Form 10-Q Relypsa Inc For: Jun 30

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

For the quarterly period ended June 30, 2016

or

Commission File Number 001-36184

 

RELYPSA, INC.

(Exact name of registrant as specified in its charter)

 

 

100 Cardinal Way

Redwood City, CA 94063

(Address of principal executive offices) (Zip Code)

(650) 421-9500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of August 1, 2016, the registrant had 44,882,597 shares of common stock outstanding.

 

 

 

 

 

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Relypsa, Inc.

Quarterly Report on Form 10-Q

Index

 

 

 

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Relypsa, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

See accompanying notes.

 

 

 

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Relypsa, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

See accompanying notes.

 

 

 

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Relypsa, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

See accompanying notes.

 

 

 

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Relypsa, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

See accompanying notes.

 

 

 

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Relypsa, Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

 

 

1.  Description of Business and Significant Accounting Policies

Organization

Relypsa, Inc. (Relypsa or the Company) is a biopharmaceutical company focused on the discovery, development and commercialization of polymer-based drugs to treat conditions that are often overlooked and undertreated, but that can have a serious impact on patients’ lives and even be life-threatening. On October 21, 2015, the U.S. Food and Drug Administration (FDA) approved the Company’s first drug, Veltassa® (patiromer) for oral suspension, for treatment of hyperkalemia. Hyperkalemia is a life-threatening condition defined as abnormally elevated levels of potassium in the blood. The Company launched Veltassa in December 2015 and it is available for prescription to patients in the United States through a limited number of specialty pharmacies and specialty distributors. The Company commenced operations on October 29, 2007. The Company’s principal operations are based in Redwood City, California and it operates in one segment.

On July 20, 2016, the Company entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with Galenica AG, a public limited company existing under the laws of Switzerland (Galenica), and Vifor Pharma USA Inc., a Delaware corporation and an indirect wholly owned subsidiary of Galenica (Merger Sub). Pursuant to the terms of the Merger Agreement, Merger Sub has commenced a tender offer to purchase all of the issued and outstanding shares of common stock of the Company, par value $0.001 per share (the Shares), at a purchase price of $32.00 per Share (the Offer Price), payable to the holder thereof in cash, without interest and less any applicable withholding taxes (the Offer).

As soon as practicable following the consummation of the Offer and subject to the satisfaction or waiver of the other conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company and the Company will survive the Merger as a wholly owned subsidiary of Galenica (the Merger). The Merger will be effected in accordance with the Merger Agreement and under Section 251(h) of the General Corporation Law of the State of Delaware (the DGCL), which permits completion of the Merger upon the acquisition by Merger Sub in the Offer of at least such percentage of the Company’s stock as would be required to adopt the Merger Agreement at a meeting of the Company’s stockholders. Accordingly, if, following the Offer, a number of Shares have been tendered such that Merger Sub holds a majority of the outstanding Shares, the Merger Agreement contemplates that the parties will cause the closing of the Merger as soon as practicable without a vote of the Company’s stockholders in accordance with Section 251(h) of the DGCL. At the effective time of the Merger, each outstanding Share (other than Shares held by Galenica, Merger Sub or the Company or their direct or indirect wholly owned subsidiaries, Shares irrevocably accepted for purchase pursuant to the Offer and Shares held by stockholders who are entitled to demand and who have properly and validly perfected their statutory rights of appraisal under Delaware law) will be automatically converted into the right to receive an amount in cash equal to the Offer Price (the Merger Consideration), without interest, less any applicable withholding taxes, upon the surrender of the certificate representing such Share.  The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to the satisfaction or waiver of a number of closing conditions set forth in the Merger Agreement, including the tender of a majority of the Shares in the Offer and the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company does not expect there to be a significant period of time between the consummation of the Offer and the consummation of the Merger.

The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the U.S. Securities Exchange Commission (SEC).

Offerings

 

On November 4, 2015, the Company filed a shelf registration statement on Form S-3, which permitted: (a) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $300.0 million of its common stock, preferred stock, debt securities, warrants and/or units; and (b) as part of the $300.0 million, the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $75.0 million of its common stock that may be issued and sold under a sales agreement with Cantor Fitzgerald & Co in one or more at-the-market offerings. During January and February 2016, the Company sold 2,509,372 shares pursuant to its current at-the-market offering at a weighted-average sale price of $18.18 for aggregate offering proceeds of $45.6 million, and the Company received aggregate net proceeds of $44.2 million.

 

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Basis of Presentation

The unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2016 and 2015 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2015. The consolidated financial statements include all normal recurring adjustments, which the Company considers necessary for a fair presentation of our financial position at such dates and our operating results and cash flows for those periods. Results for the interim periods are not necessarily indicative of the results for the entire year. For more complete financial information, these condensed consolidated financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC.

Use of Estimates

The preparation of these unaudited interim condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenues, inventories, clinical trial accruals, manufacturing accruals, fair value of assets and liabilities, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers, as amended by ASU 2015-14, that outlines a single comprehensive model for entities to use in accounting for revenue recognition and supersedes most current revenue recognition guidance, including industry-specific guidance. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices, and improve disclosure requirements. The amendments in this accounting standard update are effective for the Company for interim and annual reporting periods beginning after January 1, 2018; with early adoption permitted on January 1, 2017. The Company is currently assessing the impact that this standard will have on its consolidated financial statements. 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. This ASU requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. This ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements. 

 

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements. 

 

Liquidity

The Company has never been profitable and, as of June 30, 2016, the Company has an accumulated deficit of $622.8 million. The Company may continue to incur substantial operating losses even after it begins to generate meaningful revenues from Veltassa. If the Company is unable to achieve the level of revenues from product sales that is contemplated in its operating plan and the Company is unable to raise additional funds through public or private equity, debt financings or other sources, the Company has contingency plans to implement cost cutting actions to reduce its working capital requirements. These reductions in expenditures may have an adverse impact on the Company’s ability to achieve certain of its planned objectives, which could have a material adverse effect on the business, results of operations, and financial condition. The Company will need to generate significant revenues to achieve profitability and may never do so.

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Inventory

Inventory is composed of raw materials, intermediate materials, which are classified as work-in-process and finished goods, which are goods that are available for sale. Inventory costs include amounts related to third-party contract manufacturing, shipping costs, amortization of up-front payments to contract manufacturers, or CMOs, packaging services and manufacturing overhead. Inventory is carried at weighted average cost. The Company has contracted with third party manufacturers that produce the raw and intermediate materials used in the production of Veltassa as well as the finished product. In connection with production of inventory, the Company may be required to provide payments to third party manufacturers in advance of transfer of title or risk of loss. These amounts are included in inventory as raw materials on the accompanying condensed consolidated balance sheets. Inventories are stated at the lower of cost or market. If the Company identifies excess, obsolete or unsalable product, the Company will write down its inventory to its net realizable value in the period it is identified. The Company received FDA approval for Veltassa on October 21, 2015 and began capitalizing inventory starting in October 2015. Cost incurred prior to approval have been recorded as research and development expense in the condensed consolidated statements of operations.

Accounts Receivable

The Company extends credit to customers for product sales resulting in accounts receivable. Customer accounts are monitored for past due amounts. Past due accounts receivable, determined to be uncollectible, are written off against the allowance for doubtful accounts. Allowances for doubtful accounts are estimated based upon past due amounts, historical losses and existing economic factors, and are adjusted periodically. The accounts receivable are reported in the condensed consolidated balance sheets, net of allowances for doubtful accounts and cash discounts, generally 2% of the sales price, as an incentive for prompt payment. As of June 30, 2016 and December 31, 2015, the Company had a trade accounts receivable balance of $1.3 million and $0.5 million, respectively, related to Veltassa product sales. There was no allowance for doubtful accounts at June 30, 2016 and December 31, 2015.

 

Revenue Recognition

Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. The Company exercises judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenue and Net Product Sales

The Company’s product revenues consist of U.S. sales of Veltassa and are recognized once the Company meets all four revenue recognition criteria described above. Veltassa was approved by the FDA on October 21, 2015 and the Company commenced shipments of Veltassa to specialty pharmacies and specialty distributors in late December 2015. The Company presently does not have the ability to estimate the extent of rebates or chargebacks or product that may ultimately be returned due to our lack of history with Veltassa product revenues at this time. Accordingly, the price is not considered to be deemed fixed or determinable at the time of the shipment to the specialty pharmacy or specialty distributor. Therefore, the Company recognizes revenue once the specialty pharmacy has filled the patient’s prescription for Veltassa or specialty distributor sells Veltassa. This approach is frequently referred to as the “sell-through” revenue recognition model. Under the sell-through approach, revenue is recognized when the specialty pharmacy provides product to a patient based on the fulfillment of a prescription or specialty distributor sells product to a hospital or other eligible entity. As of June 30, 2016 and December 31, 2015, the Company had a deferred revenue balance of $0.7 million and $0.5 million, respectively, related to Veltassa product sales.

 

The Company recognizes revenues from product sales net of accruals for estimated customer credits, rebates, discounts, distribution services fees, chargebacks and Medicare Part D coverage gap reimbursements at the time of sale, which we refer to as net product sales.

 

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Collaboration and License Revenue

In August 2015, the Company entered into a collaboration and license agreement (License Agreement) with Vifor Fresenius Medical Care Renal Pharma (VFMCRP), pursuant to which the Company granted to VFMCRP an exclusive, royalty-bearing license to the Company’s patents to develop and commercialize Veltassa outside the United States and Japan (Licensed Territory).  The License Agreement sets forth the parties’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities. In exchange for the Company entering into the License Agreement, VFMCRP agreed to pay the Company an upfront cash payment of $40.0 million.  The upfront payment was allocated to the 1) license and work on the submission of Marketing Authorization Application (MAA) deliverable, 2) an R&D deliverable and 3) a committee participation deliverable using the relative estimated selling price method. The Company estimated the best estimate of selling price (BESP) of the license based on a probability-adjusted present value of the expected cash flows. The BESP for the other deliverables was estimated by using internal estimates of the cost to perform the specific services plus a normal profit margin for providing the services. The determination of the BESP of the license involved significant judgment regarding the patient populations in the Licensed Territory, the percent of patients that would be treated and receive payment coverage, the duration of treatment of patients, the time and probability to achieve regulatory and pricing approval, and an appropriate discount rate.

 

Embedded Derivatives Related to Debt Instruments

 

Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the debt instrument. Upon the occurrence of a default or a change of control, the Company may prepay (or may be required to prepay) the outstanding amount of the debt. The prepayment premiums are considered a contingent put option liability, as the holder of the debt may exercise the option to prepay, and is considered an embedded derivative. If the Company were required to prepay the debt in September 2016 upon the occurrence of a change of control, the total amount of prepayment premiums would be approximately $50.0 million. The embedded derivative is presented together with the debt instrument and the related debt discount on a combined basis. The fair value of the contingent put option liability was determined by using a risk-neutral valuation model and the assumptions included in the valuation of the embedded derivative as of June 30, 2016 included an assumption of a change of control of 50% in the near term.  As of June 30, 2016, the embedded derivative had a carrying value of $25.5 million. Changes in the estimated fair value of the bifurcated embedded derivatives are reported as gains or losses in interest and other (expense) income, net in the condensed consolidated statement of operations.

 

 

Net Loss per Common Share

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per common share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period using the treasury stock method.

The following outstanding shares of common stock equivalents were excluded from the computations of diluted net loss per common share attributable to common stockholders for the periods presented as the effect of including such securities would be antidilutive (in thousands):

 

 

 

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2.  Fair Value Measurements

The following tables set forth the fair value of the Company’s financial instruments that were measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

 

 

 

As of June 30, 2016, the Company’s Level 3 liability is comprised of a contingent put option liability. The following table sets forth a summary of the changes in the estimated fair value of the Company’s contingent put option, which are measured at fair value on a recurring basis (in thousands):

 

 

Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using benchmark yields, reported trades, broker/dealer quotes, and issuer spreads; these securities are classified as Level 2. The Company classifies corporate bonds, commercial paper, agency bonds and U.S. government bonds as Level 2. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3. The Company classified a contingent put option liability as a Level 3 liability. See Note 6 “Borrowings,” for further description. The fair value of the contingent put option liability was determined by using a risk-neutral valuation model, wherein the fair value of the underlying debt facility is estimated both with and without the presence of the default and change of control provisions, holding all other assumptions constant. The resulting difference between the two estimated fair values is the estimated fair value of the default provisions, or the contingent put option. The fair value of the underlying debt facility is estimated by calculating the expected cash flows in consideration of an estimated probability of default and expected recovery rate in default, and discounting such cash flows back to the reporting date using a risk-free rate. The carrying value of the underlying debt facility approximates fair value. Changes to the estimated fair value of the contingent put option will be recorded in interest and other (expense) income, net in the condensed consolidated statement of operations.

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The carrying values of the Company’s financial instruments, such as cash equivalents, trade receivables, other receivables, accounts payable, accrued liabilities and line of credit approximate fair value due to the short-term nature of these items.

There were no transfers between Level 1, Level 2, and Level 3 during the periods presented.

 

 

3.  Cash, Cash Equivalents, and Short-Term Investments

The following is a summary of cash, cash equivalents, and short-term investments (in thousands):

 

 

 

For the three and six month periods ended June 30, 2016 and 2015, there were no realized gains or losses on the available-for-sale securities.  

All of the Company’s available-for-sale securities are subject to a periodic impairment review. The Company considers a debt security to be impaired when its fair value is less than its carrying cost, in which case the Company would further review the investment to determine whether it is other-than-temporarily impaired. When the Company evaluates an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, intent to sell, and whether it is more likely than not the Company will be required to sell the investment before the recovery of its cost basis. If an investment is other-than-temporarily impaired, the Company writes it down through earnings to its impaired value and establishes that as a new cost basis for the investment. The Company did not identify any of its available-for-sale securities as other-than-temporarily impaired in any of the periods presented. As of June 30, 2016, no investment was in a continuous unrealized loss position for more than one year, the unrealized losses were not due to change in credit risk and the Company believes that is more likely than not the investments will be held until maturity or a forecasted recovery of fair value.

 

 

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4.  Inventory

The Company began capitalizing inventory in October 2015 once the FDA approved Veltassa. Inventories consist of the following (in thousands):

 

 

 

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

6.  Borrowings

 

Credit Agreement

On April 27, 2016, the Company entered into a Credit Agreement (the Credit Agreement) with Athyrium Opportunities II Acquisition LP and Healthcare Royalty Partners III, L.P. (the Lenders) and Cantor Fitzgerald Securities, as the Administrative Agent, for an aggregate principal amount of $150.0 million in senior secured loans (the Loans). Principal payments on the Loans are paid in equal quarterly installments of 6.67% of the Loans beginning on December 2018, with the outstanding balance to be repaid on April 27, 2022. The Loans bear interest at a rate of 11.5% per year, to be paid quarterly beginning June 15, 2016 and include an interest-only period of 30 months, which may be extended up to 48 months upon meeting certain conditions.  As of June 30, 2016 the outstanding principal balance and the net carrying value of the Credit Agreement was $150.0 million and $133.0 million, respectively. Upon execution of the Credit Agreement, the Company paid a closing fee to the Lenders of $1.5 million.

The Company is also required to make mandatory prepayments of the borrowings under the Credit Agreement, subject to specified exceptions, with the proceeds of asset sales, extraordinary receipts, debt issuances and specified other events. In addition, upon the occurrence of a change of control, the Company may prepay (or certain of the Lenders may require the Company to prepay), the outstanding amount of the Loans. Upon the prepayment or repayment of all or any of the outstanding principal balance, the Company shall pay in addition to such prepayment, a prepayment premium equal to (i) with respect to any such prepayment paid on or prior to April 27, 2018, an amount equal to the greater of (a) 1.00% of the principal amount prepaid and (b) the amount, if any, by which (1) the present value as of such date of determination of (x) 111.50% of the principal amount prepaid plus (y) all required interest payments that would have been due on the principal amount prepaid through and including April 27, 2018, computed using a discount rate equal to the three month treasury rate plus 1.00%, exceeds (2) the principal amount prepaid, (ii) with respect to any prepayment paid or required to be paid after April 27, 2018 but on or prior to April 27, 2019, 11.50% of the principal amount prepaid, (iii) with respect to any prepayment paid or required to be paid after April 27, 2019 but on or prior to April 27, 2020, 5.75% of the principal amount of the Borrowings prepaid, (iv) with respect to any prepayment paid or required to be paid after April 27, 2020 but on or prior to April 27, 2021, 2.875% of the principal amount prepaid and (v) with respect to any prepayment paid or required to be prepaid thereafter, 0.00% of the principal amount prepaid.  The Company shall also pay an exit fee in an amount equal to 2.00% of the principal amount prepaid or repaid. If the Company were required to prepay the loan in September 2016 upon the occurrence of a change of control, the total amount of the prepayment premium would be approximately $50.0 million. The prepayment premiums are considered a contingent put option liability, as the holder of the Loans may exercise the option to prepay, and is considered an embedded derivative. The valuation of the contingent put option liability is described further in Note 2. The assumption included in the valuation of the embedded derivative as of June 30, 2016 included an assumption of a change in control of 50% in the near term.

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The obligations under the Credit Agreement are secured by a lien on substantially all of the Company’s tangible and intangible property. The Credit Agreement contains certain affirmative covenants, negative covenants and events of default, including, covenants and restrictions that among other things, require the Company and its subsidiary to satisfy a certain financial covenant and limits the ability of the Company and its subsidiary’s ability to, incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales or sale and leaseback transactions, and declare dividends or redeem or repurchase capital stock. A failure to comply with these covenants could permit the Lenders under the Credit Agreement to declare the outstanding principal amount, together with accrued interest and fees, to be immediately due and payable.

In connection with the Credit Agreement, the Company issued to the Lenders warrants to purchase up to an aggregate of 239,872 shares of the Company’s common stock at an exercise price equal to $18.76 per share. The fair value of the warrants issued was $3.3 million at the issuance date and was estimated using the Black-Scholes model with the following assumptions: a risk-free interest rate of 1.69%, a life of 7 years, a volatility factor of 83.32%, and no dividend yield. These warrants are exercisable immediately upon issuance, and excluding certain mergers or acquisitions, will expire on the seven-year anniversary of the date of issuance. As of June 30, 2016, all of these warrants were outstanding. 

 

The following are the future principal payments under the terms of the Credit Agreement:

 

 

Capital Loan

On May 30, 2014, the Company entered into an Amended and Restated Loan and Security Agreement (the Amended Loan Agreement) with Oxford Finance LLC and Silicon Valley Bank to amend and restate in its entirety the Loan and Security Agreement, (the Original Agreement), dated January 31, 2013. As of December 31, 2015, $15.0 million was outstanding under the Amended Loan Agreement.

 

The Capital Loan was paid in full in April 2016, when Athyrium Opportunities II Acquisition LP and Healthcare Royalty Partners III, L.P. and the Company entered into the Credit Agreement. The Company used a portion of the proceeds under the Credit Agreement to repay the Capital Loan’s outstanding principle balance, final payment fee, prepayment fee, and accrued interest totaling approximately $17.0 million. As a result of repayment of the Capital Loan, an expense of $1.2 million was recognized as interest and other (expense) income, net during the three and six month period ended June 30, 2016.

 

 

7. Collaboration and License Agreement

In August 2015, the Company entered into a collaboration and license agreement (License Agreement) with VFMCRP, pursuant to which the Company granted to VFMCRP an exclusive, royalty-bearing license to the Company’s patents to develop and commercialize Veltassa outside the United States and Japan (Licensed Territory).  The License Agreement sets forth the parties’ respective obligations for development, commercialization, regulatory and manufacturing and supply activities. In exchange for the Company entering into the License Agreement, VFMCRP agreed to pay the Company an upfront cash payment of $40.0 million. VFMCRP also agreed to pay the Company up to $125.0 million in milestone payments upon achievement of certain regulatory, commercial and net sales milestones and tiered, double digit royalties on net sales in the Licensed Territory.  

The Company identified the following deliverables per the terms of the License Agreement: 1) the granting of the licenses to VFMCRP; 2) working with VFMCRP on the submission of the Marketing Authorization Application (MAA); 3) performance of research and development activities; 4) participation in the joint steering committee (JSC) and joint development committee (JDC) and 5) manufacturing and supply activities.

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The arrangement consideration allocated to the license and work on the submission of MAA will be recognized as collaboration and license revenue over the estimated performance period beginning upon the delivery of the license in August 2015. The amount allocated to the research and development activities and JSC and JDC participation are being recognized over the estimated performance period. For the three and six months ended June 30, 2016, revenue of $3.1 million and $14.9 million, respectively, was recognized. There were no collaboration and license revenue for the three and six months ended June 30, 2015. As of June 30, 2016, the Company had $0.4 million and $6.2 million in short-term deferred revenues and long-term deferred revenues, respectively related to collaboration and license revenue.

 

 

8.  Commitments and Contingencies

Lanxess Corporation

On January 9, 2014, the Company entered into a Manufacturing and Supply Agreement (the Lanxess Supply Agreement) with Lanxess that supersedes an earlier agreement, the Memorandum of Understanding that was executed on November 27, 2012. Under the Supply Agreement, Lanxess has agreed to manufacture and supply for commercial sale the active pharmaceutical ingredient (API) for Veltassa. The Lanxess Supply Agreement terminates on December 31, 2020 unless terminated earlier. Under the Lanxess Supply Agreement, Lanxess is obligated to manufacture the Company’s commercial supply of API for Veltassa, and the Company is obligated to purchase from Lanxess such products manufactured, pursuant to the terms and conditions of the Lanxess Supply Agreement.

DPx Fine Chemicals

On May 14, 2014, the Company entered into a Manufacturing and Supply Agreement (the DPx Supply Agreement) with DPx Fine Chemicals Austria GmbH & Co KG (DPx Fine Chemicals), formerly DSM Fine Chemicals Austria NFG GMBH & Co. KG. Under the DPx Supply Agreement, DPx Fine Chemicals has agreed to manufacture and supply for commercial sale the API for Veltassa. Under the DPx Supply Agreement, the Company is obligated to make certain minimum purchases of API.

On March 7, 2016, the Company entered into Amendment No. 1 to the DPx Supply Agreement (the Amendment). The Amendment extends the term of the DPx Supply Agreement for two years until May 14, 2023, unless earlier terminated pursuant to the terms of the DPx Supply Agreement, and provides for an increase in the Company’s purchasing commitment.

 

Purchase Commitments

The following are the combined future minimum payments primarily under the terms of the Lanxess Supply Agreement and the DPx Supply Agreement as of June 30, 2016.  These amounts are based on estimates of future timing, quantity discounts and manufacturing efficiencies (in thousands):

 

 

 

Operating Lease

On June 26, 2014, the Company entered into a new lease (the Lease) for office and laboratory facilities in Redwood City, California that serves as the Company’s principal executive offices. The Lease commenced on February 1, 2015, following the landlord’s construction of certain improvements to the premises required under the Lease. The Lease terminates 10 years after the commencement and the Company has an option to extend the Lease for an additional five years upon written notice to landlord. On July 10, 2015, the Company amended the Lease to expand the existing premises. The term of the expanded premises has the same termination date as the existing lease.

The Company entered into a sublease agreement with a third party in March 2016 with monthly payments of $45,833. The sublease period ends on January 31, 2017. The rental income received from this sublease is included as a reduction of rent expense in the condensed consolidated statements of operations.

 

 

 

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9.  Equity Compensation Plans and Stock-Based Compensation

The following table summarizes option activity under the Company’s equity compensation plans and related information (in thousands, except per share and contractual term amounts):

 

 

The weighted-average grant-date estimated fair value of options granted during the three months ended June 30, 2016 and 2015 was $12.35 and $24.63, respectively. During the six months ended June 30, 2016 and 2015, the weighted-average grant-date estimated fair value of options granted was $13.44 and $24.80, respectively. The aggregate intrinsic value of options outstanding and exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of June 30, 2016.

 

 

Stock-Based Compensation Expense

Stock-based compensation expense included in the Company’s consolidated statements of operations is as follows (in thousands):

 

 

As of June 30, 2016, the total unrecognized stock-based compensation expense related to stock options and the employee stock purchase plan (ESPP) was $42.1 million, which is expected to be recognized over an estimated weighted-average period of 2.6 years.

 

Included in stock-based compensation expense above are performance based options and restricted stock units awarded in November 2015. The options and restricted stock units will vest upon the achievement of certain pre-established corporate performance-related goals.

The estimated grant date fair value of employee stock options was calculated using the Black-Scholes valuation model, based on the following assumptions:

 

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The fair value of nonemployee stock options was calculated using the Black-Scholes valuation model, based on the following assumptions:

 

Expected stock price volatility is based on an average of the Company’s volatility and several peer public companies due to the Company’s limited history.

Restricted Stock Units

During 2016, the Company granted restricted stock unit (RSUs) awards subject to time-based vesting criteria. RSUs subject to time-based vesting criteria entitle holders to receive shares of common stock at the end of a specified period of time. For RSUs subject to time-based vesting criteria, vesting is based on continuous employment or service of the holder to the Company. The fair value of RSUs is measured based on the number of shares granted and the closing market price of our common stock on the date of grant. The following table summarizes restricted stock unit activity for the six months ended June 30, 2016 (in thousands, except per share amounts):

 

 

The total unrecognized stock-based compensation expense related to non-vested RSUs at June 30, 2016, was $17.1 million, and is expected to be recognized over a weighted-average period of approximately 2.6 years.

 

 

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10.  Subsequent Events

On July 20, 2016, the Company entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with Galenica AG, a public limited company existing under the laws of Switzerland (Galenica), and Vifor Pharma USA Inc., a Delaware corporation and an indirect wholly owned subsidiary of Galenica (Merger Sub). Pursuant to the terms of the Merger Agreement, Merger Sub has commenced a tender offer to purchase all of the issued and outstanding shares of common stock of the Company, par value $0.001 per share (the Shares), at a purchase price of $32.00 per Share (the Offer Price), payable to the holder thereof in cash, without interest and less any applicable withholding taxes (the Offer).

As soon as practicable following the consummation of the Offer and subject to the satisfaction or waiver of the other conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company and the Company will survive the Merger as a wholly owned subsidiary of Galenica (the Merger). The Merger will be effected in accordance with the Merger Agreement and under Section 251(h) of the General Corporation Law of the State of Delaware (the DGCL), which permits completion of the Merger upon the acquisition by Merger Sub in the Offer of at least such percentage of the Company’s stock as would be required to adopt the Merger Agreement at a meeting of the Company’s stockholders. Accordingly, if, following the Offer, a number of Shares have been tendered such that Merger Sub holds a majority of the outstanding Shares, the Merger Agreement contemplates that the parties will cause the closing of the Merger as soon as practicable without a vote of the Company’s stockholders in accordance with Section 251(h) of the DGCL. At the effective time of the Merger, each outstanding Share (other than Shares held by Galenica, Merger Sub or the Company or their direct or indirect wholly owned subsidiaries, Shares irrevocably accepted for purchase pursuant to the Offer and Shares held by stockholders who are entitled to demand and who have properly and validly perfected their statutory rights of appraisal under Delaware law) will be automatically converted into the right to receive an amount in cash equal to the Offer Price (the Merger Consideration), without interest, less any applicable withholding taxes, upon the surrender of the certificate representing such Share.  The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to the satisfaction or waiver of a number of closing conditions set forth in the Merger Agreement, including the tender of a majority of the Shares in the Offer and the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company does not expect there to be a significant period of time between the consummation of the Offer and the consummation of the Merger.

 

The Merger Agreement includes customary termination rights for both the Company and Parent including, among others, the right to terminate in the event that the acceptance time has not occurred on or before December 15, 2016. Additionally, the Company has agreed to pay Parent a termination fee of $49.0 million in cash upon termination of the Merger Agreement under certain specified circumstances, including in connection with a termination of the Merger Agreement by the Company to accept a competing transaction proposal.

 

 

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2015.

