Document:

exv10w2

 

Exhibit 10.2

LOAN AGREEMENT

     THIS LOAN AGREEMENT (“Loan Agreement”) is made and entered into as of this 25th day of July,
2006, by and between M&I MARSHALL & ILSLEY BANK (“Lender”) and SUMMIT HOTEL PROPERTIES, LLC, a
South Dakota limited liability company (the “Borrower”).

W I T N E S S E T H :

     WHEREAS, Lender has agreed to make up to a $10,400,000.00 loan to finance the construction of
a 113 room, five-story hotel and related improvements thereon (the “Project”).

     NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:

     1. Definitions. The following definitions shall apply to this Loan Agreement:

     1.1. Architect. The Architect is Peter Villard.

     1.2. Business Day. Business Day shall mean any day except a Saturday, Sunday
or a day on which banks in Milwaukee, Wisconsin are authorized or required by law to close.

     1.3. Capital Lease. Capital Lease shall mean a financing mechanism that meets
any one of the following criteria: (i) ownership (title) to the leased asset passes to the
lessee by the end of the lease term for a relatively nominal amount as compared to the fair
market of such asset; (ii) pursuant to the lease, lessee has an option to purchase the
leased asset at the end (or near the end) of the lease term for a relatively nominal amount
as compared to the fair market value of such asset; (iii) the lease term is equal to or
greater than 75% of the estimated economic life of the leased asset; or (iv) the net present
value of the lease payments equals or exceeds 90% of the current market value of the leased
asset.

     1.4. City. The City shall be the City of Bloomington, Minnesota.

     1.5. Collateral Security Documents. The Collateral Security Documents shall
include the following documents, each of which has been executed by Borrower in favor of
Lender and dated as of an even date herewith unless otherwise noted:

          1.5.1. Real Estate Mortgage, Security Agreement, Financing Statement and Assignment of
Leases and Rents (“Mortgage”).

          1.5.2. Collateral Assignment of Contract Rights.

          1.5.3. General Business Security Agreement.

 

 

          1.5.4. UCC Financing Statement.

          1.5.5. Collateral Assignment of Licenses, Approvals and Permits.

          1.5.6. Reserved.

          1.5.7. The Collateral Security Documents shall also include all other documents and
instruments, at any time, executed, which evidence or secure the Loan.

          1.5.8. Subordination, Non-Disturbance and Attornment Agreement regarding the Management
Agreement.

          1.5.9. Estoppel Certificate regarding the Management Agreement.

          1.5.10. Franchise Letter.

          1.5.11. Borrower Organizational Perfection Certificate.

          1.5.12. Assignment of General Contractor’s Contract.

          1.5.13. Assignment of Architect’s Contract.

          1.5.14. Cross Collateralization Agreement executed by Borrower.

     1.6. Construction Budget. The Construction Budget is the budget attached
hereto as EXHIBIT B, as previously approved by Lender.

     1.7. Debt Service Coverage Ratio. Debt Service Coverage Ratio shall mean a
ratio of the Net Operating Income attributable to the Project for any twelve (12)
consecutive months to the sum of (i) the aggregate of all principal and interest payments
due Lender under the Note during the same twelve (12) month period, and (ii) any and all
other payments of principal and interest that Borrower is obligated to pay attributable to
the Project (whether such obligation is undertaken prior to or subsequent to the date
hereof) during the same twelve (12) month period (“Other Debt”). Other Debt shall include,
but is not limited to, debt financing categorized as a Capital Lease.

     1.8. Disbursing Agreement. The Disbursing Agreement is the agreement executed
by and between Borrower, Lender and Title Insurance Company and pursuant to which the Loan
proceeds are to be disbursed.

     1.9. Estoppel Certificate. The Estoppel Certificate is the Certificate to be
executed in favor of Lender by the Manager of the Management Agreement and such affidavit
shall be in form and content acceptable to Lender.

     1.10. Existing Indebtedness. Borrower is indebted to First National Bank of
Omaha pursuant to the loan documents executed on June 24, 2005, as amended on November 30,
2005. Such loan documents provide for a credit line in the amount of Fifty Million Dollars
($50,000,000.00).

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     1.11. Franchise Agreement. The Franchise Agreement is the Franchise Agreement
dated December 30, 2005, by and between Choice Hotels International, Inc. and Borrower
relating to the operation of the 113-room, five-story hotel on the Real Estate.

     1.12. General Contractor. The General Contractor is Stahl Construction
Company.

     1.13. Licenses, Approvals and Permits. The Licenses, Approvals and Permits
shall be those licenses, approvals and permits issued by the appropriate federal, state or
local governments or quasi-governmental agencies required for Borrower to construct and
operate the Project on the Real Estate.

     1.14. Reserved.

     1.15. Loan. The Loan amount shall not exceed the lesser of 80% of total cost
of the Project as set forth in the Construction Budget or $10,400,000.00. The proceeds of
such Loan shall be used for the construction of a 113 room, five-story hotel and related
improvements thereon in accordance with Construction Budget and the Plans and
Specifications.

     1.16. Loan Documents. The Loan Documents shall include, but not be limited to,
the Collateral Security Documents, the Note, the Disbursing Agreement and this Loan
Agreement.

     1.17. Management Agreement. The Management Agreement is the Management
Agreement dated as of February 11, 2004, by and between The Summit Group, a South Dakota
corporation (“Manager”) and Borrower, pursuant to which Manager shall manage the 113 room,
five-story hotel once completed on behalf of Borrower.

     1.18. Net Operating Income. Net Operating Income shall mean the gross income
received from operation of the Project minus the Operating Expenses.

     1.19. Note. The Note is the $10,400,000.00 Mortgage Note executed by Borrower
in favor of Lender on a date even herewith, the proceeds of which shall be disbursed under
the Loan Agreement.

     1.20. Operating Expenses. Operating Expenses shall mean all expenses incurred
by Borrower with respect to the Project, whether or not now foreseen, determined on an
accrual basis (including reasonably foreseeable expenses not occurring annually), including,
but not limited to, the following: real estate taxes and special assessments (or any
substitutes hereafter collected by any governmental authority in lieu thereof or in addition
thereto), payroll taxes, federal and state unemployment taxes and social security taxes;
insurance, including but not limited to, fire (including, but not limited to, endorsements
for extended coverage, vandalism and malicious mischief and theft and mysterious
disappearance), public liability, water damage, worker’s compensation and business and
rental interruption insurance; water and sewer charges; license, permit and inspection fees;
costs of wages and salaries of operating personnel including other compensation and fringe
benefits; management fees pursuant to the Management

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Agreement; auditors’ fees and legal fees; materials and supplies, including charges for
telephone, telegraph, postage, stationery supplies and other materials and expenses required
for operation of the Project; repairs to and maintenance of any portion of the Project,
including costs of materials, supplies, tools and equipment used in connection therewith and
including the repaving of parking areas, replanting of landscaped areas and replacing any
building components; costs incurred in connection with the operation, maintenance, repair,
inspection and servicing (including outside maintenance contracts) of electrical, plumbing,
heating, air-conditioning and mechanical equipment and the cost of materials, supplies,
tools and equipment used in connection therewith; cost of services (including heat, air
conditioning, electricity, gas, water and other utilities for the operation and maintenance
of any portion of the Project); any costs allocable to the Project under any easements
benefiting the Real Estate for parking and/or access; and all other expenses and costs
necessary or desirable to be incurred for the purpose of operating and maintaining the
Project in good and workmanlike condition, whether or not similar to the foregoing. Should
any governmental agency or political subdivision impose any taxes and/or assessments,
whether or not now customary or within the contemplation of the parties hereto, either by
way of substitution for taxes and assessments presently levied and assessed against the
Project, or in addition thereto, including, but not limited to, any tax or assessment
levied, assessed or imposed upon or measured by the rental payable hereunder, such taxes
and/or assessments shall be deemed to constitute an Operating Expense hereunder.
Notwithstanding the above, Operating Expenses shall not include: principal or interest
payments on the Note, Capital Leases, or any other obligation of Borrower; capital
improvements to the 113-room, five-story hotel located on the Real Estate other than routine
maintenance expenses; or, other non-recurring expenses funded with non-operating cash
sources, including but not limited to loan proceeds, investor equity, or hotel sale
proceeds.

     1.21. Permitted Liens and Encumbrances. Permitted Liens and Encumbrances shall
be those liens and encumbrances permitted by Exhibit B to the Mortgage.

     1.22. Plans and Specifications. The Plans and Specifications are the plans and
specifications for the construction of Project, as prepared by the Architect.

     1.23. Project. The Project is the construction of 113 room, five-story hotel
on the Real Estate, all of which shall be constructed in accordance with the Construction
Budget and the Plans and Specifications.

     1.24. Property. The Property is the 113-room, five-story hotel to be located
on the Real Estate.

     1.25. Real Estate. The Real Estate is the real property described on EXHIBIT
A, attached hereto.

     1.26. Secured Assets. The Secured Assets shall mean all of the personal
property of Borrower related to the Property as described in the General Business Security
Agreement and the Collateral Assignment of Contract Rights.

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     1.27. Statement of Accounts. Statements of Accounts shall be defined as that
documentation provided periodically by the financial institutions where cash, marketable
securities and bonds related to the Property are held in deposit or on account for Borrower.

     1.28. Subordination Agreement. The Subordination Agreement is the
Subordination, Non-Disturbance and Attornment Agreement to be executed by Lender and the
Manager under the Management Agreement and shall be in form and content reasonably
acceptable to Lender.

     1.29. Title Commitment. The Title Commitment shall be the commitment
referenced in Section 2.5.

     1.30. Title Insurance Company. The Title Insurance Company shall be Chicago
Title as approved by Lender.

     1.31. Zoning Letters. The Zoning Letters shall be the zoning letters issued by
the City relating to Borrower’s construction and operation of the Project on the Real
Estate.

     2. Conditions Precedent. This Loan Agreement shall become effective upon
satisfaction of the conditions set forth in this Section; provided, however, construction
disbursements for the Loan shall not be made until the conditions set forth in Section 3.1.1 and
3.1.2 are satisfied.

     2.1. Loan Documents. The Borrower shall have executed each of the Loan
Documents it is required to execute.

     2.2. Borrower’s Limited Liability Company Documents. Borrower shall have
furnished Lender copies, certified to Lender by a manager of Borrower to be true and correct
as of the date hereof, of the Articles of Organization and the Third Amended and Restated
Operating Agreement of Borrower, plus any amendments thereto, of Borrower and a Borrowing
Resolution authorizing the execution and delivery of the Loan Documents. Borrower shall
also deliver a satisfactory Certificate of Existence for Borrower issued by the Secretary of
State for the State of South Dakota and a Certificate of Authority for Borrower issued by
the Secretary of State for the State of Minnesota authorizing the Borrower to conduct
business in the State of Minnesota. Lastly, the Borrower shall furnish copies of the
following documents for The Summit Group, Inc., Borrower’s manager: Articles of
Incorporation, Bylaws and Certificate of Existence issued by the Secretary of State for the
State of South Dakota.

     2.3. Appraisal. Lender shall have received an appraisal by an appraiser
acceptable to Lender, in its reasonable discretion, showing that as of the date of
completion, the Project and the Real Estate shall have a value of $13,000,000.00.

     2.4. Insurance. Borrower shall have furnished to Lender the policies, or
certificates evidencing such policies, of insurance required in Section 5.3.

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     2.5. Title Insurance. Borrower shall have furnished to Lender a commitment for
an ALTA form of mortgage title policy and attached endorsements, as requested by
Lender, issued by the Title Insurance Company, in form and content reasonably
satisfactory to Lender to the effect that the Title Insurance Company will issue its
mortgagee’s title policy in the amount of the Loan, insuring that Borrower owns fee simple
title to the Real Estate subject only to the Permitted Liens and Encumbrances and insuring
that the Mortgage constitutes a first and valid lien on the Real Estate, subject only to
such Permitted Liens and Encumbrances.

     2.6. Compliance with Laws. Borrower shall have provided Lender with
satisfactory evidence of compliance by the Real Estate and the Project, with respect to both
present and contemplated future uses, of all applicable laws, regulations, ordinances and
codes, including, but not limited to, zoning and subdivision laws, regulations, ordinances
and codes.

     2.7. Approvals and Permits. Borrower shall have provided Lender with copies of
all governmental approvals and permits required to construct the Project in Borrower’s
possession or control as of the date hereof.

     2.8. Plans and Specifications. Borrower shall have delivered, and Lender shall
have the right to approve or disapprove in its reasonable discretion, a complete set of the
Plans and Specifications to Lender.

     2.9. Phase I Environmental Assessment Report. An environmental assessment
report prepared by a qualified environmental engineer approved by Lender confirming that the
Real Estate complies with all applicable environmental laws, rules and regulations.

     2.10. Construction Budget. Borrower shall have delivered, and Lender shall
have the right to approve or disapprove in its reasonable discretion, the Construction
Budget to Lender.

     2.11. Construction Contracts. To the extent available, Borrower shall have
delivered to Lender, and Lender shall have the right to approve or disapprove in its
reasonable discretion, certified copies of all construction contracts, including, but not
limited to, all subcontractor contracts, necessary to complete the Project.

     2.12. Disbursing Agreement. Borrower shall have complied with all other terms
and conditions of the Disbursing Agreement.

     2.13. Utilities. Borrower shall have delivered to Lender evidence that
sanitary sewer, water, electricity, natural gas, cable television and other necessary
utilities are available to the Real Estate and the Project in a manner and at a time and
cost reasonably acceptable to Lender.

