Document:

Exhibit 10.3

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER OF THIS SECURITY (1) REPRESENTS THAT (A) IT IS AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a) UNDER REGULATION D OF THE SECURITIES ACT (AN “AI”), (B) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A “QIB”) OR (C) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(d)(1) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO KADMON HOLDINGS, LLC OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR A PERSON PURCHASING FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED THAT PRIOR TO SUCH TRANSFER, THE ISSUER IS FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE AND PROVIDED THAT PRIOR TO SUCH TRANSFER, THE ISSUER IS FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT), (F) TO AN AI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE ISSUER A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE ISSUER) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST DELIVER TO THE ISSUER A TRANSFER INSTRUCTION, IN THE FORM ATTACHED HERETO, AND CHECK THE APPROPRIATE BOX SET FORTH ON THE DOCUMENTS INCLUDED IN SUCH TRANSFER INSTRUCTION (INCLUDED ON THE REVERSE HEREOF) RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THESE DOCUMENTS AND CERTIFICATES TO THE ISSUER. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.

 

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE ISSUER SUCH ADDITIONAL CERTIFICATES AND OTHER INFORMATION AS THE ISSUER MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

 

FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT; PLEASE CONTACT KONSTANTIN POUKALOV, CHIEF FINANCIAL OFFICER, 450 EAST 29TH STREET, NEW YORK, NEW YORK 10016, TELEPHONE: (212) 308-6000 TO OBTAIN INFORMATION REGARDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT AND THE YIELD TO MATURITY.

 

THE OBLIGATIONS EVIDENCED BY THIS NOTE ARE SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF THE “OBLIGATIONS” (AS DEFINED IN THE SENIOR CONVERTIBLE CREDIT AGREEMENT HEREINAFTER REFERRED TO) UNDER SUCH SENIOR CONVERTIBLE CREDIT AGREEMENT.

 

 

No. [1]

 

$[XXX,XXX,XXX]

 

13.0% Second-Lien Convertible PIK Notes Due 2019

 

KADMON PHARMACEUTICALS, LLC, a Pennsylvania limited liability company (“Issuer”), promises to pay to [PURCHASER], or registered transfers or assigns, the principal amount of $[XXX,XXX, XXX] on August [·], 2019 (the “Maturity Date”).

 

Guarantors: Kadmon Holdings, LLC (“Holdings”), the Subsidiaries of Holdings party to the Guaranty and Security Agreement, all future parties to the Guaranty and Security Agreement, and any successor Person to the foregoing (collectively, the “Guarantors” and, together with the Issuer, the “Obligors”).

 

Issue Date: August [·], 2015

 

Interest Payment Dates: October 1 and April 1, commencing October 1, 2015

 

Regular Record Dates: September 15 and March 15

 

Additional provisions of this Note are set forth on the other side of this Note. All Securities (as defined herein) have terms identical to those of this Note in all material respects, except with respect to the principal amount represented by such Securities, in the case of PIK Notes (as defined herein), the date of original issuance and the first interest payment date and such changes as are permitted in accordance with the terms of this Note and such other Securities.

 

IN WITNESS WHEREOF, this Note has been duly executed by an officer of the Issuer.

 

	
 
    	
KADMON   PHARMACEUTICALS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

DATED:

 

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NOTATION OF GUARANTEE

 

For value received, each Guarantor (which term includes any successor Person to such Guarantor) has unconditionally guaranteed, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, the obligations of the Issuer under the 13.0% Second-Lien Convertible PIK Notes Due 2019, including this Note, to the extent set forth in the Guaranty and Security Agreement dated as of August [·], 2015 (as amended, supplemented or otherwise modified from time to time) among Kadmon Pharmaceuticals, LLC, as Issuer, Kadmon Holdings, LLC, as Holdings, and the other Guarantors party thereto from time to time. Any Subsidiary of Holdings that becomes a party to the Guaranty and Security Agreement after the Issue Date shall be a Guarantor with respect to 13.0% Second-Lien Convertible PIK Notes Due 2019, including this Note, notwithstanding that it has not executed the Notation of Guarantee on any Notes, including the Notation of Guarantee on this Note.

 

 

	
 
    	
KADMON   HOLDINGS, LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
KADMON   CORPORATION, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
KADMON   RESEARCH INSTITUTE, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
THREE   RIVERS RESEARCH INSTITUTE I, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
THREE   RIVERS BIOLOGICS, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
THREE   RIVERS GLOBAL PHARMA, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

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REVERSE SIDE OF NOTE

 

13.0% Second-Lien Convertible PIK Notes Due 2019

 

This Note is one of the initial $130,000,000 aggregate principal amount of 13.0% Second-Lien Convertible PIK Notes Due 2019 issued by the Issuer on the Issue Date (the “Notes”), which, together with all PIK Notes issued from time to time and all 13.0% Second-Lien Convertible PIK Notes Due 2019 issued in connection with transfers, exchanges or otherwise as permitted by the terms hereof, form a single class of securities (the “Securities”) for all purposes, including, without limitation, waivers, amendments, redemptions and offers to purchase. The Securities, including this Note, impose certain limitations (set forth herein and in each other Security) on Holdings, the Issuer and their respective Subsidiaries. “Subsidiary” refers, with respect to any Person (the “parent”), any corporation, partnership, joint venture, limited liability company, association or other entity (i) the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with generally accepted accounting principles in the United States applied on a consistent basis (“GAAP”) as of such date, (ii) the securities of which or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (iii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to “Subsidiary” hereunder shall mean a Subsidiary of Holdings. For the avoidance of doubt, MeiraGTx Limited, a company organized under the laws of England and Wales, shall not be considered a “Subsidiary” hereunder.

 

The aggregate principal amount of Securities, at any date of determination, shall be the principal amount of all outstanding Securities, including all PIK Notes issued at or prior to such date of determination, at such date of determination. With respect to any matter requiring consent, waiver, approval or other action of the Holders (as defined below) of a specified percentage of the principal amount of all the Securities, such percentage shall be calculated, on the relevant date of determination, by dividing (a) the principal amount, as of such date of determination, of Securities, the Holders of which have so consented, by (b) the aggregate principal amount, as of such date of determination, of the Securities then outstanding, in each case, as determined in accordance with the provisions of the Securities. “Holder” refers to a Person in whose name a Security is registered.

 

In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver, consent or other action, Securities owned by Holdings, the Issuer, the Guarantors or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with Holdings, the Issuer or the Guarantors shall be disregarded and deemed not to be outstanding. Only Securities outstanding at the time of such determination shall be considered in any such determination.

 

Terms used but not otherwise defined in the Securities shall have the meaning assigned to such terms in the Non-Convertible Credit Facility Agreement, as in effect on the Issue Date. Any reference to “Borrower” in the Non-Convertible Credit Facility Agreement shall be deemed to be a reference to “Issuer” for purposes of this Note.

 

1. This Note; the Notes; the Securities

 

(a)                The Securities are issued as registered notes without coupons in minimum denominations of $1,000,000, and increments of $100,000 in excess thereof, except as may be necessary to (1) reflect any PIK Interest (as defined herein) or (2) enable the registration of transfer by a Holder of its entire holding of Securities. The Issuer shall keep at its principal office a register (the “Register”) in which the Issuer shall provide for the registration of Securities and of transfers of Securities. No transfer of Securities, including this Note, may be effected unless a valid transfer instruction in the form attached to each of the Securities (the “Transfer Instruction”), including this Note, is delivered to the Issuer as provided in this Section 1. If the Issuer determines in good faith that a Transfer Instruction is not valid, it shall within ten (10) Business Days of receipt thereof notify the Holder submitting such Transfer Instruction of the defect (a “Defect Notice”). In the absence of a Defect Notice, any transfer shall be deemed to be effective at the end of the tenth (10th) Business Day following delivery of a Transfer Instruction. The entries in the Register shall be conclusive absent manifest error, and the Issuer and the Holders shall treat each Person whose name is recorded (or deemed to be recorded) in the Register pursuant to the terms hereof as a Holder hereunder for all purposes of the Securities, including this Note, notwithstanding notice to the contrary. A “Business

 

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Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

 

(b)                The Register shall be available for inspection by the Holder of any Security, including this Note, at any reasonable time and from time to time upon reasonable prior notice. This Note shall be transferred only by surrendering this Note to the Issuer and having a new Security or Securities reissued to the transferee.

 

(c)                 This Note may be transferred to any transferee pursuant to a Transfer Instruction; provided that (i) such transfer shall be made in compliance with the restrictive legend on the face of this Note, the Securities Act and any applicable securities laws, (ii) such transfer shall be in compliance with Section 11 hereof and this Section 1, (iii) such transfer shall be in compliance with the Second Amended and Restated Limited Liability Company Agreement of Holdings, dated as of June 27, 2014 (as amended, “Holdings’ LLC Agreement”) as in effect on the Issue Date (and for the avoidance of doubt, the Securities shall be considered Membership Interests (as defined in Holdings’ LLC Agreement) for purposes of the transfer restrictions contained therein) and (iv) such transfer shall be in a principal amount of not less than $1,000,000 (or such lesser amount as shall be the then outstanding principal amount of this Note). The Holder of this Note and its transferee shall deliver to the Issuer an appropriate IRS Form W-8 or W-9, as applicable, and/or any additional documentation that the Issuer may reasonably require in connection with any transfer of this Note. Upon any transfer pursuant to a Transfer Instruction, the transferee shall, to the extent of such transfer, be entitled to exercise the rights of the Holder making such transfer and shall thereafter be deemed a “Holder” under this Note for all purposes.

 

(d)                Upon surrender of this Note for registration of transfer in the Register, the Issuer shall execute and deliver one or more new Securities of like tenor and of the principal amount transferred, registered in the name of such transferee or transferees and, if applicable, a new Security of like tenor to the transferor and of principal amount equal to the principal amount of this Note remaining following such transfer. Any purported transfer of this Note, or any portion hereof, to a transferee that does not comply with the requirements specified in this Note will be of no force and effect and shall be null and void ab initio.

 

(e)                 If surrendered for registration of transfer or exchange, this Note must be duly endorsed and be accompanied by a written Transfer Instruction duly executed, by the Holder of this Note or such Holder’s attorney-in-fact duly authorized in writing. Any Securities issued in exchange for this Note or upon transfer hereof shall carry the rights to unpaid interest and interest to accrue which were carried by this Note, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the Holder of this Note of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction, upon receipt of such Holder’s indemnity agreement satisfactory to the Issuer, or in the case of any such mutilation upon surrender and cancellation of this Note, the Issuer will make and deliver a new Security, of like tenor and principal amount, in lieu of the lost, stolen, destroyed or mutilated Note.

 

(f)                  If this Note is transferred to the Issuer, Holdings or any Subsidiary of Holdings pursuant to this Section 1, this Note shall for all purposes be deemed to be automatically and immediately cancelled and the indebtedness evidenced hereby shall no longer be outstanding for any purpose hereunder.

 

(g)                 In connection with any proposed transfer of this Note from time to time, Holdings and the Issuer each covenants and agrees to use commercially reasonable efforts to cooperate, and to cause their respective Subsidiaries to cooperate, with the Holder of this Note by (i) if at the time of such proposed transfer, neither Holdings nor the Issuer is subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), providing, upon request, customary information satisfying the requirements of Rule 144A(d)(4) under the Securities Act, (ii) facilitating any such transfers by making appropriate entry on the Register in accordance with the provisions of this Section 1, and (iii) providing such other ministerial items reasonably requested by the Holder of this Note.

 

(h)                Unless the context otherwise requires, for all purposes of this Note, references to the “principal amount” of this Note (and references to the “principal amount” of the Notes or the Securities) include any increase or accretion in principal amount hereof or thereof, including as a result of the payment of PIK Interest (as defined herein) or Partial PIK Interest (as defined herein). The issuance of PIK Notes (as defined herein) and/or the increase in the principal amount of any Security, including this Note, as a result of PIK Interest or Partial PIK Interest will be reflected in the Register by the Issuer on the date of such issuance and/or increase.

 

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2. Interest

 

(a)                Issuer promises to pay interest on the principal amount of this Note and on the principal amount of each other Security on each Interest Payment Date, as set forth herein, to the Holder of record of this Note or such other Security, as applicable, at the close of business on the regular Record Date immediately preceding such Interest Payment Date, commencing on October 1, 2015.

 

(b)                This Note shall bear interest on the unpaid principal hereof from and including the Issue Date through but excluding the date on which such principal is paid (whether upon final maturity, by prepayment, acceleration or otherwise, in each case in accordance with the terms of this Note) at a rate equal to 13.0% per annum (subject to any increases in accordance with the following sentence, the “Interest Rate”). If a Qualified IPO, as defined below, has not been consummated on or before March 31, 2016, the Interest Rate applicable to all Securities shall automatically increase as of, and including, April 1, 2016 by an additional 300 basis points and the Interest Rate shall subsequently increase by an additional 300 basis points as of each October 1 and April 1, inclusive, until the Interest Rate equals 21.0% per annum (the “Maximum Interest Rate”), which shall remain the applicable Interest Rate for all Securities so long as any Securities remain outstanding. Anything herein to the contrary notwithstanding, the obligations of the Issuer hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the Holders of the Securities, including this Note, would be contrary to the provisions of any applicable law limiting the highest rate of interest which may be lawfully contracted for or received by such Holders, and in such event the Issuer shall pay such Holder interest at the highest rate permitted by applicable law (the “Maximum Lawful Rate”); provided, however, that if at any time thereafter the Interest Rate otherwise payable hereunder is less than the Maximum Lawful Rate, the Issuer shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by such Holders is equal to the total interest that would have been received by such Holders had the Interest Rate hereunder been payable without regard for the limitation imposed by this sentence.

 

(c)                 The Issuer may, at its option, elect to pay interest due on this Note on any Interest Payment Date: (i) entirely in cash (“Cash Interest”) on such date; (ii) entirely by increasing the principal of this Notes or by issuing additional Securities in certificated form (“PIK Notes”) with the same rights and benefits as this Note (“PIK Interest”) on such date; or (iii) partially in cash and partially by increasing the principal amount of the outstanding Notes or by issuing PIK Notes (“Partial PIK Interest”) on such date. In each case, PIK Interest shall be rounded up to the nearest $1.00. PIK Notes, if any are issued, will be dated as of the applicable Interest Payment Date and will bear interest from and after such date at the then applicable Interest Rate. All PIK Notes issued pursuant to a payment of PIK Interest will mature on the Maturity Date and will be governed by, and subject to, the terms, provisions and conditions set forth in such PIK Notes, which shall be identical to the provisions and conditions set forth in this Note in all material respects. PIK Notes will be issued with the description “PIK” on the face of such PIK Note certificates.

 

(d)                Unless the Issuer otherwise notifies the Holder of this Note at least three (3) Business Days prior to any Interest Payment Date, interest payable on such Interest Payment Date shall be payable entirely in PIK Interest, which PIK Interest shall be paid, at the option of the Issuer, by (A) the issuance of certificated PIK Notes on such Interest Payment Date or (B) by the increase in the outstanding principal amount of this Note in the amount of such PIK Interest on such Interest Payment Date. If no PIK Notes are delivered on an Interest Payment Date, (i) the outstanding principal amount of this Note will be automatically increased by the Issuer in the amount of such PIK Interest on such Interest Payment Date and such increase shall be reflected in the Register on such Interest Payment Date and (ii) the Issuer shall notify the Holder of this Note of such increase promptly thereafter.

 

(e)                 The Issuer shall pay interest on overdue principal at the Interest Rate borne by this Note, and it shall pay interest on overdue installments of interest at the same Interest Rate to the extent lawful. If the Issuer defaults in a payment of interest on this Note, the Issuer shall pay the defaulted interest then borne by this Note (plus interest on such defaulted interest to the extent lawful) in any lawful manner.

 

(f)              Any amounts due or otherwise payable in respect of Securities on the Maturity Date shall be payable entirely in cash.

 

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(g)                 Interest on the Securities, including this Note, shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the Issue Date or, in the case of PIK Notes, from the date of their original issuance. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.

 

3. Method of Payment; Tax Forms

 

(a)                The Issuer shall pay interest on the Securities, including this Note, (except defaulted interest) to the Person who is the registered Holder at the close of business on September 15 or March 15 (each, a “Record Date”), whether or not a Business Day, immediately preceding the applicable Interest Payment Date even if this Note is canceled after the Record Date and on or before the Interest Payment Date. If any Interest Payment Date is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue on any amount that would have been otherwise payable on such payment date if it were a Business Day for the intervening period. Each Holder of a Security must surrender such Security to the Issuer to collect principal payable on the Maturity Date.

 

(b)                The Issuer shall pay any defaulted interest with respect to a Security to the Holder of such Security on a subsequent special record date. No payment of defaulted interest may be made with respect to a Security unless a concurrent payment of defaulted interest is made on a pro rata basis to the Holders of all Securities for which defaulted interest is then payable. The Issuer shall fix or cause to be fixed any such special record date, which shall be a date no later than 15 days following the commencement of accrual of the defaulted interest, and shall promptly mail or cause to be mailed to the Holder of the Securities a notice that states the special record date, the payment date and the amount of defaulted interest to be paid to Holders of Securities.

 

(c)                 The Issuer shall pay principal, premium, if any, any cash interest, if elected, and all other monetary obligations payable hereunder, in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Cash payments in respect of Securities, including this Note, (including principal, cash interest (if elected) and all other monetary obligations payable in cash) shall be made by wire transfer of immediately available funds to the account maintained with a bank in the United States specified in writing to the Issuer by the Holder of this Note on the Issue Date (the “Cash Payment Account”). The Holder of this Note may change the applicable Cash Payment Account by giving written notice to the Issuer to such effect designating such new account no later than 30 days immediately preceding the relevant payment date (or such other date as the Issuer may accept in its sole discretion).

 

(d)                Notwithstanding anything herein to the contrary, the payment of accrued interest in connection with any redemption of Securities, including this Note, as described under Section 5 hereof or in connection with any repurchase of Securities, including this Note, pursuant to Section 7 hereof shall be made solely in cash.

 

(e)                 The Issuer shall be entitled to deduct and withhold from the amounts otherwise payable hereunder, such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign Tax law.  If the Issuer withholds any such amounts, the amounts so withheld shall be treated for all purposes of this Agreement as having been paid hereunder.

 

(f)                  On or before the date on which a Person becomes a Holder hereunder, such Person shall deliver to the Issuer (i) a properly completed applicable Internal Revenue Service Form W-9 or W-8 (together with appropriate attachments and, if applicable, a certificate(s) establishing that such Person is entitled to an exemption for portfolio interest under Code Section 881(c) and/or Code Section 871(h)). The Holder shall also provide the foregoing documentation promptly upon reasonable demand by the Issuer and promptly upon learning that any form previously provided by the Holder has become obsolete or incorrect.

 

4. Conversion

 

(a)                At any time following the consummation of a firm commitment underwritten or best efforts public offering of Equity Interests of Holdings in which (i) such Equity Interests are listed on a national securities exchange and (ii) combined primary and secondary gross proceeds of such offering equal not less than $50.0 million (such public offering, a “Qualified IPO”), Securities, including this Note, may be converted at the option of the Holder thereof into Class A Units of Holdings (the “Conversion Units”), in accordance with the provisions of this Section 4 and the Issuer shall cause Holdings to issue such Conversion Units. Conversion Units issued pursuant to this

 

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Section 4 shall have the rights, preferences and privileges of Class A Units of Holdings, as set forth in Holdings’ LLC Agreement. If Class A Units of Holdings are converted into other Equity Interests (“Conversion Equity Interests”) in connection with any conversion of Holdings into a Delaware corporation (whether by conversion, merger, consolidation or otherwise), then all references herein to Conversion Units and/or Class A Units of Holdings shall be understood to refer to such Conversion Equity Interests.

 

(b)                Upon the due conversion of any principal amount of a Security, including this Note, and any accrued and unpaid interest thereon or hereon, as applicable, in accordance with this Section 4 and the issuance of the applicable Conversion Units to the Holder of such Security in accordance with this Section 4, such principal amount of such Security and such accrued interest thereon so converted shall be deemed paid in full and no longer outstanding.

 

(c)                 The number of Conversion Units into which a Security may be converted shall equal the aggregate principal amount of such Security, together with all accrued and unpaid interest thereon, as of the time of conversion divided by the applicable Conversion Price in effect at the time of conversion (the “Conversion Rate”). The “Conversion Price” shall be equal to: the product of (x) 90% and (y) the price per Class A Unit of Holdings (or the price per share of common stock of the corporate successor to Holdings, if applicable) offered in a Qualified IPO; provided, however, that the Conversion Price shall be capped at $12.00 (the “Conversion Price Cap”). The Conversion Price Cap (for Adjustment Events occurring prior to a Qualified IPO) or the Conversion Price (for Adjustment Events occurring after a Qualified IPO), as applicable, shall be subject to proportionate adjustment for any equity split, equity combination, in-kind distribution, recapitalization or similar transaction that affects the economic rights of the Conversion Units (“Adjustment Events”).

 

(d)                Following consummation of a Qualified IPO, the Holder of a Security, including the Holder of this Note, may deliver a notice (the “Conversion Notice”) at any time to Holdings, which shall specify the desired effective date of the conversion, provided that such effective date of conversion shall not be prior to the 181st calendar day following consummation of the Qualified IPO. Such Holder shall, within five (5) business days of its delivery of a Conversion Notice, deliver to Holdings the Security certificate, duly endorsed, or an affidavit of loss, including provisions indemnifying Holdings with respect to such loss, and otherwise in a form reasonably acceptable to Holdings, at the address specified by Holdings pursuant to Section 21 hereof. The Conversion Notice shall also state therein the name or names in which the Conversion Units issuable upon conversion of such Security are to be issued; provided, that if the Conversion Units are to be issuable in the name of any Person other than the Holder of such Conversion Units, the transfer requirements set forth in Section 1(c) must first be satisfied.  In addition, the Conversion Notice shall state that the Holder agrees, effective as of the date thereof, (i) to become a party to the Holdings LLC Agreement as a member (or, if applicable, a party to the shareholders agreement or stockholders agreement entered into by all equity holders of Holdings following the Incorporation Transaction in a similar capacity), (ii) to be bound by all terms, covenants, conditions, representations and warranties under the Holdings LLC Agreement (or, if applicable, under the shareholders agreement or stockholders agreement entered into by all equity holders of Holdings following the Incorporation Transaction) and (iii) that for all purposes of the Holdings LLC Agreement, the undersigned shall be included within the term member (or, if applicable, as a party to the shareholders agreement or stockholders agreement entered into by all equity holders of Holdings following the Incorporation Transaction in a similar capacity).  The Holder shall also acknowledge in the Conversion Notice that it has received and reviewed a copy of the Holdings LLC Agreement or shareholders agreement or stockholders agreement entered into by all equity holders of Holdings following the Incorporation Transaction, as applicable. Holdings shall, as soon as reasonably practicable thereafter, deliver to each recipient of such Conversion Units, a statement that sets forth, as of the most recent date practicable, such recipient’s ownership interest in Holdings. If such conversion is for only a portion of the aggregate principal amount of such Security, a new Security certificate shall be issued for the unconverted principal amount thereof. Any conversion pursuant to this Section 4 shall be deemed to have been made immediately upon to the later of (i) the close of business on the date specified in such Conversion Notice and (ii) surrender of the Security certificate pursuant to the requirements of this Section 4(d), and the Person or Persons entitled to receive the Conversion Units issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Conversion Units as of such date.  Issuer shall cause Holdings to take all actions required to effect the conversion described in this Section 4.

 

(e)                 The Issuer shall not be responsible for the payment of any Taxes in respect of the issue or delivery of the Conversion Units pursuant hereto other than any and all stamp, excise or similar taxes that may be payable in respect of such issuance or delivery.

 

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5. Redemption

 

(a)                On or after the later of (x) the first anniversary of the Issue Date and (y) the date of the consummation of a Qualified IPO, the Issuer may redeem Securities (including this Note) at its option, in whole at any time or in part from time to time, at a redemption price (expressed as a percentage of principal amount of the Securities to be redeemed) of 150.00%, plus accrued and unpaid interest to but excluding the redemption date (subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), payable (at the Issuer’s option) in cash or Class A Units (or Conversion Equity Units, as applicable) valued at VWAP (as defined in the Convertible Credit Facility Agreement); provided that the Issuer may not elect to pay the redemption price in Class A Units (or Conversion Equity Units, as applicable) unless the VWAP over the 30-day period prior to the date of the redemption notice is above 150% of the per share price in the Issuer’s Qualified IPO (as adjusted for stock splits, reverse stock splits, and similar events affecting such shares).

 

(b)                In addition, on or after the later of (x) the third anniversary of the Issue Date and (y) the date of the consummation of a Qualified IPO, the Issuer may redeem Securities (including this Note) at its option, in whole or in part, at a redemption price in cash (expressed as a percentage of principal amount of the Securities to be redeemed) of 110.00%, plus accrued and unpaid interest to but excluding the applicable redemption date (subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date).

 

(c)                 If Issuer or a third party is required to make a Change of Control Offer pursuant to Section 7 and in connection with such Change of Control Offer, Holders of not less than 90% in aggregate principal amount of the outstanding Securities validly tender and do not withdraw such Securities in such Change of Control Offer and the Issuer or such third party purchases all of the Securities validly tendered and not withdrawn by such Holders, the Issuer or such third party shall have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to such Change of Control Offer, to redeem all Securities that remain outstanding following such purchase at a redemption price in cash (expressed as a percentage of principal amount of such Securities to be redeemed) of 110.00%, plus accrued and unpaid interest up to but excluding the redemption date (provided that if such Change of Control occurs prior to a Qualified IPO, then such redemption price shall be 150.00%, plus accrued and unpaid interest up to but excluding the redemption date).

 

(d)                Any redemption of Securities (including this Note) may, at the Issuer’s discretion, be subject to one or more conditions precedent, including, but not limited to, consummation of any related equity offering or related financing transaction.

 

(e)                 In the case of any partial redemption, selection of the Securities for redemption will be made by the Issuer on a pro rata basis. The Issuer shall make the selection from outstanding Securities not previously called for redemption.

 

(f)                  At least 30 but not more than 60 days before a redemption date pursuant to this Section 5, the Issuer shall deliver a notice of redemption to each Holder whose Securities are to be redeemed at such Holder’s registered address or as otherwise permitted under the terms of the Securities. Such notice shall be irrevocable.

 

Any such redemption notice shall identify the Securities to be redeemed and shall state:

 

(i) the redemption date;

 

(ii) the redemption price and the amount of accrued interest to the redemption date;

 

(iii) that Securities called for redemption must be surrendered to the Issuer to collect the redemption price and accrued interest;

 

(iv) if fewer than all the outstanding Securities are to be redeemed, the certificate numbers and principal amounts of the particular Securities to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption;

 

(v) that, unless the Issuer defaults in making such redemption payment, interest on Securities (or portions thereof) called for redemption shall cease to accrue on and after the redemption date; and

 

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(vi) any conditions precedent (including, but not limited to, consummation of any related equity offering or related financing transaction) to such redemption.

 

(g)                 Once notice of redemption is delivered in accordance with Section 5(f), then, subject to satisfying any conditions precedent specified in such notice, Securities called for redemption shall become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Issuer, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest, to, but excluding, the redemption date; provided, however, that if the redemption date is after a regular Record Date and on or prior to the Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Securities registered on the relevant Record Date, and no additional interest will be payable to the Holders whose Securities will be subject to redemption by the Issuer. Failure to deliver the redemption notice or any defect in the redemption notice delivered to any Holder of Securities shall not affect the validity of the redemption notice to any other Holder of Securities. With respect to any Securities called for redemption, prior to 2:00 p.m., New York City time, on the redemption date, the Issuer shall segregate and hold in trust money sufficient to pay the redemption price of, and accrued interest on, all Securities or portions thereof to be redeemed on that date. On and after payment of the redemption price stated in the notice, plus accrued interest, to, but excluding, the redemption date, interest shall cease to accrue on Securities or portions thereof called for redemption.

 

6. No Mandatory Redemption

 

(a)                The Issuer is not be required to make any mandatory redemption or sinking fund payments with respect to this Note or any other Security.

 

7. Repurchase of Securities at the Option of the Holders upon Change of Control

 

(a)                Subject to the terms of the Intercreditor Agreement, upon the occurrence of a Change of Control, each Holder of Securities shall have the right to require the Issuer to repurchase all or any part of such Holder’s Securities at a purchase price in cash equal to 110.00% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but excluding) the date of repurchase (subject to the right of the Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), except to the extent the Issuer has previously or concurrently elected to redeem the Securities pursuant to, and in accordance with, Section 5 of the Securities.

 

(b)                Not later than 30 days following any Change of Control, except to the extent that the Issuer has exercised its right to redeem the Securities in accordance with Section 5 of the Securities, the Issuer shall deliver a notice (a “Change of Control Offer”) to each Holder of Securities stating:

 

(i) that a Change of Control has occurred and that such Holder has the right to require the Issuer to repurchase such Holder’s Securities at a repurchase price in cash equal to 110% of the principal amount thereof, plus accrued and unpaid interest, if any, to (but excluding) the date of repurchase (subject to the right of the Holders of record on the relevant Record Date to receive interest on the relevant Interest Payment Date);

 

(ii) the circumstances and relevant facts and financial information regarding such Change of Control;

 

(iii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is delivered); and

 

(iv) the instructions determined by the Issuer, consistent with this Section 7, that a Holder must follow in order to have its Securities purchased.