In addition, the following discussion contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q and do not assume the consummation of the pending acquisition of us by Galenica AG.  We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company focused on the discovery, development and commercialization of polymer-based drugs to treat conditions that are often overlooked and undertreated, but that can have a serious impact on patients’ lives and even be life-threatening. On October 21, 2015 the U.S. Food and Drug Administration, or FDA, approved our first drug, Veltassa ^® (patiromer) for oral suspension, for the treatment of hyperkalemia. Hyperkalemia is a life-threatening condition defined as abnormally elevated levels of potassium in the blood.

Veltassa is a non-absorbed, high capacity potassium binding polymer with a well-established mode of action. In our clinical trials, Veltassa met its efficacy endpoints, reducing serum potassium, or potassium in the blood, to target levels, sustaining potassium in the desired range and was well tolerated for up to 52 weeks.

We commenced the commercial launch of Veltassa in the United States on December 21, 2015, the date the medicine was first available for prescription in the United States.

 

Veltassa is being distributed directly to patients via three nationally-recognized specialty mail order pharmacies and to hospitals through a network of authorized specialty distributors. Our distribution partners provide broad reach to fill prescriptions and deliver Veltassa to patients across the country. We are working with national and regional payers in order to secure formulary access for Veltassa. Formulary access is being placed on a payer’s list of covered drugs for reimbursement.

Since commencing operations in October 2007, we have devoted substantially all our efforts to identifying and developing products utilizing our proprietary polymer drug discovery technology, including Veltassa, and we have devoted substantially all of our financial resources to the development and commercialization of Veltassa. We may continue to incur substantial operating losses even after we begin to generate meaningful revenue from Veltassa. Through June 30, 2016, we have primarily funded our operations from the sale and issuance of common stock, convertible preferred stock, convertible promissory notes, a payment to us under our collaboration agreement with Vifor Fresenius Medical Care Renal Pharma Ltd., or VFMCRP, and various credit facilities.

Polymeric-based drugs like Veltassa generally require large quantities of drug substance as compared to small molecule drugs. Our goal is to develop a supply chain with multiple suppliers and significantly decrease our cost of goods within the first few years of commercialization of Veltassa, enabling us to achieve gross margins similar to those achieved by other companies that produce non-absorbed polymeric drugs. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. We expect to continue to make significant investments relating to our commercial manufacturing process and inventory of Veltassa, as well as for commercialization and marketing related activities associated with Veltassa.

We have entered into a License Agreement with VFMCRP, pursuant to which VFMCRP will develop and commercialize Veltassa outside the United States and Japan. VFMCRP submitted a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA, for Veltassa in April 2016.

Recent Development

On July 20, 2016, we entered into an Agreement and Plan of Merger (Merger Agreement) with Galenica AG, a public limited company existing under the laws of Switzerland (Parent) and Vifor Pharma USA Inc., a Delaware corporation and an indirect wholly

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owned subsidiary of Parent (Merger Sub). Pursuant to the terms of the Merger Agreement, Merger Sub will commence a tender offer to purchase all of the our issued and outstanding shares of common stock at a purchase price of $32.00 per Share payable to the holder thereof in cash, without interest and less any applicable withholding taxes. Subject to the terms and conditions of the Merger Agreement, we expect the closing under the Merger Agreement to occur during the third quarter of 2016.

Critical Accounting Polices and Significant Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from management’s estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in the Notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue Recognition

Revenue is recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer’s payment history and on the creditworthiness of the customer.

Product Revenue and Net Product Sales  Our product revenues consist of U.S. sales of Veltassa and are recognized once we meet all four revenue recognition criteria described above. Upon receipt of product by the specialty pharmacy or specialty distributor, we meet three of the four revenue recognition criteria in that persuasive evidence of an arrangement exists, delivery has occurred, and collectability is reasonably assured. However, at the time of receipt of product by the specialty pharmacy or specialty distributor, we presently do not have the ability to estimate product that will ultimately be returned due to our lack of history with product revenues at this time. Accordingly, the price is not deemed fixed or determinable. Therefore, we recognize revenue once the specialty pharmacy has filled the patient’s prescription for Veltassa or specialty distributor sells Veltassa. This approach is frequently referred to as the “sell-through” revenue recognition model. Under the sell-through approach, revenue is recognized when the specialty pharmacy provides product to a patient based on the fulfillment of a prescription or specialty distributor sells product to a hospital or other eligible entity.

We recognize revenues from product sales net of accruals for estimated customer credits, rebates, discounts, distribution services fees, chargebacks and Medicare Part D coverage gap reimbursements at the time of sale.

Customer Credits:    The specialty pharmacies and specialty distributors are offered various forms of consideration including allowances, discounts, service fees and prompt payment discounts. We expect the specialty pharmacies and specialty distributors will earn prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized. Allowances, discounts and service fees are also deducted from product sales as they are earned.

Rebates:    Allowances for rebates include contractually agreed upon rebates for commercial payers, mandated discounts under the Medicaid Drug Rebate Program, and other legal requirements with public sector benefit providers. Rebate amounts are based upon contractual agreements or legal requirements with public sector (e.g., Medicaid) benefit providers that are owed after the final dispensing of the product to a benefit plan participant. The allowance for rebates is based on contractual rebate levels or statutory discount rates and expected utilization. Our estimates for the expected utilization of rebates are based in part on data received from our channel partners and vendors. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual balance for known prior quarter's unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

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Chargebacks:    Chargebacks are discounts that occur when contracted customers purchase directly from the Company or from a specialty distributor at a contracted purchase price. Contracted customers, which currently consist primarily of Public Health Service covered entities, non-profit clinics, Federal government entities purchasing via the Federal Supply Schedule, and certain health systems, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to us the difference between the Wholesale Acquisition Price (WAC) and the customer’s contracted price. The allowance for chargebacks is based on known sales to contracted customers.

Medicare Part D Coverage Gap:    Medicare Part D prescription drug benefit mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. Our estimates for expected Medicare Part D coverage gap are based in part on data received from our channel partners and vendors. Funding of the coverage gap is generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter's activity, plus an accrual balance for known prior quarters. If actual future funding varies from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Co-payment assistance:    Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators.

We analyze the adequacy of our accruals for sales deductions quarterly. Amounts accrued for sales deductions are adjusted when trends or significant events indicate the adjustment is appropriate. Accruals are also adjusted to reflect actual results. Amounts recorded in accrued liabilities in the Condensed Consolidated Balance Sheets for sales deductions for the six months ended June 30, 2016 were:

 

 

Collaboration and License Revenue

We have generated revenue pursuant to our collaboration and license agreement with VFMCRP, which we recorded as collaboration and license revenue. During September 2015, we received an upfront payment of $40.0 million, which is being recognized over the estimated performance period. For the three and six months ended June 30, 2016, revenue of $3.1 million and $14.9 million, respectively, was recognized. As of June 30, 2016, we had $0.4 million and $6.2 million in short-term deferred revenues and long-term deferred revenues, respectively. We may also be entitled to additional milestone payments and other contingent payments upon the occurrence of specific events.

 

Embedded Derivatives Related to Debt Instruments

 

Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the debt instrument. Upon the occurrence of a default or change of control, we may prepay (or may be required to prepay) the outstanding amount of the debt. The prepayment premiums are considered a contingent put option liability, as the holder of the debt may exercise the option to prepay, and is considered an embedded derivative. If we were required to prepay the debt in September 2016 upon the occurrence of a change of control, the total amount of prepayment premiums would be approximately $50.0 million. The embedded derivative is presented together with the debt instrument and the related debt discount on a combined basis. The fair value of the contingent put option liability was determined by using a risk-neutral valuation model and the assumptions included in the valuation of the embedded derivative as of June 30, 2016 included an assumption of a change of control of 50% in the near term.  As of June 30, 2016, the embedded derivative had a carrying value of $25.5 million. Changes in the estimated fair value of the bifurcated embedded derivatives are reported as gains and losses in interest and other (expense) income, net in the condensed consolidated statement of operations.

 

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Inventory

Inventories are stated at the lower of cost or market. We determine the cost of our inventories, which include amounts related to third-party contract manufacturing, shipping costs, amortization of plant modifications at our CMOs, packaging services and manufacturing overhead. Inventory is carried at weighted average cost. We capitalize inventory costs at our suppliers when, based on management’s judgment, the realization of future economic benefit is probable at each given supplier. We received FDA approval for Veltassa on October 21, 2015 and began capitalizing inventory starting in October 2015. Costs incurred prior to approval have been recorded as research and development expense in our condensed consolidated statement of operations. As a result, we expect inventory balances and cost of sales for the next several quarters will reflect a lower average per unit cost of materials. We are dependent on increases in product sales for the utilization of inventory. 

Accounts Receivable

We extend credit to customers for product sales resulting in accounts receivable. Customer accounts are monitored for past due amounts. Past due accounts receivable, determined to be uncollectible, are written off against the allowance for doubtful accounts. Allowances for doubtful accounts are estimated based upon past due amounts, historical losses and existing economic factors, and are adjusted periodically. The accounts receivable are reported in the condensed consolidated balance sheets, net of allowances for doubtful accounts and cash discounts, generally 2% of the sales price, as an incentive for prompt payment. As of June 30, 2016 and December 31, 2015, we had trade accounts receivable balances of $1.3 million and $0.5 million, respectively, related to Veltassa product sales. There were no allowance for doubtful accounts at June 30, 2016 and December 31, 2015.

Results of Operations

Comparison of Three Months Ended June 30, 2016 and 2015

 

Net product revenues    During the three months ended June 30, 2016, we recognized $2.1 million in product sales of Veltassa, net of distribution service fees, customer credits, rebates, chargebacks, Medicare Part D coverage gap and co-payment assistance. Our commercial launch of Veltassa occurred in December 2015. There were no product sales for the three months ended June 30, 2015.

 

 

Collaboration and License Revenue    During the three months ended June 30, 2016, we recognized $3.1 million in collaboration and license revenue. There was no collaboration and license revenue for the three months ended June 30, 2015. This increase in collaboration revenue is due to the recognition of $3.1 million in collaboration and license revenue from an upfront payment of $40.0 million from VFMCRP made pursuant to our license agreement with VFMCRP in August 2015.

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Cost of Goods Sold    Our cost of goods sold relates to the sales of Veltassa upon commercial launch in the United States in December 2015. Prior to receiving regulatory approval for Veltassa from the FDA in October 2015, we had expensed as research and development expense all costs incurred in the manufacturing of Veltassa to be sold upon commercialization. As such, the inventory cost of Veltassa sold during the three-month period ended June 30, 2016 amounted to $0.3 million. If related costs had not previously been expensed as research and development expense prior to receiving FDA approval, total cost of goods sold would have been approximately $0.8 million during the three-month period ended June 30, 2016. We expect that the inventory cost of Veltassa sold in future quarters will increase as we produce and then sell Veltassa that has an inventory cost that reflects the full cost of manufacturing the product.

Research and Development    During the three months ended June 30, 2016, research and development expenses decreased $1.1 million, or 6% as compared to the corresponding period in 2015. The decrease was primarily due to a decrease of $3.4 million in commercial supply manufacturing. As a result of the approval of Veltassa by the FDA in October 2015, we began capitalizing our commercial manufacturing expense as inventory in October 2015. This decrease was offset by an increase in clinical trial activities of $2.0 million related to Phase 4 clinical studies of Veltassa.

Selling, General, and Administrative    During the three months ended June 30, 2016, selling, general, and administrative expenses increased $32.9 million, or 162% as compared to the corresponding period in 2015. The increase was primarily due to an increase of $17.8 million in personnel costs resulting from an increase in headcount and employee stock-based compensation to support the expanding operations and commercialization of Veltassa. Furthermore, we incurred increases in service provider expenses of $8.8 million in commercial related activities and $5.7 million in professional and consulting fees.

Interest and other (expense) income, net    During the three months ended June 30, 2016, interest and other (expense) income, net changed $14.1 million as compared to the corresponding period in 2015. The change was primarily due to a change in fair value of our contingent put option of $13.2 million and $1.2 million in expenses related to the extinguishment of the Capital Loan.

Interest expense  During the three months ended June 30, 2016, interest expense increased $3.4 million as compared to the corresponding period in 2015. The increase is primarily due to interest expense associated with our $150.0 million Credit Agreement entered into in April 2016.

Comparison of Six Months Ended June 30, 2016 and 2015

 

Net product revenues    During the six months ended June 30, 2016, we recognized $2.7 million in product sales of Veltassa, net of distribution service fees, customer credits, rebates, chargebacks, Medicare Part D coverage gap and co-payment assistance. Our commercial launch of Veltassa occurred in December 2015. There were no product sales for the six months ended June 30, 2015.

 

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Collaboration and License Revenue    During the six months ended June 30, 2016, we recognized $14.9 million in collaboration and license revenue. There were no collaboration and license revenue for the six months ended June 30, 2015. This increase in collaboration revenue is due to the recognition of $14.9 million in collaboration and license revenue from an upfront payment of $40.0 million from Vifor Fresenius Medical Care Renal Pharma made pursuant to our license agreement with VFMCRP in August 2015.

Cost of Goods Sold    Our cost of goods sold relates to the sales of Veltassa upon commercial launch in the United States in December 2015. Prior to receiving regulatory approval for Veltassa from the FDA in October 2015, we had expensed as research and development expense all costs incurred in the manufacturing of Veltassa to be sold upon commercialization. As such, the inventory cost of Veltassa sold during the six-month period ended June 30, 2016 amounted to $0.3 million. If related costs had not previously been expensed as research and development expense prior to receiving FDA approval, total cost of goods sold would have been approximately $1.0 million during the six-month period ended June 30, 2016. We expect that the inventory cost of Veltassa sold in future quarters will increase as we produce and then sell Veltassa that has an inventory cost that reflects the full cost of manufacturing the product.

Research and Development    During the six months ended June 30, 2016, research and development expenses decreased $0.6 million, or 2% as compared to the corresponding period in 2015. The decrease was primarily due to a decrease of $5.5 million commercial supply manufacturing. As a result of the approval of Veltassa by the FDA in October 2015, we began capitalizing our commercial manufacturing expense as inventory in October 2015. This decrease was offset by an increase in clinical trial activities of $4.9 million related to Phase 1 drug-drug interaction studies and Phase 4 clinical studies of Veltassa.

Selling, General, and Administrative    During the six months ended June 30, 2016, selling, general, and administrative expenses increased $70.0 million, or 207% as compared to the corresponding period in 2015. The increase was primarily due to an increase of $38.8 million in personnel costs resulting from an increase in headcount and employee stock-based compensation to support the expanding operations and commercialization of Veltassa. Furthermore, we incurred increases in service provider expenses of $18.7 million in commercial related activities and $11.3 million in professional and consulting fees.

Interest and other (expense) income, net    During the six months ended June 30, 2016, interest and other (expense) income, net changed $13.9 million as compared to the corresponding period in 2015. The change was primarily due to a change in fair value of our contingent put option of $13.2 million and $1.2 million in expenses related to the extinguishment of the Capital Loan.

Interest expense  During the six months ended June 30, 2016, interest expense increased $3.4 million as compared to the corresponding period in 2015. The increase is primarily due to interest expense associated with our $150.0 million Credit Agreement entered into in April 2016.

Liquidity and Capital Resources

Since inception through June 30, 2016, our operations have been financed primarily through net proceeds of $638.8 million pursuant to our public common stock offerings, sales of shares of our convertible preferred stock and the issuance of promissory notes. In addition, we have received financing through our recent Credit Agreement with Athyrium Opportunities II Acquisition LP and Healthcare Royalty Partners II, L.P., capital loans, equipment lines of credit and we received $40.0 million from VFMCRP pursuant to the terms of our collaboration and license agreement. As of June 30, 2016, we had $257.7 million of cash, cash equivalents and short-term investments. Our cash, cash equivalents and short-term investments are held in a variety of interest-bearing instruments, including corporate debt securities, commercial paper, agency bonds and money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.

In November 2015, we filed a shelf registration statement on Form S-3, which permitted: (a) the offering, issuance and sale by us of up to a maximum aggregate offering price of $300.0 million of our common stock, preferred stock, debt securities, warrants, purchase contracts and/or units; and (b) as part of the $300.0 million, the offering, issuance and sale by us of up to a maximum aggregate offering price of $75.0 million of our common stock that could be sold under a sales agreement with Cantor Fitzgerald & Co. in one or more at-the-market offerings. During January and February 2016, we sold 2,509,372 shares pursuant to our current at-the-market offering at a weighted-average sale price of $18.18 per share for an aggregate offering price of $45.6 million, and we received aggregate net proceeds of $44.2 million.

In April 2016, we entered into a Credit Agreement for an aggregate principal amount of $150.0 million in senior secured loans (the Loans), which amount bears interest through maturity at 11.5% per annum.  The principal payments under the Credit Agreement are paid in equal quarterly installments of 6.67% of the Loans beginning on December 2018, with the outstanding balance to be repaid on April 27, 2022. The Loans bear interest at a rate of 11.5 percent per year, to be paid quarterly beginning June 15, 2016 and include an interest-only period of 30 months, which may be extended up to 48 months upon meeting certain conditions. In connection with entering into the Credit Agreement, we used approximately $17.0 million of the net proceeds to pay off all outstanding obligations under our loan and security agreement, as amended, with Oxford Finance LLC and Silicon Valley Bank.

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Our primary uses of cash are to fund operating expenses, which have historically been primarily research and development related expenditures. However, with the commercial launch of Veltassa in December 2015, we are making significant investments and expect to continue to do so in costs relating to our commercial manufacturing process and inventory of Veltassa, as well as for commercialization and marketing related activities associated with Veltassa. We have never been profitable and, as of June 30, 2016, we had an accumulated deficit of $622.8 million. We will continue to incur net operating losses, even if we generate meaningful revenues from the sales of Veltassa. We will need substantial additional funding to support our future operating activities and adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition. We will need to generate significant revenues to achieve profitability and we may never do so.

Summary of Cash Flows

The following table shows a summary of our cash flows for each of the six months ended June 30, 2016 and 2015.

 

 

Cash Flows from Operating Activities.    Net cash used in operating activities was $159.5 million for the six months ended June 30, 2016 and consisted primarily of our net loss of $138.4 million less noncash charges such as stock-based compensation expense of $15.0 million, change in fair value of contingent put option of $13.2 million and depreciation and amortization of $1.4 million. The significant items in the change in operating assets and liabilities include increases in inventory of $23.0 million and prepaid and other assets of $1.2 million. Additionally, there were decreases in accrued liabilities of $14.4 million and deferred revenue of $14.6 million. These uses of cash were offset by an increase in accounts payable of $2.1 million.

Net cash used in operating activities was $47.5 million for the six months ended June 30, 2015 and consisted primarily of our net loss of $68.9 million less noncash charges such as stock-based compensation expense of $7.8 million and depreciation and amortization of $2.6 million. The significant items in the change in operating assets and liabilities include an $11.0 million increase in accrued and other liabilities primarily related to an increase in manufacturing activities as we prepare for commercial launch offset by a decrease of $1.8 million in other assets and restricted cash.

Cash Flows from Investing Activities.    Net cash provided by investing activities was $7.1 million for the six months ended June 30, 2016 and was primarily due to maturities of short-term investments of $159.1 million. This was offset by the purchase of investments of $150.0 million and purchases of fixed assets of $2.1 million.  

Net cash used in investing activities was $155.5 million for the six months ended June 30, 2015 and was primarily due to the purchase of investments of $233.2 million and purchases of fixed assets of $4.5 million. These uses of cash were partially offset by maturities of short-term investments of $79.1 million and sales of short-term investments of $3.0 million.

Cash Flows from Financing Activities.     Net cash provided by financing activities for the six months ended June 30, 2016 was $178.9 million and consisted primarily of net proceeds from our at-the-market offering of $44.2 million and $150.0 million in gross proceeds from our credit agreement. These proceeds were partially offset by the payment of approximately $15.2 million to pay off all outstanding obligations under our Amended and Restated Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank.

Net cash provided by financing activities for the six months ended June 30, 2015 was $215.9 million and consisted primarily of net proceeds from our follow-on offering of $161.9 million and aggregate net proceeds our at-the-market offering of $51.8 million.

Operating and Capital Expenditure Requirements

We have not achieved profitability on a quarterly or annual basis since our inception and we may continue to incur substantial operating losses even if we begin to generate meaningful revenues from the sales of Veltassa. We expect our cash expenditures to increase in the near term as we continue to expand U.S. commercial activities related to Veltassa, including headcount growth, manufacturing of commercial supply, and increase our selling, general and administrative infrastructure.

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As of June 30, 2016, we had $257.7 million in cash, cash equivalents and short-term investments, which is available to fund future operations. We believe that our existing cash, cash equivalents and short-term investments and anticipated revenues will be sufficient to fund our operations into the second quarter of 2017. If we are unable to achieve the level of revenues from product sales that is contemplated in our operating plan and if we are unable to raise additional funds through public or private equity, debt financings or other sources, we have contingency plans to implement cost cutting actions to reduce our working capital requirements. These reductions in expenditures may have an adverse impact on our ability to achieve certain of our planned objectives.  In addition, our operating plan may change as a result of many other factors currently unknown to us and beyond our control, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. Also, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future funding requirements will depend on many factors, including, but not limited to:

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate:

 

In addition, under the terms and prior to the termination of the Merger Agreement, we must receive Galenica’s approval of certain expenditures above certain dollar amounts, as set forth in the Merger Agreement.  

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of June 30, 2016 (in thousands):

 

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations and foreign currency exchange rates fluctuations.

Cash, Cash Equivalents and Short-Term Investments

As of June 30, 2016, we had cash, cash equivalents and short-term investments of $257.7 million, which consist of bank deposits, money market funds, corporate bonds, agency bonds, U.S. government bonds and commercial paper. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed, nor do we anticipate being exposed to material risks due to changes in interest rates. The average duration of all of our available-for-sale investments held as of June 30, 2016, was less than 12 months. Due to the short-term nature of these financial instruments, we believe there is no material exposure to interest rate risk, and/or credit risk, arising from our portfolio of financial instruments. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Credit Agreement

Principal payments on our Credit Agreement are paid in equal quarterly installments of 6.67 percent of the Loans beginning on December 2018, with the outstanding balance to be repaid on April 27, 2022. The Loans bear interest at a rate of 11.5 percent per year, to be paid quarterly beginning June 15, 2016 and include an interest-only period of 30 months, which may be extended up to 48 months upon meeting certain conditions. The outstanding borrowings carry a fixed interest rate, however, changes in market interest rates may affect the fair value of the Loan, but do not impact earnings or cash flows. The net carrying value of the Credit Agreement as of June 30, 2016 is $133.0 million and approximates fair value.  

The following are the future principal payments under the terms of the Credit Agreement:

 

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Foreign Currency Exchange Rate Fluctuations

We are exposed to some degree of foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly in Euros. In particular, we pay our CROs outside of the United States in the currencies of their respective jurisdictions. In addition, we may be subject to fluctuations in foreign currency exchange risk with our CMOs that are located in jurisdictions that have currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward foreign exchange contracts.

A hypothetical 10% change in foreign exchange rates during any of the preceding periods presented would not have had a material impact on our financial statements.

 

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosures controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2016, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2016 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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PART II.  OTHER INFORMATION.

 

Item 1.  Legal Proceedings.

We are not subject to any material legal proceedings.

 

Item 1A.  Risk Factors.  

Our business involves significant risks, some of which are described below. You should carefully consider these risks, as well as the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, cash flows, the trading price of our common stock and growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.

On July 20, 2016, the Company entered into a definitive Agreement and Plan of Merger (the Merger Agreement) with Galenica AG, a public limited company existing under the laws of Switzerland (Galenica), and Vifor Pharma USA Inc., a Delaware corporation and an indirect wholly owned subsidiary of Galenica (Merger Sub). Pursuant to the terms of the Merger Agreement, Merger Sub has commenced a tender offer to purchase all of the issued and outstanding shares of common stock of the Company, par value $0.001 per share (the Shares), at a purchase price of $32.00 per Share (the Offer Price), payable to the holder thereof in cash, without interest and less any applicable withholding taxes (the Offer).

As soon as practicable following the consummation of the Offer and subject to the satisfaction or waiver of the other conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company and the Company will survive the Merger as a wholly owned subsidiary of Galenica (the Merger). The Merger will be effected in accordance with the Merger Agreement and under Section 251(h) of the General Corporation Law of the State of Delaware (the DGCL), which permits completion of the Merger upon the acquisition by Merger Sub in the Offer of at least such percentage of the Company’s stock as would be required to adopt the Merger Agreement at a meeting of the Company’s stockholders. Accordingly, if, following the Offer, a number of Shares have been tendered such that Merger Sub holds a majority of the outstanding Shares, the Merger Agreement contemplates that the parties will cause the closing of the Merger as soon as practicable without a vote of the Company’s stockholders in accordance with Section 251(h) of the DGCL. At the effective time of the Merger, each outstanding Share (other than Shares held by Galenica, Merger Sub or the Company or their direct or indirect wholly owned subsidiaries, Shares irrevocably accepted for purchase pursuant to the Offer and Shares held by stockholders who are entitled to demand and who have properly and validly perfected their statutory rights of appraisal under Delaware law) will be automatically converted into the right to receive an amount in cash equal to the Offer Price (the Merger Consideration), without interest, less any applicable withholding taxes, upon the surrender of the certificate representing such Share.  The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to the satisfaction or waiver of a number of closing conditions set forth in the Merger Agreement, including the tender of a majority of the Shares in the Offer and the expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company does not expect there to be a significant period of time between the consummation of the Offer and the consummation of the Merger.

Except for the risk factors relating to consummation of the Merger, the following risk factors have been prepared assuming the consummation of the pending acquisition of us by Galenica does not occur.

Risks Related to the Merger

The announcement and pendency of the acquisition of us by Galenica pursuant to the Offer and subsequent Merger could have an adverse effect on our stock price and/or our business, financial condition, results of operations or business prospects.

The announcement and pendency of the Offer and Merger could disrupt our business in the following ways, among others:

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Should they occur, any of these matters could adversely affect our stock price or harm our financial condition, results of operations or business prospects.

Merger Sub’s obligation to purchase Shares in the Offer and the closing of the Merger are subject to certain conditions, the Merger Agreement may be terminated in accordance with its terms and the Merger may not be consummated.

The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to customary conditions, including (i) that the number of Shares validly tendered and not withdrawn in accordance with the terms of the Offer, together with the Shares then owned by Merger Sub, represent at least a majority of all then outstanding Shares, and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The Merger Agreement contains a number of conditions that must be fulfilled to complete the Merger, including (i) Merger Sub’s irrevocable acceptance for payment of all of the Shares validly tendered and not validly withdrawn pursuant to the Offer and (ii) the absence of any law or order making illegal, prohibiting or otherwise preventing the closing of the Merger.

These conditions to Merger Sub’s acceptance of Shares for payment in the Offer and the closing of the Merger may not be fulfilled and, accordingly, the Merger may not be consummated.  These conditions are described in more detail in the Merger Agreement, which we filed as an exhibit to the Current Report on Form 8-K filed with the SEC on July 21, 2016.

We intend to pursue all required approvals in accordance with the Merger Agreement. However, no assurance can be given that the required approvals will be obtained and, even if all such approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the Merger Agreement.

In addition, if the Offer is not consummated by December 15, 2016, either we or Galenica may choose to terminate the Merger Agreement.  In addition, we or Galenica may elect to terminate the Merger Agreement in certain other circumstances, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the closing of the Merger.  If the Merger Agreement is terminated under certain circumstances, we would be required to pay Galenica a termination fee equal to $49.0 million.

Failure to complete the Merger could negatively impact our stock price and our future business and financial results.

If the Merger is not consummated, our ongoing businesses may be materially and adversely affected and, without realizing any of the benefits of having completed the Merger, we will be subject to a number of risks, including the following:

In addition to the above risks, we may be required to pay Galenica a termination fee equal to $49.0 million, which may materially adversely affect our financial results. If the Merger is not consummated, these risks may materialize and may materially and adversely affect our business, financial results and share price.

The Merger Agreement contains provisions that restrict our ability to pursue alternatives to the Merger and for our board of directors to change its recommendation that our stockholders accept the Offer and tender their Shares to Merger Sub pursuant to the Offer and, in specified circumstances, could require us to pay Galenica a termination fee of $49.0 million.