     2.14. Loan Fee. The Loan Fee shall equal one half (1/2) point or (0.005%) of
the Loan.

     2.15. Geotechnical Evaluation. The Borrower shall provide the Lender with a
Geotechnical Evaluation prepared by an engineer which is acceptable to Lender, at its
reasonable discretion, which report states that the soil is sufficient for the
construction of the Project.

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     2.16. Legal Opinion. Lender shall receive from an attorney acceptable to
Lender, a legal opinion in form, scope and content acceptable to Lender in its sole
discretion, which may, among other things reasonably requested by Lender, confirm the
legality, validity and enforceability of the Loan Documents.

     2.17. Survey. Borrower shall have furnished Lender with an ALTA/ASCM Survey
prepared by a licensed surveyor reasonably satisfactory to Lender, which shows (i) all
foundations, improvements, driveways and fences, if any, on the real estate, (ii) all
easements and roads of right-of-ways and setback lines, if any, affecting the real estate,
(ii) the dimensions, boundaries and square footage of the real estate, (iv) no encroachments
by improvements on the real estate or by improvements located on the adjoining property
exist, and (iv) such additional information that may be required by Lender, and its
reasonable discretion.

     2.18. Assignment of General Contractor’s Contract. Borrower shall have
furnished Lender with a copy of the Assignment of General Contractor’s Contract, in form and
substance reasonably acceptable to Lender, assigning the contract for the construction of
the Project with the General Contractor to the Borrower.

     2.19. Assignment of Architect’s Contract. Borrower shall have furnished Lender
with a copy of the Assignment of Architect’s Contract, in form and substance reasonably
acceptable to Lender, assigning the contract for the architectural services necessary to
construct the Project with the Architect to the Borrower.

     2.20. Architect’s Contract. Borrower shall have furnished Lender with a copy
of the Architect’s Contract for architectural services necessary to construct the Project,
in form and substance reasonably acceptable to Lender.

     2.21. Architect’s Certificate. Borrower shall have furnished Lender with an
original Architect’s Certificate, in form and substance reasonably acceptable to Lender,
from the Architect relating to the Architect’s Contract for architectural services necessary
to construct the Project.

     2.22. Management Agreement. Borrower shall have furnished and Lender shall
have reviewed and approved a certified copy of the Management Agreement. Lender
acknowledges receipt and its approval of the Management Agreement.

     2.23. Searches. Lender shall have conducted, reviewed and approved a UCC
search, federal tax lien search, bankruptcy search, pending civil suit search and judgment
lien search of Borrower and Borrower’s manager, The Summit Group, Inc., in those
jurisdictions that Lender reasonably requires.

     2.24. Franchise Agreement. Borrower shall have furnished and Lender shall have
reviewed and approved a certified copy of the Franchise Agreement. Lender acknowledges
receipt and its approval of the Franchise Agreement.

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     2.25. Manager Consent to Transaction. Manager shall have executed and
delivered to Lender a Manager’s Estoppel Affidavit pursuant to which it shall, among other
things, represent that the Management Agreement is in effect and that the Manager shall
manage the Property pursuant to the Management Agreement.

     2.26. Franchisor Consent. Choice Hotels International, Inc. shall have
executed and delivered to Lender a Comfort Letter related to the Property in the standard
form used by Choice Hotels International, Inc.

     2.27. Borrower’s Initial Equity Deposit. Borrower shall have provided Lender
with evidence, satisfactory to Lender, in its sole discretion, that Borrower has contributed
$2,600,000.00 to the construction of the Project. If Borrower has not previously
contributed the amount to Borrower’s equity as set forth in the Construction Budget,
Borrower shall deposit no later than August 11, 2006 with Lender $2,600,000.00 (“Initial
Equity Deposit”). The Initial Equity Deposit shall be held by Lender in an interest bearing
account and shall be used to fund the construction disbursements described herein prior to
Lender disbursing any Loan proceeds set forth herein.

     2.28. Plans and Specifications. Prior to the commencement of vertical
construction, Borrower shall have delivered to Lender, and Lender shall have the right to
approve or disapprove, in its sole discretion, a complete set of the Plans and
Specifications.

     3. Loan Disbursements. Proceeds of the Loan shall be disbursed as follows:

     3.1 Construction Loan Disbursements.

     3.1.1. Periodic Disbursements. The Loan proceeds may be disbursed in
several advances in accordance with the Disbursing Agreement and the following
conditions (except for the final disbursement of proceeds pursuant to the Loan which
shall be disbursed in accordance with Section 3.1.2); provided the following are
submitted to Lender:

     3.1.1.1. A draw request, on a satisfactory form to Lender, in its
reasonable discretion, certified by Borrower, Architect and General
Contractor setting forth, among other things (i) an itemized list of the
type of work completed for which payment is requested, (ii) the original
estimated cost to complete such work, (iii) the amount requested, (iv) the
amount previously disbursed for such work, (v) the estimated cost of
completing such work, and (vi) that no Event of Default exists pursuant to
this Loan Agreement, no default exists pursuant to the construction
contracts and no condition exists, with respect to the Loan Documents or
construction contracts that with the passage of time or giving of notice, or
both, would constitute an Event of Default pursuant to the Loan Agreement or
a default pursuant to the construction contracts.

     3.1.1.2. All other items required by the Disbursing Agreement.

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     3.1.2. Final Construction Disbursement. Subject to the terms and
conditions hereof, Lender agrees to make the final disbursement under the Loan;
provided, Lender shall be satisfied that the construction has been completed in a
good and workmanlike manner in accordance with the Plans and Specifications and
Borrower shall submit to Lender the following:

     3.1.2.1. The items required in Section 3.1.1.

     3.1.2.2. A Certificate of Completion of the Project, in form and
content satisfactory to Lender executed by Borrower, General Contractor and
Architect.

     3.1.2.3. A Certificate of Occupancy for the Project as issued by the
City.

     3.1.2.4. Proper update endorsements to the Title Commitment (or the
policy if issued) in the face amount of the total sum outstanding under the
Loan insuring the Mortgage as a first lien on the Real Estate, subject only
to the Permitted Liens and Encumbrances.

     3.2. Additional Conditions as to Construction Loan Disbursements.

     3.2.1. Change Orders. The Borrower shall deliver to Lender revised
statements of estimated costs of construction of the Project showing changes in or
variations from the Construction Budget, as soon as such changes are known to the
Borrower; provided that such revised statements are only required to cover changes
involving amounts of $30,000.00 or more for individual changes, or if the aggregate
cost of all such changes is more than $100,000.00.

     3.2.2. Loan In Balance. Borrower agrees that the Loan must at all
times remain in balance. The Borrower shall from time to time furnish Lender
reasonably satisfactory evidence of the Borrower’s ability to pay for all costs of
completing the Project, and if the estimated cost of completing the Project exceeds
the then remaining balance of proceeds available under the Loan, Borrower shall pay
out of Borrower’s own funds the next sums coming due for such work until the Loan is
brought back into balance before the Lender shall be required to disburse any
further sums hereunder.

     3.2.3. Completion of Construction. Construction of the Project shall
be completed in an orderly manner, but in any event on or before the date that is
one year from the date of commencement of construction.

     3.2.4. Liens. Upon demand by Lender, if any intervening liens or
other matters affecting title, which in Lender’s reasonable opinion materially
jeopardize its security interest in the Project or the Real Estate, are disclosed by
any means, Lender may withhold payment of further advances until such intervening
liens or such other matters have been waived by Lender in writing or satisfied.
Borrower

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shall immediately have any such liens or such other matters satisfied of record
and the existence of any such lien or encumbrance shall, if not removed within
thirty (30) days or if adequate steps satisfactory to Lender are not taken within
thirty (30) days to insure removal, constitute an Event of Default. Notwithstanding
the foregoing, Borrower may, in good faith and with reasonable diligence, contest
the validity or amount of any lien; provided, Borrower provides Lender reasonable
security that such lien shall not materially jeopardize Lender’s security interest
in the Project or the Real Estate.

     3.2.5. Segregation of Loan Proceeds. Lender shall, at its option, be
entitled to segregate and earmark sufficient proceeds of the Loan for the purpose of
paying all sums due or to become due Lender under this Agreement, including but not
limited to, reasonable fees, interest, and all out-of-pocket expenses incurred
relative to this Agreement and the Loan. Lender shall also be entitled to advance
such proceeds to itself in payment of such sums as they become due and payable, all
without further order or consent of the Borrower. Lender shall give Borrower notice
of any such action.

     3.2.6. Status of Disbursements. The Borrower agrees that all moneys
disbursed by Lender pursuant to the Loan (including amounts payable to and deducted
by Lender) shall (i) constitute loans made to the Borrower under this Agreement (ii)
shall be evidenced by the Note and (iii) that interest shall be computed thereon as
prescribed by the Note from the date the Borrower’s Loan accounts are charged with
the amount of the advance. Upon disbursement of any amount pursuant to the Loan,
Lender is authorized to record the date and the amount of each disbursement and any
such recordation shall constitute prima facie evidence of the accuracy of the
information so recorded.

     3.2.7. Objection to Requested Disbursement. If (i) Lender reasonably
determines that the quality or dollar value of the work performed or the material
furnished as represented by the draw requests delivered to Lender does not
correspond with the actual work performed or materials actually furnished, or (ii)
the work performed does not conform with the Plans and Specifications or the
Construction Budget, then Lender shall notify the Borrower of its objection to such
payment and, until such time as such objection is corrected to the reasonable
satisfaction of Lender, Lender may withhold such requested payment. If such
objection is not corrected within ten (10) days after the date of notification to
the Borrower of Lender’s objection, or, if greater, the time reasonably required to
correct such objection, Lender may withhold any future advances.

     3.2.8. Inspections. The Borrower shall be responsible for making
inspections of the Project during the course of construction and shall determine to
its own satisfaction that the work done or material supplied by the contractors have
been properly done or supplied in accordance with applicable contracts with such
contractors. Lender, in addition, may conduct such inspections of the Project and
the Real Estate as Lender shall reasonably deem necessary for the protection of its
interest. Unless an Event of Default exists hereunder, Borrower shall not be
required to pay the costs of more than one inspection per month made
for the benefit of Lender. Lender may also take such steps as it may
reasonably deem appropriate to verify the application of the Loan proceeds to work
done and material furnished for the Project and to vary the disbursement procedures
set forth herein and in the Disbursing Agreement, if the same becomes necessary to
assure the proper application of the Loan proceeds.

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     3.2.9. No Liability of Lender. It is expressly understood and agreed
that Lender assumes no liability or responsibility for the satisfactory completion
of the Project, nor for the adequacy of funds advanced by it pursuant hereto to
complete the Project, nor for inspection during construction, nor for any other acts
on the part of the Borrower or the contractors to be performed in the construction
of the Project. Any inspections or reviews conducted by or for Lender shall be
solely for its own benefit, and shall not lessen or modify any of Borrower’s
obligations or responsibilities hereunder.

     3.2.10. Frequency of Disbursements. Lender shall not be required to
make more than one (1) Loan disbursement in any calendar month. Loan disbursements
may only be made on a Business Day.

     4. Representations and Warranties. The Borrower represents, warrants and certifies
to Lender that:

     4.1. Execution of Loan Documents. The Loan Documents have been duly executed
and delivered by the Borrower so that such documents constitute the legally enforceable
obligation of the Borrower in accordance with their respective terms.

     4.2. Financial Statements. All financial statements, information and other
data furnished by Borrower to Lender are complete and correct in all material respects and
disclose all contingent obligations which are material individually or in the aggregate.
Such financial statements accurately and fairly represent each applicable party’s financial
condition and operating results as of such date and since such date there has been no
material change in the Borrower’s financial condition or results of operations sufficient to
materially impair the Borrower’s ability to repay the Loan or make Borrower’s additional
equity deposit in accordance with Section 5.12 below.

     4.3. Operation of Real Estate and Project. To Borrower’s actual knowledge, the
present and proposed operation and use of the Real Estate and the Project do not violate any
applicable law, ordinance, code, rule, regulation, order or any restrictive covenant or any
similar land use restriction binding on the Real Estate or the Project.

     4.4. Utilities. All water, sewer, electric, telephone, natural gas and
drainage facilities and all other utilities required by law and by the normal operation of
the Project have been installed to the boundary lines of the Real Estate, are or will be
connected pursuant to valid permits and are adequate to fully comply with all requirements
of law; or the same may be extended to the Real Estate and the cost for such extension is
included in the Construction Budget.

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     4.5. Ownership of Real Estate. As of the date hereof, and at all times
thereafter until the Loan has been paid in full, the Borrower will be the fee simple owner
of the applicable portion of the Real Estate described in the Mortgage executed by the
Borrower, free and clear of all liens, encumbrances, leases, management agreements, service
agreements, rental agreements, occupancy agreements, claims and charges except as may be
approved, in writing by Lender, except for the Permitted Liens and Encumbrances.
Notwithstanding the above, Borrower shall be entitled to secure loans, leases, Capital
Leases, and other similar financing instruments secured by a lien upon the Real Estate or
the Secured Assets, so long as such lien is junior to the security interest held by Lender
and such liens, in the aggregate, do not exceed $250,000.

     4.6. No Default. The Borrower is not in default under any agreement to which
it is a party to include the Prior Loans, the effect of which would materially adversely
affect performance by Borrower of its obligations pursuant to the terms and provisions of
the Loan Documents. To Borrower’s actual knowledge, neither the execution and delivery of
the Loan Documents nor any other document executed and delivered by Borrower in connection
with the Loan, nor the consummation of the Loan, nor compliance with the terms and
provisions thereof, violate any presently existing law, order, writ, injunction or decree of
any court or governmental department, commission, board, bureau, agency or instrumentality
or constitutes a default under any indenture, mortgage, deed of trust, agreement or contract
of any kind to which the Borrower may be bound.