 

(c)                 Holders electing to have Securities purchased pursuant to this Section 7 shall be required to surrender the Securities, with an appropriate form duly completed (the form of which is attached hereto), to the Issuer at the address specified in the Change of Control Offer at least three Business Days prior to the purchase date. The Holders shall be entitled to withdraw their election if the Issuer receives not later than one Business Day prior to the purchase date a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities which were delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Securities purchased. Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered.

 

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(d)                On the purchase date, the Issuer shall pay the purchase price plus accrued and unpaid interest to the Holders entitled thereto (subject to the right of the Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), and all Securities purchased by the Issuer under this Section 7 shall be promptly cancelled and shall no longer be considered outstanding for any purpose.

 

(e)                 A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making of the Change of Control Offer.

 

(f)                  Notwithstanding the foregoing provisions of this Section 7, the Issuer shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section 7 of the Securities applicable to a Change of Control Offer made by the Issuer and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. Securities purchased by a third party pursuant to this clause (f) shall have the status of Securities issued and outstanding and shall not be cancelled.

 

(g)                 A Security shall be deemed to have been accepted for purchase at the time the Holder of such Security receives payment therefor.

 

(h)                The Issuer shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 7. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 7, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 7 by virtue thereof.

 

(k)                Subject to the conditions set forth in Section 5(c), the Issuer may redeem outstanding Securities in connection with a Change of Control Offer under the circumstances, and at the redemption price, set forth in Section 5 of the Securities.

 

(l)                    For purposes of the Securities, a “Change of Control” shall mean:

 

(i) prior to a Qualifying IPO:

 

(A)                               Kadmon I, LLC shall own directly less than a majority, on a fully diluted basis, of the voting and economic power of Holdings;

 

(B)                               any Person or group of Persons (within the meaning of Rules 13(d)(3) and 13(d)(5) under the Exchange Act) other than Kadmon I, LLC or the Closing Date Managing Member shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of managers or other governing body of Holdings; or

 

(C)                               the managing member of Kadmon I, LLC shall cease to be either (i) the Closing Date Managing Member or (ii) another individual who is a member of Kadmon I, LLC on the date hereof;

 

(ii) from and after a Qualifying IPO:

 

(A)                               any Person or group of Persons (within the meaning of Rules 13(d)(3) and 13(d)(5) under the Exchange Act) other than Kadmon I, LLC or the Closing Date Managing Member (x) shall have acquired beneficial ownership of 35% or more on a fully diluted basis of the voting and/or economic interest in Holdings or (y) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of managers or other governing body of Holdings;

 

(B)                               any Persons or group of Persons (within the meaning of Rules 13(d)(3) and 13(d)(5) under the Exchange Act) other than the Closing Date Managing Member shall have acquired beneficial ownership of 35% or more on a fully diluted basis of the voting and/or economic interest in Kadmon I, LLC; or

 

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(C)                               the occupation of a majority of the seats (other than vacant seats) on the board of directors (or other equivalent body) of Holdings by Persons who were neither (x) nominated by the board of directors of Holdings, nor (y) appointed by directors so nominated; or

 

(iii) at any time:

 

(A)                               Holdings ceases to own and control, directly or indirectly, beneficially and of record, 100% of all of the Equity Interests of Kadmon Corporation, LLC;

 

(B)                               Kadmon Corporation, LLC ceases to own and control, directly or indirectly, beneficially and of record, 100% of all of the Equity Interests of the Issuer;

 

(C)                               Issuer shall cease to directly own, beneficially and of record, 100% of the issued and outstanding Equity Interests of its Subsidiaries (except to the extent that any such Disposition of Equity Interests is expressly permitted hereunder);

 

(D)                               any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of Holdings or the Issuer to any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Commission thereunder in effect on the date hereof); or

 

(E)                                a “Change of Control” or any term of similar effect, as defined in the Senior Credit Facilities Agreements.

 

8. Affirmative Covenants.  Each Obligor covenants and agrees with each Holder that, so long as any Securities remain outstanding:

 

(a)               Financial Statements and Other Information. Holdings will furnish to each Holder of Securities:

 

(i) prior to the occurrence of a Qualified IPO, as soon as available and in any event within 30 days after the end of each of the first two fiscal months of each fiscal quarter, the unaudited consolidated and consolidating balance sheets of the Obligors as of the end of each such month, and the related unaudited consolidated and consolidating statements of income and cash flows of Holdings and its Subsidiaries for such month, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year, together with a certificate of a Responsible Officer of Holdings stating that such financial statements fairly present in all material respects the financial condition of Holdings and its Subsidiaries as at such date and the results of operations of Holdings and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and except for the absence of notes;

 

(ii) as soon as available and in any event within 45 days after the end of the first three fiscal quarters of each fiscal year, the unaudited consolidated and consolidating balance sheets of the Obligors as of the end of such quarter, and the related unaudited consolidated and consolidating statements of income and cash flows of Holdings and its Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year, together with a certificate of a Responsible Officer of Holdings stating that such financial statements fairly present in all material respects the financial condition of Holdings and its Subsidiaries as at such date and the results of operations of Holdings and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal, year-end audit adjustments and except for the absence of notes;

 

(iii) as soon as available and in any event within 120 days after the end of each fiscal year, the audited consolidated and consolidating balance sheets of Holdings and its Subsidiaries as of the end of such fiscal year, and the related audited consolidated and consolidating statements of income and cash flows of Holdings and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report and opinion thereon of BDO USA, LLP or another firm of independent certified public accountants of recognized national

 

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standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards (which report and opinion for fiscal years 2016 and later, shall not be subject to any “going concern” or like qualification, exception or explanation), which report and opinion shall not be subject to any qualification or exception as to the scope of such audit, and in the case of such consolidating financial statements, certified by a Responsible Officer of Holdings;

 

(iv) together with the financial statements required pursuant to Sections 8(a)(i), (ii) and (iii), a compliance certificate of a Responsible Officer as of the end of the applicable accounting period (which delivery may, unless the Holders of at least a majority in aggregate principal amount of the outstanding Securities request executed originals, be by electronic communication including fax or email and shall be deemed to be an original authentic counterpart thereof for all purposes) in the form of Exhibit A (a “Compliance Certificate”);

 

(v) a financial forecast for Holdings and its Subsidiaries for each fiscal year, including forecasted balance sheets, statements of income and cash flows of Holdings and its Subsidiaries (all of which shall be delivered (i) prior to the occurrence of a Qualified IPO, not later than January 31 of such fiscal year, and (ii) on or after the occurrence of a Qualified IPO, to the Collateral Agent solely upon request by the Collateral Agent (at the direction of the Required Holders (as defined in the Collateral Agency Agreement))), in each case, as customarily prepared by management of the Obligors for their internal use;

 

(vi) promptly, and in any event within five (5) Business Days after receipt thereof by an Obligor, copies of each notice or other correspondence received from any securities regulator or exchange to the authority of which Issuer may become subject from time to time concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of such Obligor;

 

(vii) promptly following the request of the Holders of at least 25% in principal amount of outstanding Securities at any time, proof of Issuer’s compliance with Section 9(r);

 

(viii) prior to the occurrence of a Qualified IPO, within five (5) days of delivery, copies of all statements, reports and notices (including board kits) made available to holders of Issuer’s Equity Interests; provided that any such material may be redacted by Issuer to exclude information relating to any Holder of Securities (including Issuer’s strategy regarding the Securities);

 

(ix) notice at the time Issuer, Holdings or any Subsidiary of Issuer or Holdings issues any Equity Interest; and

 

(ix) such other information relating to the operations, properties, business or condition (financial or otherwise) of the Obligors as the Holders of at least 25% in principal amount of outstanding Securities may from time to time reasonably request.

 

(b)               Notices of Material Events. Issuer will furnish to each Holder of Securities written notice of the following promptly after a Responsible Officer first learns of the existence of:

 

(i) the occurrence of any Default;

 

(ii) the occurrence of any event (or series of related events) with respect to its property or assets resulting in a Loss aggregating $1,150,000 (or the Equivalent Amount in other currencies) or more;

 

(iii) (A) any proposed acquisition of stock, assets or property (or series of related acquisitions) by any Obligor that would reasonably be expected to result in environmental liability under Environmental Laws exceeding $1,150,000, and (B)(1) spillage, leakage, discharge, disposal, leaching, migration or release of any Hazardous Material required to be reported to any Governmental Authority under applicable Environmental Laws, excluding routine reporting requirements under Environmental Permits, and (2) all actions, suits, claims, notices of violation, hearings, investigations or proceedings pending, or to the best of Issuer’s knowledge, threatened against Issuer or any of its Subsidiaries or with respect to Issuer’s or its Subsidiaries’ ownership, use, maintenance and operation of their respective businesses or properties, arising under Environmental Laws or relating to Hazardous Material which could reasonably be expected to involve damages in excess of $1,150,000 other than any environmental matter or alleged violation that, if adversely determined, could not reasonably be expected (either individually or in the aggregate) to have a Material Adverse Effect;

 

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(iv) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of Issuer, any Obligor or any of its Subsidiaries that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

 

(v) (A) on or prior to any filing by any ERISA Affiliate of any notice of intent to terminate any Title IV Plan, a copy of such notice and (B) promptly, and in any event within ten days, after any Responsible Officer of any ERISA Affiliate knows or has reason to know that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Title IV Plan or Multiemployer Plan, a notice (which may be made by telephone if promptly confirmed in writing) describing such waiver request and any action that any ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice filed with the PBGC or the IRS pertaining thereto;

 

(vi) (A) the termination of any Material Agreement (unless such terminated Material Agreement is replaced with another agreement that, viewed as a whole, is on equal or better terms for such Obligor or such Subsidiary); (B) the receipt by Issuer or any of its Subsidiaries of any material notice under any Material Agreement (and a copy thereof); (C) the entering into of any new Material Agreement by an Obligor (and a copy thereof); and (D) any material amendment to a Material Agreement in a manner adverse to the Holders of Securities (and a copy thereof).

 

(vii) any product recalls, safety alerts, corrections, withdrawals, marketing suspensions, removals or the like conducted, to be undertaken or issued by any Obligor or any Subsidiary thereof with respect to any Product, or its suppliers (with respect to materials supplied to any Obligor or any Subsidiary thereof in relation to any Product), whether initiated voluntarily or at the request, demand or order of any Governmental Authority;

 

(viii) any infringement or other violation by any Person of any Obligor Intellectual Property;

 

(ix) a licensing agreement or arrangement entered into by Issuer or any Subsidiary in connection with any infringement or alleged infringement of the Intellectual Property of another Person;

 

(x) any claim by any Person that the conduct of any Obligor’s (or any Subsidiary thereof) business, including the development, manufacture, use, sale or other commercialization of any Product, infringes any Intellectual Property of such Obligor or Subsidiary;

 

(xi) within 30 days of the date thereof, or, if earlier, on the date of delivery of any financial statements pursuant to Section 8(a), notice of any material change in accounting policies or financial reporting practices by the Obligors;

 

(xii) promptly after the occurrence thereof, notice of any labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other material labor disruption against or involving an Obligor;

 

(xiii) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect;

 

(xiv) concurrently with the delivery of financial statements under Section 8(a)(iii) with respect to any fiscal year, notice of the creation or other acquisition by Issuer or any Subsidiary of any Material Intellectual Property, registered or becoming registered or the subject of an application for registration, with the U.S. Copyright Office or the U.S. Patent and Trademark Office, or with any other equivalent foreign Governmental Authority, during such fiscal year; and

 

(xv) any change to any Obligor’s ownership of Deposit Accounts, Securities Accounts and Commodity Accounts, by delivering to Collateral Agent an updated Schedule 7 to the Guaranty and Security Agreement setting forth a complete and correct list of all such accounts as of the date of such change.

 

Each notice delivered under this Section 8(b) shall be accompanied by a statement of a financial officer or other executive officer of Issuer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

 

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(c)                Existence; Maintenance of Properties, Etc.

 

(i) Such Obligor will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence; provided that the foregoing shall not prohibit any merger, amalgamation, consolidation, liquidation or dissolution permitted under Section 9(c).

 

(ii) Such Obligor shall, and shall cause each of its Subsidiaries to, maintain and preserve all rights, licenses, permits, privileges and franchises material to the conduct of its business, and maintain and preserve all of its properties necessary in the proper conduct of its business in good working order and condition, ordinary wear and tear and damage from casualty or condemnation excepted, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

 

(iii) Such Obligor shall, and shall cause each of its Subsidiaries to, (i) maintain in full force and effect, and pay all costs and expenses relating to, all material Intellectual Property owned or controlled by such Obligor or Subsidiary and all Material Agreements (other than agreements for Material Indebtedness that has been repaid or agreements that expire in accordance with their terms), (ii) aggressively pursue any infringement or other violation by any Person of its Intellectual Property, except in any specific circumstances where both (x) such Obligor or Subsidiary is able to demonstrate that it is not commercially reasonable to do so and (y) where not doing so does not materially adversely affect any Product, and (iii) use commercially reasonable efforts to pursue and maintain in full force and effect legal protection for all new Intellectual Property developed or controlled by it.

 

(iv) Such Obligor shall, and shall cause each of its Subsidiaries to, obtain, maintain in full force and effect and preserve, and take all necessary action to timely renew, (i) all material Regulatory Approvals for each Product and (ii) all other material Permits and accreditations that are necessary in the proper conduct of its business.

 

(d)               Payment of Obligations. Such Obligor will, and will cause each of its Subsidiaries to, pay and discharge its obligations, including all material taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies which, if unpaid, could reasonably be expected to become a Lien upon any properties or assets of Issuer or any Subsidiary, except to the extent such taxes, fees, assessments or governmental charges or levies, or such claims are being contested in good faith by appropriate proceedings and are adequately reserved against in accordance with GAAP.

 

(e)                Insurance. Such Obligor will, and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies of comparable size engaged in the same or similar businesses operating in the same or similar locations.  Upon the request of Collateral Agent, at the direction of the Required Holders (as defined in the Collateral Agency Agreement), Issuer shall furnish Collateral Agent from time to time with (i) full information as to the insurance carried by it and, if so requested, copies of all such insurance policies and (ii) a certificate from Issuer’s insurance broker or other insurance specialist stating that all premiums then due on the policies relating to insurance on the Collateral have been paid and that such policies are in full force and effect.  Issuer shall use commercially reasonable efforts to ensure, or cause others to ensure, that all insurance policies required under this Section 8(e) shall provide that they shall not be terminated or cancelled nor shall any such policy be materially changed in a manner adverse to Issuer without at least 30 days’ prior written notice to Issuer and Collateral Agent. Receipt of notice of termination or cancellation of any such insurance policies or reduction of coverages or amounts thereunder shall entitle Collateral Agent, at the direction of the Required Holders (as defined in the Collateral Agency Agreement),  to renew any such policies, cause the coverages and amounts thereof to be maintained at levels required pursuant to the first sentence of this Section 8(e) or otherwise to obtain similar insurance in place of such policies, in each case at the expense of Issuer (payable on demand). The amount of any such expenses shall accrue interest at the Default Rate if not paid on demand, and shall constitute Obligations.

 

(f)                 Books and Records; Inspection Rights. Such Obligor will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Such Obligor will, and will cause each of its Subsidiaries to, permit any representatives designated by Collateral Agent, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times (but not more often than

 

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once a year unless an Event of Default has occurred and is continuing) as Collateral Agent or the Required Holders may request upon at least two days’ prior notice; provided that no prior notice shall be required if an Event of Default has occurred and is continuing. Obligors shall pay all costs of all such inspections.

 

(g)                Compliance with Laws and Other Obligations. Such Obligor will, and will cause each of its Subsidiaries to, (i) comply in all material respects with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property (including Environmental Laws) and (ii) comply in all material respects with all terms of Indebtedness and all other Material Agreements, except, in each case, where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

 

(h)               Licenses. Such Obligor shall, and shall cause each of its Subsidiaries to, obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other Governmental Approvals necessary in connection with the execution, delivery and performance of the Securities Documents, the consummation of the transactions contemplated by the Securities Documents or the operation and conduct of its business and ownership of its properties, except where failure to do so could not reasonably be expected to have a Material Adverse Effect.

 

(i)                   Action under Environmental Laws. Such Obligor shall, and shall cause each of its Subsidiaries to, upon becoming aware of the presence of any Hazardous Materials in violation of Environmental Law or under conditions that could reasonably be expected to result in liability under applicable Environmental Laws with respect to its business, operation or property, take such action, at its cost and expense, to investigate and abate the condition as required to comply with applicable Environmental Laws. Such actions may include claims against responsible parties to compel performance of investigation and abatement in accordance with Environmental Laws.

 

(j)                  Certain Obligations Respecting Subsidiaries; Further Assurances.

 

(i) Guarantors. Such Obligor will take such action, and will cause each of its Subsidiaries to take such action, from time to time as shall be necessary to ensure that all Subsidiaries of Holdings that are Material Subsidiaries (in each case, other than Foreign Subsidiaries, CFC Holdcos and Domestic Subsidiaries directly or indirectly wholly-owned by Foreign Subsidiaries) are “Guarantors” hereunder. Without limiting the generality of the foregoing, in the event that any Obligor or any of its Subsidiaries shall form or acquire any new Subsidiary that is a Material Subsidiary or any Subsidiary shall become a Material Subsidiary (in each case, other than any Foreign Subsidiary, CFC Holdco or Domestic Subsidiary directly or indirectly wholly-owned by a Foreign Subsidiary), such Obligor and its Subsidiaries concurrently will:

 

(1) cause such new Subsidiary to become a “Guarantor” of this Note, and a “Grantor” and a “Guarantor” under the Guaranty and Security Agreement, pursuant to a Joinder under the Guaranty and Security Agreement;

 

(2) take such action or cause such Subsidiary to take such action (including delivering such shares of stock together with undated transfer powers executed in blank) as shall be necessary to create and perfect valid and enforceable second priority (subject to Permitted Priority Liens) Liens on substantially all of the personal property of such new Subsidiary as collateral security for the obligations of such new Subsidiary hereunder, other than voting Equity Interests in excess of sixty-five percent (65%) of the voting Equity Interests of each Foreign Subsidiary and CFC Holdco;

 

(3) to the extent that the parent of such Subsidiary is not a party to the Guaranty and Security Agreement or has not otherwise pledged Equity Interests in its Subsidiaries in accordance with the terms of the Guaranty and Security Agreement and this Note, cause the parent of such Subsidiary to execute and deliver a pledge agreement in favor of Collateral Agent, in respect of all outstanding issued shares of such Subsidiary; and

 

(4) deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those previously delivered by each Obligor or as Collateral Agent, at the direction of the Required Holders, shall have reasonably requested.

 

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(ii) Further Assurances. Such Obligor will, and will cause each of its Subsidiaries to, take such action from time to time as shall reasonably be requested by Collateral Agent, at the direction of the Required Holders, to effectuate the purposes and objectives of this Agreement.

 

Without limiting the generality of the foregoing, each Obligor will, and will cause each Person that is required to be a Guarantor to, take such action from time to time (including executing and delivering such assignments, security agreements, control agreements and other instruments) as shall be reasonably requested by Collateral Agent to create, in favor of Collateral Agent, perfected security interests and Liens in substantially all of the personal property of such Obligor as collateral security for the Obligations; provided that any such security interest or Lien shall be subject to the relevant requirements of the Collateral Documents.

 

(k)               Termination of Non-Permitted Liens. In the event that Issuer or any of its Subsidiaries shall become aware or be notified by any Holder of Securities of the existence of any outstanding Lien against any Property of Issuer or any of its Subsidiaries, which Lien is not a Permitted Lien, Issuer shall use its best efforts to promptly terminate or cause the termination of such Lien.

 

(l)                   Post-Closing Items. Each Obligor shall deliver to Collateral Agent, not later than 15 Business Days after the Issue Date (or as otherwise extended by the Collateral Representative under the Non-Convertible Credit Facility Agreement in its sole discretion), evidence that Collateral Agent has been designated as loss payee on behalf of the Holders or additional insured, as the case may be, under all insurance required to be maintained by Issuer pursuant to Section 8(b).

 

Each Obligor shall use commercially reasonable efforts to deliver to Collateral Agent, not later than 60 days after the Issue Date (or as otherwise extended by the Collateral Representative under the Non-Convertible Credit Facility Agreement in its sole discretion):

 

(i)                                     a Landlord Consent, duly executed and delivered by the landlord of Kadmon Corporation, LLC’s premises at 450 East 29th Street, New York, NY 10016;

 

(ii)                                  a Landlord Consent, duly executed and delivered by the landlord of Kadmon Corporation, LLC’s premises at 119 Commonwealth Drive, Warrendale, PA 15806; and

 

(iii)                               a bailee letter with Carton Services & Packaging Insights

 

Each Obligor shall deliver to Collateral Agent, not later than 60 days after the Issue Date (or as otherwise extended by the Collateral Representative under the Non-Convertible Credit Facility Agreement in its sole discretion) to the extent not delivered on or prior to the Issue Date, duly executed control agreements in favor of the Collateral Agent for all Deposit Accounts (other than Excluded Deposit Accounts, as defined in the Guaranty and Security Agreement), Securities Accounts and Commodity Accounts owned by the Obligors in the United States.

 

9. Negative Covenants. Each Obligor covenants and agrees with Lender that, so long as any Securities remain outstanding:

 

(a)               Indebtedness. Such Obligor will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, whether directly or indirectly, except:

 

(i) the Obligations;

 

(ii) Indebtedness owing under the Non-Convertible Credit Facility Loan Documents and Permitted Refinancings thereof; provided that the aggregate outstanding principal amount of all such Indebtedness shall not exceed at any time the sum of $35,000,000 and the amount of interest thereon compounded and added to the principal thereof;

 

(iii) Indebtedness owing under the Convertible Credit Facility Loan Documents and Permitted Refinancings thereof; provided that the aggregate outstanding principal amount of all such Indebtedness shall not

 

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exceed at any time the sum of $69,095,709 and the amount of interest thereon compounded and added to the principal thereof, and Indebtedness under the Fee Letter (as defined in the Convertible Credit Facility Agreement);

 

(iv) Indebtedness existing on the date hereof and set forth in Schedule 9.01 of the Non-Convertible Credit Facility Agreement; provided that, in each case, such Indebtedness is subordinated to the Obligations on terms satisfactory to the Required Holders;

 

(v) accounts payable to trade creditors for goods and services and current operating liabilities (not the result of the borrowing of money) incurred in the ordinary course of such Obligor’s or any of its Subsidiaries’ business in accordance with customary terms and paid within the specified time, unless contested in good faith by appropriate proceedings and reserved for in accordance with GAAP;

 

(vi) Indebtedness consisting of guarantees resulting from endorsement of negotiable instruments for collection by any Obligor or any of its Subsidiaries in the ordinary course of business;

 

(vii) Indebtedness of any Obligor to any other Obligor; provided that, in each case, such Indebtedness is unsecured and subordinated to the Obligations on terms satisfactory to the Required Holders;

 

(viii) Guarantees by any Obligor of Indebtedness of any other Obligor in an aggregate principal amount not exceeding $1,150,000 (or the Equivalent Amount in other currencies) at any time;

 

(ix) normal course of business equipment financing; provided that (i) if secured, the collateral therefor consists solely of the assets being financed, the products and proceeds thereof and books and records related thereto, and (ii) the aggregate outstanding principal amount of such Indebtedness does not exceed $2,300,000 (or the Equivalent Amount in other currencies) at any time;

 

(x) obligations of any Obligor or any of its Subsidiaries (i) for indemnification, adjustment of purchase price or similar obligations (including for the deferred purchase price of property acquired in a Permitted Acquisition), or (ii) under guaranties or letters of credit, surety bonds or performance bonds securing the performance of any Obligor or any of its Subsidiaries, in each case, in connection with transactions permitted under Section 9(c)(v);

 

(xi) contingent obligations with respect to performance guaranties and surety bonds incurred in the ordinary course of business and of a type and amount consistent with past practices of the Obligors and their Subsidiaries;

 

(xii) obligations in respect of netting services, overdraft protections and other similar cash management products for deposit accounts;

 

(xiii) unsecured Indebtedness of any Obligor not otherwise described in this Section 9(a), in an aggregate amount not to exceed at any time $5,750,000; provided that Issuer shall give the Holders of at least a majority in aggregate principal amount of the outstanding Securities written notice prior to the incurrence of any such Indebtedness under this Section 9(a)(xiii) owing to any director or executive officer of Issuer or any of its Affiliates; and

 

(xiv) Indebtedness approved in advance in writing by the Holders of at least a majority in aggregate principal amount of the outstanding Securities.

 

(b)               Liens. Such Obligor will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or asset now owned by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

 

(i) Liens securing the Obligations;

 

(ii) Liens, on property of the Obligors, securing Indebtedness permitted in reliance on Section 9(a)(ii);

 

(iii) Liens, on property of the Obligors, securing Indebtedness permitted in reliance on Section 9(a)(iii);

 

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(iv) any Lien on any property or asset of any Obligor or any of its Subsidiaries existing on the date hereof and set forth in Schedule 9.02 of the Non-Convertible Credit Facility Agreement; provided that (i) no such Lien shall extend to any other property or asset of any Obligor or any of its Subsidiaries and (ii) any such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

 

(v) Liens securing Indebtedness permitted under Section 9(a)(ix); provided that such Liens are restricted solely to the collateral described in Section 9(a)(ix);

 

(vi) Liens imposed by law which were incurred in the ordinary course of business, including (but not limited to) carriers’, warehousemen’s and mechanics’ liens and other similar liens arising in the ordinary course of business and which (x) do not in the aggregate materially detract from the value of the Property subject thereto or materially impair the use thereof in the operations of the business of such Person or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such liens and for which adequate reserves have been made if required in accordance with GAAP;

 

(vii) pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other similar social security legislation;

 

(viii) pledges or deposits to secure the performance of tenders, statutory obligations, surety and appeal bonds (other than bonds related to judgments or litigation), bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (in each case, exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof;

 

(ix) Liens securing taxes, assessments and other governmental charges, the payment of which is not yet due and payable or is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made;

 

(x) servitudes, easements, rights of way, restrictions and other similar encumbrances on real Property imposed by applicable Laws and encumbrances consisting of zoning or building restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto which do not, in any case, materially detract from the value of the property subject thereto or interfere in any material respect with the ordinary conduct of the business of any of the Obligors or any of their Subsidiaries;

 

(xi) with respect to any real Property, (A) such defects or encroachments as might be revealed by an up-to-date survey of such real Property, (B) the reservations, limitations, provisos and conditions expressed in the original grant, deed or patent of such property by the original owner of such real Property pursuant to applicable Laws, and (C) rights of expropriation, access or user or any similar right conferred or reserved by or in applicable Laws which do not in any case materially detract from the value of the property subject thereto or interfere in any material respect with the ordinary conduct of the business of any of the Obligors of their Subsidiaries;

 

(xii) bankers liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business;

 

(xiii) any interest or title of a lessor or sublessor under any operating lease;

 

(xiv) Liens solely on any cash earnest money deposits made by any Obligor in connection with any letter of intent or purchase agreement in connection with transactions permitted under Section 9(c)(v);

 

(xv) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business;

 

(xvi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

 

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(xvii) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property;

 

(xviii) Liens consisting of licenses expressly permitted under Section 9(i)(vii) and (viii); and

 

(xix) judgment and attachment liens not giving rise to an Event of Default or securing an appeal or other surety bond related to any such judgment;

 

provided that no Lien otherwise permitted under any of the foregoing (other than in Sections 9(b)(i) through (iii) and 9(b)(xviii)) shall apply to any Material Intellectual Property.

 

(c)                Fundamental Changes and Acquisitions. Such Obligor will not, and will not permit any of its Subsidiaries to, (i) enter into any transaction of merger, amalgamation or consolidation (ii) liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), (iii) acquire any business of or substantially all the property from any Person, or acquire the Equity Interests of, or be a party to any acquisition of, any Person, except:

 

(i) Investments permitted under Section 9(e)(v);

 

(ii) the merger, amalgamation or consolidation of any Guarantor with or into any Obligor (provided that if Issuer is party to such a transaction, Issuer is the surviving Person);

 

(iii) the sale, lease, transfer or other disposition by any Guarantor of any or all of its property (upon voluntary liquidation or otherwise) to any Obligor;

 

(iv) the sale, transfer or other disposition of the Equity Interests of any Guarantor to any Obligor;

 

(v) after the occurrence of a Qualified IPO, Permitted Acquisitions in an amount not exceeding $23,000,000 in the aggregate;

 

(vi) the liquidation, winding up or dissolution of any Subsidiary that is not a Material Subsidiary or an Obligor; and

 

(vii) Holdings may be (x) converted from a Delaware limited liability company to a Delaware corporation, or (y) merged into a Delaware corporation or consolidated with another entity with the resulting entity being a Delaware corporation, in each case, solely for the purposes of converting to a Delaware corporation and not to effect any change in ownership of Holdings.

 

(d)               Lines of Business. Such Obligor will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than the business engaged in on the date hereof by such Obligor or any Subsidiary thereof or a business reasonably similar or related thereto.

