Document:

Exhibit 10.12

 

LEASE

 

THIS LEASE (“Lease”) is made and executed this 30th day of April, 2012, between 4741 Talon Court L.L.C., a Michigan limited liability company, of One Riverfront Plaza, 55 Campau Ave NW, Grand Rapids, Michigan 49503, as “Landlord”, and Corium International, Inc., a Delaware corporation, of 4558 50th Street SE, Grand Rapids, MI 49512, as “Tenant”.

 

1.                                      Leased Premises.  Landlord is the owner of the real property, including the building situated thereon (the “Building”) located at 4741 Talon Ct., in the City of Kentwood, Kent County, Michigan and more particularly described on attached Exhibit A (the “Property”).  Landlord LETS AND LEASES to Tenant, and Tenant HIRES AND LEASES from Landlord, the entire Building containing approximately 67,375 square feet of floor area (the “Leased Premises”), at the rents and under the terms and conditions set forth in this Lease.

 

2.                                      Purpose of Occupancy.  Tenant shall occupy and use the Leased Premises for office and warehousing purposes in connection with its pharmaceutical development and manufacturing business and for any related purpose, but for no other purpose without the written consent of Landlord, which consent shall not be unreasonably withheld.  The Leased Premises shall not be used for any purpose which would violate any law, ordinance, rule or regulation or the terms of any restrictive covenant applicable to the Building, nor in any way to create any nuisance or trespass, nor in any way to violate the terms of a standard form policy of insurance or increase the rate of insurance under any such policy of insurance on the Building or the Leased Premises.

 

3.                                      Term of Lease: Renewal Term.  The term of this Lease (the “term”) shall commence on May 1, 2012 (the “Commencement Date”), and shall continue for three (3) years thereafter unless sooner terminated as provided in this Lease.  Tenant may occupy the Leased Premises upon execution of the Lease and prior to the Commencement Date with no net rental payments due.  Except as otherwise provided under this Lease, Tenant’s taking possession of the Leased Premises shall constitute Tenant’s acceptance of the Leased Premises in their “as is” condition, subject only to the other terms and conditions of this Lease.  At the request of Landlord, Tenant shall execute and deliver to Landlord the Acceptance of Premises form attached to this Lease as Exhibit B.  Tenant’s acceptance of the Leased Premises in their “as is” condition by taking possession, as set forth above, shall not be affected by the failure of the Landlord to request, or the failure of the Tenant to execute and deliver to Landlord, said Acceptance of Premises form.

 

Provided Tenant is not then in default in the performance of any of its covenants and agreements under this Lease, Tenant may renew this Lease for one (1) additional two (2) year term (“renewal term”), upon the same terms and conditions as provided in this Lease except as to rent which shall be adjusted as provided in Paragraph 4, below.  In order to exercise such renewal option, Tenant shall serve Landlord with written notice of Tenant’s election to renew not less than four (4) months prior to the end of the term of this Lease or each renewal term, as the case may be.

 

 

4.                                      Rent.  Tenant covenants and agrees to pay Landlord as rent for the Leased Premises during the term of this Lease and any renewal term as follows:

 

(a)                                 Base Rent.  As base rent (“Base Rent”), Tenant shall pay to Landlord an amount equal to $225,000.00 per year, payable in equal monthly installments of $18,750.00, subject, however, to adjustment as provided under Paragraph 4(b), below.  Base Rent shall be paid in advance on the first day of each month during the term and any renewal term of this Lease; provided, however, that Base Rent for the first full month of the term of this Lease shall be paid upon the execution of this Lease.  Moreover, in the event the Commencement Date is any day other than the first day of a month, Tenant shall pay to Landlord on the Commencement Date a prorated portion of the monthly Base Rent for the period from the Commencement Date to the first day of the following month.

 

(b)                                 CPI Adjustments.  The Base Rent paid by Tenant shall be adjusted upward, but never downward, effective as of the first anniversary of the Commencement Date (or the first day of the thirteenth month after the Commencement Date in the event the Commencement Date is a date other than the first day of a calendar month) and on the same day of each year thereafter during the term and any renewal term of this Lease to reflect the increase, if any, in the Consumer Price Index (All Cities, All Urban Consumers, All Items, 1982-1984=100) (subsequently referred to as “CPI-U”) or its successor Consumer Price Index, as published by the United States Bureau of Labor Statistics.  This adjustment shall be computed by adding to the Base Rent an amount determined as follows: i) the CPI-U index number for the second month preceding the Commencement Date (“Initial Index Number”) shall be subtracted from the CPI-U index number for the second month immediately preceding the effective date of increase; ii) the resulting amount shall be divided by the Initial Index Number and reduced to a decimal equivalent; the resulting decimal shall be multiplied by the Base Rent.  The Base Rent, as adjusted, shall be paid in equal monthly installments as provided in Paragraph 4(a), above.

 

If the CPI-U is changed so that the base year differs from that used for the Initial Index Number, the CPI-U shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics.  If the CPI-U is discontinued or revised during the term of this Lease or any renewal term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same results as would be obtained if the CPI-U had not been discontinued or revised.

 

(c)                                  Additional Rent.  Tenant shall also pay to Landlord as additional rent (“additional rent”) its pro rata share of the operating expenses for the Property, Building and Improvements (the “Operating Expenses”).  Tenant’s pro rata share shall be based upon the ratio of the number of square feet of floor area of the Leased Premises to the number of square feet of leasable floor area in the Building, which is approximately 67,375 square feet.  Consequently, Tenant’s pro rata share of Operating Expenses shall be 100.00 percent.  As used herein, “Improvements” means any capital improvement defined as such in accordance with generally accepted accounting principles.

 

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As used in this Paragraph 4, “Operating Expenses” shall include all costs of operating and maintaining the Property, Building and Improvements, including, without limitation, the following costs and expenses incurred by Landlord: all property taxes and assessments, real, general and special; utility costs and expenses including water, sewer, electricity, gas and other sources of power for heating, lighting, ventilating or air conditioning, except when separately billed to a tenant of the Building; insurance premiums; janitorial services contracted for by Landlord and/or wages, salaries, property management fees, and applicable taxes on the employer for services related to the Property, Building and Improvements performed by Landlord’s employees; supplies consumed in connection with cleaning, maintenance and repair; snow removal, lawn care, landscaping, parking, and other exterior grounds maintenance and repair; and all installation, maintenance, repair and replacement costs.  “Operating Expenses” shall not include any alterations to meet the specific needs of other tenants of the Building, the cost of any capital improvements defined as such in accordance with generally accepted accounting principles or leasing commissions, if any.

 

Notwithstanding anything to the contrary in this Lease, Operating Expenses shall not include: (i) depreciation; (ii) mortgage and loan fees, costs, interest and payments; (iii) office, overhead or administrative expenses; (iv) wages, salaries or benefits payable to employees of Landlord or any person or entity related to Landlord or Landlord’s officers, partners or members with the exception of the management fee paid to a related party, Covenant Properties, LLC, which is limited to 2.5% of base rents. (v) penalties, fines or charges for late or non-payment; (vi) overtime or additional compensation for extra or unusual time expended; (vii) promotional, advertising or merchants association charges, fees or dues; (viii) costs and expenses arising out of or related to the original development and construction or any subsequent expansion, redevelopment or refurbishment of the Common Areas or the Property; (ix) costs of sculpture, paintings or art; (x) expenditures to cause the Common Areas to comply with legal requirements or as a result of violation of legal requirements, including, without limitation, costs to remediate toxic or Hazardous Materials in or on the Property; (xi) litigation and legal proceeding costs, including, without limitation, reasonable attorneys’ fees; (xii) costs to repair defects in workmanship or materials of or in the Common Areas or the Property or to repair damage resulting therefrom; (xiii) repair and restoration costs following fire or other casualty or a taking; (xiv) costs for replacement of the Building roof and structural components (xv) costs for replacement of mechanical systems; (xvi) costs to lease, market or develop for leasing or marketing the Property, including, without limitation, brokerage commissions; (xvii) taxes and assessments for any on-or off-site improvements, site acquisition or water, sewer or street improvements, which were assessed in connection with the construction, development or acquisition of the Property; (xviii) any penalties or fines for late or non-payment of any taxes and assessments; (xix) any taxes or charges levied or imposed against or which are measured by the rentals payable under this Lease or by the other tenants or occupants of the Property, even if assessed in lieu of or as a direct substitute for real property taxes; and (xx) income taxes, franchise taxes or fees, gift, inheritance, estate or succession taxes, capital stock taxes, documentary, stamp or transfer taxes, excise, sales or use taxes, or similar taxes.  Operating Expenses shall be reduced by awards, reimbursements (excluding insurance reimbursements paid on claims), credits, discounts, reductions or

 

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allowances received or receivable by Landlord for items included in Operating Expenses, other than reimbursements received from tenants and occupants of the Property.

 

Such additional rent shall be computed on the basis of each calendar year and shall be adjusted as of January 1 of each year during the term of this Lease.  Tenant shall pay its share of the Operating Expenses in monthly installments on or before the first day of each calendar month, in advance, in an amount estimated by Landlord each year without any deduction or setoff whatsoever beginning on the Commencement Date of this Lease.  Within sixty (60) days after the end of each calendar year, Landlord shall famish Tenant with a written statement itemizing the Operating Expenses for that calendar year, and a written statement of the amount of the Tenant’s share of said Operating Expenses.  If the total amount paid by Tenant for the prior calendar year shall be less than the actual amount due from Tenant for that year, Tenant shall, within ten (10) days after written notice, pay to Landlord the difference between the amount paid by Tenant and the actual amount due; if the total amount paid by Tenant for the prior calendar year exceeds the actual amount due from Tenant for that year, Tenant shall receive a credit for such amount against Base Rent or additional rent to become due under this Lease, or if the Lease term has expired, a refund of such excess from Landlord.

 

Landlord shall maintain at its offices complete records and invoices of the Operating Expenses for eighteen (18) months following such expenditure.  At any time within six (6) months after receipt of any annual statement, Tenant may audit the Operating Expenses, including without limitation, inspecting invoices and records and the work performed, and Landlord shall reasonably cooperate with Tenant in such audit.  If such audit shows that the statement included Operating Expenses not permitted or in excess of that permitted under this Lease, Tenant may deduct the overpayment, with interest thereon at the Default Rate (as defined below), from the Operating Expenses thereafter billed.  If such audit shows that the Operating Expenses were more than two percent (2%) higher than that permitted under this Lease, Landlord shall reimburse Tenant for the reasonable cost of such audit, failing which Tenant may deduct such cost, with interest thereon at the Default Rate, from the Operating Expenses thereafter billed.

 

The additional rent is estimated to be $1.20 per square foot, or $6,737.50 per month for calendar year 2012.

 

(d)                                 Payment.  Except as otherwise provided in this Lease, the monthly installments of Base Rent, additional rent, and all other sums payable under this Lease by Tenant, shall be paid to Landlord at Landlord’s address set forth above, or at such other address as Landlord may direct by written notice, without setoff, counter claim, recoupment, abatement, suspension or deduction.

 

5.                                      Taxes and Special Assessments.  Subject to Paragraph 4(c) above, Landlord shall pay and discharge all real property taxes and special assessments which may be levied against all or any portion of the Property, Building and Improvements during the term of this Lease.  Tenant shall pay and discharge all personal property taxes which may be levied against its furniture, equipment and other personal property located on the Leased Premises.

 

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6.                                      Insurance and Indemnity.  Subject to Paragraph 4(c) above, Landlord shall keep the Property, Building and Improvements insured with an insurance company rated by A.M. Best as A- or better against the following:

 

(a)                                 “All Risk” coverage in the amount of the full replacement cost of the Building and Improvements.

 

(b)                                 public liability and property damage insurance with coverage of at least Two Million Dollars ($2,000,000.00) on a combined single limit basis.

 

All such policies of insurance shall be payable to Landlord or as Landlord specifies.

 

Tenant shall indemnify Landlord against and save Landlord harmless from any liability or claim for damages which may be asserted against Landlord by reason of any accident or casualty occurring in, on or about the Leased Premises or otherwise arising from Tenant’s use and occupancy of the Leased Premises except such as shall arise from the negligence of Landlord, its agents or employees.  Landlord shall indemnify Tenant against and save Tenant harmless from any liability or claim for damages which may be asserted against Tenant by reason of any accident or casualty occurring in, on or about the Property or otherwise arising from Landlord’s use and maintenance of the Leased Premises except such as shall arise from the action, omission or the negligence of Tenant, its agents or employees.