     4.7. No Legal Proceedings. There are no actions, suits or proceedings pending
or, to Borrower’s knowledge, threatened against Borrower, the Project or the Real Estate
before any court or any governmental, administrative, regulatory, adjudicatory or
arbitrational body or agency of any kind which will materially adversely affect performance
by the Borrower of its obligations pursuant to the terms and provisions of the Loan
Documents.

     4.8. Insurance. Borrower has not received any notice from any insurer of any
defects or inadequacies in the Real Estate or the Project which would materially adversely
affect the insurability of the Real Estate or the Project.

     4.9. Liens and Encumbrances. Except for the Permitted Liens and Encumbrances,
Borrower has not taken, suffered or permitted any action, the effect of which would be to
establish or cause the inception or priority of any construction or materialman’s lien,
statutory or otherwise, or other lien, charge or encumbrance upon the Real Estate or the
Secured Assets to be prior or superior to the liens and security interests of the Collateral
Security Documents.

     4.10. Insolvency. The Borrower has not filed any petition nor has any petition
been filed against it in bankruptcy or insolvency or reorganization or for the appointment
of a receiver or trustee or for the arrangement of debts, nor has the Borrower or the Real
Estate been the subject of such action, nor has such action been threatened by or against it
and/or the Real Estate. The Borrower is not insolvent nor will it be rendered insolvent by
the consummation of the Loan.

12

 

     4.11. Plans and Specifications. To the extent controllable by Borrower, the
Project will be constructed substantially in accordance with the Plans and Specifications.

     4.12. Construction Budget. The Project will be constructed substantially in
accordance with the Construction Budget, or the Borrower shall deposit funds required to
keep the loan in balance as discussed in Section 3.2.2 hereunder.

     4.13. Management Agreement. The Management Agreement is in full force and
effect and has not been modified, supplemented, amended or changed in any manner. No event
of default has occurred pursuant to the Management Agreement and Borrower does not know of
any event or circumstances which with the passage of time or the giving of notice, or both,
would constitute an event of default pursuant to the Management Agreement.

     4.13. Franchise Agreement. The Franchise Agreement is in full force and effect
and has not been modified, supplemented, amended or changed in any manner. No event of
default has occurred pursuant to the Franchise Agreement and Borrower does not know of any
event or circumstances which with the passage of time or the giving of notice, or both,
would constitute an event of default pursuant to the Franchise Agreement.

     4.14. Nature of Borrower’s Representations and Warranties. The representations
and warranties made in this Agreement shall remain true and correct in all material respects
and shall survive so long as any of the obligations have not been satisfied or the Loan or
any part thereof shall remain outstanding, and for any applicable statute of limitations
period thereafter. All representations and warranties made in this Agreement or in any
certificate or other document delivered to Lender by or on behalf of Borrower pursuant to or
in connection with the Loan shall be deemed to have been relied upon by Lender, its
successors and assigns, notwithstanding any investigation heretofore or hereafter made by or
on behalf of Lender. The representations and warranties contained herein have been made
after diligent inquiry calculated to ascertain the truth and accuracy of the subject matter
of each of such representations and warranties. All of such representations and warranties
are true and correct in all material respects and do not omit any material fact necessary to
make such representations and warranties not misleading.

     4.15. Existing Indebtedness. Borrower acknowledges that the Existing
Indebtedness to First National Bank of Omaha remains unpaid and constitutes valid and
existing debt obligations of Borrower.

     5. Covenants of Borrower. While this Loan Agreement is in effect, and until the Loan
has been repaid in full, Borrower shall comply with the covenants set forth below:

     5.1. Modification to Project and Real Estate. Except as contemplated herein
and except as permitted in Section 3.2.1 hereof, the Borrower shall not make any
modifications or additions to the Project without the prior express written consent of
Lender, which consent shall not be unreasonably withheld.

13

 

     5.2. Liens. The Borrower shall not create or permit to be outstanding any
mortgage, encumbrance, or lien on the Real Estate or the Secured Assets except the Permitted
Liens and Encumbrances, or as otherwise permitted hereunder.

     5.3. Insurance. The Borrower shall at all times maintain in effect and furnish
the Lender with insurance policies and proof of payment of premiums as follows:

     5.3.1. Worker’s Compensation. Borrower shall cause appropriate
Worker’s Compensation coverage to be maintained in force at all times during the
term of the Note, and upon request of Lender, shall furnish Lender evidence of the
same.

     5.3.2. Construction Insurance. During the process of construction,
policies of All Risk Builder’s Risk Completed Value insurance with all endorsements
which are generally maintained by prudent real estate developers covering the
Project in at least the amount of the estimated cost to complete the Project, with
loss payable endorsements in favor of Lender or its assigns.

     5.3.3. Casualty Insurance. After completion of construction, Borrower
shall maintain an All Risk Casualty Insurance Policy with Vandalism and Malicious
Mischief Endorsements, a Full Replacement Cost Endorsement, Contingent Liability
from Operation of Building Laws Endorsement, Demolition Cost Endorsement and
Increased Cost of Construction Endorsement insuring against loss by fire, wind and
all other applicable hazards in the amount of 100% of the replacement cost of the
Project and Lender shall be named as mortgagee and loss payee.

     5.3.4. Comprehensive General Public Liability Insurance. Borrower
shall maintain Comprehensive General Public Liability and Property Damage Insurance
covering the Real Estate with combined single limits for bodily injury, property
damage and personal injury of at least Two Million Dollars ($2,000,000.00) per
accident or occurrence. In addition, Borrower shall maintain a $10,000,000.00
umbrella policy for Comprehensive General Public Liability and Property Damage.

     5.3.5. Flood Insurance. If any portion of the Real Estate is located
within a flood plain and flood insurance is available, Borrower shall maintain Flood
Insurance acceptable to Lender in Lender’s reasonable discretion.

     5.3.6. Additional Insurance Requirements. The insurance maintained by
Borrower under Section 5.3.3., shall bear a standard noncontributory first mortgagee
endorsement in favor of Lender or assigns and shall provide that proceeds related to
the Project under such policies shall be paid to Lender as required by the Mortgage
and disbursed in accordance with the provisions of the Mortgage. Lender shall be
named as an additional insured under the policy maintained pursuant to Section
5.3.4. All insurance policies shall be written by companies having a Best’s rating
of “A” and a financial size category rating of Class X or larger. All insurance
policies shall provide that they may not be
cancelled without at least thirty (30) days written notice of intention to
cancel given by the applicable insurance company to Lender.

14

 

     5.4. Taxes and Assessments. Notwithstanding anything contained herein to the
contrary, the Borrower shall pay and discharge, when due, all taxes, assessments and other
government charges upon the Real Estate and the Secured Assets, which, if unpaid, might by
law become a lien or charge upon the Real Estate or the Secured Assets; provided, that any
such taxes, assessments, or government charges need not be paid so long as the Borrower is
contesting such payment in good faith by appropriate proceedings which will avoid
foreclosure of liens securing such items and sufficient security, as determined at the
reasonable discretion of Lender, is provided to Lender.

     5.5. Compliance with Laws. Borrower will comply in all material respects with
the requirements of all applicable environmental, health, safety and sanitation laws, rules,
regulations and orders of regulatory and administrative authorities and, without limiting
the generality of the foregoing, promptly undertake and diligently pursue to completion
appropriate and legally authorized remedial and clean-up action in the event of any release
of oil or hazardous material or substance.

     5.6. Prohibition against Fundamental Changes. Without the prior written
consent of Lender, Borrower shall not enter into any transaction which either shall cause
the Class C Member to own less than 45% of the outstanding sharing ratios of the Borrower
(as defined in Borrower’s Third Amended and Restated Operating Agreement), or cause the
ownership of the Class C Member to be beneficially held by any person other than The Summit
Group, Inc., Kerry W. Boekelheide, or any of their affiliates, immediate family members, or
heirs. Furthermore, the Borrower shall not liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution); or convey, sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or substantially all of its business, or
assets..

     5.7. Expenses. Except as otherwise limited herein, pay and save Lender
harmless and indemnify Lender against liability for the payment of all reasonable
out-of-pocket expenses and reasonable counsel fees and expenses incurred by Lender in
connection with this transaction including, but not limited to, the preparation of the Loan
Documents, recording and filing fees, prosecution or defense of any action or proceeding or
other litigation affecting Borrower, the Real Estate or the Secured Assets and all costs of
collection of the Note.

     5.8. Use of Proceeds. The proceeds of the Loan shall be used solely to
reimburse Borrower for (i) actual expenses incurred by or on behalf of Borrower for the
construction of the Project in accordance with the Plans and Specifications and in
accordance with the Construction Budget, and (ii) after the occurrence of an Event of
Default, to the extent Lender in its sole discretion elects to apply such proceeds, to any
charges or expenses due from Borrower to Lender under the Loan Documents.

     5.9. Financial Statements. Throughout the term of this Loan Agreement,
Borrower shall furnish or cause to be furnished to the Lender the following:

15

 

     5.9.1. Borrower’s Annual Financial Statements. As soon as available,
and in any event within one-hundred twenty (120) days after the close of each fiscal
year of the Borrower, a copy of the financial statements of Borrower, including
balance sheets and statements of profit and loss, audited by an independent
certified public accounting firm chosen by Borrower.

     5.9.2. Real Estate Operating Statements. As soon as available, and in
any event within sixty (60) days after the close of each fiscal year of the
Borrower, a copy of the operating statements of the Property.

     5.9.3. Additional Information. Borrower shall cause to be furnished to
Lender such additional information concerning the financial condition of Borrower as
Lender may reasonably request from time to time. The Borrower will permit
representatives of the Lender to have free access during regular business hours to
the Real Estate and to inspect all books, records, and contracts of the Borrower
relating to the Real Estate, the Project and the Secured Assets. Once the
construction of the Project is complete, unless an Event of Default shall be
continuing, Borrower shall not be required to pay the Lender’s costs of inspection
of the Real Estate or Borrower’s books, record and contracts more frequently than
once per year. Such inspections by Lender shall not entitle Lender to re-audit the
books and records of Borrower.

     5.10. Management Agreement, Franchise Agreement or Service Agreements.
Borrower shall not enter into, modify, amend, supplement, terminate or cancel the Management
Agreement, the Franchise Agreement, without Lender’s prior written consent, which consent
may not be unreasonably withheld, conditioned or delayed.

     5.11. Governmental Approvals. Borrower shall obtain all approvals from all
governmental authorities necessary or required to proceed with the development and operation
of the Project.

     5.12. Borrower’s Additional Equity Deposit. Within sixty (60) business days
following the issuance of the Certificate of Occupancy by the City, described in Section
3.1.2.3, Borrower shall deliver to Lender the difference between the (i) Total Project
Equity (defined below) and (ii) the Initial Equity Deposit. The term “Total Project Equity”
shall equal the actual aggregate cost of the Project less 65% of the appraised value of the
Project as determined pursuant to the appraisal described in Section 2.3 above.

     6. Defaults.

     6.1. Any of the following events shall constitute an Event of Default under this Loan
Agreement:

     6.1.1. Default Pursuant to Note. The Borrower shall default in the
payment of principal or interest due under the Note and such default shall continue
for a period of ten (10) days following the due date of such payment.

16

 

     6.1.2. Default Pursuant to Loan Documents. Except for a default
pursuant to Section 6.1.1, there shall be a default in the performance or observance
of any covenants or conditions required to be performed or observed by the Borrower
under the terms of the Loan Documents and such breach shall continue for a period of
thirty (30) days after written notice to the Borrower specifying such breach;
provided, however, if such default cannot reasonably be cured within such thirty
(30) days, Borrower shall not be deemed to be in default if Borrower commences
curing such breach within fifteen (15) days after written notice and thereafter
diligently completes the curing of such breach, provided that Lender’s security for
the Loan, in Lender’s sole opinion, is not materially impaired by such delay and
provided, further, that Borrower shall in no event have longer than one hundred
twenty (120) days to completely cure such default.

     6.1.3. Breach of Warranty or Representation. Any representation or
warranty made by the Borrower in the Loan Documents or as part of the Loan or in any
certificate or document furnished as part of the Loan shall prove untrue in any
material respect on the date as of which they were made or as of the date on which
they were to be effective.

     6.1.4. Insolvency. The Borrower shall admit in writing its inability
to pay its debts or shall make an assignment for the benefit of its creditors; or
shall be adjudicated a bankrupt; or shall file a voluntary petition in bankruptcy or
to effect a plan or other arrangement with creditors, or to liquidate assets of the
Borrower under court supervision; or shall have applied for the appointment of a
receiver, trustee or custodian for any of its assets; or a trustee, receiver or
custodian shall have been appointed for any assets of the Borrower and such trustee,
receiver or custodian shall not have been discharged within ninety (90) days after
the date of his appointment.

     6.1.5. Damage to Real Estate, Project or Secured Assets. If the
improvements on the Real Estate, or the Secured Assets are, in the reasonable
judgment of the Lender, materially injured or destroyed and Borrower does not take
prompt action to collect insurance proceeds and/or commence restoration in
accordance with the provisions of the Mortgage.

     6.1.6. Inspection of Real Estate. If the Lender is not permitted, at
all reasonable times upon prior reasonable notice and pursuant to the other terms
and conditions herein, to enter and inspect the Real Estate, Project and the Secured
Assets.

     6.1.7. Warrants and Attachments. Any warrant, attachment, execution
or other writ shall be issued or levied upon the Real Estate or the Secured Assets
or any property, real or personal, owned by Borrower shall remain undischarged,
unstayed or unbonded for a period in excess of ninety (90) days.