 

(e)                Investments. Such Obligor will not, and will not permit any of its Subsidiaries to, make, directly or indirectly, or permit to remain outstanding any Investments except:

 

(i) Investments outstanding on the date hereof and identified in Schedule 9.05 of the Non-Convertible Credit Facility Agreement;

 

(ii) operating deposit accounts with banks;

 

(iii) extensions of credit in the nature of accounts receivable or notes receivable arising from the sales of goods or services in the ordinary course of business;

 

(iv) Permitted Cash Equivalent Investments;

 

(v) Investments by any Obligor (A) in Issuer or in Holdings, (B) in any Guarantor directly or indirectly wholly-owned by Issuer or Holdings (for greater certainty, Issuer and Holdings shall not be permitted to have any direct or indirect Subsidiaries that are not wholly-owned Subsidiaries, other than as set forth on Schedule 7.12 of the Non-Convertible Credit Facility Agreement or as permitted under Section 9(e)(xi)), (C) in any Subsidiary of Issuer or Holdings that is not a Guarantor (provided that the aggregate amount of such Investments

 

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under this clause (C) shall not exceed at any time $1,150,000); provided, in each case, that immediately prior, and after giving effect, to such Investment, no Default shall have occurred and be continuing or would result therefrom;

 

(vi) Hedging Agreements entered into in the ordinary course of Issuer’s financial planning solely to hedge currency risks (and not for speculative purposes) and in an aggregate notional amount for all such Hedging Agreements not in excess of $287,500] (or the Equivalent Amount in other currencies);

 

(vii) Investments consisting of security deposits with utilities and other like Persons made in the ordinary course of business;

 

(viii) employee loans, travel advances and guarantees in accordance with such Obligor’s usual and customary practices with respect thereto (if permitted by applicable law) which in the aggregate shall not exceed $1,150,000 outstanding at any time (or the Equivalent Amount in other currencies);

 

(ix) Investments received in connection with any Insolvency Proceedings in respect of any customers, suppliers or clients and in settlement of delinquent obligations of, and other disputes with, customers, suppliers or clients;

 

(x) Investments permitted under Section 9(c); and

 

(xi) Investments, made in cash or assets, for the purpose of commercializing any Product or any current or future product developed, manufactured, licensed, marketed or sold by any Obligor; provided that (i) immediately prior, and after giving effect, to such Investment, no Default shall have occurred and be continuing or would result therefrom, and (ii) the aggregate amount (in cash or fair market value of assets) of such Investments shall not exceed $5,750,000 in the aggregate since the date hereof.

 

(f)                 Restricted Payments. Such Obligor will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, other than:

 

(i) dividends with respect to Issuer’s Equity Interests payable solely in additional shares of its Equity Interests;

 

(ii) Issuer’s purchase, redemption, retirement, or other acquisition of shares of its capital stock or other Equity Interests with the proceeds received from a substantially concurrent issue of new shares of its capital stock or other Equity Interests;

 

(iii) dividends paid by any Obligor or any of its Subsidiaries to any other Obligor;

 

(iv) cash payments to Holdings to be used by Holdings for (i) customary director indemnification payments to the directors of Holdings, (ii) reasonable and customary fees to outside directors of Holdings, and (iii) financial, Tax, other reporting and similar customary administrative costs and expenses of Holdings; and

 

(v) non-cash Restricted Payments made to a Holder (as defined in a Warrant Certificate) by the Issuer pursuant to a Warrant Certificate.

 

(g)                Payments of Indebtedness. Such Obligor will not, and will not permit any of its Subsidiaries to, make any payments in respect of any Indebtedness other than (i) payments of the Obligations, (ii) scheduled non-cash payments of other Indebtedness, (iii) repayment of Indebtedness permitted in reliance upon Section 9(a)(vii), (iii) repayment of Indebtedness permitted in reliance upon Section 9(a)(vii), (iv) scheduled payments of Indebtedness permitted in reliance upon Section 9(a)(iv), (v), (vi), (viii), (ix), (x), (xi) and (xiii), and (iv) payments of Indebtedness under each of the Convertible Credit Facility Loan Documents and the Non-Convertible Credit Facility Loan Documents.

 

(h)               Change in Fiscal Year. Such Obligor will not, and will not permit any of its Subsidiaries to, change the last day of its fiscal year from that in effect on the date hereof, except to change the fiscal year of an acquired Subsidiary to conform its fiscal year to that of Issuer.

 

(i)                   Sales of Assets, Etc. Such Obligor will not, and will not permit any of its Subsidiaries to, sell, lease, exclusively license (in terms of geography or field of use), transfer, or otherwise dispose of any of its Property

 

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(including accounts receivable and Equity Interests of such Subsidiaries), or forgive, release or compromise any amount owed to such Obligor or Subsidiary, in each case, in one transaction or series of transactions (any of the foregoing, an “Asset Sale”), except:

 

(i) transfers of cash in the ordinary course of its business for equivalent value;

 

(ii) sales of inventory in the ordinary course of its business on ordinary business terms;

 

(iii) the forgiveness, release or compromise of any amount owed to any Obligor or Subsidiary in the ordinary course of business;

 

(iv) transfers of Property by any Guarantor to any Obligor;

 

(v) dispositions of any Property that is surplus, obsolete, worn out or no longer used or useful in the Business;

 

(vi) any transaction permitted under Section 9(c) or 9(e);

 

(vii) any exclusive license (whether or not exclusive as to the granting party) of Intellectual Property or exclusive grant (whether or not exclusive as to the granting party) of rights to make, market, sell, make, have made, import or export any pharmaceutical composition or product of any Person, in one transaction or a series of transactions; provided that (i) no Default shall have occurred and be continuing immediately prior to, or immediately after giving effect to, such transaction, and (ii) the applicable licensee or grantee shall not commercialize any product for sale in the United States pharmaceutical, over the counter drug or prescription drug markets unless such Obligor or Subsidiary thereof is permitted to market for sale and sell such product in the United States (whether pursuant to a co-promotion arrangement or otherwise);

 

(viii) any license for one or more indications with respect to a product, if the relevant Obligor or Subsidiary is permitted to market for sale and sell such product for one or more indications in the United States, whether pursuant to a co-promotion arrangement or otherwise;

 

(ix) dispositions of the Equity Interests in MeiraGTx;

 

(x) Asset Sales not otherwise described in this Section 9(i), of property with an aggregate fair market value not to exceed at any time $8,625,000 since the date hereof; and

 

(xi) Assets Sales not otherwise described in this Section 9(i), to the extent that the Net Proceeds from such Asset Sales are used to permanently reduce the obligations under the Senior Credit Facilities Agreements.

 

(j)                  Transactions with Affiliates. Such Obligor will not, and will not permit any of its Subsidiaries to, sell, lease, license or otherwise transfer any assets to, or purchase, lease, license or otherwise acquire any assets from, or otherwise engage in any other transactions with, any of its Affiliates, except:

 

(i) transactions between or among Obligors;

 

(ii) any transaction permitted under Section 9(a), 9(e), 9(f) or 9(i);

 

(iii) customary compensation and indemnification of, and other employment arrangements with, directors, officers and employees of any Obligor or any Subsidiary thereof in the ordinary course of business;

 

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(iv) Holdings may issue Equity Interests to Affiliates in exchange for cash, provided that the terms thereof are no less favorable (including the amount of cash received by Holdings) to Holdings than those that would be obtained in a comparable arm’s-length transaction with a Person not an Affiliate of Holdings; and

 

(v) the transactions set forth on Schedule 9.10 of the Non-Convertible Credit Facility Agreement.

 

(k)               Restrictive Agreements. Such Obligor will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any Restrictive Agreement other than (a) restrictions and conditions imposed by law or by the Securities Documents and (b) Restrictive Agreements listed on Schedule 7.15 of the Non-Convertible Credit Facility Agreement.

 

(l)                   Amendments to and Terminations of Certain Agreements.(1)

 

(i) Prior to the occurrence of a Qualified IPO, such Obligor will not, and will not permit any of its Subsidiaries to, enter into any amendment to or modification of, in a manner materially adverse to any Holder of Securities, any Material Agreement without the prior written consent of the Required Holders, which consent shall not be unreasonably withheld, conditioned or delayed, it being agreed that any amendment to or modification of any Material Agreement that does not adversely affect any Obligor or any of its Subsidiaries shall be deemed not to be materially adverse for purposes of this Section 9(l)(i).

 

(ii) Such Obligor (A) will not, and will not permit any of its Subsidiaries to, take any action that results in the termination of any Material Agreement prior to its stated date of expiration (in each case, (x) unless such terminated Material Agreement is replaced with another agreement that, viewed as a whole, is on equal or better terms for such Obligor or such Subsidiary and (y) other than as a result of the repayment or permitted conversion of Material Indebtedness), and (B) will, and will ensure that each of its Subsidiaries will, ensure that no Material Agreement is terminated by any counterparty thereto prior to its stated date of expiration (in each case, (x) unless such terminated Material Agreement is replaced with another agreement that, viewed as a whole, is on equal or better terms for such Obligor or such Subsidiary and (y) other than as a result of the repayment or permitted conversion of Material Indebtedness) without in each case the prior written consent of the Required Holders, which consent shall not be unreasonably withheld, conditioned or delayed.

 

(m)           Sales and Leasebacks. Except as disclosed on Schedule 9.13 of the Non-Convertible Credit Facility Agreement, such Obligor will not, and will not permit any of its Subsidiaries to, become liable, directly or indirectly, with respect to any lease, whether an operating lease or a Capital Lease Obligation, of any property (whether real, personal, or mixed), whether now owned or hereafter acquired, which such Obligor or Subsidiary (i) has sold or transferred or is to sell or transfer to any other Person and (ii) intends to use for substantially the same purposes as property which has been or is to be sold or transferred.

 

(n)               Hazardous Material. Such Obligor will not, and will not permit any of its Subsidiaries to, use, generate, manufacture, install, treat, release, store or dispose of any Hazardous Material, except in compliance with all applicable Environmental Laws or where the failure to comply could not reasonably be expected to result in a Material Adverse Change.

 

(o)               Accounting Changes. Such Obligor will not, and will not permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP.

 

(p)               Compliance with ERISA. No Obligor or ERISA Affiliate shall cause or suffer to exist (a) any event that could result in the imposition of a Lien with respect to any Title IV Plan or Multiemployer Plan or (b) any other ERISA Event that would, in the aggregate, have a Material Adverse Effect. No Obligor or Subsidiary thereof shall cause or suffer to exist any event that could result in the imposition of a Lien with respect to any Benefit Plan.

 

(1)  Note to draft: Conform to Convertible and Non-Convertible Credit Agreements.

 

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(q)               Developmental Milestones. Issuer shall ensure that:

 

(i) Not later than September 30, 2016, at least one patient shall have enrolled in a Phase 3 clinical trial for KD019-101 for the treatment of autosomal dominant polycystic kidney disease.

 

(ii) Not later than December 31, 2016, at least one patient shall have enrolled in a Phase 2b clinical trial for KD025-205 for the treatment of psoriasis.

 

(iii) Not later than December 31, 2016, the FDA shall have accepted an NDA for a 505(b)(2) for trientine for the treatment of Wilson’s Disease.

 

(r)                  Financial Covenant. Obligors shall maintain at all times Liquidity in an amount which shall exceed $3,000,000.

 

10. Guarantee

 

(a)               Each Guarantor, which includes any successor Person to such Guarantor, by executing a the Notation of Guarantee included in each Security has thereby, irrevocably and unconditionally guaranteed, jointly and severally, as a primary obligor and not merely as a surety to each Holder of Securities and their respective successors and assigns (i) the performance and punctual payment when due, whether at the stated maturity, by acceleration or otherwise, of all Obligations, including this Note, whether for payment of principal of, premium, if any, or interest on the Securities and all other monetary obligations of the Issuer under the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Issuer whether for fees, expenses, indemnification or otherwise under the Securities (all the foregoing being hereinafter collectively called the “Guaranteed Obligations”) to the extent set forth in the Guaranty and Security Agreement dated as of August 28, 2015 (as amended, supplemented or otherwise modified from time to time) among Issuer, Holdings and the other Guarantors party thereto from time to time. Any Subsidiary of Holdings that becomes a party to the Guaranty and Security Agreement after the Issue Date shall be a Guarantor with respect to the Securities notwithstanding that it has not executed the Notation of Guarantee included on each Security.

 

To the extent set forth in the Securities Documents, the guarantee of the Guaranteed Obligations by each Guarantor shall for all purposes be subordinated and junior in right of payment to such Guarantor’s obligations under the Senior Credit Facilities Agreements.

 

(b)            Each Guarantor agrees that its Guarantee under the Guaranty and Security Agreement shall remain in full force and effect until payment in full of all the Guaranteed Obligations. Each Guarantor further agrees that its Guarantee under the Guaranty and Security Agreement shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder upon the bankruptcy or reorganization of the Issuer or otherwise.

 

(c)                Any term or provision of the Securities, including this Note, to the contrary notwithstanding, the maximum aggregate amount of the Guaranteed Obligations guaranteed by each Guarantor shall not exceed the maximum amount that can be guaranteed by the applicable Guarantor without rendering any Security, including this Note, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally or capital maintenance or corporate benefit rules applicable to guarantees for obligations of affiliates.

 

11. Certain Collateral and Guarantee Exceptions

 

Notwithstanding any other provision of the Securities or the Securities Documents:

 

(i)                    The Collateral shall not include, and the Issuer and the Guarantors shall not be required to pledge or otherwise subject to a security interest any Excluded Assets. “Excluded Assets” means:

 

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(1)            vehicles and other property covered by certificates of title or ownership to the extent that a security interest therein cannot be perfected solely by filing a UCC-1 financing statement in the jurisdiction of organization of the owner thereof;

 

(2)                owned real property having a fair market value less than $1,000,000 and leasehold interests in real property with respect to which the Issuer or any Guarantor is a tenant or subtenant;

 

(3)                any right of any nature in any lease, license or agreement to which the Issuer or any Guarantor is party if, and to the extent that, the grant of a security interest in such lease, license or agreement shall constitute or result in (A) the abandonment, invalidation or unenforceability of such lease, license or agreement or (B) a breach, termination or default under such lease, license, contract or agreement, in each case, other than (x) to the extent that any such prohibition, restriction or other term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity and (y) proceeds and receivables thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or other applicable law (including the Bankruptcy Code) notwithstanding such prohibition; provided that immediately upon the time at which the foregoing consequences shall no longer exist, the Collateral shall include, and the Issuer or the applicable Guarantor shall be deemed to have granted a security interest in, all of such Issuer or Guarantor’s right, title and interest in such lease, license or agreement;

 

(4)                any asset or property right of any nature to the extent that any applicable law or regulation prohibits the creation of a security interest therein (other than (x) to the extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles of equity; provided that immediately upon the time at which the foregoing consequences shall no longer exist, the Collateral shall include, and the Issuer or the applicable Guarantor shall be deemed to have granted a security interest in, all of such Issuer or Guarantor’s right, title and interest in such asset or property right and (y) proceeds and receivables thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or other applicable law (including the Bankruptcy Code) notwithstanding such prohibition);

 

(5)                any of the outstanding voting capital stock or other ownership interests of a Controlled Foreign Corporation or a CFC Holdco in excess of 65% of the voting power of all classes of capital stock or other ownership interests of such Controlled Foreign Corporation or such CFC Holdco, as applicable, entitled to vote; provided that immediately upon the amendment of the Code to allow the pledge of a greater percentage of the voting power of capital stock or other ownership interests in a Controlled Foreign Corporation or a CFC Holdco without adverse tax consequences, the Collateral shall include, and the Issuer and each Guarantor shall be deemed to have granted a security interest in, such greater percentage of capital stock or other ownership interests of each Controlled Foreign Corporation or each CFC Holdco, as applicable, in which it has any interest;

 

(6)                property and assets owned by the Issuer or any Guarantor that are the subject of Permitted Liens securing Indebtedness in respect of purchase money financing or Capital Lease Obligations described in Section 9(b) for so long as such Permitted Liens are in effect and the Indebtedness secured thereby prohibits any other Liens thereon other than to the extent that any prohibition, restriction or other term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity;

 

(7)                any Excluded Deposit Account;

 

(8)                any Equity Interests and other securities of any Subsidiary of the Issuer or any Guarantor to the extent that, and for so long as, the pledge of such Equity Interests or other securities to secure the Guaranteed

 

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Obligations under the Securities would cause such Subsidiary to be required to file separate financial statements with the Commission pursuant to Rule 3-16 of Regulation S-X; and

 

(9)                any United States intent-to-use trademark application prior to the filing of a “Statement of Use” or “Amendment to Allege Use” with respect thereto, to the extent, if any, that, and solely during the period, if any, in which, the creation by the Issuer or a Guarantor of a security interest therein would impair the validity or enforceability of such intent-to-use trademark application under applicable federal law, rule or regulation; provided that immediately upon the time at which the foregoing consequences shall no longer exist, the Collateral shall include, and the Issuer or the applicable Guarantor shall be deemed to have granted a security interest in, all of such Issuer or Guarantor’s right, title and interest in such application;

 

provided, however, that Excluded Assets shall not include any Proceeds, substitutions or replacements of any Excluded Assets referred to in clauses (1)-(10) above unless such Proceeds, substitutions or replacements would constitute Excluded Assets referred to in clauses (1)-(10) above.

 

Notwithstanding the foregoing, in the event that Rule 3-10 or Rule 3-16 of Regulation S-X under the Securities Act is amended, modified or interpreted by the Commission to permit (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would permit) such Subsidiary’s Equity Interests and other securities to secure the Guaranteed Obligations under the Securities in excess of the amount then pledged without the filing with the Commission (or any other governmental agency) of separate financial statements of such Subsidiary, then the Equity Interests and other securities of such Subsidiary shall automatically be deemed to be a part of the Collateral for the benefit of the Collateral Agent (but only to the extent permitted without being subject to any such financial statement requirement). In such event, the Securities Documents may be amended or modified, without the consent of any Holder of Securities, to the extent necessary to subject to the Liens under the Securities Documents such additional Equity Interests and other securities.

 

(ii)                                  No Subsidiary that is not a Material Subsidiary will be required to become a Guarantor.

 

(iii)                               Any delivery of collateral otherwise required by the Securities or any of the Securities Documents shall be deemed satisfied if delivered to the Convertible Credit Facility Administrative Agent or the Control Agent, as applicable, pursuant to the terms of the Intercreditor Agreement.

 

(iv)                              No delivery or pledge of collateral, or other perfection of a security interest, shall be required under the Securities or any of the Securities Documents if such collateral is not required to be delivered or pledged, or the security interest perfected, as applicable, by the Convertible Credit Facility Administrative Agent or the Control Agent.

 

12. Successors and Assigns

 

The provisions of this Note shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Holder of this Note may not assign or otherwise transfer its rights or obligations hereunder except in accordance with Section 1 of this Note. Nothing in this Note, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Holders of other Securities and the Collateral Agent, any legal or equitable right, remedy or claim under or by reason of this Note or the other Securities.

 

13. Amendment; Waiver

 

(a)                The Securities (including this Note), the Securities Documents, and the Intercreditor Agreement may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities), and any past Default or non-compliance with any provisions of the Securities, including this Note, may be waived with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities).

 

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(b)                Without the consent of any Holder of Securities, the Issuer may amend the terms of all Securities, including this Note, (A) to cure any ambiguity, omission, defect or inconsistency in a manner that does not adversely affect the rights of any holder of Securities; (B) to add to the covenants for the benefit of the Holders of Securities or to surrender any right or power herein conferred upon the Issuer; and (C) to make any change that does not adversely affect the rights of any Holder of Securities;.

 

(c)             It shall not be necessary for the consent of the Holders of Securities under this Section 13 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section 13 becomes effective, the Issuer shall mail to the Holders of all Securities a notice briefly describing such amendment. The failure to give such notice to all Holders of Securities, or any defect therein, shall not impair or affect the validity of an amendment under this Section 13.

 

(d)                Notwithstanding anything herein to the contrary, without the consent of each Holder of an outstanding Security, including the holder of this Note (for so long as it remains outstanding), an amendment may not:

 

(A) reduce the amount of Securities whose Holders must consent to an amendment;

 

(B) reduce the Interest Rate or the Maximum Interest Rate or extend the time for payment of interest on any Security;

 

(C) reduce the principal of or change the stated maturity of any Security;

 

(D) reduce the premium payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with the terms of the Securities;

 

(E) make any Security payable in money other than that stated in such Security;

 

(F) expressly subordinate the Securities or any Guarantee under the Guaranty and Security Agreement to any other Indebtedness of the Issuer or any Guarantor to which the Security would otherwise be senior in rank, except to the extent such subordination is permitted or required under the Securities or the Securities Documents;

 

(G) impair the right of any Holder of Securities to receive payment of principal of, premium, if any, and interest on such Holder’s Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder’s Securities (except, in each case in this clause (G), a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount of the Securities and a waiver of the payment default that resulted from such acceleration);

 

(H) make any change in the amendment provisions which require consent from each Holder of Securities or in the waiver provisions; or

 

(I) make amendments to a Note or Security that is not also made in each Note or Security then outstanding.

 

14. Defaults and Remedies

 

(a)                If an Event of Default (other than an Event of Default under clauses (viii), (ix) or (x) of the definition of Event of Default) occurs and is continuing, the Holders of at least 25% in principal amount of outstanding Securities by notice to the Issuer may declare the principal of, premium, if any, and accrued but unpaid interest on all the Securities to be due and payable immediately. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default under clauses (viii), (ix) or (x) of the definition of Event of Default occurs, the principal of, premium, if any, and interest on all the Securities will become immediately due and payable without any declaration or other act on the part of any Holders of Securities. The Holders of a majority in principal amount of outstanding Securities may rescind any such acceleration with respect to the Securities and its consequences as provided below.

 

“Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

 

An “Event of Default” occurs with respect to the Securities if:

 

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(i) there is a default in the payment of principal or premium, if any, of any Security when due at its stated maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise;

 

(ii) any Obligor shall fail to pay any Obligation (other than an amount referred to in Section 14(a)(i)) when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days;

 

(iii) any representation or warranty made or deemed made by or on behalf of Issuer or any of its Subsidiaries in or in connection with this Note or any other Securities Document or any amendment or modification hereof or thereof, or in any report, certificate or financial statement furnished pursuant to or in connection with this Note or any other Securities Document or any amendment or modification hereof or thereof, shall: (i) prove to have been incorrect when made or deemed made to the extent that such representation or warranty contains any materiality or Material Adverse Effect qualifier; or (ii) prove to have been incorrect in any material respect when made or deemed made to the extent that such representation or warranty does not otherwise contain any materiality or Material Adverse Effect qualifier;

 

(iv) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in Section 8(b), 8(c)(i) (with respect to Issuer’s existence), 8(j), 8(k), 8(m) or 9;

 

(v) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in Section 14(a)(i), (ii) or (iv)) or any other Loan Document, and, in the case of any failure that is capable of cure, if such failure shall continue unremedied for a period of twenty (20) or more days;

 

(vi) any Obligor or any of its Subsidiaries shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable after giving effect to any applicable grace or cure period;

 

(vii) any material breach of, or “event of default” or similar event by any Obligor under, any Material Agreement shall occur and shall continue after the applicable grace period, if any, (ii) any material breach of, or “event of default” or similar event under, the documentation governing any Material Indebtedness (other than the Indebtedness under the Senior Credit Facilities Agreements) shall occur and shall continue after the applicable grace period, if any, or (iii) any event or condition occurs (A) that results in any Material Indebtedness becoming due prior to its scheduled maturity or (B) that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of such Material Indebtedness (other than the Indebtedness under the Senior Credit Facilities Agreements) or any trustee or agent on its or their behalf to cause such Material Indebtedness (other than the Indebtedness under the Senior Credit Facilities Agreements) to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this Section 14(a)(vii) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Material Indebtedness.

 

(viii) any Obligor:

 

(A) becomes insolvent, or generally does not or becomes unable to pay its debts or meet its liabilities as the same become due, or admits in writing its inability to pay its debts generally, or declares any general moratorium on its indebtedness, or proposes a compromise or arrangement or deed of company arrangement between it and any class of its creditors;

 

(B) commits an act of bankruptcy or makes an assignment of its property for the general benefit of its creditors or makes a proposal (or files a notice of its intention to do so);

 

(C) institutes any proceeding seeking to adjudicate it an insolvent, or seeking liquidation, dissolution, winding-up, reorganization, compromise, arrangement, adjustment, protection, moratorium, relief, stay of proceedings of creditors generally (or any class of creditors), or composition of it or its debts or any other relief, under any federal, provincial or foreign Law now

 

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or hereafter in effect relating to bankruptcy, winding-up, insolvency, reorganization, receivership, plans of arrangement or relief or protection of debtors or at common law or in equity, or files an answer admitting the material allegations of a petition filed against it in any such proceeding;

 

(D) applies for the appointment of, or the taking of possession by, a receiver, interim receiver, receiver/manager, sequestrator, conservator, custodian, administrator, trustee, liquidator, voluntary administrator, receiver and manager or other similar official for it or any substantial part of its property; or

 

(E) takes any action, corporate or otherwise, to approve, effect, consent to or authorize any of the actions described in this Section 14(a)(viii) or (ix), or otherwise acts in furtherance thereof or fails to act in a timely and appropriate manner in defense thereof;

 

(ix) any petition is filed, application made or other proceeding instituted against or in respect of any Obligor or any of its Subsidiaries:

 

(A) seeking to adjudicate it an insolvent;

 

(B) seeking a receiving order against it;

 

(C) seeking liquidation, dissolution, winding-up, reorganization, compromise, arrangement, adjustment, protection, moratorium, relief, stay of proceedings of creditors generally (or any class of creditors), deed of company arrangement or composition of it or its debts or any other relief under any federal, provincial or foreign law now or hereafter in effect relating to bankruptcy, winding-up, insolvency, reorganization, receivership, plans of arrangement or relief or protection of debtors or at common law or in equity; or

 

(D) seeking the entry of an order for relief or the appointment of, or the taking of possession by, a receiver, interim receiver, receiver/manager, sequestrator, conservator, custodian, administrator, trustee, liquidator, voluntary administrator, receiver and manager or other similar official for it or any substantial part of its property, and such petition, application or proceeding continues undismissed, unbonded or unstayed and in effect, for a period of forty five (45) days after the institution thereof; provided that if an order, decree or judgment is granted or entered (whether or not entered or subject to appeal) against Issuer or such Subsidiary thereunder in the interim, such grace period will cease to apply; provided further that if Issuer or such Subsidiary files an answer admitting the material allegations of a petition filed against it in any such proceeding, such grace period will cease to apply;

 

(x) any other event occurs which, under the laws of any applicable jurisdiction, has an effect equivalent to any of the events referred to in either of Section 14(a)(viii) or (ix);

 

(xi) one or more judgments for the payment of money in an aggregate amount in excess of $1,150,000 (or the Equivalent Amount in other currencies) (exclusive of any amounts fully covered by insurance (less any applicable deductible) and as to which the insurer has acknowledged its responsibility to cover such judgement) shall be rendered against any Obligor or any combination thereof and the same shall remain undischarged, unbonded or unstayed for a period of 45 consecutive days, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Obligor to enforce any such judgment;

 

(xii) an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of Issuer and its Subsidiaries in an aggregate amount exceeding (A) $862,500 in any year or (B) $1,150,000 for all periods until repayment of all Obligations;

 

(xiii) [Intentionally Omitted];

 

(xiv) a Material Adverse Change shall have occurred;

 

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(xv) (A) any Lien created by any of the Collateral Documents shall at any time not constitute a valid and perfected Lien on the applicable Collateral in favor of the Collateral Agent for the benefit of the Holders, free and clear of all other Liens (other than Permitted Liens), except to the extent due to the action or inaction of Collateral Agent, (ii) except for expiration in accordance with its terms, any of the Collateral Documents or any Guarantee of any of the Obligations (including that contained in Section 10) shall for whatever reason cease to be in full force and effect, or (iii) any of the Collateral Documents or any Guarantee of any of the Obligations (including that contained in Section 10), or the enforceability thereof, shall be repudiated or contested by any Obligor;

 

(xvi) [Intentionally Omitted];

 

(xvii) any injunction, whether temporary or permanent, shall be rendered against any Obligor that prevents the Obligors from selling or manufacturing the Product in the United States for more than 45 consecutive calendar days;

 

(xviii) (A) the FDA or any other Governmental Authority (1) issues a letter or other communication asserting that any Product lacks a required Product Authorization, including in respect of CE marks or 510(k)s, or (2) initiates enforcement action against, or issues a warning letter with respect to, any Obligor, or any of their Products or the manufacturing facilities therefor, that causes any Obligor or Subsidiary thereof to discontinue all marketing for a material indication, or to discontinue selling or withdraw any of its material Products, or causes a delay in the manufacture of any of its material Products, which discontinuance, withdrawal or delay could reasonably be expected to last for more than 60 days, (B) there is a recall of any Product that has generated an aggregate amount of revenue to the Obligors equal to at least $3,450,000 over any consecutive twelve (12) month period, or (C) any Obligor or Subsidiary thereof enters into a settlement agreement with the FDA or any other Governmental Authority that results in aggregate liability as to any single or related series of transactions, incidents or conditions, in excess of $1,150,000;

 

(xix) except as a result of any event described in Section 14(a)(xvii) or (xviii), any material Permit relating to any Product (including all Product Authorizations relating to any Product), or any of the Obligors’ or their Subsidiaries’ material rights or interests thereunder, is terminated, adversely amended or otherwise determined to be ineffective in any manner adverse to any of the Products or Obligors or Subsidiaries; and

 

(xx) the Key Person shall have ceased to devote substantially all of his or her time to the business and operations of Holdings and its Subsidiaries (whether due to death, disability, incapacity or otherwise).