 

Tenant, at its expense, shall obtain public liability insurance for the benefit of itself and Landlord and naming Landlord as an additional party insured and loss payee on the policies with limits in amounts of not less than Two Million Dollars ($2,000,000.00) for injury or death of any one person and not less than Two Million Dollars ($2,000,000.00) for damages to property resulting from one casualty, and Two Million Dollars ($2,000,000.00) property damages in the aggregate.  Such policies of insurance shall provide that the coverage shall be primary irrespective of any liability insurance provided by Landlord pursuant to this Lease, or otherwise.  Tenant shall keep such insurance in force during the term of this Lease and deliver certificates of insurance to Landlord showing such coverage in companies satisfactory to the Landlord.  If Tenant shall fail to do so, Landlord may obtain the insurance and charge the cost to Tenant as additional rent.

 

Tenant, at its expense, shall keep all of its furnishings, equipment and other personal property located on the Leased Premises fully insured against loss or damage by fire and those risks covered by “extended coverage” as provided in a Michigan standard fire insurance policy.  Such policy of insurance shall be payable to Tenant or as Tenant specifies.  Tenant hereby releases Landlord from any and all liability for any damage to or loss of such personal property from any cause whatsoever except to the extent such loss or damage is the result of the negligence of Landlord, its agents or employees and is not otherwise covered by insurance required to be carried by Tenant under this Lease.

 

7.                                      Waiver of Subrogation.  Each policy of insurance authorized or required of either party under this Lease shall contain a clause or endorsement under which the insurer waives all right of subrogation against the other party, its agents and employees with respect to losses payable under such policy, and each party hereby waives all right of recovery it might

 

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otherwise have against the other party, its agents and employees for any loss or injury which is covered by such a policy of insurance, notwithstanding that such loss or injury may result from the negligence or fault of such other party, its agents or employees.

 

8.                                      Utilities.  Tenant shall pay all charges for utility services provided to the Leased Premises which are separately metered.  Subject to Paragraph 4(c) above, Landlord shall pay all charges for all other utility services necessary for the reasonable use and operation of the Leased Premises and the Building and Improvements.  Landlord shall not be liable for damages or otherwise for any interruptions or failure in the supply of any utilities or utility service to the Leased Premises except such failure or interruption which results from the negligence of Landlord, its agents or employees.

 

9.                                      Maintenance and Condition of Leased Premises.  Tenant, at its expense shall keep the interior of the Leased Premises in good maintenance, condition, and repair, reasonable wear and tear excepted, including, without limitation, the maintenance and repair of all HVAC, plumbing and electrical systems serving the Leased Premises, and perform all other maintenance, repair and replacement upon the Leased Premises, the Property, Building and Improvements necessitated by the acts or negligence of Tenant, its agents, employees or invitees.  Subject to Paragraph 4(c) above, all other necessary maintenance, repair and replacement of the Property, Building and Improvements shall be performed by Landlord.  Tenant shall promptly notify Landlord in writing of any defective condition known to it which Landlord is required to repair or replace and failure to so report such defect shall make Tenant responsible to Landlord for any additional loss or aggravation of loss incurred by Landlord by reason of Tenant’s failure to notify Landlord.

 

Tenant shall keep the Leased Premises in a neat and clean condition, shall not allow refuse to accumulate, and shall conduct its business in such a manner that the risk of fire to the Leased Premises shall not be increased beyond the hazard normal and usual for its type of business.

 

10.                               Alterations.  Except as permitted under Section 36 of this Lease, Tenant shall not make or permit to be made any alterations, additions or improvements in, upon or to the Leased Premises, or any part of the Leased Premises, without the prior written consent of Landlord.  In the event such consent is obtained, all such alterations, additions or improvements shall be performed at the expense of Tenant in a good, workmanlike manner, free from faults and defects and in accordance with all applicable laws and building codes and plans and specifications approved by Landlord.  Tenant shall not allow any construction liens to attach to the Leased Premises or the Property, Building or Improvements in connection with any such alteration, and the failure of Tenant to have any such lien released within ninety 90) days after written notice from Landlord shall constitute a default under this Lease.  In addition, Tenant shall indemnify, defend and hold Landlord harmless from any and all costs and expenses incurred by Landlord in connection with such construction liens, including, without limitation, attorneys fees and costs of litigation.  All alterations, additions or improvements (except trade fixtures) so made and installed by Tenant shall become part of the realty, shall become the property of Landlord and shall remain for the benefit of Landlord at the end of the term or other expiration of this Lease in as good condition as they were when installed, reasonable wear and tear, casualty that is covered or required to be covered by insurance under this Lease, ordinary depreciation and

 

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obsolescence excepted; provided, however, that any such alteration, addition or improvement remaining at the end of the term or other expiration of this Lease, shall upon demand made by Landlord, be removed by Tenant, at Tenant’s expense, and Tenant shall repair any damage caused by such removal, restoring the Leased Premises to their condition prior to the making of such alteration, addition or improvement.

 

11.                               Performance by Landlord.  In the event Tenant fails to perform any of its covenants and agreements as set forth in this Lease and such failure continues for a period of thirty 30) days after written notice from Landlord (except that no such notice shall be required in emergency situations), Landlord shall have the option to undertake such performance for Tenant, and the costs and expenses reasonably incurred by Landlord by reason of such undertaking shall be due and payable forthwith by Tenant to Landlord as additional rent under this Lease.

 

12.                               Compliance with Public Authority Requirements.  Tenant agrees, at its own expense, to promptly comply with all requirements of any legally constituted public authority made necessary by reason of Tenant’s occupancy of the Leased Premises, including, without limitation, the Americans with Disabilities Act.  Landlord shall deliver Leased Premises as of the “Commencement Date” to Tenant fully complying with all requirements of any legally constituted public authority made necessary by reason of initial occupancy including, without limitation, the Americans with Disability Act

 

13.                               Hazardous Materials.

 

(a)                                 Definitions.  For purposes of this Lease, the terms “Hazardous Materials” and “Relevant Environmental Laws” shall be defined as follows:

 

(i)                                     “Hazardous Materials” shall mean all solids, liquids and gasses, including but not limited to solid waste, asbestos, crude petroleum and petroleum fractions, toxic chemicals, polychlorinated biphenyls, paint containing lead, volatile organic chemicals, chlorinated organic compounds, and urea formaldehyde foam insulation, which are governed or regulated by Relevant Environmental Laws.

 

(ii)                                  “Relevant Environmental Laws” shall include but not be limited to all federal, state or local laws, rules, regulations, orders or determinations established or issued by any judicial, legislative or executive body, of any governmental or quasi-governmental entity which govern or regulate the existence, storage, use, disposal, or release of any solid, liquid or gas on, in or under the Leased Premises, or which govern or regulate the environmental effect of any activity currently or previously conducted on the Leased Premises.

 

(b)                                 Tenant’s Obligations; Indemnification.  Tenant shall not, nor shall it permit its employees, business invitees, contractors or subcontractors (collectively “Tenant’s Agents”), to bring upon, keep, store, use, or dispose of any Hazardous Materials on, in, under, or about the Leased Premises, the Property, Building or Improvements or any adjacent property except in complete compliance with all Relevant Environmental Laws.  Tenant shall, at its sole cost and expense and upon the demand of

 

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Landlord, cause all.  Hazardous Materials spilled, disposed of or otherwise released by Tenant or its Agents in, on, under or about the Leased Premises, the Property, Building or Improvements or any adjacent property to be remediated in full compliance with the Relevant Environmental Laws.  In addition, Tenant shall defend, indemnify, protect, and hold Landlord harmless from and against all claims, costs, fines, judgments, and liabilities, including attorney fees and costs and clean-up and other remediation costs and expenses, arising out of or in connection with the presence, storage, use, or disposal of Hazardous Materials in, on, under, or about the Leased Premises, the Property, Building, Improvements or any adjacent property caused by the acts, omissions, or negligence of Tenant and/or Tenant’s Agents.  Tenant’s obligations hereunder shall survive the termination of this Lease.

 

(c)                                  Landlord’s Obligations: Indemnification.  Neither Landlord nor Landlord’s employees, business invitees, agents, contractors, or subcontractors (collectively “Landlord’s Agents”) shall bring upon, keep, store, use, or dispose of any Hazardous Materials in, on, under, or about the Leased Premises, the Property, Building or Improvements or any adjacent property except in complete compliance with all Environmental Laws.  Landlord shall indemnify, defend, protect, and hold Tenant and Tenant’s Agents harmless from and against any and all claims, costs, fines, judgments, and liabilities, including attorney fees and costs, arising out of or in connection with the presence of Hazardous Materials in, on, under, or about the Leased Premises, the Property, Building or Improvements or any adjacent property on the Commencement Date or introduced in, on, under, or about the Leased Premises, the Property, Building or Improvements or any adjacent property subsequent to the Commencement Date due to the acts, omissions, or negligence of Landlord or Landlord’s Agents.  Landlord’s obligations hereunder shall survive the termination of this Lease.

 

14.                               Damage to Leased Premises.  In the event the Leased Premises or Building are damaged by fire, the elements, acts of God, or other cause to such extent that the Leased Premises are rendered untenantable by Tenant or more than fifty percent (50%) of the Building is rendered untenantable, and in the event Landlord elects not to rebuild the Leased Premises and Building as they existed prior to the damage or in some other manner satisfactory to Tenant and Landlord, then Landlord, within thirty (30) days of the date the damage occurred, shall notify Tenant in writing of such election, and this Lease shall be canceled as of the date the damage occurred, and Landlord and Tenant shall have no further obligations by reason of its provisions.  In the event Landlord elects to rebuild the Leased Premises and Building as they existed prior to the damage or in some other manner satisfactory to Tenant and Landlord, then Landlord shall commence such rebuilding within thirty (30) days of the date of such damage and shall continue and complete such rebuilding as promptly as possible.  Upon completion of such rebuilding, this Lease shall be reinstated in all of its terms; provided, however, the Base Rent and additional rent shall abate in full dining the period of such rebuilding.

 

In the event the Leased Premises or Building are not damaged to such extent that the Leased Premises are rendered wholly untenantable by Tenant and this Lease is not otherwise terminated as provided above, then Tenant shall continue to occupy those portions of the Leased Premises which are tenantable, the Base Rent and additional rent shall abate proportionately to the portions occupied, and Landlord shall promptly commence and complete repairs to the

 

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portions damaged

 

In no event and under no circumstances shall Landlord be liable to Tenant for any loss occasioned by damage to the Leased Premises, other than for the abatement of Base Rent and additional rent as provided in this Paragraph 14, except to the extent of property damage resulting from the negligence of Landlord, its agents or employees which is not otherwise covered by insurance required to be carded by Tenant under this Lease.  Under no circumstances shall there be any abatement of Base Rent or additional rent under this Paragraph 14 if the damage to the Leased Premises is caused by the acts or negligence of Tenant, its agents, employees or invitee&

 

15.                               Eminent Domain.  In the event that the whole of the Leased Premises shall be taken or condemned for any public or quasipublic use or purpose by any competent authority in appropriation proceedings or by any right of eminent domain, then this Lease shall terminate as of the date title vests in the condemnor, all rents and other payments shall be paid up to that date, and Landlord and Tenant shall have no further obligations by reason of the provisions of this Lease.

 

In the event that less than the whole of the Leased Premises is so taken or condemned, then Landlord shall have the right to terminate this Lease upon written notice to Tenant given at least thirty (30) days prior to the date title vests in the condemnor, and this Lease shall terminate as of the date title vests in the condemnor, all rents and other payments shall be paid up to date, and Landlord and Tenant shall have no further obligations by reason of the provisions of this Lease.  In the event that Landlord does not elect to so terminate this Lease, Landlord, to the extent of the condemnation award, Alan repair and restore the portion of the Leased Premises and Building not affected by the taking so as to constitute the remaining premises a complete architectural unit.  Thereafter, the Base Rent and additional rent to be paid by Tenant shall be adjusted proportionately according to the ratio that the floor area remaining in the Leased Premises bears to the former floor area in the Leased Premises, and all of the other terms of this Lease shall remain in full force and effect.

