Document:

Exhibit 10.1

 

EXECUTION VERSION

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is made and dated as of January 7, 2015 and is entered into by and between Egalet Corporation, a Delaware corporation (“Parent”) and each of its Subsidiaries that has delivered a Joinder Agreement (as defined herein) (each a “Subsidiary Guarantor” and collectively, the “Subsidiary Guarantors” and together with Parent, collectively, “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”) and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent for itself and the Lender (in such capacity, the “Agent”).

 

RECITALS

 

A.                                    Borrower has requested Lender to make available to Borrower a loan in an aggregate principal amount of up to Fifteen Million Dollars ($15,000,000) (the “Term Loan”);

 

B.                                    Lender is willing to make the Term Loan on the terms and conditions set forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, Borrower, Agent and Lender agree as follows:

 

SECTION 1.  DEFINITIONS AND RULES OF CONSTRUCTION

 

1.1                               Unless otherwise defined herein, the following capitalized terms shall have the following meanings:

 

“Account Control Agreement(s)” means any agreement entered into by and among the Agent, Parent and/or a Subsidiary Guarantor and a third party Bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or an account holding Investment Property and which grants Agent a perfected first priority security interest in the subject account or accounts.

 

“Account Pledge Agreement” means the Pledge of Bank Accounts and any other agreement entered into by and among Agent, Egalet Limited and a third party Bank or other institution (including a Securities Intermediary) in which Egalet Limited maintains a Deposit Account or an account holding Investment Property and which grants Agent a perfected first priority security interest in the subject account or accounts maintained in Denmark.

 

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially the form of Exhibit I.

 

“ACH Failure” means the failure of the Automated Clearing House (ACH) system to effect a transfer of the funds in connection with the institution and execution of the ACH Authorization.

 

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“Advance(s)” means a Term Loan Advance.

 

“Advance Date” means the funding date of any Advance.

 

“Advance Request” means a request for an Advance submitted by Borrower to Agent in substantially the form of Exhibit A.

 

“Affiliate” means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and, with respect to the Parent, shall include any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Parent or any Subsidiary or any Person of which the Parent and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests.  Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Parent.

 

“Agent” has the meaning given to it in the preamble to this Agreement.

 

“Agreement” means this Loan and Security Agreement, as amended from time to time.

 

“Amortization Date” means January 1, 2016.

 

“Anti-Corruption Laws” means any law or regulation in a U.S. or any non-U.S. jurisdiction regarding bribery or any other corrupt activity, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010.

 

“Anti-Money Laundering Laws” means any law or regulation in a U.S. or any non-U.S. jurisdiction regarding money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes, including the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act) and the USA PATRIOT Act.

 

“Assignee” has the meaning given to it in Section 11.13.

 

“Blocked Person” means (i) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by OFAC, (ii) a Person, entity, organization, country or regime that is blocked or a target of sanctions that have been imposed under U.S. Economic Sanctions Laws or (iii) a Person that is an agent, department or instrumentality of, or is otherwise beneficially owned by, controlled by or acting on behalf of, directly or indirectly, any Person, entity, organization, country or regime described in clause (i) or (ii).

 

“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings,

 

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technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

 

“Business Day” means any day other than Saturday, Sunday and any other day on which banking institutions in the State of New York, Copenhagen, Denmark, the Commonwealth of Pennsylvania or London, England are closed for business.

 

“Cash” means all cash and liquid funds.

 

“Cash Management Services” shall mean (a) commercial credit cards, merchant card services, purchase or debit cards, including non-card e-payables services, (b) treasury management services (including controlled disbursement, overdraft, automatic clearinghouse fund transfer services, return items and interstate depository network services, and cash management services for collections, operating, payroll and trust accounts, electronic funds transfer services, information reporting services, lockbox services, stop payment services and wire transfer services) and (c) any other demand deposit or operating account relationships or other cash management services.

 

“Change in Control” means any reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Parent or any Subsidiary, sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Parent or any Subsidiary in which the holders of Parent or Subsidiary’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Parent or Subsidiary is the surviving entity; provided that none of the following shall constitute a Change in Control:  (i) any consolidation or merger effected exclusively to change the domicile of Parent or any Subsidiary or (ii) the sale and issuance by Parent of its equity securities to investors in a bona fide equity financing.

 

“Claims” has the meaning given to it in Section 11.10.

 

“Closing Date” means the date of this Agreement.

 

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

 

“Collateral” means the property described in Section 3.

 

“Common Stock” means the Common Stock, $0.001 par value per share, of the Parent.

 

“Confidential Information” has the meaning given to it in Section 11.12.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness, lease,

 

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dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

“Control” means the possession, directly or indirectly, of the power to elect a majority of the board of directors or senior management of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms “Controlled” and “Controlling” shall have meanings correlative to the foregoing.

 

“Controlled Entity” means any of the Subsidiaries of the Parent and any of their or the Parent’s respective Controlled Affiliates.

 

“Controlled Foreign Corporation” shall mean (1) a “controlled foreign corporation” as defined in the Code; and (2) a direct or indirect Subsidiary of a Person described in clause (1), above.

 

“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

 

“Copyrights” means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, the United Kingdom, Denmark or of any other country.

 

“Danish Security Documents” means the Account Pledge Agreement between Egalet Limited and Agent pursuant to which Egalet Limited has granted to Agent a perfected first priority security interest in Egalet Limited’s assets specified therein and such other documents as may be requested by Agent to evidence under the laws of Denmark the grant by Egalet Limited, and to effect perfection with respect to Egalet Limited’s assets.

 

“Deemed Dividend Release Condition” means that (a) the Parent has provided a certificate which states that in the reasonable determination of the Board of Directors of Parent that Parent anticipates (based on information available to it, including projections or estimates of financial information for current or future periods) an adverse tax consequence to Parent and its Subsidiaries, with effect in the then-current fiscal year of Parent and its Subsidiaries, as a result or

 

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in connection with (1) the pledge of the equity of any Controlled Foreign Corporation, (2) the grant by any Controlled Foreign Corporation of any Collateral pursuant hereto or any other Security Document, or (3) the other obligations of such Controlled Foreign Corporation as a Subsidiary Guarantor and (b) no Event of Default shall have occurred and is continuing.

 

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit wherever located.

 

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

 

“Egalet Limited” means Egalet Limited, a limited company organized under the laws of England and Wales.

 

“End of Term Charge” means a charge equal to three and eighty-five one hundredths of one percent (3.85%) of the aggregate original principal amount of all Term Loan Advances extended by Agent.

 

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

 

“Event of Default” has the meaning given to it in Section 9.

 

“Excluded Taxes” means any of the following Taxes imposed on or with respect to a recipient or required to be withheld or deducted from a payment to a recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 11.20, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such recipient’s failure to comply with Section 11.20(g) and (d) any U.S. federal withholding Taxes imposed under FATCA.

 

“Facility Charge” means One percent (1.00%) of the Maximum Term Loan Amount.

 

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, and any fiscal or regulatory legislation, rules or practices adopted pursuant to any

 

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intergovernmental agreement entered into in connection with the implementation of such Sections of the Code.

 

“Financial Statements” has the meaning given to it in Section 7.1.

 

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized under the laws of any state within the United States.

 

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.

 

“Guaranty” means a Guaranty in a form reasonably acceptable to Agent.

 

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services (excluding trade credit entered into in the ordinary course of business not past due by more than sixty (60) days), including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations as defined by GAAP on the date hereof, and (d) all Contingent Obligations.

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.

 

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

 

“Intellectual Property” means all of Borrower’s Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; mask works; service marks, designs, business names, data base rights, design rights, domain names, moral rights, inventions, confidential information, know how and other intellectual property rights and interests whether registered or unregistered; Borrower’s applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.

 

“Investment” means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person.

 

“Investment Property” means any and all investment property (as that term is defined in the UCC).

 

“Joinder Agreements” means for each Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G.

 

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“Lender” has the meaning given to it in the preamble to this Agreement.

 

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

 

“Licensed Product” has the meaning given to it under the heading “Permitted Transfers” of this Section 1.1.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest.

 

“Loan” means the Advances made under this Agreement.

 

“Loan Documents” means this Agreement, the Notes (if any), the ACH Authorization, the Account Control Agreements, the Account Pledge Agreements, the Joinder Agreements, the Danish Security Documents, all UCC Financing Statements, the Warrant, each Guaranty, the Security Documents, and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.

 

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets or financial condition of Borrower taken as a whole; or (ii) the ability of Borrower to perform the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of Agent or Lender to enforce any of its rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral or the priority of such Liens, other than, with respect to clauses (ii) and (iii) above, as a result of an action or a failure to take an action on the part of Agent which is within Agent’s reasonable control.

 

“Maximum Term Loan Amount” means Fifteen Million Dollars and No/100 Dollars ($15,000,000).

 

“Maximum Rate” shall have the meaning assigned to such term in Section 2.3.

 

“Note(s)” means a Term Note.

 

“OFAC” means Office of Foreign Assets Control, United States Department of the Treasury.

 

“OFAC Sanctions Program” means any economic or trade sanction that OFAC is responsible for administering and enforcing.  A list of OFAC Sanctions Programs may be found at http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx.

 

“Other Connection Taxes” means, with respect to any recipient, Taxes imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient having executed, delivered, become

 

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a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

 

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

 

“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.

 

“Patents” means all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States, the United Kingdom, Denmark or any other country.

 

“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender or Agent arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date which is disclosed in Schedule 1A; (iii) Indebtedness of up to $500,000 outstanding at any time secured by a Lien described in clause (vii) of the definition of Permitted Liens, provided such Indebtedness does not exceed the lesser of the cost or fair market value of the Equipment financed with such Indebtedness (determined as of the date on which such Equipment is financed); (iv) Indebtedness incurred to finance the payment of insurance premiums in the ordinary course of business in an amount not to exceed $500,000; (v) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (vi) Indebtedness that also constitutes a Permitted Investment; (vii) Indebtedness incurred in connection with clauses (iv), (v), (vi) and (vii) of the definition of Permitted Transfers;  (viii) Subordinated Indebtedness; (ix) reimbursement obligations in connection with letters of credit that are secured by cash or cash equivalents and issued on behalf of the Borrower or a Subsidiary thereof in an amount not to exceed $200,000 at any time outstanding, (x) unsecured Indebtedness incurred in the ordinary course of business of the Borrower with banks or financial institutions that arises in connection with ordinary banking arrangements to manage cash balances and other Cash Management Services; (xi) unsecured Indebtedness in respect of netting services, overdraft protection, credit card programs, automatic clearinghouse arrangements and similar arrangements in each case in connection with deposit accounts; (xii) other Indebtedness in an amount not to exceed $500,000 at any time outstanding, and (xiii) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

“Permitted Intellectual Property Liens” means those Liens set forth in clauses (ii), (iii), (ix) and (xvi) of the definition of Permitted Liens.

 

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“Permitted Investment” means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B, including all ongoing, continuing and future obligations relating thereto which exist on the Closing Date (including by virtue of contingent milestones which may occur after the Closing Date) with respect thereto; (ii) (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (b) commercial paper maturing no more than one year from the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (c) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than one year from the date of investment therein, and (d) money market accounts; (iii) repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements in accordance with their terms in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases; (iv) Investments accepted in connection with Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (vi) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans or other similar agreements approved by Borrower’s Board of Directors; (viii) Investments consisting of travel advances in the ordinary course of business; (ix) Investments in newly-formed Domestic Subsidiaries, provided that each such Domestic Subsidiary enters into a Joinder Agreement promptly after its formation by Borrower and execute such other documents as shall be reasonably requested by Agent; (x) Investments in Foreign Subsidiaries, provided that each such Foreign Subsidiary has entered into a Joinder Agreement as required by this Agreement and has executed such other documents as shall be reasonably requested by Agent under Section 3.2 hereof; provided however, that after the occurrence of the Deemed Dividend Release Condition Borrower may, consistent with past practices and in the ordinary course of business, make Investments in any Foreign Subsidiaries in an amount not to exceed $6,000,000 in the aggregate during any fiscal year (exclusive of amounts paid or payable by Parent or any Domestic Subsidiary to a third-party on behalf of any Foreign Subsidiary); (xi) joint ventures or strategic alliances in the ordinary course of Borrower’s business including non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower in any joint venture or strategic alliance do not exceed $500,000 in the aggregate in any fiscal year;  and (xii) additional Investments that do not exceed $500,000 in the aggregate; provided however, that Parent shall not make any investment in a Foreign Subsidiary under this clause (xii) after the Deemed Dividend Release Condition.