 

then, (1) and in every such event (other than an event with respect to Holdings or the Issuer described in clause (a)(viii) — (x) of this Section 14) and at any time thereafter during the continuance of such event, the Holders of at least 25% in principal amount of outstanding Securities may, by written notice to the Issuer, declare the Securities then outstanding to be immediately due and payable in whole or in part, whereupon the principal of the Securities so declared to be due and payable, together with accrued interest thereon and any unpaid accrued fees and liabilities of the Issuer accrued under any of the Securities Documents, shall become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Issuer, anything contained herein or in any other Securities Documents to the contrary notwithstanding, and (2) in any event with respect to any Obligor described in clauses (a)(viii) — (x) above, the principal of the Securities then outstanding, together with accrued interest thereon and any unpaid accrued fees and liabilities of the Issuer accrued under any Securities Document, including this Note, shall automatically become immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Issuer, anything contained in the Securities Documents, including this Note, to the contrary notwithstanding.

 

(b)     The holders of a majority in principal amount of the Securities then outstanding, by written notice to the Issuer, may waive an existing Event of Default and its consequences, except (i) an Event of Default in the payment of the principal of or interest on a Security, (ii) an Event of Default arising from the failure to redeem or purchase any Security when required pursuant to the terms of the Securities or (iii) an Event of Default in respect of a provision that under Section 13 cannot be amended without the consent of each Holder of a Security. When an Event of Default is waived, it is deemed cured and the Issuer and the Holders of Securities will be restored to their former positions and rights under the Securities, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right.

 

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(c)      In the event of any Event of Default specified in Section 14(a)(vii), such Event of Default and all consequences thereof (excluding any resulting payment default, other than as a result of acceleration of the Securities) shall be annulled, waived and rescinded, automatically and without any action by the Collateral Agent or the Holders, if within 30 Business Days after such Event of Default arose:

 

(1)           the Indebtedness or guarantee that is the basis for such Event of Default has been discharged; or

 

(2)           holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default; or

 

(3)           the default that is the basis for such Event of Default has been cured.

 

(d)     In addition, (i) if a Default for a failure to report or failure to deliver a required certificate in connection with another default (the “Initial Default”) occurs, then at the time such Initial Default is cured, such Default for a failure to report or failure to deliver a required certificate in connection with another default that resulted solely because of that Initial Default will also be cured without any further action and (ii) any Default or Event of Default for the failure to comply with the time periods prescribed in Section 8 or otherwise to deliver any notice or certificate pursuant to any other provision of the Securities Documents shall be deemed to be cured upon the delivery of any such report, notice or certificate, as applicable, required by such covenants or provisions even though such delivery is not within the prescribed period specified in the Securities Documents.

 

15. Collateral Agent; Security; Intercreditor Agreement

 

(a)           By its purchase of this Note, each Holder of Securities has irrevocably designated and appointed Cortland Capital Market Services LLC, and its successors and assigns, as the Collateral Agent for the Securities under the Guaranty and Security Agreement (the “Collateral Agent”), pursuant to the Collateral Agency Agreement. Each such Holder irrevocably directs the Collateral Agent, in such capacity, to execute and deliver the Guaranty and Security Agreement and authorizes the Collateral Agent, in such capacity, pursuant to and in accordance with the Collateral Agency Agreement, to take such action on its behalf under the provisions of the Securities and the other Securities Documents, including the authority to execute and deliver the Securities Documents to which the Collateral Agent is a party and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms of the Securities and the other Securities Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Securities, the Collateral Agent shall not have any duties or responsibilities, except those expressly set forth in the Securities Documents, or any fiduciary relationship with any Holder, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Securities or any other Securities Document or otherwise exist against the Collateral Agent.

 

(b)           Reserved.

 

(c)           The Holder of this Note and the Holders of each Security, by accepting a Security, are deemed to agree that the Liens on the Collateral securing the Guaranteed Obligations and the Guarantees under the Guaranty and Security Agreement are subject to the terms of the Intercreditor Agreement. The Holder of this Note, and the Holders of each Security, by accepting a Security authorize and direct the Collateral Agent to enter into the Intercreditor Agreement on behalf of the Holders of Securities and agree that the Holders of Securities shall comply with the provisions of the Intercreditor Agreement applicable to them in their capacities as such to the same extent as if the Holders of Securities were parties thereto.

 

(d)           The Guaranteed Obligations and the Guarantees under the Guaranty and Security Agreement are secured as provided in the Securities Documents and will be secured by additional security documents to the extent required or permitted by the Securities Documents. The Issuer and the Guarantors shall deliver and make all filings (including filings of continuation statements and amendments to UCC financing statements that may be necessary to continue the effectiveness of such UCC financing statements) necessary to maintain (at the sole cost and expense of the Issuer and the Guarantors) the security interest created by the Securities Documents in the Collateral (as defined in the Securities Documents) as a perfected security interest to the extent perfection is required by the Securities Documents.

 

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(e)           The Collateral Agent shall have all the rights and protections provided in the Securities Documents and the Collateral Agency Agreement in connection with any action taken or not taken by it as Collateral Agent.

 

(f)            Neither the Collateral Agent nor any of its officers, directors, employees, attorneys or agents shall be responsible or liable for the existence, genuineness, value or protection of any Collateral, for the legality, enforceability, effectiveness or sufficiency of the Securities Documents, for the creation, perfection, priority, sufficiency or protection of any Liens, or any defect or deficiency as to any such matters, except as required by the Securities Documents.

 

(g)          Subject to the provisions of the Securities Documents, the Collateral Agent may, at the direction of Holders of a majority of the outstanding principal amount of the Securities, take all actions it deems necessary or appropriate in order to:

 

(A) foreclose upon or otherwise enforce any or all of the Liens securing the Securities and/or the Guarantees under the Guaranty and Security Agreement;

 

(B) enforce any of the terms of the Securities Documents to which the Collateral Agent is a party; or

 

(C) collect and receive payment of any and all obligations in respect of the Securities or the Guarantees under the Guaranty and Security Agreement.

 

(h)           Subject to the Intercreditor Agreement and at the Issuer’s sole cost and expense, the Collateral Agent is hereby authorized and empowered by the Holder of this Note, together with the Holder of each Security, (by its acceptance hereof) to institute and maintain such suits and proceedings as it may deem reasonably expedient to protect or enforce the Liens securing the Guaranteed Obligations and/or the Guarantees under the Guaranty and Security Agreement or the Securities Documents to which the Collateral Agent is a party or to prevent any impairment of Collateral by any acts that may be unlawful or in violation of the Securities Documents or the Securities, and such suits and proceedings as the Collateral Agent may deem reasonably expedient, at the Issuer’s sole cost and expense, to preserve or protect its interests and the interests of the Holders of the Securities in the Collateral, including the power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the second priority Liens securing the Securities and/or the Guarantees under the Guaranty and Security Agreement or be prejudicial to the interests of Holders of the Securities or the Collateral Agent.

 

(j)            Collateral may be released from the Lien and security interest created by the Securities Documents at any time or from time to time in accordance with the provisions of the Securities Documents and the Intercreditor Agreement.

 

(k)           The security interests in the Collateral securing the Obligations under the Securities (including this Note) and the Securities Documents will be, pursuant to the Intercreditor Agreement, second in priority to any and all security interests at any time granted to secure the obligations under the Non-Convertible Credit Facility Loan Documents and the Convertible Credit Facility Loan Documents (in each case, including any refinancings of such obligations) and will also be subject to all other Permitted Liens. The Intercreditor Agreement defines the relative rights of Liens granted to the Holders of Securities and the Liens granted in favor of the Control Agent and the Convertible Credit Facility Agent to secure the Indebtedness under the Non-Convertible Credit Facility Loan Documents and the Convertible Credit Facility Loan Documents, respectively. In the event of any conflict or inconsistency among the provisions of the Securities or the Securities Documents (other than the Intercreditor Agreement), on the one hand, and the Intercreditor Agreement, on the other hand, the provisions of the Intercreditor Agreement shall govern and control.

 

(l)            Reference is made to the Intercreditor Agreement. Each Holder, by its acceptance of a Security, (a) consents to the subordination of Liens provided for in the Intercreditor Agreement, (b) agrees that it will be bound by and will take no actions contrary to the provisions of the Intercreditor Agreement and (c) authorizes and instructs the Collateral Agent to enter into the Intercreditor Agreement solely to act for the benefit of such Holder. The foregoing provisions are intended as an inducement to the lenders under the Senior Credit Facilities to extend credit and such lenders are intended third party beneficiaries of such provisions and the provisions of the Intercreditor Agreement.

 

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16. No Recourse Against Others

 

No director, officer, employee, incorporator of Holdings, Issuer or any of their respective Subsidiaries and no holder of any Equity Interests in Holdings or any direct or indirect parent thereof, as such, shall have any liability for any Obligations or any Guaranteed Obligations or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Securities by accepting a Security waives and releases all such liability.

 

17. [Intentionally Omitted].

 

18. Waiver of Stay or Extension Laws; Waiver of Jury Trial.

 

Neither Holdings, the Issuer and any Guarantor (to the extent it may lawfully do so) shall at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Note; and Holdings, the Issuer and the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to them, but shall suffer and permit the execution of every such power as though no such law had been enacted.

 

EACH OF HOLDINGS, THE ISSUER, AND THE GUARANTORS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE SECURITIES, INCLUDING THIS NOTE, OR THE TRANSACTION CONTEMPLATED HEREBY.

 

19. Abbreviations

 

Customary abbreviations may be used in the name of a holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

 

20. Governing Law; Jurisdiction

 

THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

(a)     Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Note or the other Securities Documents, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Note or in any other Securities Document shall affect any right that the Holder of this Note may otherwise have to bring any action or proceeding relating to this Note or any other Securities document against Holdings, the Issuer or any Guarantor or its properties in the courts of any other jurisdiction.

 

(b)     Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Note or the other Securities Documents in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

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(c)      Each party to this Note irrevocably consents to service of process in the manner provided for notices in Section 22. Nothing in this Note will affect the right of any party to this Note or any other Securities Document to serve process in any other manner permitted by law.

 

21. Conversion to Corporate Form

 

(a) Holders of the Securities, by receipt of such Securities, acknowledges that, pursuant to Holdings’ LLC Agreement, the Board of Managers of Holdings has the right, with no action on the part of the members of Holdings, to cause (i) Holdings to be converted from a limited liability company to a Delaware Corporation, or (ii) to merge Holdings into a Delaware corporation or consolidate with another entity with the resulting entity being a Delaware corporation (a “Conversion”), in each case solely for the purposes of converting to a Delaware corporation and not to effect any change in ownership of Holdings.

 

(b) Any Conversion shall be structured so that the relative percentage Equity Interests, relative voting rights and economic positions of the members of Holdings immediately prior to the Conversion, including with respect to the Class A Units reserved for issuance upon conversion of the Securities, will be maintained in the Conversion.

 

22. Notices

 

(i)       Any notice or communication required under this Note shall be duly given if in writing and delivered in Person, via facsimile, electronic mail in pdf format, mailed by first-class mail (registered or certified, return receipt requested) or overnight air courier guaranteeing next day delivery, to the addresses as follow:

 

(a)         if to Holdings, the Issuer or a Guarantor:

 

Kadmon Pharmaceuticals, LLC
 c/o Kadmon Corporation, LLC
 450 East 29th Street
 New York, NY 10016
 Attention: Steven N. Gordon, Esq., General Counsel
 Tel Number: (212) 308-6000

Fax Number: (212) 355-7855

 

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

 

DLA Piper LLP (US)
 1251 Avenue of the Americas, 27th Floor
 New York, NY 10020-1104
 Attention: Sidney Burke 
 Phone: (212) 335-4509
 Fax Number: (212) 335-4501

 

(b)         if to the Holder of this Note:

 

[To Come]

 

(ii)           Notices and other communications to the parties hereto may be delivered or furnished by electronic communication (including a PDF attachment to an e-mail and Internet or intranet websites) within the timeframe required for delivery of such notices, provided, that the foregoing shall not apply to notices sent directly to any party hereto if such party has provided notification in writing that it has elected not to receive notices by electronic communication (which election may be limited to particular notices).

 

34

 

(iii)          Parties may designate different addresses for notices by providing notice to the other parties for subsequent notices or communications.

 

(iv)          All notices and communications will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile or electronic mail in pdf format; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.

 

(v)           Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.

 

23. Confidentiality

 

Each Holder of a Security agrees to maintain the confidentiality of the Confidential Information (as defined below), except that Confidential Information may be disclosed (a) to such Holder’s Affiliates and to such Holder’s and such Holder’s Affiliates’ partners, directors, officers, employees, agents, trustees and advisors (Affiliates and such other Persons, collectively, “Related Parties”), it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and agree to keep such Confidential Information confidential, (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Holder or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Securities Document or any action or proceeding relating to this Agreement or any other Securities Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 23, to (i) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights and obligations under this Note or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Issuer and its obligations, this Note or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Issuer or its Subsidiaries or the Securities or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the Securities, (h) with the consent of the Issuer or (i) to the extent such Confidential Information (x) becomes publicly available other than as a result of a breach of this Section 23 or (y) becomes available to such Holder or any of its Affiliates on a nonconfidential basis from a source other than the Issuer. For purposes of this Section 23, “Confidential Information” means all information received from any Obligor or any Subsidiary relating to any Obligor or any Subsidiary or any of their respective businesses, other than any such information that is available to any Holder of Securities on a nonconfidential basis prior to disclosure by any Obligor or any Subsidiary. Any Person required to maintain the confidentiality of Confidential Information as provided in this Section 23 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Confidential Information as such Person would accord to its own confidential information.

 

24. Certain Defined Terms

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

 

“Collateral” refers to all tangible and intangible property, real and personal, of Issuer and each Guarantor that is or purports to be the subject of a Lien to the Collateral Agent to secure the whole or any part of the Obligations or any

 

35

 

Guarantees thereof under the Guaranty and Security Agreement, and shall include, without limitation, all casualty insurance proceeds and condemnation awards with respect to any of the foregoing.

 

“Collateral Agency Agreement” means the Agency Agreement, dated as of the date hereof, entered into by and among  the Collateral Agent, the Holders from time to time, the Issuer and the other Obligors party to the Guaranty and Security Agreement from time to time.

 

“Collateral Agent” shall have the meaning set forth in Section 15(a) hereof.

 

“Collateral Documents” refers, collectively, to the Guaranty and Security Agreement, all Short-Form IP Security Agreements, all assignments of insurance policies and all other instruments and agreements now or hereafter securing or perfecting the Liens securing the whole or any part of the Obligations or any Guarantees thereof under the Guaranty and Security Agreement, all UCC financing statements, fixture filings, stock powers, and all other documents, instruments, agreements and certificates executed and delivered by Issuer or any Guarantor to the Collateral Agent in connection with the foregoing.

 

“Commission” means the Securities and Exchange Commission.

 

“Controlled Foreign Corporation” means a “controlled foreign corporation” as defined in the Code.

 

“Convertible Credit Facility Administrative Agent” means Macquarie US Trading LLC and any successor administrative agent under the Convertible Credit Facility Agreement.

 

“Convertible Credit Facility Agreement” means that certain Third Amended and Restated Senior Secured Convertible Credit Agreement, dated as of August 28, 2015 (as amended or modified from time to time), among Kadmon Pharmaceuticals, LLC, as borrower, Kadmon Holdings, LLC, as Holdings, the lenders party thereto, and the Convertible Credit Facility Administrative Agent.

 

“Convertible Credit Facility Loan Documents” means the “Loan Documents” as defined in the Convertible Credit Facility Agreement.

 

“Excluded Deposit Account” means (a) PNC Bank, National Association Account No. 1029101985, an account held by Issuer and used solely to process ACH payments to pharmacies in respect of Medicaid or Medicare reimbursements (and which is a zero balance account, other than funds required to satisfy initiated and pending ACH payments), (b) American Express Bank, FSB Account No. 0010118461, an account held by Issuer and used only in support of certain of Issuer’s letter of credit obligations and (c) Silicon Valley Bank Account Nos. 3300743699 and 3300777873, accounts held by Kadmon Corporation, LLC and used only in support of certain of Kadmon Corporation, LLC’s letter of credit obligations, in each case, so long as such accounts continue to satisfy such foregoing criteria.

 

“Guaranty and Security Agreement” means Guaranty and Security Agreement, dated as of the date hereof, by and among the Collateral Agent, on behalf of the Secured Parties (as defined therein), the Issuer and the other Obligors party to the Guaranty and Security Agreement from time to time.

 

“Intercreditor Agreement” means that certain First Lien/Second Lien Intercreditor Agreement, dated as of the Issue Date, among Perceptive Credit Opportunities Fund, LP, as class A representative, Macquarie US Trading LLC, as class B agent, the Collateral Agent, as second lien collateral agent, Perceptive Credit Opportunities Fund, LP, as control agent, and the Obligors.

 

“Non-Convertible Credit Facility Agreement” means that certain Credit Agreement, dated as of August 28, 2015 (as amended or modified from time to time), among Kadmon Pharmaceuticals, LLC, as borrower, the Guarantors

 

36

 

from time to time party thereto, the lenders from time to time party thereto and Perceptive Credit Opportunities Fund, LP, as collateral representative.

 

“Non-Convertible Credit Facility Loan Documents” means the “Loan Documents” as defined in the Non-Convertible Credit Facility Agreement.

 

“Obligations” means the obligations of the Issuer under the Securities.

 

“Securities Documents” means the Securities, the Collateral Documents, the Intercreditor Agreement, and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing

 

“Senior Credit Facilities Agreements” means the Convertible Credit Facility Agreement and the Non-Convertible Credit Facility Agreement.

 

“Short-Form IP Security Agreements” means short-form copyright, patent or trademark (as the case may be) security agreements, dated as of the date hereof, entered into by one or more Obligors in favor of the Collateral Agent, each in form and substance reasonably satisfactory to Collateral Agent (and as amended, modified or replaced from time to time).

 

37

 

TRANSFER INSTRUCTION

 

To assign this Note, fill in the form below:

 

 

I or we assign and transfer this Note to:

 

(Print or type assignee’s name, address and zip code)

 

 

(Insert assignee’s soc. sec. or tax I.D. No.)

 

 

and irrevocably appoint agent to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.

 

	
Date:
    	
 
    	
Your Signature*:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

*Sign exactly as your name appears on the other side of this Note.

 

38

 

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR

 

REGISTRATION OF TRANSFER RESTRICTED NOTE

 

	
This certificate relates   to $
    	
principal amount of the   Note held by the undersigned.
    

 

The undersigned has requested the Issuer by written order to exchange or register the transfer of a Note.

 

In connection with any transfer of the Note occurring while this Note is subject to the transfer restrictions set forth in the terms of the Note, the undersigned confirms that such Note (or portion thereof) is being transferred in accordance with its terms:

 

CHECK ONE BOX BELOW

 

	
(1)
    	
 
    	
o
    	
to Holdings or any of   its subsidiaries; or
    
	
 
    	
 
    	
 
    	
 
    
	
(2)
    	
 
    	
o
    	
pursuant to an   effective registration statement under the Securities Act of 1933; or
    
	
 
    	
 
    	
 
    	
 
    
	
(3)
    	
 
    	
o
    	
to a Person the   undersigned reasonably believes is a “qualified institutional buyer”   (as defined in Rule 144A under the Securities Act of 1933) that is   purchasing the Note for its own account or for the account of a qualified   institutional buyer to whom notice is given that such transfer is being made   in reliance on Rule 144A, in each case pursuant to and in compliance   with Rule 144A under the Securities Act of 1933; or
    
	
 
    	
 
    	
 
    	
 
    
	
(4)
    	
 
    	
o
    	
outside the United   States in an offshore transaction within the meaning of Regulation S under   the Securities Act in compliance with Rule 904 under the Securities Act   of 1933; or
    
	
 
    	
 
    	
 
    	
 
    
	
(5)
    	
 
    	
o
    	
to an institutional “accredited   investor” (as defined in Rule 501(a)(1), (2), (3) or   (7) under the Securities Act of 1933) that has furnished to the Issuer a   signed letter containing certain representations and agreements relating to   the transfer of the Note (the form of which can be obtained from the Issuer)   and, if such transfer is in respect of an aggregate principal amount of less   than $250,000, an opinion of counsel acceptable to the Issuer that such   transfer is in compliance with the Securities Act of 1933; or
    
	
 
    	
 
    	
 
    	
 
    
	
(6)
    	
 
    	
o
    	
pursuant to an   exemption from registration provided by Rule 144 under the Securities   Act of 1933, and provided that prior to such transfer, the Issuer is   furnished with an opinion of counsel acceptable to the Issuer that such   transfer is in compliance with the Securities Act of 1933; or
    
	
 
    	
 
    	
 
    	
 
    
	
(7)
    	
 
    	
o
    	
pursuant to another   available exemption from registration provided that prior to such transfer,   the Issuer is furnished with an opinion of counsel acceptable to the Issuer   that such transfer is in compliance with the Securities Act of 1933.
    

 

Unless one of the boxes is checked, the Issuer will refuse to register the Note (or relevant portion of the Note) in the name of any Person other than the registered holder thereof.

 

	
Date:
    	
 
    	
Your Signature*:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

*Sign exactly as your name appears on the other side of this Note.

 

39

 

TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.

 

The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

 

 

	
Date:
    	
 
    	
Your Signature*:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

* To be executed by an executive officer

 

40

 

OPTION OF HOLDER TO ELECT PURCHASE

 

If you want to elect to have this Note purchased by the Issuer pursuant to Section 7 (Change of Control) of the Note, check the box:

 

Change of Control o

 

If you want to elect to have only part of this Note purchased by the Issuer pursuant to Section 7 (Change of Control) of the Note, state the amount:

 

 

	
Date:
    	
 
    	
Your Signature*:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

*Sign exactly as your name appears on the other side of this Note.

 

41

 

Exhibit A
 to 13.0% Second-Lien Convertible PIK Notes due 2019

 

FORM OF COMPLIANCE CERTIFICATE

 

[DATE]

 

This certificate is delivered pursuant to Section 8(a)(iv) of the 13.0% Second-Lien Convertible PIK Notes due 2019 (the “Notes”) issued pursuant to certain Note Purchase Agreements, dated as of August [    ], 2015, by and among Kadmon Pharmaceuticals, LLC, a Pennsylvania limited liability company (“Issuer”), the Guarantors party thereto and the Purchasers from party thereto. Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Notes.

 

The undersigned, a duly authorized Responsible Officer of the Issuer having the name and title set forth below under his signature, hereby certifies in his capacity as Responsible Officer and not in his individual capacity, on behalf of the Issuer for the benefit of the Secured Parties and pursuant to Section 8(a)(iv) of the Notes that such Responsible Officer of Borrower is familiar with the Notes and that, in accordance with each of the following sections of the Notes:

 

In accordance with Section 8(a)[(i)/(ii)/(iii)] of the Notes, attached hereto as Annex A are the financial statements for the [fiscal month/fiscal quarter/fiscal year] ended [          ] required to be delivered pursuant to Section 8(a)[(i)/(ii)/(iii)] of the Notes.  Such financial statements fairly present in all material respects the consolidated and consolidating statements of income and cash flows of Holdings and its Subsidiaries as at the dates indicated therein and for the periods indicated therein in accordance with GAAP [(subject to the absence of footnote disclosure and normal year-end audit adjustments)].(1)

 

Attached hereto as Annex B are the calculations used to determine compliance with each financial covenant contained in Section 9(r) of the Notes.

 

No Default is continuing as of the date hereof[, except as provided for on Annex C attached hereto, with respect to each of which Borrower proposes to take the actions set forth on Annex C].

 

(1)  Insert language in brackets only for monthly and quarterly certifications.

 

 

IN WITNESS WHEREOF, the undersigned has executed this certificate on the date first written above.

 

 

	
 
    	
KADMON PHARMACEUTICALS,   LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    

 

2

 

Annex A to Compliance Certificate

 

FINANCIAL STATEMENTS

 

[see attached]

 

3

 

Annex B to Compliance Certificate

 

CALCULATION OF FINANCIAL COVENANT COMPLIANCE

 

	
I.
    	
Section 9®: Minimum Liquidity
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Amount of unencumbered cash and Permitted Cash   Equivalent Investments (which for greater certainty shall not include any   undrawn credit lines), in each case, to the extent held in an account over   which the Collateral Agent has a second-priority perfected security interest:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(i) the last day of the most recently completed   [fiscal month][fiscal quarter][fiscal year]:
    	
$          
    
	
 
    	
 
    	
 
    
	
 
    	
Is Line I(i) equal to or greater than   $3,000,000?:
    	
Yes: In compliance; No: Not in compliance
    

 

4Exhibit 10.4

 

Execution Version

 

FIRST LIEN/SECOND LIEN INTERCREDITOR AGREEMENT

 

August 28, 2015

 

among

 

PERCEPTIVE CREDIT OPPORTUNITIES FUND, LP,
 as Class A Representative

 

MACQUARIE US TRADING LLC, 
 as Class B Agent

 

CORTLAND CAPITAL MARKET SERVICES LLC, 
 as Second Lien Collateral Agent

 

PERCEPTIVE CREDIT OPPORTUNITIES FUND, LP, 
 as Control Agent

 

KADMON PHARMACEUTICALS, LLC,
 as Borrower

 

KADMON HOLDINGS, LLC,
 as Holdings

 

KADMON CORPORATION, LLC,
 KADMON RESEARCH INSTITUTE, LLC,
 THREE RIVERS RESEARCH INSTITUTE I, LLC,
 THREE RIVERS BIOLOGICS, LLC,
 THREE RIVERS GLOBAL PHARMA, LLC, 
 as Guarantors

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
1.
    	
Definitions
    	
2
    
	
 
    	
 
    	
 
    
	
 
    	
1.1          Defined Terms
    	
2
    
	
 
    	
 
    	
 
    
	
 
    	
1.2          Usages
    	
14
    
	
 
    	
 
    	
 
    
	
2.
    	
Lien Priorities
    	
16
    
	
 
    	
 
    	
 
    
	
 
    	
2.1          Seniority Of Liens Securing First   Lien Obligations
    	
16
    
	
 
    	
 
    	
 
    
	
 
    	
2.2          Payment Subordination
    	
17
    
	
 
    	
 
    	
 
    
	
 
    	
2.3          First And Second Lien Collateral To   Be Identical
    	
18
    
	
 
    	
 
    	
 
    
	
 
    	
2.4          Pledged Collateral
    	
19
    
	
 
    	
 
    	
 
    
	
 
    	
2.5          Limitations On Duties And   Obligations
    	
21
    
	
 
    	
 
    	
 
    
	
 
    	
2.6          Prohibition On Contesting Liens; No   Marshaling
    	
22
    
	
 
    	
 
    	
 
    
	
 
    	
2.7          Confirmation Of Subordination In   Second Lien Collateral Documents
    	
22
    
	
 
    	
 
    	
 
    
	
 
    	
2.8          Release Of Liens Or Guaranties
    	
23
    
	
 
    	
 
    	
 
    
	
 
    	
2.9          Subordination Of Liens Securing   Excess Class A Obligations or Excess Class B Obligations
    	
24
    
	
 
    	
 
    	
 
    
	
3.
    	
Modification Of   Obligations
    	
24
    
	
 
    	
 
    	
 
    
	
 
    	
3.1          Permitted Modifications
    	
24
    
	
 
    	
 
    	
 
    
	
 
    	
3.2          Modifications Requiring Consent
    	
25
    
	
 
    	
 
    	
 
    
	
 
    	
3.3          Parallel Modifications To Second Lien   Obligations
    	
26
    
	
 
    	
 
    	
 
    
	
 
    	
3.4          Notice Of Modifications
    	
26
    
	
 
    	
 
    	
 
    
	
4.
    	
Enforcement
    	
27
    
	
 
    	
 
    	
 
    
	
 
    	
4.1          Who May Exercise Remedies
    	
27
    
	
 
    	
 
    	
 
    
	
 
    	
4.2          Manner Of Exercise
    	
29
    
	
 
    	
 
    	
 
    
	
 
    	
4.3          Specific Performance
    	
30
    
	
 
    	
 
    	
 
    
	
 
    	
4.4          Notice Of Exercise
    	
30
    
	
 
    	
 
    	
 
    
	
5.
    	
Payments
    	
30
    
	
 
    	
 
    	
 
    
	
 
    	
5.1          Application Of Proceeds
    	
30
    
	
 
    	
 
    	
 
    
	
 
    	
5.2          Insurance
    	
31
    
	
 
    	
 
    	
 
    
	
 
    	
5.3          Payment Turnover
    	
32
    
	
 
    	
 
    	
 
    
	
 
    	
5.4          Refinancing After Discharge Of First   Lien Obligations
    	
32
    
	
 
    	
 
    	
 
    
	
6.
    	
Purchase Of First Lien   Obligations By Second Lien Claimholders
    	
33
    

 

i

 

TABLE OF CONTENTS

(continued)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
 
    	
6.1          Purchase Right
    	
33
    
	
 
    	
 
    	
 
    
	
 
    	
6.2          Purchase Notice
    	
35
    
	
 
    	
 
    	
 
    
	
 
    	
6.3          Purchase Price
    	
36
    
	
 
    	
 
    	
 
    
	
 
    	
6.4          Purchase Closing
    	
36
    
	
 
    	
 
    	
 
    
	
 
    	
6.5          Excess First Lien Obligations Not   Purchased
    	
37
    
	
 
    	
 
    	
 
    
	
 
    	
6.6          Actions After Purchase Closing
    	
37
    
	
 
    	
 
    	
 
    
	
 
    	
6.7          No Recourse Or Warranties;   Defaulting Creditors
    	
37
    
	
 
    	
 
    	
 
    
	
7.
    	