     6.1.8. Default Pursuant to Existing Indebtedness. The occurrence of an
event of default, after expiration of any applicable cure period, pursuant to the
Existing Indebtedness loan documents or any loan agreement, mortgage, note,
assignment of leases and rents or other document evidencing or securing the
Existing Indebtedness by Borrower to the First National Bank of Omaha.

17

 

     6.1.9. Material Contracts. If the Management Agreement, the Franchise
Agreement or any contract which is material to Borrower’s business (“Material
Contracts”) is materially modified or amended without the Lender’s consent or if one
of the Material Contracts is terminated other than by the expiration of its term or
a breach or an event of default occurs under one of the Material Contracts on the
part of Borrower to perform.

     6.1.10. Default Pursuant to the Hampton Inn & Suites Hotel Construction
Loan. The occurrence of an Event of Default as defined in that certain Loan
Agreement by and between Lender and Borrower dated of even date herewith for the
construction of a 146 room Hampton Inn and Suites hotel and related improvements on
the Real Estate.

     6.2. Occurrence of Default. Upon the occurrence of an Event of Default, unless
such Event of Default is subsequently waived in writing by Lender, Lender shall be entitled,
at the option of Lender, to exercise any or all of the following rights and remedies:

     6.2.1. Suspend Disbursements. Lender may suspend its obligation to
make disbursements pursuant to the Loan.

     6.2.2. Accelerate Payments. Lender may declare the entire unpaid
principal balance due pursuant to the Note to be immediately due and payable,
together with accrued and unpaid interest, without further notice to or demand on
the Borrower. Notwithstanding the foregoing, if Borrower becomes insolvent, makes
an assignment for the benefit of its creditors, becomes the subject of an “order for
relief” within the meaning of the U.S. Bankruptcy Code, files a petition in
bankruptcy, or for reorganization, is adjudged bankrupt, has filed against them an
involuntary petition pursuant to the U.S. Bankruptcy Code or has a receiver,
trustee, custodian or a liquidator appointed to take control of any of its real or
personal property and such receiver, trustee, custodian or liquidator is not
discharged within sixty (60) days of their appointment, then the entire unpaid
principal balance due pursuant to the Note and all accrued and unpaid interest
thereon shall automatically and without the option of the Lender become immediately
due and payable.

     6.2.3. Take Over Construction. If construction of the Project is not
completed, Lender may, but shall not be obligated to, take over and complete the
construction of the Project in accordance with Plans and Specifications approved by
Lender with such changes as Lender may, in its reasonable discretion, deem
appropriate, all at the risk and expense of the Borrower. Lender may assume or
reject any contracts entered into by the Borrower in connection with the Project and
Lender may enter into additional or different contracts for services, labor and for
materials necessary, in the discretion of Lender, to complete the Project. Lender
may pay, compromise and settle all claims in connection with the Project.

18

 

All reasonable sums, including reasonable attorney fees, charges and fees for
supervision and inspection of the construction, and for any other necessary purpose
in the sole discretion of Lender, expended by Lender in completing the Project shall
be deemed advances made by Lender to the Borrower, and the Borrower shall be liable
to Lender for the repayment of such sums, together with interest on such amounts
from the date of their expenditure at the default rate specified in the Note.
Lender may, in its discretion, at any time, abandon work on the Project after having
commenced such work and may recommence such work at any time, it being understood
that nothing in this Section shall impose any obligation on Lender to complete the
Project. For the purpose of carrying out the provisions of this Section, the
Borrower irrevocably appoints Lender as its attorney-in-fact, with full power of
substitution, to execute and deliver all such documents, pay and receive such funds,
and take such action as may be necessary in the judgment of Lender to complete the
Project.

     6.2.4. Other Remedies. Lender may exercise all enforcement remedies
specified or permitted in the Collateral Security Documents or any remedy available
to Lender at law or in equity.

     7. Additional Matters.

     7.1. Heirs, Assigns, Waiver, Etc. The provisions of this Loan Agreement shall
inure to the benefit of and be binding upon Borrower and Lender, and their respective heirs,
legal representatives, successors and assigns; provided, however, that this Loan Agreement
may not be assigned by the Borrower without the prior written consent of Lender. No delay
on the part of Lender in exercising any right, power or privilege shall operate as a waiver
thereof. The rights and remedies of Lender specified in this Loan Agreement shall be in
addition to and not exclusive of any other rights and remedies which Lender, by operation of
law, would otherwise possess.

     7.2. Survival of Representations and Warranties. All agreements,
representations, and warranties made in this Loan Agreement shall survive the execution of
the Loan Documents and shall continue until the Note is repaid in full.

     7.3. Governing Law. This Loan Agreement shall be governed by the laws of the
State of Wisconsin.

     7.4. Amendment of Loan Agreement. This Loan Agreement may not be changed
orally, but only by an agreement in writing signed by the parties hereto.

     7.5. Indemnification. Borrower hereby agrees to hold and save Lender harmless
and indemnify it against and from all claims, liabilities, damages, losses or expenses
(including reasonable attorney fees) of any kind incurred by Lender and arising from or out
of the use, occupancy or possession of the Real Estate or otherwise in any way connected to
the Loan; provided, however if and to the extent such claims, liabilities, damages, losses
or expenses of any kind are incurred by Lender solely because of Lender’s negligence or
willful act or omission, then Borrower shall not be required to hold and save Lender
harmless or indemnify Lender.

19

 

     7.6. Notices. Any notice to be given hereunder shall be in writing, addressed
to the party at the address stated below and shall be (i) delivered in person to the
receiving party by the other party, his agent or a professional courier service, (ii) sent
by United States certified or registered mail, postage prepaid, return receipt requested, or
(iii) sent by telecopy to the receiving party at the telecopy phone number stated below.
Any such notice shall be deemed effective upon the earlier of the actual receipt of the
notice or (i) if delivered in person, then when such notice is delivered to an individual at
the receiving party’s address who is apparently authorized to accept deliveries, (ii) if
sent by United States certified or registered mail, then one day after such notice or
election is deposited with the United States Postal Service, or (iii) if sent by telecopy,
then at the time sent and confirmed by the sender’s transmitted copy of such notice.

	 	 	 
	     Lender:

	 	M&I Marshall & Ilsley Bank
	 

	 	770 North Water
	 

	 	Milwaukee, WI 53202
	 

	 	Attn: Michael J. Fruin
	 

	 	Telecopy No. (414) 765-7625
	 
	 	 
	     Borrower:

	 	Summit Hotel Properties, LLC
	 

	 	2701 S. Minnesota Ave., Suite #6
	 

	 	Sioux Falls, SD 57105
	 

	 	Attn: Hulyn Farr
	 

	 	Telecopy No. (605) 362-9388

     7.7. Severability. Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof.

     7.8. Headings. Section and subsection headings in this Agreement are included
herein for convenience only and shall not constitute a part of this Agreement for any
purpose.

     7.9. VENUE. BORROWER HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED
BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF MILWAUKEE COUNTY, WISCONSIN. BORROWER
HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED BY LENDER IN SUCH COURT. BORROWER WAIVES ANY CLAIM THAT MILWAUKEE
COUNTY, WISCONSIN OR THE EASTERN DISTRICT OF WISCONSIN IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWER SET FORTH
IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT
OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE
JURISDICTION, AND BORROWER HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY
SUCH JUDGMENT OR ACTION.

20

 

     7.10. WAIVER OF TRIAL BY JURY. LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT PROCEEDING
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY.

21

 

     IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement on the day, month and
year first above written.

	 	 	 	 	 	 	 
	 	 	M&I MARSHALL & ILSLEY BANK
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Michael J. Fruin	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Michael J. Fruin, Vice President	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Geoffrey R. Nauth	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Geoffrey R. Nauth	 	 
	 

	 	Its:
	 	Vice President	 	 

22

 

	 	 	 	 	 	 	 	 	 
	 	 	SUMMIT HOTEL PROPERTIES, LLC	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Kerry W. Boekelheide	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Kerry W. Boekelheide	 	 
	 

	 	 	 	 	 	    Chief Executive Officer	 	 

23

 

EXHIBIT A

Legal Description

Lot 1, Block 1, Summit Hotel Properties, according to the recorded plat thereof, Hennepin County,
Minnesota

Abstract Property

Registered Property, Certificate of Title No. 1181720

 

 

EXHIBIT B

Construction Budget

	 	 	 	 	 	 	 
	Minneapolis
	 	 	 	 	 	 
	Cambria Suites
	 	 	 	 	 	 
	 

	 	Rooms
	 	 	113	 
	 

	 	Square Foot
	 	 	98,734	 

	 	 	 	 	 	 	 	 	 
	Land
	 	$	1,529,000	 	 	 	 	 
	Building/Garage
	 	 	11,122,000	 	 	See Construction Contract Detail
	Franchise Fee
	 	 	60,000	 	 	 	 	 
	Signage
	 	 	15,000	 	 	 	 	 
	Phone Equipment
	 	 	60,000	 	 	 	 	 
	Internet High Speed
	 	 	15,000	 	 	 	 	 
	PMS
	 	 	65,000	 	 	 	 	 
	FF&E
	 	 	1,328,000	 	 	 	 	 
	Permits & Fees
	 	 	120,000	 	 	 	 	 
	Engineering Fees
	 	 	100,000	 	 	 	 	 
	Contingency
	 	 	—	 	 	 	 	 
	Construction Interest/Finance Costs
	 	 	580,000	 	 	 	 	 
	Professional Fees
	 	 	80,000	 	 	 	 	 
	Syndicated Cost
	 	 	—	 	 	 	 	 
	Operating Capital
	 	 	100,000	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total Cost
	 	$	15,174,000exv10w1

 

*Confidential Treatment Requested Under

17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2

DEVELOPMENT AND EXCLUSIVE DISTRIBUTION AGREEMENT

     This Development and Exclusive Distribution Agreement (“Agreement”) is entered into on
November 7, 2006 (“Effective Date”) between AKORN, INC., a Louisiana corporation having a principal
place of business at 2500 Millbrook Drive, Buffalo Grove, Illinois 60089-4694, United States of
America (“AKORN”) and SERUM INSTITUTE of INDIA, LTD., a Company incorporated under the laws of
India, having its principal place of business at S. No. 212/2, Off Soli Poonawalla Road, Hadapsar,
Pune — 411 028, Maharashtra, INDIA, (“SII”) (each a “Party” and collectively, the “Parties”).

     A. The Parties have previously entered into a Memorandum of Understanding dated April 4, 2006
with respect to their collaboration in developing monoclonal antibody drugs;

     B. SII has entered into a definitive agreement with [...***...] (as defined below) providing
it with certain exclusive rights to rabies monoclonal antibody and with the right to nominate a
distributor for distribution of rabies monoclonal antibody products;

     C. As provided in the above referenced Memorandum of Understanding, AKORN desires to receive
from SII exclusive marketing and distribution rights in North, Central, and South America for the
rabies monoclonal antibody; and

     D. The Parties desire to set forth their agreement with respect to such exclusive rights and
their collaboration in developing rabies monoclonal antibody, pursuant to the term and conditions
set forth below.

     NOW, THEREFORE, in consideration of the mutual promises herein, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, the
Parties agree as follows:

ARTICLE 1

DEFINITIONS

     1.1 AKORN Indemnitees. The term “AKORN Indemnitees” has the meaning ascribed to it in
Section 10.1.

     1.2 Anti-D Notice. The term “Anti-D Notice” has the meaning ascribed to it in Section
2.6.2.

     1.3 Applicable Laws. The term “Applicable Laws” means all applicable laws and
regulations, including, but not limited to the United States Federal Food, Drug, and Cosmetic Act
and the Public Health Service Act, and including all local and municipal ordinances and the
regulations of any agency or public authority having jurisdiction over the manufacture, sale and
delivery of Products.

     1.4 Affiliate. The term “Affiliate” means with respect to any Party, any party
controlling, controlled by or under common control with any such Party. For purposes hereof,
“control” and its derivatives means the possession, directly or indirectly, of the power to direct
or

* CONFIDENTIAL TREATMENT REQUESTED — This language has been omitted and filed separately with the Securities and Exchange Commission.

 

 

*Confidential Treatment Requested Under

17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2

cause the direction of the management and policies of a Party, whether through the ownership of
voting securities or voting interests, by contract or otherwise.

     1.5 BLA. The term “BLA” means a biologics license application submitted to FDA to
obtain license approval for a biologic product, or any successor application or foreign equivalent.

     1.6 CBER. The term “CBER” means the FDA’s Center for Biologics Evaluation and
Research that is responsible for regulating biological products for human use under applicable
United States federal laws or any successor authority.

     1.7 cGMP. The term “cGMP” means current Good Manufacturing Practices as applicable in
the Territory. 

     1.8 Collaboration Agreement. The term “Collaboration Agreement” means the
Collaboration and License Agreement between SII and [...***...].

     1.9 Confidential Information. The term “Confidential Information” means all
confidential information of a Party relating to any designs, know-how, inventions, technical data,
ideas, uses, processes, methods, formulae, research and development activities, work in process, or
any scientific, engineering, manufacturing, marketing, business or financial information relating
to the disclosing Party, its present or future products, sales, suppliers, customers, employees,
investors or business, whether in oral, written, graphic or electronic form disclosed by the
Parties prior to or during this Agreement (which is marked confidential or acknowledged as being
confidential prior to disclosure). If the Confidential Information is disclosed orally or visually,
it shall be identified as such at the time of disclosure and confirmed in writing by the disclosing
party within thirty (30) days of disclosure. Confidential Information shall also include any other
information in oral, written, graphic or electronic form which, given the circumstances surrounding
such disclosure, would be considered confidential. This Agreement shall be deemed Confidential
Information.