 

“Permitted Liens” means any and all of the following: (i) Liens in favor of Agent or Lender; (ii) Liens existing on the Closing Date which are disclosed in Schedule 1C; (iii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided, that Borrower maintains adequate

 

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reserves therefor in accordance with GAAP; (iv) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided, that the payment thereof is not yet delinquent; (v) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (vi) the following deposits, to the extent made in the ordinary course of business:  deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than Liens arising under ERISA or environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vii) Liens on Equipment or software or other intellectual property constituting purchase money Liens and Liens in connection with capital leases securing Indebtedness permitted in clause (iii) of the definition of Permitted Indebtedness with respect to such Equipment with a fair market value (determined as of the date on which such Equipment is financed) not in excess of $500,000 outstanding at any time;  (viii) Liens incurred in connection with Subordinated Indebtedness; (ix) Liens incurred in connection with Permitted Transfers; (x) leasehold interests in leases or subleases and licenses granted in the ordinary course of business and not interfering in any material respect with the business of the licensor; (xi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties that are promptly paid on or before the date they become due; (xii) Liens in favor of insurers (or other Persons financing the payment of insurance premiums) securing Indebtedness permitted in clause (iv) of the definition of Permitted Indebtedness financing the premiums payable in respect of insurance policies issued by such insurers; (xiii) Liens on insurance proceeds securing the payment of financed insurance premiums that are promptly paid on or before the date they become due (provided that such Liens extend only to such insurance proceeds and not to any other property or assets); (xiv) statutory and common law rights of set-off and other similar rights as to deposits of cash and securities in favor of banks, other depository institutions and brokerage firms; (xv) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business so long as they do not materially impair the value or marketability of the related property; (xvi) Liens on cash or cash equivalents securing obligations permitted under clause (viii) of the definition of Permitted Indebtedness; (xvi) exclusive licenses and similar arrangements for the use of Intellectual Property disclosed on Schedule 1C and non-exclusive licenses and similar arrangements for the use of Intellectual Property in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States in the ordinary course of business; and (xvii) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (i) through (xii) above; provided, that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.

 

“Permitted Transfers” means (i) sales of Inventory in the ordinary course of business, (ii) non-exclusive out-licenses and similar arrangements for the use of Intellectual

 

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Property in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discrete geographical areas outside of the United States in the ordinary course of business, (iii) dispositions of worn-out, obsolete or surplus Equipment at fair market value in the ordinary course of business, (iv) the transfer of cash to Acura Pharmaceuticals relating to a license of IR Oxycodone (formerly Oxecta) (the “Licensed Product”) in an amount not to exceed (A) $5,000,000 initially, plus (B) $2,500,000 upon the first commercial sale plus (C) tiered royalties on net sales, plus (D) $12,500,000 within thirty days after the end of the first calendar year in which worldwide net sales of the Licensed Product reach a specified level during such calendar year, each as further described in materials provided to Agent, (v) a transfer of cash relating to an acquisition of an intranasal formulation of a non-opioid in an amount not to exceed (A) $7,000,000 initially, (B) an additional amount for inventory consisting of such non-opioid, equipment, glassware, other components and finished product not to exceed $1,500,000, and (C) an inventory price adjustment; (vi) sales, transfers and other dispositions made by Parent in connection with or otherwise required by the Collaboration and License Agreement dated November 26, 2013, by and among Egalet Limited, Shionogi Limited and Parent, (vii) sales, transfers and other dispositions of Permitted Investments in joint ventures or strategic alliances to the extent required by, or made pursuant to, customary buy/sell arrangements between the joint venture or strategic alliance parties set forth in joint venture or strategic alliance arrangements and (viii) dispositions expressly permitted under Section 7.6, 7.7, 7.8 or 7.9, (ix) dispositions arising from the abandonment of fixtures and other similar tenant improvements in connection with office relocations in the ordinary course of business; (x) transfers of assets among Parent and any other Subsidiary comprising the Borrower, provided however that after the occurrence of the Deemed Dividend Condition, Borrower shall not make any transfers of assets to any Foreign Subsidiary except as permitted under clause (x) of the definition of Permitted Investments, and (xi) other transfers of assets having a fair market value of not more than $500,000 in the aggregate in any fiscal year.

 

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.

 

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.5.

 

“Required Lenders” means at any time, the holders of more than 50% of the sum of the aggregate unpaid principal amount of the Term Loans then outstanding.

 

“SEC” means the Securities and Exchange Commission.

 

“Secured Obligations” means Borrower’s obligations under this Agreement and any Loan Document, including any obligation to pay any amount now owing or later arising.  Notwithstanding the foregoing, the “Secured Obligations” shall not include any of Borrower’s obligations, liabilities or duties under the Warrant.

 

“Security Documents” means each security agreement, all other mortgages, deeds of trust, security agreements, pledge agreements, assignments, control agreements, financing

 

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statements and other documents as shall from time to time secure or relate to the Secured Obligations or any other obligation arising under any Loan Document or any part thereof, in each case, executed by Parent, any Subsidiary Guarantor or any Subsidiary.

 

“State Sanctions List” means a list that is adopted by any state Governmental Authority within the United States of America pertaining to Persons that engage in investment or other commercial activities in Iran or any other country that is a target of economic sanctions imposed under U.S. Economic Sanctions Laws.

 

“Subordinated Indebtedness” means Indebtedness subordinated to the Secured Obligations in amounts and on terms and conditions satisfactory to Agent in its sole discretion.

 

“Subsidiary” means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.

 

“Tax” means any tax (whether income, documentary, sales, stamp, registration, issue, capital, property, excise or otherwise), duty, assessment, levy, impost, fee, compulsory loan, charge or withholding.

 

“Term Commitment” means as to any Lender, the obligation of such Lender, if any, to make a Term Loan Advance to the Borrower in a principal amount not to exceed the amount set forth under the heading “Term Commitment” opposite such Lender’s name on Schedule 1.1.

 

“Term Loan Advance” means any Term Loan funds advanced under this Agreement.

 

“Term Loan Interest Rate” means for any day a per annum rate of interest equal to the greater of either (i) 9.40% plus the prime rate as reported in The Wall Street Journal minus 3.25%, and (ii) 9.40%.

 

“Term Loan Maturity Date” means July 1, 2018.

 

“Term Note” means a Promissory Note in substantially the form of Exhibit B.

 

“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

 

“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, the United Kingdom, Denmark or any other country or any political subdivision thereof.

 

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“UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the State of New York; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the State of New York, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

 

“USA PATRIOT Act” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 and the rules and regulations promulgated thereunder from time to time in effect.

 

“U.S. Economic Sanctions Laws” means those laws, executive orders, enabling legislation or regulations administered and enforced by the United States pursuant to which economic sanctions have been imposed on any Person, entity, organization, country or regime, including the Trading with the Enemy Act, the International Emergency Economic Powers Act, the Iran Sanctions Act, the Sudan Accountability and Divestment Act and any other OFAC Sanctions Program.

 

“Warrant” means the Warrant Agreement dated as of even date hereof by and between Agent and Borrower, as may be amended, restated or modified from time to time.

 

Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement.  Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied. Unless otherwise defined herein or in the other Loan Documents, terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC.

 

SECTION 2.  THE LOAN

 

2.1                               Intentionally omitted.

 

2.2                               Term Loan.

 

(a)                                 Advances.  Subject to the terms and conditions of this Agreement, Lender will severally (and not jointly) make in an amount not to exceed its respective Term Commitment, and Borrower agrees to draw, a Term Loan Advance of $15,000,000 on January 8, 2105.

 

(b)                                 Advance Request.  To obtain a Term Loan Advance, Borrower shall complete, sign and deliver an Advance Request (at least five (5) Business Days before

 

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the Advance Date) to Agent.  Lender shall fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Term Loan Advance is satisfied as of the requested Advance Date.

 

(c)                                  Interest.  The principal balance of each Term Loan Advance shall bear interest thereon from such Advance Date at the Term Loan Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed.  The Term Loan Interest Rate will float and change on the day the Prime Rate changes from time to time.

 

(d)                                 Payment.  Borrower will pay interest in arrears on each Term Loan Advance on the first Business Day of each month, beginning the month after the Advance Date.  Borrower shall repay the aggregate Term Loan principal balance that is outstanding on the day immediately preceding the Amortization Date, in equal monthly installments of principal and interest (mortgage style) beginning on the Amortization Date and continuing on the first Business Day of each month thereafter until the Secured Obligations are repaid.  The entire Term Loan principal balance and all accrued but unpaid interest hereunder, shall be due and payable on Term Loan Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense. Lender will initiate debit entries to the Borrower’s account as authorized on the ACH Authorization on each payment date of all periodic obligations payable to Lender under each Term Advance.

 

(e)                                  The parties agree and acknowledge that (i) the Term Loan and the Warrant comprise an “investment unit” within the meaning of Treasury Regulations Section 1.1273-2(h), and (ii) the Borrower and Lender shall cooperate to determine the fair market value of the Warrants, and the issue price of and the amount (if any) of original issue discount of the Term Loan.

 

2.3                               Maximum Interest.  Notwithstanding any provision in this Agreement or any other Loan Document, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of New York shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the “Maximum Rate”).  If a court of competent jurisdiction shall finally determine that Borrower has actually paid to Lender an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows without any Prepayment Charges:  first, to the payment of the Secured Obligations consisting of the outstanding principal amount of the Term Loan Advance; second, after all principal is repaid, to the payment of Lender’s accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third, after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.

 

2.4                               Default Interest.  In the event any payment is not paid on the scheduled payment date (other than as a result of Lender failing to timely make any ACH transfer

 

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which is not the result of any action or inaction of the Borrower and so long as the Borrower makes such payment within three (3) Business Days after it has received written notice of such ACH Failure), an amount equal to four percent (4%) of the past due amount shall be payable on demand. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest and professional fees shall bear interest at a rate per annum equal to the rate set forth in Section 2.2(c) plus four percent (4%) per annum.  In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.2(c) or this Section 2.4, as applicable.

 

2.5                               Prepayment.  At its option upon at least seven (7) Business Days prior notice to Agent, Borrower may prepay all, or any portion, of the outstanding Advances by paying the entire principal balance or a portion thereof, all accrued and unpaid interest on the portion prepaid, all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge), together with a prepayment charge on the portion prepaid equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid in any of the first twelve (12) months following the Closing Date, 3.0%; after twelve (12) months but prior to twenty four (24) months, 2.0%; and thereafter, 1.0% (each, a “Prepayment Charge”).  Borrower agrees that the Prepayment Charge is a reasonable calculation of Lender’s lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Advances.  Borrower shall prepay the outstanding amount of all principal and accrued interest through the prepayment date and all unpaid Agent’s and Lender’s fees and expenses accrued to the date of the repayment (including the End of Term Charge) together with the applicable Prepayment Charge upon the occurrence of a Change in Control.

 

2.6                               End of Term Charge.  On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays all of the outstanding Secured Obligations, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lender the End of Term Charge.  Notwithstanding the required payment date of such charge, it shall be deemed earned by Lender as of the Closing Date.

 

2.7                               Notes.  If so requested by Lender by written notice to Borrower, then Borrower shall execute and deliver to Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of Lender pursuant to Section 11.13) (promptly after the Borrower’s receipt of such notice) a Note or Notes to evidence Lender’s Loans.

 

2.8                               Pro Rata Treatment.  Each payment (including prepayment) on account of any fee and any reduction of the Term Loans shall be made pro rata according to the Term Commitments of the relevant Lender.