Insolvency Proceedings
    	
38
    
	
 
    	
 
    	
 
    
	
 
    	
7.1          Use Of Cash Collateral And Dip   Financing
    	
38
    
	
 
    	
 
    	
 
    
	
 
    	
7.2          Sale Of Collateral
    	
39
    
	
 
    	
 
    	
 
    
	
 
    	
7.3          Relief From The Automatic Stay
    	
40
    
	
 
    	
 
    	
 
    
	
 
    	
7.4          Adequate Protection
    	
40
    
	
 
    	
 
    	
 
    
	
 
    	
7.5          First Lien Objections To Second Lien   Actions
    	
41
    
	
 
    	
 
    	
 
    
	
 
    	
7.6          Avoidance; Reinstatement Of   Obligations
    	
41
    
	
 
    	
 
    	
 
    
	
 
    	
7.7          Reorganization Securities
    	
41
    
	
 
    	
 
    	
 
    
	
 
    	
7.8          Post-Petition Claims
    	
42
    
	
 
    	
 
    	
 
    
	
 
    	
7.9          Waivers
    	
42
    
	
 
    	
 
    	
 
    
	
 
    	
7.10        Separate Grants Of Security And   Separate Classification
    	
42
    
	
 
    	
 
    	
 
    
	
 
    	
7.11        Effectiveness In Insolvency   Proceedings
    	
43
    
	
 
    	
 
    	
 
    
	
8.
    	
Miscellaneous
    	
43
    
	
 
    	
 
    	
 
    
	
 
    	
8.1          Conflicts
    	
43
    
	
 
    	
 
    	
 
    
	
 
    	
8.2          No Waivers; Remedies Cumulative;   Integration
    	
43
    
	
 
    	
 
    	
 
    
	
 
    	
8.3          Effectiveness; Severability;   Termination
    	
43
    
	
 
    	
 
    	
 
    
	
 
    	
8.4          Modifications Of This Agreement
    	
44
    
	
 
    	
 
    	
 
    
	
 
    	
8.5          Information Concerning Financial   Condition Of Borrower And Its Subsidiaries
    	
44
    
	
 
    	
 
    	
 
    
	
 
    	
8.6          No Reliance
    	
45
    
	
 
    	
 
    	
 
    
	
 
    	
8.7          No Warranties; Independent Action
    	
45
    
	
 
    	
 
    	
 
    
	
 
    	
8.8          Subrogation
    	
46
    
	
 
    	
 
    	
 
    
	
 
    	
8.9          Applicable Law; Jurisdiction;   Service
    	
46
    

 

ii

 

TABLE OF CONTENTS

(continued)

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
 
    	
8.10        Waiver Of Jury Trial
    	
46
    
	
 
    	
 
    	
 
    
	
 
    	
8.11        Notices
    	
47
    
	
 
    	
 
    	
 
    
	
 
    	
8.12        Further Assurances
    	
47
    
	
 
    	
 
    	
 
    
	
 
    	
8.13        Successors And Assigns
    	
47
    
	
 
    	
 
    	
 
    
	
 
    	
8.14        Authorization
    	
47
    
	
 
    	
 
    	
 
    
	
 
    	
8.15        No Third-Party Beneficiaries
    	
48
    
	
 
    	
 
    	
 
    
	
 
    	
8.16        No Indirect Actions
    	
48
    
	
 
    	
 
    	
 
    
	
 
    	
8.17        Counterparts
    	
48
    
	
 
    	
 
    	
 
    
	
 
    	
8.18        Original Grantors; Additional Grantors
    	
48
    

 

iii

 

FIRST/SECOND LIEN INTERCREDITOR AGREEMENT

 

This Intercreditor Agreement is entered into as of August 28, 2015 (this “Agreement”) among PERCEPTIVE CREDIT OPPORTUNITIES FUND, LP, a Delaware limited partnership (“Perceptive”), as control agent as defined in the Class A Credit Agreement referred to below (in such capacity, “Class A Representative”), MACQUARIE US TRADING LLC, as administrative agent, collateral agent and custodian for the Class B Lenders defined below (in such capacity, “Class B Agent”), CORTLAND CAPITAL MARKET SERVICES LLC, a Delaware limited liability company, as collateral agent for the Second Lien Purchasers defined below (in such capacity, “Second Lien Collateral Agent”), PERCEPTIVE CREDIT OPPORTUNITIES FUND, LP, as control agent for Class A Representative, Class B Agent and Second Lien Collateral Agent (in such capacity, the “Control Agent”), KADMON PHARMACEUTICALS, LLC, a Pennsylvania limited liability company (“Borrower”), KADMON HOLDINGS, LLC, a Delaware limited liability company (“Holdings”), and the other Guarantors (as defined below).

 

BACKGROUND

 

(A)                               Borrower has entered into that certain Credit Agreement, dated as of the date hereof (as from time to time amended, restated, supplemented or otherwise modified, renewed, refinanced or replaced, the “Class A Credit Agreement”), with Holdings and the other Guarantors from time to time party thereto, Class A Lenders and Class A Representative, providing for a term loan to Borrower.

 

(B)                               Borrower has entered into that certain Third Amended and Restated Senior Secured Convertible Credit Agreement, dated as of the date hereof (as from time to time further amended, restated, supplemented or otherwise modified, renewed, refinanced or replaced, the “Class B Credit Agreement”), with Holdings and the other Guarantors from time to time party thereto, certain lenders and agents, and Class B Agent, providing for a convertible term loan to Borrower.

 

(C)                               Borrower has issued Second-Lien Convertible PIK Notes due 2019, dated as of the date hereof (as from time to time amended, restated, supplemented or otherwise modified, renewed, refinanced or replaced, the “Second Lien Notes”), in favor of the purchasers (the “Second Lien Purchasers”).

 

(D)                               Holdings has guaranteed, and Holdings and Borrower have agreed to cause certain current and future Subsidiaries of Borrower and Holdings (together with Holdings, the “Guarantors”) to guarantee, Borrower’s Obligations under the Class A Credit Agreement, the Class B Credit Agreement and the Second Lien Notes.

 

(E)                                The First Lien Obligations and the Second Lien Obligations are secured by Liens on substantially all the assets of Borrower and the Guarantors.

 

(F)                                 The Parties desire to set forth in this Agreement their rights and remedies with respect to the Collateral securing the First Lien Obligations and the Second Lien Obligations, and priority of payment with respect to the Class A Obligations, Class B Obligations and Second Lien Obligations.

 

1

 

AGREEMENT

 

1.                                      DEFINITIONS

 

1.1                               DEFINED TERMS

 

Unless otherwise stated or the context otherwise clearly requires, the following terms have the following meanings:

 

“Affiliate” means, for a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the specified Person. For these purposes, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and “controlled” has a correlative meaning.

 

“Agreement” is defined in the Preamble.

 

“Assignment and Acceptance” is defined in Section 6.1(a)(B).

 

“Bankruptcy Code” means the federal Bankruptcy Code.

 

“Bankruptcy Law” means the Bankruptcy Code and any similar federal, state, or foreign bankruptcy, insolvency, receivership, or similar law affecting creditors’ rights generally.

 

“Borrower” is defined in the Preamble.

 

“Business Day” means a day other than a Saturday, Sunday, or other day on which commercial banks in New York City are authorized or required by law to close (or are in fact closed).

 

“Capped Class A Obligations” means Class A Obligations relating to the payment of principal, together with interest, premium (including the amount of the Prepayment Premium under, and as defined in, the Class A Credit Agreement, regardless of whether such Prepayment Premium is then due and payable) and fees accruing or payable in respect thereof or in respect of commitments therefor.

 

“Capped Class B Obligations” means Class B Obligations relating to the payment of principal, together with interest, premium (including the amount of the Prepayment Premium under, and as defined in, the Class B Credit Agreement, regardless of whether such Prepayment Premium is then due and payable) and fees accruing or payable in respect thereof or in respect of commitments therefor.

 

“Capped First Lien Obligations” means any First Lien Obligations consisting of Capped Class A Obligations or Capped Class B Obligations.

 

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“Capped Second Lien Obligations” means Second Lien Obligations relating to the payment of principal, together with interest, premium (if any) and fees accruing or payable in respect thereof or in respect of commitments therefor.

 

“Class A Cap” means the sum of:

 

(a)                                 the excess of:

 

(1)                                 the sum of (x) the aggregate principal amount of Class A Obligations up to, but not in excess of, $40,250,000, plus (y) the amount of interest thereon compounded and added to the principal thereof, over

 

(2)                                 principal payments applied to term loans that are Class A Obligations (other than payments in connection with a Refinancing); plus

 

(b)                                 amounts in respect of accrued, unpaid interest, fees, and premium (including, for the avoidance of doubt, the amount of the Prepayment Premium under, and as defined in the Class A Credit Agreement), in each case above accruing in respect of or attributable to, but only in respect of or attributable to, the aggregate principal amount of Class A Obligations (including the aggregate original principal amount of any term loan that is a Class A Obligation) at any one time not to exceed the amount referred to in clause (a);

 

provided that the Class A Cap shall not apply to any Class A Obligations other than Capped Class A Obligations.  Notwithstanding the foregoing, the Class A Cap shall not be deemed to have been breached as a result of the incurrence of any DIP Financing consented to by a First Lien Representative and deemed consented to by the Second Lien Collateral Agent pursuant to Section 7.1(a).

 

Any net increase in the aggregate principal amount of a loan (on a U.S. Dollar equivalent basis) after the loan is incurred that is caused by a fluctuation in the exchange rate of the currency in which the loan is denominated will be ignored in determining whether the Class A Cap has been exceeded, except with respect to the principal amount of Class A Obligations made, issued, or advanced after the calculation of such fluctuation in exchange rate.

 

“Class A Claimholders” means, together, Class A Lenders, Class A Representative and the other holders of Class A Obligations.

 

“Class A Collateral” means all of the property of any Grantor, whether real, personal, or mixed, as to which a Lien is granted as security for a Class A Obligation.

 

“Class A Collateral Documents” means the security documents defined in the Class A Credit Agreement, and any other documents or instruments granting a Lien on real or personal property to secure a Class A Obligation or granting rights or remedies with respect to such Liens.

 

“Class A Credit Agreement” is defined in the Preamble.

 

“Class A Lenders” means any “Lender” under the Class A Credit Agreement.

 

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“Class A Loan Documents” means:

 

(a)                                 the Class A Credit Agreement and the “Loan Documents” defined in the Class A Credit Agreement;

 

(b)                                 each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing an Obligation under the Class A Credit Agreement;

 

(c)                                  any other document or instrument executed or delivered at any time in connection with Borrower’s Obligations under the Class A Credit Agreement, including any guaranty of or grant of Collateral to secure such Obligations, and any intercreditor or joinder agreement to which holders of Class A Obligations are parties, to the extent effective at the relevant time; and

 

(d)                                 each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing any DIP Financing provided by or consented to in writing by Class A Lenders and deemed consented to by the Second Lien Purchasers pursuant to Section 7.1 to the extent effective at the relevant time; provided that any such documents or instruments to which any Class A Claimholder is a party in connection with a DIP Financing (other than a DIP Financing deemed consented to by Second Lien Purchasers pursuant to Section 7.1) will not be deemed Class A Loan Documents unless so designated in writing by Class A Lenders.

 

“Class A Obligations” means all Obligations of the Grantors under:

 

(a)                                 the Class A Credit Agreement and the other Class A Loan Documents;

 

(b)                                 the guaranties by the Guarantors of the Borrower’s Obligations under the Class A Loan Documents; or

 

(c)                                  any other agreement or instrument granting or providing for the perfection of a Lien securing any of the foregoing.

 

Notwithstanding any other provision hereof, the term “Class A Obligations” will include accrued interest, fees, costs, and other charges incurred under the Class A Credit Agreement and the other Class A Loan Documents, whether incurred before or after commencement of an Insolvency Proceeding, and whether or not allowable in an Insolvency Proceeding. To the extent that any payment with respect to the Class A Obligations (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off, or otherwise) is declared to be fraudulent or preferential in any respect, set aside, or required to be paid to a debtor in possession, trustee, receiver, or similar Person, then the obligation or part thereof originally intended to be satisfied will be deemed to be reinstated and outstanding as if such payment had not occurred.

 

“Class A Representative” is defined in the Preamble.

 

“Class B Agent” is defined in the Preamble.

 

“Class B Cap” means the sum of:

 

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(a)         the excess of:

 

(1)                                 the sum of (x) the aggregate principal amount of Class B Obligations up to, but not in excess of, $79,460,064.33, plus (y) the amount of interest thereon compounded and added to the principal thereof, over

 

(2)                                 principal payments applied to term loans that are Class B Obligations (other than payments in connection with a Refinancing); plus

 

(b)                                 amounts in respect of accrued, unpaid interest, fees, and premium (including, for the avoidance of doubt, the amount of the Prepayment Premium under, and as defined in the Class B Credit Agreement), in each case above accruing in respect of or attributable to, but only in respect of or attributable to, the aggregate principal amount of Class B Obligations (including the aggregate original principal amount of any term loan that is a Class B Obligation) at any one time not to exceed the amount referred to in clause (a);

 

provided that the Class B Cap shall not apply to any Class B Obligations other than Capped Class B Obligations.  Notwithstanding the foregoing, the Class B Cap shall not be deemed to have been breached as a result of the incurrence of any DIP Financing consented to by a First Lien Representative and deemed consented to by the Second Lien Collateral Agent pursuant to Section 7.1(a).

 

Any net increase in the aggregate principal amount of a loan (on a U.S. Dollar equivalent basis) after the loan is incurred that is caused by a fluctuation in the exchange rate of the currency in which the loan is denominated will be ignored in determining whether the Class B Cap has been exceeded, except with respect to the principal amount of Class B Obligations made, issued, or advanced after the calculation of such fluctuation in exchange rate.

 

“Class B Claimholders” means, together, Class B Agent and the holders of Class B Obligations.

 

“Class B Collateral” means all of the property of any Grantor, whether real, personal, or mixed, as to which a Lien is granted as security for a Class B Obligation.

 

“Class B Collateral Documents” means the security documents defined in the Class B Credit Agreement, and any other documents or instruments granting a Lien on real or personal property to secure a Class B Obligation or granting rights or remedies with respect to such Liens.

 

“Class B Credit Agreement” is defined in the Preamble.

 

“Class B Lenders” means any “Lender” under the Class B Credit Agreement.

 

“Class B Loan Documents” means:

 

(a)                                 the Class B Credit Agreement and the “Loan Documents” defined in the Class B Credit Agreement;

 

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(b)                                 each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing an Obligation under the Class B Credit Agreement;

 

(c)                                  any other document or instrument executed or delivered at any time in connection with Borrower’s Obligations under the Class B Credit Agreement, including any guaranty of or grant of Collateral to secure such Obligations, and any intercreditor or joinder agreement to which holders of Class B Obligations are parties, to the extent effective at the relevant time; and

 

(d)                                 each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing any DIP Financing provided by or consented to in writing by Class B Lenders and deemed consented to by the Second Lien Purchasers pursuant to Section 7.1 to the extent effective at the relevant time; provided that any such documents or instruments to which any Class B Claimholder is a party in connection with a DIP Financing (other than a DIP Financing deemed consented to by Second Lien Purchasers pursuant to Section 7.1) will not be deemed Class B Loan Documents unless so designated in writing by Class B Lenders.

 

“Class B Obligations” means all Obligations of the Grantors under:

 

(a)                                 the Class B Credit Agreement and the other Class B Loan Documents;

 

(b)                                 the guaranties by the Guarantors of Borrower’s Obligations under the Class B Loan Documents; or

 

(c)                                  any other agreement or instrument granting or providing for the perfection of a Lien securing any of the foregoing.

 

Notwithstanding any other provision hereof, the term “Class B Obligations” will include accrued interest, fees, costs, and other charges incurred under the Class B Credit Agreement and the other Class B Loan Documents, whether incurred before or after commencement of an Insolvency Proceeding, and whether or not allowable in an Insolvency Proceeding.

 

“Class B Purchase Event” is defined in Section 6.1(b).

 

“Class B Standstill Period” is defined in Section 4.1(b)(2)(A).

 

“Collateral” means, subject to Section 2.3(c), all of the property of any Grantor, whether real, personal, or mixed, that is (or is required to be) Class A Collateral, Class B Collateral or Second Lien Collateral, including any property subject to Liens granted pursuant to Section 7 to secure Class A Obligations, Class B Obligations or Second Lien Obligations.

 

“Control Agent” is defined in the Preamble.

 

“Defaulting Creditor” is defined in Section 6.7(c).

 

“DIP Financing” means the obtaining of credit or incurring debt secured by Liens on the Collateral pursuant to Section 364 of the Bankruptcy Code (or similar Bankruptcy Law).

 

“Discharge of Class A Obligations” means:

 

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(a)                                 payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of an Insolvency Proceeding, whether or not such interest would be allowed in the proceeding) on all outstanding Indebtedness included in the Class A Obligations;

 

(b)                                 payment in full in cash of all other Class A Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (other than indemnification Obligations for which no claim or demand for payment, whether oral or written, has been made at such time), and

 

(c)                                  termination or expiration of any commitments to extend credit that would be Class A Obligations.

 

“Discharge of Class B Obligations” means:

 

(a)                                 (i) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of an Insolvency Proceeding, whether or not such interest would be allowed in the proceeding) on all outstanding Indebtedness included in the Class B Obligations or (ii) conversion of all of the foregoing amounts into Conversion Property as defined in the Class B Credit Agreement; and

 

(b)                                 (i) payment in full in cash of all other Class B Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (other than indemnification Obligations for which no claim or demand for payment, whether oral or written, has been made at such time) or (ii) conversion of all of the foregoing amounts into Conversion Property as defined in the Class B Credit Agreement.

 

“Discharge of First Lien Obligations” means that each of the Discharge of Class A Obligations, and the Discharge of Class B Obligations, has occurred.

 

“Discharge of Ordinary First Lien Obligations” means that each of the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, and the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations, has occurred.

 

“Discharge of Second Lien Obligations” means:

 

(a)                                 (i) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of an Insolvency Proceeding, whether or not such interest would be allowed in the proceeding) on all outstanding Indebtedness included in the Second Lien Obligations or (ii) conversion of all of the foregoing amounts into Conversion Units as defined in the Second Lien Notes; and

 

(b)                                 (i) payment in full in cash of all other Second Lien Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (other than indemnification Obligations for which no claim or demand for payment, whether oral or written, has been made at such time) or (ii) conversion of all of the foregoing amounts into Conversion Units as defined in the Second Lien Notes.

 

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“Disposition” means an “Asset Sale” (as defined in the Class A Credit Agreement), or other sale, lease, exchange, transfer, or other disposition.

 

“Enforcement Action” means an action under applicable law:

 

(a)                                 to foreclose, execute, levy, or collect on, take possession or control of, sell or otherwise realize upon (judicially or non-judicially), or lease, license, or otherwise dispose of (whether publicly or privately), Collateral, or otherwise exercise or enforce remedial rights with respect to Collateral under any First Lien Loan Document or the Second Lien Note Documents (including by way of set-off, recoupment notification of a public or private sale or other disposition pursuant to the UCC or other applicable law, notification to account debtors, notification to depositary banks under deposit account control agreements, or exercise of rights under landlord consents, if applicable);

 

(b)                                 to solicit bids from third Persons to conduct the liquidation or disposition of Collateral or to engage or retain sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers, or other third Persons for the purposes of valuing, marketing, promoting, and selling Collateral;

 

(c)                                  to receive a transfer of Collateral in satisfaction of Indebtedness or any other Obligation secured thereby;

 

(d)                                 otherwise to enforce a security interest or exercise another right or remedy, as a secured creditor or otherwise, pertaining to the Collateral at law, in equity, or pursuant to any First Lien Loan Document or the Second Lien Note Documents (including the commencement of applicable legal proceedings or other actions with respect to all or any portion of the Collateral to facilitate the actions described in the preceding clauses, and exercising voting rights in respect of equity interests comprising Collateral);

 

(e)                                  to effect the Disposition of Collateral by any Grantor after the occurrence and during the continuation of an event of default under any First Lien Loan Document or the Second Lien Note Documents with the consent of the applicable First Lien Representative or Second Lien Collateral Agent, as applicable;

 

(f)                                   to commence, or join in filing of a petition for commencement of, an Insolvency Proceeding against the owner of Collateral.

 

“Equity Interest” means, for any Person, any and all shares, interests, participations, or other equivalents, including membership interests (however designated, whether voting or non-voting) of equity of the Person, including, if the Person is a partnership, partnership interests (whether general or limited) or any other interest or participation that confers on a holder the right to receive a share of the profits and losses of, or distributions of property of, such partnership, but not including debt securities convertible or exchangeable into equity.

 

“Excess Class A Obligations” means any Class A Obligations that are Capped Class A Obligations and that are in excess of the Class A Cap.

 

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“Excess Class B Obligations” means any Class B Obligations that are Capped Class B Obligations and that are in excess of the Class B Cap.

 

“Excess First Lien Obligations” means, together, any Excess Class A Obligations and any Excess Class B Obligations.

 

“Excess Second Lien Obligations” means any Second Lien Obligations that are Capped Second Lien Obligations and that are in excess of the Second Lien Cap.

 

“First Lien Claimholders” means, together, Class A Claimholders and Class B Claimholders.

 

“First Lien Collateral” means, together, Class A Collateral and Class B Collateral.

 

“First Lien Collateral Documents” means, together, Class A Collateral Documents and Class B Collateral Documents.  The “applicable” First Lien Collateral Documents of any First Lien Claimholder shall be the Class A Collateral Documents, in the case of Class A Claimholders, and the Class B Collateral Documents, in the case of Class B Claimholders.

 

“First Lien Credit Agreement” means either Class A Credit Agreement or Class B Credit Agreement.

 

“First Lien Loan Documents” means, together, Class A Loan Documents and Class B Loan Documents.  The “applicable” First Lien Loan Documents of any First Lien Claimholder shall be the Class A Loan Documents, in the case of Class A Claimholders, and the Class B Loan Documents, in the case of Class B Claimholders.

 

“First Lien Obligations” means, together, Class A Obligations and Class B Obligations.  The “applicable” First Lien Obligations of any First Lien Claimholder shall be the Class A Obligations, in the case of Class A Claimholders, and the Class B Obligations, in the case of Class B Claimholders.

 

“First Lien Representative” means, subject to Section 4.1(b), either Class A Representative or Class B Agent.

 

“Governmental Authority” means any nation, government, branch of power (whether executive, legislative or judicial), state, province or municipality or other political subdivision thereof and any entity exercising executive, legislative, judicial, monetary, regulatory or administrative functions of or pertaining to government, including without limitation Regulatory Authorities, governmental departments, agencies, commissions, bureaus, officials, ministers, courts, bodies, boards, tribunals and dispute settlement panels, and other law-, rule- or regulation-making organizations or entities of any State, territory, county, city or other political subdivision of the United States.

 

“Grantor” means each of Borrower, each Guarantor, and each other Person that executes and delivers a Class A Collateral Document, Class B Collateral Document or a Second Lien Collateral Document as a “grantor” or “pledgor” (or the equivalent).

 

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“Guarantors” is defined in the Preamble.

 

“Holdings” is defined in the Preamble.

 

“Indebtedness” means and includes all Obligations that constitute “Indebtedness” under the Class A Credit Agreement or the Class B Credit Agreement, or “Obligations” under the Second Lien Notes, as applicable.

 

“Insolvency Proceeding” means (i) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (ii) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of any Person’s creditors generally or any substantial portion of such Person’s creditors, in each case undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.

 

“Lien” means any mortgage, lien, pledge, charge or other security interest, or any lease, title retention agreement, mortgage, restriction, easement, right-of-way, option or adverse claim (of ownership or possession) or other encumbrance of any kind or character whatsoever or any preferential arrangement that has the practical effect of creating a security interest.

 

“Modify”, as applied to any document or obligation, includes:

 

(a)                                 any modification by amendment, supplement, termination, or replacement of the document or obligation;

 

(b)                                 any waiver of a provision (including waivers by course of conduct); and

 

(c)                                  the settlement or release of any claim;

 

whether oral or written, and regardless of whether the modification is in conformity with the provisions of the document or obligation governing modifications.

 

“New Agent” is defined in Section 5.4.

 

“Obligations” means all obligations of every nature of a Person owed to any obligee under an agreement, whether for principal, interest, acceleration or prepayment premium or penalties or payments for early termination, fees, expenses, indemnification, or otherwise, and all guaranties of any of the foregoing, whether absolute or contingent, due or to become due, now existing or hereafter arising, and including interest and fees that accrue after the commencement by or against any Person of any proceeding under any Bankruptcy Law naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

 

“Ordinary Class A Obligations” means, together, the Capped Class A Obligations (up to the Class A Cap) and all Uncapped Class A Obligations.

 

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“Ordinary Class B Obligations” means, together, the Capped Class B Obligations (up to the Class B Cap) and all Uncapped Class B Obligations.

 

“Ordinary First Lien Obligations” means, together, the Ordinary Class A Obligations and the Ordinary Class B Obligations.

 

“Ordinary Second Lien Obligations” means, together, the Capped Second Lien Obligations (up to the Second Lien Cap) and all Uncapped Second Lien Obligations.

 

“Party” means a party to this Agreement.

 

“Perceptive” is defined in the Preamble.

 

“Person” means any natural person, corporation, limited liability company, trust, business trust, joint venture, association, company, partnership, Governmental Authority, or other entity.

 

“Pledged Collateral” is defined in Section 2.4(a).

 

“Post-Petition Claims” means interest, fees, costs, expenses, and other charges that pursuant to the Class A Credit Agreement, the Class B Credit Agreement or the Second Lien Notes continue to accrue after the commencement of an Insolvency Proceeding, to the extent such interest, fees, expenses, and other charges are allowed or allowable under Bankruptcy Law or in the Insolvency Proceeding.

 

“Proceeds” means:

 

(a)                                 all “proceeds,” as defined in Article 9 of the UCC, of the Collateral; and

 

(b)                                 whatever is recovered when Collateral is sold, exchanged, collected, or disposed of, whether voluntarily or involuntarily, including any additional or replacement Collateral provided during any Insolvency Proceeding and any payment or property received in an Insolvency Proceeding on account of any “secured claim” (within the meaning of Section 506(b) of the Bankruptcy Code or similar Bankruptcy Law).

 

“Purchase Date” is defined in Section 6.2(a)(5).

 

“Purchase Event” is defined in Section 6.1(b).

 

“Purchase Notice” is defined in Section 6.2(a).

 

“Purchase Price” is defined in Section 6.3.

 

“Purchased Credit Agreement” means, (i) in the case of the purchase of Ordinary Class A Obligations by Second Lien Claimholders pursuant to Section 6.1(a) or by Class B Claimholders pursuant to Section 6.1(b), the Class A Credit Agreement, and (ii) in the case of the purchase of Ordinary Class B Obligations by Second Lien Claimholders pursuant to Section 6.1(a), the Class B Credit Agreement.

 

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“Purchased Loan Documents” means, (i) in the case of the purchase of Ordinary Class A Obligations by Second Lien Claimholders pursuant to Section 6.1(a) or by Class B Claimholders pursuant to Section 6.1(b), the Class A Loan Documents, and (ii) in the case of the purchase of Ordinary Class B Obligations by Second Lien Claimholders pursuant to Section 6.1(a), the Class B Loan Documents.

 

“Purchased Obligations” means (i) in the case of the purchase of Ordinary Class A Obligations by Second Lien Claimholders pursuant to Section 6.1(a) or by Class B Claimholders pursuant to Section 6.1(b), the Ordinary Class A Obligations, and (ii) in the case of the purchase of the Ordinary Class B Obligations by Second Lien Claimholders pursuant to Section 6.1(a), the Ordinary Class B Obligations.

 

“Purchasing Creditors” means, (i) in the case of the purchase of Ordinary Class A Obligations or Ordinary Class B Obligations by Second Lien Claimholders pursuant to Section 6.1(a), the Second Lien Claimholders, and (ii) in the case of the purchase of Ordinary Class A Obligations by Class B Claimholders pursuant to Section 6.1(b), the Class B Claimholders.

 

“Recovery” is defined in Section 7.6.

 

“Refinance” means, for any Indebtedness, to refinance, replace, refund, or repay, or to issue other Indebtedness in exchange or replacement for such Indebtedness in whole or in part, whether with the same or different lenders, agents, or arrangers. “Refinanced” and “Refinancing” have correlative meanings.

 

“Second Lien Adequate Protection Payments” is defined in Section 7.4(b)(4).

 

“Second Lien Cap” means the excess of:

 

(a)                                 the sum of (x) the aggregate principal amount of Second Lien Obligations up to, but not in excess of, $149,500,000, plus (y) the amount of interest thereon compounded and added to the principal thereof, over

 

(b)                                 the aggregate amount of principal payments under the Second Lien Notes (other than payments in connection with a Refinancing);

 

provided that the Second Lien Cap shall not apply to any Second Lien Obligations other than Capped Second Lien Obligations.  Notwithstanding the foregoing, the Second Lien Cap shall not be deemed to have been breached as a result of the incurrence of any DIP Financing provided by a Second Lien Claimholder as permitted under Section 7.1(c).

 

Any net increase in the aggregate principal amount of a loan (on a U.S. Dollar equivalent basis) after the loan is incurred that is caused by a fluctuation in the exchange rate of the currency in which the loan is denominated will be ignored in determining whether the Second Lien Cap has been exceeded, except with respect to the principal amount of Second Lien Obligations made, issued, or advanced after the calculation of such fluctuation in exchange rate.

 

“Second Lien Claimholders” means, together, Second Lien Collateral Agent and the other holders of Second Lien Obligations.

 

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“Second Lien Collateral” means all of the property of any Grantor, whether real, personal, or mixed, as to which a Lien is granted as security for a Second Lien Obligation.

 

“Second Lien Collateral Agent” is defined in the Preamble.