     1.10 FDA. The term “FDA” means the United States Food and Drug Administration.

     1.11 First Commercial Sale. The term “First Commercial Sale” with respect to a
Product means the first sale or other disposal of such Product in a country in the Territory after
receipt of Marketing Authorization.

     1.12 Forecast. The term “Forecast” has the meaning ascribed to it in Section 5.2.

     1.13 [...***...]. The term “[...***...]” means the MAb, known as [...***...], that
effectively neutralizes all known strains of the Rabies virus.

     1.14 Initial Price. The term “Initial Price” has the meaning ascribed to it in
Section 7.1.1.

     1.15 Insignia. The term “Insignia” means trademarks, trade names, logos, symbols,
badges, labels, decorative designs, packaging designs or similar trade dress.

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     1.16 Intellectual Property Rights. The term “Intellectual Property Rights” means all
United States and worldwide trademarks, service marks, trade dress, logos, copyrights, rights of
authorship, inventions, patents, rights of inventorship, moral rights, rights of publicity and
privacy, trade secrets, rights under unfair competition and unfair trade practices laws, and all
other intellectual and industrial property rights related thereto.

     1.17 MAb. The term “MAb” means fully human monoclonal antibodies.

     1.18 Marketing Authorization. The term “Marketing Authorization” means all necessary
registrations, permits, licenses, authorizations, approvals and notifications by the relevant
regulatory authority in a country in the Territory for the development, manufacturing, testing,
labeling, importation, storage, promotion, sale, distribution and use of a Product in such country.

     1.19 Milestones. The term “Milestones” means the objectives and deliverables
described and set forth in the Milestone Schedule.

     1.20 Milestone Schedule. The term “Milestone Schedule” means Exhibit A, attached
hereto and fully incorporated herein.

     1.21 [...***...]. The term “[...***...]” means the [...***...], having its principal
place of business at [...***...].

     1.22 Net Sales Value. The term “Net Sales Value” means the gross amount billed or
invoiced by AKORN on sales of Products, less the following deductions, to the extent not
already applied and consistent with US GAAP: (a) customary trade, quantity, or cash discounts to
non-affiliated brokers or agents to the extent actually allowed and taken; (b) amounts repaid or
credited by reason of rejection or return; (c) to the extent separately stated on purchase orders,
invoices, or other documents of sale, any taxes or other governmental charges levied on the sale,
transportation, delivery, or use of a Product which is paid by or on behalf of AKORN; (d) duties
and charges, including state government levy and customs duties, in the Territory, in respect of
the Products, including any duties, taxes, VATs or similar charges arising with respect to the
importation by and delivery of Products to AKORN; (e) inbound carriage, insurance and freight costs
incurred by AKORN for Products; and (f) outbound transportation costs prepaid or allowed and costs
of insurance in transit. If Product is sold to third parties in transactions that are not arm’s
length between buyer and seller, then the gross amount to be included in the calculation of Net
Sales Value for the sale of such Product shall be the gross amount that would have been charged had
the sale been at arm’s length, which shall be deemed, when determinable, to be the average selling
price for Product in the given country in the Territory (or if not available, in the Territory) for
the ninety (90) day period prior to the relevant sale.

     1.23 Phase I Clinical Trial. The term “Phase I Clinical Trial” means a human clinical
trial in any country which generally provides for the initial introduction into humans of a Product
with the primary purpose of determining its metabolism and pharmacokinetic properties and
pharmacology, or could otherwise meet the definition of 21 CFR 312.21 or its foreign
equivalent.

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     1.24 Phase II Clinical Trial. The term “Phase II Clinical Trial” means a human
clinical trial in any country which utilizes a larger base of humans in order to establish
effectiveness of a Product and further evaluate its safety, or could otherwise meet the definition
of 21 CFR 312.21 or its foreign equivalent.

     1.25 Phase III Clinical Trial. The term “Phase III Clinical Trial” means a human
clinical trial in any country which provides for the continued trials of a Product on sufficient
numbers of patients to establish its safety and efficacy that is needed to evaluate the overall
benefit-risk relationship of the Product and an adequate basis for physician labeling, or could
otherwise meet the definition of 21 CFR 312.21 or its foreign equivalent.

     1.26 Product. The term “Product” means (i) a [...***...] product developed by SII
and/or its licensors; and (ii) any other MAb product, added to this Agreement pursuant to a
Schedule hereto adopted pursuant to Section 2.6.

     1.27 Product Sales Share. The term “Product Sales Share” means for each calendar
quarter, (i) with respect to the territories of North America (and, only upon and to the extent
agreed by the Parties pursuant to a separate written agreement as provided under Section 2.7,
Europe), that amount equal to sixty percent (60%) of the Net Sales Value achieved by AKORN in such
calendar quarter in such territories; and (ii) with respect to the territories of Central America
and South America, that amount equal to fifty percent (50%) of the Net Sales Value achieved by
AKORN in such calendar quarter in such territories.

     1.28 Quality Agreement. The tem “Quality Agreement” has the meaning ascribed to it in
Section 3.1.

     1.29 Satisfactory Completion. The term “Satisfactory Completion” means, with respect
to each phase of the clinical development program (Phase I, II or III Clinical Trials), completion
of such phase and meeting the protocol requirements with conclusive data analysis that permits the
clinical development program to proceed to the next phase, (in the case of Phase I or II Clinical
Trials), or to proceed to Marketing Approval submission (in the case of Phase III Clinical Trials),
in accordance with Applicable Laws.

     1.30 Schedule. The term “Schedule” means an addendum to this Agreement that may be
agreed upon by the Parties, which in each case shall set forth, as applicable, additional types of
MAb that will be subject to this Agreement, corresponding payment obligations, and other terms and
conditions as mutually agreed to by the Parties. Upon execution by both Parties, each such
executed Schedule shall be attached to this Agreement and fully incorporated herein by this
reference.

     1.31 SII Indemnitees. The term “SII Indemnitees” has the meaning ascribed to it in
Section 10.2.

     1.32 Territory. The term “Territory” means the various countries and territories
located in North America, Central America, South America, and, to the extent agreed by the Parties
pursuant to a separate written agreement as provided under Section 2.7, Europe.

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     1.33 Variable Price. The term “Variable Price” has the meaning ascribed to it in
Section 7.1.2.

ARTICLE 2

PRODUCT DEVELOPMENT AND REGISTRATION

     2.1 Product Development.

            2.1.1 SII shall be solely responsible for the development of the Products, including, but not
limited to, the use of its commercially reasonable efforts to reach all Milestones, and develop all
materials required to file Marketing Authorizations therefor as required by regulatory authorities
in the Territory. Pursuant to such development efforts, SII shall be responsible to conduct, at
its sole cost, all the pre-clinical pharmacological studies, toxicology studies, and Phase I, II
and III Clinical Trials for Products as required for United States Marketing Authorizations.

            2.1.2 All development costs incurred by SII shall be borne solely by SII. SII shall
expeditiously commence and use commercially reasonable efforts to complete development of a stable,
commercially saleable Product in accordance with the Milestone Schedule, cGMP, and Applicable Laws,
which Product does not infringe or potentially infringe any Intellectual Property Rights owned or
licensed by any other person in the Territory.

     2.2 BLA Filing. SII shall file a BLA for Products as soon as practicable following
SII’s completion of all necessary corresponding pre-clinical pharmacological and toxicology testing
and Phase I, II and III Clinical Trials for United States filing. Such BLA shall be filed to allow
manufacturing of each Product by either [...***...] or SII, as mutually agreed by the Parties. SII
and/or [...***...] shall be responsible for all filing costs associated with filing the BLA.

     2.3 Ownership of Marketing Authorizations. Any application for Product Marketing
Authorization and each corresponding Product Marketing Authorization shall be the sole and
exclusive property of SII or [...***...], as more fully set forth in the Collaboration Agreement.

     2.4 Cooperation. Each Party shall reasonably cooperate with the other Party
(including providing all reasonably necessary information in its possession, taking all reasonably
necessary actions and executing all reasonably necessary instruments) in connection with the
preparation, filing, prosecution, seeking and obtaining the Marketing Authorizations.

     2.5 Representatives. Upon execution of this Agreement, SII and AKORN shall each
select one (1) program manager who will be responsible for directing and overseeing all activities
regarding this Agreement and for transmitting and receiving all communications regarding this
Agreement on behalf of its respective company. Each Party may change its
designated program manager at any time effective upon providing written notice to the other
Party.

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     2.6 Additional MAb Products.

            2.6.1 The Parties may enter into one or more Schedules to add additional types of MAb to this
Agreement. A Schedule shall be separately executed by both Parties to be valid. Once a given
Schedule has been fully executed by the Parties, it shall be incorporated into and governed by the
terms and conditions of this Agreement. In the event any provision in a Schedule conflicts with
any portion of this Agreement, the terms of the Schedule shall govern. No addition, change or
modification to any Schedule will be effective unless made in writing and signed by both Parties.

            2.6.2 During the term of this Agreement, SII grants AKORN a first option to obtain exclusive
marketing rights in the Territory for SII rights in Anti-D MAb. SII shall provide notice to and
shall consult with AKORN with respect to its negotiations with [...***...] with respect to Anti-D
MAb. SII shall notify AKORN in writing immediately upon SII’s receipt of rights to Anti-D MAb from
[...***...]. Such notice shall disclose all material disclosable specific terms of the
Collaboration Agreement that are added with respect to Anti-D MAb as required by [...***...] and
any other specific SII obligations with respect to Anti-D MAb required by [...***...], subject to
SII’s compliance with any confidentiality provisions in its agreements with [...***...] (“Anti-D
Notice”). AKORN shall have the period of ninety (90) days to elect whether to exercise such option
and enter into a Schedule containing exclusive marketing rights in the Territory for Anti-D MAb
from SII. AKORN shall exercise this option by notifying SII in writing of its election within the
ninety (90) day period following its receipt of the Anti-D Notice. If AKORN exercises such option,
SII and AKORN shall enter into a Schedule providing for exclusive marketing rights in the Territory
for Anti-D MAb from SII on terms that are consistent with the terms and conditions in this
Agreement and with any additional specific terms with respect to Anti-D MAb required by [...***...]
and as disclosed in the Anti-D Notice. Should AKORN fail to exercise such option within the ninety
(90) day period following its receipt of the Anti-D Notice, SII shall be free to commercialize and
market Anti-D MAb on its own or with any other third party.

     2.7 Addition of Europe to Territory. During the term of this Agreement, SII grants
AKORN a first option to expand the Territory to include Europe in accordance with the terms of this
Section 2.7. To the extent that SII has a good faith intent to grant marketing rights to Products
in Europe (and prior to any such grant), SII shall communicate such intent to AKORN and the Parties
shall negotiate in good faith, during the following period of ninety (90) days, the terms of such
Territory expansion, which terms may include minimum reasonable annual Product sales requirements
for Europe as agreed by the Parties. If the Parties fail to agree with respect to the terms of
such Territory expansion within the foregoing ninety (90) day period, SII shall be free to grant
the rights to any third party.

ARTICLE 3

MANUFACTURE OF PRODUCTS

     3.1 Quality Agreement. As soon as practicable following the Effective Date, but not
later than the date that SII or [...***...], as the case may be, begins production of clinical
batches, the Parties shall enter into a quality agreement (the “Quality Agreement”). The Quality
Agreement shall contain provisions consistent with the provisions in this Agreement and such other
provisions as otherwise required for compliance with cGMP and all other applicable FDA

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requirements. Prior to production and supply of any clinical batches, AKORN’s program manager and
quality assurance managers shall be permitted to conduct a quality inspection of the manufacturing
facilities and to provide SII with a written notice setting forth a list of discrepancies in
compliance with cGMP and all other applicable FDA requirements. SII shall correct all items
rightly objected to by AKORN and shall demonstrate compliance with cGMP and other applicable FDA
requirements within a reasonable period following receipt of AKORN’s written notice.
Notwithstanding AKORN’s quality inspection and other activities pursuant to this Section 3.1,
nothing in this Section 3.1 shall alter SII’s responsibilities for compliance with cGMP and FDA
requirements, and all other applicable requirements under this Agreement, or release SII from its
obligations with respect to such compliance.

     3.2 Product Manufacture. All Products shall be manufactured in conformity with the
applicable Marketing Authorization and this Agreement. All Products shall be manufactured in
conformity with this Agreement.

     3.3 Right of Access/ Inspections.

            3.3.1 AKORN shall be permitted periodic (not more than once per year) access to the
manufacturing facilities for the purpose of conducting inspections and/or audits to determine
compliance with the Agreement or the Quality Agreement entered into by the Parties, including
audits of SII’s compliance with cGMPs and with environmental and other laws. Upon not less than
thirty (30) days prior written notice, SII shall make available to AKORN all documentation,
equipment, and facilities relating to this Agreement reasonably required to accomplish the purposes
of this provision, provided SII shall not be required to disclose to AKORN any confidential
information of third parties, or any propriety information relating to Product manufacture or
processing which would not otherwise be public. Notwithstanding anything else to the contrary, any
such inspections/audits and any testing performed by AKORN during them, will not relieve SII of
liability for Products later found to be defective or for SII’s failure to meet its obligations
under this Agreement.