 

Tenant shall have no interest in any award resulting from any condemnation or eminent domain or similar proceedings whether such award be for diminution in value to the leasehold or to the fee of the Leased Premises, except that Tenant shall be entitled to claim, prove and receive in such proceedings such award as may be allowed it for loss of business, relocation, and for Tenant’s trade fixtures and personal property which are removable by Tenant at the end of the term of this Lease, provided such award shall be in addition to the award for land, buildings and other improvements.

 

16.                               Parking and Common Areas.  Tenant shall have the sole right to use the driveways, walkways and parking areas located adjacent to the Building (collectively “Common Areas”).  Landlord reserves the right hi its absolute discretion to modify, change or alter any Common Area provided such change or alteration does not materially alter the amount of available parking space or the accessibility of the Leased Premises.

 

17.                               Defaults of Tenant.  The following occurrences shall be deemed defaults by Tenant:

 

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(a)                                 Tenant shall fail to pay when due any Base Rent, additional rent or other sum payable under this Lease, including Tenant Finish Rent, and such failure continues for ten (10) days after written notice from Landlord.

 

(b)                                 Tenant shall abandon or vacate the Leased Premises before the end of the term or before the end of any renewal term of this Lease; or Tenant shall make a general assignment for the benefit of creditors or become bankrupt or insolvent, or file or have filed against it in any court a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee.

 

(c)                                  Tenant shall be in breach of any other obligation undo this Lease, and such breach shall continue for thirty (30) days after written notice from Landlord (unless such default is not reasonably capable of being cured within such thirty (30) day period and Tenant is diligently prosecuting such cure to completion).

 

18.                               Remedies of Landlord.  In the event of a default by Tenant Landlord shall have the following rights and remedies in addition to all other rights and remedies otherwise available to Landlord pursuant to applicable law:

 

(a)                                 Landlord shall be entitled to immediately accelerate upon written notice to Tenant the full balance of the Base Rent and additional rent payable for the remainder of the term, or renewal term, of this Lease; provided, however, such amount shall be reduced to present value as of the date of payment based on interest rate of seven percent (7%) per annum.

 

(b)                                 Landlord shall be entitled to immediately exercise its rights under\ Paragraph 36 to enforce the immediate repayment of any unpaid Tenant Finish Rent and accrued unpaid interest thereon.

 

(c)                                  Landlord shall have the right to terminate this Lease upon written notice to Tenant without prejudice to any claim for Base Rent, additional rent or other sums due or to become due under this Lease.

 

(d)                                 Landlord shall have the immediate right of re-entry and may remove all persons and property from the Leased Premises.  Such property may be removed and stored at the cost of Tenant.  Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings, Landlord may either terminate this Lease or, from time to time, without terminating this Lease, relet the Leased Premises or any part thereof for such term or terms (which may be for a term e ding beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord, in the exercise of its sole discretion, deems advisable, with the right to make alterations and repairs to the Leased Premises.  Upon each such reletting, (i) Tenant shall be immediately liable to pay to Landlord, in addition to any indebtedness other than Base Rent and additional rent due hereunder, the cost and expense of such reletting and of any such alterations and repairs incurred by Landlord, and the amount, if any, by which the Base Rent and additional rent reserved in this Lease for the period of the reletting as accelerated under Subparagraph (a) of this Paragraph,

 

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exceeds the amount agreed to be paid for Base Rent and additional rent for the Leased Premises by the reletting Tenant; or (ii) at the option of Landlord, rents received by Landlord from such reletting shall be applied first, to the payment of any indebtedness other than Base Rent and additional rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such reletting and of such alterations and repairs; third, to the payment of rent unpaid hereunder, and the residue, if any, held by Landlord and applied in payment of funny unaccelerated rent as the same may become due and payable hereunder.

 

(e)                                  Landlord may immediately sue to recover from Tenant all damages Landlord may incur by reason of Tenant’s default, including the cost of recovering the Leased Premises, and including the Base Rent and additional rent reserved and charged in this Lease for the remainder of the stated term as accelerated under Subparagraph (a) of this Paragraph, all of which shall be immediately due and payable along with attorneys’ fees and Landlord shall have no obligation to relet

 

19.                               Late Charm and Interest for Past Due Payments.  All installments of Base Rent and additional rent payable to Landlord under this Lease if not paid within five (5) days after they become due shall be subject to a late charge equal to five percent (5%) of the installment amount.  In addition, any payment of Base Rent, additional rent or other amount due from Tenant to Landlord which is not made when due under this Lease shall bear interest at the rate of twelve percent (12%) per annum (“Default Rate”) from the date of nonpayment to the date of payment

 

20.                               Legal Expenses.  In case suit shall be brought by either party to enforce the provisions of this Lease, the prevailing party in such action shall be entitled to recover all expenses so incurred, including reasonable attorneys’ fees.

 

21.                               Right of Access.  Except in the case of an emergency, for which no prior notice from Landlord shall be required, Tenant agrees to permit Landlord, and Landlord’s agents, to inspect or examine the Leased Premises at any reasonable time in a reasonable manner upon prior written notice to Tenant, to permit Landlord to make such repairs, decorations, alterations, improvements or additions in the Leased Premises, as Landlord may deem desirable or necessary or which Tenant has covenanted in this Lease to do but has failed to do, without the same being construed as an eviction of Tenant, in whole or in part, by reason of loss or interruption of the business of Tenant because of the prosecution of such work, and the Base Rent or additional rent due under this Lease shall in no way abate while such decorations, repairs, alterations, improvements or additions are being made.  Tenant shall have the right to accompany Landlord on any such inspections and examinations, which shall be scheduled to suit the reasonable convenience of both parties.

 

Landlord shall have the right to enter upon the Leased Premises at any reasonable time during the term, or any renewal term, of this Lease for the purpose of exhibiting the Leased Premises to prospective tenants or purchasers, provided advance notice is given to Tenant, and provided such exhibitions are scheduled to suit the reasonable convenience of both parties.  For a period commencing four (4) months prior to the termination of this Lease and any renewals, Landlord may also place signs in, or upon the Leased Premises to indicate that the same are for

 

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rent, which signs shall not be altered, removed, obliterated or hidden by Tenant.  Signs indicating the Leased Premises are for sale may be placed on the Leased Premises at any time.

 

22.                               Surrender of Leased Premises.  Tenant covenants and agrees to surrender possession of the Leased Premises to Landlord upon the expiration of the term of this Lease or any renewals or extensions of this Lease, or upon earlier termination of this Lease, in as good condition and repair as the same shall be at the commencement of the term of this Lease, or as the same may have been put by Landlord or Tenant during the continuance of this Lease and any renewals, or extensions, reasonable wear and tear, casualty that is covered or required to be covered by insurance under this Lease, ordinary depreciation and obsolescence excepted.  In addition, Tenant shall remove all of its property from the Leased Premises and shall repair any damage to the Leased Premises caused by such removal.

 

Any personal property of Tenant or of anyone claiming under Tenant which shall remain on the Leased Premises after the expiration or termination of this Lease shall be deemed to have been abandoned by Tenant, and either may be removed by Landlord as its property or may be disposed of in such manner as Landlord may see fit, and Landlord shall not be in any way responsible for such property.

 

23.                               Holding Over.  In the event Tenant shall continue to occupy all or any part of the Leased Premises after the expiration of the term, or any renewal term of this Lease with the consent of Landlord, such holding over shall be deemed to constitute a tenancy from month to month, upon the same terms and conditions as are contained in this Lease, except as to term; provided, however, if such holding over is without Landlord’s written consent, Tenant shall pay to Landlord as Base Rent for each month, or part of a month, that Tenant remains in possession of the Leased Premises, one hundred twenty five percent (125%) the monthly Base Rent amount in effect immediately prior to the date of termination.

 

24.                               Assignment and Sublease.  Tenant shall not assign this Lease, or sublease all or any part of the Leased Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld.  The foregoing notwithstanding, Landlord’s consent shall not be required for any assignment or sublease (a) that is a concession or license given to any parent, subsidiary or affiliated company in the ordinary course of operating the Leased Premises as the initial use, any subsequent use by Tenant, or any use by a transferee to whom Landlord has previously consented; (b) to any parent, subsidiary or entity related or affiliated with Tenant; (c) made as part of a merger, consolidation or reorganization of Tenant, or of a transferee to whom Landlord has consented or, transfer as part of the sale of the stock of, an interest in or the assets or property of Tenant or of a transferee to whom Landlord has consented; or (d) that involves the sale or transfer of a majority of the equity ownership interests in Tenant in a single transaction or as the result of a series of transactions at any time during the term or any renewal term of this Lease.  No assignment of this Lease or subletting of the Leased Premises, with or without the consent of Landlord, and no course of dealing or other actions of Landlord after any such assignment or sublease shall serve to release Tenant from its obligations under this Lease unless such release is expressly set forth in a separate written agreement signed by Landlord.  In addition, the granting of consent by Landlord to an assignment or sublease in one case shall not constitute consent to any future assignment or sublease.

 

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25.                               Subordination.  This Lease shall be subject and subordinate to any mortgage or mortgages now in force, or which shall at any time be placed upon the Leased Premises or the Building or any part thereof, and to each and every advance made pursuant to any such mortgage.  Tenant agrees that it will upon demand execute and deliver such instruments as shall be required by any mortgagee or proposed mortgagee, to confirm or to effect more fully such subordination of this Lease to the lien of any such mortgage or mortgages.  Tenant’s refusal to execute or deliver such instrument shall also entitle Landlord, its successors and assigns, to elect that this Lease terminate upon the giving of a written notice as provided for hi Paragraph 17(c).  Such subordination shall be contingent upon Landlord or any mortgagee providing Tenant prior to the Commencement Date with a customary non-disturbance agreement that does not adversely increase Tenant’s obligations or adversely decrease Tenant’s rights and privileges under this Lease.  Such non-disturbance agreements shall be delivered to Tenant within fifteen (15) days after the date this Lease is fully executed (in the case of existing lenders) or at the time such items may arise (in the case of future leaders).

 

26.                               Attornment.  Upon request of the holder of any note secured by a mortgage on the Building, the Property or the Premises that has entered into the foregoing non-disturbance agreement, in the event any proceedings are brought for the foreclosure of any mortgage covering the Leased Premises, or in the event of the conveyance by deed in lieu of foreclosure, or in the event of exercise of the power of sale under any such mortgage, or in the event of the sale or transfer of the Leased Premises by Landlord, Tenant hereby attorns to the new owner and covenants and agrees to execute an instrument in writing reasonably satisfactory to the new owner whereby Tenant attorns to such successor in interest and recognizes such successor as Landlord under this Lease.

 

27.                               Sale or Transfer by Landlord.  If Landlord shall sell or transfer the Leased Premises, Landlord shall be automatically and entirely released of all covenants and obligations under this Lease from and after the date of such conveyance or transfer, provided the purchaser on such sale has assumed and agreed to carry out all covenants and obligations of Landlord under this Lease.

 

28.                               Quiet Enjoyment.  On paying the Base Rent and additional rent and on performing all of the covenants and agreements on its part to be performed under the provisions of this Lease, Tenant shall peacefully and quietly have, hold and enjoy the Leased Premises for the term, and for any renewal term, of this Lease.

 

29.                               Benefit and Obligation.  The benefits of this Lease shall accrue to, and the burdens of this Lease shall be the liabilities of the successors and assigns of Landlord and Tenant.

 

30.                               Notices.  All notices required under any provision of this Lease shall be deemed to be properly served if delivered in writing personally, or sent by registered or certified mail to each party at their address as stated above or at such other address as each party shall designate in writing delivered to the other party.  All mailed notices shall be effective upon mailing.

 

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31.                               Waiver.  The failure of either party to enforce any covenant or condition of this Lease shall not be deemed a waiver thereof or of the right of either party to enforce each and every covenant and condition of this Lease, and no provision of this Lease shall be deemed to have been waived unless such waiver is in writing.  One or more waivers of any covenant or condition by Landlord or Tenant shall not be construed as a waiver of a subsequent breach of the same covenant or condition nor shall the acceptance of Base Rent, additional rent or other payment by Landlord at any time when Tenant is in default under any term, covenant or condition of this Lease constitute a waiver of such default, nor shall any waiver or indulgence granted by either party be taken as an estoppel against the party granting the indulgence or waiver.