Under the Merger Agreement, until the consummation of the Merger or the termination of the Merger Agreement, we are restricted, subject to certain exceptions, in our ability to solicit, initiate, knowingly encourage, facilitate or assist any proposal, inquiry, indication

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of interest or offer that constitutes or could reasonably be expected to lead to a competing acquisition proposal.  Further, during such period, we are also restricted, subject to certain exceptions, in our ability to conduct, maintain, engage in or otherwise participate in any discussions or negotiations, or furnish non-public information to any third person with respect to any inquiry, proposal, indication of interest or offer that constitutes or could reasonably be expected to lead to a competing acquisition proposal.  Under certain circumstances, we may terminate the Merger Agreement in order to enter into an agreement with respect to a superior proposal, if our board of directors (after consultation with our outside legal counsel and financial advisors) determines in good faith that such proposal is more favorable to our stockholders (taking into account any changes to the Merger Agreement proposed by Galenica within three business days of Galenica’s receipt of the terms of such proposal, or within two business days of Galenica’s receipt of any material amendment to such proposal) than the Offer and the Merger.  If our board of directors recommends such superior proposal to our stockholders but does not terminate the Merger Agreement, Galenica would be entitled to terminate the Merger Agreement.  Under these and certain other specified circumstances, we would be required to pay Galenica a termination fee equal to $49.0 million.  These provisions could discourage a third party that may have an interest in acquiring all or a significant part of us from considering or proposing such a transaction, or might result in a third party proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable to Galenica in certain circumstances.

While the Merger is pending, we will be subject to business uncertainties that could adversely affect our business.

Uncertainty about the effect of the Merger on our employees, customers and suppliers may have an adverse effect on our company.  These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is consummated and for a period of time thereafter, and could cause customers, suppliers and others who deal with us to seek to change existing business relationships with us.  Employee retention may be challenging during the pendency of the Merger, as certain of our employees may experience uncertainty about their future roles.  If our key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with the Company or Galenica, our business could be seriously harmed.  In addition, the Merger Agreement restricts us from taking specified actions until the Merger occurs without the consent of Galenica.  These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the consummation of the Merger.

We and Galenica must obtain required approvals and governmental and regulatory consents to consummate the Merger, which if delayed or not granted or granted with unacceptable conditions, may prevent, delay or jeopardize the consummation of the Merger and result in additional expenditures of money and resources.

The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to customary conditions, including (i) that the number of Shares validly tendered and not withdrawn in accordance with the terms of the Offer, together with the Shares then owned by Merger Sub, represent at least a majority of all then outstanding Shares, and (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition, the Merger Agreement contains a number of conditions that must be fulfilled to complete the Merger, including (i) Merger Sub’s irrevocable acceptance for payment of all of the Shares validly tendered and not validly withdrawn pursuant to the Offer and (ii) the absence of any law or order making illegal, prohibiting or otherwise preventing the closing of the Merger.  

We and Galenica can provide no assurance that all required approvals and consents will be obtained.  For example, private parties who may be adversely affected by the Merger and individual states may bring legal actions under the antitrust laws in certain circumstances.  Although we and Galenica believe that the consummation of the Merger would not violate any antitrust law, there can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if a challenge is made, what the result will be.  Such a challenge may delay or jeopardize the consummation of the Merger. We are not aware of any legal actions brought by private parties or individual states under the antitrust laws.

Further, no assurance can be given that our stockholders will tender a sufficient number of Shares to trigger Merger Sub’s obligation to purchase the Shares or that the required closing conditions will be satisfied, and, if all required consents and approvals are obtained and the closing conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals or clearances.   A governmental entity could also enact a law or order making illegal, prohibiting or otherwise preventing the closing of the Merger.  Any of these and other circumstances could result in a failure to consummate the Merger.

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Our directors and officers may have interests in the Merger different from the interests of our stockholders.

Certain of our directors and executive officers negotiated the terms of the Merger Agreement, and our board of directors approved the Merger Agreement and recommended that our stockholders accept the Offer and tender their Shares to Merger Sub pursuant to the Offer.  These directors and executive officers may have interests in the Merger that are different from, or in addition to, those of our stockholders generally.  These interests include, but are not limited to, the treatment in the Merger of stock options, restricted stock units, change of control employment agreements and other rights held by our directors and executive officers, and provisions in the Merger Agreement regarding continued indemnification of and advancement of expenses to our directors and officers.  Our stockholders should be aware of these interests when they consider our board of directors’ recommendation that they accept the Offer and tender their Shares to Merger Sub pursuant to the Offer.

Our board of directors was aware of these interests when it determined that it was in the best interests of the Company and our stockholders to enter into the Merger Agreement, approved the Merger Agreement and recommended that our stockholders accept the Offer and tender their Shares to Merger Sub pursuant to the Offer.

Because the Merger Consideration to be paid to our stockholders is a fixed amount of cash per share of our common stock and does not include the issuance of any Galenica securities, our stockholders will not realize any potential future gains from the post-Merger combined business.

The amount of cash to be paid under the Merger Agreement is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, including any potential long-term value of the successful execution of our current strategy as an independent company or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock.  Upon consummation of the Merger, our stockholders will have no ongoing equity participation in the Company and they will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the Company’s common stock, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company.

We will incur direct and indirect costs as a result of the Merger.

We will incur substantial expenses in connection with and as a result of completing the Merger. While we have assumed that a certain level of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses.  Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately.

Risks Related to Our Dependence on Veltassa^® (patiromer) for oral suspension and Our Business, Limited Operating History, Financial Condition and Capital Requirements

We are substantially dependent on the success of our first and only drug, Veltassa^® (patiromer) for oral suspension, or Veltassa.

We are dependent on the successful commercialization of our first and only drug, Veltassa, which was approved by the U.S. Food and Drug Administration, or FDA, on October 21, 2015 for the treatment of hyperkalemia, a life-threatening condition defined as abnormally elevated levels of potassium in the blood. Veltassa became available for prescription on December 21, 2015. The commercial success of Veltassa will depend on a number of factors, including the following:

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Many of these factors are beyond our control. Accordingly, we cannot be certain that we will ever be able to generate meaningful revenue through the sale of Veltassa. If we are not successful in commercializing Veltassa, or are significantly delayed in doing so, our business will be materially harmed.

Veltassa, or any future product candidates, may never achieve market acceptance or commercial success, which will depend, in part, upon the degree of acceptance among physicians, patients, patient advocacy groups, health care payers and the medical community.

Veltassa, or any future product candidates, may not achieve market acceptance among physicians, patients, patient advocacy groups, health care payers and the medical community, and may not be commercially successful. Market acceptance of Veltassa, or any future product candidates for which we receive approval, depends on a number of factors, including:

Any failure by Veltassa, or any future product candidates that obtain regulatory approval, to achieve market acceptance or commercial success would adversely affect our results of operations.

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The prescribing information for Veltassa contains a boxed warning, which may adversely affect the commercial success of the product and our business and may materially harm our results of operations.

The prescribing information for Veltassa includes a boxed warning that Veltassa binds to many other orally administered medications.  This binding could decrease the gastrointestinal absorption and reduce the efficacy of such other oral medications. The prescribing information for Veltassa instructs that it should be taken at least six hours before or six hours after other oral medications, and that Veltassa or the other oral medication should be chosen if adequate dosing separation is not possible.

As part of our development of Veltassa, we initially completed 18 rat studies and six in vitro tests (conducted in test tubes). The rat studies showed modest binding with two of 18 drugs, valsartan and rosiglitazone, and the initial in vitro tests showed no binding between Veltassa and the six drugs tested, which included valsartan. In preparation for our Phase 3 clinical studies and in parallel to our initial studies, we conducted additional in vitro DDI tests to evaluate 28 drugs for interactions with Veltassa, with such drugs being considered representative of many drug classes. The proposed list of 28 drugs was discussed with the FDA at various times during the clinical development process. In these additional in vitro tests, we tested the most extreme binding conditions, with the highest clinical dose of Veltassa tested against the lowest clinical dose of the drug being tested. In these additional in vitro tests, half of the drugs tested showed no binding and the other half showed binding. We did not observe any clinically meaningful DDIs in our clinical studies, although our clinical studies were not designed to examine the clinical impact of DDIs directly.

In September 2015, we initiated Phase 1 in vivo (conducted in humans) DDI studies to evaluate whether Veltassa binds to certain drugs in humans that showed binding in our in vitro tests. Such human DDI studies were conducted with the following drugs: amlodipine, clopidogrel, cinacalcet, ciprofloxacin, furosemide, levothyroxine, lithium, metformin, metroprolol, trimethoprim, verapamil and warfarin. In January 2016, we announced the results from these studies. When Veltassa was administered at the same time as the drugs being tested, there was no clinically meaningful reduction in absorption for nine of the 12 drugs. Three drugs showed reduced absorption when they were co-administered with Veltassa, however, when dosing of Veltassa and these drugs was separated by 3 hours, no reduction in absorption was observed.

In February 2016, we discussed the results of our Phase 1 DDI studies with the FDA. Based on the discussion, we submitted a supplemental NDA, or sNDA, to the FDA in May 2016 requesting a change to the prescribing information for Veltassa. We cannot predict whether this sNDA will result in a change to the prescribing information for Veltassa. We also cannot predict the commercial impact our Phase 1 DDI studies or a change in the prescribing information, if any, will have on Veltassa.

The prescribing information for Veltassa also includes a limitation of use that Veltassa should not be used as an emergency treatment for life-threatening hyperkalemia because of its delayed onset of action. The prescribing information also includes the following warnings and precautions: a section regarding worsening gastrointestinal motility with an instruction to avoid using Veltassa in patients with severe constipation, bowel obstruction or impaction, including abnormal post-operative bowel motility disorders, because Veltassa may be ineffective and may worsen gastrointestinal conditions, and a section regarding hypomagnesemia indicating Veltassa binds to magnesium in the colon, which can lead to hypomagnesemia, with an instruction to monitor serum magnesium, or magnesium in the blood.

The boxed warning, dosing separation, limitation of use and other warnings and precautions may adversely affect the commercial success of Veltassa and our business, and may materially harm our results of operations.

We have recently built our commercial capabilities. If we are unable to optimize these capabilities on our own, and through our collaborators, we will not be able to successfully commercialize Veltassa, or any future product candidates, or generate product revenue.

We have recently built our commercial capabilities, and we have only limited experience commercializing a pharmaceutical product. Our ability to optimize our commercial, medical affairs, marketing, sales, market access, and managerial capabilities will depend on a number of factors, including our ability to:

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Optimizing our commercial capabilities, including our sales capabilities, may be more expensive and time consuming than we anticipate, requiring us to divert resources from other intended purposes. Any failure or delay in optimizing these capabilities may adversely impact the successful commercialization of Veltassa or any future product candidate. In addition, our initial sales force may be materially less than the actual number of sales representatives required to successfully commercialize Veltassa. As such, we may be required to hire substantially more sales representatives than expected to adequately support the commercialization of Veltassa.

We also rely on the commercial capabilities of our collaborators, Sanofi Aventis U.S. LLC, or Sanofi, and VFMCRP. In August 2015, we entered into a Detailing Agreement with Sanofi pursuant to which Sanofi’s nephrology sales force is complementing our commercialization efforts in the United States, and we entered into a License Agreement with VFMCRP pursuant to which VFMCRP will develop and commercialize Veltassa outside the United States and Japan.

Our arrangements with Sanofi and VFMCRP, or any other third-party collaborators, may result in lower product revenue than if we directly sold and distributed Veltassa, and some or all of the product revenue we receive will depend upon the efforts of such third parties, and these efforts may not be successful. In addition, our arrangement with VFMCRP may divert resources from our efforts to market Veltassa in the United States. We may also choose to collaborate with additional third parties that have direct sales forces and established distribution systems to further augment our own, and our collaborators’, sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize Veltassa.

If we are unable to optimize our commercial capabilities, on our own and through our collaborators, we may be unable to successfully commercialize Veltassa or any future product candidate, and our revenue will suffer and we will incur significant additional losses.

If we fail to obtain and sustain an adequate level of payer formulary access and/or reimbursement for Veltassa, or any future products, sales would be adversely affected.

There will be no commercially viable market for Veltassa without formulary access and reimbursement from third-party government and commercial payers. Formulary access is being placed on a payer’s list of covered drugs for potential reimbursement. In addition, even if there is a commercially viable market, if the level of access and/or reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

Obtaining formulary approval can be an expensive and time-consuming process. We cannot be certain if and when we will obtain formulary approval for Veltassa or any future products into our target markets. Even if we do obtain formulary approval, third-party payers, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. We may engage in contracting with some or all payers and certain contracts require us to provide discounts or rebates to achieve our contracting goals, including appropriate formulary placement, and such discounts or rebates may adversely impact our ability to achieve profitability.

In addition, a current trend in the U.S. health care industry is toward cost containment. Third-party payers are exerting increasing influence on decisions regarding the use of and access to particular treatments, and many third-party payers limit coverage of, or reimbursement for, newly approved health care products. Cost-control initiatives could decrease the price we might establish for Veltassa or any future product, which could result in product revenues being lower than anticipated.

If the price for Veltassa, or any future products, decrease or if governmental and other third-party payers do not provide adequate coverage and reimbursement levels, our revenue and prospects for profitability will suffer. In addition, reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

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Veltassa may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.

The pharmaceutical market is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. Veltassa has been approved for the treatment of hyperkalemia. While current options for the chronic management of hyperkalemia are limited, we compete against well-known treatment options, including sodium polystyrene sulfonate (e.g., Kayexalate^®). In addition, there are potential new treatment options for hyperkalemia. In December 2015, AstraZeneca PLC completed its purchase of ZS Pharma, Inc., or ZS Pharma, and is developing a zirconium silicate particle to treat hyperkalemia referred to as sodium zirconium cyclosilicate, or ZS-9. The New Drug Application, or NDA, for ZS-9 was submitted to the FDA in May 2015, and the MAA for ZS-9 was submitted to the EMA in December 2015. Although the FDA issued a Complete Response Letter in May 2016 regarding the NDA for ZS-9, the FDA may approve ZS-9 in the future. Ardelyx, Inc. has announced that it is developing two treatments for hyperkalemia: a potassium-binding polymer based on polystyrene sulfonate and a potential drug to enhance potassium secretion. In order to compete successfully in this market, we will have to demonstrate that the treatment of hyperkalemia with Veltassa is a worthwhile alternative to existing or new therapies for hyperkalemia.

We face significant competition from many pharmaceutical and biotechnology companies that are also researching and selling products designed to address these markets. Many of our competitors have materially greater financial, manufacturing, marketing, research and drug development resources than we do. Large pharmaceutical companies in particular have extensive expertise in nonclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors.

Failure to effectively compete against established treatment options for hyperkalemia or in the future with new products currently in development would harm our business, financial condition and results of operations.

We have a limited operating history, have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one approved drug and limited commercial sales, which, together with our limited operating history, make it difficult to assess our future viability.

Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused principally on developing and commercializing Veltassa, which is our only approved drug. We are not profitable and have incurred losses in each year since our inception in August 2007. We have only a limited operating history upon which to evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. To date, we have generated only limited revenue from product sales. We continue to incur significant operating expenses related to our ongoing operations. Our net loss for the three months ended June 30, 2016 was approximately $83.6 million. As of June 30, 2016, we had an accumulated deficit of $622.8 million. We may continue to incur substantial operating losses even if we generate meaningful revenues from the sales of Veltassa. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.

Since our inception, most of our resources have been dedicated to the nonclinical and clinical development of Veltassa. As of June 30, 2016, we had working capital of approximately $255.8 million and capital resources consisting of cash, cash equivalents and short-term investments of approximately $257.7 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue development and commercialization of Veltassa and develop any other product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting nonclinical studies and clinical trials, obtaining regulatory approvals, manufacturing and supply and sales and marketing. In addition, other unanticipated costs may arise. We believe that our existing cash, cash equivalents and short-term investments and anticipated revenues will be sufficient to fund our operations into the second quarter of 2017. However, our operating plan may change as a result of many factors, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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Veltassa has not yet been approved for marketing by any foreign regulatory authority and may never receive approval by foreign regulatory authorities, which would adversely impact our ability to generate revenue, our business and our results of operations.

Under our License Agreement with VFMCRP, we are relying on VFMCRP to develop and commercialize Veltassa outside of the United States and Japan, and VFMCRP submitted an MAA for Veltassa to the EMA in April 2016. To gain approval to market Veltassa in Europe and other foreign jurisdictions, we and our collaborators must provide the foreign regulatory authorities with clinical data that adequately demonstrates the safety and efficacy of Veltassa for the intended indication applied for in the respective regulatory filing. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in, or following, clinical trials even after promising results in earlier nonclinical or clinical studies. These setbacks have been caused by, among other things, nonclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. Success in nonclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to country.

Foreign regulatory authorities can delay, limit or deny approval to market Veltassa for many reasons, including:

Veltassa may not receive foreign marketing approval despite having achieved its specified endpoints in clinical trials and having obtained FDA approval. Foreign regulatory authorities have substantial discretion in evaluating the results of these trials, and may interpret the data from these trials differently than the FDA. Clinical data often is susceptible to varying interpretations and many companies that have believed that their products performed satisfactorily in clinical trials have nonetheless failed to obtain foreign regulatory approval for their product. Foreign regulatory authorities may disagree with the trial design and interpretation of data from nonclinical studies and clinical trials.

Based on these factors, foreign regulatory authorities may request additional information from us and VFMCRP, including data from additional clinical and/or non-clinical trials, which could be time consuming and expensive and, ultimately, may not grant marketing approval for Veltassa. In addition, we may be required to conduct additional clinical trials under our License Agreement with VFMCRP in order to obtain approval to market in foreign jurisdictions, and such clinical trials may not generate the data needed for approval, may be expensive to conduct, may cause delay, and may divert resources from our efforts to market Veltassa in the United States and otherwise operate our business.

Any delay in obtaining, or inability to obtain, foreign regulatory approval would delay or prevent commercialization of Veltassa in foreign jurisdictions and would have a material adverse impact on our business and prospects.

We rely completely on third-party suppliers to manufacture our clinical drug supply of Veltassa, and we rely on third parties to produce commercial supply of Veltassa and nonclinical, clinical and commercial supplies of any future product candidate.

We do not currently have, nor do we plan to acquire, the infrastructure or internal capability to produce our commercial supply of Veltassa and we lack the internal resources and the capability to manufacture any product candidates on a nonclinical, clinical or commercial scale. The FDA and other comparable foreign regulatory authorities must approve our contract manufacturers to manufacture the active pharmaceutical ingredient and final drug product for Veltassa, or any future product candidates.

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We do not directly control the manufacturing of, and are completely dependent on, our contract manufacturers for compliance with the cGMP for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or foreign regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may generally affect the regulatory clearance of our contract manufacturers’ facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the manufacture of Veltassa, or any future product candidates, or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval for or market Veltassa, or any future product candidates, if approved.

We and our third-party suppliers continue to refine and improve the manufacturing process, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes, particularly as we seek to significantly increase our capacity to commercialize Veltassa. For example, we have analyzed the impurities identified in the manufactured registration batches of Veltassa and we believe the levels of impurities, including the levels of genotoxic and special toxicological concern impurities, are below the suggested guidance recommendations; however, toxicological assessments might change based on our future findings. Our reliance on contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

Our current drug substance is acquired from only two suppliers and our finished drug product is acquired from a single-source supplier. The loss of these suppliers, or their failure to supply us with the drug substance or the finished drug product, would materially and adversely affect our business.  

We currently operate under a multi-year Manufacturing and Supply Agreement with Lanxess Corporation, or Lanxess, and a multi-year Manufacturing and Supply Agreement with DPx Fine Chemicals Austria GmbH & Co KG, or DPx Fine Chemicals, formerly DSM Fine Chemicals Austria NFG GMBH & Co. KG, for the manufacture and supply of drug substance. However, we do not currently have additional suppliers of drug substance under contract, and Lanxess is currently the only FDA-appproved drug substance supplier for Veltassa. In April 2016, we submitted a sNDA for DPx Fine Chemicals to be approved as a supplier of drug substance. In addition, we currently operate under a multi-year Supply Agreement with Patheon Inc., or Patheon, for the manufacture and supply of finished drug product. However, we do not have an alternative supplier of finished drug product under contract, and only Patheon has been approved by FDA as a finished drug product supplier for Veltassa. Lanxess and Patheon are currently manufacturing our commercial supply of Veltassa.

Although we have entered into long-term commercial supply agreements with Lanxess, DPx Fine Chemicals and Patheon, we may be unable do so with alternative suppliers and manufacturers or do so on commercially reasonable terms, which would have a material adverse impact upon our business.

In addition, we currently rely on our contract manufacturers to purchase from third-party suppliers the materials necessary to produce Veltassa, including all of the starting/raw materials and excipient, such as methyl-2-fluoro-acrylate monomer, or MFA. We do not have direct control over the acquisition of those materials by our contract manufacturers. Moreover, outside of our drug substance suppliers, we currently do not have any agreements for the commercial production of those materials.

We are dependent on the approval of additional drug substance and drug product suppliers to ensure sufficient supply to meet our anticipated market demand and to reduce the manufacturing cost of Veltassa. Our inability to obtain approval for additional suppliers and/or the inability of our suppliers to achieve larger scale production, would materially and adversely affect our business.

Polymeric-based drugs like Veltassa generally require large quantities of drug substance, as compared to small molecule drugs. Thus, we will require larger scale and/or multiple suppliers of drug substance and drug product in order to produce sufficient quantities of Veltassa to meet our anticipated market demand. Our current suppliers of drug substance, Lanxess and DPx Fine Chemicals, do not currently have the capacity to manufacture Veltassa in the quantities that we believe will be sufficient to meet anticipated market demand. Our business plan assumes that we are able to develop a supply chain with multiple suppliers and significantly decrease our cost of goods within the first several years of commercialization of Veltassa, enabling us to achieve gross margins similar to those achieved by other companies that produce non-absorbed polymeric drugs. If we are unable to reduce the manufacturing cost of Veltassa, our operating results will suffer and our ability to achieve profitability will be significantly jeopardized.

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Because we submitted our NDA with single source suppliers for drug substance and drug product, we will need to obtain approval from the FDA for these additional suppliers, including approval for the testing necessary to prove equivalence of drug substance and product produced by the additional suppliers. Further, we are dependent on our drug substance and product suppliers to be able to fully scale up the production of Veltassa as well as validate certain process improvements in order to reach the quantities we anticipate needing.

We are also dependent upon the appropriate sourcing of starting/raw material, including large quantities, measured in metric tons, of MFA. While we believe there are multiple alternative suppliers of MFA, we will need our drug substance suppliers to qualify these alternate MFA suppliers to prevent a possible disruption of the manufacture of the starting materials necessary to produce Veltassa. If our drug substance manufacturer is unable to source, or we are unable to purchase, MFA on acceptable terms, of sufficient quality, and in adequate quantities, if at all, the ability of Veltassa to reach its market potential, or any future product candidates to be launched, would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of Veltassa or any future product candidates.

If there is a disruption to our contract manufacturers’ or suppliers’ relevant operations, we will have no other means of producing Veltassa until they restore the affected facilities or we or they procure alternative manufacturing facilities. Additionally, any damage to or destruction of our contract manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture Veltassa on a timely basis.

If we fail to maintain an effective distribution process utilizing cold-chain logistics for Veltassa, our business may be adversely affected.

We have contracted with a third-party logistics company to warehouse Veltassa and distribute it to pharmacies and specialty distributors who will supply Veltassa to the market. We require that Veltassa be maintained at a controlled refrigerated temperature throughout the distribution chain. This distribution chain requires significant coordination among our manufacturing, supply-chain and finance teams, as well as commercial departments, including market access, sales, and marketing. In addition, failure to coordinate financial systems could negatively impact our ability to accurately report product revenue. If we are unable to effectively manage the distribution process, sales of Veltassa may be delayed or severely compromised and our results of operations may be harmed.

In addition, the use of cold-chain logistics and a distribution network for Veltassa involves certain risks, including, but not limited to, risks that distributors or pharmacies may:

Veltassa has a limited room temperature shelf life, and if we do not effectively maintain our cold-chain supply logistics, then we may experience an unusual number of product returns or out of date product. Any such failure may result in decreased product sales and lower product revenue, which would harm our business.

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Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance. Failure can occur at any time during the clinical trial process. The results of nonclinical and clinical studies of Veltassa, and any future product candidates, may not be predictive of the results of later-stage clinical trials. For example, the positive results generated to date in clinical studies for Veltassa do not ensure that future clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized by the Food and Drug Administration Amendments Act of 2007, an NDA or supplement to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own` initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. As part of our NDA for Veltassa, we requested deferral for submission of pediatric data until after approval of the product for use in adults. We expect to begin our first pediatric studies in late 2016.

We are conducting, and plan to conduct in the future, additional clinical trials of Veltassa, and plan to support investigator sponsored trials, or ISTs, and such trials may not meet their pre-specified endpoints, may generate data that are not consistent with the current label for Veltassa, may generate new or unexpected adverse events and may require us to submit amendments to our label to the FDA. We do not know whether future clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by an independent Safety Review Board for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

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Further, conducting clinical trials in foreign countries, as we have historically done, presents additional risks that may delay completion of our clinical trials. These risks include the failure of physicians or enrolled patients in foreign countries to adhere to clinical protocols as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.

If we experience delays in the completion of, or termination of, any clinical trial of Veltassa, or any future product candidates, the commercial prospects of Veltassa, or any future product candidates, may be harmed, and our ability to generate product revenues from Veltassa, or any future product candidates, will be delayed. If any clinical trial of Veltassa generates data that are not consistent with the current prescribing information and medication guide for the product, or generates additional safety, efficacy, tolerability or convenience concerns for the product, our ability to generate product revenue from Veltassa may be harmed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We rely on third parties to conduct some of our nonclinical studies and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to successfully commercialize Veltassa and unable to obtain regulatory approval for, or successfully commercialize, any future product candidates.

We do not have the ability to independently conduct clinical trials and, in some cases, nonclinical studies. We rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to conduct our clinical trials. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct some of our nonclinical studies and all of our clinical trials, we remain responsible for ensuring that each of our nonclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, including some regulations commonly referred to as good clinical practices, or cGCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.

In addition, the execution of nonclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. These third parties may terminate their agreements with us upon as little as 30 days’ prior written notice. Some of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to successfully commercialize Veltassa or to obtain regulatory approval for or successfully commercialize the product candidate being tested in such trials.

Our clinical drug development program may not uncover all possible adverse events that patients who take Veltassa may experience. The number of subjects exposed to Veltassa treatment and the average exposure time in the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be detected after Veltassa is administered to more patients and for greater periods of time.

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, we cannot be fully assured that other adverse events or reactions with Veltassa, such as rare and severe side effects, may not be uncovered after a significantly larger number of patients are exposed to the drug. Further, we have not designed our clinical trials to determine the effect and safety consequences on total body potassium levels of lowering serum potassium over a multi-year period.

In our clinical trials, the most common adverse reactions (occurring in ≥ 2% of patients treated) were constipation, hypomagnesemia, diarrhea, nausea, abdominal discomfort, and flatulence. Most adverse reactions were mild to moderate. Constipation generally resolved during the course of treatment. Mild to moderate hypersensitivity reactions were reported in 0.3% of patients treated. Reactions have also included edema of the lips.

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Although we have monitored the subjects in our studies for certain safety concerns and we have not seen evidence of significant safety concerns in our clinical trials, it is possible that there may be unforeseen safety findings with increased patient exposure to Veltassa. While most adverse reactions were mild to moderate these may occur in a more severe form while taking Veltassa. For example, in our clinical trials, we have seen some reductions in blood pressure, which may lead to hypotension, and some reductions in serum magnesium, which in severe forms may lead to weakness, muscle cramps, cardiac arrhythmia, increased irritability of the nervous system with tremors and jerking, confusion or seizures. Further, a degradant of Veltassa is calcium fluoride, which may lead to increased levels of fluoride resulting in bone fragility, tooth decays or nephrotoxicity. Although none of the symptoms associated with severe hypomagnesemia or acute fluoride toxicity have been reported in our clinical studies, patients may experience these more severe side effects while taking Veltassa.