            3.3.2 SII and [...***...] shall be permitted periodic (not more than once per year) access to
AKORN’s, and its subcontractor’s, facilities, and records, and personnel for the purpose of
conducting inspections and/or audits to determine compliance with this Agreement or the Quality
Agreement, including audits of AKORN’s compliance with environmental and other laws. Upon not less
than thirty (30) days prior written notice, AKORN shall make available all documentation and
facilities relating to the Product upon SII’s request for inspection by SII, [...***...], or their
representatives, including authorized third party consultants, reasonably required to accomplish
the purposes of this provision. Notwithstanding anything else to the
contrary, any such inspections/audits performed by SII or [...***...] during them, will not
relieve AKORN of liability for AKORN’s failure to meet its obligations under this Agreement.

     3.4 Notifications. Each Party shall establish systems to advise the other of any
safety or toxicity problem of which either Party becomes aware regarding any Product. Each party
will, within five (5) business days following notification, inform the other party in the event of
any FDA or other regulatory inspection relating to any Product and will notify the other party in
writing of any reportable serious adverse event relating to a Product as required by FDA.

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     3.5 Recalls.

            3.5.1 Prior to the First Commercial Sale of Product, AKORN shall provide SII and [...***...]
with a description of its procedure for conducting and documenting Product recalls, which procedure
must meet FDA regulations. AKORN shall demonstrate to SII that its systems shall identify the end
user of the Product and shall ensure that packaged vials are shipped in compliance with the labeled
storage temperature requirements.

            3.5.2 Each Party promptly shall notify the other if any Product is or might reasonably be
expected to be the subject of a recall, market withdrawal or correction. AKORN shall be responsible
for coordinating any recall, market withdrawal or field correction of Product, pursuant to the
procedures provided to SII and [...***...].

                    (a) A recall, market withdrawal or field correction shall be conducted at the cost of SII to
the extent that the cause of such recall is due to the failure of the Product to meet its
specifications as set forth in the BLA or other applicable Marketing Authorization during the
applicable shelf life. AKORN shall provide SII with a copy of all documents relating to such
recall, market withdrawal or field correction at SII’s sole cost and expense. SII shall cooperate
with AKORN (including providing AKORN with all data, information and documents requested by AKORN)
in connection with such recall, market withdrawal or field correction. To the extent set forth in
the first sentence of this subclause (a), SII will bear all other reasonable costs associated with
(A) such recall, market withdrawal or field correction (including costs associated with receiving
and administering the recalled Product and notification of the recall to those persons whom AKORN
deems appropriate); and (B) replacement of such recalled Product.

                    (b) A recall, market withdrawal or field correction shall be conducted at the cost of AKORN to
the extent that the cause of such recall is due to acts or omissions after such Product was
delivered to AKORN. AKORN shall provide SII with a copy of all documents relating to such recall,
market withdrawal or field correction. SII shall cooperate with AKORN (including providing AKORN
with all data, information and documents requested by AKORN) in connection with such recall, market
withdrawal or field correction, at AKORN’s sole cost and expense. To the extent set forth in the
first sentence of this subclause (b), AKORN will bear all other reasonable costs associated with
(A) such recall, market withdrawal or field correction (including costs associated with receiving
and administering the recalled Product and notification of the recall to those persons whom AKORN
deems appropriate); and (B) replacement of such recalled Product.

                    (c) In the event the parties are unable to determine the cause of a recall, then the parties
shall share equally all reasonable recall costs related to such recall, market withdrawal or field
correction. In the event that it is later determined that such recall, market withdrawal or field
correction is the responsibility one Party pursuant to the provisions above, then, subject to the
next sentence, such Party shall promptly reimburse the other Party for all recall costs suffered by
the other Party in connection with the recall, market withdrawal or field correction. In the event
that the Product recall, market withdrawal or field correction resulted from the actions or
inactions of both Parties, then the Parties will share all reasonable recall costs equally.

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ARTICLE 4

EXCLUSIVE DISTRIBUTION

     4.1 Appointment. SII hereby appoints AKORN and AKORN hereby accepts appointment as
SII’s exclusive distributor of Products in the Territory. Additionally, SII hereby grants to AKORN
(i) the exclusive right to use all Marketing Authorizations obtained by SII and/or [...***...] (and
licensed to SII) for the Products in the Territory; and (ii) the exclusive right to promote,
market, sell and distribute the Products in the Territory.

     4.2 Non-Circumvention. Neither SII nor any of its Affiliates shall (i) appoint
another distributor for Products in the Territory; (ii) sell Products to any other party in the
Territory; or (iii) directly or indirectly allow any third party to use any Marketing
Authorizations with respect to any Products or assist any third party to file, prosecute, seek and
obtain any Marketing Authorizations with respect to any Products.

     4.3 Distribution/ Marketing. During the term hereof, AKORN shall promote, market,
distribute, and sell Products in the Territory. Market launch in each country in the Territory
shall occur not less than sixty (60) days after (i) Marketing Authorization is obtained for such
country; and (ii) commercial quantities of Product are delivered by SII to such country. AKORN
shall be responsible for implementing a distribution, warehousing and marketing infrastructure
sufficient, in AKORN’s sole reasonable discretion, to handle the distribution of the Products. All
related costs and expenses shall be borne solely by AKORN. Subject to Section 4.11, AKORN shall
have the right to engage sub-distributors to assist it in marketing and distributing the Products
in the Territory. AKORN shall supply copies of marketing plans and strategies for the Territory
and shall meet quarterly, either in person or telephonically, with SII to review and discuss
marketing efforts, plans, and strategies for the Territory.

     4.4 Compliance with Laws. AKORN will comply with all Applicable Laws in the Territory
and regulations that govern its activities under this Agreement.

     4.5 Standards. AKORN shall comply with generally accepted distribution, pricing,
selling, and marketing standards in the pharmaceutical and biologics industry as applicable in the
respective country in the Territory.

     4.6 Promotional Materials. Prior to use, AKORN shall provide SII with copies of all
promotional and educational materials related to the Products. No documentation or materials
created by AKORN shall contain any inaccuracy or misrepresentation regarding the Products or
otherwise make any representation regarding a Product beyond those contained in the Marketing
Authorization for the Territory of sale. Upon SII’s request, AKORN shall discontinue any use of
documentation or other materials that SII deems inaccurate, misleading, or otherwise objectionable.

     4.7 Resources. AKORN agrees to maintain resources, facilities, and a competent sales
force and support staff consistent with its obligations under this Agreement.

     4.8 Product Presentation. AKORN agrees to (i) present the Products fairly to
potential customers; (ii) not to disparage the Products, Product Insignia, SII Insignia, SII or

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[...***...] in any manner; and (iii) do all things reasonable to promote the reputation of the
Products and SII and value of the SII Insignia.

     4.9 Product Sales. Subject to the terms and conditions herein, AKORN shall use
commercially reasonable efforts to maximize Product sales in the Territory. AKORN agrees not to
solicit orders to be placed outside of the Territory without prior written approval of SII. AKORN
shall refer contacts outside the Territory with interest in the Products to SII. AKORN shall not
sell Product to customers that have no place of business in the Territory.

     4.10 Product Complaints. AKORN shall promptly report to SII any complaints regarding
the Products received from its customers.

     4.11 Subcontractors. AKORN shall only utilize the services of subcontractors approved
in writing in advance by SII to perform its specific material obligations under this Agreement.
Notwithstanding anything else to the contrary herein, AKORN shall be free to select its own common
carriers, wholesalers and representatives to assist AKORN in performing its non-material ordinary
course distribution and sales obligations hereunder. AKORN will be responsible for its
subcontractors’ compliance with the terms of this Agreement. All permitted subcontractors shall
agree in writing to adhere in writing to all relevant terms of this Agreement, as if they were
AKORN. AKORN shall be responsible for oversight of all permitted subcontractors and shall remain
responsible for its permitted subcontractors.

ARTICLE 5

SUPPLY OF PRODUCTS

     5.1 Purchase Orders. AKORN shall only purchase Product from SII. This Agreement
applies to all purchase orders that AKORN may place with SII for the purchase of Products. The
terms and conditions of this Agreement including those presented in all exhibits hereto shall apply
to any purchase order, regardless of whether this Agreement or its terms and conditions are
expressly referenced in that purchase order. No inconsistent or additional term or condition in
any purchase order or any acknowledgment or sale document from SII shall be applicable to orders
for Products placed by AKORN during the term hereof, unless expressly agreed to by the Parties in
writing. SII shall acknowledge all purchase orders in writing to AKORN. SII shall be deemed to
have accepted any purchase order for which SII does not notify AKORN in writing, preferably within
five (5) business days but in no case later than thirty (30) calendar days after its receipt, that
SII cannot meet the purchase order’s terms. SII may utilize subcontractors in the fulfillment of
it obligations hereunder.

     5.2 Forecasts. Following SII’s and/or [...***...]’s receipt of the first Marketing
Authorization in the Territory, AKORN will provide to SII, not less than thirty (30) days prior to
the beginning of each calendar quarter during the term hereof, a four (4) quarter rolling forecast
(“Forecast”) estimating its quarterly requirements for purchases of Products for the subsequent
four (4) calendar quarter period beginning with such calendar quarter. Except with respect to the
first quarter of the Forecast, which shall be binding and not subject to cancellation or change
(except as provided in the next sentence), the Forecast is non-binding and is submitted solely to
assist SII in ensuring that it has adequate raw materials, capacity and supplies to meet purchase
orders that may be issued pursuant to the Forecast. With respect to the first two (2) quarters of

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each Forecast, AKORN shall not increase by more than ten percent (10%) or decrease by more than
five percent (5%) estimated Product ordered in any quarter of the Forecast from the amount set
forth in the prior Forecast, provided that if AKORN requires additional Product beyond the
forecasted amount, AKORN may request the same from SII and SII will use its commercially reasonable
efforts, in light of its other supply commitments, to supply the additional Product to AKORN.
AKORN shall issue a new Forecast not less than thirty (30) days prior to the first business day of
each calendar quarter beginning six (6) months prior to the estimated date of receipt of the first
Marketing Authorization in each country in the Territory. Unless SII notifies AKORN in writing
within fifteen (15) calendar days after receipt of a Forecast that it will not be able to supply
the amount of Products specified in the first quarter of such Forecast, SII shall be obligated to
provide the quantity of Products consistent with the first quarter of such Forecast upon receipt of
AKORN’s purchase orders.

     5.3 Customs and Other Duties. All duties and charges, including state government levy
and customs duties, in the country in which the manufacturing facilities are located and in respect
of the manufacture of Products shall be borne and paid by SII. All other taxes and levies shall be
borne by AKORN.

     5.4 Rescheduling. AKORN may reschedule delivery under a purchase order from its
originally scheduled ship date provided that it so informs SII on or before SII’s manufacturing
date without any rescheduling or any other charges.

     5.5 Packing and Cartage. All Products ordered by AKORN shall be packed for shipment
and storage in accordance with applicable requirements of Applicable Laws and AKORN’s instructions
and in full compliance with the Quality Agreement entered into by the Parties. No charge will be
allowed for packing, boxing, or cartage, unless agreed upon at the time of purchase and set forth
in the purchase order. AKORN’s order number, part number and quantity shipped shall be marked or
tagged on each package and bill of lading.

     5.6 Shipment. SII shall ship the Products to AKORN as set forth in the respective
purchase orders. Prior to each shipment, SII shall conduct a shipping test as required under the
Quality Agreement entered into by the Parties. SII shall deliver Products into the possession of a
common carrier designated by AKORN. All Products shall be shipped and delivered EXW Pune
(Incoterms 2000). Title and risk of loss shall pass pursuant to EXW Pune (Incoterms 2000).

     5.7 Inventory/Additional Supply Terms. AKORN shall provide to SII quarterly updates
detailing the location, quantity, and dating of all Products delivered to AKORN hereunder. Not
less than nine (9) months prior to the anticipated date of Marketing
Authorization for a country in the Territory, the parties shall agree such additional Product
inventory, stocking, ordering, return, and destruction terms as are reasonable to protect against
supply shortages and Product waste.

ARTICLE 6

DELIVERY AND ACCEPTANCE

     6.1 Deliveries. Failure to deliver Products of the quality agreed herein shall
relieve AKORN of any obligation to accept and pay for such Products. Should SII fail to deliver,
within

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thirty (30) days of an agreed delivery date, Product under a valid purchase order that is at
least ninety (90%) of the quantity agreed in such valid purchase order, AKORN shall have the right
to cancel the delivery of the undersupply below ninety percent (90%), so long as it provides to SII
written notice of the cancellation not more than fifteen (15) days after the foregoing thirty (30)
day grace period. Should SII deliver, within thirty (30) days of an agreed delivery date, Product
under a valid purchase order that is more than one hundred ten percent (110%) of the quantity
agreed in such valid purchase order, AKORN shall have the right to return to SII (at the expense of
SII) the Product in excess of one hundred ten percent (110%), so long as it provides to SII written
notice of and ships such Product to SII (or its designee) for return not more than fifteen (15)
days after the foregoing thirty (30) day grace period. Any failure by AKORN to exercise its option
with respect to any shipment of Products shall not be deemed to constitute a waiver with respect to
subsequent shipments.

     6.2 Batch Certifications. SII or [...***...], as the case may be, shall conduct
quality control tests on the Product prior to shipment in accordance with applicable law and set
forth in the respective BLA specifications and test methods. SII shall (i) at AKORN’s request
furnish samples of the Product to AKORN; and (ii) deliver with each shipment of Product a
certificate of analysis for each lot included in the shipment in accordance with its applicable
specifications.