 

SECTION 3.  SECURITY INTEREST

 

3.1                               As security for the prompt, complete and indefeasible payment when due (whether on the payment dates or otherwise) of all the Secured Obligations, Borrower grants

 

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to Agent a security interest in all of Borrower’s right, title, and interest in and to the following personal property whether now owned or hereafter acquired (collectively, the “UCC Collateral”):  (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles; (e) Inventory; (f) Investment Property; (g) Deposit Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located, and any of Borrower’s property in the possession or under the control of Agent; and, to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing; provided, however, that the Collateral shall not include (i) any Intellectual Property, (ii) the Investigational New Drug Application (including any amendments thereto and foreign equivalents thereof) for the Licensed Product, (iii) New Drug Application N202080 (including any amendments or supplements thereto), (iv) all approvals (including pricing and reimbursement approval and schedule classifications), product and establishment licenses, registrations and authorizations of any regulatory or other governmental authority granted or issued with respect to the Licensed Product, (v) any filings made with any regulatory or governmental authority with respect to any of (ii), (iii) and/or (iv), and (vi) data, reports, records and documentation relating to the Licensed Product,  trademarks, trade names, and/or logos under which only the Licensed Product has been or is being marketed or sold (excluding, for avoidance of doubt, Borrower’s house marks), any clinical trial agreements (and all data, including clinical data, materials and information) solely related to the Licensed Product, and all sublicense agreements with respect to the Licensed Product; but provided further that the Collateral shall include all Accounts and General Intangibles that consist solely of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the Intellectual Property and the other assets set forth in clauses (ii) through (vi) of the preceding proviso.

 

3.2                               Subject to the Deemed Dividend Release Condition, Section 3.3 and the limitations set forth in Section 3.1, Parent shall, as security for the Secured Obligations, cause each Subsidiary to deliver a Joinder Agreement (or Guaranty) and grant to Agent a security interest in all of such Subsidiary’s assets pursuant to such Security Documents as Agent may require (such assets pledged pursuant to such Security Documents being the “Pledged Collateral” and together with the UCC Collateral, collectively, the “Collateral”).

 

3.3                               Egalet Limited shall, as security for the Secured Obligations, grant to Agent a security interest in Egalet Limited’s (a) Deposit Accounts and accounts holding Investment Property pursuant to the terms of Account Pledge Agreements and (b) subject to the limitation set forth in Section 3.1, other assets owned as of the Closing Date pursuant to the terms of the Danish Security Documents, but only to the extent that a fixed charge can be created over such Deposit Accounts and assets in clause (b) of this Section 3.3.

 

3.4                               Notwithstanding the broad grant of the security interest set forth in this Section 3 and the other Security Documents, upon the occurrence of the Deemed Dividend Release Condition, (a) the liens and security interests granted by any Controlled Foreign Corporation hereunder or under any of the Security Documents, shall be automatically terminated, (b) any Joinder Agreement (or Guaranty) executed by such Controlled Foreign

 

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Corporation shall be automatically terminated and the Controlled Foreign Corporation executing such Joinder Agreement (or Guaranty) shall be released from its obligations thereunder, and (c) the security interest granted by the Borrower in any of Borrower’s right, title or interest in any of the outstanding voting capital stock or other ownership interests of any Controlled Foreign Corporation shall be automatically reduced to a grant in an amount nof 65% of the voting power of all classes of capital stock or other ownership interests of such Controlled Foreign Corporation entitled to vote. In furtherance of clauses (a), (b), and (c) above, Agent shall, at Parent’s sole cost and expense, forthwith release all of its liens and security interests in the assets of any Borrower and Controlled Foreign Corporation granted hereunder and shall execute and deliver all UCC termination statements and/or other documents (including amendments to any Security Documents) reasonably requested by the Borrower evidencing such termination.

 

3.5                               Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral.  Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor in accordance with GAAP. Without duplication of Section 7.10 below, Borrower agrees to pay, and to save Agent and Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all registration, stamp, excise, sales or other similar taxes that may be payable or determined to be payable with respect to any of the Collateral.

 

SECTION 4.  CONDITIONS PRECEDENT TO LOAN

 

The obligations of Lender to make the Loan hereunder are subject to the satisfaction by Borrower of the following conditions:

 

4.1                               Initial Advance.  On or prior to the Closing Date, Borrower shall have delivered to Agent the following:

 

(a)                                 executed originals of the Loan Documents, Account Control Agreements, a legal opinion of Borrower’s United States counsel, and all other documents and instruments reasonably required by Agent to effectuate the transactions contemplated hereby or to create and perfect the Liens of Agent with respect to all Collateral, in all cases in form and substance reasonably acceptable to Agent;

 

(b)                                 certified copy of resolutions of Parent’s and each Subsidiary Guarantor’s board of directors evidencing approval of the Loan and other transactions evidenced by the Loan Documents;

 

(c)                                  certified copies of the constitutional document and the bylaws (or applicable local equivalent), as amended through the Closing Date, of Parent and each Subsidiary Guarantor;

 

(d)                                 a certificate of good standing (or insolvency search) for Parent and each Subsidiary Guarantor from its respective jurisdiction of organization and similar

 

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certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; and

 

(e)                                  payment of the Facility Charge and reimbursement of Agent’s and Lender’s current legal expenses reimbursable pursuant to this Agreement, which amounts may be deducted from the initial Advance.

 

4.2                               All Advances.  On each Advance Date:

 

(a)                                 Agent shall have received an Advance Request for the Advance as required by Section 2.2(b), duly executed by Parent’s Chief Executive Officer or Chief Financial Officer.

 

(b)                                 The representations and warranties set forth in this Agreement, in the Warrant and each in other Loan Document shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

 

(c)                                  Borrower shall be in material compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and is continuing.

 

(d)                                 Each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.

 

4.3                               No Default.  As of the Closing Date and each Advance Date, no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

 

SECTION 5.  REPRESENTATIONS AND WARRANTIES OF BORROWER

 

Borrower represents and warrants that:

 

5.1                               Corporate Status.  Parent is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect.  Parent’s present name, former names (if any), locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C, as may be updated by Borrower in a written notice (including any Compliance Certificate) provided to Agent after the Closing Date. Each Subsidiary Guarantor is a corporation or other entity duly

 

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organized, legally existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and, where applicable, is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

5.2                               Collateral.  Borrower owns the Collateral and the Intellectual Property free of all Liens, except for Permitted Liens.  Borrower has the power and authority to grant to Agent a Lien in the Collateral as security for the Secured Obligations.  The shares of any Subsidiary which are part of the Collateral are fully paid and not subject to any option to purchase or similar rights.  The constitutional documents of Subsidiaries whose shares are subject to the Security Documents do not and could not restrict or inhibit any transfer of those shares on creation or enforcement of the Security Documents.

 

5.3                               Consents.  Borrower’s execution, delivery and performance of this Agreement and all other Loan Documents, (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s Certificate or Articles of Incorporation (as applicable), bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (iv) except as described on Schedule 5.3, do not violate any contract or agreement or require the consent or approval of any other Person which has not already been obtained.  The individual or individuals executing the Loan Documents are duly authorized to do so.

 

5.4                               Material Adverse Effect.  No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

 

5.5                               Actions Before Governmental Authorities.  There are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of Borrower, threatened against or affecting Borrower or its property, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

5.6                               Laws.  Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect.  Borrower is not in default in any manner under any provision of any agreement or instrument evidencing Indebtedness, or any other material agreement to which it is a party or by which it is bound, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

5.7                               Information Correct and Current.  No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to Agent in connection with any Loan Document or included therein or delivered pursuant thereto (other than projections, other forward-looking information, budgets, forecasts and estimates, information and reports prepared by third-party advisors, information with

 

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respect to third parties and general economic or industry information that has been and will be made available to Agent or any of the Lenders by Borrower, when taken as a whole (after giving effect to all supplements and updates provided with respect to such information through the date furnished)) contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading at the time such statement was made or deemed made. Additionally, any and all financial or business projections provided by Borrower to Agent, whether prior to or after the Closing Date, shall be (i) provided in good faith and based on the most current data and information available to Borrower, and (ii) the most current of such projections provided to and approved by Borrower’s Board of Directors.

 

5.8                               Tax Matters.  Except as described on Schedule 5.8, (a) Borrower has filed all federal, state and local tax returns that it is required to file except with respect to taxes that do not exceed Fifty Thousand Dollars ($50,000) in the aggregate, (b) Borrower has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, except with respect to taxes that do not exceed Fifty Thousand Dollars ($50,000) in the aggregate, and (c) Borrower has paid or fully reserved for any tax assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings).

 

5.9                               Intellectual Property Claims.  Borrower is the sole owner of, or otherwise has the right to use, as applicable, the Intellectual Property owned by it or licensed to it by third parties.  Except as described on Schedule 5.9, (i) to the best of Borrower’s knowledge after due inquiry, each of the material registered Copyrights, registered Trademarks and Patents owned by Borrower is valid and enforceable, (ii) no material part of the Intellectual Property owned by Borrower has been judged invalid or unenforceable, in whole or in part, and (iii) no written claim has been made to Borrower that any material part of the Intellectual Property violates the rights of any third party.  Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary, in each case as of the Closing Date.  To the best of Borrower’s knowledge after due inquiry, neither Borrower nor any Subsidiary is in material breach of, nor has Borrower or any Subsidiary failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

 

5.10                        Intellectual Property.  Except as described on Schedule 5.10, to the best of Borrower’s knowledge after due inquiry, Borrower and each Subsidiary has, or in the case of any proposed business, will have, all material rights with respect to Intellectual Property necessary in the operation or conduct of Borrower’s and its Subsidiaries business as currently conducted and proposed to be conducted by Borrower.  Without limiting the

 

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generality of the foregoing, and in the case of Licenses, except for restrictions imposed under the terms of such Licenses, Borrower has the right, to the extent required to operate Borrower’s business, to freely transfer, license or assign Intellectual Property without condition, restriction or payment of any kind (other than license payments in the ordinary course of business) to any third party.

 

5.11                        Borrower Products.  Except as described on Schedule 5.11, no material Intellectual Property owned by Borrower or any Subsidiary or Borrower Product is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency other than prosecution of applications for Intellectual Property) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any material manner Borrower’s use, transfer or licensing thereof or that may affect in any material respect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into by Borrower in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products.  In the past two (2) years, Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or asserting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such claim.  To the best knowledge of Borrower after due inquiry, Borrower and its Subsidiaries use of their respective Intellectual Property and the production and sale of Borrower Products as of the Closing Date does not infringe the Intellectual Property or other rights of others, except as would not reasonably be expected to have a Material Adverse Effect. Notwithstanding anything to the contrary herein, “due inquiry”, for purposes of Sections 5.9, 5.10 and 5.11, does not require the review of any third party databases or the conduct of any patent or trademark clearance, freedom to operate searches or analyses, or validity or enforceability searches or analyses.

 

5.12                        Financial Accounts.  Exhibit E, as may be updated by the Borrower in a written notice provided to Agent after the Closing Date, is a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

 

5.13                        Employee Loans.  Borrower has no outstanding loans to any employee, officer or director of the Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of the Borrower by a third party.

 

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5.14                        Capitalization and Subsidiaries.  Borrower’s capitalization as of the Closing Date is set forth on Schedule 5.14 annexed hereto.  Borrower does not own any stock, partnership interest or other securities of any Person, except for Permitted Investments.  Attached as Schedule 5.14, as may be updated by Borrower in a written notice provided after the Closing Date, is a true, correct and complete list of each Subsidiary.

 

5.15                        Intentionally omitted.

 

5.16                        Sanctions Laws.  (a) Neither the Parent nor any Controlled Entity (i) is a Blocked Person, (ii) has been notified that its name appears or may in the future appear on a State Sanctions List or (iii) is a target of sanctions that have been imposed by the United Nations or the European Union;

 

(b)  Neither the Parent nor any Controlled Entity (i) has violated, been found in violation of, or been charged or convicted under, any applicable U.S. Economic Sanctions Laws, Anti-Money Laundering Laws or Anti-Corruption Laws or (ii) to the Parent’s knowledge, is under investigation by any Governmental Authority for possible violation of any U.S. Economic Sanctions Laws, Anti-Money Laundering Laws or Anti-Corruption Laws.