If safety problems occur or are identified after Veltassa reaches the market, the FDA may require that we amend the labeling of Veltassa, recall Veltassa, or even withdraw approval for Veltassa.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of Veltassa or any future product candidates.

We face an inherent risk of product liability as a result of the clinical testing of Veltassa and any future product candidates, and we face an even greater risk with the commercialization of Veltassa or any future product candidates. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

Our inability to maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of Veltassa or any future products we develop. We currently carry product liability insurance covering use in our clinical trials in the amount of $10.0 million for each occurrence and $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.

We will need to manage the size of our organization, and we may experience difficulties in managing our recent growth.

As of June 30, 2016, we had 429 full-time employees, which includes 295 employees who joined in 2015. We will need to manage the significant and rapid growth of our organization, including a geographically dispersed national customer-facing team, and the integration and retention of new personnel. If we are unable to manage our significant growth and retain our new personnel, then our business may be materially harmed.

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If we fail to attract and retain highly qualified personnel, we may be unable to successfully develop Veltassa or any future product candidates, conduct our clinical trials and commercialize Veltassa or any future product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified personnel. In particular, we are highly dependent upon our experienced senior management. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of Veltassa or any future product candidates. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. In addition, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex and interdependent information technology systems to support business processes as well as internal and external communications. The size and complexity of our computer systems make them vulnerable to breakdown, malicious intrusion and computer viruses. We have developed systems and processes that are designed to protect our information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach; however, such measures cannot provide absolute security, and we have taken, and will take, additional security measures to protect against any future intrusion. Any failure to protect against breakdowns, malicious intrusions and computer viruses may result in the impairment of production and key business processes. In addition, our systems are potentially vulnerable to data security breaches, whether by employees or others, which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information of our employees, clinical trial patients, customers, and others. Such disruptions and breaches of security could expose us to liability and have a material adverse effect on the operating results and financial condition of our business.

Our Credit Agreement contains restrictions that limit our flexibility in operating our business.

In April 2016, we entered into a Credit Agreement for an aggregate principal amount of $150.0 million in senior secured loans, which amount bears interest through maturity at 11.5% per annum. Our Credit Agreement contains various covenants that limit our ability to engage in specified types of transactions without our lenders’ prior consent. These covenants limit our ability to, among other things:

In addition, our Credit Agreement contains a liquidity covenant which requires us to maintain a minimum of $45.0 million of cash and certain cash equivalents; provided, that this minimum liquidity requirement does not apply if we maintain consolidated net sales of at least $85.0 million in a four fiscal quarter period.

The covenants in our Credit Agreement limit our ability to take certain actions and, in the event that we breach one or more covenants, our lenders may choose to declare an event of default and require that we immediately repay all amounts outstanding of the aggregate principal amount of $150.0 million, plus exit fees, prepayment premiums, penalties and interest, and foreclose on the collateral granted to them to secure such indebtedness. Such repayment could have a material adverse effect on our business, operating results and financial condition.

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We incur significant costs as a result of operating as a public company, and our management will devote substantial time to compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.

We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Select Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel must devote a substantial amount of time to ensure that we maintain compliance with all of these requirements. Moreover, the reporting requirements, rules and regulations have increased our legal and financial compliance costs and make some activities more time consuming and costly. Any changes we have made, and may make in the future, to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, may also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

We are subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and Exchange Commission, or SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting.

During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Select Market or other adverse consequences that would materially harm our business.

In addition, we implemented an enterprise resource planning, or ERP, system for our company. The ERP system is intended to combine and streamline the management of our financial, accounting, human resources, sales and marketing and other functions, enabling us to manage operations and track performance more effectively. However, the ERP system requires us to complete many processes and procedures for the effective use of the system or to run our business using the system, which may result in substantial costs. Any disruptions or difficulties in implementing or using the ERP system could adversely affect our controls and harm our business, including our ability to accurately report financial results on a timely basis, forecast or make sales and collect our receivables. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention.

If we are not successful in discovering, developing, acquiring or commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although a substantial amount of our effort will focus on the continued clinical testing and commercialization of Veltassa, a key element of our strategy is to discover, develop and commercialize a portfolio of products utilizing proprietary discovery and development technology. We are seeking to do so through our internal research programs and/or by selectively pursuing commercially synergistic in-licensing or acquisition of additional compounds. All of our other potential product candidates remain in the discovery stage. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

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If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing Veltassa.

Our current collaboration arrangements, and any collaboration arrangement that we may enter into in the future, may not be successful, which could adversely affect our ability to develop and commercialize Veltassa and potential future product candidates.

Our collaboration arrangements with VFMCRP and Sanofi, and any collaboration arrangements that we may enter into in the future, may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. In addition, disagreements between us and our collaborators may lead to delays in the development process or commercialization and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve, particularly if neither of the parties has final decision-making authority. Our collaboration arrangements also may be terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business or reputation.

In addition, we may also seek additional collaboration arrangements, as permitted under our Credit Agreement or as approved by our lenders, with other pharmaceutical or biotechnology companies for the development or commercialization of Veltassa and for potential future product candidates. We may enter into these arrangements on a selective basis depending on the merits of retaining rights for ourselves as compared to entering into selective collaboration arrangements with leading pharmaceutical or biotechnology companies, both in the United States and internationally. We will face, to the extent that we decide to enter into additional collaboration arrangements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement any additional collaboration arrangements should we choose to do so, and the terms we may establish may not be favorable to us.

If we engage in acquisitions, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.

Although we currently have no intent to do so, we may attempt to acquire businesses, technologies, services, products or product candidates that we believe are a strategic fit with our business. If we do undertake any acquisitions, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we may acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

If Veltassa is approved for commercialization outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

We have entered into the License Agreement with VFMCRP to commercialize Veltassa outside of the United States and Japan if the product receives the applicable approvals for commercialization, and we may enter into additional agreements with third parties to commercialize Veltassa in Japan. We expect that we will be subject to additional risks related to such international business relationships, including:

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Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

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Risks Related to Government Regulation

We will be subject to ongoing regulatory obligations for Veltassa, and any future products, and continued regulatory review, which may result in significant additional expense. Additionally, Veltassa, and any future product, may be subject to labeling and other restrictions and market withdrawal, and we may be required to manage additional time and resource-intensive operational challenges and be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems, including emerging safety issues, with our products.

Even if a drug is FDA-approved, regulatory authorities may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies. For example, as part of our FDA approval for Veltassa, we have a post-marketing commitment to conduct pediatric studies. Furthermore, the existing FDA regulations and any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance. Veltassa will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, including both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have FDA approval.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing, or labeling of a product, a regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our commercialization of, and revenues from, Veltassa. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate meaningful revenues from the sale of Veltassa our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

Currently, Veltassa is approved solely for the treatment of hyperkalemia and, unless we seek regulatory approval for additional indications, we will be prohibited from marketing Veltassa for any other indication.

Currently, Veltassa is approved solely for the treatment of hyperkalemia. We do not have plans to seek approval of Veltassa for any other indication at this time. The FDA strictly regulates the promotional claims that may be made about prescription products. While Veltassa has been studied in the setting of hyperkalemia associated with the use of RAAS inhibitors, Veltassa may not be promoted for uses that are not approved by the FDA as reflected in its approved labeling. Under applicable regulations, the ability of a company to make marketing statements about the effectiveness of its drug outside of the statements made in the label, referred to as “off-label” marketing, is prohibited. If we are found to have promoted such off-label uses, we may become subject to significant liability.

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If we fail to comply, or are found to have failed to comply, with FDA and other regulations related to the promotion of Veltassa for unapproved uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.

The regulations relating to the promotion of products before approval or for unapproved uses are complex and subject to substantial interpretation by the FDA and other government agencies. We were not permitted to promote Veltassa before we received marketing approval from the FDA. And even though we have received marketing approval, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. We have implemented compliance and training programs designed to ensure that our sales and marketing practices comply with applicable regulations. Notwithstanding these programs, the FDA or other government agencies may allege or find that our practices constitute prohibited promotion of Veltassa for unapproved uses. We also cannot be sure that our employees complied with company policies and applicable regulations regarding the promotion of products before approval or will comply with such policies and regulations regarding unapproved uses. Over the past several years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys’ Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, the False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products before approval or for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. Many of these investigations originate as “qui tam” actions under the False Claims Act. Under the False Claims Act, any individual can bring a claim on behalf of the government alleging that a person or entity has presented a false claim, or caused a false claim to be submitted, to the government for payment. The person bringing a qui tam suit is entitled to a share of any recovery or settlement. Qui tam suits, also commonly referred to as “whistleblower suits,” are often brought by current or former employees. In a qui tam suit, the government must decide whether to intervene and prosecute the case. If it declines, the individual may pursue the case alone.

If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a qui tam suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects and reputation.

We are required to report to regulatory authorities adverse events that may occur during the use of Veltassa or any future product, and if we fail to do so we could be subject to sanctions that would materially harm our business.

FDA and foreign regulatory authority regulations require that we report certain information about adverse events whether or not Veltassa, or any future product, may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may receive adverse event reports in potentially large numbers from a variety of sources, including from physicians, other healthcare providers and patients as well as from clinical trials, patient support programs, scientific literature and media. We may fail to report adverse events we become aware of within the required timeframe.

We may also fail to appreciate that we have become aware of reportable safety information, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future products.

If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Before they can begin commercial manufacture of Veltassa, contract manufacturers must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost-effective manner.

If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

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If we want to expand the geographies in which we may market Veltassa, we will need to obtain additional regulatory approvals.

We are relying on VFMCRP to develop and commercialize Veltassa outside of the United States and Japan, and VFMCRP submitted the MAA for Veltassa to the EMA in April 2016. In order to obtain a MAA or other regulatory approvals outside of the United States, we may be required to conduct additional clinical trials or studies to support our applications, which would be time consuming and expensive, and may produce results that do not result in regulatory approvals. Further, we will have to expend substantial time and resources in order to manage our collaboration with VFMCRP to promote and commercialize Veltassa outside of the United States and Japan. If we do not obtain regulatory approvals for Veltassa in foreign jurisdictions, our ability to expand our business outside the United States will be severely limited.

Our failure to obtain regulatory approvals in foreign jurisdictions for Veltassa would prevent us from marketing our products internationally.

In order to market any product in the European Economic Area, or EEA (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be commercialized after obtaining a MAA. Before granting the MAA, the EMA, or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis, and even if we do file we may not receive necessary approvals to commercialize our products in any market.

We are subject to healthcare laws, regulation and enforcement; our failure to comply with these laws could have a material adverse effect on our results of operations and financial conditions.

We are subject to healthcare, statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate as a commercial organization include:

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If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and adversely impact our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Further, the Patient Protection and Affordable Care Act, or PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

The PPACA also imposes new reporting and disclosure requirements on drug manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers. In addition, drug manufacturers will also be required to report and disclose any investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission. Manufacturers were required to begin data collection on August 1, 2013 and report such data to the government by March 31, 2014 and by the 90th calendar day of each year thereafter.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation, and other remuneration to physicians. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

We may not obtain regulatory approval for the commercialization of any future product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Although we have obtained approval to market Veltassa in the United States, neither we nor any future collaboration partner is permitted to market any future product candidate in the United States until we receive approval of an NDA from the FDA. Obtaining regulatory approval to commercialize a product candidate can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable United States and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:

Prior to obtaining approval to commercialize a drug candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such drug candidates are safe and effective for their intended uses. The number of nonclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our drug candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a drug candidate for any or all targeted indications.

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FDA approval of an NDA or NDA supplement is not guaranteed, and the approval process is expensive and may take several years. The FDA also has substantial discretion in the approval process and we may encounter matters with the FDA that require us to expend additional time and resources and delay or prevent the approval of our product candidates. Despite the time and expense exerted, failure can occur at any stage. The FDA can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:

If any future product candidate fails to demonstrate safety and efficacy in clinical trials or does not gain regulatory approval, our business and results of operations may be materially and adversely harmed.

Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of any future product candidates and to manufacture, market and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition and results of operations.

Risks Related to Intellectual Property

We may become subject to claims alleging infringement of third parties’ patents or proprietary rights and/or claims seeking to invalidate our patents, which would be costly, time consuming and, if successfully asserted against us, delay, hinder, or prevent the development and commercialization of Veltassa or any future product candidates.

There have been many lawsuits and other proceedings asserting patents and other intellectual property rights in the pharmaceutical and biotechnology industries. We cannot be certain that Veltassa or any future product candidates will not infringe existing or future third-party patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing Veltassa or future product candidates. Moreover, we may face claims from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. In addition, Veltassa has a complex structure that makes it difficult to conduct a thorough search and review of all potentially relevant third-party patents. We may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of Veltassa.

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We may be subject to third-party claims in the future against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing a third party’s patents. We may be required to indemnify our current or future collaborators against such claims. If a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending against such claims, such litigation can be expensive and time consuming to litigate and would divert management’s attention from our core business. Any of these events could harm our business significantly.

In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim technology similar or identical to ours, we may have to participate in interference or derivation proceedings in the U.S. Patent and Trademark Office, or the USPTO, to determine which party is entitled to a patent on the disputed invention. Two oppositions have been filed in the European Patent Office challenging European Patent No. 2365988 by Hexal AG and Teva.  We plan to defend this patent, but we cannot be certain of the outcome of such proceedings and we may lose patent term in Europe. We may also become involved in other opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology. Since patent applications are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates.

If our intellectual property related to Veltassa or any future product candidates is not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to Veltassa and our development programs. Any disclosure to or misappropriation by third parties of our confidential or proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries. Even if patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within nine months from the publication of the grant. Similar proceedings are available in other jurisdictions, and in some jurisdictions third parties can raise questions of validity with a patent office even before a patent has granted. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. For example, a third party may develop a competitive product that provides therapeutic benefits similar to Veltassa but has a sufficiently different composition to fall outside the scope of our patent protection. If the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to Veltassa or any future product candidates is successfully challenged, then our ability to commercialize Veltassa or any future product candidates could be negatively affected, and we may face unexpected competition that could have a material adverse impact on our business. Further, if we encounter delays in our clinical trials, the period of time during which we could market Veltassa or any future product candidates under patent protection would be reduced.

Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. If we or one of our current or future collaborators were to initiate legal proceedings against a third party to enforce a patent covering Veltassa or one of our future products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability against our intellectual property related to Veltassa, we would lose at least part, and perhaps all, of the patent protection on Veltassa. Such a loss of patent protection would have a material adverse impact on our business. Moreover, our competitors could counterclaim that we infringe their intellectual property, and some of our competitors have substantially greater intellectual property portfolios than we do.

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We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain and/or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

If we fail to comply with our obligations under our IP License and Assignment Agreement, we could lose license rights that are important to our business.

We are a party to an IP License and Assignment Agreement with Ilypsa, Inc., or Ilypsa, which is a subsidiary of Amgen Inc., pursuant to which we license key intellectual property relating to our drug discovery and development technology. Although our obligations under the license are limited, the license agreement does impose certain diligence, notice and other obligations not currently applicable to us. If we fail to comply with these obligations, Ilypsa (Amgen) may have the right to terminate the license, other than in respect of Veltassa.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We have not yet registered trademarks for Veltassa in many jurisdictions outside the United States and failure to secure such registrations could adversely affect our business.

We have a registered trademark for Veltassa in the United States, and trademark applications in numerous foreign countries, many of which have been approved and many of which are under examination. Our trademark applications for Veltassa outside the United States may be rejected during trademark registration proceedings. We are given an opportunity to respond to those rejections, but we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties can oppose pending trademark applications and seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. And regardless of any application or registration, third parties may object to our use of Veltassa if they were to have legitimate prior conflicting rights. Moreover, any name we propose to use with any product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. 

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We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market Veltassa or any future products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain and enforce adequate intellectual property protection for our technology.

Risks Related to Our Common Stock

Our stock price is volatile and our stockholders may not be able to resell shares of our common stock at or above the price they paid.

The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this Quarterly Report on Form 10-Q and others such as:

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In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse determination in litigation could also subject us to significant liabilities.

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.

We may from time to time issue additional shares of our common stock or securities convertible into our common stock, including in future financings or similar arrangements. For example, we filed a shelf registration statement in November 2015 pursuant to which we recently issued shares of our common stock in an at-the-market offering, and we may issue additional shares in the at-the market offering or other registered offerings under the shelf registration statement. If we issue additional shares of our common stock, our stockholders may experience immediate dilution and, as a result, our stock price may decline.

If we do not achieve our publicly disclosed milestones or goals within the expected timing, our stockholders may lose confidence in our ability to achieve future success and, as a result, our stock price may decline.

From time to time, we may publicly disclose information related to certain anticipated company milestones or goals and estimated timing for achieving them, including clinical, regulatory, commercial and collaboration milestones or goals. However, we may fail to achieve these milestones or goals, or fail to do so within the expected timing or as projected by the analysts who follow us, and our stockholders and potential stockholders may lose confidence in our ability to achieve future success. As a result, our stock price may decline.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of June 30, 2016, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 47% of our outstanding voting stock. These stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that certain stockholders may believe are in their best interest.

Sales of a substantial number of shares of our common stock in the public market, or short sales of our common stock, could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, including after the lapse any legal restrictions on resale, the trading price of our common stock could decline. We have outstanding a total of approximately 44.8 million shares of common stock.

In addition, as of June 30, 2016, approximately 10.3 million shares of common stock that are either subject to outstanding options, issuable upon vesting of outstanding restricted stock units, reserved for future issuance under our equity incentive plans or subject to outstanding warrants are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

The trading price of our common stock could also decline as result of short sales. Selling short is a technique used by a stockholder to take advantage of an anticipated decline in the price of a security. When an investor sells stock that such investor does not own, it is known as a short sale. The seller, anticipating that the price of the stock will go down, intends to buy stock to cover such seller’s sale at a later date. If the price of the stock goes down, the seller will profit to the extent of the difference between the price at which he or she originally sold it less his or her later purchase price. Short sales enable the seller to profit in a down market. Short sales could place significant downward pressure on the price of our common stock.

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Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could significantly reduce the value of our shares to a potential acquirer or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents include the following:

In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. For a description of our capital stock, see the section titled “Description of Capital Stock.”

In addition, certain provisions in our IP License and Assignment Agreement may discourage certain takeover or acquisition attempts, including that in the event we undergo a change of control, we shall pay to Ilypsa (Amgen) an increasing amount of the purchase price, less certain expenses, of such transaction, ranging from approximately 6.7% to 10% of such amount, up to a cap of $30.0 million.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

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In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

We may be required to pay severance benefits to our employees who are terminated in connection with a change in control, which could harm our financial condition or results.

Each of our executive officers is party to an employment agreement, and each of our other employees is party to an agreement or participates in a plan, that provides change in control severance benefits including cash payments for severance and other benefits and acceleration of vesting of stock options and restricted stock units in the event of a termination of employment in connection with a change in control of us. The payment of these severance benefits could harm our financial condition and results. The accelerated vesting of options and restricted stock units could result in dilution to our existing stockholders and harm the market price of our common stock. In addition, these potential severance benefits may discourage or prevent third parties from seeking a business combination with us.

We do not currently intend to pay dividends on our common stock, and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our loan and security agreements restrict our ability to pay dividends. Therefore, our stockholders are not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend to pay dividends, our stockholders’ ability to receive a return on their investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2015, we had net operating loss carryforwards of approximately $387.6 million and $252.4 million for both U.S. federal and California income tax purposes, respectively, which begin to expire in 2027 for U.S. federal income tax purposes and 2017 for California income tax purposes. If a corporation undergoes an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, the corporation may be subject to annual limits on its ability to utilize its net operating loss carryforwards. An ownership change is, as a general matter, triggered by sales or acquisitions of the corporation’s stock in excess of 50 percentage points on a cumulative basis during a three-year period by persons owning 5% or more of the corporation’s total equity value. We have performed an initial analysis under Section 382 of the Code and believe that we have in the past experienced ownership changes that will result in a limitation on our ability to utilize our net operating loss carryforwards. As a result of this analysis, we have removed the deferred tax assets for net operating losses of $28.6 million generated through December 31, 2014 from our deferred tax asset schedule and have recorded a corresponding decrease to our valuation allowance. Our net operating loss carryforwards may also be subject to further limitations in the future as a result of additional ownership changes.

 

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

None.

 

 

Item 3.  Defaults Upon Senior Securities.

None.

 

 

Item 4.  Mine Safety Disclosures.

Not applicable.

 

 

Item 5.  Other Information.

 

The information set forth below is included herein for the purpose of providing the disclosure required under “Item 5.02 - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers” of Form 8-K.

 

On August 1, 2016, we appointed Monte R. Montgomery as our Chief Accounting Officer.  Mr. Montgomery will continue to serve as our Vice President, Finance and, effective as of August 1, 2016, he began serving as our principal accounting officer.

Mr. Montgomery, age 44, has served as our Vice President, Finance since February 2014, and as our Executive Director, Finance from February 2013 to February 2014.  Prior to joining the company, Mr. Montgomery served as Director, Finance at Amgen, Inc., a pharmaceutical company, or Amgen, from July 2012 to December 2012, following Amgen’s acquisition of KAI Pharmaceuticals, Inc., a pharmaceutical company, or KAI.  Prior to Amgen, Mr. Montgomery served as Executive Director, Finance at KAI from October 2008 to July 2012.

In connection with his appointment to Chief Accounting Officer, Mr. Montgomery entered into our standard form of indemnification agreement which generally requires us, among other things, to indemnify Mr. Montgomery against liabilities that may arise by reason of his status as an officer of the company, other than liabilities arising from willful misconduct.

 

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Item 6.  Exhibits

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

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Exhibit 10.1

 

 

CREDIT AGREEMENT

Dated as of April 27, 2016

among

RELYPSA, INC.,
as the Borrower,

CERTAIN DOMESTIC SUBSIDIARIES OF THE BORROWER,
as the Guarantors,

CANTOR FITZGERALD SECURITIES,
as the Administrative Agent

and

THE LENDERS FROM TIME TO TIME PARTY HERETO

 

 

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TABLE OF CONTENTS

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SCHEDULES

EXHIBITS

 

 

 

 

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CREDIT AGREEMENT

This CREDIT AGREEMENT is entered into as of April 27, 2016 among RELYPSA, INC., a Delaware corporation (the “Borrower”), the Guarantors (defined herein), the Lenders (defined herein) and CANTOR FITZGERALD SECURITIES, as Administrative Agent.

The Borrower has requested that the Lenders make an investment in the Borrower in the form of a term loan facility and common stock purchase warrants, and the Lenders are willing to do so on the terms and conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

1.01Defined Terms.

As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquisition” means, with respect to any Person, the acquisition by such Person, in a single transaction or in a series of related transactions, of (a) assets of another person which constitute all or substantially all of the assets of such Person, or of any division, line of business or other business unit of such Person, (b) at least a majority of the Voting Stock of another Person, in each case whether or not involving a merger or consolidation with such other Person and whether for cash, property, services, assumption of Indebtedness, securities or otherwise, (c) one or more Acquisition Products or a Person or division of another Person holding an Acquisition Product(s), or (d) IP Rights of a Person or division of another Person holding such IP Rights.

“Acquisition Product” means any product or service developed, manufactured, marketed, offered for sale, promoted, sold, tested, used or otherwise distributed by a Person other than the Borrower or any of its Subsidiaries.

“Administrative Agent” means Cantor Fitzgerald Securities, in its capacity as administrative agent under any of the Loan Documents, or any duly appointed successor administrative agent, pursuant to the terms hereof.

“Administrative Agency Fee Letter” means that certain letter agreement dated the Closing Date by and among the Administrative Agent and the Borrower.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02 or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders in accordance with Section 11.02(c).

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Aggregate Accrual” has the meaning set forth in Section 2.03(d).

 

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“Agreement” means this Credit Agreement.

“Amgen License” means that certain Amended and Restated Intellectual Property License and Assignment Agreement, dated as of November 23, 2009, between the Borrower and Ilypsa, Inc., as amended or otherwise modified.

“Amortization Option Date” has the meaning set forth in Section 2.04(a).

“Applicable Percentage” means with respect to any Lender at any time, with respect to such Lender’s portion of the outstanding Term Loan at any time (or any payment of interest, prepayment premium or exit fee with respect thereto), the percentage of the outstanding principal amount of the Term Loan held by such Lender at such time.  The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit D or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by the Administrative Agent.

“Athyrium” means Athyrium Capital Management, LP and its successors and assigns.

“Attributable Indebtedness” means, on any date, (a) in respect of any Capital Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease of any Person, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a Capital Lease and (c) in respect of any Securitization Transaction of any Person, the outstanding principal amount of such financing, after taking into account reserve accounts and making appropriate adjustments, determined by the Required Lenders in their reasonable judgment.

“Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2015, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto, audited by independent public accountants of recognized national standing and prepared in conformity with GAAP.

“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“Board of Directors” means (a) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board, (b) with respect to a

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partnership, the Board of Directors of the general partner of the partnership, (c) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof, and (d) with respect to any other Person, the board or committee of such Person serving a similar function.

“Borrower” has the meaning set forth in the introductory paragraph hereto.

“Borrower Investment Policy” means the Borrower’s investment policy approved by the Lenders prior to the Closing Date together with such amendments, supplements, modifications or replacements thereto as may be approved by the Required Lenders after the Closing Date (such approval not to be unreasonably withheld or delayed).

“Borrowing” means a borrowing of Loans by the Borrower pursuant to Section 2.01.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state of California or in the state of New York.

“Businesses” means, at any time, a collective reference to the businesses operated by the Borrower and its Subsidiaries at such time.

“Capital Lease” means, as applied to any Person, any lease of any property by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person.

“Cash Equivalents” means, as at any date, (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided, that, the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) Dollar denominated time deposits and certificates of deposit of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (ii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank being an “Approved Bank”), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within six months of the date of acquisition, (d) repurchase agreements entered into by any Person with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations, and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940 which are administered by reputable financial institutions having capital of at least $500,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (d).

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“CFC” means any Subsidiary that is a “controlled foreign corporation” within the meaning of Section 957(a) of the Internal Revenue Code.

“Change of Control” means the occurrence of any of the following events:

(a)any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of Equity Interests representing 35% or more of the aggregate ordinary voting power in the election of the Board of Directors of the Borrower represented by the issued and outstanding Equity Interests of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or

(b)during any period of twelve (12) consecutive months, a majority of the members of the Board of Directors of the Borrower cease to be composed of individuals (i) who were members of that Board of Directors on the first day of such period, (ii) whose election or nomination to that Board of Directors was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that Board of Directors or (iii) whose election or nomination to that Board of Directors was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that Board of Directors; or

(c)any “Change of Control” (or any comparable term) shall occur under any Permitted Senior Revolving Credit Document or any document or other agreement evidencing any Indebtedness with an aggregate principal amount in excess of the Threshold Amount.

“Closing Date” means the date hereof.

“Closing Date Athyrium Fee Letter” means that certain letter agreement dated the Closing Date by and among the Borrower and Athyrium.

“Closing Date HRP Payment Letter” means that certain letter agreement dated the Closing Date by and among the Borrower and HealthCare Royalty Partners III, L.P.

“Closing Date Fee Letters” means (a) the Closing Date Athyrium Fee Letter and (b) the Closing Date HRP Payment Letter.

“Collateral” means a collective reference to all real and personal property with respect to which Liens in favor of the Administrative Agent, for the benefit of the holders of the Obligations, are purported to be granted pursuant to and in accordance with the terms of the Collateral Documents and shall, for the avoidance of doubt, in no event include Excluded Property.

“Collateral Access Agreement” means an agreement in form and substance reasonably satisfactory to the Required Lenders pursuant to which (a) a lessor of real property in the United States on which Collateral in an aggregate amount in excess of $1,000,000 is stored or otherwise located, or (b) a warehouseman, processor or other bailee of inventory or other property owned by any Loan Party in the

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United States which is in an aggregate amount in excess of $1,000,000, in each case, acknowledges the Liens of the Administrative Agent and waives (or, if approved by the Required Lenders, subordinates) any Liens held by such Person on such property, and permits the Administrative Agent reasonable access to any Collateral stored or otherwise located thereon.