 

“Second Lien Collateral Documents” means the security documents defined in the Second Lien Notes, and any other documents or instruments granting a Lien on real or personal property to secure a Second Lien Obligation or granting rights or remedies with respect to such Liens.

 

“Second Lien Note Documents” means:

 

(a)                                 the Note Purchase Agreement, dated as of the date hereof, among Borrower, the Guarantors and investors named on the signature pages thereto and the “Securities Documents” defined in the form of Note attached thereto as Exhibit A;

 

(b)                                 the Agency Agreement, dated as of the date hereof, among Second Lien Collateral Agent, Borrower, the Guarantors, the parties designated as the holders on the signature pages thereto or who become holders after the date thereof by executing a joinder thereto;

 

(c)                                  each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing an Obligation under the Second Lien Notes; and

 

(d)                                 any other document or instrument executed or delivered at any time in connection with Borrower’s Obligations under the Second Lien Notes, including any guaranty of or grant of Collateral to secure such Obligations, and any intercreditor or joinder agreement to which holders of Second Lien Obligations are parties, to the extent effective at the relevant time.

 

“Second Lien Notes” is defined in the Preamble.

 

“Second Lien Obligations” means all Obligations of the Grantors under:

 

(a)                                 the Second Lien Notes and the other Second Lien Note Documents;

 

(b)                                 the guaranties by the Guarantors of Borrower’s Obligations under the Second Lien Note Documents; or

 

(c)                                  any other agreement or instrument granting or providing for the perfection of a Lien securing any of the foregoing.

 

Notwithstanding any other provision hereof, the term “Second Lien Obligations” will include accrued interest, fees, costs, and other charges incurred under the Second Lien Notes and the other Second Lien Note Documents, whether incurred before or after commencement of an Insolvency Proceeding, and whether or not allowable in an Insolvency Proceeding.

 

“Second Lien Purchase Event” is defined in Section 6.1(a).

 

“Second Lien Purchasers” is defined in the Preamble.

 

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“Second Lien Standstill Period” is defined in Section 4.1(a)(2)(A).

 

“Selling Claimholders” means, (i) in the case of the purchase of Ordinary Class A Obligations by Second Lien Claimholders pursuant to Section 6.1(a) or by Class B Claimholders pursuant to Section 6.1(b), the Class A Claimholders, and (ii) in the case of the purchase of Ordinary Class B Obligations by Second Lien Claimholders pursuant to Section 6.1(a), the Class B Claimholders.

 

“Subordinated Debt Payment” means any payment or distribution by or on behalf of any Grantor, directly or indirectly, of assets or Equity Interests of such Grantor of any kind or character, whether in cash, property or securities, including on account of the purchase, redemption or other acquisition of Second Lien Obligations, or by setoff, exchange or in any other manner, for or on account of the Second Lien Obligations.

 

“Subsidiary” of a Person means a corporation or other entity a majority of whose voting stock is directly or indirectly owned or controlled by the Person. For these purposes, “voting stock” of a Person means securities or other ownership interests of the Person having general power under ordinary circumstances to vote in the election of the directors, or other persons performing similar functions, of the Person. References to a percentage or proportion of voting stock refer to the relevant percentage or proportion of the votes entitled to be cast by the voting stock.

 

“UCC” means the Uniform Commercial Code (or any similar legislation) as in effect in any applicable jurisdiction.

 

“Uncapped Class A Obligations” means Class A Obligations that are not Capped Class A Obligations.

 

“Uncapped Class B Obligations” means Class B Obligations that are not Capped Class B Obligations.

 

“Uncapped First Lien Obligations” means, together, Uncapped Class A Obligations and Uncapped Class B Obligations.

 

“Uncapped Second Lien Obligations” means Second Lien Obligations that are not Capped Second Lien Obligations.

 

1.2                               USAGES

 

Unless otherwise stated or the context clearly requires otherwise:

 

(a)                                 Agents. (1) References to Class A Representative will refer to Class A Representative acting on behalf of itself and on behalf of all of the other applicable Class A Claimholders. Actions taken by Class A Representative pursuant to this Agreement are meant to be taken on behalf of itself and the other applicable Class A Claimholders.

 

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(2)                                 References to Class B Agent will refer to Class B Agent acting on behalf of itself and on behalf of all of the other applicable Class B Claimholders. Actions taken by Class B Agent pursuant to this Agreement are meant to be taken on behalf of itself and the other applicable Class B Claimholders.

 

(3)                                 References to Second Lien Collateral Agent will refer to Second Lien Collateral Agent acting on behalf of itself and on behalf of all of the other applicable Second Lien Claimholders. Actions taken by Second Lien Collateral Agent pursuant to this Agreement are meant to be taken on behalf of itself and the other applicable Second Lien Claimholders.

 

(b)                                 Singular and plural. Definitions of terms apply equally to the singular and plural forms.

 

(c)                                  Masculine and feminine. Pronouns will include the corresponding masculine, feminine, and neuter forms.

 

(d)                                 Will and shall. “Will” shall be deemed to have the same meaning as “shall”.

 

(e)                                  Time periods. In computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until,” and “ending on” (and the like) mean “to but excluding.”

 

(f)                                   When action may be taken. Any action permitted under this Agreement may be taken at any time and from time to time.

 

(g)                                  Time of day. All indications of time of day mean New York City time.

 

(h)                                 Including. “Including” means “including, but not limited to.”

 

(i)                                     Or. “A or B” means “A or B or both.”

 

(j)                                    Statutes and regulations. References to a statute refer to the statute and all regulations promulgated under or implementing the statute as in effect at the relevant time. References to a specific provision of a statute or regulation include successor provisions. References to a Section of the Bankruptcy Code also refer to any similar provision of Bankruptcy Law.

 

(k)                                 Agreements. References to an agreement (including this Agreement) refer to the agreement as amended at the relevant time.

 

(l)                                     Governmental agencies and self-regulatory organizations. References to a governmental or quasi-governmental agency or authority or a self-regulatory organization include any successor agency, authority, or self-regulatory organization.

 

(m)                             Section references. Section references refer to Sections of this Agreement. References to numbered Sections refer to all included Sections. For example, a

 

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reference to Section 7 also refers to Sections 7.1, 7.1(a), etc. References to a Section or article in an agreement, statute, or regulation include successor and renumbered Sections and articles of that or any successor agreement, statute, or regulation.

 

(n)                                 Successors and assigns. References to a Person include the Person’s permitted successors and assigns.

 

(o)                                 Herein, etc. “Herein,” “hereof,” “hereunder,” and words of similar import refer to this Agreement in its entirety and not to any particular provision.

 

(p)                                 Assets and property. “Asset” and “property” have the same meaning and refer to both real and personal, tangible and intangible assets and property, including cash, securities, accounts, and general intangibles.

 

2.                                      LIEN PRIORITIES

 

2.1                               SENIORITY OF LIENS SECURING FIRST LIEN OBLIGATIONS

 

(a)                                 A Lien on Collateral securing any Class A Obligation will at all times be pari passu and of equal rank with a Lien on such Collateral securing any Class B Obligation.

 

(b)                                 A Lien on Collateral securing any Uncapped First Lien Obligation will at all times be senior and prior in all respects to a Lien on such Collateral securing any Second Lien Obligation.  A Lien on Collateral securing any Second Lien Obligation will at all times be junior and subordinate in all respects to a Lien on such Collateral securing any Uncapped First Lien Obligation.

 

(c)                                  A Lien on Collateral securing (x) any Capped Class A Obligation, up to but not in excess of the Class A Cap, or (y) any Capped Class B Obligation, up to but not in excess of the Class B Cap, will, in each case, at all times be senior and prior in all respects to a Lien on such Collateral securing any Second Lien Obligation.  A Lien on Collateral securing any Second Lien Obligation will at all times be junior and subordinate in all respects to a Lien on such Collateral securing (x) any Capped Class A Obligation, up to but not in excess of the Class A Cap, or (y) any Capped Class B Obligation, up to but not in excess of the Class B Cap.

 

(d)                                 The Lien on Collateral securing any Excess Class A Obligation or Excess Class B Obligation will have the priority set forth in Section 2.9.

 

(e)                                  Except as otherwise expressly provided herein, the priority of the Liens securing First Lien Obligations and the rights and obligations of the Parties will remain in full force and effect irrespective of:

 

(1)                                 how a Lien was acquired (whether by grant, possession, statute, operation of law, subrogation, or otherwise);

 

(2)                                 the time, manner, or order of the grant, attachment, or perfection of a Lien;

 

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(3)                                 any conflicting provision of the UCC or other applicable law;

 

(4)                                 any defect in, or non-perfection, setting aside, or avoidance of, a Lien or a First Lien Loan Document or a Second Lien Note Document;

 

(5)                                 the modification of a First Lien Obligation or a Second Lien Obligation;

 

(6)                                 the modification of a First Lien Loan Document or a Second Lien Note Document;

 

(7)                                 the subordination of a Lien on Collateral securing a First Lien Obligation to a Lien securing another obligation of a Grantor or other Person that is permitted under the First Lien Loan Documents as in effect on the date hereof or secures a DIP Financing deemed consented to by the Second Lien Claimholders pursuant to Section 7.1;

 

(8)                                 the exchange of a security interest in any Collateral for a security interest in other Collateral;

 

(9)                                 the commencement of an Insolvency Proceeding; or

 

(10)                          any other circumstance whatsoever, including a circumstance that might be a defense available to, or a discharge of, a Grantor in respect of a First Lien Obligation or a Second Lien Obligation or holder of such Obligation.

 

2.2                               PAYMENT SUBORDINATION

 

(a)                                 Notwithstanding anything to the contrary in the Second Lien Note Documents, and subject to Sections 2.2(b) and (c), until the Discharge of First Lien Obligations, no Grantor shall make, directly or indirectly, and no Second Lien Claimholder shall accept, any Subordinated Debt Payment, other than (1) payments of interest on the Second Lien Obligations paid in kind and not in cash, (2) reimbursement of out-of-pocket costs and expenses required to be paid by any Grantor under the Second Lien Note Documents, in each case in accordance with the terms of the Second Lien Note Documents and (3) payments of closing fees and expenses in connection with the issuance of the Second Lien Notes (the foregoing permitted payments on the Second Lien Obligations the “Permitted Subordinated Debt Payments”).

 

(b)                                 Upon the occurrence of any “event of default” or similar event under any Class A Loan Document or Class B Loan Document (any such event under any such documents, a “First Lien Default”), and until such event is cured or waived in accordance with the terms of the Class A Loan Documents or Class B Loan Documents (as applicable), no Grantor shall make, and the Second Lien Claimholders shall not accept, any Subordinated Debt Payment.  Upon such cure or waiver, the Grantors may make any Permitted Subordinated Debt Payments missed due to the application of this Section 2.2(b), the Second Lien Claimholders may receive any such Permitted Subordinated Debt Payments, and the Grantors may resume Permitted Subordinated Debt Payments under Section 2.2(a).

 

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(c)                                  No First Lien Default shall be deemed to have been waived or cured for purposes of this Section 2.2 unless and until the Borrower shall have received a written waiver or confirmation of cure from Class A Representative or Class B Agent, as applicable.

 

(d)                                 Until the Discharge of the First Lien Obligations has occurred, whether or not an Insolvency Proceeding has commenced, any payments received by the Second Lien Collateral Agent or other Second Lien Claimholders in contravention of this Section 2.2 will be:

 

(1)                                 segregated and held in trust; and

 

(2)                                 promptly paid over to a First Lien Representative, with any necessary endorsements, to be applied in accordance with this Agreement until the Discharge of First Lien Obligations has occurred.

 

2.3                               FIRST AND SECOND LIEN COLLATERAL TO BE IDENTICAL

 

(a)                                 The Parties intend that the First Lien Collateral and the Second Lien Collateral be identical.  Accordingly, subject to the other provisions of this Agreement, the Parties will cooperate:

 

(1)                                 to determine the specific items included in the First Lien Collateral and the Second Lien Collateral, the steps taken to perfect the Liens thereon, and the identity of the Persons having First Lien Obligations or Second Lien Obligations; and

 

(2)                                 to make the forms, documents, and agreements creating or evidencing the First Lien Collateral and Second Lien Collateral and the guaranties of the First Lien Obligations and the Second Lien Obligations materially the same, other than with respect to the first and second lien nature of the Liens.

 

(b)                                 Until the Discharge of First Lien Obligations, and whether or not an Insolvency Proceeding has commenced, each Grantor agrees that it will not grant, and will use its best efforts to prevent any other Person from granting, a Lien on any property:

 

(1)                                 in favor of a First Lien Claimholder to secure any First Lien Obligations unless each Grantor or such other Person grants (or offers to grant with a reasonable opportunity for the Lien to be accepted) (x) to the First Lien Representative of the other class, a pari passu Lien to secure all other First Lien Obligations, if any, and (y) to Second Lien Collateral Agent a junior Lien on such property to secure the Second Lien Obligations (however, the refusal of a First Lien Representative or Second Lien Collateral Agent to accept such Lien will not prevent a First Lien Claimholder from taking the Lien); and

 

(2)                                 in favor of a Second Lien Claimholder to secure a Second Lien Obligation unless each Grantor or such other Person grants (or offers to grant with a reasonable opportunity for the Lien to be accepted) each First Lien Representative a senior Lien on such property to secure the applicable First Lien Obligations (however, the refusal of a First Lien Representative to accept such Lien will not prevent the Second Lien Claimholder from taking the Lien).

 

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(c)                                  Subject to Section 2.1, if a Second Lien Claimholder hereafter acquires a Lien on property to secure a Second Lien Obligation where the property is not also subject to Liens securing the First Lien Obligations, then such Second Lien Claimholder will give each First Lien Representative written notice of such Lien no later than five Business Days after acquiring such Lien. If First Lien Representatives also obtain Liens on such property, or if such Second Lien Claimholder fails to provide such timely notice to any First Lien Representative, then such property will be deemed to be Collateral for all purposes hereunder.

 

2.4                               PLEDGED COLLATERAL

 

(a)                                 If a First Lien Representative has any Collateral in its possession or control (such Collateral being the “Pledged Collateral”), then, subject to Section 2.1 and the other provisions of this Section 2.4, such First Lien Representative will possess or control the Pledged Collateral as gratuitous bailee and/or gratuitous agent for perfection for the benefit of the other First Lien Representative and Second Lien Collateral Agent as secured party, so as to satisfy the requirements of Sections 8-106(d)(3), 8-301(a)(2), and 9-313(c) of the UCC.  In this Section 2.4, “control” has the meaning given that term in Sections 8-106 and 9-314 of the UCC.

 

(b)                                 A First Lien Representative will have no obligation to any other First Lien Claimholder or Second Lien Claimholder to ensure that any Pledged Collateral is genuine or owned by any of the Grantors or to preserve rights or benefits of any Person except as expressly set forth in this Section 2.4.  The duties or responsibilities of First Lien Representatives under this Section 2.4 will be limited solely to possessing or controlling the Pledged Collateral as bailee and/or agent for perfection in accordance with this Section 2.4 and delivering the Pledged Collateral upon a Discharge of Class A Obligations to the extent of Ordinary Class A Obligations or Discharge of Class B Obligations to the extent of Ordinary Class B Obligations (as applicable), as provided in Section 2.4(d) or (h) (as applicable).

 

(c)                                  Second Lien Collateral Agent hereby waives and releases each First Lien Representative from all claims and liabilities arising out of such First Lien Representative’s role under this Section 2.4 as bailee and/or agent with respect to the Pledged Collateral, except for claims arising by reason of such First Lien Representative’s gross negligence or willful misconduct.

 

(d)                                 Upon the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, Class A Representative agrees that it will deliver or transfer control of any Pledged Collateral in its possession or control, together with any necessary endorsements (which endorsements will be without recourse and without any representation or warranty):

 

(1)                                 first, to Class B Agent if the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations has not occurred;

 

(2)                                 second, to Second Lien Collateral Agent if the Discharge of Second Lien Obligations to the extent of Ordinary Second Lien Obligations has not occurred; and

 

(3)                                 third, to Borrower;

 

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and will take any other action reasonably requested by the Class B Agent or, if no Ordinary Class B Obligations remain outstanding, Second Lien Collateral Agent (at the expense of Borrower or, upon default by Borrower in payment or reimbursement thereof, Class B Agent or Second Lien Collateral Agent, as applicable), in connection with such Person obtaining a first-priority, or second-priority, as applicable, interest in the Pledged Collateral.

 

(e)                                  If Second Lien Collateral Agent has any Pledged Collateral in its possession or control, then, subject to Section 2.1 and the other provisions of this Section 2.4, Second Lien Collateral Agent agrees that it will possess or control the Pledged Collateral as gratuitous bailee and/or gratuitous agent for perfection for the benefit of First Lien Representatives as secured party, so as to satisfy the requirements of Sections 8-106(d)(3), 8-301(a)(2), and 9-313(c) of the UCC.

 

(f)                                   Second Lien Collateral Agent will have no obligation to any First Lien Representative to ensure that any Pledged Collateral is genuine or owned by any of the Grantors or to preserve rights or benefits of any Person except as expressly set forth in this Section 2.4.  The duties or responsibilities of Second Lien Collateral Agent under this Section 2.4 will be limited solely to possessing or controlling the Pledged Collateral as bailee and/or agent for perfection in accordance with this Section 2.4 and delivering the Pledged Collateral upon a Discharge of Second Lien Obligations to the extent of Ordinary Second Lien Obligations, as provided in Section 2.4(i).

 

(g)                                  Each First Lien Representative hereby waives and releases Second Lien Collateral Agent from all claims and liabilities arising out of Second Lien Collateral Agent’s role under this Section 2.4 as bailee and/or agent for perfection with respect to the Pledged Collateral, except for claims arising by reason of Second Lien Collateral Agent’s gross negligence or willful misconduct.

 

(h)                                 Upon the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations, Class B Agent agrees that it will deliver or transfer control of any Pledged Collateral in its possession or control, together with any necessary endorsements (which endorsements will be without recourse and without any representation or warranty);

 

(1)                                 first, to Class A Representative if the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations has not occurred;

 

(2)                                 second, to Second Lien Collateral Agent if the Discharge of Second Lien Obligations to the extent of Ordinary Second Lien Obligations has not occurred; and

 

(3)                                 third, to Borrower;

 

and will take any other action reasonably requested by Class A Representative or, if no Ordinary Class A Obligations remain outstanding, Second Lien Collateral Agent (in each case, at the expense of the Borrower or, upon default by the Borrower in payment or reimbursement thereof, Class A Representative or Second Lien Collateral Agent, as applicable), in connection with such Person obtaining a first-priority, or second-priority, as applicable, interest in the Pledged Collateral.

 

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(i)                                     Upon the Discharge of Second Lien Obligations to the extent of Ordinary Second Lien Obligations, Second Lien Collateral Agent agrees that it will deliver or transfer control of any Pledged Collateral in its possession or control, together with any necessary endorsements (which endorsements will be without recourse and without any representation or warranty);

 

(1)                                 first, to Class A Representative if the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations has not occurred;

 

(2)                                 second, to Class B Agent if the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations has not occurred; and

 

(3)                                 third, to Borrower;

 

and will take any other action reasonably requested by Class A Representative or, if no Ordinary Class A Obligations remain outstanding, Class B Agent (in each case, at the expense of the Borrower or, upon default by the Borrower in payment or reimbursement thereof, Class A Representative or Class B Agent, as applicable), in connection with such Person obtaining a first-priority interest in the Pledged Collateral.

 

2.5                               LIMITATIONS ON DUTIES AND OBLIGATIONS

 

(a)                                 (1) First Lien Representatives will be solely responsible for perfecting and maintaining the perfection of their Liens on their First Lien Collateral, and (2) except for First Lien Representatives’ obligations under Section 2.4, Second Lien Collateral Agent will be solely responsible for perfecting and maintaining the perfection of its Liens on the Second Lien Collateral.

 

(b)                                 This Agreement does not impose on any First Lien Representative or Second Lien Collateral Agent any obligations in respect of the disposition of Proceeds of foreclosure on any Collateral that would conflict with a prior perfected claim in favor of another Person, an order or decree of a court or other Governmental Authority, or applicable law.

 

(c)                                  Except for obligations expressly provided for herein, the Control Agent and First Lien Claimholders will have no liability to any other First Lien Claimholder or Second Lien Claimholder for any action by a First Lien Claimholder with respect to any First Lien Obligations or Collateral, including:

 

(1)                                 the maintenance, preservation, or collection of any First Lien Obligations or any Collateral; and

 

(2)                                 the foreclosure upon, or the sale, liquidation, maintenance, preservation, or other disposition of, any Collateral.

 

(d)                                 No First Lien Representative will have, by reason of this Agreement or any other document, a fiduciary duty to any other First Lien Representative, any First Lien Claimholder, the Second Lien Collateral Agent or any Second Lien Claimholder.

 

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(e)                                  No First Lien Representative will have by reason of this Agreement or any other document a fiduciary relationship with any other First Lien Representative or Second Lien Collateral Agent. The parties recognize that the interests of each First Lien Representative and Second Lien Collateral Agent may differ, and each First Lien Representative may act in its own interest without taking into account the interests of any Second Lien Claimholder.

 

2.6                               PROHIBITION ON CONTESTING LIENS; NO MARSHALING

 

(a)                                 Each First Lien Representative agrees that it will not contest in any proceeding (including an Insolvency Proceeding) the validity, enforceability, perfection, or priority of any Lien securing another First Lien Obligation or a Second Lien Obligation, but nothing in this Section 2.6 will impair the rights of any First Lien Claimholder to enforce this Agreement, including the priority of the Liens securing the First Lien Obligations or the provisions for exercise of remedies.

 

(b)                                 Second Lien Collateral Agent agrees that it will not contest in any proceeding (including an Insolvency Proceeding) the validity, enforceability, perfection, or priority of (i) any Lien securing (x) any Capped Class A Obligation, up to but not in excess of the Class A Cap, or (y) any Capped Class B Obligation, up to but not in excess of the Class B Cap, or (ii) any Lien securing any Uncapped First Lien Obligations, but nothing in this Section 2.6 will impair the rights of any Second Lien Claimholder to enforce this Agreement, including the priority of the Liens securing the Second Lien Obligations or the provisions for exercise of remedies.

 

(c)                                  Until the Discharge of First Lien Obligations, Second Lien Collateral Agent agrees that it will not assert any marshaling, appraisal, valuation, or other similar right that may otherwise be available to a junior secured creditor.

 

2.7                               CONFIRMATION OF SUBORDINATION IN SECOND LIEN COLLATERAL DOCUMENTS

 

Borrower will cause each Second Lien Collateral Document to include the following language (or language to similar effect approved by First Lien Representatives) and any other language a First Lien Representative reasonably requests to reflect the subordination of the Lien:

 

“Notwithstanding anything herein to the contrary, the Lien and security interest granted to Second Lien Collateral Agent pursuant to this Agreement and the exercise of any right or remedy by Second Lien Collateral Agent hereunder are subject to the provisions of the Intercreditor Agreement, dated August 28, 2015 (as amended, restated, supplemented, or otherwise modified from time to time, the “Intercreditor Agreement”), among PERCEPTIVE CREDIT OPPORTUNITIES FUND, LP, as Class A Representative, MACQUARIE US TRADING LLC, as Class B Agent, Cortland Capital Market Services LLC, as Second Lien Collateral Agent, PERCEPTIVE CREDIT OPPORTUNITIES FUND, LP, as Control Agent, and the Grantors (as defined therein) from time to time party thereto and other

 

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persons party or that may become party thereto from time to time. If there is a conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement will control.”

 

2.8                               RELEASE OF LIENS OR GUARANTIES

 

(a)                                 If any First Lien Representative releases a Lien on Collateral, or releases a Grantor from its Obligations under its guaranty of any First Lien Obligations which guaranty is secured by a Lien on Collateral, in connection with:

 

(1)                                 an Enforcement Action; or

 

(2)                                 a Disposition of any Collateral under any First Lien Loan Document other than pursuant to an Enforcement Action (whether or not there is an event of default under any First Lien Loan Document);

 

then any Lien of Second Lien Collateral Agent on such Collateral, and the Obligations of the Grantor under such guaranty of the Second Lien Obligations, will be, except as otherwise provided below, automatically and simultaneously released to the same extent, and Second Lien Collateral Agent agrees that it will promptly execute and deliver to First Lien Representatives or the Grantor such termination statements, releases, and other documents as a First Lien Representative or the Grantor requests to effectively confirm the release.

 

(b)                                 Second Lien Collateral Agent hereby appoints each First Lien Representative and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full power and authority in the place and stead of Second Lien Collateral Agent or in such First Lien Representative’s own name, in such First Lien Representative’s discretion to take any action and to execute any and all documents and instruments that may be reasonable and appropriate for the limited purpose of carrying out the terms of this Section 2.8, including any endorsements or other instruments of transfer or release. This appointment is coupled with an interest and is irrevocable until the Discharge of First Lien Obligations or such time as this Agreement is terminated in accordance with its terms.  Until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, the foregoing power of attorney shall be exercisable only by Class A Representative and Class B Agent agrees that, notwithstanding the foregoing, Class B Agent will not exercise any such rights until Discharge of Class A Obligations to the extent of Ordinary Class A Obligations.

 

(c)                                  Until the Discharge of First Lien Obligations, to the extent that a First Lien Representative:

 

(1)                                 releases a Lien on Collateral or a Grantor from its Obligations under its guaranty, which Lien or guaranty is reinstated; or

 

(2)                                 obtains a new Lien or additional guaranty from a Grantor;

 

then the First Lien Representative of the other class and Second Lien Collateral Agent will be granted a Lien on such Collateral and an additional guaranty, as the case may be, subject to Section 2.1.

 

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2.9                               SUBORDINATION OF LIENS SECURING EXCESS CLASS A OBLIGATIONS OR EXCESS CLASS B OBLIGATIONS

 

(a)                                 All Liens securing Second Lien Obligations up to but not exceeding the Second Lien Cap,  will be senior in all respects and prior to any Lien on the Collateral securing any Excess Class A Obligations or Excess Class B Obligations (in each case, only with respect to such excess amounts).  All Liens securing any Excess Class A Obligations or Excess Class B Obligations will be junior and subordinate in all respects to any Lien securing a Second Lien Obligation up to but not exceeding the Second Lien Cap.

 

(b)                                 All Liens securing Excess Class A Obligations or Excess Class B Obligations will be senior in all respects and prior to any Lien on the Collateral securing any Excess Second Lien Obligations.  All Liens securing any Excess Second Lien Obligations will be junior and subordinate in all respects and prior to any Lien securing Excess Class A Obligations or Excess Class B Obligations.

 

(c)                                  Nothing in this Section 2.9 will waive any default or event of default under the Second Lien Note Documents resulting from:

 

(1)                                 the incurrence of Excess First Lien Obligations; or

 

(2)                                 the grant of Liens under any First Lien Collateral Documents securing any such excess amounts;

 

or the right of Second Lien Claimholders to exercise any rights and remedies under the Second Lien Note Documents as a result thereof.

 

3.                                      MODIFICATION OF OBLIGATIONS

 

3.1                               PERMITTED MODIFICATIONS

 

Except as otherwise expressly provided in this Section 3:

 

(a)                                 the First Lien Obligations may be modified in accordance with their terms, and their aggregate amount increased or Refinanced, without notice to or consent by any Second Lien Claimholder; provided that the holders of any Refinancing Indebtedness (or their agent) bind themselves in a writing addressed to Second Lien Claimholders to the terms of this Agreement; and

 

(b)                                 the Second Lien Obligations may be modified in accordance with their terms, and their aggregate amount increased or Refinanced, without notice to or consent by any First Lien Claimholder; provided that the holders of any Refinancing Indebtedness (or their agent) bind themselves in a writing addressed to First Lien Claimholders to the terms of this Agreement.

 

However, no such modification may contravene the provisions of this Agreement, including without limitation Section 2.1, 2.2 or 2.6.

 

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3.2                               MODIFICATIONS REQUIRING CONSENT

 

Notwithstanding the preceding Section 3.1 and except as otherwise permitted as DIP Financing provided by a Class A Lender or Class B Lender and deemed consented to by the Second Lien Purchasers pursuant to Section 7.1, in the case of (x) any Modification to or Refinancing of any First Lien Obligations, both First Lien Representative of the other class and Second Lien Collateral Agent must consent thereto, and (y) any Modification to or Refinancing of any Second Lien Obligations, First Lien Representatives must consent thereto, in each case, if such Modification or refinancing:

 

(a)                                 increases the aggregate principal amount of loans, letters of credit, bankers acceptances, bonds, debentures, notes, or similar instruments or other similar extensions of credit, beyond:

 

(1)                                 for the Class A Obligations, the Class A Cap;

 

(2)                                 for the Class B Obligations, the Class B Cap; or

 

(3)                                 for the Second Lien Obligations, the Second Lien Cap;

 

(b)                                 increases:

 

(1)                                 the interest rate or yield, including by increasing the “applicable margin” or similar component of the interest rate (including to provide for additional compounded or PIK interest), through original issue discount or by modifying the method of computing interest; or

 

(2)                                 a letter of credit, commitment, facility, utilization, upfront, waiver, consent or similar fee so that the combined interest rate and fees are increased by more than 2% per annum in the aggregate at any level of pricing, but excluding increases resulting from:

 

(A)                               increases in an underlying reference rate not caused by a Modification or Refinancing of such Obligations;

 

(B)                               accrual of interest at the “default rate” set forth in the loan documents as of the date hereof or, for a Refinancing, a rate that corresponds to the default rate (but not in excess of any such default rate in effect as of the date hereof); or

 

(C)                               application of a pricing grid set forth in the loan documents at the date hereof;

 

(c)                                  for the Second Lien Obligations:

 

(1)                                 modifies covenants, defaults, or events of default to make them materially more restrictive as to any Grantor, except for modifications to match changes made to any First Lien Obligations so as to preserve, on substantially similar economic terms, any differential that exists on the date hereof between the covenants, defaults, or events of default in

 

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any First Lien Loan Document and the covenants, defaults, or events of default in the Second Lien Note Document;

 

(2)                                 accelerates any date upon which a scheduled payment of principal or interest is due, or otherwise decreases the weighted average life to maturity;

 

(3)                                 changes a prepayment, redemption, or defeasance provision so as to require a new payment or accelerate an existing payment Obligation;

 

(4)                                 changes a term that would result in a default under any First Lien Loan Document;

 

(5)                                 increases the Obligations of a Grantor; or

 

(6)                                 confers additional rights on a Second Lien Claimholder in a manner materially adverse to a First Lien Claimholder.