 

(c)                                              No part of the proceeds from Advance hereunder: (i) constitutes or will constitute funds obtained on behalf of any Blocked Person or will otherwise be used by the Parent or any Controlled Entity, directly or indirectly, (A) in connection with any investment in, or any transactions or dealings with, any Blocked Person, (B) for any purpose that would cause Agent or Lender to be in violation of any U.S. Economic Sanctions Laws or (C) otherwise in violation of any U.S. Economic Sanctions Laws; (ii) will be used, directly or indirectly, in violation of, or cause any Purchaser to be in violation of, any applicable Anti-Money Laundering Laws; or (iii) will be used, directly or indirectly, for the purpose of making any improper payments, including bribes, to any Governmental Official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage, in each case which would be in violation of, or cause Agent or Lender to be in violation of, any applicable Anti-Corruption Laws.

 

(d)                                             The Parent has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Parent and each Controlled Entity is and will continue to be in compliance with all applicable U.S. Economic Sanctions Laws, Anti-Money Laundering Laws and Anti-Corruption Laws.

 

5.17                        Pensions.  (a) Neither Parent nor any of its Subsidiaries is or has at any time been an employer (for the purposes of sections 38 to 51 of the Pensions Act 2004) of an occupational pension scheme which is not a money purchase scheme (both terms as defined in the Pensions Schemes Act 1993); and (b) neither Parent nor any of its Subsidiaries is or has at any time been “connected” with or an “associate” of (as those terms are used in sections 38 and 43 of the Pensions Act 2004) such an employer.

 

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SECTION 6.  INSURANCE; INDEMNIFICATION

 

6.1                               Coverage.  Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrower’s line of business.  Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3.  Borrower must maintain a minimum of $2,000,000 of commercial general liability insurance for each occurrence.  Borrower has and agrees to maintain a minimum of $2,000,000 of directors’ and officers’ insurance for each occurrence and $5,000,000 in the aggregate.  So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, in an amount not less than the full replacement cost of the Collateral, provided that such insurance may be subject to standard exceptions and deductibles.

 

6.2                               Certificates.  Subject to Section 7.18, Borrower shall deliver to Agent certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2.  Borrower’s insurance certificate shall state Agent is an additional insured for commercial general liability, a loss payee for all risk property damage insurance, subject to the insurer’s approval, and a loss payee for property insurance and additional insured for liability insurance for any future insurance that Borrower may acquire from such insurer.  Attached to the certificates of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property damage insurance.  Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Agent has been granted a first priority security interest (assuming it had a security interest in the destroyed or damaged property, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Agent or Lender, be payable to Lender on account of the Obligations.  All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to Agent of cancellation or any other change adverse to Agent’s interests.  Any failure of Agent to scrutinize such insurance certificates for compliance is not a waiver of any of Agent’s rights, all of which are reserved.

 

6.3                               Indemnity.  Borrower agrees to indemnify and hold Agent, Lender and their officers, directors, employees, agents, in-house attorneys, representatives and shareholders (each, an “Indemnified Person”) harmless from and against any and all claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation or defense (including those incurred upon any appeal) (collectively, “Liabilities”), that may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been

 

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extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition or utilization of the Collateral, excluding in all cases Liabilities to the extent resulting solely from any Indemnified Person’s gross negligence or willful misconduct.  In no event shall any Indemnified Person be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings). This Section 6.3 shall not apply with respect to any Taxes, except for Taxes that represent losses, claims or damages arising from any non-Tax claim.

 

SECTION 7.  COVENANTS OF BORROWER

 

Borrower agrees as follows:

 

7.1                               Financial Reports.  Borrower shall furnish to Agent the financial statements and reports listed hereinafter (the “Financial Statements”):

 

(a)                                 as soon as practicable (and in any event within 30 days) after the end of each of the first two (2) months of each calendar quarter, unaudited interim and year-to-date financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and booking and billing reports accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year end adjustments, and (iii) they do not contain certain non-cash items that are customarily included in quarterly and annual financial statements;

 

(b)                                 as soon as practicable (and in any event within 45 days) after the end of each calendar quarter, unaudited interim and year-to-date financial statements as of the end of such calendar quarter (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect,  certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared in accordance with GAAP, except (i) for the absence of footnotes, and (ii) that they are subject to normal year end adjustments; as well as the most recent capitalization table for Borrower, including the weighted average exercise price of employee stock options;

 

(c)                                  as soon as practicable (and in any event within one hundred fifty (150) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable),

 

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including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Agent, accompanied by any management report from such accountants; provided however, that the audited financial statements for the fiscal year ending December 31, 2014 may be subject to a “going concern” qualification or exception due to a lack of liquidity for such fiscal year;

 

(d)                                 as soon as practicable (and in any event within 30 days) after the end of each month, a Compliance Certificate in the form of Exhibit F;

 

(e)                                  as soon as practicable (and in any event within 15 days) after the end of each month, a report showing agings of accounts receivable and accounts payable;

 

(f)                                   promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports that Borrower has made available to holders of its Common Stock and copies of any regular, periodic and special reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or any national securities exchange;

 

(g)                                  at the same time and in the same manner as it gives to its directors, copies of all notices, consents and other materials that Borrower provides to its directors in connection with meetings of the Board of Directors, and within 30 days after approval of such minutes by the Board of Directors of the Borrower, minutes of such meeting, provided, that Borrower may withhold any information from the Lender and/or redact any and all minutes, to the extent that (i) access to such information or minutes would adversely affect the attorney-client privilege between Borrower and its counsel, (ii) access to such information or minutes could reasonably be expected to result in disclosure of trade secrets, (iii) the Lender is the subject matter of such information or the topic of discussion in such portion of such minutes, (iv) such information is related to executive sessions or officer performance and/or (v) such information is subject to a confidentiality agreement; and

 

(h)                                 financial and business projections promptly following their approval by Borrower’s Board of Directors, and in any event, no later than January 31, for the then current fiscal year, as well as budgets, operating plans and other financial information reasonably requested by Agent.

 

Parent shall not (without the consent of Agent, such consent not to be unreasonably withheld or delayed), make any change in its (a) accounting policies or reporting practices, except as required by GAAP or (b) fiscal years or fiscal quarters. The fiscal year of Parent shall end on December 31.

 

Notwithstanding anything to the contrary in this Section 7.1, documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered

 

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electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, and provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address; provided, however, Borrower shall promptly notify Agent and Lender in writing (which may be by electronic mail) of the posting of any such documents.

 

The executed Compliance Certificate may be sent via facsimile to Agent at (650) 473-9194 or via e-mail to cnorman@herculestech.com.  All Financial Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to financialstatements@herculestech.com with a copy to cnorman@herculestech.com provided, that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be sent via facsimile to Agent at: (866) 468-8916, attention Chief Credit Officer.

 

7.2                               Management Rights.  Borrower shall permit any representative that Agent or Lender authorizes, including its attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower at reasonable times and upon reasonable notice during normal business hours.  In addition, any such representative shall have the right to meet with management and officers of Borrower to discuss such books of account and records at a mutually convenient time.  In addition, Agent or Lender shall be entitled at reasonable times and intervals to consult with and advise the management and officers of Borrower concerning significant business issues affecting Borrower (provided that Borrower shall not be obligated to (i) delay the making of any business decision in order to accommodate receipt of such advice or (ii) implement any such advice).  Such consultations shall not unreasonably interfere with Borrower’s business operations.  The parties intend that the rights granted Agent and Lender shall constitute “management rights” within the meaning of 29 C.F.R Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation by Agent or Lender with respect to any business issues shall not be deemed to give Agent or Lender, nor be deemed an exercise by Agent or Lender of, control over Borrower’s management or policies.

 

7.3                               Further Assurances.  Borrower shall from time to time execute, deliver and file, alone or with Agent, any financing statements, security agreements, collateral assignments, notices, control agreements, or other documents to perfect or give the highest priority to Agent’s Lien on the Collateral.  Borrower shall from time to time procure any instruments or documents as may be requested by Agent, and take all further action that may be necessary or desirable, or that Agent may reasonably request, to perfect and protect the Liens granted hereby and thereby.  In addition, and for such purposes only, Borrower hereby authorizes Agent to execute and deliver on behalf of Borrower and to file such financing statements and, after the occurrence and during the continuance of an Event of Default, such collateral assignments, notices, control agreements, security agreements and other documents without the signature of Borrower either in Agent’s name or in the name of Agent as agent and attorney-in-fact for Borrower.  Borrower shall protect and defend Borrower’s title to the Collateral and Agent’s Lien thereon against all Persons claiming any interest adverse to Borrower or Agent other than Permitted Liens.

 

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7.4                               Indebtedness.  Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except for the conversion of Indebtedness into equity securities and the payment of cash in lieu of fractional shares in connection with such conversion.

 

7.5                               Collateral.  Borrower shall at all times keep the Collateral, the Intellectual Property and all other property and assets used in Borrower’s business or in which Borrower now or hereafter holds any interest free and clear from any Liens whatsoever (except for Permitted Liens), and shall give Agent prompt written notice of any legal process affecting the Collateral, the Intellectual Property,  such other property and assets, or any Liens thereon, provided however, that the Collateral and such other property and assets may be subject to Permitted Liens except that there shall be no Liens on Intellectual Property other than Permitted Intellectual Property Liens.  Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep such Subsidiary’s property and assets free and clear from any Liens whatsoever (except for Permitted Liens, provided however, that there shall be no Liens on Intellectual Property other than Permitted Intellectual Property Liens), and shall give Agent prompt written notice of any legal process affecting such Subsidiary’s assets. Borrower shall not agree with any Person other than Agent or Lender not to encumber its property.

 

7.6                               Investments.  Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.

 

7.7                               Distributions.  Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other equity interest other than pursuant to employee, director or consultant repurchase plans or other similar agreements, pursuant to their terms, or (b) declare or pay any cash dividend or make a cash distribution on any class of stock or other equity interest, except that a Subsidiary may pay dividends or make distributions to Borrower or to a Subsidiary Guarantor, or (c) lend money to any employees, officers or directors or guarantee the payment of any such loans granted by a third party in excess of $100,000 in the aggregate or (d) waive, release or forgive any Indebtedness owed by any employees, officers or directors in excess of $100,000 in the aggregate.

 

7.8                               Transfers.  Except for Permitted Transfers, Borrower shall not and not permit any Subsidiary to, voluntarily or involuntarily transfer, sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of its assets.

 

7.9                               Mergers or Acquisitions.  Except as otherwise permitted by this Agreement, Borrower shall not, without the Agent’s prior written consent, merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business

 

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organization (other than mergers or consolidations of (a) a Subsidiary which is not a Borrower into another Subsidiary or into Borrower or (b) a Borrower into another Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.

 

7.10                        Taxes.  Borrower and its Subsidiaries shall pay when due (and shall, within 15 Business Days of demand, indemnify the Lender against any cost, loss and liability arising from) all taxes, fees and other charges, including, all registration, stamp duty, excise, sales, registration and other similar taxes payable in respect of any Loan Documents or any Security Documents (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Agent, Lender (other than Agent or Lender’s income taxes) or the Collateral or upon Borrower’s ownership, possession, use, operation or disposition thereof or upon Borrower’s rents, receipts or earnings arising therefrom, excluding any taxes imposed with respect to an assignment of Agent or Lender’s interest in the Loan Documents.

 

7.11                        Corporate Changes.  Neither Parent nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without twenty (20) days’ prior written notice to Agent. Neither Parent nor any Subsidiary shall relocate its chief executive office or its principal place of business unless: (i) it has provided prior written notice to Agent; and (ii) such relocation shall be within the continental United States.  Neither Parent nor any Subsidiary shall relocate any item of Collateral (other than (x) sales of Inventory in the ordinary course of business, (y) relocations of Equipment having an aggregate value of up to $250,000 in any fiscal year, and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i) it has provided prompt written notice to Agent, (ii) such relocation is within the continental United States and, (iii) if such relocation is to a third party bailee, it has delivered a bailee agreement in form and substance reasonably acceptable to Agent.