“Collateral Documents” means a collective reference to the Security Agreement, the Pledge Agreement, the Deposit Account Control Agreements, the Collateral Questionnaire, the Collateral Access Agreements, the Mortgages (if any) and other security documents as may be executed and delivered by the Loan Parties pursuant to the terms of Section 7.14.

“Collateral Questionnaire” means that certain collateral questionnaire, in form and substance reasonably satisfactory to the Required Lenders, executed by the Borrower and dated as of the Closing Date.

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

“Confidential Information” means all non-public information, whether written, oral or in any electronic, visual or other medium, that is the subject of reasonable efforts to keep it confidential and that is owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Consolidated Net Sales” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, net sales of Veltassa to Third Parties in the United States for such period, as determined and reported in accordance with GAAP; provided, that, “Consolidated Net Sales” shall exclude the net sales generated by any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of the income resulting from such net sales is not at the time permitted by operation of the terms of its Organization Documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary.  Notwithstanding the foregoing, if Veltassa is sold together with other goods in any transaction without a separate price for Veltassa, the Consolidated Net Sales applicable to the quantity of Veltassa sold in such transaction shall be deemed to be the average Consolidated Net Sales for such quantity of Veltassa for all sales of Veltassa to Third Parties in the United States (excluding, for the avoidance of doubt, sales of Veltassa made pursuant to any transaction where Veltassa is sold together with other goods without a separate price for Veltassa) during the calendar quarter in which such transaction occurs.  For the avoidance of doubt, “Consolidated Net Sales” excludes any amounts invoiced or received in connection with any transfers of Veltassa between the Borrower and its Subsidiaries.

“Consolidated Revenues” means, for any period, for the Borrower and its Subsidiaries on a consolidated basis, revenues for such period as determined and reported in accordance with GAAP; provided, that, “Consolidated Revenues” shall exclude the revenues generated by any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of the income resulting from such revenues is not at the time permitted by operation of the terms of its Organization Documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract

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or otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.  Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 20% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.

“Convertible Bond Indebtedness” means Indebtedness having a feature which entitles the holder thereof to convert or exchange all or a portion of such Indebtedness into Qualified Capital Stock of the Borrower.

“Copyright License” means any agreement, whether written or oral, providing for the grant of any right to use any Work under any Copyright.

“Copyrights” means (a) all proprietary rights afforded Works pursuant to Title 17 of the United States Code, including, without limitation, all rights in mask works, copyrights and original designs, and all proprietary rights afforded such Works by other countries for the full term thereof (and including all rights accruing by virtue of bilateral or international treaties and conventions thereto), whether registered or unregistered, including, but not limited to, all applications for registration, renewals, extensions, reversions or restorations thereof now or hereafter provided for by law and all rights to make applications for registrations and recordations, regardless of the medium of fixation or means of expression, which are owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to; and (b) all copyright rights under the copyright laws of the United States and all other countries for the full term thereof (and including all rights accruing by virtue of bilateral or international copyright treaties and conventions), whether registered or unregistered, including, but not limited to, all applications for registration, renewals, extensions, reversions or restorations of copyrights now or hereafter provided for by law and all rights to make applications for copyright registrations and recordations, regardless of the medium of fixation or means of expression, which are owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Debt Issuance” means the issuance by any Loan Party or any Subsidiary of any Indebtedness other than Indebtedness permitted under Section 8.03.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means an interest rate equal to fourteen and one half percent (14.50%) per annum, to the fullest extent permitted by applicable Laws.

“Defaulting Lender” means, subject to Section 2.11(b), any Lender, as determined by the Administrative Agent, that (a) has failed to perform any of its funding obligations hereunder within three (3) Business Days of the date required to be funded by it hereunder, (b) has notified the Borrower or the Administrative Agent that it does not intend to comply with its funding obligations hereunder or (c) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it or (iii) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such

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proceeding or appointment; provided, that, a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interests in that Lender or any direct or indirect parent company thereof by a Governmental Authority.

“Deposit Account” means a “deposit account” (as defined in Article 9 of the Uniform Commercial Code), investment account or other account in which funds are held or invested to or for the credit or account of any Loan Party.

“Deposit Account Control Agreement” means any account control agreement by and among a Loan Party, the applicable depository bank and the Administrative Agent, in each case in form and substance reasonably satisfactory to the Required Lenders.

“Designated Jurisdiction” means any country or territory to the extent that such country or territory is the subject of any Sanction.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any Sale and Leaseback Transaction or any issuance by any Subsidiary of its Equity Interests) of any property by any Loan Party or any Subsidiary, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith, but excluding the following (collectively, the “Permitted Transfers”): (a) the sale, lease, license, transfer or other disposition of inventory in the ordinary course of business, (b) the sale, lease, license, transfer or other disposition in the ordinary course of business of surplus, obsolete or worn out property no longer used or useful in the conduct of business of the Borrower and its Subsidiaries, (c) any sale, lease, license, transfer or other disposition of property to any Loan Party or any Subsidiary; provided, that, if the transferor of such property is a Loan Party (i) the transferee thereof must be a Loan Party or (ii) to the extent such transaction constitutes an Investment, such transaction is permitted under Section 8.02, (d) the abandonment or other disposition of IP Rights that are not material or are no longer used or useful in any material respect in the business of the Borrower and its Subsidiaries, (e) licenses, sublicenses, leases or subleases (other than relating to intellectual property) granted to third parties in the ordinary course of business and not interfering with the business of the Borrower and its Subsidiaries, (f) any Involuntary Disposition or any sale, lease, license or other disposition of property (other than, for the avoidance of doubt, IP Rights) in settlement of, or to make payment in satisfaction of, any property or casualty insurance claim, (g) dispositions of cash, Cash Equivalents and Investments made pursuant to the Borrower Investment Policy, in each case, in the ordinary course of business, (h) dispositions consisting of the sale, transfer, assignment or other disposition of unpaid and overdue accounts receivable in connection with the collection, compromise or settlement thereof in the ordinary course of business and not as part of a financing transaction, (i) Permitted Licenses, (j) to the extent constituting Dispositions, Investments permitted by Section 8.02, transactions permitted by Section 8.04, Restricted Payments permitted by Section 8.06 and Permitted Liens, in each case, except to the extent permitted by reference to Section 8.05 or this definition (or any clause thereof or hereof), (k) sales, leases, licenses, transfers or other dispositions of property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such sale, lease, license, transfer or other disposition are promptly applied to the purchase price of similar replacement property, (l) the sale, transfer, issuance or other disposition of a de minimis number of shares of the Equity Interests of a Foreign Subsidiary of a Loan Party in order to qualify members of the governing body of such Subsidiary if required by applicable Law and (m) dispositions of property which in the aggregate do not exceed $1,500,000 in any fiscal year of the Borrower.  It is understood and agreed that, notwithstanding anything to the contrary set forth in this definition, in no event shall a “Permitted Transfer” include any license of Veltassa (or any IP Rights associated therewith) other than Permitted Licenses.

“Disqualified Capital Stock” means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event,

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(a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, prior to the ninety-first (91^st) day after the Maturity Date, (b) requires the payment of any cash dividends at any time prior to the ninety-first (91^st) day after the Maturity Date, (c) contains any repurchase obligation which may come into effect prior to payment in full of all Obligations, or (d) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Equity Interests referred to in clause (a), (b) or (c) above, in each case at any time prior to the ninety-first (91^st) day after the Maturity Date; provided, that, any Equity Interests that would not constitute Disqualified Capital Stock but for provisions thereof giving the holders thereof the right to require the issuer thereof to redeem or repurchase such Equity Interests upon the occurrence of a change of control or asset sale occurring prior to the ninety-first (91^st) day after the Maturity Date shall not constitute Disqualified Capital Stock if such Equity Interests provide that the issuer thereof will not redeem or repurchase any such Equity Interests pursuant to such provisions prior to the Term Loan and all other Obligations (other than contingent indemnification obligations for which no claim has been asserted) having been paid in full in cash.

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

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any state of the United States or the District of Columbia.

“Domain Names” means all domain names and URLs that are registered and/or owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Drug Application” means a New Drug Application or an Abbreviated New Drug Application, as those terms are defined in the FDCA and the FDA regulations promulgated thereunder, for any Product, as appropriate, in each case of the Borrower or any Subsidiary.

“Earn Out Obligations” means, with respect to an Acquisition, all obligations of the Borrower or any Subsidiary to make earn out or other contingency payments (including purchase price adjustments, non-competition and consulting agreements, or other indemnity obligations) pursuant to the documentation relating to such Acquisition.  For purposes of determining the aggregate consideration paid for an Acquisition at the time of such Acquisition, the amount of any Earn Out Obligations shall be deemed to be the maximum amount of the earn-out payments in respect thereof as specified in the documents relating to such Acquisition.  For purposes of determining the amount of any Earn Out Obligations to be included in the definition of Funded Indebtedness, the amount of Earn Out Obligations shall be deemed to be the aggregate liability in respect thereof, as determined in accordance with GAAP.

“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

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“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“Eligible Assets” means long-term assets that are used or useful in the same or a similar line of business as the Borrower and its Subsidiaries were engaged in on the Closing Date (or any reasonable extensions or expansions thereof).

“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 11.06 (subject to such consents, if any, as may be required under Section 11.06(b)(iii)).

“Environmental Laws” means any and all federal, state, local, foreign and other applicable statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interests”  means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member, membership or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination; provided, that, Equity Interests shall not include Convertible Bond Indebtedness.

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

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Internal Revenue Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating to Section 412 of the Internal Revenue Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan, (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA, (c) a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) by the Borrower or any ERISA Affiliate from a Multiemployer Plan, (d) the filing by the plan administrator of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Sections 4041 or 4041A of ERISA, (e) the institution by the PBGC of proceedings under Section 4042 of

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ERISA to terminate a Pension Plan, (f) the occurrence of any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Section 432 of the Internal Revenue Code or Sections 303 and 305 of ERISA, or (h) the imposition of any liability pursuant to Sections 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA upon the Borrower or any ERISA Affiliate.

“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.

“Event of Default” has the meaning set forth in Section 9.01.

“Excluded Account” means (a) any demand deposit account, securities account, commodity account or other deposit account of any Loan Party (and all cash, Cash Equivalents and other securities or instruments credited thereto or deposited therein) that is used solely and exclusively for payroll, payroll taxes, and other employee wage and benefit payments to or for any Loan Party’s employees; (b) Deposit Accounts pledged in connection with Liens permitted by Section 8.01(r) and (c) any other Deposit Account which, together with all other Deposit Accounts excluded pursuant to this clause (c) does not as of any date of determination hold cash and Cash Equivalents in an aggregate amount in excess of $1,500,000.

“Excluded Property” means, with respect to any Loan Party, including any Person that becomes a Loan Party after the Closing Date as contemplated by Section 7.12, (a) any owned or leased real or personal property which is located outside of the United States, (b) any personal property (including, without limitation, motor vehicles) in respect of which perfection of a Lien is not either (x) governed by the Uniform Commercial Code or (y) effected by appropriate evidence of the Lien being filed in either the United States Copyright Office or the United States Patent and Trademark Office, (c) the Equity Interests of any Foreign Subsidiary or Foreign Subsidiary Holding Company, in each case, to the extent not required to be pledged to secure the Obligations pursuant to Section 7.14(a), (d) any property which, subject to the terms of Section 8.09, is subject to a Lien of the type described in Section 8.01(i) pursuant to documents which prohibit such Loan Party from granting any other Liens in such property, (e) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law; provided, that, upon submission and acceptance by the United States Patent and Trademark Office of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to-use trademark application shall no longer constitute “Excluded Property” and shall be considered Collateral, (f) any general intangible, permit, lease, license, contract or other instrument of a Loan Party if the grant of a security interest in such general intangible, permit, lease, license, contract or other instrument in the manner contemplated by the Collateral Documents, under the terms thereof or under applicable Law, is prohibited and would result in the termination thereof or give the other parties thereto the right to terminate, accelerate or otherwise alter such Loan Party’s rights, titles and interests thereunder (including upon the giving of notice or lapse of time or both); provided, that, (x) any such limitation described in this clause (f) on the security interests granted under the Collateral Documents shall only apply to the extent that any such prohibition would not be rendered ineffective pursuant to the Uniform Commercial Code or any other applicable Law or principles of equity and (y) in the event of the termination or elimination of any such prohibition or the requirement for any consent contained in any applicable Law, general intangible, permit, lease, license, contract or other instrument, to the extent sufficient to permit any such item to become Collateral, a security interest in such general intangible, permit, lease, license, contract or other instrument shall be automatically and simultaneously granted under the applicable Collateral Document and such general intangible, permit, lease, license, contract or other instrument shall no longer constitute “Excluded Property” and shall be considered Collateral, (g) any leasehold interest of any Loan

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Party in real property, (h) Deposit Accounts pledged in connection with Liens permitted by Section 8.01(r), and (i) any owned real property of any Loan Party having a fair market value of less than $500,000.

“Extraordinary Receipts” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof) and indemnity payments.  For the avoidance of doubt, Extraordinary Receipts shall not include any proceeds from the issuance of Equity Interests or any other financing (Indebtedness or otherwise) specifically permitted hereunder or any payments or proceeds from licensing transactions permitted hereunder.

 

“Facilities” means, at any time, a collective reference to the facilities and real properties owned, leased or operated by any Loan Party or any Subsidiary.

“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code as of the Closing Date (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations thereunder, official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code and any intergovernmental agreements entered into thereunder.

“FDA” means the Food and Drug Administration of the United States of America or any successor entity thereto.

“FDCA” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C. Section 301 et seq. and all regulations promulgated thereunder.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that, if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day.

“Fee Letters” means (a) the Closing Date Fee Letters and (b) the Administrative Agency Fee Letter.

“Foreign Lender” has the meaning set forth in Section 3.01(c).

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

“Foreign Subsidiary Holding Company” means any Domestic Subsidiary all or substantially all of the assets of which consist of, directly or indirectly, the Equity Interests in one or more CFCs or Indebtedness of such CFCs.

“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

“Funded Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

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(a)all obligations, whether current or long-term, for borrowed money (including the Obligations) and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; 

(b)all purchase money Indebtedness;

(c)the principal portion of all obligations under conditional sale or other title retention agreements relating to property purchased by such Person or any Subsidiary thereof (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business);

(d)all obligations arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(e)all obligations in respect of the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and, in each case, not past due for more than 90 days after the date on which such trade account payable was created), including, without limitation, any Earn Out Obligations;

(f)the Attributable Indebtedness of Capital Leases, Securitization Transactions and Synthetic Leases;

(g)all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Disqualified Capital Stock in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;

(h)all Funded Indebtedness of others secured by (or for which the holder of such Funded Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed;

(i)all Guarantees with respect to Funded Indebtedness of the types specified in clauses (a) through (h) above of another Person; and

(j)all Funded Indebtedness of the types referred to in clauses (a) through (i) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or joint venturer, except to the extent that Funded Indebtedness is expressly made non-recourse to such Person.

For purposes hereof, the amount of any direct obligation arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments shall be the maximum amount available to be drawn thereunder.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, consistently applied and as in effect from time to time.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality,

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regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Governmental Licenses” means all authorizations issuing from a Governmental Authority, including the FDA, based upon or as a result of applications to and requests for approval from a Governmental Authority for the right to manufacture, import, store, market, promote, advertise, offer for sale, sell, use and/or otherwise distribute a Product, which are owned by or licensed to the Borrower or any Subsidiary, acquired by the Borrower or any Subsidiary via assignment, purchase or otherwise or that the Borrower or any Subsidiary is authorized or granted rights under or to.

“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien).  The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.  The term “Guarantee” as a verb has a corresponding meaning.

“Guarantors” means each Domestic Subsidiary of the Borrower identified as a “Guarantor” on the signature pages hereto and each other Person that joins as a Guarantor pursuant to Section 7.12, together with their successors and permitted assigns.

“Guaranty” means the Guaranty made by the Guarantors in favor of the Administrative Agent, the Lenders and the other holders of the Obligations pursuant to Article IV.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“HHS” means the United States Department of Health and Human Services and any successor agency thereof.

“Immaterial Foreign Subsidiary” means at any time, a Foreign Subsidiary that (a) as of the last day of the fiscal quarter of the Borrower most recently ended for which the Borrower was required to deliver financial statements pursuant to Section 7.01(a) or (b), did not have assets in excess of (i) five percent (5%) of the aggregate total assets of the Borrower and its Subsidiaries at the end of such fiscal quarter for any one Immaterial Foreign Subsidiary and (ii) ten percent (10%) of the aggregate total assets of the Borrower

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and its Subsidiaries at the end of such fiscal quarter for all Immaterial Foreign Subsidiaries in the aggregate; and (b) for the period of four fiscal quarters most recently ended for which the Borrower was required to deliver financial statements pursuant to Section 7.01(a) or (b), did not have Consolidated Revenues attributable to such Foreign Subsidiary (excluding, for the avoidance of doubt, intercompany revenues) for such period in excess of (i) five percent (5%) of Consolidated Revenues for such period for any one Immaterial Foreign Subsidiary and (ii) ten percent (10%) of Consolidated Revenues for such period for all Immaterial Foreign Subsidiaries in the aggregate.

 

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a)all Funded Indebtedness;

(b)the Swap Termination Value of any Swap Contract;

(c)all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) and (b) above of any other Person; and

(d)all Indebtedness of the types referred to in clauses (a) through (c) above of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person or a Subsidiary thereof is a general partner or joint venturer, unless such Indebtedness is expressly made non-recourse to such Person or such Subsidiary.

For the avoidance of doubt, “Indebtedness” shall not include Permitted Bond Hedge Transactions or Permitted Warrant Transactions.

 

“Indemnified Taxes” has the meaning set forth in Section 3.01(a).

“Indemnitee” has the meaning set forth in Section 11.04(b).

“Information” has the meaning set forth in Section 11.07.

“Interest Payment Date” means (a) the 15^th day of each March, June, September and December; provided, that, if any such 15^th day is not a Business Day, the applicable “Interest Payment Date” shall be the first Business Day immediately preceding such 15^th day; and (b) the Maturity Date.

“Interim Financial Statements” means the unaudited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal quarter ended September 30, 2015, including balance sheets and statements of income or operations, shareholders’ equity and cash flows.

“Internal Revenue Code” means the United States Internal Revenue Code of 1986.

“Internal Revenue Service” means the United States Internal Revenue Service.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) an Acquisition.  For purposes of covenant compliance, the amount

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of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“Investment Documents” means, collectively, the Loan Documents and the Warrants.

“Involuntary Disposition” means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any property of any Loan Party or any of its Subsidiaries.

“IP Rights” means, collectively, all Confidential Information, all Copyrights, all Copyright Licenses, all Domain Names, all Drug Applications, all Governmental Licenses, all applications and requests for Governmental Licenses, all Other Intellectual Property, all Other IP Agreements, all Patents, all Patent Licenses, all Proprietary Databases, all Proprietary Software, all Trademarks, all Trademark Licenses, all Trade Secrets, all Websites and all Website Agreements.

“Joinder Agreement” means a joinder agreement substantially in the form of Exhibit C executed and delivered by a Domestic Subsidiary in accordance with the provisions of Section 7.12.

“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case, having the force of law.

“Lenders” means each of the Persons identified as a “Lender” on the signature pages hereto and their successors and assigns.

“Lending Office” means, as to any Lender, the office address of such Lender and, as appropriate, account of such Lender set forth on Schedule 11.02 or such other address or account as such Lender may from time to time notify the Borrower and the Administrative Agent in accordance with Section 11.02(c).

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

“Loan” means an extension of credit by a Lender to the Borrower under Article II.

“Loan Documents” means this Agreement, each Note, each Fee Letter, each Joinder Agreement, any intercreditor agreement entered into by the Administrative Agent with respect to Permitted Senior Revolving Credit Indebtedness, any subordination agreement entered into by the Administrative Agent with respect to Convertible Bond Indebtedness, each Collateral Document and any other agreement, instrument or document between one or more Loan Parties and the Administrative Agent and/or one or more Lender(s) that is designated by its terms as a “Loan Document”.

“Loan Notice” means a notice of a Borrowing of Loans pursuant to Section 2.02(a), which shall be substantially in the form of Exhibit A.

“Loan Parties” means, collectively, the Borrower and each Guarantor.

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“Make-Whole Amount” means, on any date of determination, with respect to any amount of the Term Loan that is prepaid or required to be prepaid, an amount equal to the greater of (a) one percent (1.00%) of the principal amount of the Term Loan prepaid or required to be prepaid and (b) the amount, if any, by which (i) the present value as of such date of determination (as determined by the Required Lenders in accordance with customary practice (it being understood that for purposes of this definition “present value” shall be calculated using the X-NPV function of Microsoft Excel at the time of such calculation)) of (x) one hundred eleven and one-half percent (111.50%) of the principal amount of the Term Loan prepaid or required to be prepaid plus (y) all required interest payments that would have been due on the principal amount of the Term Loan prepaid or required to be prepaid through and including April 27, 2018, computed using a discount rate equal to the Three Month Treasury Rate plus one percent (1.00%), exceeds (ii) the principal amount of the Term Loan prepaid or required to be prepaid.

“Market Capitalization” means, as of any date of determination, the product of (a) the 30-Day VWAP as of such date of determination multiplied by (b) the aggregate number of outstanding shares of common stock of the Borrower as reported on the Borrower’s most recently filed Form 10-Q or Form 10-K.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the business, assets, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document to which it is a party or a material impairment in the perfection, value or priority of the Administrative Agent’s security interests in the Collateral (except in the case of this clause (b), to the extent that the loss of any perfection or priority results from the failure of the Administrative Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Documents or to file Uniform Commercial Code financing statements or continuation statements or other equivalent filings), (c) an impairment of the ability of the Loan Parties (taken as a whole) to perform their respective material obligations under the Loan Documents, or (d) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

“Material Contracts” has the meaning set forth in Section 6.22.

“Material IP Rights” means IP Rights that (a) are included in the Orange Book Patents, (b) are material to the operations, business, property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole or (c) the loss of which could reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect.

“Maturity Date” means April 27, 2022.

“Maximum Accrual” has the meaning set forth in Section 2.03(d).

“Maximum Rate” has the meaning set forth in Section 11.09.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Mortgages” means the mortgages, deeds of trust or deeds to secure debt that purport to grant to the Administrative Agent, for the benefit of the holders of the Obligations, a security interest in the fee interest of any Loan Party in real property (other than Excluded Property).

“Multiemployer Plan” means any “employee benefit plan” (as defined in Section 3(3) of ERISA) that is a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, to which the Borrower or any

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ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Cash Proceeds” means the aggregate cash or Cash Equivalents proceeds received by any Loan Party or any Subsidiary in respect of any Disposition, Debt Issuance, Involuntary Disposition or Extraordinary Receipts, net of (a) in the case of any Disposition or Involuntary Disposition, (i) direct costs incurred in connection therewith (including, without limitation, legal, accounting and investment banking fees, and sales commissions), (ii) taxes paid or payable as a result thereof and (iii) amounts that are set aside as a reserve (A) for adjustments in respect of the purchase price of such assets and (B) for any liabilities associated with such sale or casualty, in each case, to the extent such reserve is required by GAAP and to the extent that in each case the amounts described above in this clause (iii) are (x) deposited into escrow with a third party escrow agent acceptable to the Required Lenders or set aside in a separate account that is subject to a Deposit Account Control Agreement and (y) paid as a prepayment of the Obligations in accordance with Section 2.03(b) at such time when such amounts are no longer required to be set aside as a reserve, (b) in the case of any Disposition or Involuntary Disposition, the amount necessary to retire any Indebtedness secured by a Permitted Lien (ranking senior to any Lien of the Administrative Agent) on the related property and (c) in the case of any Extraordinary Receipt, (i) reasonable direct costs incurred in connection with the collection of such proceeds, awards or other payments and (ii) insurance and condemnation proceeds that are applied to the repair or replacement of the applicable property within one (1) year after receipt thereof.  It is understood and agreed that “Net Cash Proceeds” shall include, without limitation, any cash or Cash Equivalents received upon the sale or other disposition of any non-cash consideration received by any Loan Party or any Subsidiary in any Disposition, Debt Issuance, Involuntary Disposition or Extraordinary Receipt.

“Non-Consenting Lender” means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 11.01 and (b) has been approved by the Required Lenders.

“Non-FDA Governmental Action” has the meaning set forth in Section 9.01(p).

“Note” or “Notes” means the Term Notes, individually or collectively, as appropriate.

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

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.  For the avoidance of doubt, “Obligations” shall not include any debts, liabilities, obligations, covenants or duties of the Borrower under any Warrant.

“Orange Book Patents” means those patents listed in the FDA Orange Book as protecting Veltassa and its use under its approved label, including U.S. Patent Nos.7,556,799, 8,147,873, 8,216,560, 8,282,913, 8,287,847, 8,337,824, 8,475,780, 8,778,324 and 8,889,115.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction), (b) with respect to any limited liability company, the certificate or articles of formation

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or organization and operating agreement, and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Other Intellectual Property” means all worldwide intellectual property rights, industrial property rights, proprietary rights and common-law rights, whether registered or unregistered, which are not otherwise included in Confidential Information, Copyrights, Copyright Licenses, Domain Names, Governmental Licenses, Other IP Agreements, Patents, Patent Licenses, Trademarks, Trademark Licenses, Proprietary Databases, Proprietary Software, Websites, Website Agreements and Trade Secrets, including, without limitation, all rights to and under all new and useful algorithms, concepts, data (including all clinical data relating to a Product), databases, designs, discoveries, inventions, know-how, methods, processes, protocols, chemistries, compositions, formulas, show-how, software (other than commercially available, off-the-shelf software that is not assignable in connection with a Change of Control), specifications for Products, techniques, technology, trade dress and all improvements thereof and thereto, in each of the foregoing cases, which is owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Other IP Agreements” means any agreement, whether written or oral, providing for the grant of any right under any Confidential Information, Governmental License, application or request for a Governmental License, Proprietary Database, Proprietary Software, Trade Secret and/or any other IP Right, to the extent that the grant of any such right is not otherwise the subject of a Copyright License, Trademark License, Patent License or Website Agreement.

 

“Outstanding Amount” means with respect to any Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of any Loans occurring on such date.

“Participant” has the meaning set forth in Section 11.06(d).

“Patent License” means any agreement, whether written or oral, providing for the grant of any right under any Patent.

“Patents” means all letters patent and patent applications in the United States and all other countries (and all letters patent that issue therefrom) and all reissues, reexaminations, extensions, renewals, divisions and continuations (including continuations-in-part and continuing prosecution applications) thereof, for the full term thereof, together with the right to claim the priority thereto and the right to sue for past infringement of any of the foregoing, which are owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

“Pension Funding Rules” means the rules of the Internal Revenue Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in Section 412, 430, 431, 432 and 436 of the Internal Revenue Code and Sections 302, 303, 304 and 305 of ERISA.

“Pension Plan” means any “employee pension benefit plan” (as defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is maintained or is contributed to by the Borrower and any ERISA

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Affiliate and is either covered by Title IV of ERISA or is subject to minimum funding standards under Section 412 of the Internal Revenue Code.

“Permits” means licenses, certificates, Governmental Licenses, other authorizations, registrations, permits, consents and approvals required in connection with the conduct of the Borrower’s or any Subsidiary’s business or to comply with any applicable Laws, including drug listings and drug establishment registrations under 21 U.S.C. Section 360, registrations issued by DEA under 21 U.S.C. Section 823 (if applicable to any Product), and those issued by state governments for the conduct of the Borrower’s or any Subsidiary’s business.