     6.3 Acceptance of Product. AKORN shall rely on the certificate of analysis supplied
with each lot by SII in accepting each Product shipment hereunder. Provided the certificate of
analysis provides that the Products comply with their applicable specifications, then, subject to
the following sentence, AKORN shall accept such Product lot. AKORN shall inspect Product shipments
for compliance with their respective purchase orders, with correct labeling requirements and as
otherwise required in accordance with AKORN’s quality assurance program then in effect. To the
extent that AKORN’s inspection reveals that the certificate of analysis or labeling of a Product
lot does not comply with its respective Marketing Authorization then AKORN will have the option to
either, in AKORN’s sole discretion, (i) retain the Product for correction, if practicable, at SII’s
sole reasonable cost; or (ii) if the Product cannot reasonably be corrected, have the Product
replaced by SII at SII’s sole cost.

ARTICLE 7

FINANCIAL PROVISIONS

     7.1 Purchase Price.

            7.1.1 With respect to each Product, not less than nine (9) months prior to the First
Commercial Sale of such Product, the Parties shall negotiate in good faith a unit price for
such Product supplied to AKORN pursuant hereto (the “Initial Price”), which Initial Price for
such Product shall be added as an amendment hereto and which, when executed by both Parties, will
be incorporated herein by this reference. Once a year, or more frequently as market conditions
require, the parties shall meet and in good faith agree, in light of any changes to the various
considerations utilized in setting the Initial Price, an increase in the Initial Price.

            7.1.2 In addition to the Initial Price, AKORN shall pay to SII for each Product the additional
amount equal to the applicable Product Sales Share less the Initial Price paid to SII for such
Product (“Variable Price”). AKORN shall pay for the Products as provided in Section 7.2.

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Notwithstanding anything to the contrary in the prior sentence, the Product Sales Share shall not
be less than the Initial Price. Both parties shall not breach any Applicable Law relating to
Product pricing.

     7.2 Product Sales Share.

            7.2.1 SII will invoice AKORN for Product shipped to AKORN at the corresponding Initial Price,
referencing in each such invoice the purchase order(s) to which the invoice relates, the Initial
Price per unit of Product and quantity of Product shipped. The invoice date shall not be earlier
than the date of corresponding Product shipment from the applicable manufacturing facility. AKORN
shall make payment for the Initial Price applicable to such Product by check or wire transfer to an
account specified by SII, no later than forty-five (45) days following date of the applicable
invoice for such Product.

            7.2.2 Within thirty (30) days after expiry of each calendar quarter during the term hereof
(including the first and the last quarters during the term that may be of a lesser duration), AKORN
shall deliver to SII a statement for such calendar quarter showing in reasonable detail: (a) the
calculation of Net Sales Value for Products sold by AKORN during such calendar quarter on a
country-by-country basis; (b) the calculation of the Product Sales Share for each Product; and (c)
as applicable, the Variable Price for each Product (using FIFO as the basis for determining what
Product was sold during such calendar quarter). AKORN shall pay any Product Sales Share due to SII
within fifteen (15) days thereafter. If the Variable Price is zero or a negative number, SII shall
not be entitled to receive any further payment for such Product for the respective quarterly period
and in no event shall the Initial Price for a Product be reduced by any negative Variable Price.
Any accrued negative Variable Price amount shall be carried forward until fully recouped and shall
be used to offset against Variable Price otherwise payable to SII in future quarters.
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY, AKORN IS FREE TO ESTABLISH ITS OWN PRICING FOR SALE
OF THE PRODUCTS IN THE TERRITORY, PROVIDED THAT AKORN SHALL REMAIN OBLIGATED TO REMIT BACK TO SII
THE INITIAL PRICE AND THE VARIABLE PRICE, AS CALCULATED HEREIN, OF EACH PRODUCT SOLD BY AKORN.

     7.3 U.S. Dollars. All calculations of Product Value Share and all payments to be
made pursuant to this Agreement shall be in United States Dollars. All AKORN Product invoices will
be issued in United States Dollars.

     7.4 Audit. SII shall have the right at anytime upon reasonable notice (but not more
than once per calendar year without cause) to nominate an independent national accounting firm,
acceptable to AKORN, to audit AKORN’s financial records, procedures, and documentation related
to payments made to SII under this Agreement. Such audits may be conducted upon reasonable notice
during the term of this Agreement and for a period of up to two (2) years after termination or
expiration hereof. All of AKORN’s Confidential Information reviewed by such accounting firm shall
be subject to the provision of this Agreement and the accounting firm shall be required to enter
with AKORN into a confidentiality agreement, the form and content of which shall be acceptable to
AKORN. In connection with a financial audit, if such audit reveals that payments made by AKORN to
SII for any period audited were correct, SII shall pay the costs of such audit and AKORN shall not
have any liability therefor. If the audit reveals that

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payments made by AKORN to SII for any
period audited were less than the amount actually owed by AKORN for such period, but by less than
five percent (5%) of the amount actually owed, AKORN shall in addition to repaying such underpaid
amounts (with interest) equally share with SII the reasonable costs of such audit. If the audit
reveals that payments made by AKORN to SII for any period audited were less than the amount
actually owed by AKORN for such period by five percent (5%) or more of the amount actually owed,
AKORN shall in addition to paying such underpaid amounts (with interest) pay the reasonable costs
of such audit work.

     7.5 Late Payments. Any late payments or underpaid amounts (as determined pursuant to
Section 7.4) hereunder shall be subject to annual interest at the rate of ten percent (10%)
compounded on a monthly basis, until paid in full.

ARTICLE 8

INTELLECTUAL PROPERTY RIGHTS

     8.1 Branding of Products.

            8.1.1 SII shall label and package all Products in accordance with the requirements of the
Quality Agreement. Product labels and all packing and advertising matter shall bear a reference to
all [...***...] and SII Intellectual Property Rights covering the same in the country of
manufacture sale or intended export, as required under the Collaboration Agreement. Once approved
by AKORN, SII will not change in any manner any labeling of any Product supplied by SII without the
prior written consent of AKORN. AKORN’s Insignia shall be affixed to the Products as directed by
AKORN. All related sales brochures, marketing materials, and packaging shall only bear AKORN’s
Insignia as directed by AKORN. No other Insignia shall be affixed to the Products or any related
sales brochures, marketing materials, and packaging.

            8.1.2 AKORN grants to SII during the term hereof a non-exclusive, non-transferable,
non-assignable, indivisible, revocable and terminable license, without the right to sublicense, to
use the AKORN Insignia as specifically directed by AKORN in writing, and only to the extent
necessary to label and brand the Products and related sales brochures, marketing materials, and
packaging pursuant to AKORN’s specifications, and for no other purposes. Such AKORN Insignia will
not be affixed, used, or otherwise displayed on the Products or in connection therewith without the
prior written approval of AKORN.

            8.1.3 Notwithstanding any of the provisions of this Agreement, SII shall not at any time do
anything or act in any way that would or might adversely affect the value or validity
of any AKORN Insignia or other intellectual property belonging to AKORN. SII shall
immediately notify AKORN in writing upon becoming aware of any intellectual property infringement
or imitation of any intellectual property of AKORN or of any facts that SII believes might
constitute infringement or imitation. All uses of AKORN’s Insignia shall inure exclusively to
AKORN’s sole benefit.

     8.2 Confidentiality. Each Party (i) shall keep the other Party’s Confidential
Information confidential and shall not directly or indirectly, use, divulge, publish or otherwise
disclose or allow to be disclosed any aspect of such other Party’s Confidential Information,

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except
with the other Party’s prior written consent and as specifically permitted by this Agreement; and
(ii) shall refrain from any action or conduct which might reasonably or foreseeably be expected to
compromise the confidentiality or proprietary nature of Confidential Information. Upon request,
each of the Parties shall immediately return to the other the originals and all copies of any
Confidential Information of the other Party. The obligations and restrictions set forth in this
Section 8.2 shall not apply to any Confidential Information that falls within any of the following
exceptions, provided the receiving party produces credible written evidence to establish that such
information:

            8.2.1 is or becomes part of the public domain without breach of this Agreement by a receiving
Party;

            8.2.2 is independently developed by or for a receiving Party completely apart from the
disclosures hereunder;

            8.2.3 is received from a third party who lawfully acquires such information without
restriction, and without breach of this Agreement by a receiving Party;

            8.2.4 was in a receiving Party’s possession prior to the disclosure by the other Party;

            8.2.5 is released pursuant to a binding court order or government regulation, provided that
the receiving Party delivers a copy of such order or action to the other Party and cooperates with
the other Party if it elects to contest such disclosure; and/or

            8.2.6 AKORN reasonably determines in consultation with SII and its securities attorneys that
such information is required to be released pursuant to securities disclosure regulations, provided
that AKORN will use commercially reasonable efforts to obtain confidential treatment of pricing and
any other material or competitive terms herein of the identity of Products that are not yet being
sold in the Territory;

     If a receiving Party wishes to rely on any of the exceptions contained above, then such
receiving Party must demonstrate to the other Party’s satisfaction the facts underlying why the
exception applies within thirty (30) calendar days of the occurrence of the facts establishing such
exception.

     8.3 AKORN agrees not to challenge directly or indirectly any intellectual property relating to
or covering Product.

ARTICLE 9

WARRANTIES

     9.1 Representations and Warranties. Each of AKORN and SII represents, warrants and
covenants: (i) that it has the full power, right and authority to execute and deliver this
Agreement and that it shall use commercially reasonable efforts to perform its obligations
hereunder; (ii) that it will assign to its performance of this Agreement professional personnel,
qualified to perform the process procedures consistent with the technical requirements of this

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Agreement; (iii) that it will comply with all Applicable Law in connection with its performance of
its obligations related to this Agreement; and (iv) that none of such Party’s personnel to be
assigned to this Agreement have or shall have been subject to debarment or disqualification under
any Applicable Laws.

     9.2 Product Warranties. SII represents, warrants and covenants: (i) that the Products
on delivery and during their entire shelf-life will meet their applicable specifications, except to
the extent that not meeting such specifications is attributable to an act or omission of AKORN;
(ii) that the Products are manufactured in conformity with and upon delivery shall conform with
cGMP, Applicable Law, and the Quality Agreement; and (iii) there is neither pending nor, to the
knowledge of SII, threatened any claim, litigation or proceeding in any way contesting SII’s and
[...***...]’s rights to supply any of the Products. The foregoing are the only representations and
warranties of SII with respect to Product delivered to AKORN hereunder. Except as provided under
Sections 3.5, 6.1 and 10.1 (for third-party claims), AKORN’s sole remedy under this Agreement with
respect to Product delivered to AKORN by SII that does not conform to the warranties in clauses (i)
and (ii) above, shall be to retain the Product for correction at SII’s sole reasonable cost or, if
the Product cannot be corrected, have the Product replaced by SII at SII’s sole cost in accordance
with Section 6.3, provided that no such remedy of correction or replacement shall be available with
respect such Product if it has less than six (6) months remaining on its shelf life.

ARTICLE 10

ALLOCATION OF RISK

     10.1 SII Indemnification Obligations. SII shall indemnify, defend and hold harmless
AKORN, and its affiliates, and their respective officers, directors, employees and agents
(collectively “AKORN Indemnitees”) against all third party damages, claims, liabilities, losses and
other expenses, including reasonable attorneys’ fees and costs, whether or not a lawsuit or other
proceeding is filed, that arise out of or relate to (i) any negligence or willful misconduct of
SII, its agents, or subcontractors; (ii) a breach of any warranty provided by SII under this
Agreement; (iii) product liability or personal injury caused by the Product except to the extent
attributable to negligence or willful misconduct of an AKORN Indemnitee; or (iv) a claim that the
Products or their elements, or the use thereof, violate or infringe upon the patents, copyrights,
trademarks or any other Intellectual Property Rights of any third party, except to the extent
attributable to the breach of this Agreement by AKORN or the negligence of willful misconduct of an
AKORN Indemnitee.

     10.2 AKORN Indemnification Obligations. AKORN shall indemnify, defend and hold
harmless SII, [...***...], and their respective affiliates, officers, directors, employees and
agents (collectively “SII Indemnitees”) against all third party damages, claims, liabilities, losses
and other expenses, including reasonable attorneys’ fees and costs, whether or not a lawsuit or
other proceeding is filed, that arise out of or relate to (i) any dispute or claim that any of
AKORN Insignia or any of their elements infringe or violate any third party’s Intellectual Property
Rights; (ii) improper handling, transport, distribution, or storage of a Product by AKORN or any
act or omission of AKORN after Product delivery that causes the Product not to meet the warranties
in Section 9.2(i); (iii) any negligence or willful misconduct of AKORN, its agents, or affiliates
or

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subcontractors; (iv) a breach this Agreement by AKORN; or (v) the labeling, advertising,
promotion, marketing or sale by or for AKORN of the Products, except to the extent attributable to
the negligence or willful misconduct of an SII Indemnitee or to the breach of this Agreement by
SII.

     10.3 Limitation. THE FOREGOING INDEMNIFICATION PROVISIONS SHALL ONLY APPLY TO THIRD
PARTY CLAIMS.

     10.4 Insurance. Each Party shall obtain, at its expense, property, commercial and
liability insurance covering its obligations hereunder, in each case in amounts appropriate to the
conduct of its business, as determined in its sole and exclusive reasonable judgment, but in no
case less than Ten Million Dollars ($10,000,000) per occurrence (with an annual aggregate of Ten
Million Dollars ($10,000,000)). The policies of insurance obtained by the Parties hereunder must
state that the insurer shall notify the other Party at least thirty (30) days prior to termination,
cancellation of, or any material change in, the coverage provided. Each Party shall make available
to the other Party at such other Party’s request certificates of insurance evidencing satisfaction
of its obligations under this Section 10.4.

     10.5 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, EXCEPT
FOR INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTIONS 10.1 AND 10.2 ABOVE, NEITHER PARTY SHALL BE
LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR EXEMPLARY DAMAGES,
WHETHER FORESEEABLE OR NOT, THAT ARE IN ANY WAY RELATED TO THIS AGREEMENT.