 

7.12                        Deposit Accounts.  Neither Parent nor any Subsidiary shall maintain any Deposit Accounts (other than Deposit Accounts exclusively used for payroll), or accounts holding Investment Property, except with respect to which Agent (a) has an Account Control Agreement or Account Pledge Agreement or (b) otherwise maintains a perfected first priority security interest over such Deposit Accounts or accounts holding Investment Property.

 

7.13                        Borrower shall notify Agent of each Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, but subject to Section 3.2 shall cause any such Subsidiary to execute and deliver to Agent a Joinder Agreement or Guaranty, as determined by Agent in the exercise of its sole discretion.

 

7.14                        RESERVED.

 

7.15                        Notification of Event of Default.  Borrower shall notify Agent immediately of the occurrence of any Event of Default.

 

7.16                        RESERVED.

 

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7.17                        Sanctions.  The Parent will not and will not permit any Controlled Entity to (a) become (including by virtue of being owned or controlled by a Blocked Person), own or control a Blocked Person or (b) directly or indirectly have any investment in or engage in any dealing or transaction (including any investment, dealing or transaction involving the proceeds of the Advance) with any Person if such investment, dealing or transaction would be in violation of, or could result in the imposition of sanctions under, any U.S. Economic Sanctions Laws applicable to the Parent or such Controlled Entity, except, in the case of this clause (b), to the extent that such violation or sanctions, if imposed, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.\

 

7.18                        Post Closing Obligations.  Parent shall have caused the obligations set forth on Schedule 7.18 to occur to the satisfaction of Agent within the applicable time periods set forth on Schedule 7.18.

 

SECTION 8.  INTENTIONALLY OMITTED.

 

SECTION 9.  EVENTS OF DEFAULT

 

The occurrence of any one or more of the following events shall be an Event of Default:

 

9.1                               Payments.  Borrower fails to pay any amount due under this Agreement or any of the other Loan Documents on the due date; provided, however, that in each case, it will not be a default under this Section 9.1 if the Borrower has sufficient funds in the account subject to the ACH Authorization, but Lender fails to timely make any ACH transfer (not the result of any action or inaction of the Borrower) occurs so long as the Borrower makes such payment within three (3) Business Days after it has received written notice of such ACH Failure; or

 

9.2                               Covenants.  Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, or any of the other Loan Documents or any other agreement among Borrower, Agent and Lender, and (a) with respect to a default under any covenant under this Agreement (other than under Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.15, 7.17 and 7.18), any other Loan Document or any other agreement among Borrower, Agent and Lender, such default continues for more than ten (10) Business Days after the earlier of the date on which (i) Agent or Lender has given notice of such default to Borrower and (ii) Borrower has actual knowledge of such default or (b) with respect to a default under any of Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.15, 7.17 and 7.18, the occurrence of such default; or

 

9.3                               Material Adverse Effect.  A circumstance has occurred that would reasonably be expected to have a Material Adverse Effect; or

 

9.4                               Representations.  Any representation or warranty made by Parent or any Subsidiary Guarantor in any Loan Document or in the Warrant shall have been false or misleading in any material respect; or

 

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9.5                               Insolvency.  (A) Parent or any Subsidiary Guarantor (i) shall make an assignment for the benefit of creditors; or (ii)  shall file a voluntary petition in bankruptcy; or (iii) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances; or (iv) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Parent or such Subsidiary Guarantor, as applicable, or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Parent or such Subsidiary Guarantor, as applicable; or (v) shall cease operations of its business as its business has normally been conducted, or terminate substantially all of its employees; or (vi) Parent or any Subsidiary Guarantor or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i) through (v); (B) Parent or any Subsidiary Guarantor either (i) sixty (60) days shall have expired after the commencement of an involuntary action against Parent or any Subsidiary Guarantor seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Parent or such Subsidiary Guarantor, as applicable, being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (iii) Parent or any Subsidiary Guarantor shall file any answer admitting or not contesting the material allegations of a petition filed against Parent or such Subsidiary Guarantor, as applicable, in any such proceedings; or (iv) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) sixty (60) days shall have expired after the appointment, without the consent or acquiescence of Parent or any Subsidiary Guarantor, as applicable, of any trustee, receiver or liquidator of Parent or such Subsidiary Guarantor, as applicable, or of all or any substantial part of the properties of Parent or such Subsidiary Guarantor, as applicable, without such appointment being vacated; (C) (1) Parent or any Subsidiary Guarantor (i) is generally unable or admits in writing inability to pay its debts as they fall due;  (ii) is deemed to, or is declared to, be unable to pay its debts under applicable law;  (iii) suspends or threatens to suspend making payments on any of its debts; or (iv) by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors (excluding Agent or Lender in its capacity as such) with a view to rescheduling any of its indebtedness; (2) the value of the assets of Parent or such Subsidiary Guarantor is less than its liabilities (taking into account contingent and prospective liabilities) or (3) a moratorium is declared in respect of any indebtedness of Parent or such Subsidiary Guarantor; or (4) any corporate action, legal proceedings or other procedure or step is taken in relation to: (i) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of Parent or any Subsidiary Guarantor; (ii) a composition, compromise, assignment or arrangement with any creditor of Parent or any Subsidiary Guarantor; (iii) the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of Parent or any Subsidiary Guarantor or any of their assets; or (iv) enforcement of any Collateral over any assets of Parent or any Subsidiary Guarantor, or any analogous procedure or step is taken in any jurisdiction; provided this clause 4 shall not apply to any

 

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winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within 14 days of commencement.  If a moratorium occurs, the ending of the moratorium will not remedy any Event of Default caused by that moratorium; or

 

9.6                               Attachments; Judgments.  Any portion of Parent or any Subsidiary’s assets is attached or seized, or a levy is filed against any such assets, or a judgment or judgments is/are entered for the payment of money, or any expropriation, attachment, sequestration, distress or execution or any analogous process in any jurisdiction, individually or in the aggregate, of at least $250,000, or Parent or any Subsidiary Guarantor is enjoined or in any way prevented by court order from conducting any part of its business; or

 

9.7                               Other Obligations.  The occurrence of any default (beyond any applicable grace, appeal or cure period) under any agreement or obligation of Parent or any Subsidiary involving any Indebtedness in excess of $100,000, or the occurrence of any default under any agreement or obligation of Parent or any Subsidiary Guarantor, as applicable, that could reasonably be expected to have a Material Adverse Effect;

 

9.8                               Stop Trade.  At any time an SEC stop trade order or NASDAQ market trading suspension of the Common Stock shall be in effect for five (5) consecutive days or five (5) days during a period of ten (10) consecutive days, excluding in all cases a suspension of all trading on a public market, provided that Borrower shall not have been able to cure such trading suspension within thirty (30) days of the notice thereof or list the Common Stock on another public market within sixty (60) days of such notice; or

 

9.9                               Other Loan Documents.  The occurrence of any default under any Loan Document or any other agreement between Parent or any Subsidiary Guarantor and Agent and/or Lender and such default continues for more than fifteen (15) days after the earlier of (a) Agent has given notice of such default to Parent or any Subsidiary Guarantor, as applicable, or (b) Parent or any Subsidiary Guarantor, as applicable, has actual knowledge of such default; or

 

9.10                        Invalidity of Loan Documents.  Other than as a result of an action or a failure to take an action on the part of Agent which is within Agent’s reasonable control, (a) any provision of any Loan Document, at any time after its execution and delivery and for any reason, ceases to be in full force and effect; or Parent or any Subsidiary Guarantor or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or (b) Parent or any Subsidiary Guarantor denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document or seeks to avoid, limit or otherwise adversely affect any Lien purported to be created under any Security Document; or (c) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by Parent or any Subsidiary Guarantor or any other Person not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Security Document.

 

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SECTION 10.  REMEDIES

 

10.1                        General.  Upon and during the continuance of any one or more Events of Default, (i) Agent may, at its option, accelerate and demand payment of all or any part of the Secured Obligations together with a Prepayment Charge and declare them to be immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described in Section 9.5, all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), (ii) Agent may, at its option, sign and file in Borrower’s name any and all collateral assignments, notices, control agreements, security agreements and other documents it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations, and in furtherance thereof, Borrower hereby grants Agent an irrevocable power of attorney coupled with an interest, and (iii) Agent may notify any of Borrower’s account debtors to make payment directly to Agent, compromise the amount of any such account on Borrower’s behalf and endorse Agent’s name without recourse on any such payment for deposit directly to Agent’s account.  Agent may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to it under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral.  The Agent shall be entitled to exercise any and all rights and remedies set forth in the Security Documents.  All Agent’s rights and remedies shall be cumulative and not exclusive.

 

10.2                        Collection; Foreclosure.  Upon the occurrence and during the continuance of any Event of Default, Agent may, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as Agent may elect.  Any such sale may be made either at public or private sale at its place of business or elsewhere.  Borrower agrees that any such public or private sale may occur upon ten (10) calendar days’ prior written notice to Borrower.  Agent may require Borrower to assemble the Collateral and make it available to Agent at a place designated by Agent that is reasonably convenient to Agent and Borrower.  The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by Agent in the following order of priorities:

 

First, to Agent and Lender in an amount sufficient to pay in full Agent’s and Lender’s costs and professionals’ and advisors’ fees and expenses as described in Section 11.11;

 

Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations (including principal, interest, and the Default Rate interest), in such order and priority as Agent may choose in its sole discretion; and

 

Finally, after the full, final, and indefeasible payment in Cash of all of the Secured Obligations, to any creditor holding a junior Lien on the Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.

 

Agent shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.

 

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10.3                        No Waiver.  Agent shall be under no obligation to marshal any of the Collateral for the benefit of Borrower or any other Person, and Borrower expressly waives all rights, if any, to require Agent to marshal any Collateral.

 

10.4                        Cumulative Remedies.  The rights, powers and remedies of Agent hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative.  The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of Agent.

 

SECTION 11.  MISCELLANEOUS

 

11.1                        Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

11.2                        Notice. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of Financial Statements) that is required, contemplated, or permitted under the Loan Documents or with respect to the subject matter hereof shall be in writing (which shall include email transmissions), and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by facsimile, email or hand delivery or delivery by an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:

 

(a)                                 If to Agent:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
 Legal Department
 Attention:  Chief Legal Officer and Chad Norman
 400 Hamilton Avenue, Suite 310
 Palo Alto, CA 94301
 Facsimile:  650-473-9194
 Telephone:  650-289-3060

Email:

 

(b)                                 If to Lender:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
 Legal Department
 Attention:  Chief Legal Officer and Chad Norman
 400 Hamilton Avenue, Suite 310
 Palo Alto, CA 94301

 

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Facsimile:  650-473-9194
 Telephone:  650-289-3060

 

(c)                                  If to Borrower:

 

Egalet Corporation

 

Attention:  Chief Financial Officer
 460 E. Swedsforde Road 
 Wayne, PA 19087
 Facsimile:  610-833-4200
 Telephone: 484-580-6230

 

or to such other address as each party may designate for itself by like notice.

 

11.3                        Entire Agreement; Amendments.

 

(a)                                 This Agreement and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, non-disclosure or confidentiality agreements, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including Agent’s revised proposal letter dated November 18, 2014).

 

(b)                                 Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 11.3(b).  The Required Lenders and Borrower party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Agent and the Borrower party to the relevant Loan Document may, from time to time, (i) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (ii) waive, on such terms and conditions as the Required Lenders or the Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (A) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, reduce the stated rate of any interest or fee payable hereunder) or extend the scheduled date of any payment thereof, without the written consent of each Lender directly affected thereby; (B) eliminate or reduce the voting rights of any Lender under this Section 11.3(b) without the written consent of such Lender; (C) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release a Borrower from its obligations under the Loan Documents, in each case without the written consent of all Lenders; or (D) amend, modify or waive any provision of Section 11.17 without the written consent of the Agent.  Any such waiver

 

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and any such amendment, supplement or modification shall apply equally to each Lender and shall be binding upon Borrower, the Lender, the Agent and all future holders of the Loans.

 

11.4                        No Strict Construction.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

 

11.5                        No Waiver.  The powers conferred upon Agent and Lender by this Agreement are solely to protect its rights hereunder and under the other Loan Documents and its interest in the Collateral and shall not impose any duty upon Agent or Lender to exercise any such powers.  No omission or delay by Agent or Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Agent or Lender is entitled, nor shall it in any way affect the right of Agent or Lender to enforce such provisions thereafter.