 

3.3                               PARALLEL MODIFICATIONS TO SECOND LIEN OBLIGATIONS

 

Subject to Section 3.2, if a First Lien Claimholder and a Grantor Modify a First Lien Collateral Document, the modification will apply automatically to any comparable provision of a Second Lien Collateral Document in which the Grantor grants a Lien on the same Collateral, without the consent of any Second Lien Claimholder and without any action by Second Lien Collateral Agent or any Grantor; provided that no such Modification will:

 

(a)                                 remove or release Second Lien Collateral, except to the extent that (1) the release is permitted or required by Section 2.8 and (2) there is a corresponding release of First Lien Collateral of such First Lien Claimholder;

 

(b)                                 impose duties on Second Lien Collateral Agent without its consent; or

 

(c)                                  permit other Liens on the Collateral not permitted under the terms of the Second Lien Note Documents or Section 7.

 

3.4                               NOTICE OF MODIFICATIONS

 

A First Lien Representative or Second Lien Collateral Agent will notify First Lien Representative of the other class or Second Lien Collateral Agent, as applicable, of each Modification to the Class A Obligations, Class B Obligations or Second Lien Obligations, as applicable, within ten Business Days after the Modification’s effective date and, if requested by the notified party, promptly provide copies of any documents executed and delivered in connection with the Modification.

 

Notice and copies will not be required to the extent Borrower or a Grantor has provided the same to the party to be notified.

 

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4.                                      ENFORCEMENT

 

4.1                               WHO MAY EXERCISE REMEDIES

 

(a)                                 (1)                                 As between First Lien Claimholders and Second Lien Claimholders, subject to Sections 4.1(a)(2), 4.1(b)(1) and 4.1(c), until the Discharge of Ordinary First Lien Obligations, First Lien Claimholders will have the exclusive right to:

 

(A)                               commence and maintain an Enforcement Action (including the rights to set off or credit bid their debt);

 

(B)                               subject to Section 2.8, make determinations regarding the release or disposition of, or restrictions with respect to, the Collateral; and

 

(C)                               otherwise enforce the rights and remedies of a secured creditor under the UCC and the Bankruptcy Laws of any applicable jurisdiction, so long as (x) any Proceeds received by Class A Claimholders in the aggregate in excess of those necessary to achieve Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, and (y) any Proceeds received by Class B Claimholders in the aggregate in excess of those necessary to achieve Discharge of Class B Obligations to the extent of Ordinary Class B Obligations, in each case, are distributed in accordance with Section 5.1, except as otherwise required pursuant to the UCC and applicable law, subject to the relative priorities described in Section 2.1.

 

(2)                                 Notwithstanding Section 4.1(a)(1),  Second Lien Claimholders may commence an Enforcement Action or exercise rights with respect to a Lien securing a Second Lien Obligation, if:

 

(A)                               180 days have elapsed since Second Lien Collateral Agent notified First Lien Representatives that the Second Lien Obligations were due in full as a result of acceleration or otherwise (such 180 day period, the “Second Lien Standstill Period”);

 

(B)                               First Lien Claimholders are not then diligently pursuing an Enforcement Action with respect to all or a material portion of the Collateral or diligently attempting to vacate any stay or prohibition against such exercise;

 

(C)                               any acceleration of the Second Lien Obligations has not been rescinded; and

 

(D)                               no Grantor is then a debtor in an Insolvency Proceeding.

 

(b)                                 (1)                                 As between Class A Claimholders and Class B Claimholders, subject to Sections 4.1(b)(2) and 4.1(c), until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, Class A Claimholders, acting through the Class A Representative, will have the exclusive right to:

 

(A)                               commence and maintain an Enforcement Action (including the rights to set off or credit bid their debt);

 

(B)                               make determinations regarding the release or disposition of, or restrictions with respect to, the Collateral, or any matters covered pursuant to Section 7 with

 

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respect to any Insolvency Proceedings to the extent such determination is to be made by a First Lien Representative;

 

(C)                               in accordance with Section 5.1, make determinations regarding the application of proceeds of Collateral; and

 

(D)                               otherwise enforce the rights and remedies of a secured creditor under the UCC and the Bankruptcy Laws of any applicable jurisdiction, so long as any Proceeds received by Class A Claimholders in the aggregate in excess of those necessary to achieve Discharge of Class A Obligations to the extent of Ordinary Class A Obligations are distributed in accordance with Section 5.1, except as otherwise required pursuant to the UCC and applicable law, subject to the relative priorities described in Section 2.1.

 

(2)                                 Notwithstanding Section 4.1(b)(1), Class B Claimholders may commence an Enforcement Action or exercise rights with respect to a Lien securing a Class B Obligation, if:

 

(A)                               90 days have elapsed since Class B Agent notified the Class A Representative that the Class B Obligations were due in full as a result of acceleration or otherwise (such 90 day period, the “Class B Standstill Period”);

 

(B)                               Class A Claimholders are not then diligently pursuing an Enforcement Action with respect to all or a material portion of the Collateral or diligently attempting to vacate any stay or prohibition against such exercise;

 

(C)                               any acceleration of the Class B Obligations has not been rescinded; and

 

(D)                               no Grantor is then a debtor in an Insolvency Proceeding.

 

(c)                                  Notwithstanding Sections 4.1(a) and (b), but subject to Section 2.3, a Class B Claimholder or Second Lien Claimholder may:

 

(1)                                 file a proof of claim or statement of interest, vote on a plan of reorganization (including a vote to accept or reject a plan of partial or complete liquidation, reorganization, arrangement, composition, or extension), and make other filings, arguments, and motions, with respect to its Class B Obligations or Second Lien Obligations and the Collateral in any Insolvency Proceeding commenced by or against any Grantor, in each case in accordance with this Agreement;

 

(2)                                 take action to create, perfect, preserve, or protect its Lien on the Collateral, so long as such actions, in the case of Second Lien Claimholders, provide for, and are not adverse to, the priority status in accordance with this Agreement of Liens on the Collateral securing the Class A Obligations or Class B Obligations, or Class A Claimholders’ rights to exercise remedies, or, in the case of Class B Claimholders, not adverse to the Class A Claimholders’ right to exercise remedies;

 

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(3)                                 file necessary pleadings in opposition to a claim objecting to or otherwise seeking the disallowance of its Class B Obligations or Second Lien Obligations or a Lien securing its Class B Obligations or Second Lien Obligations, as the case may be;

 

(4)                                 join (but not exercise any control over) a judicial foreclosure or Lien enforcement proceeding with respect to the Collateral initiated by Class A Representative or Class B Representative, to the extent that such action could not reasonably be expected to interfere materially with the Enforcement Action, but no Class B Claimholder or Second Lien Claimholder may receive any Proceeds thereof unless expressly permitted herein; and

 

(5)                                 bid for or purchase Collateral at any public, private, or judicial foreclosure upon such Collateral initiated by any Class A Claimholder, or any sale of Collateral during an Insolvency Proceeding; provided that such bid may not include a “credit bid” in respect of any Class B Obligations or Second Lien Obligations unless the proceeds of such bid are otherwise sufficient to cause the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations and such bid may not include a “credit bid” in respect of any Second Lien Obligations unless the proceeds of such bid otherwise are sufficient to cause the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations.

 

(d)                                 Except as otherwise expressly set forth in this Section 4.1, Class B Claimholders and Second Lien Claimholders may exercise any rights and remedies that could be exercised by an unsecured creditor, other than initiating or joining in an involuntary case or proceeding under the Bankruptcy Code with respect to a Grantor, against a Grantor that has guaranteed or granted Liens to secure the Class B Obligations or Second Lien Obligations in accordance with the terms of the applicable Class B Loan Documents or Second Lien Note Documents and applicable law; provided that any judgment Lien obtained by a Second Lien Claimholder as a result of such exercise of rights will be included in the Class B Collateral or Second Lien Collateral, as applicable, and be subject to this Agreement for all purposes (including in relation to the Class A Obligations).

 

4.2                               MANNER OF EXERCISE

 

(a)                                 A First Lien Claimholder may take any Enforcement Action not prohibited by Section 4.1:

 

(1)                                 in any manner in its sole discretion in compliance with applicable law;

 

(2)                                 without consultation with or the consent of any Second Lien Claimholder;

 

(3)                                 regardless of whether an Insolvency Proceeding has been commenced;

 

(4)                                 regardless of any provision of any Second Lien Note Document (other than this Agreement); and

 

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(5)                                 regardless of whether such exercise is adverse to the interest of any Second Lien Claimholder.

 

(b)                                 The rights of a First Lien Claimholder or the Control Agent to enforce any provision of this Agreement or any First Lien Loan Document will not be prejudiced or impaired by:

 

(1)                                 any act or failure to act of any Grantor, any other First Lien Claimholder, or the Control Agent; or

 

(2)                                 noncompliance by any Person other than such First Lien Claimholder with any provision of this Agreement, any First Lien Loan Document, or any Second Lien Note Document, regardless of any knowledge thereof that any First Lien Claimholder or the Control Agent may have or otherwise be charged with.

 

(c)                                  No Second Lien Claimholder will contest, protest, object to, or take any action to hinder, and each waives any and all claims with respect to, any Enforcement Action by a First Lien Claimholder in compliance with this Agreement and applicable law.

 

4.3                               SPECIFIC PERFORMANCE

 

First Lien Representatives and Second Lien Collateral Agent may each demand specific performance of this Agreement, and each waives any defense based on the adequacy of a remedy at law and any other defense that might be asserted to bar the remedy of specific performance in any action brought by any other party hereto.

 

4.4                               NOTICE OF EXERCISE

 

Each party hereto will provide reasonable prior notice to the others of its initial material Enforcement Action.

 

5.                                      PAYMENTS

 

5.1                               APPLICATION OF PROCEEDS

 

Until the Discharge of First Lien Obligations and the Discharge of Second Lien Obligations, and regardless of whether an Insolvency Proceeding has been commenced, Collateral or Proceeds received in connection with an Enforcement Action or subject to Section 7.7, received in connection with any Insolvency Proceeding involving a Grantor, will be applied:

 

(a)                                 first, to the payment in full or cash collateralization of all Ordinary Class A Obligations;

 

(b)                                 next, to the payment in full of all Ordinary Class B Obligations;

 

(c)                                  next, to the payment in full of the Second Lien Obligations that are not Excess Second Lien Obligations;

 

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(d)                                 next, to the payment in full of any Excess Class A Obligations;

 

(e)                                  next, to the payment in full of any Excess Class B Obligations;

 

(f)                                   next, to the payment in full of any Excess Second Lien Obligations; and

 

(g)                                  next, to the applicable Grantor or as otherwise required by applicable law;

 

in each case as specified in the applicable First Lien Documents or the Second Lien Documents, or as otherwise determined by the First Lien Claimholders or the Second Lien Claimholders, as applicable.

 

Notwithstanding the foregoing, until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, any non-cash Collateral or non-cash Proceeds will be held by Class A Representative as Collateral for such  Ordinary Class A Obligations unless the failure to apply such amounts as set forth above would be commercially unreasonable, and after the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, any non-cash Collateral or non-cash Proceeds will be held by Class B Agent as Collateral for such  Ordinary Class B Obligations unless the failure to apply such amounts as set forth above would be commercially unreasonable.

 

5.2                               INSURANCE

 

(a)                                 First Lien Representatives and Second Lien Collateral Agent will be named as additional insureds and/or loss payees, as applicable, under any insurance policies maintained by any Grantor.

 

(b)                                 Until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, and subject to the rights of the Grantors under the Class A Loan Documents:

 

(1)                                 Class A Representative will have the exclusive right to adjust settlement for any losses covered by an insurance policy covering the Collateral, and to approve an award granted in a condemnation or similar proceeding (or a deed in lieu of condemnation) affecting the Collateral; and

 

(2)                                 all Proceeds of such policy, award, or deed will be applied in the order provided in Section 5.1 and thereafter, if no Second Lien Obligations are outstanding, to the payment to the owner of the subject property, such other Person as may be entitled thereto, or as a court of competent jurisdiction may otherwise direct.

 

(c)                                  During the period after the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations but before the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations, and subject to the rights of the Grantors under the Class B Loan Documents:

 

(1)                                 Class B Agent will have the exclusive right to adjust settlement for any losses covered by an insurance policy covering the Collateral, and to approve an award

 

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granted in a condemnation or similar proceeding (or a deed in lieu of condemnation) affecting the Collateral; and

 

(2)                                 all Proceeds of such policy, award, or deed will be applied in the order provided in Section 5.1 and thereafter, if no Second Lien Obligations are outstanding, to the payment to the owner of the subject property, such other Person as may be entitled thereto, or as a court of competent jurisdiction may otherwise direct.

 

5.3                               PAYMENT TURNOVER

 

(a)                                 Until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations, whether or not an Insolvency Proceeding has commenced, Collateral or Proceeds (including insurance proceeds or property or Proceeds subject to Liens referred to in Section 2.3(d)) received by a Class B Claimholder or Second Lien Claimholder in connection with an Enforcement Action or, subject to Section 7.7, received in connection with any Insolvency Proceeding, will be:

 

(1)                                 segregated and held in trust; and

 

(2)                                 promptly paid over to Class A Representative in the form received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. Class A Representative is authorized to make such endorsements as agent for the Class B Claimholders and Second Lien Claimholders. This authorization is coupled with an interest and is irrevocable until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations.

 

(b)                                 During the period after the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations but before the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations, whether or not an Insolvency Proceeding has commenced, Collateral or Proceeds (including insurance proceeds or property or Proceeds subject to Liens referred to in Section 2.3(d)) received by a Class A Claimholder with respect to Excess Class A Obligations or a Second Lien Claimholder in connection with an Enforcement Action or, subject to Section 7.7, received in connection with any Insolvency Proceeding, will be:

 

(1)                                 segregated and held in trust; and

 

(2)                                 promptly paid over to Class B Agent in the form received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. Class B Agent is authorized to make such endorsements as agent for the Class B Claimholders and Second Lien Claimholders. This authorization is coupled with an interest and is irrevocable until the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations.

 

5.4                               REFINANCING AFTER DISCHARGE OF FIRST LIEN OBLIGATIONS

 

Subject to the restrictions in Section 3.2, if, after the Discharge of Class A Obligations or Discharge of Class B Obligations, Borrower issues or incurs Refinancing of such First Lien Obligations that is permitted to be incurred under the Second Lien Note Documents, then the applicable First Lien Obligations will automatically be deemed not to have been

 

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discharged for all purposes of this Agreement (except for actions taken as a result of the initial applicable Discharge of First Lien Obligations). Upon Second Lien Collateral Agent’s receipt of a notice stating that Borrower has entered into a new First Lien Loan Document and identifying the new Class A Representative or new Class B Agent (the “New Agent”):

 

(a)                                 the Obligations under such Refinancing indebtedness automatically will be treated as First Lien Obligations for all purposes of this Agreement, including for purposes of the Lien priorities and rights in respect of Collateral set forth herein;

 

(b)                                 the New Agent under such new First Lien Loan Documents will be treated as Class A Representative or Class B Agent (as applicable), for all purposes of this Agreement;

 

(c)                                  Second Lien Collateral Agent agrees that it will promptly:

 

(1)                                 enter into such documents and agreements (including amendments or supplements to this Agreement) as Borrower or the New Agent reasonably requests to provide to the New Agent the rights contemplated hereby, in each case consistent in all material respects with the terms of this Agreement;

 

(2)                                 deliver to the New Agent any Pledged Collateral held by it together with any necessary endorsements (or otherwise allow the New Agent to obtain control of such Pledged Collateral); and

 

(d)                                 the New Agent will promptly agree in a writing addressed to Second Lien Collateral Agent to be bound by the terms of this Agreement.

 

If any Obligations under any new applicable First Lien Loan Documents are secured by Collateral that does not also secure First Lien Obligations of the other class or any Second Lien Obligations, then the Grantors will cause the First Lien Obligations of the other class to be secured at such time by a pari passu Lien on such Collateral, and cause such Second Lien Obligations to be secured at such time by a second priority Lien on such Collateral, in each case, to the same extent provided in the applicable First Lien Collateral Documents and this Agreement.

 

6.                                      PURCHASE OF FIRST LIEN OBLIGATIONS BY SECOND LIEN CLAIMHOLDERS

 

6.1                               PURCHASE RIGHT

 

(a)                                 If there is:

 

(1)                                 (x) an acceleration of the Class A Obligations in accordance with the Class A Credit Agreement or (y) an acceleration of the Class B Obligations in accordance with the Class B Credit Agreement;

 

(2)                                 (x) a payment default under the Class A Credit Agreement that is not cured, or waived by Class A Claimholders, within sixty days of its occurrence, or (y) a payment default under the Class B Credit Agreement that is not cured, or waived by Class B Claimholders, within sixty days of its occurrence; or

 

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(3)                                 the commencement of an Insolvency Proceeding,

 

(each a “Second Lien Purchase Event”), then Second Lien Claimholders may purchase all, but not less than all, of (x) the Ordinary Class A Obligations or (y) the Ordinary Class A Obligations and the Ordinary Class B Obligations.  Such purchase will:

 

(A)                               include all Capped Class A Obligations (and Capped Class B Obligations, if applicable) outstanding at the time of purchase up to but not in excess of the Class A Cap (and Class B Cap, respectively, if applicable), plus all principal of, and all accrued and unpaid interest, fees, and expenses in respect of, all Uncapped Class A Obligations (and Uncapped Class B Obligations, if applicable);

 

(B)                               be made pursuant to an Assignment and Acceptance (as such term is defined in the Purchased Credit Agreement), whereby such Second Lien Claimholders will assume all funding commitments and Obligations of the Selling Claimholders under the Purchased Loan Documents; and

 

(C)                               otherwise be subject to the terms and conditions of this Section 6.

 

(b)                                 If there is:

 

(1)                                 an acceleration of the Class A Obligations in accordance with the Class A Credit Agreement;

 

(2)                                 a payment default under the Class A Credit Agreement that is not cured, or waived by Class A Claimholders, within sixty days of its occurrence; or

 

(3)                                 the commencement of an Insolvency Proceeding,

 

(each a “Class B Purchase Event” and, together with any Second Lien Purchase Event, “Purchase Events”), then Class B Claimholders may purchase all, but not less than all, of the Ordinary Class A Obligations.  Such purchase will:

 

(A)                               include all Capped Class A Obligations outstanding at the time of purchase up to but not in excess of the Class A Cap, plus all principal of, and all accrued and unpaid interest, fees, and expenses in respect of, all Uncapped Class A Obligations;

 

(B)                               be made pursuant to an Assignment and Acceptance (as such term is defined in the Class A Credit Agreement, whereby such Class B Claimholders will assume all funding commitments and Obligations of Class A Claimholders under the Class A Loan Documents; and

 

(C)                               otherwise be subject to the terms and conditions of this Section 6.

 

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(c)                                  Each Selling Claimholder will retain all rights to indemnification provided in the relevant Purchased Loan Documents for all claims and other amounts relating to periods prior to the purchase of the Purchased Obligations pursuant to this Section 6.

 

6.2                               PURCHASE NOTICE

 

(a)                                 Purchasing Creditors will deliver a Purchase Notice to Class A Representative and, in the case of any purchase of First Lien Obligations pursuant to this Section 6 by Second Lien Claimholders, the Class B Agent, that:

 

(1)                                 is signed by the Purchasing Creditors;

 

(2)                                 states that it is a Purchase Notice under this Section 6;

 

(3)                                 states that each Purchasing Creditor is irrevocably electing to purchase, in accordance with this Section 6, the percentage of all of the Purchased Obligations stated in the Purchase Notice for that Purchasing Creditor, which percentages must aggregate exactly 100% for all Purchasing Creditors;

 

(4)                                 represents and warrants that the Purchase Notice is in conformity with, (x) if the Purchasing Creditors are Second Lien Claimholders, the Second Lien Note Documents and any other binding agreement among Second Lien Claimholders, and (y) if the Purchasing Creditors are Class B Claimholders, the Class B Loan Documents and any other binding agreement among Class B Claimholders; and

 

(5)                                 designates a date on which the purchase will occur that is (x) in the case of a purchase of only the Ordinary Class A Obligations by the Second Lien Claimholders pursuant to Section 6.1(a), fifteen Business Days after Class A Representative’s and Class B Representative’s receipt of the Purchase Notice, (y) in all other cases, subject to modification of such date by Section 6.2(b)(3) below, at least five but not more than fifteen Business Days after Class A Representative’s and/or Class B Agent’s receipt of the Purchase Notice, and (z) subject to modification of such date by Section 6.2(b)(3) below, not more than sixty days after the Purchase Event (such complying date, the “Purchase Date”).

 

A Purchase Notice will be ineffective if it is received by Class A Representative and/or Class B Agent (as applicable) after the occurrence giving rise to the Purchase Event is waived, cured, or otherwise ceases to exist.

 

(b)                                 Upon Class A Representative’s and/or Class B Agent’s receipt of an effective Purchase Notice conforming to this Section 6.2, the Purchasing Creditors will be irrevocably obligated to purchase, and the Selling Claimholders will be irrevocably obligated to sell, the Purchased Obligations in accordance with and subject to this Section 6.  Notwithstanding the foregoing, (1) to the extent that the Class B Claimholders have delivered a valid Purchase Notice pursuant to Section 6.1(b), the Second Lien Claimholders may not deliver a Purchase Notice pursuant to Section 6.1(a) requesting the purchase of only the Ordinary Class A Obligations, (2) to the extent that Second Lien Claimholders have delivered a valid Purchase Notice pursuant to Section 6.1(a) desiring to purchase only the Ordinary Class A Obligations and Class B Claimholders have also concurrently delivered a valid Purchase Notice pursuant to

 

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Section 6.1(b), Second Lien Claimholders shall be relieved of their obligation to purchase the Ordinary Class A Obligations, and Class B Claimholders shall be obligated to purchase the Ordinary Class A Obligations pursuant to this Section 6 and (3) to the extent that the Second Lien Claimholders have delivered a valid Purchase Notice pursuant to Section 6.1(a) desiring to purchase only the Ordinary Class A Obligations, notwithstanding anything herein to the contrary, the Class B Claimholders may deliver a Purchase Notice requesting the purchase of the Ordinary Class A Obligations on or prior to the Purchase Date specified in the Purchase Notice delivered by the Second Lien Claimholders, Second Lien Claimholders shall be relieved of their obligation to purchase the Ordinary Class A Obligations, and Class B Claimholders shall be obligated to purchase the Ordinary Class A Obligations pursuant to this Section 6 on or prior to the date that is 14 days after the date of delivery of the Purchase Notice by the Class B Claimholders; provided that, if such Class B Claimholders fail to complete the purchase of Ordinary Class A Obligations by the applicable Purchase Date, the Second Lien Claimholders will have the right, but not the obligation, to purchase the Ordinary Class A Obligations pursuant to the terms of this Section 6 on or prior to the date that is fifteen Business Days after the Purchase Date specified in the Purchase Notice previously delivered by the Class B Claimholders.

 

6.3                               PURCHASE PRICE

 

The “Purchase Price” for the Purchased Obligations will equal the sum of:

 

(a)                                 the principal amount of all loans, advances, or similar extensions of credit included in the Purchased Obligations, and all accrued and unpaid interest thereon through the Purchase Date (including any acceleration prepayment penalties or premiums); and

 

(b)                                 all accrued and unpaid fees, expenses, indemnities, and other amounts owed to the Selling Claimholders under the Purchased Loan Documents on the Purchase Date to the extent not allocable to Excess Class A Obligations or Excess Class B Obligations, as applicable.

 

6.4                               PURCHASE  CLOSING

 

On the Purchase Date:

 

(a)                                 the Purchasing Creditors and Selling Claimholders will execute and deliver the Assignment and Acceptance;

 

(b)                                 the Purchasing Creditors will pay the Purchase Price to Selling Claimholders by wire transfer of immediately available funds; and

 

(c)                                  Purchasing Creditors agree that they will execute and deliver to Selling Claimholders a waiver of all claims arising out of this Agreement and the transactions contemplated hereby as a result of exercising the purchase option contemplated by this Section 6.

 

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6.5                               EXCESS FIRST LIEN OBLIGATIONS NOT PURCHASED

 

Any Excess First Lien Obligations will, after the closing of the purchase of the Purchased Obligations in accordance with this Section 5, remain Excess First Lien Obligations (owned by the applicable Selling Claimholders) for all purposes of this Agreement.

 

6.6                               ACTIONS AFTER PURCHASE CLOSING

 

After the closing of the purchase of the Purchased Obligations, the Purchasing Creditors may elect or appoint a new administrative agent and, if applicable, a new collateral agent to act as “Class A Representative”, or “Class B Agent” (as the case may be) hereunder.

 

6.7                               NO RECOURSE OR WARRANTIES; DEFAULTING CREDITORS

 

(a)                                 Selling Claimholders will be entitled to rely on the statements, representations, and warranties in the Purchase Notice without investigation, even if Selling Claimholders are notified that any such statement, representation, or warranty is not or may not be true.

 

(b)                                 The purchase and sale of the Purchased Obligations under this Section 6 will be without recourse and without representation or warranty of any kind by Selling Claimholders, except that Selling Claimholders represent and warrant that on the Purchase Date, immediately before giving effect to the purchase:

 

(1)                                 the principal of and accrued and unpaid interest on the Purchased Obligations, and the fees and expenses thereof, are as stated in the Assignment and Acceptance;

 

(2)                                 Selling Claimholders own the Purchased Obligations free and clear of any Liens (other than participation interests not prohibited by the Purchased Credit Agreement, in which case the Purchase Price will be appropriately adjusted so that the Purchasing Creditors do not pay amounts represented by participation interests); and

 

(3)                                 each Selling Claimholder has the full right and power to assign its Purchased Obligations and such assignment has been duly authorized by all necessary corporate action by such Selling Claimholder.

 

(c)                                  The obligations of Selling Claimholders to sell their respective Purchased Obligations under this Section 6 are several, and not joint and several. If a Selling Claimholder (a “Defaulting Creditor”) breaches its obligation to sell its Purchased Obligations under this Section 6, no other Selling Claimholder will be obligated to purchase the Defaulting Creditor’s Purchased Obligations for resale to the holders of Second Lien Obligations. A Selling Claimholder that complies with this Section 6 will not be in default of this Agreement or otherwise be deemed liable for any action or inaction of any Defaulting Creditor; provided that nothing in this Section 6.7(c) will require the Purchasing Creditors to purchase less than all of the Purchased Obligations.

 

(d)                                 Each Grantor irrevocably consents, and will use its best efforts to obtain any necessary consent of each other Grantor, to any assignment effected to one or more Purchasing Creditors pursuant to this Section 6.

 

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7.                                      INSOLVENCY PROCEEDINGS

 

7.1                               USE OF CASH COLLATERAL AND DIP FINANCING

 

(a)                                 Until the Discharge of Ordinary First Lien Obligations, if an Insolvency Proceeding has commenced, Second Lien Collateral Agent, as holder of a Lien on the Collateral, will not contest, protest, or object to, and each Second Lien Claimholder will be deemed to have consented to:

 

(1)                                 any use, sale, or lease of “cash collateral” (as defined in Section 363(a) of the Bankruptcy Code); and

 

(2)                                 Borrower or any other Grantor obtaining DIP Financing,

 

if (subject to Section 4.1(b)(1)(B)) a First Lien Representative consents in writing to such use, sale, or lease, or DIP Financing; provided that:

 

(A)                               Second Lien Collateral Agent otherwise retains its Lien on the Collateral;

 

(B)                               any Second Lien Claimholder may seek adequate protection as permitted by Section 7.4 and, if such adequate protection is not granted, the applicable Second Lien Collateral Agent may object under this Section 7.1 solely on such basis; and

 

(C)                               after taking into account the use of cash collateral and the principal amount of any DIP Financing (after giving effect to any Refinancing of any First Lien Obligations) on any date, the sum of the then outstanding principal amount of any First Lien Obligations and any DIP Financing does not exceed 125% of the sum of (i) the amount of the Class A Cap, plus (ii) the amount of the Class B Cap.

 

Upon written request from a First Lien Representative, Second Lien Collateral Agent, as holder of a Lien on the Collateral, will join any objection by a First Lien Representative, to the use, sale, or lease of cash collateral for any purpose other than adequate protection payments to the applicable Second Lien Claimholders.

 

(b)                                 Any customary “carve-out” or other similar administrative priority expense or claim consented to in writing by a First Lien Representative to be paid prior to the Discharge of Ordinary First Lien Obligations will be deemed for purposes of Section 7.1(a):

 

(1)                                 to be a use of cash collateral; and

 

(2)                                 not to be a principal amount of DIP Financing at the time of such consent.