 

32.                               Unenforceability.  In the event any covenant, term, provision, obligation, agreement or condition of this Lease is held to be unenforceable, it is mutually agreed and understood, by and between the parties hereto, that the other covenants, terms, provisions, obligations, agreements and conditions herein contained shall remain in full force and effect

 

33.                               Captions.  All headings contained in this Lease are intended for convenience only and are not to be deemed or taken as a summary of the provisions to which they pertain or as a construction thereof.

 

34.                               Governing Law.  This Lease shall be governed by the laws of the State of Michigan, without regard to its conflict of laws provisions.  Any action or proceeding seeking to enforce any provision o4 or based on any right arising out of, this Lease may only be brought against any of the parties in the courts of the State of Michigan, County of Kent, or in the United States District Court for the Western District of Michigan.  Each party hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts), whether acquired originally or by removal, in such action or proceeding and waives any objection to venue laid therein.  Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.

 

35.                               Landlord Improvements.  Prior to the Commencement Date& Landlord shall, at Landlord expense, provide high efficiency florescent lighting, as determined in its discretion, throughout the warehouse portion of the Leased Premises.  Landlord shall confirm that all doors, lighting, plumbing, sprinkler and electrical systems are in good working condition.  Additionally, the Landlord shall pay to have existing air conditioning units brought back to complete functionality.  Tenant shall pay to air condition the remainder of the Leased Premises.

 

36.                               Tenant Finish Improvements: Additional Rent.  A reimbursable improvement allowance in the maximum amount of $150,000 shall be granted by Landlord to Tenant and utilized for various upgrades (“Finish Improvements”) to the Leased Premises including renovation of the existing office space and adding HVAC to the entire Building (“Improvement Allowance”).  The Finish Improvements shall also include the cleaning, repairing, painting and sealing of the floors within the Leased Premises, which shall be undertaken by Tenant.  The Improvement Allowance shall be available for reimbursement to Tenant at the execution of the Lease, subject to the Tenant providing Landlord with an appropriate sworn statement and lien waivers for the completed Finish Improvements.  Within ten (10) days of Landlord’s satisfactory receipt of such items from Tenant Landlord shall pay

 

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Tenant for up to $150,000 of the cost of the Finish Improvements.  The plans and specifications for the Finish Improvements shall be subject to Landlord’s prior approval, which approval shall not be unreasonably withheld.  On or before the Commencement Date, Tenant shall provide Landlord with a proposed “punch list” of minor defects and repairs with respect to the Landlord improvements which are not the result of the acts, omissions or negligence of Tenant, its agents, employees, invitees or contractors.  Subject to Landlord’s agreement with the proposed punch list items, all such items shall be completed by, and at the expense of, Landlord as soon as reasonably possible.

 

The Improvement Allowance shall be repaid to Landlord by Tenant as follows:

 

As additional rent determined by amortizing the amount of the Improvement Allowance disbursed to Tenant over the next five years (5) beginning May 1, 2012 (“Tenant Finish Rent”).  Such amortization shall be at a per annum rate of interest equal to seven percent (7%), which results in a payment of $2,970.18 per month if the full Improvement Allowance is disbursed to Tenant.  Such Tenant Finish Rent shall be due and payable on the first day of each month during the initial term of this Lease and shall be paid in the same manner as Base Rent; provided, however, that Tenant shall have the right to pre-pay, in full or in part, any portion of the =amortized balance of the Tenant Finish Rent full at any time.  If Tenant does not exercise its two year renewal option after the initial term, or upon the earlier termination of this Lease as provided herein, the =amortized balance of the Tenant Improvement Allowance, and any accrued interest thereon, shall be due and payable in full to Landlord within ten (10) days of the expiration or earlier termination of this Lease.

 

37.                               Additional Covenants of Tenant.  Tenant shall not commit or allow any of the following acts to be committed by Tenant or its agents, employees, or invitees without the prior written consent of the Landlord, which consent may be granted or withheld at the sole discretion of the Landlord:

 

(a)                                 Occupy the Leased Premises in any other manner or for any other purpose than as set forth in this Lease.

 

(b)                                 Use the Leased Premises, Property, Building or Improvements or operate any machinery on the Leased Premises, Property, Building or Improvements that, in Landlord’s reasonable opinion, is harmful to the Building or disturbing to tenants occupying other parts thereof.

 

(c)                                  Inscribe, paint or affix or permit to be inscribed, painted or affixed any sign, advertisement or notice on any part of the Building, inside or out, unless of such character, color, size or material, and in such place as shall first be approved by Landlord in writing.

 

(d)                                 Place any signaling, telegraphic, telephonic or other wires and instruments in the Leased Premises unless directed by Landlord as to where and how the same are to be placed, and, without such direction, no placement of any such apparatus

 

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shall be permitted; provided, however, Tenant shall be permitted to install standard telephone and computer lines at Tenant’s expense within Tenant’s leased area.

 

(e)                                  Use or allow to be used on the Leased Premises any article or substance having an offensive odor, such as, but not limited to ether, naphtha, phosphorus, benzol, gasoline, benzine, petroleum or any product thereof, crude or refined earth or coal oils, flashlight powder, or other explosives, kerosene, camphene, burning fluid or any dangerous, explosive or rapidly burning matter or material of any kind.

 

(f)                                   Use electricity in the Leased Premises in excess of the capacity of any of the electrical conductors and equipment in or otherwise serving the demised premises nor connect any additional fixtures, appliances or equipment other than lamps, typewriters, PC type desktop computers and similar small offices machines to the Building electric distribution system or make any alteration of addition to the electric system of the Leased Premises.

 

38.                               Signs.  Landlord shall have no obligation to provide any signs for Tenant or the Leased Premises.  All signs placed on the Leased Premises by Tenant shall conform to the same style, type, size and quality of other signs in or on the Building and shall be subject to the approval of Landlord, which approval shall not be unreasonably withheld.  All signs approved by Landlord shall be erected at Tenant’s sole cost and expense, and in compliance with all applicable laws, ordinances, codes and regulations.  In addition, all such signs shall be removed by Tenant upon the termination of this Lease and all damages repaired at Tenant’s cost and expense.

 

39.                               Security Deposit.  As security for the payment and performance of its obligations under this Lease, Tenant has deposited with Landlord the sum of $18,750.00 (the “Deposit”).  The Deposit shall be held by Landlord, and, at Landlord’s discretion, applied to the payment of any amount due Landlord from Tenant which comes due under the terms of this Lease.  Any such use of the Deposit by Landlord shall not serve to cure or waive Tenant’s default, and such default shall not be deemed cured until the full amount of the Deposit has been restored to Landlord by Tenant.  Any unexpended portion of the Deposit shall be paid over to Tenant within thirty (30) days after the expiration or earlier termination of this Lease and the performance by Tenant of all of its obligations under this Lease.

 

40.                               Additional Waists Reserved to Landlord.  Landlord shall have the right, but shall be under no obligation, to do the following things (at any time or times and from time to time) in or about the Leased Premises and the Building or adjacent property:

 

(a)                                 Make such reasonable rules and regulations as in its judgment may from time to time be necessary for the safety, care and cleanliness of the Leased Premises, the Building or Common Areas, and for the preservation of good order therein; provided, however, such rules and regulations shall not be inconsistent with the terms and conditions of this Lease.

 

(b)                                 Control and prevent access to any part of the Building or adjacent property by all persons whose presence in the reasonable judgment of Landlord, or

 

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Landlord’s employees, will be prejudicial to the safety, character, reputation or interest of the Building and its respective tenants.

 

41.                               Financial Information.  On each anniversary of the commencement of the Lease, Tenant shall provide Landlord with copies of its most recent Grand Rapids, Michigan divisional financial information, defined as revenues and EBITDA (defined as earnings before interest, taxes, depreciation and amortization).

 

42.                               Entire Agreement; Amendment.  This Lease contains all of the terms and conditions of the agreement of the parties concerning the Leased Premises.  This Lease may be amended only by a written agreement signed by both Landlord and Tenant

 

44.                               Estoppel Certificates.  Upon or after execution of this Lease, within ten (10) days of Landlord’s request, Tenant shall execute and deliver to Landlord a statement in writing, certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), the day to which the Base Rent, additional rent or other charges have been paid by Tenant in advance, if any, and stating that there is not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed.  Upon the same tams and conditions as provided in this Section, Landlord shall provide an estoppel certificate to Tenant within ten (10) days of Tenant’s request.

 

45.                               Landlord Default; Remedies.  If Landlord fails to perform any obligation under this Lease and such failure continues beyond a reasonable period of time, not to exceed thirty (30) days after Landlord’s receipt of written notice from Tenant specifying in reasonable detail the nature of such failure (unless such default is not reasonably capable of being cured within such thirty (30) day period and Landlord is diligently prosecuting such cure to completion) (“Landlord Default”), Tenant may, by written notice to Landlord, elect to: (a) terminate this Lease, if Landlord’s default materially and adversely impacts Tenant’s ability to use a substantial portion of the Leased Premises for its business purposes; and/or (b) bring an action for specific performance or for damages; and/or (c) exercise all remedies available to Tenant at law and equity.  Notwithstanding anything to the contrary in this Lease, if a Landlord Default occurs and Landlord’s default materially and adversely impacts Tenant’s ability to use a substantial portion of the Leased Premises for its business purposes, Tenant shall have the right to cure the Landlord Default and set off against Rent due from Tenant to Landlord under this Lease the cost of curing the Landlord Default in only the following instances: (i) the failure of Landlord to pay the Improvement Allowance as required under this Lease; (ii) the failure of Landlord to properly maintain the Common Areas as required under this Lease; (iii) the failure to maintain, repair and replace as provided under this Lease; (iv) the failure of Landlord to pay for any utilities as required under this Lease; and (v) the failure of Landlord to pay the municipality for real estate taxes relating to the Property.

 

46.                               Waiver of Security Interest.  Landlord waives any security interest in and to all Landlord’s liens over Tenant’s goods, inventory, trade fixtures and all other personal property, whether statutory, consensual or equitable.  Landlord further agrees to execute an agreement in substance and in form agreeable with Tenant’s lender, allowing Tenant’s lender access to lender’s collateral in the Leased Premises, if any.

 

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47.                               Landlord’s Representations.  Notwithstanding anything to the contrary herein, as a material inducement to Tenant’s execution of this Lease, Landlord covenants and agrees with and warrants and represents to Tenant as follows: (a) Landlord is the true and lawful owner of the Property and is seized of an indefeasible estate in fee simple in and to the Property, subject to no easement, restriction, mortgage, encumbrance or other matter which would: (i) preclude Landlord’s grant of the Terra to Tenant, (ii) prevent or hinder the use by Tenant of the Leased Premises for the permitted uses provided in this Lease, or (iii) materially detract from the rights of Tenant under this Lease; (b) Landlord has not received notice of any claim, suit or other action or investigation with respect to the violation of any legal requirements by or against Landlord or the Property, or part thereof, including, without limitation, any applicable environmental and occupational safety and hygiene laws, and Landlord knows of no facts or circumstances which may give rise to any violation of any legal requirement or to any future civil, criminal or administrative proceeding relating to environmental or occupational safety and hygiene matters or any other matter which may adversely affect Tenant, the Leased Premises or Tenant’s rights or obligations hereunder; (c) the Leased Premises is and shall remain properly zoned for the permitted uses as provided in this Lease and the Leased Premises and the remainder of the Property is and shall remain properly zoned to permit the permitted uses as provided in this Lease.  All necessary governmental and private consents, permits and approvals for the permitted uses of the Leased Premises as provided in this Lease have been obtained prior to the date hereof; (d) Landlord is a Michigan limited liability company, validly existing in good standing under the laws of Michigan and has the power to own its own property and assets, lease the Leased Premises to Tenant and carry on its business as required under this Lease in the state of Michigan; (e) the execution of this Lease constitutes the binding obligation of Landlord and has been authorized by valid resolution of Landlord’s members and managers and this Lease will not conflict with or result in a breach of Landlord’s Articles of Organization or Operating Agreement or any agreements to which Landlord is a party or by which it may be bound, or violate any applicable legal requirement, including, without limitation, any requirement, restriction or easement applicable to the Property or Landlord; (f) all utilities that are necessary for Tenant’s permitted uses of the Leased Premises under this Lease (whether separately metered or otherwise) are available to the Leased Premises and in good working order; and (g) Subject to the satisfactory completion of the applicable Finish Improvements, the Leased Premises, including, without limitation, the HVAC, electrical, plumbing, and telecommunications systems, equipment, fixtures, and controls serving the Leased Premises, whether located within or outside the Leased Premises, are in good working order and condition as of the date first indicated above.