 

11.6                        Survival.  All agreements, representations and warranties contained in this Agreement and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of Agent and Lender and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

 

11.7                        Successors and Assigns.  The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any).  Borrower shall not assign its obligations under this Agreement or any of the other Loan Documents without Agent’s express prior written consent, and any such attempted assignment shall be void and of no effect.  Agent and Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents without prior notice to Borrower, and all of such rights shall inure to the benefit of Agent’s and Lender’s successors and assigns.  Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Agent and Lender shall not assign any interest in the Loan Document to an operating company which is a competitor of Borrower.  The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in the United States, a copy of each such assignment, transfer or endorsement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

 

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11.8                        Governing Law.  This Agreement and the other Loan Documents have been negotiated and delivered to Agent and Lender in the State of New York, and shall have been accepted by Agent and Lender in the State of New York.  Payment to Agent and Lender by Borrower of the Secured Obligations is due in the State of New York.  This Agreement and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

 

11.9                        Consent to Jurisdiction and Venue.  All judicial proceedings arising in or under or related to this Agreement or any of the other Loan Documents may be brought in any state or federal court located in the State of New York.  By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in New York County, State of New York; (b) waives any objection as to jurisdiction or venue in New York County, State of New York; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement or the other Loan Documents.  Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.2, and shall be deemed effective and received as set forth in Section 11.2.  Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

 

11.10                 Mutual Waiver of Jury Trial.

 

Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert Person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws.  EACH OF BORROWER, AGENT AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER AGAINST AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE OR BY AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE AGAINST BORROWER.  This waiver extends to all such Claims, including Claims that involve Persons other than Agent, Borrower and Lender; Claims that arise out of or are in any way connected to the relationship among Borrower, Agent and Lender; and any Claims for damages, breach of contract, tort, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement, any other Loan Document.

 

11.11                 Professional Fees.  Borrower promises to pay Agent’s and Lender’s documented out-of-pocket fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable documented attorneys fees, UCC searches, filing costs, and other miscellaneous expenses. In addition, Borrower promises to pay any and all reasonable documented attorneys’ and other professionals’ fees and expenses incurred by

 

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Agent and Lender after the Closing Date in connection with or related to:  (a) the Loan; (b) the administration, collection, or enforcement of the Loan; (c) the amendment or modification of the Loan Documents; (d) any waiver, consent, release, or termination under the Loan Documents; (e) the protection, preservation, audit, field exam, sale, lease, liquidation, or disposition of Collateral or the exercise of remedies with respect to the Collateral; (f) any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (g) any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower, the Collateral, the Loan Documents, including representing Agent or Lender in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrower’s estate, and any appeal or review thereof.

 

11.12                 Confidentiality.  Agent and Lender acknowledge that certain items of Collateral and information provided to Agent and Lender by Borrower are confidential and proprietary information of Borrower, if and to the extent such information either (x) is marked as confidential by Borrower at the time of disclosure, or (y) should reasonably be understood to be confidential (the “Confidential Information”).  Accordingly, Agent and Lender agree that any Confidential Information it may obtain in the course of acquiring, administering, or perfecting Agent’s security interest in the Collateral shall not be disclosed to any other Person or entity in any manner whatsoever, in whole or in part, without the prior written consent of Borrower, except that Agent and Lender may disclose any such information:  (a) to its own directors, officers, employees, accountants, counsel and other professional advisors and to its Affiliates if Agent or Lender in their sole discretion determines that any such party should have access to such information in connection with such party’s responsibilities in connection with the Loan or this Agreement and, provided that such recipient of such Confidential Information either (i) agrees to be bound by the confidentiality provisions of this paragraph or (ii) is otherwise subject to confidentiality restrictions that reasonably protect against the disclosure of Confidential Information; (b) if such information is generally available to the public; (c) if required in any report, statement or testimony submitted to any governmental authority having or claiming to have jurisdiction over Agent or Lender; (d) if required in response to any summons or subpoena or in connection with any litigation, to the extent permitted or deemed advisable by Agent’s or Lender’s counsel; (e) to comply with any legal requirement or law applicable to Agent or Lender; (f) to the extent reasonably necessary in connection with the exercise of any right or remedy under any Loan Document, including Agent’s sale, lease, or other disposition of Collateral after default; (g) to any participant or assignee of Agent or Lender or any prospective participant or assignee; provided, that such participant or assignee or prospective participant or assignee agrees in writing to be bound by this Section prior to disclosure; or (h) otherwise with the prior consent of Borrower; provided, that any disclosure made in violation of this Agreement shall not affect the obligations of Borrower or any of its Affiliates or any guarantor under this Agreement or the other Loan Documents.

 

11.13                 Assignment of Rights.  Subject to the provisions of Section 11.7, Borrower acknowledges and understands that Agent or Lender may sell and assign all or part of its

 

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interest hereunder and under the Loan Documents to any Person or entity (an “Assignee”).  After such assignment the term “Agent” or “Lender” as used in the Loan Documents shall mean and include such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Agent and Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, Agent and Lender shall retain all rights, powers and remedies hereby given.  No such assignment by Agent or Lender shall relieve Borrower of any of its obligations hereunder.  Lender agrees that in the event of any transfer by it of the Note(s)(if any), it will endorse thereon a notation as to the portion of the principal of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon.

 

11.14                 Revival of Secured Obligations.  This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrower’s assets, or if any payment or transfer of Collateral is recovered from Agent or Lender.  The Loan Documents and the Secured Obligations and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to Agent, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, Agent, Lender or by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment, performance, or transfer of Collateral had not been made.  In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the full, final, and indefeasible payment to Agent or Lender in Cash.

 

11.15                 Counterparts.  This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

 

11.16                 No Third Party Beneficiaries.  No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind in any Person other than Agent, Lender and Borrower unless specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal and solely among Agent, the Lender and the Borrower.

 

11.17                 Agency.

 

(a)                                 Lender hereby irrevocably appoints Hercules Technology Growth Capital, Inc. to act on its behalf as the Agent hereunder and under the other Loan Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are

 

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delegated to the Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.

 

(b)                                 Lender agrees to indemnify the Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), according to its respective Term Commitment percentages (based upon the total outstanding Term Loan Commitments) in effect on the date on which indemnification is sought under this Section 11.7, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

 

(c)                                  Agent in Its Individual Capacity.  The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent and the term “Lender” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each such Person serving as Agent hereunder in its individual capacity.

 

(d)                                 Exculpatory Provisions.  The Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, the Agent shall not:

 

(i)             be subject to any fiduciary or other implied duties, regardless of whether any default or any Event of Default has occurred and is continuing;

 

(ii)          have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Agent is required to exercise as directed in writing by the Lender, provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Loan Document or applicable law; and

 

(iii)       except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and the Agent shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by any Person serving as the Agent or any of its Affiliates in any capacity.

 

(e)                                  The Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Lender or as the Agent shall believe in good faith

 

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shall be necessary, under the circumstances or (ii) in the absence of its own gross negligence or willful misconduct.

 

(f)                                   The Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Agent.

 

(g)                                  Reliance by Agent.  Agent may rely, and shall be fully protected in acting, or refraining to act, upon, any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond or other paper or document that it has no reason to believe to be other than genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties.  In the absence of its gross negligence or willful misconduct, Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to Agent and conforming to the requirements of the Loan Agreement or any of the other Loan Documents.  Agent may consult with counsel, and any opinion or legal advice of such counsel shall be full and complete authorization and protection in respect of any action taken, not taken or suffered by Agent hereunder or under any Loan Documents in accordance therewith.  Agent shall have the right at any time to seek instructions concerning the administration of the Collateral from any court of competent jurisdiction.  Agent shall not be under any obligation to exercise any of the rights or powers granted to Agent by this Agreement, the Loan Agreement and the other Loan Documents at the request or direction of Lenders unless Agent shall have been provided by Lender with adequate security and indemnity against the costs, expenses and liabilities that may be incurred by it in compliance with such request or direction.

 

11.18                 Publicity.  None of the parties hereto nor any of its respective member businesses and Affiliates shall, without the other parties’ prior written consent (which shall not be unreasonably withheld or delayed), publicize or use (a) the other party’s name (including a brief description of the relationship among the parties hereto), logo or hyperlink to such other parties’ web site, separately or together, in written and oral presentations, advertising, promotional and marketing materials, client lists, public relations materials or on its web site (together, the “ Publicity Materials”); (b) the names of officers of such other parties in the Publicity Materials; and (c) such other parties’ name, trademarks, servicemarks in any news or press release concerning such party; provided however, notwithstanding anything to the contrary herein, no such consent shall be required (i) to the extent necessary to comply with the requests of any regulators, legal requirements or laws applicable to such party (including any regular, periodic and special

 

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reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that be substituted therefor), so long as such party provides prior notice to the other party hereto to the extent reasonably practicable and (ii) to comply with Section 11.12.

 

11.19                 Guaranty; Waivers.  (a)  Guaranty.  Each Subsidiary Guarantor unconditionally and irrevocably guarantees to Agent and Lender the full and prompt payment when due (whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise) and performance of the Secured Obligations (the “Guaranteed Obligations”).  The Guaranteed Obligations include interest that, but for a proceeding under any Insolvency Proceeding, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Parent or any other Subsidiary Guarantor for such interest in any such proceeding.

 

(b)                                 Separate Obligation.  Each Subsidiary Guarantor acknowledges and agrees that:  (i) the Guaranteed Obligations are separate and distinct from any Indebtedness arising under or in connection with any other document, including under any provision of this Agreement other than this Section 11.19, executed at any time by such Subsidiary Guarantor in favor of Agent; and (ii) such Subsidiary Guarantor shall pay and perform all of the Guaranteed Obligations as required under this Section 11.19, and Agent may enforce any and all of their respective rights and remedies hereunder, without regard to any other document, including any provision of this Agreement other than this Section 11.19, at any time executed by such Subsidiary Guarantor in favor of Agent, irrespective of whether any such other document, or any provision thereof or hereof, shall for any reason become unenforceable or any of the Indebtedness thereunder shall have been discharged, whether by performance, avoidance or otherwise.  Each Subsidiary Guarantor acknowledges that, in providing benefits to Borrower, Lender and Agent are relying upon the enforceability of this Section 11.19 and the Guaranteed Obligations as separate and distinct Indebtedness of such Subsidiary Guarantor, and each Subsidiary Guarantor agrees that Lender and Agent would be denied the full benefit of its bargain if at any time this Section 11.19 or the Guaranteed Obligations were treated any differently.  The fact that the guaranty is set forth in this Agreement rather than in a separate guaranty document is for the convenience of Borrower and Subsidiary Guarantors and shall in no way impair or adversely affect the rights or benefits of Agent or Lender under this Section 11.19.  Each Subsidiary Guarantor agrees to execute and deliver a separate document, immediately upon request at any time of Agent or Lender, evidencing such Subsidiary Guarantor’s obligations under this Section 11.19.  Upon the occurrence of any Event of Default, a separate action or actions may be brought against such Subsidiary Guarantor, whether or not Borrower, any other Subsidiary Guarantor or any other Person is joined therein or a separate action or actions are brought against Borrower, any such other Subsidiary Guarantor or any such other Person.

 

(c)                                  Limitation of Guaranty.  To the extent that any court of competent jurisdiction shall impose by final judgment under applicable Laws (including sections 544 and 548 of the Bankruptcy Code) any limitations on the amount of any Subsidiary Guarantor’s liability with respect to the Guaranteed Obligations that Agent can enforce

 

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under this Section 11.19, Lender and Agent by their acceptance hereof accept such limitation on the amount of such Subsidiary Guarantor’s liability hereunder to the extent needed to make this Section 11.19 fully enforceable and nonavoidable.