ARTICLE 11

TERM AND TERMINATION

     11.1 Term. This Agreement shall commence on the Effective Date and shall continue for
a period of ten (10) years following the First Commercial Sale of Product in the Territory, unless
earlier terminated under Section 11.2. Thereafter, this Agreement shall automatically renew for
successive five (5) year terms unless earlier terminated under Section 11.2.

     11.2 Termination. This Agreement will terminate (in whole or, with respect to Section
11.2.3 or 11.2.4, in part) in the event of any of the following:

            11.2.1 on the sixtieth (60th) calendar day (or thirtieth (30th) for nonpayment of
amounts owed to SII) after either Party gives written notice to the other of a material breach by
the other of any term or condition of this Agreement, unless the breach is cured before the
sixtieth thirtieth (60th) (or thirtieth (30th) for nonpayment of amounts owed to
SII) calendar day; or

            11.2.2 automatically and immediately (i) upon any termination of the Collaboration Agreement;
(ii) if SII does not complete the Phase I Clinical Trial for the Product by June 2008 and Product
manufacturing and distribution rights revert back to [...***...] as provided in the Collaboration
Agreement; (iii) if CBER approval for a Product is not received by June 2015 solely due to any
failure by SII to comply with any of its obligations hereunder or

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under the Collaboration Agreement
and Product manufacturing and distribution rights revert back to [...***...] as provided in the
Collaboration Agreement; or

            11.2.3 with respect to a specific country in the Territory, upon the written agreement of both
Parties, if the regulatory authority in such country refuses to allow the conduct of clinical
trials and/or sale of the Product in such country; or

            11.2.4 upon the written agreement of both Parties to terminate this Agreement.

     11.3 Effect of Termination.

            11.3.1 In the event of termination (a) each Party shall return to the other all copies of such
other Party’s Confidential Information previously disclosed, and neither Party nor its Affiliates
shall thereafter retain copies, transcriptions or summaries of any portion of the other Party’s
Confidential Information; (b) all Parties shall remain liable for each of their respective
obligations hereunder that accrued prior to the date of termination; and (c) AKORN shall have the
right, for twelve (12) months after termination, to sell off all normal and reasonable stocks of
Products held by it at the date of termination and to fulfill all normal and reasonable orders for
Products accepted through the date of termination, but shall continue to pay SII the Product Sales
Share on all such sales pursuant to Section 7.1. The relevant terms of this Agreement shall
continue to apply to any sell-off period. If termination of this Agreement is for the breach of
AKORN, no sell-off period shall apply.

            11.3.2 All rights and remedies conferred herein shall be cumulative and in addition to all of
the rights and remedies available to each Party at law, equity or otherwise.

            11.3.3 Notwithstanding anything to the contrary that may be contained herein, in the event of
the termination or expiration of this Agreement, the provisions of all Sections under ARTICLE 1,
ARTICLE 10, and ARTICLE 12 and of Sections 2.3, 3.4, 3.5, 4.10, 4.11, 7.3, 7.4, 8.2, and 11.3 shall
survive and continue in full force and effect.

            11.3.4 For the sake of clarity, the inability of SII to produce Product that can be used in
humans or to conduct clinical trials in a particular jurisdiction, despite its commercially
reasonable efforts to do so, shall not be deemed a material breach under this Agreement or the
Collaboration Agreement.

ARTICLE 12

GENERAL TERMS

     12.1 Relationship of Parties. The relationship between SII and AKORN, with respect to
this Agreement, is only that of independent contractors notwithstanding any activities set forth in
this Agreement. Neither Party is the agent or legal representative of the other Party, and neither
Party has the right or authority to bind the other Party in any way. This Agreement creates no
relationship as partners or a joint venture, and creates no pooling arrangement.

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     12.2 Governing Law and Venue. This Agreement is governed by and shall be construed in
accordance with the law of the State of New York, excluding any conflict-of-laws rule or principle
that might refer the governance or the construction of this Agreement to the law of another
jurisdiction.

     12.3 Mediation and Arbitration.

            12.3.1 Mediation. The Parties shall attempt in good faith to settle any dispute,
controversy or claim arising out of or relating to this Agreement, or any breach thereof, including
any claim that this Agreement, or any part hereof, is invalid, illegal or otherwise voidable or
void (“Dispute”), before the commencement of arbitration proceedings, by mediation in New York, New
York in accordance with the International Institute for Conflict Prevention & Resolution (“CPR
Institute”) Mediation Procedure then currently in effect. Unless the Parties agree otherwise, the
mediator will be selected from the CPR Panels of Distinguished Neutrals or the JAMS Panel of
Mediators. If the Dispute is not resolved within sixty (60) days of the written request for
mediation, there is no further obligations to mediate.

            12.3.2 Arbitration. Any Dispute that remains unresolved sixty (60) days after a
written request for mediation made by a Party pursuant to the CPR Institute Mediation Procedure
shall be submitted, at the request of any Party, to binding arbitration in accordance with the
Arbitration Rules of Singapore International Arbitration Centre (“SIAC Rules”) then currently in
effect by a sole arbitrator to be appointed jointly by the Parties. In the event the Parties
cannot agree to a sole arbitrator within thirty (30) days after commencement of the arbitration,
the arbitrator shall be selected by the Chairman of the Singapore International Arbitration Centre.
The sole arbitrator shall not be of the same nationality as either of the Parties. The arbitrator
must render his/her award by the application of the substantive laws of New York without giving
effect to principles of conflicts of laws and is not free to act as amiable compsiteru or ex aequo
et bono. Judgment upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The place of arbitration shall be Singapore and the language of the
arbitration and submissions and proceedings shall be English. The award shall be rendered in US
currency.

            12.3.3 Provisional Remedy. Each of the Parties reserves the right to file with a
court of competent jurisdiction an application for temporary or preliminary injunctive relief, writ
of attachment, writ of possession, temporary protective order and/or appointment of a receiver on
the grounds that the arbitration award to which the applicant may be entitled may be rendered
ineffectual in the absence of such relief.

12.3.4 Consolidation. Any arbitration hereunder may be consolidated by the Singapore
International Arbitration Centre with the arbitration of any other dispute arising out of or
relating to the same subject matter when the arbitrator determines that there is a common issue of
law or fact creating the possibility of conflicting rulings by more than one arbitrator. Any
disputes over which arbitrator shall hear any consolidated matter shall be resolved by the
Singapore International Arbitration Centre.

            12.3.5 Power And Authority Of Arbitrator. The arbitrator shall not have any power to
alter, amend, modify or change any of the terms of this Agreement nor to grant any

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remedy which is
either prohibited by the terms of this Agreement, or not available in a court of law.

     12.4 Assignment. AKORN acknowledges that the favorable terms of this Agreement were
granted to SII only because of SII’s experience, and that the substitution of any party by SII
would destroy the intent of the Parties. Accordingly, neither Party shall have right to assign,
delegate, transfer or otherwise encumber this Agreement or any portion thereof without prior
written consent of the other Party.
12.5 Counterparts. This Agreement may be executed in several counterparts that
together shall be originals and constitute one and the same instrument.

     12.6 Waiver. The failure of any Party to enforce any of its rights hereunder or at
law shall not be deemed a waiver or a continuing waiver of any of its rights or remedies against
another Party, unless such waiver is in writing and signed by the Party to be charged.

     12.7 Severability. If any provision of this Agreement, or part thereof, is declared
by a court of competent jurisdiction to be invalid, void or unenforceable, each and every other
provision, or part thereof, shall nevertheless continue in full force and effect.

     12.8 Attorneys’ Fees. In the event that any dispute between the Parties should result
in litigation or arbitration, the prevailing Party in such dispute shall be entitled to recover
from the other Party all reasonable fees, costs and expenses of enforcing any right of the
prevailing Party, including reasonable attorneys’ fees and expenses, to the extent awarded by the
arbitrator.
12.9 Notice. Any notice given under this Agreement shall be in writing and shall be
delivered personally or by reputable international 3-day courier. Notices may also be delivered by
fax transmittal or email (with valid confirmation of successful transmission), with confirmation
sent by reputable international 3-day courier. A notice shall be deemed delivered upon receipt,
unless the notice is received on a day other than a business day in the jurisdiction of the
recipient or after 5:30 p.m. at the location of delivery, in which case delivery shall be deemed to
be the next business day after receipt (in the jurisdiction of recipient). Notices shall be
directed to Parties at their addresses as specified on page 1 of this Agreement, attention to Mr.
Arthur Przybyl for AKORN and to Dr Cyrus Poonawalla for SII, provided a Party may change such
Party’s address for notice by giving written notice to the other Party in accordance with this
Section 12.9. Fax numbers and emails for notices shall be exchanged by the parties prior to
reaching setting the Annual Sales Requirement for the First Sales Year and shall be updated by the
parties as needed thereafter.
12.10 No Public Disclosure. AKORN shall make no public disclosure regarding
[...***...], the [...***...] or any other agency of the [...***...] or any of their respective
employees, board members, or officers by name in connection with promotion, distribution or sale of
Products without the prior written approval of [...***...], except as required by law. AKORN shall
have the right to disclose any of the foregoing if AKORN determines that such information is
required to be released pursuant to securities disclosure regulations.

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     12.11 Further Assurances. The Parties agree to execute such additional documents and
perform such acts as are reasonably necessary to effectuate the intent of this Agreement.

     12.12 Entire Agreement. This Agreement constitutes the entire agreement between the
Parties regarding the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements regarding the subject matter hereof, whether oral or written. This
Agreement shall be modified or amended only by a writing signed by both AKORN and SII.

     12.13 Authority. The parties executing this Agreement on behalf of AKORN and SII
represent and warrant that they have the authority from their respective governing bodies to enter
into this Agreement and to bind their respective companies to all the terms and conditions of this
Agreement.

     12.14 Captions. The captions of the Articles and Sections in this Agreement are for
convenience only and shall not be used to interpret the provisions of this Agreement.

     12.15 Force Majeure. Neither Party shall be liable for delays in its performance
caused by events beyond its control, such as fires, floods, labor shortages, strikes, epidemics,
computer virus, earthquakes, riots, acts of terror, acts of God, storms, acts of civil or military
authority or similar occurrences, provided the affected Party gives (to the extent practicable) the
other Party written notice of such event within three (3) business days of its discovery or
occurrence. Such notice shall state the estimated duration of such event and the cause thereof and
the affected Party shall use commercially reasonable efforts to work around such event beyond its
control.

     12.16 English Language. This Agreement is executed in the English language. The
language used in this Agreement shall be deemed to be the language chosen by the Parties hereto to
express their mutual intent and no rule of strict construction against either Party shall apply to
any term or condition of this Agreement. The

     12.17 Headings and Construction. No rule of construction will be applied to the
disadvantage of a party because that party was responsible for the preparation of this Agreement or
any part of this Agreement. The Article and Section headings in this Agreement are for convenient
reference only, and will be given no substantive or interpretive effect. With respect to all terms
used in this Agreement, words used in the singular include the plural and words used in the plural
include the singular. The word ‘including’ means including without limitation, and the words
‘herein’, ‘hereby’, ‘hereto’ and ‘hereunder’ refer to this Agreement as a whole. Unless the
context otherwise requires, references found in this Agreement: (i) to Articles and Sections mean
the Articles and Sections of this Agreement; (ii) to an agreement, instrument or other document
means such agreement, instrument or other document as amended, supplemented and modified from time
to time, to the extent provided by the provisions thereof and by this Agreement; and (iii) to a statute or a regulation mean such statute or regulation as amended
from time to time.

* CONFIDENTIAL TREATMENT REQUESTED — This language has been omitted and filed separately with
the Securities and Exchange Commission.

Page 21

 

*Confidential Treatment Requested Under

17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2

[Signature on Next Page]

* CONFIDENTIAL TREATMENT REQUESTED — This language has been omitted and filed separately with
the Securities and Exchange Commission.

Page 22

 

*Confidential Treatment Requested Under

17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2

     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Akorn, Inc.	 	Serum Institute Of India, Ltd.
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Arthur S. Przybyl
	 	By:
	 	/s/ Subhash V. Kapre	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Name:

	 	Arthur S. Przybyl
	 	Name:
	 	Subhash V. Kapre	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	President and CEO
	 	Title:
	 	Executive Director	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 

* CONFIDENTIAL TREATMENT REQUESTED — This language has been omitted and filed separately with
the Securities and Exchange Commission.

Page 23

 

*Confidential Treatment Requested Under

17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2

EXHIBIT A
MILESTONE SCHEDULE FOR [...***...]

	 	 	 	 	 
	 
	 	 	 	 
	 
	

	 	Description
	 	Date
	 
	1.

	 	SII’s receipt of fully tested master cell bank of [...***...]
	 	[...***...]
	 
	2.

	 	SII’s attaining in its plant, a process yield of 1 gram /litre
of [...***...]
	 	[...***...]
	 
	3.

	 	Clinical Batch manufacture of [...***...]
	 	[...***...]
	 
	4.

	 	Satisfactory Completion of Phase I Clinical Trials
for [...***...] for U.S. filing
	 	[...***...]
	 
	5.

	 	Satisfactory Completion of Phase II Clinical Trials
for [...***...] for U.S. filing
	 	[...***...]
	 
	6.

	 	Satisfactory Completion of Phase III Clinical Trials for
[...***...] for U.S. filing
	 	[...***...]
	 
	7.

	 	Receipt of CBER approval for [...***...]
	 	[...***...]
	 

* CONFIDENTIAL TREATMENT REQUESTED — This language has been omitted and filed separately with
the Securities and Exchange Commission.

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