 

48.                               Brokers.  Each party under this Lease represents and warrants that, except for First Companies, Inc. and Paracom LLC (d/b/a Colliers International) (collectively, the “Broker”), it has dealt with no broker in connection with this Lease and agrees to hold harmless and indemnify the other from and against any broker’s claim for any commission related to this Lease. The brokerage commission due to Broker shall be paid by Landlord.

 

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IN WITNESS OF WHICH, Landlord and Tenant have executed this Lease at Grand Rapids, Michigan.

 

	
WITNESSES:
    	
 
    	
 
    
	
 
    	
 
    	
4741   Talon Court L.L.C.
    
	
 
    	
 
    	
 
    
	
/s/   unintelligible
    	
 
    	
By
    	
/s/   unintelligible
    
	
 
    	
 
    	
 
    	
Its   Member
    
	
 
    	
 
    	
 
    
	
/s/   unintelligible
    	
 
    	
 
    
	
 
    	
 
    	
LANDLORD
    
	
 
    	
 
    	
 
    
	
WITNESS:
    	
 
    	
 
    
	
 
    	
 
    	
Corium   International, Inc.
    
	
 
    	
 
    	
 
    
	
/s/   unintelligible
    	
 
    	
By
    	
/s/   Timothy Sweemer
    
	
 
    	
 
    	
Its
    	
Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
/s/   unintelligible
    	
 
    	
 
    
	
 
    	
 
    	
TENANT
    
					

 

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EXHIBIT A

 

DESCRIPTION OF PROPERTY

 

Lot 20 # Falconcrest Industrial Park

Parcel #41-18-25-400-056

Common Address: 4741 Talon Court SE, Grand Rapids 49512EXHIBIT 10.13

 

	
 
    	
[*]  
    	
Certain   confidential information contained in this document, marked by brackets, has   been omitted and filed separately with the Securities and Exchange Commission   pursuant to Rule 406 of the Securities Act of 1933, as amended.
    

 

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of August 31, 2012 (the “Effective Date”) between SILICON VALLEY BANK, a California corporation (“Bank”), and CORIUM INTERNATIONAL, INC., a Delaware corporation (“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as follows:

 

Recitals

 

A.                                    Bank and Borrower have entered into that certain Amended and Restated Loan and Security Agreement dated as of August 23, 2010 (as the same has been, from time to time, amended, modified, supplemented, reinstated and renewed, the “Prior Loan Agreement”).  Pursuant to the Prior Loan Agreement, Bank made (i) a secured line of credit to Borrower in the maximum principal amount of Five Million Dollars ($5,000,000) and (ii) a term loan with an outstanding principal balance of One Million Dollars ($1,000,000) (the “Existing Term Loan Facility”).

 

B.                                    Borrower has requested, and Bank has agreed to amend and restate the Prior Loan Agreement in its entirety.  The parties hereby agree that the Prior Loan Agreement is hereby amended, restated and replaced in its entirety as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

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

 

2                                         LOAN AND TERMS OF PAYMENT

 

2.1                               Promise to Pay.

 

Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

 

 

2.1.1                     Revolving Advances.

 

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

 

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

 

2.2                               Overadvances.

 

If, at any time, the outstanding aggregate principal amount of the Advances exceeds the lesser of either the Revolving Line or the Borrowing Base (such excess being an “Overadvance”), Borrower shall immediately pay to Bank in cash the amount of such Overadvance.  Without limiting Borrower’s obligation to repay Bank any amount of the Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

 

2.3                               Payment of Interest on the Credit Extensions.

 

(a)                                 Advances.  Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at the greater of (i) a floating per annum rate equal to one quarter of one percentage point (0.25%) above the Prime Rate or (ii) four and one quarter percent (4.25%) per annum, which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(b)                                 Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “Default Rate”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase.  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest from the date due until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

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

 

(d)                                 Debit of Accounts.  Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due, including, without limitation, any amounts due under subsections (e) and (f) of this Section.  These debits shall not constitute a set-off.

 

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(e)                                  Minimum Monthly Interest.  In the event the aggregate amount of interest earned by Bank in any month (exclusive of any collateral monitoring fees, unused line fees, or any other fees and charges hereunder) is less than Five Thousand Dollars ($5,000) (the “Minimum Monthly Interest”), Borrower shall pay Bank an amount, payable on the last day of such month, equal to the (i) Minimum Monthly Interest minus (ii) the aggregate amount of all interest earned by Bank (exclusive of any collateral monitoring fees, unused line fees, or any other fees and charges hereunder) in such month.

 

(f)                                   Payment; Interest Computation; Float Charge.  Interest is payable monthly on the last calendar day of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed.  In computing interest, (i) all Payments received after 12:00 p.m. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.  Bank shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the amount of any item of payment which is returned to Bank unpaid.

 

2.4                               Fees.

 

Borrower shall pay to Bank:

 

(a)                                 Commitment Fee.  A fully earned, non refundable commitment fee of Sixty Thousand Dollars ($60,000) (the “Commitment Fee”), on the Effective Date and on the first anniversary of the Effective Date; and

 

(b)                                 Termination Fee.  Subject to the terms of Section 12.1, a termination fee;

 

(c)                                  Good Faith Deposit.  Borrower has paid to Bank a deposit of Fifteen Thousand Dollars ($15,000) (the “Good Faith Deposit”) to initiate Bank’s due diligence review process.  Any portion of the Good Faith Deposit not utilized to pay Bank Expenses will be applied to the Commitment Fee; and

 

(d)                                 Bank Expenses.  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

 

2.5                               Payments; Application of Payments.

 

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

 

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(b)                                 All payments with respect to the Obligations may be applied in such order and manner as Bank shall determine in its sole discretion.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

 

3                                         CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to Initial Advance.

 

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

 

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

 

(b)                                 repayment in full of all sums due under the Existing Term Loan;

 

(c)                                  duly executed original signatures to the Control Agreements;

 

(d)                                 Borrower’s Operating Documents and a good standing certificate of Borrower certified by the Secretary of State of the State of Delaware, State of Michigan, and the State of California each as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(e)                                  duly executed original signatures to the completed Borrowing Resolutions for Borrower;

 

(f)                                   the Intercreditor Agreement, dated the Effective Date (as amended, restated, or otherwise modified, the “Capital Royalty/Silicon Valley Bank Intercreditor Agreement”), by and among Capital Royalty Partners II L.P., a Delaware limited partnership, Capital Royalty Partners II — Parallel Fund “A” L.P., a Delaware limited partnership, and Parallel Investment Opportunities Partners II L.P., a Delaware limited partnership and Bank, together with the duly executed original signatures thereto;

 

(g)                                  true, correct and complete copies of the Capital Royalty Loan Documents;

 

(h)                                 duly executed original signature to a payoff letter from Oxford Finance Corporation;

 

(i)                                     evidence that (i) the Liens securing Indebtedness owed by Borrower to Oxford Finance Corporation will be terminated and (ii) the documents and/or filings evidencing the perfection of such Liens, including without limitation any financing statements and/or control agreements, have or will, concurrently with the initial Advance, be terminated.

 

(j)                                    certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination

 

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statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Advance, will be terminated or released;

 

(k)                                 the Perfection Certificate of Borrower, together with the duly executed original signature thereto;

 

(l)                                     a landlord’s consent in favor of Bank for (i) 4558 50th Street SE, Grand Rapids, Michigan 49512, (ii) 4524 50th Street, SE, Grand Rapids, Michigan, and (iii) 741 Talon Court, SE, Grand Rapids, Michigan, by each of the respective landlord thereof, together with the duly executed original signatures thereto;

 

(m)                             the insurance policies and/or endorsements required pursuant to Section 6.7 hereof; and

 

(n)                                 payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

 

3.2                               Conditions Precedent to all Credit Extensions.

 

Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

 

(a)                                 timely receipt of an executed Transaction Report;

 

(b)                                 the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Transaction Report and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension; and

 

(c)                                  in Bank’s sole, but reasonable discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank.

 

If any event, condition, circumstance or other factor (collectively, “Circumstances”) exists or does not exist whose existence or non-existence serves as justification under this Section 3.2(c) for Bank’s refusal to make a requested Credit Extension, the existence or non-existence of such Circumstance shall not constitute an Event of Default under Section 8 unless it independently constitutes an Event of Default pursuant to another provision of this Agreement.

 

3.3                               Covenant to Deliver.

 

Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Borrower expressly agrees that a

 

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Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.4                               Procedures for Borrowing.

 

Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance.  Together with such notification, Borrower must promptly deliver to Bank by electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or his or her designee.  Bank shall credit Advances to the Designated Deposit Account.  Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.  Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee.

 

3.5                               Prior Loan Agreement.

 

Credit Extensions under the Prior Loan Agreement which are outstanding at the Effective Date shall be governed by the provisions of this Agreement.

 

4                                         CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest.

 

Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

 

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

 

This Agreement may be terminated by Borrower’s delivery to Bank of a written termination notice which shall be effective at the end of the second Business Day after Borrower’s receipt thereof.  Borrower’s power to draw credit under Bank Services Agreements may be terminated by Borrower’s delivery of a written termination notice to Bank which shall be effective upon receipt.  If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are paid in full, and at such time, Bank’s security interest in the Collateral shall terminate and all rights therein shall revert to Borrower.  In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are paid in full, and (y) this Agreement is terminated, the security

 

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interest granted herein shall terminate upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any.  Bank shall use reasonable commercial efforts to inform Borrower what constitutes acceptable cash collateral with respect to all Bank Services Agreements in force and effect when Borrower delivers its written termination notice.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent (or 110% if the Dollar Equivalent is denominated in Foreign Currency) of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.

 

4.2                               Priority of Security Interest.

 

Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

4.3                               Authorization to File Financing Statements.

 

Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.  Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1                               Due Organization, Authorization; Power and Authority.

 

Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate” and a completed schedule of exceptions signed by the Borrower and approved by the Bank, entitled “Schedule of Exceptions”.  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the

 

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Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate and in the Schedule of Exceptions pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate and in the Schedule of Exceptions after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).

 

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

 

5.2                               Collateral.

 

Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate or in the Schedule of Exceptions delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein.  The Accounts are bona fide, existing obligations of the Account Debtors.

 

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

 

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

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property but that may be exclusive with respect to geographic location, limited time duration, field of use and customized products for specific customers.  To the best of Borrower’s knowledge, each Patent

 

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which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and, to the best of Borrower’s knowledge, no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.  To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property which Borrower owns or purports to own violates the rights of any third party except to the extent that a successful pursuit of claimant of such claim would reasonably be expected to have a material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate or in the Schedule of Exceptions, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3                               Accounts Receivable.

 

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

 

(b)                                 All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be.  Whether or not an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank’s security interest in such funds and verify the amount of such Eligible Account.  All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Transaction Report.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

5.4                               Litigation.

 

Except as set forth in the Perfection Certificate or in Section 5.4 of the Schedule of Exceptions attached hereto, there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Hundred Fifty Thousand Dollars ($150,000).

 

5.5                               Financial Statements; Financial Condition.

 

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

 

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5.6                               Solvency.

 

The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

 

5.7                               Regulatory Compliance.

 

Except as set forth in the Perfection Certificate or in Section 5.7 of the Schedule of Exceptions attached hereto, Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005.  Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted.

 

5.8                               Subsidiaries; Investments.

 

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

 

5.9                               Tax Returns and Payments; Pension Contributions.

 

Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, other than taxes which in the aggregate do not at any time exceed Fifteen Thousand Dollars ($15,000).  Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, and (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.”  Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not

 

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permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10                        Use of Proceeds.

 

Borrower shall use the proceeds of the Credit Extensions solely for purposes that are expressly permitted by any express provision of this Agreement, working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

 

5.11                        Full Disclosure.

 

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

 

5.12                        Definition of “Knowledge.”

 

For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of the Responsible Officers.