 

(d)                                 Liability of Subsidiary Guarantors.  The liability of any Subsidiary Guarantor under this Section 11.19 shall be irrevocable, absolute, independent and unconditional, and shall not be affected by any circumstance that might constitute a discharge of a surety or guarantor other than the indefeasible payment and performance in full of all Guaranteed Obligations.  In furtherance of the foregoing and without limiting the generality thereof, each Subsidiary Guarantor agrees as follows:

 

(i)                                     such Subsidiary Guarantor’s liability hereunder shall be the immediate, direct, and primary obligation of such Subsidiary Guarantor and shall not be contingent upon Agent’s exercise or enforcement of any remedy it may have against Borrower or any other Person, or against any collateral or other security for any Guaranteed Obligations;

 

(ii)                                  this Guaranty is a guaranty of payment when due and not merely of collectibility;

 

(iii)                               Agent may enforce this Section 11.19 upon the occurrence of an Event of Default notwithstanding the existence of any dispute among Agent, on the one hand, and Borrower or any other Person, on the other hand, with respect to the existence of such Event of Default;

 

(iv)                              such Subsidiary Guarantor’s payment of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge such Subsidiary Guarantor’s liability for any portion of the Guaranteed Obligations remaining unsatisfied; and

 

(v)                                 such Subsidiary Guarantor’s liability with respect to the Guaranteed Obligations shall remain in full force and effect without regard to, and shall not be impaired or affected by, nor shall such Subsidiary Guarantor be exonerated or discharged by, any of the following events:

 

(A)             any proceeding under any Insolvency Proceeding;

 

(B)             any limitation, discharge, or cessation of the liability of Borrower or any other Person for any Guaranteed Obligations due to any statute, regulation or rule of law, or any invalidity or unenforceability in whole or in part of any of the Guaranteed Obligations or the Loan Documents;

 

(C)             any merger, acquisition, consolidation or change in structure of Borrower or any Subsidiary Guarantor or any other guarantor or Person, or any sale, lease, transfer or other disposition of any or all of the assets or shares of Borrower or any other Person;

 

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(D)             any assignment or other transfer, in whole or in part, of Agent or Lender’s interests in and rights under this Agreement (including this Section 11.19) or the other Loan Documents;

 

(E)              any claim, defense, counterclaim or setoff, other than that of prior performance, that Borrower, such Subsidiary Guarantor, any other Guarantor or any other Person may have or assert, including any defense of incapacity or lack of corporate or other authority to execute any of the Loan Documents;

 

(F)               Agent or Lender’s amendment, modification, renewal, extension, cancellation or surrender of any Loan Document or any Guaranteed Obligations;

 

(G)             Agent or Lender’s exercise or non exercise of any power, right or remedy with respect to any Guaranteed Obligations or any collateral;

 

(H)            Agent or Lender’s vote, claim, distribution, election, acceptance, action or inaction in any proceeding under any Bankruptcy Law; or

 

(I)                 any other guaranty, whether by such Subsidiary Guarantor or any other Person, of all or any part of the Guaranteed Obligations or any other indebtedness, obligations or liabilities of Borrower to Agent or Lender.

 

(e)                                  Consents of Subsidiary Guarantors.  Each Subsidiary Guarantor hereby unconditionally consents and agrees that, without notice to or further assent from such Subsidiary Guarantor:

 

(i)                                     the principal amount of the Guaranteed Obligations may be increased or decreased and additional indebtedness or obligations of Borrower under the Loan Documents may be incurred and the time, manner, place or terms of any payment under any Loan Document may be extended or changed, by one or more amendments, modifications, renewals or extensions of any Loan Document or otherwise;

 

(ii)                                  the time for Borrower’s (or any other Person’s) performance of or compliance with any term, covenant or agreement on its part to be performed or observed under any Loan Document may be extended, or such performance or compliance waived, or failure in or departure from such performance or compliance consented to, all in such manner and upon such terms as Lender (as applicable under the relevant Loan Documents) may deem proper;

 

(iii)                               Agent or Lender may request and accept other guaranties and may take and hold security as collateral for the Guaranteed Obligations, and may, from time to time, in whole or in part, exchange, sell, surrender, release, subordinate, modify, waive, rescind, compromise or extend such other guaranties or security and may permit or consent to any such action or the result of any such action, and may apply such security and direct the order or manner of sale thereof; and

 

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(iv)                              Agent or Lender may exercise, or waive or otherwise refrain from exercising, any other right, remedy, power or privilege even if the exercise thereof affects or eliminates any right of subrogation or any other right of such Subsidiary Guarantor against Borrower.

 

(f)                                   Subsidiary Guarantor’s Waivers.  Each Subsidiary Guarantor waives and agrees not to assert:

 

(i)                                     any right to require Agent or Lender to proceed against Borrower, any other Guarantor or any other Person, or to pursue any other right, remedy, power or privilege of Agent or Lender whatsoever;

 

(ii)                                  the defense of the statute of limitations in any action hereunder or for the collection or performance of the Guaranteed Obligations;

 

(iii)                               any defense arising by reason of any lack of corporate or other authority or any other defense of Borrower, such Guarantor or any other Person;

 

(iv)                              any defense based upon Agent or Lender’s errors or omissions in the administration of the Guaranteed Obligations;

 

(v)                                 any rights to set offs and counterclaims;

 

(vi)                              without limiting the generality of the foregoing, to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by applicable Laws limiting the liability of or exonerating guarantors or sureties, or that may conflict with the terms of this Section 11.19; and

 

(vii)                           any and all notice of the acceptance of this guaranty, and any and all notice of the creation, renewal, modification, extension or accrual of the Guaranteed Obligations, or the reliance by Agent or Lender upon this Guaranty, or the exercise of any right, power or privilege hereunder.  The Guaranteed Obligations shall conclusively be deemed to have been created, contracted, incurred and permitted to exist in reliance upon this Guaranty.  Each Subsidiary Guarantor waives promptness, diligence, presentment, protest, demand for payment, notice of default, dishonor or nonpayment and all other notices to or upon Borrower, each Guarantor or any other Person with respect to the Guaranteed Obligations.

 

(g)                                  Financial Condition of Borrower.  No Subsidiary Guarantor shall have any right to require Lender to obtain or disclose any information with respect to:  the financial condition or character of Borrower or the ability of Borrower to pay and perform the Guaranteed Obligations; the Guaranteed Obligations; any collateral or other security for any or all of the Guaranteed Obligations; the existence or nonexistence of any other guarantees of all or any part of the Guaranteed Obligations; any action or inaction on the part of Lender or any other Person; or any other matter, fact or occurrence whatsoever.  Each Subsidiary Guarantor hereby acknowledges that it has undertaken its own

 

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independent investigation of the financial condition of Borrower and all other matters pertaining to this Guaranty and further acknowledges that it is not relying in any manner upon any representation or statement of Lender with respect thereto.

 

(h)                                 Subrogation.  Until the Guaranteed Obligations shall be satisfied in full, each Subsidiary Guarantor shall not have, and shall not directly or indirectly exercise:  (i) any rights that it may acquire by way of subrogation under this Section 11.19, by any payment hereunder or otherwise; (ii) any rights of contribution, indemnification, reimbursement or similar suretyship claims arising out of this Section 11.19; or (iii) any other right that it might otherwise have or acquire (in any way whatsoever) that could entitle it at any time to share or participate in any right, remedy or security of Agent or Lender as against any Borrower or other Guarantors or any other Person, whether in connection with this Section 11.19, any of the other Loan Documents or otherwise.  If any amount shall be paid to any Subsidiary Guarantor on account of the foregoing rights at any time when all the Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of Agent and Lender and shall forthwith be paid to Agent to be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents.

 

(i)                                     Subordination.  All payments on account of all indebtedness, liabilities and other obligations of Borrower to any Subsidiary Guarantor, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined (the “Subsidiary Guarantor Subordinated Indebtedness”) shall be subject, subordinate and junior in right of payment and exercise of remedies, to the extent and in the manner set forth herein, to the prior payment in full in cash or cash equivalents of the Guaranteed Obligations.  As long as any of the Guaranteed Obligations (other than unasserted contingent indemnification obligations) shall remain outstanding and unpaid, each Subsidiary Guarantor shall not accept or receive any payment or distribution by or on behalf of Borrower or any other Subsidiary Guarantor, directly or indirectly, or assets of Borrower or any other Subsidiary Guarantor, of any kind or character, whether in cash, property or securities, including on account of the purchase, redemption or other acquisition of Subsidiary Guarantor Subordinated Indebtedness, as a result of any collection, sale or other disposition of collateral, or by setoff, exchange or in any other manner, for or on account of the Subsidiary Guarantor Subordinated Indebtedness (“Subsidiary Guarantor Subordinated Indebtedness Payments”), except that, so long as an Event of Default does not then exist, any Subsidiary Guarantor shall be entitled to accept and receive payments on its Subsidiary Guarantor Subordinated Indebtedness, in accordance with past business practices of such Subsidiary Guarantor and Borrower (or any other applicable Subsidiary Guarantor) and not in contravention of any Law or the terms of the Loan Documents.

 

If any Subsidiary Guarantor Subordinated Indebtedness Payments shall be received in contravention of this Section 11.19, such Subsidiary Guarantor Subordinated Indebtedness Payments shall be held in trust for the benefit of Lender and shall be paid over or delivered to Agent for application to the payment in full in cash or cash equivalents of all Guaranteed Obligations remaining unpaid to the extent necessary to

 

45

 

give effect to this Section 11.19 after giving effect to any concurrent payments or distributions to Lender in respect of the Guaranteed Obligations.

 

(j)                                    Continuing Guaranty.  This Guaranty is a continuing guaranty and agreement of subordination and shall continue in effect and be binding upon each Subsidiary Guarantor until termination of the Aggregate Commitments and payment and performance in full of the Guaranteed Obligations, including Guaranteed Obligations which may exist continuously or which may arise from time to time, and each Subsidiary Guarantor expressly acknowledges that this guaranty shall remain in full force and effect until payment and performance in full of the Guaranteed Obligations, notwithstanding that there may be periods in which no Guaranteed Obligations exist.  This Guaranty shall continue in effect and be binding upon each Subsidiary Guarantor until actual receipt by Agent of written notice from such Subsidiary Guarantor of its intention to discontinue this Guaranty as to future transactions (which notice shall not be effective until noon on the day that is five Business Days following such receipt); provided that no revocation or termination of this guaranty shall affect in any way any rights of Agent hereunder with respect to any Guaranteed Obligations arising or outstanding on the date of receipt of such notice, including any subsequent continuation, extension, or renewal thereof, or change in the terms or conditions thereof, or any Guaranteed Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Lender in existence as of the date of such revocation (collectively, “Existing Guaranteed Obligations”), and the sole effect of such notice shall be to exclude from this Guaranty Guaranteed Obligations thereafter arising which are unconnected to any Existing Guaranteed Obligations.

 

(k)                                 Reinstatement.  This Guaranty shall continue to be effective or shall be reinstated and revived, as the case may be, if, for any reason, any payment of the Guaranteed Obligations by or on behalf of Borrower (or receipt of any proceeds of collateral) shall be rescinded, invalidated, declared to be fraudulent or preferential, set aside, voided or otherwise required to be repaid to Borrower, its estate, trustee, receiver or any other Person (including under any Bankruptcy Law), or must otherwise be restored by Agent or Lender, whether as a result of proceedings under any bankruptcy law or otherwise.  All losses, damages, costs and expenses that Agent and Lender may suffer or incur as a result of any voided or otherwise set aside payments shall be specifically covered by the indemnity in favor of Agent and Lender contained in Section 6.3.

 

(l)                                     Substantial Benefits.  The Advances provided to or for the benefit of Borrower hereunder by Lender have been and are to be contemporaneously used for the benefit of Borrower and each Subsidiary Guarantor and their respective Subsidiaries.  It is the position, intent and expectation of the parties that Borrower and each Subsidiary Guarantor have derived and will derive significant and substantial benefits from the Advances to be made available by Lender under the Loan Documents.  Each Subsidiary Guarantor has received at least “reasonably equivalent value” (as such phrase is used in Section 548 of the Bankruptcy Code and in comparable provisions of other applicable Laws) and more than sufficient consideration to support its obligations hereunder in respect of the Guaranteed Obligations.  Immediately prior to and after and giving effect

 

46

 

to the incurrence of each Subsidiary Guarantor’s obligations under this Guaranty, such Subsidiary Guarantor will be solvent and will not be subject to any Insolvency Proceedings nor meet the conditions to be subject to any Insolvency Proceedings.