 

(c)                                  No Second Lien Claimholder may provide DIP Financing to a Borrower or other Grantor secured by Liens equal or senior in priority to the Liens securing any First Lien Obligations; provided that if no First Lien Claimholder offers to provide DIP Financing or no

 

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First Lien Representative has consented in writing to a DIP Financing, in each case, to the extent permitted under Section 7.1(a) on or before the date of the hearing to approve DIP Financing, then a Second Lien Claimholder may seek to provide such DIP Financing secured by Liens equal or senior in priority to the Liens securing any First Lien Obligations, and First Lien Claimholders may object thereto.

 

7.2                               SALE OF COLLATERAL

 

Second Lien Collateral Agent, as holder of a Lien on the Collateral and on behalf of the Second Lien Claimholders, will not contest, protest, or object, and will be deemed to have consented pursuant to Section 363(f) of the Bankruptcy Code, to a Disposition of Collateral free and clear of its Liens or other interests under Section 363 of the Bankruptcy Code if a First Lien Representative consents in writing to the Disposition; provided that:

 

(a)                                 either (i) pursuant to court order, the Liens of the Second Lien Claimholders attach to the net Proceeds of the Disposition with the same priority and validity as the Liens held by such Second Lien Claimholders on such Collateral, and the Liens remain subject to the terms of this Agreement, or (ii) (x) if the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations has not occurred prior to such Disposition, the Proceeds of a Disposition of Collateral received by Class A Lenders in excess of those necessary to achieve the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations are distributed in accordance with the UCC and applicable law, and (y) if the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations has, but the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations has not, occurred prior to such Disposition, the Proceeds of a Disposition of Collateral received by Class B Lenders in excess of those necessary to achieve the Discharge of Class B Obligations to the extent of Ordinary Class B Obligations are distributed in accordance with the UCC and applicable law;

 

(b)                                 the net cash Proceeds of the Disposition that are applied to First Lien Obligations permanently reduce the First Lien Obligations pursuant to Section 5.1 or if not so applied, are subject to the rights of Second Lien Collateral Agent to object to any further use notwithstanding Section 7.1(a); and

 

(c)                                  Second Lien Claimholders may credit bid on the Collateral in any such Disposition in accordance with Section 363(k) of the Bankruptcy Code; provided that any such credit bid of Second Lien Obligations must provide for the payment in full in cash of all Ordinary First Lien Obligations on the closing of any resulting Disposition.

 

Notwithstanding the preceding sentence, any Second Lien Claimholders may object to any Disposition of Collateral that could be raised in an Insolvency Proceeding by unsecured creditors generally, so long as not otherwise inconsistent with the terms of this Agreement and any applicable Second Lien Claimholder has conceded, or there has been a determination, that all or a portion of the applicable Second Lien Obligations are unsecured.

 

(d)                                 Upon a First Lien Representative’s request, Second Lien Collateral Agent, solely in its capacity as holder of a Lien on Collateral, will join any objection asserted by a First Lien Representative to any Disposition of Collateral during an Insolvency Proceeding.

 

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7.3                               RELIEF FROM THE AUTOMATIC STAY

 

Until the Discharge of Ordinary First Lien Obligations, no Second Lien Claimholder may seek relief from the automatic stay or any other stay in an Insolvency Proceeding in respect of the Collateral without First Lien Representatives’ prior written consent or oppose any request by a First Lien Representative for relief from such stay.

 

7.4                               ADEQUATE PROTECTION

 

(a)                                 No Second Lien Claimholder will contest, protest, or object to:

 

(1)                                 a request by a First Lien Claimholder for “adequate protection” under any Bankruptcy Law; or

 

(2)                                 an objection by a First Lien Claimholder to a motion, relief, action, or proceeding based on a First Lien Claimholder claiming a lack of adequate protection.

 

(b)                                 Notwithstanding Section 7.4(a), in an Insolvency Proceeding:

 

(1)                                 Except as permitted in this Section 7.4, no Second Lien Claimholders may seek or request adequate protection or relief from the automatic stay imposed by Section 362 of the Bankruptcy Code or other relief.

 

(2)                                 If a First Lien Claimholder is granted adequate protection in the form of additional or replacement Collateral in connection with a motion described in Section 7.1, then the applicable Second Lien Collateral Agent may seek or request adequate protection in the form of a Lien on such additional or replacement Collateral, which Lien will be subordinated to the Liens securing the First Lien Obligations and any DIP Financing (and all related Obligations) on the same basis as the other Liens securing the applicable Second Lien Obligations are subordinated under this Agreement to the Liens securing First Lien Obligations.

 

(3)                                 Any claim by a Second Lien Claimholder under Section 507(b) of the Bankruptcy Code will be subordinate in right of payment to any claim of First Lien Claimholders under Section 507(b) of the Bankruptcy Code and any payment thereof will be deemed to be Proceeds of Collateral; provided that, subject to Section 7.7, Second Lien Claimholders will be deemed to have agreed pursuant to Section 1129(a)(9) of the Bankruptcy Code that such Section 507(b) claims may be paid under a plan of reorganization in any form having a value on the effective date of such plan equal to the allowed amount of such claims.

 

(4)                                 So long as First Lien Claimholders are receiving payment in cash of all Post-Petition Claims consisting of all interest at the applicable rate under the First Lien Loan Documents, Second Lien Collateral Agent may seek and, subject to the terms hereof, retain payments of Post-Petition Claims consisting of interest at the non-default rate under the Second Lien Note Documents (“Second Lien Adequate Protection Payments”). If a Second Lien Claimholder receives Second Lien Adequate Protection Payments before the Discharge of Ordinary First Lien Obligations, then upon the effective date of any plan or the conclusion or dismissal of any Insolvency Proceeding, the Second Lien Claimholder will pay over to First Lien Claimholders pursuant to Section 5.1, an amount equal to the lesser of (i) the Second Lien

 

40

 

Adequate Protection Payments received by the Second Lien Claimholder and (ii) the amount necessary to Discharge the First Lien Obligations. Notwithstanding anything herein to the contrary, First Lien Claimholders will not be deemed to have consented to, and expressly retain their rights to object to, the payment of Second Lien Adequate Protection Payments.

 

7.5                               FIRST LIEN OBJECTIONS TO SECOND LIEN ACTIONS

 

Subject to Section 4.1, nothing in this Section 7 limits a First Lien Claimholder from objecting in an Insolvency Proceeding or otherwise to any action taken by a Second Lien Claimholder, including the Second Lien Claimholder’s seeking adequate protection (other than adequate protection permitted under Section 7.4(b)) or asserting any of its rights and remedies under the Second Lien Note Documents or otherwise.

 

7.6                               AVOIDANCE; REINSTATEMENT OF OBLIGATIONS

 

If a First Lien Claimholder or a Second Lien Claimholder receives payment or property on account of a First Lien Obligation or Second Lien Obligation, and the payment is subsequently invalidated, avoided, declared to be fraudulent or preferential, set aside, or otherwise required to be transferred to a trustee, receiver, or the estate of Borrower or other Grantor (a “Recovery”), then, to the extent of the Recovery, the First Lien Obligations or Second Lien Obligations intended to have been satisfied by the payment will be reinstated as First Lien Obligations or Second Lien Obligations, as applicable, on the date of the Recovery, and no Discharge of Class A Obligations, Discharge of Class B Obligations or Discharge of Second Lien Obligations, as applicable, will be deemed to have occurred for all purposes hereunder. If this Agreement is terminated prior to a Recovery, this Agreement will be reinstated in full force and effect, and such prior termination  will not diminish, release, discharge, impair, or otherwise affect the obligations of the Parties from the date of reinstatement.  Upon any such reinstatement of any First Lien Obligations, each Second Lien Claimholder will deliver to the applicable First Lien Representative any Collateral and any Proceeds thereof, in each case, received between the Discharge of Class A Obligations or Discharge of Class B Obligations, as the case may be, and their reinstatement in accordance with Section 5.3.  No Second Lien Claimholder may benefit from a Recovery, and any distribution made to a Second Lien Claimholder as a result of a Recovery will be paid over to the applicable First Lien Representative for application to the applicable First Lien Obligations in accordance with Section 5.1.

 

7.7                               REORGANIZATION SECURITIES

 

To the extent not inconsistent with Section 2.2, nothing in this Agreement prohibits or limits the right of a Second Lien Claimholder to receive and retain any debt or equity securities that are issued by a reorganized debtor pursuant to a plan of reorganization or similar dispositive restructuring plan in connection with an Insolvency Proceeding; provided that any debt securities received by a Second Lien Claimholder on account of a Second Lien Obligation that constitutes a “secured claim” within the meaning of Section 506(b) of the Bankruptcy Code will be paid over or otherwise transferred to Class A Lenders (or, if the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations has occurred, the Class B Agent) for application in accordance with Section 5.1, unless such distribution is made under a plan that is

 

41

 

consented to by the affirmative vote of all classes composed of the secured claims of First Lien Claimholders.

 

If, in an Insolvency Proceeding, debt Obligations of the reorganized debtor secured by Liens upon any property of the reorganized debtor are distributed pursuant to a plan of reorganization or similar dispositive restructuring plan, both on account of First Lien Obligations and on account of Second Lien Obligations, then, to the extent the debt Obligations distributed on account of the First Lien Obligations and on account of the Second Lien Obligations are secured by Liens upon the same property, the provisions of this Agreement will survive the distribution of such debt Obligations pursuant to such plan and will apply with like effect to the Liens securing such debt Obligations.

 

7.8                               POST-PETITION  CLAIMS

 

(a)                                 No Second Lien Claimholder may oppose or seek to challenge any claim by a First Lien Claimholder for allowance or payment in any Insolvency Proceeding of First Lien Obligations consisting of Post-Petition Claims.

 

(b)                                 No First Lien Claimholder may oppose or seek to challenge in an Insolvency Proceeding a claim by a Second Lien Claimholder for allowance and any payment permitted under Section 7.4, of Second Lien Obligations consisting of Post-Petition Claims.

 

7.9                               WAIVERS

 

Second Lien Collateral Agent waives:

 

(a)                                 any claim it may hereafter have against any First Lien Claimholder arising out of any cash collateral or financing arrangement or out of any grant of a security interest in connection with the Collateral in an Insolvency Proceeding, so long as such actions are not in express contravention of the terms of this Agreement;

 

(b)                                 any right to assert or enforce any claim under Section 506(c) or 552 of the Bankruptcy Code as against First Lien Claimholders or any of the Collateral to the extent securing any First Lien Obligations; and

 

(c)                                  solely in its capacity as a holder of a Lien on Collateral, any claim or cause of action that any Grantor may have against any First Lien Claimholder, except to the extent arising from a breach by such First Lien Claimholder of the provisions of this Agreement.

 

7.10                        SEPARATE GRANTS OF SECURITY AND SEPARATE CLASSIFICATION

 

The grants of Liens pursuant to the Class A Collateral Documents, the Class B Collateral Documents and the Second Lien Collateral Documents constitute three separate and distinct grants. Because of, among other things, their differing rights in the Collateral, the Second Lien Obligations, to the extent deemed to be “secured claims” within the meaning of Section 506(b) of the Bankruptcy Code, are fundamentally different from the Class A Obligations and Class B Obligations and must be separately classified in any plan of reorganization in an Insolvency Proceeding. Second Lien Claimholders will not seek in an Insolvency Proceeding to

 

42

 

be treated as part of the same class of creditors as Class A Claimholders or Class B Claimholders and will not oppose or contest any pleading by Class A Claimholders or Class B Claimholders seeking separate classification of their respective secured claims.

 

7.11                        EFFECTIVENESS IN INSOLVENCY PROCEEDINGS

 

The Parties acknowledge that this Agreement is a “subordination agreement” under Section 510(a) of the Bankruptcy Code, which will be effective before, during, and after the commencement of an Insolvency Proceeding. All references in this Agreement to any Grantor will include such Person as a debtor-in-possession and any receiver or trustee for such Person in an Insolvency Proceeding.

 

8.                                      MISCELLANEOUS

 

8.1                               CONFLICTS

 

If this Agreement conflicts with any First Lien Loan Documents or Second Lien Note Documents, this Agreement will control.

 

8.2                               NO WAIVERS; REMEDIES CUMULATIVE; INTEGRATION

 

(a)                                 A Party’s failure or delay in exercising a right under this Agreement will not waive the right, nor will a Party’s single or partial exercise of a right preclude it from any other or further exercise of that or any other right.

 

(b)                                 The rights and remedies provided in this Agreement will be cumulative and not exclusive of other rights or remedies provided by law.

 

(c)                                  This Agreement constitutes the entire agreement among the Parties and supersedes all prior agreements, oral or written, relating to its subject matter.

 

8.3                               EFFECTIVENESS; SEVERABILITY; TERMINATION

 

(a)                                 This Agreement will become effective when executed and delivered by the Parties. Each First Lien Claimholder and each Second Lien Claimholder waives any right it may have under applicable law to revoke this Agreement or any provision thereunder or consent by it thereto.

 

(b)                                 This Agreement will survive, and continue in full force and effect, in any Insolvency Proceeding.

 

(c)                                  If a provision of this Agreement is prohibited or unenforceable in a jurisdiction, the prohibition or unenforceability will not invalidate the remaining provisions hereof, or invalidate or render unenforceable that provision in any other jurisdiction.

 

(d)                                 Subject to Sections 2.4(d), (h) and (i), 5.1, 5.4, 7.5 and 7.6, this Agreement will terminate and be of no further force and effect:

 

43

 

(1)                                 as to Class A Claimholders, upon the Discharge of Class A Obligations;

 

(2)                                 for Class B Claimholders, upon the Discharge of Class B Obligations and

 

(3)                                 for Second Lien Claimholders, upon the Discharge of Second Lien Obligations.

 

8.4                               MODIFICATIONS OF THIS AGREEMENT

 

A modification or waiver of any provision of this Agreement will only be effective if in writing signed on behalf of each Party or its authorized agent, and a waiver will be a waiver only for the specific instance involved and will not impair the rights of the Parties making the waiver or the obligations of the other Parties to such Party in any other respect or at any other time.  Notwithstanding the foregoing, no Grantor will have a right to consent to or approve a modification of this Agreement except to the extent its rights are directly affected.

 

8.5                               INFORMATION CONCERNING FINANCIAL CONDITION OF BORROWER AND ITS SUBSIDIARIES

 

(a)                                 The Control Agent, Class A Claimholders, the Class B Claimholders and Second Lien Claimholders will each be responsible for keeping themselves informed of:

 

(1)                                 the financial condition of the Grantors; and

 

(2)                                 all other circumstances bearing upon the risk of nonpayment of the First Lien Obligations or the Second Lien Obligations.

 

(b)                                 Neither the Control Agent nor any First Lien Claimholder will have any duty to advise any other First Lien Claimholder or any Second Lien Claimholder, and no Second Lien Claimholder will have any duty to advise the Control Agent or any First Lien Claimholder, of information known to it regarding any such condition or circumstances or otherwise.

 

(c)                                  If the Control Agent or a First Lien Claimholder provides any such information to a Second Lien Claimholder, or a Second Lien Claimholder provides any such information to the Control Agent or any First Lien Claimholder, the Control Agent or the First Lien Claimholder, or Second Lien Claimholder, respectively, will have no obligation to:

 

(1)                                 make, and it does not make, any express or implied representation or warranty, including as to accuracy, completeness, truthfulness, or validity;

 

(2)                                 provide additional information on that or any subsequent occasion;

 

(3)                                 undertake any investigation; or

 

(4)                                 disclose information that, pursuant to applicable law or accepted or reasonable commercial finance practices, it desires or is required to maintain as confidential.

 

44

 

8.6                               NO RELIANCE

 

(a)                                 Each First Lien Representative acknowledges that it and each other First Lien Claimholder has, independently and without reliance on any Second Lien Claimholder, and based on documents and information the First Lien Claimholder deemed appropriate, made its own credit analysis and decision to enter into the First Lien Loan Documents and this Agreement, and will continue to make its own credit decisions in taking or not taking any action under the First Lien Loan Documents or this Agreement.

 

(b)                                 Second Lien Collateral Agent acknowledges that it and each other Second Lien Claimholder has, independently and without reliance on any First Lien Claimholder, and based on documents and information the Second Lien Claimholder deemed appropriate, made its own credit analysis and decision to enter into the Second Lien Note Documents and this Agreement, and will continue to make its own credit decisions in taking or not taking any action under the Second Lien Note Documents or this Agreement.

 

8.7                               NO WARRANTIES; INDEPENDENT ACTION

 

(a)                                 Except as otherwise expressly provided herein:

 

(1)                                 no Second Lien Claimholder has made any express or implied representation or warranty to any First Lien Claimholder, including with respect to the execution, validity, legality, completeness, collectability, or enforceability of any Second Lien Note Document, the ownership of any Collateral, or the perfection or priority of any Liens thereon; and

 

(2)                                 each Second Lien Claimholder may manage and supervise its loans and extensions of credit under the Second Lien Note Documents in accordance with applicable law and as it may otherwise, in its sole discretion, deem appropriate;

 

(3)                                 no First Lien Claimholder has made any express or implied representation or warranty to any Second Lien Claimholder or First Lien Claimholder of another class, including with respect to the execution, validity, legality, completeness, collectability, or enforceability of any First Lien Loan Document, the ownership of any Collateral, or the perfection or priority of any Liens thereon; and

 

(4)                                 each First Lien Claimholder may manage and supervise its loans and extensions of credit under the First Lien Loan Documents in accordance with law and as it may otherwise, in its sole discretion, deem appropriate.

 

(b)                                 No Second Lien Claimholder will have any duty to any First Lien Claimholder, and no First Lien Claimholder will have any duty to any Second Lien Claimholder or First Lien Claimholder of another class, to act or refrain from acting in a manner that allows, or results in, the occurrence or continuance of an event of default or default under any agreements with Borrower or any other Grantor (including the First Lien Loan Documents and the Second Lien Note Documents), regardless of any knowledge thereof that it may have or be charged with.

 

45

 

8.8                               SUBROGATION

 

If a Second Lien Claimholder pays or distributes cash, property, or other assets to a First Lien Claimholder under this Agreement, such Second Lien Claimholder will be subrogated to the rights of the First Lien Claimholder with respect to the value of the payment or distribution; provided that each Second Lien Claimholder waives such right of subrogation until the Discharge of Ordinary First Lien Obligations.  Such payment or distribution will not reduce any Second Lien Obligations.  If a Class B Claimholder pays or distributes cash, property, or other assets to a Class A Claimholder under this Agreement, such Class B Claimholder will be subrogated to the rights of the Class A Claimholder with respect to the value of the payment or distribution; provided that each Class B Claimholder waives such right of subrogation until the Discharge of Class A Obligations to the extent of Ordinary Class A Obligations.  Such payment or distribution will not reduce any Class B Obligations

 

8.9                               APPLICABLE LAW; JURISDICTION; SERVICE

 

(a)                                 This Agreement, and any claim or controversy relating to the subject matter hereof, will be governed by the law of the State of New York, without regard to principles of law that would result in the application of the laws of another jurisdiction.

 

(b)                                 All judicial proceedings brought against a Party arising out of or relating hereto may be brought in any state or federal court of competent jurisdiction in the state, county, and city of New York. Each Party irrevocably:

 

(1)                                 accepts generally and unconditionally the nonexclusive personal jurisdiction and venue of such courts;

 

(2)                                 waives any defense of forum non conveniens; and

 

(3)                                 agrees that service of process in such proceeding may be made by registered or certified mail, return receipt requested, to the Party at its address provided in accordance with Section 8.11 and that such service will confer personal jurisdiction over the Party in such proceeding and otherwise constitutes effective and binding service in every respect.

 

8.10                        WAIVER OF JURY TRIAL

 

Each Party waives its right to jury trial of any claim or cause of action based upon or arising hereunder. The scope of this waiver is intended to encompass any and all disputes that may be filed in any court and that relate to the subject matter hereof, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Party acknowledges that this waiver is a material inducement to enter into a business relationship, that it has already relied on this waiver in entering into this Agreement, and that it will continue to rely on this waiver in its related future dealings. Each Party further represents and warrants that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. This waiver is irrevocable, meaning that it may not be modified either orally or in writing (other than by a mutual written waiver specifically referring to this Section 8.10 and executed by each of the Parties), and will apply to any subsequent modification hereof. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.

 

46

 

8.11                        NOTICES

 

(a)                                 Any notice to a First Lien Claimholder or a Second Lien Claimholder under this Agreement must also be given to First Lien Representatives and Second Lien Collateral Agent, respectively. Unless otherwise expressly provided herein, notices and consents must be in writing and will be deemed to have been given (i) when delivered in person or by courier service and signed for against receipt thereof, (ii) upon receipt of facsimile, and (iii) three Business Days after deposit in the United States mail with first-class postage prepaid and properly addressed. For the purposes hereof, the address of each Party will be as set forth below the Party’s name on the signature pages hereto, or at such other address as the Party may designate by notice to the other Parties.

 

(b)                                 Failure to give a notice or copies as required by Section 3.4 or 4.4 will not affect the effectiveness or validity of any modification or of this Agreement, or the effectiveness or validity of the exercise of remedies otherwise permitted hereunder and under applicable law, impose any liability on any First Lien Claimholder or Second Lien Claimholder, or waive any rights of any Party.

 

8.12                        FURTHER ASSURANCES

 

First Lien Representatives, Second Lien Collateral Agent, and Borrower will each take such further action and will execute and deliver such additional documents and instruments (in recordable form, if requested) as First Lien Representatives or Second Lien Collateral Agent may reasonably request to effectuate the terms of and the Lien priorities contemplated by this Agreement.

 

8.13                        SUCCESSORS AND ASSIGNS

 

(a)                                 This Agreement is binding upon and inures to the benefit of each First Lien Claimholder, each Second Lien Claimholder, the Control Agent, and their respective successors and assigns. However, no provision of this Agreement will inure to the benefit of a trustee, debtor-in-possession, creditor trust or other representative of an estate or creditor of Borrower, or other Grantor, including where such estate or creditor representative is the beneficiary of a Lien securing Collateral by virtue of the avoidance of such Lien in an Insolvency Proceeding.

 

(b)                                 If a First Lien Representative assigns its First Lien Obligations pursuant to its First Lien Credit Agreement, such Person’s successor will be a party to this Agreement with all the rights, and subject to all the obligations, of this Agreement. Notwithstanding any other provision of this Agreement, this Agreement may not be assigned to any Person except as expressly contemplated herein.

 

8.14                        AUTHORIZATION

 

By its signature hereto, each Person signing this Agreement on behalf of a Party represents and warrants to the other Parties that it is duly authorized to execute this Agreement.

 

47

 

8.15                        NO THIRD-PARTY BENEFICIARIES

 

No Person is a third-party beneficiary of this Agreement and no trustee in bankruptcy for, or bankruptcy estate of, or unsecured creditor of, any Grantor will have or acquire or be entitled to exercise any right of a First Lien Claimholder or Second Lien Claimholder under this Agreement, whether upon an avoidance or equitable subordination of a Lien of First Lien Claimholder or Second Lien Claimholder, or otherwise. None of Borrower, any other Grantor, or any other creditor thereof has any rights hereunder, and neither Borrower nor any Grantor may rely on the terms hereof.  Other than as expressly set forth herein, nothing in this Agreement impairs the Obligations of Borrower and the other Grantors to pay principal, interest, fees, and other amounts as provided in the First Lien Loan Documents and the Second Lien Note Documents. Except to the extent expressly provided in this Agreement, no Person will have a right to notice of a modification to, or action taken under, this Agreement or any First Lien Collateral Document (including the release or impairment of any Collateral) other than as a lender under a First Lien Credit Agreement, and then only to the extent expressly provided in the applicable First Lien Loan Documents.

 

8.16                        NO INDIRECT ACTIONS

 

Unless otherwise expressly stated, if a Party may not take an action under this Agreement, then it may not take that action indirectly, or assist or support any other Person in taking that action directly or indirectly. “Taking an action indirectly” means taking an action that is not expressly prohibited for the Party but is intended to have substantially the same effects as the prohibited action.

 

8.17                        COUNTERPARTS

 

This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which will constitute an original, but all of which when taken together will constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or any document or instrument delivered in connection herewith by telecopy or electronic facsimile or other electronic means will be effective as delivery of a manually executed counterpart of this Agreement or such other document or instrument, as applicable, and each Party utilizing telecopy, electronic facsimile, or other electronic means for delivery will deliver a manually executed original counterpart to each other Party on request.

 

8.18                        ORIGINAL GRANTORS; ADDITIONAL GRANTORS

 

Borrower and each other Grantor on the date of this Agreement will constitute the original Grantors party hereto. The original Grantors will cause each Subsidiary of Borrower and of Holdings that becomes a Grantor after the date hereof contemporaneously to become a party hereto (as a Guarantor) by executing and delivering a joinder agreement (in form and substance satisfactory to First Lien Representatives) to First Lien Representatives. The Parties further agree that, notwithstanding any failure to take the actions required by the immediately preceding sentence, each Person that becomes a Grantor at any time (and any security granted by any such Person) will be subject to the provisions hereof as fully as if it constituted a Guarantor party hereto and had complied with the requirements of the immediately preceding sentence.

 

[signatures to follow]

 

48

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered by its duly authorized officers as of the date first above written.

 

	
 
    	
PERCEPTIVE   CREDIT OPPORTUNITIES
    
	
 
    	
FUND,   LP, as Class A Representative and Control Agent
    
	
 
    	
By   its general partner, Perceptive Credit Opportunities GP, LLC
    
	
 
    	
 
    
	
 
    	
By
    	
/s/ Sandeep   Dixit
    
	
 
    	
 
    	
Name:
    	
Sandeep   Dixit
    
	
 
    	
 
    	
Title:
    	
Chief   Credit Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James Mannix
    
	
 
    	
 
    	
Name:
    	
James   Mannix
    
	
 
    	
 
    	
Title:
    	
COO
    
	
 
    	
 
    
	
 
    	
Address for Notices:
    
	
 
    	
Perceptive Credit   Opportunities Fund, LP
    
	
 
    	
c/o Perceptive Advisors   LLC
    
	
 
    	
499 Park Avenue, 25th   Floor
    
	
 
    	
New York, NY 10022
    
	
 
    	
Attention:
    	
Sandeep Dixit
    
	
 
    	
E-mail:
    	
Sandeep@perceptivelife.com
    
	
 
    	
 
    

 

[Signature Page to Intercreditor Agreement]

 

 

	
 
    	
MACQUARIE US TRADING   LLC, as Class B
    
	
 
    	
Agent
    
	
 
    	
By
    	
/s/ Joshua Karlin
    	
/s/ Anita Chiu
    
	
 
    	
 
    	
Name: Joshua Karlin
    	
Anita Chiu
    
	
 
    	
 
    	
Title: Authorized Signatory
    	
Associate Director
    
	
 
    	
 
    
	
 
    	
Address for Notices:
    
	
 
    	
 
    
	
 
    	
Macquarie US Trading   LLC
    
	
 
    	
225 West Washington   Street, 21st Floor
    
	
 
    	
Chicago, Illinois   60606
    
	
 
    	
Attention: Agency   Services — Mike Fredian
    
	
 
    	
Fax No.: (312) 262-6308
    
	
 
    	
Email:   MacquarieUST@cortlandglobal.com
    
	
 
    	
 
    
	
 
    	
With a copy (which   shall not constitute effective notice) to:
    
	
 
    	
 
    
	
 
    	
Macquarie US Trading   LLC
    
	
 
    	
125 West 55th Street
    
	
 
    	
New York, New York   10019
    
	
 
    	
Attention: Arvind Admal
    
	
 
    	
Fax No.: (212) 231-0629
    
	
 
    	
Email:   loan.admin@macquarie.com
    

 

[Signature Page to Intercreditor Agreement]

 

 

	
 
    	
CORTLAND CAPITAL MARKET   SERVICES
    
	
 
    	
LLC, as Second Lien   Collateral Agent
    
	
 
    	
By
    	
/s/ Emily Ergang Pappas
    
	
 
    	
 
    	
Name:
    	
Emily Ergang Pappas
    
	
 
    	
 
    	
Title:
    	
Associate Counsel
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Address for Notices:
    
	
 
    	
225 West Washington   Street
    
	
 
    	
Suite 2100
    
	
 
    	
Chicago, Illinois 60606
    
	
 
    	
Attn:
    	
Legal Department
    
	
 
    	
Attn.:
    	
Mike Fredian
    
	
 
    	
Fax:
    	
312-376-0751
    
	
 
    	
Email:
    	
legal@cortlandglobal.com
    
					

 

[Signature Page to Intercreditor Agreement]

 

 

Acknowledged and Agreed to by: 

 

	
KADMON PHARMACEUTICALS,   LLC
    
	
 
    
	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

KADMON HOLDINGS, LLC

 

	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

 

KADMON CORPORATION, LLC

 

	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

[Signature Page to Intercreditor Agreement]

 

 

KADMON RESEARCH INSTITUTE, LLC

 

	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

THREE RIVERS RESEARCH INSTITUTE I, LLC

 

	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

THREE RIVERS BIOLOGICS, LLC

 

	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

[Signature Page to Intercreditor Agreement]

 

 

THREE RIVERS GLOBAL PHARMA, LLC

 

	
By
    	
/s/ Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Name: Harlan W. Waksal,   M.D.
    	
 
    
	
 
    	
Title: President and   Chief Executive Officer
    	
 
    

 

Address for Notices:

450 E. 29th Street

New York, NY 10016

Attn: Harlan W. Waksal, M.D.

Tel.: (212) 308-6000

Fax: (646) 666-7978

Email: harlan.waksal@kadmon.com

 

[Signature Page to Intercreditor Agreement]

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