“Permitted Acquisitions” means an Investment consisting of an Acquisition by any Loan Party; provided, that: (a) no Default or Event of Default shall have occurred and be continuing or would result from such Acquisition, (b) the property acquired (or the property of the Person acquired) in such Acquisition is used or useful in the same or a related line of business as the Borrower and its Subsidiaries were engaged in on the Closing Date (or any reasonable extensions or expansions thereof), (c) the Administrative Agent shall have received all items in respect of the Equity Interests or property acquired in such Acquisition required to be delivered by the terms of Section 7.12 and/or Section 7.14, (d) in the case of an Acquisition of the Equity Interests of another Person, the Board of Directors of such other Person shall have duly approved such Acquisition, (e) the Borrower shall have delivered to the Administrative Agent and the Lenders pro forma financial statements for the Borrower and its Subsidiaries after giving effect to such Acquisition for the twelve month period ending as of the most recent fiscal quarter end in a form reasonably satisfactory to the Required Lenders, (f) the representations and warranties made by the Loan Parties in each Loan Document shall be true and correct in all material respects (and in all respects if any such representation or warranty is already qualified by materiality or reference to Material Adverse Effect) at and as if made as of the date of such Acquisition (after giving effect thereto) except to the extent any such representation and warranty expressly relates to an earlier date, in which case it shall be true and correct in all material respects (and in all respects if any such representation or warranty is already qualified by materiality or reference to Material Adverse Effect) as of such earlier date and (g) the aggregate consideration (including cash and non-cash consideration, deferred purchase price and any Earn Out Obligations but excluding Qualified Capital Stock of the Borrower (to the extent not constituting a Change of Control)) paid by the Loan Parties for all such Acquisitions during the term of this Agreement shall not exceed $50,000,000.

“Permitted Bond Hedge Transaction” means any call or capped call option (or substantively equivalent derivative transaction) relating to the Borrower’s common stock (or other securities or property following a merger event or other change of the common stock of the Borrower) purchased by the Borrower in connection with the issuance of any Convertible Bond Indebtedness; provided, that, the purchase price for such Permitted Bond Hedge Transaction, less the proceeds received by the Borrower from the sale of any related Permitted Warrant Transaction, does not exceed the net proceeds received by the Borrower from the issuance of such Convertible Bond Indebtedness in connection with such Permitted Bond Hedge Transaction.

“Permitted Licenses” means, collectively, (a) licenses of over-the-counter software that is commercially available to the public, and (b) non-exclusive and exclusive licenses for the use of the intellectual property of the Borrower or any of its Subsidiaries entered into in the ordinary course of business; provided, that, with respect to each such license described in clause (b), (i) no Event of Default has occurred or is continuing at the time of entry into such license, (ii) the license constitutes an arms-length transaction, the terms of which, on their face, do not provide for a sale or assignment of any intellectual property and do not restrict the ability of the Borrower or any of its Subsidiaries, as applicable, to pledge, grant a Lien on or assign any intellectual property (in each case other than customary non-assignment provisions that restrict the assignability of the license but do not otherwise restrict the ability of the

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Borrower or any Subsidiary (as applicable) to pledge, grant a Lien on or assign any other intellectual property), (iii) in the case of any exclusive license, (A) the Borrower delivers ten (10) days’ prior written notice and a brief summary of the terms of the proposed license to the Administrative Agent and delivers to the Administrative Agent and the Lenders copies of the final executed licensing documents in connection with the exclusive license promptly upon consummation thereof, and (B) any such license could not result in a legal transfer of title of the licensed property but may be exclusive in respects other than territory and may be exclusive as to territory only as to discrete geographical areas outside of the United States, and (iv) all upfront payments, royalties, milestone payments or other proceeds arising from the licensing agreement that are payable to the Borrower or any of its Subsidiaries are paid to a Deposit Account that is governed by a Deposit Account Control Agreement.  It is understood and agreed that, notwithstanding anything to the contrary set forth in this definition, in no event shall a “Permitted License” include any license of Veltassa (or any IP Rights associated therewith) in the United States (or any state or other political subdivision thereof), except that a “Permitted License” may include a nonexclusive license to a third party in the ordinary course of the Borrower’s business in the import, export, manufacture, make, use, sale, offer for sale, promotion or distribution of Veltassa so long as such nonexclusive license does not grant to any third party the right to sell, offer for sale, market or promote Veltassa on a royalty payment basis, profit sharing basis or any other similar payment structure.

“Permitted Liens” means, at any time, Liens in respect of property of any Loan Party or any of its Subsidiaries permitted to exist at such time pursuant to the terms of Section 8.01.

“Permitted Senior Revolving Credit Documents” means each agreement, instrument and document entered into by the Borrower or any Subsidiary in connection with the Permitted Senior Revolving Credit Indebtedness (and in the case of such agreements, instruments and documents that are material, in each case in form and substance reasonably satisfactory to the Required Lenders), as the same may be amended, modified, extended, restated, replaced or supplemented from time to time subject to the terms and provisions of the intercreditor agreement entered into by the Administrative Agent in connection therewith.

“Permitted Senior Revolving Credit Indebtedness” means senior secured Indebtedness of the Borrower in a maximum principal amount not to exceed $15,000,000 at any one time outstanding incurred under the Permitted Senior Revolving Credit Documents which satisfies the following requirements: (a) the Borrower shall have delivered to the Administrative Agent and the Lenders all material Permitted Senior Revolving Credit Documents concurrently with its entry into such Permitted Senior Revolving Credit Documents, certified by a Responsible Officer of the Borrower and (b) no Subsidiary of the Borrower shall Guarantee, or provide a Lien with respect to, such Indebtedness if such Subsidiary does not provide a Guaranty of the Obligations (and pledge its assets in support thereof) in accordance with the terms of the Loan Documents.

“Permitted Senior Revolving Credit Requirement” means that, on any date of determination, Consolidated Net Sales for the four fiscal quarter period most recently ended for which financial statements have been delivered by the Borrower pursuant to Section 7.01(a) or (b) were at least $115,000,000.

 

“Permitted Warrant Transaction” means any call option, warrant or right to purchase (or substantively equivalent derivative transaction) relating to the Borrower’s common stock (or other securities or property following a merger event or other change of the common stock of the Borrower) sold by the Borrower substantially contemporaneously with any purchase by the Borrower of a related Permitted Bond Hedge Transaction, with a strike price higher than the strike price of the Permitted Bond Hedge Transaction.

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

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“Plan” means any “employee benefit plan” within the meaning of Section 3(3) of ERISA (including a Pension Plan) that is maintained for employees of the Borrower or, in the case of any Pension Plan, any ERISA Affiliate or to which the Borrower or, in the case of any Pension Plan, any ERISA Affiliate is required to contribute on behalf of any of its employees.

“Pledge Agreement” means the pledge agreement dated as of the Closing Date executed in favor of the Administrative Agent, for the benefit of the holders of the Obligations, by each of the Loan Parties, as amended or modified from time to time in accordance with the terms hereof.

“Product” means any product or service developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by the Borrower or any Subsidiary in connection with the Business, including those products set forth on Schedule 1.01 (as updated from time to time in accordance with the terms of this Agreement) and including, without limitation, Veltassa.

“Pro Forma Basis” means, in respect of a Specified Transaction, that such Specified Transaction and the following transactions in connection therewith (to the extent applicable) shall be deemed to have occurred as of the first day of the applicable period of measurement for the applicable covenant or requirement: (a) (i) with respect to any Disposition, Involuntary Disposition or sale, transfer or other disposition that results in a Person ceasing to be a Subsidiary, income statement and cash flow statement items (whether positive or negative) attributable to the Person or property disposed of shall be excluded and (ii) with respect to any Acquisition or Investment, income statement and cash flow statement items (whether positive or negative) attributable to the Person or property acquired shall be included to the extent relating to any period applicable in such calculations to the extent (A) such items are not otherwise included in such income statement items for the Borrower and its Subsidiaries in accordance with GAAP or in accordance with any defined terms set forth in Section 1.01 and (B) such items are supported by financial statements or other information satisfactory to the Required Lenders, (b) any retirement of Indebtedness and (c) any incurrence or assumption of Indebtedness by the Borrower or any Subsidiary (and if such Indebtedness has a floating or formula rate, such Indebtedness shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination); provided, that, Pro Forma Basis in respect of any Specified Transaction shall be calculated in a reasonable and factually supportable manner and certified by a Responsible Officer of the Borrower.

“Proprietary Databases” means any material non-public proprietary database or information repository that is owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Proprietary Software” means any proprietary software (other than any software that is generally commercially available, off-the-shelf and/or open source) including, without limitation, the object code and source code forms of such software and all associated documentation, which is owned by or licensed to the Borrower or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Qualified Capital Stock” of any Person means any Equity Interests of such Person that are not Disqualified Capital Stock.

“Recipient” means the Administrative Agent, any Lender, and any other recipient of any payment by or on account of any obligation of any Loan Party under any Loan Document.

“Register” has the meaning set forth in Section 11.06(c).

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“Regulatory Permits” has the meaning set forth in Section 6.23.

“Related Indemnified Party” means, with respect to any Indemnitee, (a) any controlled or controlling Affiliate of such Indemnitee, and (b) the respective officers, directors, employees, agents or representatives of such Indemnitee or any of its controlled or controlling Affiliates, in the case of this clause (b), acting at the direction of such Indemnitee or controlled or controlling Affiliate; provided, that, each reference to a controlled or controlling Affiliate in this definition pertains to a controlled or controlling Affiliate involved in the negotiation, syndication, administration or enforcement of this Agreement.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors, sub-advisors and representatives of such Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty-day notice period has been waived.

“Required Lenders” means, at any time, Lenders having Total Credit Exposures representing more than 50% of the Total Credit Exposures of all Lenders.  The Total Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time.

“Resignation Effective Date” has the meaning set forth in Section 10.06(a).

“Responsible Officer” means the chief executive officer, president, chief financial officer, chief operating officer, senior vice president, general counsel, vice president of finance, treasurer, assistant treasurer or controller of a Loan Party and, solely for purposes of the delivery of certificates pursuant to Sections 5.01 or 7.12(b), the secretary or any assistant secretary of a Loan Party.  Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Payment” means (a) any dividend or other distribution, direct or indirect, on account of any shares (or equivalent) of any class of Equity Interests of any Loan Party or any of its Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of (i) any shares (or equivalent) of any class of Equity Interests of any Loan Party or any of its Subsidiaries, now or hereafter outstanding or (ii) any call option on any shares (or equivalent) of any class of Equity Interests or any Loan Party or any of its Subsidiaries (irrespective of whether such call option can be cash, net share or physically settled), (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Equity Interests of any Loan Party or any of its Subsidiaries, now or hereafter outstanding, (d) any payment made in cash to the holders of Convertible Bond Indebtedness in excess of the original principal (or notional) amount thereof, interest thereon and any fees due thereunder and (e) any payment made in cash in connection with the settlement of a Permitted Warrant Transaction; provided, that, notwithstanding anything herein to the contrary, it is understood and agreed that any payment in cash due upon the conversion or settlement of any Convertible Bond Indebtedness (other than interest thereon  and any fees due thereunder) shall constitute a Restricted Payment for all purposes hereunder.

“Revolving Credit Lender” has the meaning set forth in Section 8.01(o).

“Revolving Credit Priority Collateral” has the meaning set forth in Section 8.03(f).

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“S&P” means Standard & Poor’s Financial Services LLC, a subsidiary of McGraw-Hill Financial, Inc., and any successor thereto.

“Safety Notices” means any recalls, field notifications, market withdrawals, warnings, “dear doctor” letters, investigator notices, safety alerts or other notices of action issued or instigated by the Borrower, any Subsidiary or any Governmental Authority relating to an alleged lack of safety or regulatory compliance of the Products.

“Sale and Leaseback Transaction” means, with respect to any Loan Party or any Subsidiary, any arrangement, directly or indirectly, with any Person whereby the Loan Party or such Subsidiary shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

“Sanction(s)” means any sanction administered or enforced by the United States government (including, without limitation, OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury (“HMT”) or other relevant sanctions authority.

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“Securities Act” means the Securities Act of 1933.

“Securitization Transaction” means, with respect to any Person, any financing transaction or series of financing transactions (including factoring arrangements) pursuant to which such Person or any Subsidiary of such Person may sell, convey or otherwise transfer, or grant a security interest in, accounts, payments, receivables, rights to future lease payments or residuals or similar rights to payment to a special purpose subsidiary or affiliate of such Person.

“Security Agreement” means the security agreement dated as of the Closing Date executed in favor of the Administrative Agent, for the benefit of the holders of the Obligations, by each of the Loan Parties, as amended or modified from time to time in accordance with the terms hereof.

“Solvent” or “Solvency” means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the ordinary course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person and (e) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured.  In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Specified Transaction” means any Acquisition, any Disposition, any sale, transfer or other disposition that results in a Person ceasing to be a Subsidiary, any Involuntary Disposition or any

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Investment that results in a Person becoming a Subsidiary, in each case, whether by merger, consolidation or otherwise.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of Voting Stock is at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement; provided, that, “Swap Contract” shall not include any Permitted Bond Hedge Transaction or any Permitted Warrant Transaction.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Synthetic Lease” means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing arrangement whereby the arrangement is considered borrowed money indebtedness for tax purposes but is classified as an operating lease or does not otherwise appear on a balance sheet under GAAP.

“Taxes” has the meaning set forth in Section 3.01(a).

“Term Loan” has the meaning set forth in Section 2.01(a).

“Term Loan Commitment” means, as to each Lender, its obligation to make its portion of the Term Loan to the Borrower pursuant to Section 2.01(a), in the principal amount set forth opposite such Lender’s name on Schedule 2.01. The aggregate principal amount of the Term Loan Commitments of all of the Lenders as in effect on the Closing Date is ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000).

“Term Note” has the meaning set forth in Section 2.08.

“Third Party” means any entity other than the Borrower, any Subsidiary or any Affiliate of the Borrower or any Subsidiary.

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“Three Month Treasury Rate” means, as of any date of determination, the weekly average yield as of such date of determination of actually traded United States Treasury securities adjusted to a constant maturity of three (3) months (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publically available at least two (2) Business Days prior to such date of determination (or, if such Federal Reserve Statistical Release H.15(519) is no longer published, any publically available source of similar market data)).  For the avoidance of doubt, this calculation is based on yields on actively traded non-inflation-indexed issues adjusted to constant maturities.

“30-Day VWAP” means, as of any date of determination, the volume-weighted average price of the Borrower’s common stock from 9:30 a.m. on the trading day that is thirty (30) days prior to the End Date to 4:00 p.m. on the last trading day immediately preceding such date of determination (the “End Date”), as calculated pursuant to the heading “Bloomberg VWAP” on Bloomberg Page RLYP <Equity>VWAP.

“Threshold Amount” means $2,000,000.

“Total Credit Exposure” means, as to any Lender at any time, the Outstanding Amount of all Loans of such Lender at such time.

“Trademark License” means any agreement, written or oral, providing for the grant of any right to use any Trademark.

“Trademarks” means all statutory and common-law trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications to register in connection therewith, under the laws of the United States, any state thereof or any other country or any political subdivision thereof, or otherwise, for the full term and all renewals thereof, which are owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Trade Secrets” means any data or information that is not commonly known by or available to the public, and which (a) derives economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other Persons who can obtain economic value from its disclosure or use, (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, and (c) which are owned by or licensed to the Borrower or any Subsidiary or with respect to which the Borrower or any Subsidiary is authorized or granted rights under or to.

“Treasury Regulations” means the regulations, including temporary regulations, promulgated by the United States Treasury Department under the Internal Revenue Code, as such regulations may be amended from time to time (including the corresponding provisions of any future regulations).

“United States” and “U.S.” mean the United States of America.

“Veltassa” means a drug product that contains the drug substance patiromer sorbitex calcium, as described in New Drug Application No. 205739, including any changes to such approved New Drug Application No. 205739 pursuant to all submissions, supplements and amendments to such application.

“Voting Stock” means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors

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(or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency.

“Warrants” means those certain common stock purchase warrants of the Borrower purchased by the Lenders, substantially in the form of Exhibit B-2.  The Warrants shall have the rights set forth therein and shall be in the respective amounts set forth on Schedule 2.01.

“Websites” means all websites that the Borrower or any Subsidiary shall operate, manage or control through a Domain Name, whether on an exclusive basis or a nonexclusive basis, including, without limitation, all content, elements, data, information, materials, hypertext markup language (HTML), software and code, works of authorship, textual works, visual works, aural works, audiovisual works and functionality embodied in, published or available through each such website and all IP Rights in each of the foregoing.

“Website Agreements” means all agreements between the Borrower and/or any Subsidiary and any other Person pursuant to which such Person provides any services relating to the hosting, design, operation, management or maintenance of any Website, including without limitation, all agreements with any Person providing website hosting, database management or maintenance or disaster recovery services to the Borrower and/or any Subsidiary and all agreements with any domain name registrar, as all such agreements may be amended, supplemented or otherwise modified from time to time.

“Wholly Owned Subsidiary” means any Person 100% of whose Equity Interests are at the time owned by the Borrower directly or indirectly through other Persons 100% of whose Equity Interests are at the time owned, directly or indirectly, by the Borrower.

“Withholding Agent” means any Loan Party, the Administrative Agent and any other Person required by applicable Law to withhold or deduct amounts from a payment made by or on account of any obligation of any Loan Party under any Loan Document.

“Work” means any work or subject matter that is subject to protection pursuant to Title 17 of the United States Code.

“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

1.02Other Interpretive Provisions.

With reference to this Agreement and each other Investment Document, unless otherwise specified herein or in such other Investment Document:

(a)The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including the Investment Documents and any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, modified, extended, restated, replaced or supplemented from time to time (subject to any

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restrictions set forth herein or in any other Investment Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto”, “herein,” “hereof” and “hereunder,” and words of similar import when used in any Investment Document, shall be construed to refer to such Investment Document in its entirety and not to any particular provision thereof, (iv) all references in an Investment Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Investment Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified, extended, restated, replaced or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all real and personal property and tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 

(b)In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c)Section headings herein and in the other Investment Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Investment Document.

1.03Accounting Terms.

(a)Generally.  Except as otherwise specifically prescribed herein, all accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein; provided, however, that, calculations of Attributable Indebtedness under any Synthetic Lease or the implied interest component of any Synthetic Lease shall be made by the Borrower in accordance with accepted financial practice and consistent with the terms of such Synthetic Lease.  Notwithstanding the foregoing, for purposes of determining compliance with any covenant contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.

(b)Changes in GAAP.  The Borrower will provide a written summary of material changes in GAAP and in the consistent application thereof with each annual and quarterly financial statement delivered in accordance with Section 7.01.  If at any time any change in GAAP would affect the computation of any financial definition or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such definition or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided, that, until so amended, (i) such requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as requested hereunder setting forth a reconciliation between calculations of such definition or requirement made before and after giving effect to such change

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in GAAP.  Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the Audited Financial Statements for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.   

(c)Calculations.  Notwithstanding anything to the contrary contained herein, all calculations of Consolidated Net Sales and Consolidated Revenues shall be made on a Pro Forma Basis with respect to all Specified Transactions occurring during the applicable four quarter period to which such calculation relates.  The parties hereto acknowledge and agree that for purposes of all calculations hereunder, the principal amount of Convertible Bond Indebtedness shall be the outstanding principal (or notional) amount thereof, valued at par.

 

(d)Consolidation of Variable Interest Rate Entities.  All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Borrower is required to consolidated pursuant to FASB ASC 810 as if such variable interest entity was a Subsidiaries as defined herein.

 

1.04Times of Day.

Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

ARTICLE II

THE COMMITMENTS

2.01Term Loan Commitments and Warrants.

(a)Term Loan.  Subject to the terms and conditions set forth herein, each Lender severally agrees to make its portion of a term loan (the “Term Loan”) to the Borrower in Dollars on the Closing Date in an amount not to exceed such Lender’s Term Loan Commitment such that the aggregate amount of loans funded on the Closing Date equals One Hundred and Fifty Million Dollars ($150,000,000).  Amounts repaid on the Term Loan may not be reborrowed.

(b)Tax Treatment. The Borrower and Lenders hereby acknowledge and agree that, for United States income tax purposes, for an aggregate purchase price of $150,000,000, (i) the Lenders shall make the Term Loan to the Borrower and (ii) the Borrower shall sell to, and the Lenders shall purchase from the Borrower, the Warrants, in each case, in the respective amounts and purchase prices set forth opposite each Lender’s name on Schedule 2.01.  Furthermore, the Borrower and the Lenders hereby acknowledge and agree that, for United States federal income tax purposes (1) the issue price (within the meaning of Section 1273(b) of the Internal Revenue Code) of the Term Loan is determined pursuant to Section 1272-1275 of the Internal Revenue Code and the Treasury Regulations thereunder and (2) the issue price of the Warrants within the meaning of Section 1273(b) of the Internal Revenue Code, which issue price was determined pursuant to Section 1.1273-2(h)(1) of the Treasury Regulations, is equal to $3,297,449.  The parties hereto agree to report all income tax matters with respect to the making of the Term Loan and the Warrants consistent with the provisions of this Section 2.01(b) unless otherwise required due to a change in applicable Law.

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2.02Borrowings. 

(a)Each Borrowing shall be made upon the Borrower’s irrevocable notice (in the form of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower) to the Administrative Agent, which must be given not later than 11:00 a.m. at least three (3) Business Days in advance of the requested date of such Borrowing (or, in the case of the Borrowing to occur on the Closing Date, such shorter period as the Required Lenders may agree to).  Each Loan Notice shall specify the requested date of the Borrowing (which shall be a Business Day).

(b)Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Loans.  Each Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Loan Notice.  Upon satisfaction of the applicable conditions set forth in Section 5.02 (and, if such Borrowing is the initial Borrowing, Section 5.01), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent by wire transfer of such funds in accordance with instructions provided to (and acceptable to) the Administrative Agent by the Borrower.

2.03Prepayments.

(a)Voluntary Prepayments.  Subject to the payment of any prepayment premium as required under Section 2.03(e), the exit fee required under Section 2.06(b) and any other fees or amounts payable hereunder at such time, the Borrower may, upon notice from the Borrower to the Administrative Agent, voluntarily prepay the Term Loan, in whole or in part; provided, that, (i) such notice must be received not later than 11:00 a.m. three (3) Business Days prior to the date of prepayment and (ii) any such prepayment shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if less, the entire principal amount thereof then outstanding).  Each such notice shall specify the date and amount of such prepayment.  If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided, that, a notice of prepayment delivered by the Borrower under this Section 2.03(a) may state that such notice is conditioned upon the effectiveness of other credit facilities or the closing of another transaction, the proceeds of which will be used to prepay any outstanding Loans, in which case such prepayment may be conditional upon the effectiveness of such other credit facilities or the closing of such other transaction. Any prepayment pursuant to this Section 2.03(a) shall be accompanied by (x) all accrued interest on the principal amount of the Term Loan prepaid, (y) the prepayment premium required under Section 2.03(e) and the exit fee required under Section 2.06(b) and (z) all fees, costs, expenses, indemnities and other amounts due and payable hereunder at the time of prepayment.  Each such prepayment shall be applied to the principal repayment installments of the Term Loan on a pro rata basis.  Each such prepayment shall be applied to the Loans of the Lenders in accordance with their respective Applicable Percentages.

(b)Mandatory Prepayments of Loans.

(i)Dispositions and Involuntary Dispositions.  The Borrower shall promptly (and, in any event, within five (5) Business Days) prepay the Term Loan in an aggregate amount equal to 100% of the Net Cash Proceeds of all Dispositions and Involuntary Dispositions to the extent such Net Cash Proceeds are not reinvested in Eligible Assets

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within 270 days of the date of such Disposition or Involuntary Disposition.  Any prepayment pursuant to this clause (i) shall be applied as set forth in clause (iv) below. 

(ii)Extraordinary Receipts.  The Borrower shall promptly (and, in any event, within five (5) Business Days) upon the receipt by any Loan Party or any Subsidiary of the Net Cash Proceeds of any Extraordinary Receipt, prepay the Term Loan in an aggregate amount equal to 100% of such Net Cash Proceeds; provided, that, the Borrower shall not be required to so prepay in any fiscal year until the aggregate amount of Net Cash Proceeds received from all Extraordinary Receipts received by the Borrower and its Subsidiaries in such fiscal year is greater than $1,000,000.  Any prepayment pursuant to this clause (ii) shall be applied as set forth in clause (iv) below.

(iii)Debt Issuance.  The Borrower shall promptly (and, in any event, within three (3) Business Days) upon the receipt by any Loan Party or any Subsidiary of the Net Cash Proceeds of any Debt Issuance, prepay the Term Loan in an aggregate amount equal to 100% of such Net Cash Proceeds.  Any prepayment pursuant to this clause (iii) shall be applied as set forth in clause (iv) below.

(iv)Application of Mandatory Prepayments.  All payments under this Section 2.03(b) shall be applied first to all fees (other than, for the avoidance of doubt, exit fees required by Section 2.06(b)), costs, expenses, indemnities and other amounts due and payable hereunder, then proportionately (based on the relation of such amounts to the total amount of the relevant payment under this Section 2.03(b)) to the payment or prepayment (as applicable) of the following amounts: default interest, if any, prepayment premium required by Section 2.03(e) and the exit fee required by Section 2.06(b), accrued interest and principal.  Each such prepayment shall be applied to the principal repayment installments of the Term Loan in the inverse order of maturity.  Each such prepayment shall be applied to the Loans of the Lenders in accordance with their respective Applicable Percentages.

(c)Change of Control.  Upon the occurrence of a Change of Control, the Borrower shall, at the direction of the Required Lenders, and may, at its option upon three (3) Business Days prior written notice from the Borrower to the Administrative Agent, prepay the Outstanding Amount of the Term Loan together with all accrued and unpaid interest thereon plus the prepayment premium required by Section 2.03(e) and the exit fee required by Section 2.06(b) plus all other Obligations (other than contingent indemnification obligations for which no claim has been asserted). Each such direction or notice shall specify the date and amount of such prepayment.  If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.  Each prepayment under this Section 2.03(c) shall be applied to the Loans of the Lenders in accordance with their respective Applicable Percentages.

(d)Applicable High Yield Discount Obligation Payments.  On any Interest Payment Date following the fifth (5^th) anniversary of the Closing Date, if the aggregate amounts which would be includible in gross income of the Lenders with respect to the Loans for all periods ending on or before such Interest Payment Date (within the meaning of section 163(i) of the Internal Revenue Code) (the “Aggregate Accrual”) would exceed an amount equal to the sum of (x) the aggregate amount of interest to be paid (within the meaning of section 163(i) of the Internal Revenue Code) on the Loans on or before such Interest Payment Date (determined without regard to the amounts payable on such Interest Payment Date under this Section 2.03(d)) and (y) the product of (A) the issue price (as defined in sections 1273(b) and 1274(a) of the Internal Revenue Code) of the Loans

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and (B) the yield to maturity (interpreted in accordance with section 163(i) of the Internal Revenue Code) of the Loans (such sum, the “Maximum Accrual”), then the Borrower shall mandatorily pay to the Lenders ratably in cash, on each Interest Payment Date following the fifth (5^th) anniversary of the Closing Date, an amount equal to the excess, if any, of the Aggregate Accrual over the Maximum Accrual and the amount of such payment shall be treated for purposes of section 163(i) of the Internal Revenue Code as interest paid under the Loans.  Notwithstanding anything to the contrary contained herein, all such payments shall be made to the Lenders on an equal and ratable basis.  Each such prepayment shall be applied to the Loans of the Lenders in accordance with their respective Applicable Percentages. 

(e)Prepayment Premiums.  If all or any portion of the Term Loan is prepaid, or required to be prepaid, pursuant to this Section 2.03, Article IX or otherwise, then, in all cases, the Borrower shall pay to the Administrative Agent (for further distribution to the Lenders), for the respective ratable accounts of the Lenders, on the date on which such prepayment is paid or required to be paid, in addition to the other Obligations so prepaid or required to be prepaid, a prepayment premium equal to: (i) with respect to any prepayment paid or required to be paid on or prior to April 27, 2018, the Make-Whole Amount with respect to such prepayment, (ii) with respect to any prepayment paid or required to be paid after April 27, 2018 but on or prior to April 27, 2019, 11.50% of the principal amount of the Term Loan prepaid or required to be prepaid, (iii) with respect to any prepayment paid or required to be paid after April 27, 2019 but on or prior to April 27, 2020, 5.75% of the principal amount of the Term Loan prepaid or required to be prepaid, (iv) with respect to any prepayment paid or required to be paid after April 27, 2020 but on or prior to April 27, 2021, 2.875% of the principal amount of the Term Loan prepaid or required to be prepaid and (v) with respect to any prepayment paid or required to be prepaid thereafter, 0.00% of the principal amount of the Term Loan prepaid or required to be prepaid.