 

(m)                             KNOWING AND EXPLICIT WAIVERS.  EACH SUBSIDIARY GUARANTOR ACKNOWLEDGES THAT IT EITHER HAS OBTAINED THE ADVICE OF LEGAL COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS SECTION 11.19.  EACH SUBSIDIARY GUARANTOR ACKNOWLEDGES AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN IS MADE WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE AND CONSEQUENCES, THAT ALL SUCH WAIVERS AND CONSENTS HEREIN ARE EXPLICIT AND KNOWING AND THAT EACH SUBSIDIARY GUARANTOR EXPECTS SUCH WAIVERS AND CONSENTS TO BE FULLY ENFORCEABLE.

 

If, while any Subsidiary Guarantor Subordinated Indebtedness is outstanding, any proceeding under any Bankruptcy Law is commenced by or against Borrower or its property, Agent, when so instructed by Lender, is hereby irrevocably authorized and empowered (in the name of Borrower or in the name of any Subsidiary Guarantor or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution in respect of all Subsidiary Guarantor Subordinated Indebtedness and give acquittances therefor and to file claims and proofs of claim and take such other action (including voting the Subsidiary Guarantor Subordinated Indebtedness) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of Lender; and each Subsidiary Guarantor shall promptly take such action as Lender may reasonably request:  (A) to collect the Subsidiary Guarantor Subordinated Indebtedness for the account of the Borrower and any Subsidiary Guarantor and to file appropriate claims or proofs of claim in respect of the Subsidiary Guarantor Subordinated Indebtedness; (B) to execute and deliver to Agent such powers of attorney, assignments and other instruments as it may request to enable it to enforce any and all claims with respect to the Subsidiary Guarantor Subordinated Indebtedness; and (C) to collect and receive any and all Subsidiary Guarantor Subordinated Indebtedness Payments.

 

(n)                                 Any payment on account of an amount that is payable hereunder or under any other Loan Document must be made in United States Dollars.

 

(o)                                 Parent and each Subsidiary Guarantor that is organized outside of the United States shall, at the request of Agent, appoint an agent reasonably acceptable to Agent, as its agent for the purpose of accepting service of any process in the United States.  Each such Subsidiary Guarantor agrees that such service upon receipt by Corporation Service Company or other designated agent (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it.

 

47

 

(p)                                 Each Subsidiary Guarantor agrees with Agent and Lender that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation, indemnify Agent or Lender immediately on demand against any cost, loss or liability it incurs as a result of a Subsidiary Guarantor not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Loan Document on the date when it would have been due.  The amount payable by a Subsidiary Guarantor under this indemnity will not exceed the amount it would have had to pay under this Clause if the amount claimed had been recoverable on the basis of a guarantee.

 

11.20                 Gross-up.  For purposes of this Section 11.20, the term “applicable law” includes FATCA.

 

(b) Payments Free of Taxes.  Any and all payments by or on account of any obligation of the Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law.  If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant governmental authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

 

(c)                                  Payment of Other Taxes by the Borrower.  The Borrower shall timely pay to the relevant governmental authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

 

(d)                                 Indemnification by the Borrower.  The Borrower shall jointly and severally indemnify each recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such recipient or required to be withheld or deducted from a payment to such recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant governmental authority.  A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

 

(e)                                  Indemnification by the Lenders.  Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Excluded Taxes attributable to such Lender, in each case, that are

 

48

 

payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant governmental authority.  A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error.  Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).

 

(f)                                   Evidence of Payments.  As soon as practicable after any payment of Taxes by the Borrower to a governmental authority pursuant to this Section 11.20, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

 

(g)                                  Status of Lenders.  (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.  Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 11.20(g) (ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

 

(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Borrower,

 

(A) any Lender that is a U.S. person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

 

(B) any foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by

 

49

 

the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

 

(1)  in the case of a foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

 

(2)  executed copies of IRS Form W-8ECI;

 

(3) in the case of a foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit J-1 to the effect that such foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN-E; or

 

(4) to the extent a foreign Lender is a partnership and one or more direct or indirect partners of such foreign Lender are claiming the portfolio interest exemption, such foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit J-2 on behalf of each such direct and indirect partner;

 

(C)  any foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and

 

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably

 

50

 

requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

 

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

 

(h)                                 Treatment of Certain Refunds.  If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes, or a credit against a Tax liability in lieu of a refund, as to which it has been indemnified pursuant to this Section 11.20 (including by the payment of additional amounts pursuant to this Section 11.20), it shall pay to the indemnifying party an amount equal to such refund or the economic benefit of a credit (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund or the economic benefit of a credit), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant governmental authority with respect to such refund or the economic benefit of a credit).  Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant governmental authority) in the event that such indemnified party is required to repay such refund or the economic benefit of a credit to such governmental authority.  Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund or the economic benefit of a credit had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

 

(i)  Survival.  Each party’s obligations under this Section 11.20 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, and the repayment, satisfaction or discharge of all obligations under any Loan Document.

 

Section 11.21.  Obligations to make payments in U.S. Dollars.  Any payment on account of an amount that is payable hereunder or under any Loan Document in Dollars which is made to or for the account of Agent or Lender in any other currency, whether as a result of any judgment or order or the enforcement thereof or the realization of any security or the liquidation

 

51

 

of the Parent, Subsidiary Guarantor or any other Subsidiary, shall constitute a discharge of the obligation of the Borrower under this Agreement and the other Loan Documents only to the extent of the amount of Dollars which Lender or Agent could purchase in the foreign exchange markets in London, England, with the amount of such other currency in accordance with normal banking procedures at the rate of exchange prevailing on the London Banking Day following receipt of the payment first referred to above.  If the amount of Dollars that could be so purchased is less than the amount of Dollars originally due to Agent or Lender, Borrower agrees to the fullest extent permitted by law, to indemnify and save harmless Lender and Agent from and against all loss or damage arising out of or as a result of such deficiency.  This indemnity shall, to the fullest extent permitted by law, constitute an obligation separate and independent from the other obligations contained in this Agreement and the other Loan Documents, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by such Lender and Agent from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under the Loan Documents or under any judgment or order.  As used herein the term “London Banking Day” shall mean any day other than Saturday or Sunday or a day on which commercial banks are required or authorized by law to be closed in London, England.

 

(SIGNATURES TO FOLLOW)

 

52

 

IN WITNESS WHEREOF, Borrower, Agent and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.

 

	
 
    	
PARENT:
    
	
 
    	
 
    
	
 
    	
EGALET   CORPORATION
    
	
 
    	
 
    	
 
    
	
 
    	
Signature:
    	
/s/   Robert S. Radie
    
	
 
    	
 
    	
 
    
	
 
    	
Print   Name:
    	
Robert   S. Radie
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
President   and CEO
    
	
 
    	
 
    	
 
    
	
Accepted in Palo Alto, California:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
AGENT:
    
	
 
    	
 
    
	
 
    	
HERCULES   TECHNOLOGY GROWTH CAPITAL, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
Signature:
    	
/s/   Ben Bang
    
	
 
    	
 
    	
 
    
	
 
    	
Print   Name:
    	
Ben   Bang
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
Associate   General Counsel
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
LENDER:
    
	
 
    	
 
    
	
 
    	
HERCULES   TECHNOLOGY GROWTH CAPITAL, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
Signature:
    	
/s/   Ben Bang
    
	
 
    	
 
    	
 
    
	
 
    	
Print   Name:
    	
Ben   Bang
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
Associate   General Counsel
    

 

SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENTExhibit 10.2

 

AMENDMENT NO. 1

 

TO

 

LOAN AND SECURITY AGREEMENT

 

THIS AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is dated as of January 28, 2015 (the “First Amendment Date”) and is entered into by and among EGALET CORPORATION, a Delaware corporation, and each of its subsidiaries (hereinafter collectively referred to as the “Borrower”), the several banks and other financial institutions or other entities from time to time party hereto (collectively, “Lender”) and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and itself and Lender (“Agent”).  Capitalized terms used herein without definition shall have the same meanings given them in the Loan Agreement (as defined below).

 

RECITALS

 

A.                                    Borrower, Agent and Lender have entered into that certain Loan and Security Agreement dated as of January 7, 2015 (as may be amended, restated, or otherwise modified, the “Loan Agreement”), pursuant to which Lender has agreed to extend and make available to Borrower certain advances of money.

 

B.                                    Borrower, Agent and Lender have agreed to amend the Loan Agreement upon the terms and conditions more fully set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows:

 

1.                                      AMENDMENTS.

 

1.1                               Section 7.1(h). Section 7.1(h) is hereby amended and restated in its entirety as follows:

 

(h) financial and business projections promptly following their approval by Borrower’s Board of Directors, and in any event, no later than January 31 (provided however, for the fiscal year 2015, no later than February 28, 2015), for the then current fiscal year, as well as budgets, operating plans and other financial information reasonably requested by Agent.

 

2.                                      BORROWER’S REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants that:

 

2.1                               Immediately upon giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (ii) no Event of Default has occurred and is continuing with respect to which Borrower has not been notified in writing by Agent or Lender.

 

2.2                               Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment.

 

 

2.3                               The certificate of incorporation, bylaws and other organizational documents of Borrower delivered to Lender on the Closing Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect.

 

2.4                               The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary corporate action on the part of Borrower.

 

2.5                               This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights; and

 

2.6                               As of the date hereof, it has no defenses against the obligations to pay any amounts under the Obligations.  Borrower acknowledges that Lender and Agent have acted in good faith and has conducted in a commercially reasonable manner its relationships with Borrower in connection with this Amendment and in connection with the Loan Documents.

 

Borrower understands and acknowledges that Lender is entering into this Amendment in reliance upon, and in partial consideration for, the above representations and warranties, and agrees that such reliance is reasonable and appropriate.

 

3.                                      LIMITATION.  The amendments set forth in this Amendment shall be limited precisely as written and shall not be deemed (a) to be a waiver or modification of any other term or condition of the Loan Agreement or of any other instrument or agreement referred to therein or to prejudice any right or remedy which Agent or Lender may now have or may have in the future under or in connection with the Loan Agreement (as amended hereby) or any instrument or agreement referred to therein; or (b) to be a consent to any future amendment or modification or waiver to any instrument or agreement the execution and delivery of which is consented to hereby, or to any waiver of any of the provisions thereof.  Except as expressly amended hereby, the Loan Agreement shall continue in full force and effect.

 

4.                                      EFFECTIVENESS.  This Amendment shall become effective upon the satisfaction of all the following conditions precedent:

 

4.1                               Amendment.  Borrower, Agent and Lender shall have duly executed and delivered this Amendment to Agent.

 

4.2                               Payment of Lender and Agent Expenses.  Borrower shall have paid all Agent and Lender Expenses (including all reasonable attorneys’ fees and reasonable expenses) incurred through the date of this Amendment.

 

5.                                      COUNTERPARTS.  This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument.  All counterparts shall be deemed an original of this Amendment. This Amendment may be executed by facsimile, portable document format (.pdf) or similar technology signature, and such signature shall constitute an original for all purposes.

 

6.                                      INCORPORATION BY REFERENCE.  The provisions of Section 11 of the Agreement shall be deemed incorporated herein by reference, mutatis mutandis.

 

 

IN WITNESS WHEREOF, the parties have duly authorized and caused this Amendment to be executed as of the date first written above.

 

	
BORROWER:
    
	
 
    
	
EGALET CORPORATION
    
	
 
    
	
Signature:
    	
/s/ Stanley Musial
    	
 
    
	
Print Name:
    	
Stanley Musial
    	
 
    
	
Title:
    	
Chief Financial Officer
    	
 
    

 

Accepted in Palo Alto, California:

 

	
AS AGENT AND LENDER:
    
	
 
    
	
HERCULES TECHNOLOGY GROWTH   CAPITAL, INC.
    
	
 
    
	
Signature:
    	
/s/ Ben Bang
    	
 
    
	
 
    	
Ben   Bang, Associate General Counsel

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