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower hereby agrees that, so long as Bank has a commitment or obligation to make any Credit Extensions to Borrower or any Obligations are owing to Bank hereunder, Borrower shall do all of the following:

 

6.1                               Government Compliance.

 

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

 

(b)                                 Use commercially reasonable efforts to obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan

 

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Documents to which it is a party and the grant of a security interest to Bank in all of its property.  Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2                               Financial Statements, Reports, Certificates.

 

Provide Bank with the following:

 

(a)                                 a Transaction Report (which will include such information as is necessary for Bank to verify sales and collections), (i) in the event that Borrower is Streamline Eligible and provided no Event of Default has occurred and is continuing, no later than thirty (30) days after the end of each month and (ii) in all other cases, on a weekly basis;

 

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

 

(c)                                  as soon as available, but no later than thirty (30) days after the last day of each month (excepting the last month of Borrower’s fiscal year no later than forty-five (45) days after Borrower’s fiscal year end), a company prepared consolidated balance sheet, cash flow statement, and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “Monthly Financial Statements”);

 

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

 

(e)                                  (A) within fifteen (15) days of approval by the Borrower’s Board of Directors, annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower, and (B) within fifteen (15) days of request by Bank, annual financial projections for the following fiscal year (on a quarterly basis)  together with any related business forecasts used in the preparation of such annual financial projections;

 

(f)                                   as soon as available, and in any event within two hundred forty (240) days following the end of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion (or an opinion qualified only for going concern specifying the need for future financings) on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion;

 

(g)                                  within ten (10) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

 

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(h)                                 prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark not shown in the IP Agreement or any addendum thereto, and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property;

 

(i)                                     prompt report of each legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, One Hundred Thousand Dollars ($100,000) or more; and

 

(j)                                    other financial information reasonably requested by Bank.

 

6.3                               Accounts Receivable.

 

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

 

(b)                                 Disputes.  Borrower shall promptly notify Bank of all disputes or claims relating to Accounts which in the aggregate exceeds Fifteen Thousand Dollars ($15,000) in any calendar month.  Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm’s-length transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the Revolving Line.

 

(c)                                  Collection of Accounts.  Borrower shall have the right to collect all Accounts into a collateral account at Bank, unless and until an Event of Default has occurred and is continuing.  After the occurrence and during the continuance of an Event of Default, Bank shall require that all proceeds of Accounts be deposited by Borrower into a lockbox account or to wire transfer payments to a cash collateral account that Bank controls (collectively, the “Lockbox”), pursuant to a blocked account agreement in such form as Bank may specify in its good faith business judgment.  Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts to an account maintained with Bank to be applied (i) prior to an Event of Default, pursuant to the terms of Section 2.5(b) hereof, and (ii) after the occurrence and during the continuance of an

 

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Event of Default, pursuant to the terms of Section 9.4 hereof.  At all times when Borrower is Streamline Eligible, provided no Event of Default has occurred and is continuing, funds in the Lockbox will be remitted to Borrower’s Designated Deposit Account, but at all other times, such collections shall be applied to reduce the Obligations on a daily basis, prior to being deposited into Borrower’s Designated Deposit Account.

 

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

 

(e)                                  Verification.  Bank may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose.

 

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

 

6.4                               Remittance of Proceeds.

 

Except as otherwise provided in Section 6.3(c) or in Section 12.5, deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations (1) prior to an Event of Default, pursuant to the terms of Section 2.5(b) hereof, and (2) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if no Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of surplus, worn out or obsolete Equipment disposed of by Borrower in good faith in an arm’s length transaction for an aggregate purchase price of Two Hundred Thousand Dollars ($200,000) or less (for all such transactions in any fiscal year).  Borrower agrees that it will deposit all proceeds of Collateral in an account maintained with Bank.  Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

 

6.5                               Taxes; Pensions

 

Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its

 

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Subsidiaries, other than taxes which in the aggregate do not at any time exceed Fifteen Thousand Dollars ($15,000), and except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.6                               Access to Collateral; Books and Records

 

At reasonable times, on five (5) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower’s Books.  Unless an Event of Default has occurred and is continuing, such inspections or audits shall be conducted no more often than once every six (6) months at all other times. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses.  In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

 

6.7                               Insurance.

 

Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank in its reasonable discretion.  All property policies shall have a lender’s loss payable endorsement showing Bank as a lender loss payee and waive subrogation against Bank.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  All policies (or their respective endorsements) shall provide that the insurer shall endeavor to give Bank at least twenty (20) days notice (ten (10) days for non-payment of premiums) before canceling, amending, or declining to renew its policy.  At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments.  If Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.7, and take any action under the policies Bank deems prudent.

 

6.8                               Operating Accounts.

 

(a)                                 Maintain all of its primary and all of its Subsidiaries’ primary operating and securities accounts with Bank and Bank’s Affiliates.

 

(b)                                 Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other

 

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appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to (a) deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such and (b) that certain deposit account maintained with Comerica Bank, identified on the Perfection Certificate delivered to Bank on the Effective Date, which such account shall at all times be maintained exclusively for Borrower’s payroll and petty cash, provided the average collected balance of such account at any time shall not exceed Five Thousand Dollars ($5,000).

 

6.9                               Financial Covenants.

 

Maintain as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

 

(a)                                 Liquidity Coverage.  A ratio of unrestricted cash on deposit with Bank or Bank’s Affiliates plus Eligible Accounts to outstanding Obligations of not less than 1.50:1.00.

 

(b)                                 Minimum Cash.  Borrower shall maintain at all times unrestricted cash on deposit with Bank or Bank’s Affiliates of not less than Two Million Dollars ($2,000,000) at all times.

 

6.10                        Protection and Registration of Intellectual Property Rights.

 

(a)                                 (i) Protect, defend and maintain the validity and enforceability of Borrower owned Intellectual Property that is material to Borrower’s business; (ii) promptly advise Bank in writing of material infringements by a third party of Borrower owned Intellectual Property that is material to Borrower’s business; and (iii) not allow any Borrower owned Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

 

(b)                                 If Borrower (i)obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall within thirty (30) days after the end of each fiscal quarter provide written notice thereof to Bank and shall execute such intellectual property security agreements and other documents and take such other actions as Bank shall reasonably request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in such property.  If Borrower decides to register any Copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of Borrower’s intent to register such Copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Bank may reasonably request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in the Copyrights or mask works intended to be registered with the United States Copyright Office; and

 

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(z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the Copyright or mask work application(s) with the United States Copyright Office.  Borrower shall promptly provide to Bank a completed copy executed by Borrower of the intellectual property security agreement prepared by Bank necessary for Bank to perfect and maintain a first priority perfected security interest in such property.

 

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

 

6.11                        Litigation Cooperation.

 

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

 

6.12                        Further Assurances.

 

Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

 

7                                         NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1                               Dispositions.

 

Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of Borrower or any of Borrower’s Subsidiaries in the ordinary course of business; (e) Borrower’s use or transfer of money or Cash Equivalents (A) in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents or (B) of money or Cash Equivalents for the payment of items whose payment is not prohibited by the terms of this Agreement; and (f) of licenses for the use of the Intellectual Property of Borrower, or any of Borrower’s Subsidiaries, in the ordinary course of business, which could not result in a legal transfer of title of the licensed property but that may be exclusive with respect to

 

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geographic location, limited time duration, field of use and customized products for specific customers.

 

7.2                               Changes in Business, Management, Ownership, or Business Locations.

 

(a)                                 Engage in or permit any of its Subsidiaries to engage in any business other than the businesses engaged in by Borrower and such Subsidiary, as applicable, as of the Effective Date or reasonably related thereto; (b) liquidate or dissolve; or (c) (a) have changes in management in which during any three (3) month period any two Key Persons cease to hold such offices with Borrower and replacements satisfactory to Borrower’s Board of Directors are not made within one hundred twenty (120) days after such Key Person’s departure from Borrower; or (b) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering, private placement of public equity, or to venture capital investors so long as Borrower identifies to Bank the venture capital investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Fifty Thousand Dollars ($150,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Fifty Thousand Dollars ($150,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.  Borrower and Bank agree that none of the foregoing changes require the consent of Bank and that while such changes are contemplated in connection with the Cowboy Transaction, Borrower shall still be required to provide Bank with notice of occurrences.  If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Fifty Thousand Dollars ($150,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

 

7.3                               Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except (a) the Cowboy Transaction, as described on Schedule 7.3 attached hereto, or (b) where (i) total consideration including cash and the value of any non-cash consideration, for any such single transaction does not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000) and for all such transactions does not in the aggregate exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year of Borrower; (ii) no Event of Default has occurred and is continuing or would exist at the time and after giving

 

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effect to the transactions; (iii) Borrower is the surviving legal entity; (iv) any acquired Person shall be a going concern and not involved in any material litigation that is not fully covered by reserves and/or insurance; (v) the Person or business to be acquired shall be in a substantially similar line of business as the Borrower; and (vi) Borrower shall be in compliance, on a pro forma basis at the time and after giving effect to such transaction, with the covenants contained in Section 6.9 in each case for purposes of testing such compliance recomputed as at the last day of the most recently ended month as if such transaction had occurred on the first (1st) day of the most recently ended month.  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

 

7.4                               Indebtedness.

 

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

 

7.5                               Encumbrance.

 

Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein (except for Permitted Liens that may have superior priority to Bank’s Lien under this Agreement), or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower, or any of Borrower’s Subsidiaries from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s, or such Subsidiary’s solely owned Intellectual Property, except (a) as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein and (b) such agreements that may contain such restrictions, provided that such agreements do not prohibit Borrower from granting a security interest in Borrower’s or any Subsidiary’s solely owned Intellectual Property in favor of Bank and provided further that the counter parties to such agreements are not permitted to receive a security interest in Borrower’s Intellectual Property.

 

7.6                               Maintenance of Collateral Accounts.

 

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

 

7.7                               Distributions; Investments.

 

(a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock except as set forth in Section 7.7 of the Schedule of Exceptions attached hereto, provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of Fifty Thousand Dollars ($50,000) per fiscal year, provided, however, that this Section 7.7 shall not restrict or prohibit the purchase of capital stock of Borrower from Adrian Faasse or Gary Cleary in

 

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accordance with existing agreements if the purchase in question is approved by Borrower’s Board of Directors; (iv) Borrower may purchase, redeem, retire, or otherwise acquire shares of its capital stock or other Equity Interests at any time from Essex and otherwise from any other Person with the proceeds received from a substantially concurrent issue of new shares of Borrower’s capital stock or other Equity Interests; and (v) Borrower may utilize additional cash made available to Borrower as a result of the Cowboy Transaction as described on Schedule 7.3 attached hereto for any use permitted by this Agreement (other than to make any payment with respect to the Subordinated Debt) or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

7.8                               Transactions with Affiliates.

 

Except as set forth in the Perfection Certificate or in Sections 7.7 and 7.8 of the Schedule of Exceptions attached hereto, directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

 

7.9                               Subordinated Debt.

 

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

 

7.10                        Compliance.

 

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

 

7.11                        Amendments and Waivers to Actavis Documents.

 

Amend, modify or waive any material provision of any of the Actavis Financing Documents or the Actavis Settlement Agreement, if the effect of such amendment, modification or waiver is to permit the payment of cash by Borrower to Actavis or could reasonably be expected to be materially adverse to Bank.

 

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7.12                        Actavis Settlement Agreement.

 

(a) Exercise the cash option in Section 7(d) of the Actavis Settlement Agreement, or (b) make any other cash payment to Actavis except for payments in the normal course of business.  For sake of clarity, Borrower may not make the payment contemplated under Section 8(b) of the Actavis Settlement Agreement.

 

8                                         EVENTS OF DEFAULT

 

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

 

8.1                               Payment Default.

 

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

 

8.2                               Covenant Default.

 

(a)                                 Borrower fails or neglects to perform any obligation in Sections 2.2, 6.2, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10(b), 6.11, or violates any covenant in Section 7; or

 

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

 

8.3                               Material Adverse Change.

 

A Material Adverse Change occurs;

 

8.4                               Attachment; Levy; Restraint on Business.

 

(a)                                 (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is

 

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filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

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

 

8.5                               Insolvency.

 

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

 

8.6                               Capital Royalty Loan Documents.

 

The occurrence of any default under the Capital Royalty Loan Documents which is not cured within any applicable grace period or waived by Capital Royalty.