2.04Repayment of Loans.

(a)Repayment.  Unless the Borrower shall elect to repay the Term Loan under Section 2.04(b) or (c) by written notice to the Administrative Agent from the Borrower at least fifteen (15) Business Days prior (the “Amortization Option Date”) to the first payment date set forth in the chart below in this Section 2.04(a), the Borrower shall repay the outstanding principal amount of the Term Loan in installments on the dates set forth below, in each case, in the respective amounts set forth in the table below (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.03), unless accelerated sooner pursuant to Section 9.02:

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provided, however, that, (x) the final principal repayment installment of the Term Loan shall be repaid on the Maturity Date and in any event shall be in an amount equal to the aggregate principal amount of the Term Loan outstanding on such date and (y) if any principal repayment installment to be made by the Borrower shall come due on a day other than a Business Day, such principal repayment installment shall be due on the first immediately preceding Business Day.

(b)First Repayment Election.  If Consolidated Net Sales for the four fiscal quarter period ending September 30, 2018 are at least $85,000,000 as set forth in the financial statements delivered by the Borrower for such period pursuant to Section 7.01(b) and the related Compliance Certificate, the Borrower may elect to repay the Term Loan under this Section 2.04(b) (for the avoidance of doubt, instead of pursuant to Section 2.04(a)) by written notice from the Borrower to the Administrative Agent on or prior to the Amortization Option Date.  If the Borrower so elects, the Borrower shall repay the outstanding principal amount of the Term Loan in installments on the dates set forth below, in each case, in the respective amounts set forth in the table below (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.03), unless accelerated sooner pursuant to Section 9.02:

 

provided, however, that, (x) the final principal repayment installment of the Term Loan shall be repaid on the Maturity Date and in any event shall be in an amount equal to the aggregate principal amount of the Term Loan outstanding on such date and (y) if any principal repayment installment to be made by the Borrower shall come due on a day other than a Business Day, such principal repayment installment shall be due on the first immediately preceding Business Day.

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(c)Second Repayment Election.  If Consolidated Net Sales for the four fiscal quarter period ending September 30, 2018 are at least $115,000,000 as set forth in the financial statements delivered by the Borrower for such period pursuant to Section 7.01(b) and the related Compliance Certificate, the Borrower may elect to repay the Term Loan under this Section 2.04(c) (for the avoidance of doubt, instead of pursuant to Sections 2.04(a) or 2.04(b)) by written notice from the Borrower to the Administrative Agent on or prior to the Amortization Option Date.  If the Borrower so elects, the Borrower shall repay the outstanding principal amount of the Term Loan in installments on the dates set forth below, in each case, in the respective amounts set forth in the table below (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.03), unless accelerated sooner pursuant to Section 9.02: 

 

provided, however, that, (x) the final principal repayment installment of the Term Loan shall be repaid on the Maturity Date and in any event shall be in an amount equal to the aggregate principal amount of the Term Loan outstanding on such date and (y) if any principal repayment installment to be made by the Borrower shall come due on a day other than a Business Day, such principal repayment installment shall be due on the first immediately preceding Business Day.

2.05Interest.

(a)Pre-Default Rate.  Subject to the provisions of subsection (b) below, the Term Loan shall bear interest on the outstanding principal amount thereof from the Closing Date at a rate per annum equal to eleven and one half percent (11.5%) per annum.

(b)Default Rate.  (i) Upon the occurrence of any Event of Default, all outstanding Loans shall thereafter bear interest at an interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws and (ii) accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable in cash on demand.

(c)Interest Generally.  Interest on each Loan shall be due and payable in arrears on each Interest Payment Date and at such other times as may be specified herein.  Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

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2.06Fees. 

(a)Fee Letters.  The Borrower shall pay to Athyrium, the Administrative Agent and the Lenders for their respective accounts, fees in the amounts and at the times specified in the Fee Letters.  Such fees shall be fully earned when paid and shall be non-refundable for any reason whatsoever.

(b)Exit Fee.  Upon the prepayment or repayment of all or any portion of the Term Loan (or upon the date any such prepayment or repayment is required to be paid), whether pursuant to Section 2.03, Section 2.04 or Section 9.02, or otherwise, the Borrower shall pay to the Administrative Agent (for further distribution to the Lenders), for the respective ratable accounts of the Lenders, on the date on which such prepayment or repayment is paid or required to be paid, as the case may be, in addition to the other Obligations so prepaid, repaid or required to be prepaid or repaid, an exit fee in an amount equal to two percent (2%) of the principal amount of the Term Loan prepaid, repaid or required to be prepaid or repaid, as the case may be, on such date.

2.07Computation of Interest.

All computations of interest shall be made on the basis of a 360-day year and actual days elapsed.  Interest shall accrue on the Term Loan for the day on which the Term Loan is made, and shall not accrue on the Term Loan, or any portion thereof, for the day on which the Term Loan or such portion is paid.

2.08Evidence of Debt.

The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender in the ordinary course of business.  The accounts or records maintained by each Lender shall be conclusive absent manifest error of the amount of Loans made by the Lenders to the Borrower and the interest and payments thereon.  Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations.  Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender a promissory note, which shall evidence such Lender’s Loans in addition to such accounts or records.  Each such promissory note shall be in the form of Exhibit B-1 (a “Term Note”).  Each Lender may attach schedules to its Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.

2.09Payments Generally.

(a)General.  Except as otherwise expressly set forth herein, all payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff.  Except as otherwise expressly provided in the Loan Documents, all payments by any Loan Party under the Loan Documents shall be made, without any presentment thereof, to the Administrative Agent, for the account of the Administrative Agent or the respective Lenders to which such payment is owed, as applicable, at the Administrative Agent’s Office.  The Loan Parties will make such payments in Dollars, in immediately available funds not later than 2:00 p.m. on the date due, marked for attention as indicated, or in such other manner or to such other account in any United States bank as the Administrative Agent may from time to time direct in writing.  The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office.   All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.  If any payment to be made by the Borrower shall

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come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest. 

(b)Failure to Satisfy Conditions Precedent.  If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Borrowing set forth in Article V are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

(c)Obligations of Lenders Several.  The obligations of the Lenders hereunder to make Loans and to make payments pursuant to Section 11.04(c) are several and not joint.  The failure of any Lender to make any Loan or to make any payment under Section 11.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or to make its payment under Section 11.04(c).

(d)Funding Source.  Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

2.10Sharing of Payments by Lenders.

If any Lender shall, by exercising any right of setoff or otherwise, obtain payment in respect of any principal of or interest on its portion of any of the Term Loan or prepayment premium or exit fee in connection therewith resulting in such Lender’s receiving payment of a proportion of the aggregate amount of the Term Loan and accrued interest thereon and prepayment premium or exit fees in connection therewith greater than its pro rata share thereof as provided herein, then the Lender shall (a) notify the Administrative Agent of such fact and (b) purchase (for cash at face value) participations in the portions of the Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of, accrued interest on and prepayment premium or exit fees in connection with their respective portions of the Loans and other amounts owing them; provided, that:

(i)if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

(ii)the provisions of this Section 2.10 shall not be construed to apply to (x) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its portion of the Loans to any assignee or participant, other than an assignment to the Borrower or any Subsidiary (as to which the provisions of this Section shall apply).

Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation.

 

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2.11Defaulting Lenders. 

(a)Adjustments.  Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:

(i)Waivers and Amendment.  The Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of “Required Lenders” and Section 11.01.  Each Lender agrees to provide the Borrower, the Administrative Agent and each other Lender with prompt written notice of such Lender becoming a Defaulting Lender.

(ii)Reallocation of Payments.  Any payment of principal, interest, fees or other amount received by the Administrative Agent for the account of that Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article IX or otherwise, and including any amounts made available to the Administrative Agent by that Defaulting Lender pursuant to Section 11.08), shall be applied at such time or times as may be determined by the Required Lenders as follows: first, to the payment of any amounts owing by that Defaulting Lender to the Administrative Agent hereunder; second, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Required Lenders; third, if so determined by the Required Lenders and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of that Defaulting Lender to fund Loans under this Agreement; fourth, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; fifth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that Defaulting Lender’s breach of its obligations under this Agreement; and sixth, to that Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided, that, if (x) such payment is a payment of the principal amount of any Loans in respect of which that Defaulting Lender has not fully funded its appropriate share and (y) such Loans were made at a time when the conditions set forth in Section 5.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of that Defaulting Lender.  Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender pursuant to this Section 2.11(a)(ii) shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto.

(b)Defaulting Lender Cure.  If the Borrower and the Required Lenders agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will cease to be a Defaulting Lender; provided, that, no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; provided, further, that, except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or

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release of any claim of any party hereunder arising from that Lender having been a Defaulting Lender. 

2.12Termination of Term Loan Commitments.

The Term Loan Commitments shall be automatically and permanently reduced to zero upon the Borrowing of the Term Loan on the Closing Date.

ARTICLE III

TAXES

3.01Taxes.

(a)All payments of principal and interest on the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp, documentary, property or franchise taxes and other taxes, fees, duties, levies, assessments, withholdings or other charges of any nature whatsoever (including interest and penalties thereon) imposed by any taxing authority (all such taxes being called “Taxes”) except as required by applicable Law. For purposes of this Agreement, Taxes imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document (or, to the extent imposed upon a Recipient as a result of a change in Law, any increase in Taxes otherwise imposed with respect to the Loans) other than (w) Taxes imposed on or measured by net income (however denominated), franchise Taxes and branch profits Taxes, in each case, (i) imposed by the jurisdiction under which a Recipient is organized or in which its principal office is located, or in the case of a Lender, in which its applicable lending office is located or (ii) imposed as a result of a present or former connection between a Recipient and the jurisdiction imposing such Tax (other than solely as the result of entering into any of the Loan Documents or taking any action thereunder), (x) U.S. federal withholding taxes imposed on amounts payable to or for the account of a Recipient with respect to an applicable interest in a Loan or Term Loan Commitment pursuant to a Law in effect on the date on which (i) such Recipient acquires such interest in the Loan or Term Loan Commitment (other than pursuant to an assignment request by the Borrower pursuant to Section 11.13) or (ii) such Recipient changes its Lending Office, except in each case to the extent that, pursuant to this Section 3.01, amounts with respect to such taxes were payable either to such Recipient’s assignor immediately before such Recipient became a party hereto or to such Recipient immediately before it changed its Lending Office, (y) Taxes attributable to a Recipient’s failure to comply with Section 3.01(c) and Section 3.01(d) and (z) U.S. federal withholding Tax imposed under FATCA shall be called “Indemnified Taxes”. If any withholding or deduction of any Taxes from any payment by or on account of any obligation of any Loan Party hereunder is required in respect of any Taxes pursuant to any applicable Law (as determined in the good faith discretion of an applicable Withholding Agent), then (i) the applicable Withholding Agent shall be entitled to make such withholding or deduction and shall pay directly to the relevant Governmental Authority the full amount required to be so withheld or deducted, (ii) the applicable Withholding Agent shall promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such Governmental Authority and (iii) if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased by such additional amount or amounts as is necessary to ensure that the net amount actually received by the applicable Recipient will equal the full amount such Recipient would have received had no such withholding or deduction been required.

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(b)The Borrower shall indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed on or attributable to amounts payable under this Section) (but excluding any stamp, documentary or similar Taxes imposed with respect to an assignment (other than an assignment pursuant to Section 11.13) as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax, other than a connection arising as a result of entering into any of the Loan Documents or taking any action thereunder) payable or paid by such Recipient or required to be withheld or deducted from a payment by such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. 

(c)Each Lender that is not a “United States person” as defined in Section 7701(a)(30) of the Internal Revenue Code (each such Lender a “Foreign Lender”) shall execute and deliver to each of the Borrower and the Administrative Agent on or prior to the date that such Lender becomes a party hereto (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), one or more (as the Borrower or the Administrative Agent may reasonably request) duly completed and executed copies of United States Internal Revenue Service Forms W-8ECI, W-8BEN, W-8BEN-E, W-8IMY (as applicable) and other applicable forms, certificates or documents (including as required under FATCA, which for this purpose shall include any amendments made to FATCA after the date of this Agreement) prescribed by the United States Internal Revenue Service or reasonably requested by the Borrower or the Administrative Agent certifying as to such Lender’s entitlement to any available exemption from or reduction of withholding or deduction of taxes. Each Lender that is a “United States person” as defined in Section 7701(a)(30) of the Internal Revenue Code shall execute and deliver to the Borrower and the Administrative Agent on or prior to the date such Lender becomes a party hereto (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), one or more (as the Borrower or the Administrative Agent may reasonably request) duly completed and executed copies of United States Internal Revenue Service Form W-9 certifying that such Lender is not subject to United States backup withholding.  

(d)Each Lender agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall promptly update such form or certification or promptly notify the Administrative Agent and the Borrower of its inability to do so.

(e)If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 3.01 (including by the payment of additional amounts pursuant to this Section 3.01), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund).  Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (e) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority.  Notwithstanding anything to the contrary in this paragraph (e), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (e) the payment of which would place the

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indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person. 

 

3.02Survival.

Each party’s obligations under this Article III shall survive termination of the Term Loan Commitments, repayment, satisfaction or discharge of all other Obligations hereunder, resignation of the Administrative Agent and any assignment of rights by, or the replacement of, a Lender.

ARTICLE IV

GUARANTY

4.01The Guaranty.

Each of the Guarantors hereby jointly and severally guarantees to each Lender and the Administrative Agent as hereinafter provided, as primary obligor and not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof.  The Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal.

Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents, the obligations of each Guarantor under this Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under the Debtor Relief Laws or any comparable provisions of any applicable state law.

4.02Obligations Unconditional.

The obligations of the Guarantors under Section 4.01 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any law or regulation or other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.02 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances.  Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor for amounts paid under this Article IV until such time as the Obligations (other than contingent indemnification obligations for which no claim has been asserted) have been paid in full and the Term Loan Commitments have expired or terminated.  Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not

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alter or impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as described above:

(a)at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived;

(b)any of the acts mentioned in any of the provisions of any of the Loan Documents, or any other agreement or instrument referred to in the Loan Documents shall be done or omitted;

(c)the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents, or any other agreement or instrument referred to in the Loan Documents shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with;

(d)any Lien granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Obligations shall fail to attach or be perfected; or

(e)any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).

With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents, or any other agreement or instrument referred to in the Loan Documents, or against any other Person under any other guarantee of, or security for, any of the Obligations.

4.03Reinstatement.

The obligations of the Guarantors under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all reasonable and documented costs and expenses (including, without limitation, the fees, charges and disbursements of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.

4.04Certain Additional Waivers.

Each Guarantor agrees that such Guarantor shall have no right of recourse to security for the Obligations, except through the exercise of rights of subrogation pursuant to Section 4.02 and through the exercise of rights of contribution pursuant to Section 4.06.

4.05Remedies.

The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, the Obligations may be declared

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to be forthwith due and payable as provided in Section 9.02 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.02) for purposes of Section 4.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.01.  The Guarantors acknowledge and agree that their obligations hereunder are secured in accordance with the terms of the Collateral Documents and that the Lenders may exercise their remedies thereunder in accordance with the terms thereof.

4.06Rights of Contribution.

The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under applicable law.  Such contribution rights shall be subordinate and subject in right of payment to the obligations of such Guarantors under the Loan Documents and no Guarantor shall exercise such rights of contribution until all Obligations (other than contingent indemnification obligations for which no claim has been asserted) have been paid in full and the Term Loan Commitments have terminated.

4.07Guarantee of Payment; Continuing Guarantee.

The guarantee in this Article IV is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.

ARTICLE V

CONDITIONS PRECEDENT TO BORROWINGS

5.01Conditions of Initial Borrowing and Purchase of Warrants.

This Agreement shall become effective upon and the obligation of each Lender to make its portion of the Term Loan to be advanced on the Closing Date hereunder and to purchase the Warrants is subject to satisfaction of the following conditions precedent:

(a)Investment Documents.  Receipt by the Administrative Agent of executed counterparts of this Agreement and the other Investment Documents, each properly executed by a Responsible Officer of the signing Loan Party and each other party to such Investment Documents, including, without limitation, the Warrants duly executed and issued by the Borrower, in each case in form and substance satisfactory to the Administrative Agent and the Lenders.

(b)Opinions of Counsel. Receipt by the Administrative Agent of favorable opinions of legal counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, dated as of the Closing Date, and in form and substance satisfactory to the Administrative Agent and the Lenders.

(c)Financial Statements.  The Administrative Agent shall have received the Audited Financial Statements and such other reports, statements and due diligence items as the Administrative Agent or any Lender shall request.

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(d)Litigation.  There shall not exist any action, suit, investigation or proceeding pending or threatened in any court or before an arbitrator or Governmental Authority that could reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect. 

(e)Organization Documents, Resolutions, Etc.  Receipt by the Administrative Agent of the following, each of which shall be originals or facsimiles (followed promptly by originals), in form and substance satisfactory to the Administrative Agent, the Lenders and their respective legal counsel:

(i)copies of the Organization Documents of each Loan Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation or organization, where applicable, and certified by a secretary or assistant secretary of such Loan Party to be true and correct as of the Closing Date;

(ii)such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent and the Lenders may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Investment Documents to which such Loan Party is a party; and

(iii)such documents and certifications as the Administrative Agent and the Lenders may reasonably require to evidence that each Loan Party is duly organized or formed, and is validly existing, in good standing and qualified to engage in business in its state of organization or formation.

(f)Perfection and Priority of Liens.  Receipt by the Administrative Agent of the following:

(i)searches of Uniform Commercial Code filings in the jurisdiction of formation of each Loan Party or where a filing would need to be made in order to perfect the Administrative Agent’s security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens;

(ii)UCC financing statements for each appropriate jurisdiction as is necessary, in the Required Lenders’ sole discretion, to perfect the Administrative Agent’s security interest in the Collateral;

(iii)all certificates evidencing any certificated Equity Interests pledged to the Administrative Agent pursuant to the Pledge Agreement, together with duly executed in blank and undated stock powers attached thereto;

(iv)searches of ownership of, and Liens on, the Registered IP of each Loan Party in the appropriate governmental offices;

(v)duly executed notices of grant of security interest in the form required by the Security Agreement as are necessary, in the Required Lenders’ reasonable discretion, to perfect the Administrative Agent’s security interest in the IP Rights of the Loan Parties; and

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(vi)such Deposit Account Control Agreements as shall be necessary to cause the Loan Parties to be in compliance with Section 7.16. 

(g)Evidence of Insurance.  Receipt by the Administrative Agent of copies of certificates of insurance of the Loan Parties evidencing liability and casualty insurance meeting the requirements set forth in the Loan Documents, including, but not limited to, naming the Administrative Agent as additional insured (in the case of liability insurance) or Lender’s loss payee (in the case of hazard insurance) on behalf of the Lenders.

(h)Closing Certificate.  Receipt by the Administrative Agent of a certificate signed by a Responsible Officer of the Borrower certifying (i) that the conditions specified in Sections 5.01(d) and (j) and Sections 5.02(a) and (b) have been satisfied, (ii) that the Borrower and its Subsidiaries (after giving effect to the transactions contemplated hereby and the incurrence of Indebtedness related thereto) are Solvent on a consolidated basis, (iii) that as of the Closing Date, the Borrower and its Subsidiaries have no Indebtedness for borrowed money, other than Indebtedness permitted by Section 8.03, (iv) that neither the Borrower nor any Subsidiary as of the Closing Date has outstanding any Disqualified Capital Stock (v) as true and complete an attached description of all intercompany Indebtedness of the Borrower and its Subsidiaries.

(i)Existing Indebtedness.  All of the existing Indebtedness for borrowed money of the Loan Parties and their respective Subsidiaries (other than Indebtedness permitted to exist under Section 8.03) shall be repaid in full and all security interests related thereto shall be terminated on or prior to the Closing Date.

(j)Governmental and Third Party Approvals.  The Borrower and its Subsidiaries shall have received all material governmental, shareholder and third party consents and approvals necessary in connection with the transactions contemplated by this Agreement and the other Investment Documents and the other transactions contemplated hereby and all applicable waiting periods shall have expired without any action being taken by any Person that could reasonably be expected to restrain, prevent or impose any material adverse conditions on the Borrower or any of its Subsidiaries or such other transactions or that could seek to threaten any of the foregoing, and no law or regulation shall be applicable which could reasonably be expected to have such effect.

(k)Corporate Structure and Capitalization.  The capital and ownership structure and the equity holder arrangements of the Borrower on the Closing Date, on a pro forma basis after giving effect to the transactions contemplated by the Investment Documents shall be reasonably satisfactory to the Lenders.

(l)Letter of Direction.  Receipt by the Administrative Agent of a satisfactory letter of direction containing funds flow information, with respect to the proceeds of the Term Loan on the Closing Date.

(m)Fees.  Receipt by Athyrium, the Administrative Agent and the Lenders of any fees required to be paid on or before the Closing Date.

(n)Attorney Costs; Due Diligence Expenses. The Borrower shall have paid all reasonable and documented fees, charges and disbursements of counsel to Athyrium and all reasonable and documented due diligence expenses of Athyrium and the Lenders, in each case, incurred to the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided, that, such estimate shall not thereafter

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preclude a final settling of accounts between the Borrower and Athyrium), it being understood and agreed that the Borrower’s obligations under this Section 5.01(n) shall not exceed $175,000. 

(o)Other.  Receipt by the Administrative Agent and the Lenders of such other documents, instruments, agreements and information as reasonably requested by the Administrative Agent or any Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership, environmental matters, contingent liabilities and management of the Borrower and its Subsidiaries; such information may include, if requested by the Lenders, asset appraisal reports and written audits of accounts receivable, inventory, payables, controls and systems.

Without limiting the generality of the provisions of the last paragraph of Section 10.03, for purposes of determining compliance with the conditions specified in this Section 5.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

5.02Conditions to all Borrowings.

The obligation of each Lender to honor any Loan Notice is subject to the following conditions precedent:

(a)The representations and warranties of the Borrower and each other Loan Party contained in Article VI or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects (and in all respects if any such representation or warranty is already qualified by materiality or reference to Material Adverse Effect) on and as of the date of such Borrowing, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 5.02, the representations and warranties contained in subsections (a) and (b) of Section 6.05 shall be deemed to refer to the most recent statements furnished pursuant to subsections (a) and (b), respectively, of Section 7.01.

(b)No Default shall exist, or would result from such proposed Borrowing or from the application of the proceeds thereof.

(c)The Administrative Agent shall have received a Loan Notice in accordance with the requirements hereof.

Each Loan Notice submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 5.02(a) and (b) have been satisfied on and as of the date of the applicable Borrowing.

 

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ARTICLE VI

REPRESENTATIONS AND WARRANTIES

The Loan Parties represent and warrant to the Administrative Agent and the Lenders that:

6.01Existence, Qualification and Power.

Each Loan Party (a) is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

6.02Authorization; No Contravention.

The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party have been duly authorized by all necessary corporate or other organizational action, and do not (a) contravene the terms of any of such Person’s Organization Documents, (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject, or (c) violate in any material respect any Law (including, without limitation, Regulation U or Regulation X issued by the FRB) except with respect to any conflict, breach, contravention or payment (but not creation of Liens) referenced in clause (b) to the extent that such conflict, breach, contravention or payment could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

6.03Governmental Authorization; Other Consents.

No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document other than (a) those that have already been obtained and are in full force and effect, (b) filings to perfect the Liens created by the Collateral Documents and (c) the filing of any applicable notices under securities laws.

6.04Binding Effect.

Each Loan Document has been duly executed and delivered by each Loan Party that is party thereto.  Each Loan Document constitutes a legal, valid and binding obligation of each Loan Party that is party thereto, enforceable against each such Loan Party in accordance with its terms, subject to applicable Debtor Relief Laws or other Laws affecting creditors’ rights generally and subject to general principles of equity.

6.05Financial Statements; No Material Adverse Effect.

(a)The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted

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therein, (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including material liabilities for taxes, commitments and Indebtedness. 

(b)The Interim Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments, and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including material liabilities for taxes, material commitments and Indebtedness.

(c)From the date of the Audited Financial Statements to and including the Closing Date, there has been no Disposition by any Loan Party or any Subsidiary, or any Involuntary Disposition, of any material part of the business or property of any Loan Party or any Subsidiary, and no purchase or other acquisition by any of them of any business or property (including any Equity Interests of any other Person) material to any Loan Party or any Subsidiary, in each case, which is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lenders on or prior to the Closing Date.

(d)The financial statements delivered pursuant to Section 7.01(a) and (b) have been prepared in accordance with GAAP (except as may otherwise be permitted under Section 7.01(a) or (b), as applicable) and present fairly in all material respects (on the basis disclosed in the footnotes to such financial statements) the consolidated financial condition, results of operations and cash flows of the Borrower and its Subsidiaries as of the dates thereof and for the periods covered thereby.

(e)Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

6.06Litigation.

There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Loan Parties after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or (b) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

6.07No Default.

(a)Neither any Loan Party nor any Subsidiary is in default under or with respect to any Contractual Obligation that could reasonably be expected to have a Material Adverse Effect.

(b)No Default has occurred and is continuing.

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6.08Ownership of Property; Liens. 

Each Loan Party and its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The property of each Loan Party and its Subsidiaries is subject to no Liens, other than Permitted Liens.

6.09Environmental Compliance.

Except as could not reasonably be expected to have a Material Adverse Effect:

(a)Each of the Facilities and all operations at the Facilities are in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to the Facilities or the Businesses, and there are no conditions relating to the Facilities or the Businesses that could give rise to liability under any applicable Environmental Laws.

(b)None of the Facilities contains, or has previously contained, any Hazardous Materials at, on or under the Facilities in amounts or concentrations that constitute or constituted a violation of, or could give rise to liability under, Environmental Laws.

(c)Neither any Loan Party nor any Subsidiary has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Facilities or the Businesses, nor does any Responsible Officer of any Loan Party have knowledge or reason to believe that any such notice will be received or is being threatened.

(d)Hazardous Materials have not been transported or disposed of from the Facilities, or generated, treated, stored or disposed of at, on or under any of the Facilities or any other location, in each case by or on behalf of any Loan Party or any Subsidiary in violation of, or in a manner that would be reasonably likely to give rise to liability under, any applicable Environmental Law.

(e)No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Loan Parties, threatened, under any Environmental Law to which any Loan Party or any Subsidiary is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any Loan Party, any Subsidiary, the Facilities or the Businesses.

(f)There has been no release or threat of release of Hazardous Materials at or from the Facilities, or arising from or related to the operations (including, without limitation, disposal) of any Loan Party or any Subsidiary in connection with the Facilities or otherwise in connection with the Businesses, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws.

6.10Insurance.

(a)The properties of the Loan Parties and their Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of such Persons, in such amounts, with such deductibles and covering such risks as are customarily carried by companies

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engaged in similar businesses and owning similar properties in localities where the applicable Loan Party or the applicable Subsidiary operates.  The insurance coverage of the Loan Parties and their Subsidiaries as in effect on the Closing Date is outlined as to carrier, policy number, expiration date, type, amount and deductibles on Schedule 6.10. 

(b)The Borrower and its Subsidiaries maintain, if available, fully paid flood hazard insurance on all real property that is located in a special flood hazard area and that constitutes Collateral on such terms and in such amounts as required by The National Flood Insurance Reform Act of 1994 or as otherwise reasonably required by the Administrative Agent or the Required Lenders.

6.11Taxes.

The Loan Parties and their Subsidiaries have filed all federal, state and other material tax returns and reports required to be filed, and have paid all federal, state and other material taxes due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP.  There is no proposed tax assessment against any Loan Party or any Subsidiary that would, if made, have a Material Adverse Effect.  Neither any Loan Party nor any Subsidiary thereof is party to any tax sharing agreement with any Person that is not a Loan Party (other than customary provisions for Taxes contained in credit, lease or other commercial agreements the primary purposes of which do not relate to Taxes).

