

	
 

Account Name and 

Identification Number

	
 

Securities Intermediary and 

Address

	
Merus Labs International Inc.

 

	
Canadian dollar margin account

 

***

	
Haywood Securities

 

***

 

 

 

Note:  This account is a legacy account from the former Envoy Capital Group entity.  It was used for trading positions in the former merchant bank business.  It now consists of cash of approximately ***, plus ***, a private UK entity, valued at approximately ***.

 

There are no restrictions on the account with respect to pledging.

 

  

  

  

 

Schedule 7.14 – Bank Accounts

 

 

The Company currently has the following bank accounts:

 

	
 

Account Holder

 

 

	
 

Account Name and Identification 

Number

	
 

Securities Intermediary and Address

	
Merus Labs International Inc. (old Envoy account)

	
Canadian dollar operating account

 

***

 

	
Royal Bank of Canada

 

***

	
Merus Labs International Inc. (old Envoy account)

	
US dollar operating account

 

***

 

	
Royal Bank of Canada

 

***

	
Merus Labs International Inc.

	
Canadian dollar operating account

 

***

 

 

	
Royal Bank of Canada

 

***

	
Merus Labs International Inc.

	
US dollar operating account

 

***

 

	
Royal Bank of Canada

 

***

	
Merus Labs Inc.

	
Canadian dollar operating account

 

***

 

 

	
Royal Bank of Canada

 

***

	
Merus Labs Inc.

	
US dollar operating account

 

***

 

	
Royal Bank of Canada

 

***

	
Merus Labs Inc.

	
Canadian dollar operating account

 

***

 

	
Royal Bank of Canada

 

***

	
Merus Labs Inc.

	
Canadian dollar operating account

 

***

 

	
National Bank of Canada, ***

 

	
Merus Labs Inc.

	
US dollar operating account

 

***

 

	
National Bank of Canada, ***

 

  

  

  

 

	  

Account Holder

 

 

	  

Account Name and Identification 

Number

	  

Securities Intermediary and Address

	
ECG Holdings Inc.

 

 

 

	
US dollar operating account

 

***

 

***

 

 

	
Wells Fargo N.A.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00217-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00217-of-00352.parquet"}]]