 

8.7                               Other Agreements.

 

There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Two Hundred Fifty Thousand Dollars ($250,000); or (b) any default by Borrower the result of which could have a material adverse effect on Borrower’s business;

 

8.8                               Judgments.

 

One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Fifty Thousand Dollars ($150,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

 

8.9                               Misrepresentations.

 

Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

 

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8.10                        Subordinated Debt.

 

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

 

8.11                        Governmental Approvals.

 

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

 

9                                         BANK’S RIGHTS AND REMEDIES

 

9.1                               Rights and Remedies.

 

While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

 

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

 

(b)                                 stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

 

(c)                                  for any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to 105% of the Dollar Equivalent (or 110% if the Dollar Equivalent is denominated in Foreign Currency) of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d)                                 terminate any FX Contracts;

 

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(e)                                  settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

 

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

 

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

 

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

 

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

 

(j)                                    demand and receive possession of Borrower’s Books; and

 

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

 

9.2                               Power of Attorney.

 

Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s

 

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security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

 

9.3                               Protective Payments.

 

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

 

9.4                               Application of Payments and Proceeds.

 

If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion.  Any surplus shall be paid to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

9.5                               Bank’s Liability for Collateral.

 

So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrower bears all risk of loss, damage or destruction of the Collateral.

 

9.6                               No Waiver; Remedies Cumulative.

 

Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Bank has all

 

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rights and remedies provided under the Code, by law, or in equity.  Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

 

9.7                               Demand Waiver.

 

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

 

9.8                               Capital Royalty/Silicon Valley Bank Intercreditor Agreement

 

Bank’s enforcement rights with respect to the Collateral are subject to the terms of the Capital Royalty/Silicon Valley Bank Intercreditor Agreement.

 

10                                  NOTICES

 

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

 

If to Borrower:                                                                                                               Corium International, Inc.

4558 50th St. SE

Grand Rapids, Michigan  49512

Attn:  Tim Sweemer, CFO

Fax:  (      )       -

Email:

 

With a copy to:                                                                                                            Corium International, Inc.

235 Constitution Drive

Menlo Park, California  94025

Attn: VP, Corporate Development

Fax:  (650) 298-8012

Email:  christina@coriumtech.com

 

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If to Bank:                                                                                                                                      Silicon Valley Bank

2400 Hanover Street

Palo Alto, California  94304

Attn:  Jason Hughes

Fax:  (650) 856-7879

Email:  jhughes@svb.com

 

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

 

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

 

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

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive.  The private judge shall

 

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have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.  The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

 

12                                  GENERAL PROVISIONS

 

12.1                        Termination Prior to Revolving Line Maturity Date.

 

This Agreement and Bank’s Lien in the Collateral may be terminated prior to the Revolving Line Maturity Date in accordance with Section 4.1.  If such termination is at Borrower’s election or at Bank’s election due to the occurrence and continuance of an Event of Default, Borrower shall pay to Bank, in addition to the payment of any other expenses or fees then-owing, a termination fee in an amount equal to (a) One Hundred Fifty Thousand Dollars ($150,000) if such termination occurs on or before the first anniversary date of the Effective Date and (b) Ninety Thousand Dollars ($90,000) if such termination occurs after the first anniversary date of the Effective Date but prior to the Revolving Line Maturity Date, provided, that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Bank.

 

12.2                        Successors and Assigns.

 

This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion).  Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents (other than the Warrant, as to which assignment, transfer and other such actions are governed by the terms of the Warrant).

 

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12.3                        Indemnification.

 

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

 

12.4                        Time of Essence.

 

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

 

12.5                        Capital Royalty/Silicon Valley Bank Intercreditor Agreement.

 

In the event that any provision of this Agreement which addresses the application of payments or the treatment of Collateral is in conflict with any provision of the Capital Royalty/Silicon Valley Bank Intercreditor Agreement, the provision of the Capital Royalty/Silicon Valley Bank Intercreditor Agreement shall take precedence and govern.

 

12.6                        Severability of Provisions.

 

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

 

12.7                        Correction of Loan Documents.

 

Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) days to object to such correction.  In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrower.

 

12.8                        Amendments in Writing; Waiver; Integration.

 

No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought.  Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any

 

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further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

12.9                        Counterparts.

 

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

 

12.10                 Survival.

 

All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied.  Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements. The obligation of Borrower in Section 12.3 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

 

12.11                 Confidentiality.

 

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

 

Bank Entities may use the confidential information for reporting purposes and the development and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly prohibited by Borrower.  The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

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12.12                 Attorneys’ Fees, Costs and Expenses.

 

In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

 

12.13                 Electronic Execution of Documents.

 

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

 

12.14                 Captions.

 

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

 

12.15                 Construction of Agreement.

 

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

 

12.16                 Relationship.

 

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

 

12.17                 Third Parties.

 

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

 

12.18                 Transitional Arrangements.

 

On the Effective Date, this Agreement shall amend, restate and supersede the Prior Loan Agreement in its entirety, except as provided in this Section.  On the Effective Date, the rights and obligations of the parties evidenced by the Prior Loan Agreement shall be evidenced by this Agreement and the other Loan Documents and the grant of security interest in the Collateral by

 

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the Borrower under the Prior Loan Agreement and the other “Loan Documents” (as defined in the Prior Loan Agreement) shall continue under this Agreement and the other Loan Documents, and shall not in any event be terminated, extinguished or annulled but shall hereafter be governed by this Agreement and the other Loans Documents.  All references to the Prior Loan Agreement in any Loan Document or other document or instrument delivered in connection therewith shall be deemed to refer to this Agreement and the provisions hereof.  Without limiting the generality of the foregoing and to the extent necessary, Bank reserves all of its rights under the Prior Loan Agreement.

 

13                                  DEFINITIONS

 

13.1                        Definitions.

 

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

 

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

 

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

 

“Actavis” means Actavis South Atlantic LLC.

 

“Actavis Equipment Agreement” means that certain letter agreement between Actavis and Borrower dated October 4, 2007 pursuant to which Actavis is financing certain Equipment of Borrower (the “Actavis Equipment Collateral”) in the amount of $1,997,900 (the “Actavis Equipment Financing”).

 

“Actavis Equipment Security Agreement” means that certain Security Agreement between Actavis and Borrower dated July 14, 2009 pursuant to which Borrower has granted a Lien in favor of Actavis on the Actavis Equipment Collateral.

 

“Actavis Financing Documents” means, collectively, the Actavis Equipment Agreement and Actavis Equipment Security Agreement.

 

“Actavis Settlement Agreement” means that certain Settlement Agreement between Actavis and Borrower dated July 14, 2009 pursuant to which Actavis and Borrower have agreed to settle disputes over claims in connection with a recall of certain products of Borrower for certain credits and offsets in the original amount equal to $12,600,000 (the “Actavis Settlement Amount”).

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

 

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

 

“Agreement” is defined in the preamble hereof.

 

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

 

“Bank” is defined in the preamble hereof.

 

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

 

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

 

“Borrower” is defined in the preamble hereof.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

 

“Borrowing Base” is eighty percent (80%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Transaction Report; provided, however, that Bank may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

 

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

 

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

 

“Capital Royalty” means Capital Royalty Partners II L.P., a Delaware limited partnership, Capital Royalty Partners II — Parallel Fund “A” L.P., a Delaware limited partnership,

 

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and Parallel Investment Opportunities Partners II L.P., a Delaware limited partnership, and their successors and assigns.

 

“Capital Royalty Loan Documents” means that certain Term Loan Agreement by and among Borrower, the Subsidiary Guarantors named therein, and Capital Royalty dated as of July 13, 2012, that certain Security Agreement by and among Borrower and Capital Royalty, dated as of July 13, 2012, together with the Loan Documents described therein.

 

“Capital Royalty/Silicon Valley Bank Intercreditor Agreement” is defined in Section 3.1(f).

 

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

 

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

 

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

 

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

 

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit B.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly

 

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liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

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

 

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

 

“Cowboy Transaction” is described on Schedule 7.3 attached hereto.

 

“Credit Extension” is any Advance or any other extension of credit by Bank for Borrower’s benefit under this Agreement.

 

“Default Rate” is defined in Section 2.3(b).

 

“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

 

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

 

“Designated Deposit Account” is Borrower’s deposit account, account number 3300696480, maintained with Bank.

 

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

 

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

 

“Effective Date” is defined in the preamble hereof.

 

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

 

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

 

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

 

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

 

(d)                                 Accounts owing from an Account Debtor, in which fifty percent (50%) or more of the Accounts have not been paid within ninety (90) days of invoice date;

 

(e)                                  Accounts owing from an Account Debtor which does not have its principal place of business in the United States unless such Accounts are otherwise Eligible Accounts and Bank otherwise approves of in writing;

 

(f)                                   Accounts billed and/or payable outside of the United States (sometimes called foreign invoiced accounts);

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(q)                                 Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days;

 

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

 

(s)                                   Accounts arising from product returns and/or exchanges (sometimes called “warranty” or “RMA” accounts);

 

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

 

(u)                                 Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue);

 

(v)                                 Accounts owing from an Account Debtor, whose total obligations to Borrower exceed thirty-five percent (35%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing; and

 

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

 

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

 

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“Equity Interest” shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or nonvoting), of equity of such Person, including, if such Person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of property of, such partnership, but excluding debt securities convertible or exchangeable into such equity.

 

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

 

“Essex” means Essex Woodlands Health Ventures Fund VII, L.P. and any of its majority owned and controlled Affiliates.

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Existing Term Loan Facility” is defined in Recital A to this Agreement.

 

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

 

“Funding Date” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

 

“FX Contract” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

 

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

 

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

 

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

 

38

 

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

 

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

 

“Indemnified Person” is defined in Section 12.3.

 

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

 

“Intellectual Property” means all of Borrower’s right, title, and interest in and to the following:

 

(x)                                 its Copyrights, Trademarks and Patents;

 

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

 

(z)                                  any and all source code;

 

(aa)                          any and all design rights which may be available to a Borrower;

 

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

 

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

 

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

 

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

 

39

 

“IP Agreement” is that certain Intellectual Property Security Agreement executed and delivered by Borrower to Bank dated as of the Effective Date.

 

“Lease of 4524 50th Street” means that certain lease between Borrower as lessee and Virtu Brunswick Associates, L.L.C. as lessor of those premises commonly known as 4524 50th Street, SE, Grand Rapids, Michigan.

 

“Lease of 4741 Talon Court” means that certain lease between Borrower as lessee and Virtu Brunswick Associates, L.L.C. as lessor of those premises commonly known as 4558 50th Street, SE, Grand Rapids, Michigan.

 

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

 

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

 

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate, the IP Agreement, the Capital Royalty/Silicon Valley Bank Intercreditor Agreement, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.

 

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

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

 

“Net Cash” means the sum of (a) unrestricted cash maintained at Bank and Bank’s Affiliates, minus (b) outstanding Obligations.

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

 

40

 

“Overadvance” is defined in Section 2.2.

 

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

 

“Payment” means all checks, wire transfers and other items of payment received by Bank (including proceeds of Accounts and payment of the Obligations in full) for credit to Borrower’s outstanding Credit Extensions or, if the balance of the Credit Extensions has been reduced to zero, for credit to its deposit accounts.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

(a)                                 Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

 

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

 

(c)                                  Indebtedness under the Capital Royalty Loan Documents;

 

(d)                                 Subordinated Debt;

 

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

 

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

 

(g)                                  Indebtedness in an aggregate principal amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;

 

(h)                                 Indebtedness of Borrower to any Subsidiary and Contingent Obligations of any Subsidiary with respect to obligations of Borrower (provided that the primary obligations are not prohibited hereby), and Indebtedness of any Subsidiary to Borrower in an aggregate principal amount not to exceed Fifty Thousand Dollars ($50,000) or any other Subsidiary and Contingent Obligations of any Subsidiary with respect to obligations of any other Subsidiary (provided that the primary obligations are not prohibited hereby);

 

(i)                                     other Indebtedness not otherwise permitted by Section 7.4 not exceeding Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate outstanding at any time;

 

(j)                                    extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) above, provided that the principal amount

 

41

 

thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be;

 

(k)                                 product liability insurance premiums with AFCO (the “AFCO Financed Premium”) provided the aggregate outstanding principal balance of the AFCO Financed Premium may not exceed $826,622 at any time;

 

(l)                                     Indebtedness arising from the Actavis Equipment Financing;

 

(m)                             Indebtedness arising from the Actavis Settlement Amount; and

 

(n)                                 Indebtedness, estimated to be about $750,000 in total, arising from an arrangement with the lessors under the Lease of 4524 50th Street and the Lease of 4741 Talon Court whereunder the lessor in question initially will finance the construction of upgrades and improvements to the premises under such leases.

 

“Permitted Investments” are:

 

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

 

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

 

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

 

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

 

(hh)                          Investments accepted in connection with Transfers permitted by Section 7.1;

 

(ii)                                  Investments (i) by Borrower in Subsidiaries not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year and (ii) by Subsidiaries in other Subsidiaries not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year or in Borrower;

 

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

 

(kk)                          Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent

 

42

 

obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; and

 

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

 

“Permitted Liens” are:

 

(o)                                 Liens existing on the Effective Date and shown on the Perfection Certificate or the Schedule of Exceptions or arising under this Agreement and the other Loan Documents;

 

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

 

(q)                                 Liens in favor of Capital Royalty pursuant to the Capital Royalty Loan Documents;

 

(r)                                    purchase money Liens securing no more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate amount outstanding (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

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

 

(t)                                    Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

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

 

43

 

(v)                                 leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein

 

(w)                               non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business licenses of intellectual property that could not result in a legal transfer of title of the licensed property but that may be exclusive with respect to geographic location, limited time duration, field of use and customized products for specific customers;

 

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

 

(y)                                 Lien securing the AFCO Financed Premium in favor of AFCO on unearned premiums or dividends payable under Borrower’s insurance policies financed by AFCO, loss payments to Borrower which reduce such unearned premiums, and any interest of Borrower in any state guarantee fund relating to any of Borrower’s insurance policies financed by AFCO (the “AFCO Financed Premium Collateral”) provided that such Lien shall be limited to the AFCO Financed Premium Collateral;

 

(z)                                  Lien in favor of Actavis on the Actavis Equipment Collateral pursuant to the Actavis Equipment Security Agreement;

 

(aa)                          Pledges or deposits made in the ordinary course of Borrower’s business to secure the performance of bids, tenders, contracts (other than for repayment of borrowed money) or leases; and

 

(bb)                          Liens in favor of Essex with respect to Permitted Indebtedness owed to Essex by Borrower on the Effective Date.

 

“Permitted Transfers” is defined in Section 7.1.

 

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

 

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.

 

“Prior Loan Agreement” is defined in Recital A.

 

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

 

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of

 

44

 

an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

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

 

“Responsible Officer” is any of the Chief Executive Officer, President, Chief Financial Officer and VP (Corporate Development).

 

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

 

“Revolving Line” is an Advance or Advances in an amount equal to Six Million Dollars ($6,000,000).

 

“Revolving Line Maturity Date” is August     , 2014.

 

“Schedule of Exceptions” is defined in Section 5.1.

 

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

 

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

 

“Streamline Eligible” shall mean at all times that Borrower’s Net Cash for the immediately preceding calendar month is greater than One Million Dollars ($1,000,000) (the “Streamline Threshold”); provided, however, Borrower shall not be Streamline Eligible during the continuance of an Event of Default.  At any time that Borrower’s Net Cash is less than the Streamline Threshold, Borrower will not be Streamline Eligible until such time as Bank confirms that (a) Borrower’s Net Cash is greater than the Streamline Threshold as of such date and (b) Borrower’s Net Cash is greater than the Streamline Threshold at all times during the immediately preceding calendar month.

 

45

 

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

 

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

 

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

 

“Transaction Report” is that certain report of transactions and schedule of collections in the form attached hereto as Exhibit C.

 

“Transfer” is defined in Section 7.1.

 

[Signature page follows.]

 

46

 

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

 

	
BORROWER:
    	
 
    
	
 
    	
 
    
	
CORIUM   INTERNATIONAL, INC.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/Timothy   Sweemer
    	
 
    
	
 
    	
Name:   Timothy Sweemer
    	
 
    
	
 
    	
Title:   Chief Financial Officer
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
BANK:
    	
 
    
	
 
    	
 
    
	
SILICON   VALLEY BANK
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/Ryan   Edwards
    	
 
    
	
 
    	
Name:   Ryan Edwards
    	
 
    
	
 
    	
Title:   RM
    	
 
    

 

 

Schedule 7.3

 

(Description of Cowboy Transaction)

 

[*]

 

*Confidential Treatment Requested.

 

 

EXHIBIT A

 

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

 

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

 

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

 

Notwithstanding the foregoing, the Collateral does not include (a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Subsidiary which is organized outside of the United States of America which shares entitle the holder thereof to vote for directors or any other matter, (b) any interest of Borrower under any Governmental Approval if granting a security interest or Lien thereon is prohibited or would expose Borrower to the risk of termination, revocation or any similar result with respect to such Governmental Approval, or (c) any interest of Borrower as a lessee or sublessee under a real property lease or an Equipment lease or as a licensee or a sub-licensee under an inbound license or inbound sublicense of Intellectual Property if Borrower is prohibited by the terms of such lease or license from granting a security interest in such lease or license or under which such an assignment or Lien would cause a default to occur under such lease or license (other than to the extent that any such term would be rendered ineffective pursuant to Section 9-407 or 9-408 of the Code or any other applicable law or principles of equity); provided, however, that upon termination of such prohibition, such interest shall immediately become Collateral without any action by Borrower or Bank.

 

 

EXHIBIT B — COMPLIANCE CERTIFICATE

 

	
TO:  SILICON VALLEY BANK
    	
 
    	
Date:                       
    
	
FROM:    CORIUM INTERNATIONAL, INC.
    	
 
    	
 
    

 

The undersigned authorized officer of Corium International, Inc. (“Borrower”) certifies that under the terms and conditions of the Second Amended and Restated Loan and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in complete compliance for the period ending                                with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

	
Reporting Covenant
    	
 
    	
Required
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Monthly   financial statements, income statement, and cash flow with Compliance   Certificate
    	
 
    	
Monthly   within 30 days
    	
 
    	
Yes  No
    
	
Annual   financial statement (CPA Audited)
    	
 
    	
FYE   within 240 days
    	
 
    	
Yes  No
    
	
Transaction   Report
    	
 
    	
Weekly;   or Monthly within 30 days if Streamline Eligible
    	
 
    	
Yes  No
    
	
Board   Projections
    	
 
    	
Within   15 days of Board approval
    	
 
    	
Yes  No
    
	
A/R &   A/P Agings
    	
 
    	
Monthly   within 20 days
    	
 
    	
Yes  No
    

 

	
Financial Covenants
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Maintain   on a Monthly Basis:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Liquidity
    	
 
    	
1.50:1.00
    	
 
    	
1.    :1.00
    	
 
    	
Yes  No
    
	
Maintain   at all times:
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Minimum   Cash
    	
 
    	
$
    	
2,000,000
    	
 
    	
$
    	
 
    	
 
    	
Yes  No
    
									

 

 

	
Streamline Eligible
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    
	
Net   Cash greater than:
    	
 
    	
$
    	
1,000,000
    	
 
    	
$
    	
 
    	
 
    	
Yes    No
    
									

 

The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”)

 

 

The following financial covenant analysis and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

 

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

 

 

	
CORIUM   INTERNATIONAL, INC.
    	
 
    	
BANK   USE ONLY
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Received   by:
    	
 
    
	
By:
    	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
Name:
    	
 
    	
Date:
    	
 
    
	
 
    	
Title:
    	
 
    	
Verified:
    	
 
    
	
 
    	
 
    	
 
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
Compliance   Status:
    	
Yes   No
    
	
 
    	
 
    	
 
    
								

 

51

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

 

Dated:                              

 

I.             Liquidity (Section 6.9(a)

 

Required:                                           A ratio of unrestricted cash held at Bank plus Eligible Accounts to outstanding Obligations of not less than 1.50:1.00.

 

Actual:

 

	
A. 
    	
 
    	
Cash   at Bank
    	
 
    	
$
    	
 
    	
 
    
	
B. 
    	
 
    	
Eligible   Accounts
    	
 
    	
$
    	
 
    	
 
    
	
C. 
    	
 
    	
Outstanding   Obligations
    	
 
    	
$
    	
 
    	
 
    
	
D. 
    	
 
    	
Liquidity   (line A plus line B, divided line C)
    	
 
    	
$
    	
 
    	
 
    

 

Is line D equal to or greater than 1.50:1.00?

 

	
o No, not in   compliance
    	
o Yes, in   compliance
    

 

II.            Minimum Cash (Section 6.9(b))

 

Required:                                           $2,000,000

 

Actual:

 

	
E.
    	
 
    	
Borrower’s   unrestricted cash on deposit with Bank or Bank’s Affiliates
    	
 
    	
$
    	
 
    	
 
    

 

Is line A equal to or greater than $2,000,000?

 

	
o No, not in   compliance
    	
o Yes, in compliance
    

 

 

EXHIBIT C

 

Transaction Report

 

 

EXHIBIT D

 

Form of Borrowing Resolution

 

 

SVB>Silicon Valley Bank
 A Member of SVB Financial Group

 

CORPORATE BORROWING CERTIFICATE

 

	
BORROWER:
    	
CORIUM   INTERNATIONAL, INC.
    	
DATE: 8/31/2012
    
	
BANK:
    	
Silicon   Valley Bank
    	
 
    

 

I hereby certify as follows, as of the date set forth above:

 

1.                                      I am the Secretary, Assistant Secretary or other officer of the Borrower.  My title is as set forth below.

 

2.                                      Borrower’s exact legal name is set forth above.  Borrower is a corporation existing under the laws of the State of Delaware.

 

3.                                      Attached hereto are true, correct and complete copies of Borrower’s Articles/Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state is which Borrower is incorporated as set forth in paragraph 2 above.  Such Articles/Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

 

4.                                      The following resolutions were duly and validly adopted by Borrower’s Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate action).  Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Bank may rely on them until Bank receives written notice of revocation from Borrower.

 

RESOLVED, that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act on behalf of Borrower:

 

	
Name
    	
 
    	
Title
    	
 
    	
Signature
    	
 
    	
Authorized to
   Add or Remove
   Signature
    
	
Timothy   Sweemer
    	
 
    	
Chief   Financial Officer
    	
 
    	
/s/   Timothy Sweemer
    	
 
    	
x
    
	
Peter   D. Staple
    	
 
    	
President   and CEO
    	
 
    	
/s/   Peter D. Staple
    	
 
    	
x
    
	
Christina   Dickerson
    	
 
    	
VP,   Corporate Development
    	
 
    	
/s/   Christina Dickerson
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
o
    

 

RESOLVED FURTHER, that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf of Borrower.

 

RESOLVED FURTHER, that such individuals may, on behalf of Borrower:

 

Borrow Money. Borrow money from Silicon Valley Bank (“Bank”).

 

 

Execute Loan Document. Execute any loan documents Bank requires.

Grant Security. Grant Bank a security interest in any of Borrower’s assets.

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.

Letters of Credit. Apply for letters of credit from Bank.

Foreign Exchange Contracts. Execute spot or forward foreign exchange contracts.

Issue Warrants.  Issue warrants fur Borrower’s capital stock.

Further Acts.  Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they believe to be necessary to effectuate such resolutions.

 

RESOLVED FURTHER, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.

 

5.                                      The persons listed above are Borrower’s officers or employees with their titles and signatures shown next to their names.

 

	
 
    	
By:
    	
/s/   Timothy Sweemer
    
	
 
    	
Name:
    	
Timothy   Sweemer
    
	
 
    	
Title
    	
Chief   Financial Officer
    

 

*** If the Secretary, Assistant Secretary or other certifying officer executing above is designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers, this Certificate must also be signed by a second authorized officer or director of Borrower.

 

I, the Chief Executive Officer of Borrower, hereby certify as to paragraphs 1 through 5 above, as of the date set forth above.

 

	
 
    	
By:
    	
/s/   Peter D. Staple
    
	
 
    	
Name:
    	
Peter   D. Staple
    
	
 
    	
Title
    	
President   and CEO
    

 

2

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