6.12ERISA Compliance.

(a)Except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) each Plan is in compliance with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state laws, and (ii) each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service to the effect that the form of such Plan is qualified under Section 401(a) of the Internal Revenue Code or an application for such a letter is currently being processed by the Internal Revenue Service and, to the knowledge of the Loan Parties, nothing has occurred that would prevent, or cause the loss of, such tax-qualified status.

(b)There are no pending or, to the knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  The Borrower has not engaged in any prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan, in any case, that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)Except as has not resulted in and could not reasonably be expected to result in a Material Adverse Effect, (i) No ERISA Event has occurred or is reasonably expected to occur with respect to any Pension Plan, (ii) the Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained, (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Internal Revenue Code) is sixty percent (60%) or higher and no facts or circumstances exist that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below sixty percent (60%) as of the most recent valuation date, (iv) neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums due but not delinquent under Section 4007 of

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ERISA, and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could reasonably be expected to be subject to Section 4069 or Section 4212(c) of ERISA. 

6.13Subsidiaries.

Set forth on Schedule 6.13 is a complete and accurate list as of the Closing Date of each Subsidiary of any Loan Party, together with (a) jurisdiction of organization, (b) number of shares of each class of Equity Interests outstanding, (c) number and percentage of outstanding shares of each class owned (directly or indirectly) by any Loan Party or any Subsidiary and (d) number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with respect thereto.  The outstanding Equity Interests of each Subsidiary of any Loan Party are validly issued, fully paid and non-assessable.

6.14Margin Regulations; Investment Company Act.

(a)The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

(b)None of any Loan Party, any Person Controlling any Loan Party, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

6.15Disclosure.

Each Loan Party has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, either individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  No report, financial statement, certificate or other information furnished (whether written or oral) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that, with respect to financial projections, estimates, budgets or other forward-looking information, the Loan Parties represent only that such information was prepared in good faith based upon assumptions believed by the Borrower to be reasonable at the time such information was prepared (it being understood that such information is as to future events and is not to be viewed as facts, is subject to significant uncertainties and contingencies, many of which are beyond the control of the Borrower and its Subsidiaries, that no assurance can be given that any particular projection, estimate, budget or forecast will be realized and that actual results during the period or periods covered by any such projections, estimate, budgets or forecasts may differ significantly from the projected results and such differences may be material).

6.16Compliance with Laws.

Each Loan Party and each Subsidiary is in compliance with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by

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appropriate proceedings diligently conducted or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

6.17Intellectual Property; Licenses, Etc.

(a)Schedule 6.17 sets forth a complete and accurate list of the following as of the Closing Date: (i) all Copyrights and all Trademarks of any Loan Party, that are registered, or in respect of which an application for registration has been filed or recorded, with the United States Patent and Trademark Office or the United States Copyright Office or with any other Governmental Authority (or comparable organization or office established in any country or pursuant to an international treaty or similar international agreement for the filing, recordation or registration of interests in intellectual property), together with relevant identifying information with respect to such Copyrights and Trademarks, (ii) all Patents of any Loan Party that are issued, or in respect of which an application has been filed or recorded, with the United States Patent and Trademark Office or with any other Governmental Authority (or comparable organization or office established in any country or pursuant to an international treaty or similar international agreement for the filing, recordation or registration of interests in intellectual property), together with relevant identifying information with respect to such Patents, (iii) all Domain Names of any Loan Party, together with relevant identifying information with respect to such Domain Names, (iv) each Copyright License, each Patent License and each Trademark License to which any Loan Party is a party and (v) each other right or interest in the Material IP Rights of any Loan Party.  The items in subsections (i) through (iii) are the “Registered IP”.  For each listed Patent, Schedule 6.17 includes the following information: application number, patent number (if applicable), country or other filing organization and registered owner.

(b)Except for IP Rights that have expired or been abandoned in the ordinary course of business, the Material IP Rights are subsisting, unexpired and have not been abandoned.  To the knowledge of the Loan Parties, the Material IP Rights are valid and enforceable.  No claim known to the Borrower or any Subsidiary has been made that the use or other exploitation by the Borrower, any Subsidiary or any of their licensees of any of the Products, including, without limitation, to advertise, display, import, manufacture, have manufactured, market, offer for sale, perform, prepare derivative works based upon, promote, reproduce, sell, use and/or otherwise distribute a Product, does or may infringe, violate or misappropriate the rights of any Person, except as could not reasonably be expected to have a Material Adverse Effect.  No holding, decision or judgment has been rendered by any Governmental Authority, except for those issued during the ordinary course of prosecution, that would limit, invalidate, render unenforceable, cancel or question the validity of any Material IP Right, except as could not reasonably be expected to have a Material Adverse Effect, and to the knowledge of the Loan Parties, no action or proceeding is pending seeking to limit, invalidate, render unenforceable, cancel or question the validity of any Material IP Right that, in any case, if adversely determined, could reasonably be expected to have a Material Adverse Effect on the value of any Material IP Right.  Except for IP Rights abandoned in the ordinary course of business, the Borrower and its Subsidiaries have, since taking title to the Material IP Rights, performed all acts and have paid all required annuities, fees, costs, expenses and taxes to maintain such Material IP Rights in full force and effect in the relevant jurisdiction(s), as applicable, subject to any permitted extensions for the payment thereof.  All applications for registration of Registered IP included in the Material IP Rights of the Loan Parties have been duly and properly filed, and all issued or granted Registered IP included in Material IP Rights has been duly and properly filed and issued.  The Borrower and its Subsidiaries have not filed any disclaimers (other than terminal disclaimers filed during the ordinary course of prosecution) or voluntary reductions in the scope of any of the issued or granted Material IP Rights after the same have been issued or granted.  The Borrower and its Subsidiaries own, or have been granted a right to use by license or otherwise, all the Material IP

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Rights.  Neither the Borrower nor any Subsidiary has made any assignment or agreement in conflict with the security interest in the Material IP Rights of the Loan Parties granted pursuant to the Collateral Documents and no license agreement with respect to any of the Material IP Rights conflicts with the security interest granted to the Administrative Agent, on behalf of the Lenders, pursuant to the terms of the Collateral Documents.  To the extent any of the Material IP Rights were authored, developed, conceived or created, in whole or in part, for or on behalf of the Borrower or any Subsidiary by any Person, then the Borrower or such Subsidiary has entered into a written agreement with such Person in which such Person has assigned or licensed all right, title and interest in and to such Material IP Rights to the Borrower or such Subsidiary.  To the knowledge of the Loan Parties, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Borrower or any Subsidiary or any licensee of the Borrower or any Subsidiary violates, infringes or misappropriates any rights held by any other Person, except as could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.  No claim or litigation regarding any of the Material IP Rights is pending or, to the knowledge of the Loan Parties, threatened against the Borrower or any Subsidiary.  None of the Material IP Rights are subject to any license grant by the Borrower or any Subsidiary or similar arrangement, except for (x) license grants between the Loan Parties, (y) those license grants disclosed on Schedule 6.17 and (z) any other immaterial or ministerial licenses. 

(c)Except as set forth on Schedule 6.17, the consummation of the transactions contemplated hereby and the exercise by the Administrative Agent or the Lenders of any right or protection set forth in the Loan Documents will not constitute a breach or violation of, or otherwise affect the enforceability or approval of, (i) any licenses associated with Material IP Rights, (ii) Drug Applications, (iii) Governmental Licenses or (iv) any applications or requests for Governmental Licenses.

(d)The Borrower (i) with respect to the intellectual property rights under the Amgen License, owns all intellectual property rights, including the Orange Book Patents, necessary to use, import, manufacture, sell, offer for sale, commercialize or otherwise exploit Veltassa, in each case, in the ordinary course of business and (ii) with respect to all other intellectual property rights, to its knowledge, owns or controls all intellectual property rights necessary to use, import, manufacture, sell, offer for sale, commercialize or otherwise exploit Veltassa, in each case, in the ordinary course of business.  There is at least one valid claim of each of the Orange Book Patents owned by the Borrower and included in the Material IP Rights that would be infringed or otherwise violated by the exploitation of Veltassa under its approved label by the Borrower but for the rights of the Borrower in such Orange Book Patents.

6.18Solvency.

The Borrower is Solvent on an individual basis, and the Borrower and its Subsidiaries are Solvent, on a consolidated basis.

6.19Perfection of Security Interests in the Collateral.

The Collateral Documents create valid security interests in, and Liens on, the Collateral purported to be covered thereby, which security interests and Liens will be, upon the timely and proper filings, deliveries, notations and other actions contemplated in the Collateral Documents perfected security interests and Liens (to the extent that such security interests and Liens can be perfected by such filings, deliveries, notations and other actions), prior to all other Liens other than Permitted Liens.

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6.20Business Locations. 

Set forth on Schedule 6.20(a) is a list of all real property located in the United States that is owned or leased by the Loan Parties as of the Closing Date (with (x) a description of each real property that is Excluded Property and (y) a designation of whether such real property is owned or leased).  Set forth on Schedule 6.20(b) is the tax payer identification number and organizational identification number of each Loan Party as of the Closing Date.  The exact legal name and state of organization of (a) the Borrower is as set forth on the signature pages hereto and (b) each Guarantor is (i) as set forth on the signature pages hereto, (ii) as set forth on the signature pages to the Joinder Agreement pursuant to which such Guarantor became a party hereto or (iii) as may be otherwise disclosed by the Loan Parties to the Administrative Agent in accordance with Section 8.12(c). Except as set forth on Schedule 6.20(c), no Loan Party has during the five years preceding the Closing Date (i) changed its legal name, (ii) changed its state of organization, or (iii) been party to a merger, consolidation or other change in structure.

6.21Sanctions Concerns; Anti-Corruption Laws; PATRIOT Act.

(a)Sanctions Concerns.  No Loan Party, nor any Subsidiary, nor, to the knowledge of the Loan Parties and their Subsidiaries, any director, officer, employee, agent, affiliate or representative thereof, is an individual or entity  that is, or is owned or controlled by, any individual or entity that is (i) currently the subject or target of any Sanctions, (ii) included on OFAC’s List of Specially Designated Nationals, HMT’s Consolidated List of Financial Sanctions Targets and the Investment Ban List, or any similar list enforced by any other relevant sanctions authority or (iii) located, organized or resident in a Designated Jurisdiction.

(b)Anti-Corruption Laws.  The Loan Parties and their Subsidiaries have conducted their business in compliance with the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010 and other similar anti-corruption legislation in other jurisdictions, and  have instituted and maintained policies and procedures designed to promote and achieve compliance with such laws.

(c)PATRIOT Act.  To the extent applicable, each Loan Party and each Subsidiary is in compliance, in all material respects, with (i) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto and (ii) the PATRIOT Act.

6.22Material Contracts.

Except for the Organization Documents and the other agreements set forth on Schedule 6.22 (collectively with the Organization Documents, the “Material Contracts”), as of the Closing Date there are no (a) employment agreements covering the management of the Borrower or any Subsidiary, (b) collective bargaining agreements or other labor agreements covering any employees of the Borrower or any Subsidiary, (c) agreements for managerial, consulting or similar services to which the Borrower or any Subsidiary is a party or by which it is bound, (d) agreements regarding the Borrower or any Subsidiary, its assets or operations or any investment therein to which any of its equityholders is a party or by which it is bound, (e) real estate leases, licenses of IP Rights or other lease or license agreements to which the Borrower or any Subsidiary is a party, either as lessor or lessee, or as licensor or licensee (other than licenses arising from the purchase of “off the shelf” products), (f) customer or supply agreements to which the Borrower or any Subsidiary is a party, in each case with respect to the preceding clauses (a), (c), (d), (e) and (f) requiring payment of more than $5,000,000 in any year or (g) any other agreements or instruments to which the Borrower or any Subsidiary is a party, and the breach, nonperformance or cancellation of which, or the

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failure of which to renew, could reasonably be expected to have a Material Adverse Effect. Schedule 6.22 sets forth, with respect to each real estate lease agreement to which the Borrower or any Subsidiary is a party as of the Closing Date, the address of the subject property and the annual rental (or, where applicable, a general description of the method of computing the annual rental). The consummation of the transactions contemplated by the Loan Documents will not give rise to a right of termination in favor of any party to any Material Contract.

6.23Compliance of Products.

(a)The Loan Parties represent and warrant:

(i)that the Borrower and its Subsidiaries possess all Permits of the FDA and other Governmental Authorities required for the conduct of their business as currently conducted, except where the failure to so possess could not reasonably be expected to result in a Material Adverse Effect (“Regulatory Permits”), and all such Regulatory Permits are in full force and effect, except where the failure to be in full force and effect could not reasonably be expected to result in a Material Adverse Effect;

(ii)that the Borrower and its Subsidiaries have not received any written communication from any Governmental Authority regarding any failure to materially comply with any Laws or any term or requirement of any Regulatory Permit and, to the knowledge of the Loan Parties, there are no facts or circumstances that are reasonably likely to give rise to any revocation, withdrawal, suspension, cancellation, material limitation, termination or material adverse modification of any Regulatory Permit;

(iii)that none of the officers, directors, employees, Affiliates of the Borrower or any Subsidiary or, to the Loan Parties’ knowledge, any agent or consultant involved in any Drug Application, has been convicted of any crime or engaged in any conduct for which debarment is authorized by 21 U.S.C. Section 335a;

(iv)that none of the officers, directors, employees, Affiliates of the Borrower or any Subsidiary or, to the Loan Parties’ knowledge, any agent or consultant has made an untrue statement of material fact or fraudulent statement to the FDA or failed to disclose a material fact required to be disclosed to the FDA, committed an act, made a statement, or failed to make a statement that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” set forth in 56 Fed. Regulation 46191 (September 10, 1991);

(v)that all applications, notifications, submissions, information, claims, reports and statistics and other data and conclusions derived therefrom, utilized as the basis for or submitted in connection with any and all requests for a Regulatory Permit from the FDA or other Governmental Authority relating to the Borrower or any Subsidiary, their business operations and Products, when submitted to the FDA or other Governmental Authority were true, complete and correct in all material respects as of the date of submission or any necessary or required updates, changes, corrections or modifications to such applications, submissions, information and data have been submitted to the FDA or other Governmental Authority;

(vi)that all preclinical and clinical trials conducted by or on behalf of the Borrower and its Subsidiaries that have been submitted to any Governmental Authority, including the FDA and its counterparts worldwide, in connection with any request for a

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Regulatory Permit, are being or have been conducted in compliance in all material respects with the required experimental protocols and applicable Laws; 

(vii)that neither the Borrower nor any Subsidiary has received any written notice that any Governmental Authority, including without limitation the FDA, the Office of the Inspector General of HHS or the United States Department of Justice has commenced or threatened to initiate any action against the Borrower or a Subsidiary, any action to enjoin the Borrower or a Subsidiary, its officers, directors, employees, agents and Affiliates, from conducting its business at any facility owned or used by it or for any material civil penalty, injunction, seizure or criminal action that could reasonably be expected to have a Material Adverse Effect;

(viii)neither the Borrower nor any Subsidiary has received from the FDA, at any time since January 1, 2013, a Warning Letter, unresolved Form FDA-483, “Untitled Letter,” or similar written correspondence or notice alleging violations of laws and regulations enforced by the FDA, or any comparable correspondence from any other Governmental Authority with regard to any Product or the manufacture, processing, packaging or holding thereof; and

(ix)that, since January 1, 2015, (A) there have been no Safety Notices, (B) to the Loan Parties’ knowledge, there are no unresolved material product complaints with respect to the Products which could reasonably be expected to have a Material Adverse Effect, and (C) to the Loan Parties’ knowledge, there are no facts that would be reasonably likely to result in (1) a material Safety Notice with respect to the Products, (2) a material change in the labeling of any of the Products, or (3) a termination or suspension of marketing of any of the Products.

(b)With respect to Products, the Loan Parties represent and warrant that:

(i)all material Products are listed on Schedule 1.01; provided, that, if after the Closing Date, the Borrower or any Subsidiary wishes to manufacture, sell, develop, test or market any new material Product, the Borrower shall give prior written notice to the Administrative Agent of such intention (which shall include a brief description of such Product) along with a copy of an updated Schedule 1.01;

(ii)since January 1, 2013, the operation of the business of the Borrower and its Subsidiaries with respect to each Product, including the manufacture, import, marketing, promotion, sale, labeling, and distribution of the Products, has been in compliance with all Regulatory Permits and applicable Laws, except where a failure to so comply could not reasonably be expected to have a Material Adverse Effect;

(iii)without limiting the generality of Section 6.23(a)(i) and (ii) above, with respect to any Product being tested or manufactured by the Borrower and its Subsidiaries, as of the Closing Date, to the Loan Parties’ knowledge, neither the Borrower nor any Subsidiary has received any written notice from any applicable Governmental Authority, specifically including the FDA, that such Governmental Authority is conducting an investigation or review of (A) the Borrower and its Subsidiaries’ manufacturing facilities and processes for manufacturing such Product or the marketing and sales of such Product, in each case which have identified any material deficiencies or violations of Laws or the Regulatory Permits related to the manufacture, marketing and/or sales of such Product that could reasonably be expected to result in a Material Adverse Effect, or (B) any such Regulatory Permit that could be reasonably expected to result in a revocation or withdrawal

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of such Regulatory Permit, nor has any such Governmental Authority issued any order or recommendation stating that the development, testing, manufacturing, marketing or sales of such Product by the Borrower and its Subsidiaries should cease or that such Product should be withdrawn from the marketplace; 

(iv)between October 21, 2015 and the Closing Date, neither the Borrower nor any Subsidiary has experienced any significant failures in the manufacturing of any Product for commercial sale that has had or could reasonably be expected to have, if such failure occurred again, a Material Adverse Effect.

6.24Labor Matters.

There are no existing or, to the knowledge of the Loan Parties, threatened strikes, lockouts or other labor disputes involving the Borrower or any Subsidiary that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.  Except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, hours worked by and payments of compensation made by the Borrower and its Subsidiaries to their respective employees are not in violation of the Fair Labor Standards Act or any other applicable law, rule or regulation dealing with such matters.

 

6.25EEA Financial Institution.

No Loan Party or any of their Subsidiaries is an EEA Financial Institution.

 

ARTICLE VII

AFFIRMATIVE COVENANTS

So long as any Lender shall have any Term Loan Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification obligations for which no claim has been asserted), the Loan Parties shall and shall cause each Subsidiary to:

7.01Financial Statements.

Deliver to the Administrative Agent (for further distribution to each Lender), in form and detail reasonably satisfactory to the Administrative Agent and the Required Lenders:

(a)as soon as available, and in any event within ninety (90) days after the end of each fiscal year of the Borrower (or, if earlier, when required to be filed with the SEC), a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related consolidated statements of income or operations, changes in shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any qualification or exception (other than a “going concern” statement, explanatory note or like qualification or exception) or any qualification or exception as to the scope of such audit; and

(b)as soon as available, and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower (or, if earlier, when required to be filed with the SEC), a consolidated balance sheet of the Borrower and its Subsidiaries as at

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the end of such fiscal quarter, and the related consolidated statements of income or operations, Consolidated Revenues, Consolidated Net Sales, changes in shareholders’ equity and cash flows for such fiscal quarter and for the portion of the Borrower’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and certified by a Responsible Officer of the Borrower as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes. 

7.02Certificates; Other Information.

Deliver to the Administrative Agent (for further distribution to each Lender), in form and detail reasonably satisfactory to the Administrative Agent and the Required Lenders:

(a)concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower, certifying compliance with the covenant set forth in Section 8.16 and setting forth a calculation of Consolidated Revenues and Consolidated Net Sales, in each case, for the four fiscal quarter period covered by such Compliance Certificate;

(b)as soon as practicable, and in any event not later than sixty (60) days after the commencement of each fiscal year of the Borrower, beginning with the fiscal year commencing January 1, 2017, an annual business plan and budget of the Borrower and its Subsidiaries for the then current fiscal year containing, among other things, projections for each quarter of such fiscal year;

(c)promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the equityholders (other than in their capacities as employees or members of the Board of Directors of any Loan Party) of any Loan Party, and copies of all annual, regular, periodic and special reports and registration statements which a Loan Party may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to be delivered to the Administrative Agent pursuant hereto;

(d)promptly after any reasonable request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the Board of Directors (or the audit committee of the Board of Directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them;

(e)promptly after the furnishing thereof, copies of any material statement or report furnished to any holder of debt securities of any Loan Party or any Subsidiary pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 7.01 or any other clause of this Section 7.02;

(f)promptly, and in any event within five (5) Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, (i) copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof and (ii) copies of any material

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written correspondence or any other material written communication from the FDA or any other regulatory body; 

(g)as soon as practicable upon the reasonable request of the Administrative Agent or any Lender, copies of the most recent monthly statements for each Deposit Account and other bank account or securities account of the Borrower and each other Loan Party;

(h)promptly, such additional information regarding the business, financial or corporate affairs of any Loan Party or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request; and

(i)concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a certificate of a Responsible Officer of the Borrower (i) listing (A) all applications by any Loan Party, if any, for Copyrights, Patents or Trademarks made since the date of the prior certificate (or, in the case of the first such certificate, the Closing Date), (B) all issuances of registrations or letters on existing applications by any Loan Party for Copyrights, Patents and Trademarks received since the date of the prior certificate (or, in the case of the first such certificate, the Closing Date), (C) all material Trademark Licenses, Copyright Licenses and Patent Licenses entered into by any Loan Party since the date of the prior certificate (or, in the case of the first such certificate, the Closing Date), (D) such supplements to Schedule 6.17 as are necessary to cause such schedule to be true and complete in all material respects as of the date of such certificate and (ii) attaching the insurance binder or other evidence of insurance for any insurance coverage of any Loan Party or any Subsidiary that was renewed, replaced or modified during the period covered by such financial statements.

Documents required to be delivered pursuant to Section 7.01(a) or (b) or Section 7.02 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 11.02, or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided, that: the Borrower shall notify the Administrative Agent and each Lender (by facsimile or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents.  The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery by a Lender, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

7.03Notices.

(a)Promptly (and in any event, within three (3) Business Days) notify the Administrative Agent and each Lender of the occurrence of any Default.

(b)Promptly (and in any event, within ten (10) Business Days) notify the Administrative Agent and each Lender of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)Promptly (and in any event, within ten (10) Business Days) notify the Administrative Agent and each Lender of the occurrence of any ERISA Event.

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(d)Promptly (and in any event, within ten (10) Business Days) notify the Administrative Agent and each Lender of any material change in accounting policies or financial reporting practices by the Borrower or any Subsidiary. 

(e)Promptly (and in any event, within ten (10) Business Days) notify the Administrative Agent and each Lender of any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrower which has been instituted or, to the knowledge of the Loan Parties, is threatened against the Borrower or any other Loan Party or to which any of the properties of any thereof is subject which could reasonably be expected to result in losses and/or expenses in excess of the Threshold Amount.

(f)Promptly (and in any event, within two (2) Business Days) notify the Administrative Agent and each Lender of the occurrence of any default or event of default under any Permitted Senior Revolving Credit Document or any document or other agreement evidencing any Indebtedness with an aggregate principal amount in excess of the Threshold Amount.

Each notice pursuant to this Section 7.03(a) through (f) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the applicable Loan Party has taken and proposes to take with respect thereto.  Each notice pursuant to Section 7.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

7.04Payment of Obligations.

Pay and discharge all its obligations and liabilities, including (a) prior to the date on which penalties attach thereto, all federal and state and other material tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Loan Party or such Subsidiary, (b) as the same shall become due and payable, all lawful claims which, if unpaid, would by law become a Lien upon its property (other than Permitted Liens), and (c) prior to the date on which such Indebtedness shall become delinquent or in default, all material Indebtedness, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

7.05Preservation of Existence, Etc.

(a)Preserve, renew and maintain in full force and effect its legal existence under the Laws of the jurisdiction of its organization (except in a transaction permitted by Section 8.04 or Section 8.05) except (other than with respect to the Borrower) to the extent that the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b)Preserve, renew and maintain in full force and effect its good standing under the Laws of the jurisdiction of its organization, except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect.

(c)Take all commercially reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect.

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(d)Preserve or renew all of its Registered IP in respect of which an application for registration has been filed or recorded with the United States Copyright Office or the United States Patent and Trademark Office, the non-preservation or non-renewal of which could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.   

7.06Maintenance of Properties.

(a)Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition (ordinary wear and tear excepted) except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b)Make all necessary repairs thereto and renewals and replacements thereof, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

(c)Use the standard of care typical in the industry in the operation and maintenance of its facilities.

7.07Maintenance of Insurance.

(a)Maintain with financially sound and reputable insurance companies not Affiliates of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons.

(b)Without limiting the foregoing, (i) maintain, if available, fully paid flood hazard insurance on all real property that is located in a special flood hazard area and that constitutes Collateral, on such terms and in such amounts as required by The National Flood Insurance Reform Act of 1994 or as otherwise reasonably required by the Administrative Agent or the Required Lenders, (ii) furnish to the Administrative Agent evidence of the renewal (and payment of renewal premiums therefor) of all such policies prior to the expiration or lapse thereof, and (iii) furnish to the Administrative Agent prompt written notice of any redesignation of any such improved real property into or out of a special flood hazard area.  

(c)Cause the Administrative Agent and its successors and/or assigns to be named as lender’s loss payee or mortgagee as its interest may appear, and/or additional insured with respect to any such insurance providing liability coverage or coverage in respect of any Collateral, and cause each provider of any such insurance to agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Administrative Agent, that it will give the Administrative Agent thirty (30) days (or such lesser amount as the Required Lenders may agree) prior written notice before any such policy or policies shall be adversely altered or canceled.

7.08Compliance with Laws.

Comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted, or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

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7.09Books and Records. 

(a)Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Loan Party or such Subsidiary, as the case may be.

(b)Maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over such Loan Party or such Subsidiary, as the case may be.

7.10Inspection Rights.

Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be desired, upon reasonable advance notice to the Borrower; provided, however, excluding any such visits and inspections during the continuation of an Event of Default, only the Administrative Agent (at the direction of the Required Lenders) on behalf of the Lenders may exercise rights under this Section 7.10 and the Administrative Agent shall not exercise such rights more often than two (2) times in any calendar year absent the existence of an Event of Default and only one (1) such time shall be at the Borrower’s expense; provided, further, however, when an Event of Default exists, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

7.11Use of Proceeds.

Use the proceeds of the Loans (a) to refinance existing Indebtedness of the Borrower and its Subsidiaries, (b) to support the commercialization of Veltassa and (c) for other general corporate purposes, provided, that, in no event shall the proceeds of the Loans be used in contravention of any Law or of any Loan Document.

7.12Additional Subsidiaries.

Within forty-five (45) days after the acquisition or formation of any Subsidiary (or such longer period as may be agreed to by the Required Lenders in their sole discretion):

(a)notify the Administrative Agent thereof in writing, together with the (i) jurisdiction of organization, (ii) number of shares of each class of Equity Interests outstanding, (iii) number and percentage of outstanding shares of each class owned (directly or indirectly) by the Borrower or any Subsidiary and (iv) number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with respect thereto; and

(b)if such Subsidiary is a Domestic Subsidiary (other than a Foreign Subsidiary Holding Company), cause such Person to (i) become a Guarantor by executing and delivering to the Administrative Agent a Joinder Agreement or such other documents as the Required Lenders shall reasonably request for such purpose, and (ii) deliver to the Administrative Agent documents of the types referred to in Sections 5.01(e) and (f) and if requested by the Required Lenders, favorable opinions of counsel to such Person (which shall cover, among other things, the legality,

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validity, binding effect and enforceability of the documentation referred to in clause (i)), all in form, content and scope reasonably satisfactory to the Required Lenders. 

7.13ERISA Compliance.

Do each of the following: (a) maintain each Plan in compliance with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state law, (b) cause each Pension Plan that is qualified under Section 401(a) of the Internal Revenue Code to maintain such qualification, and (c) make all contributions required to be made by the Borrower and its Subsidiaries to any Pension Plan subject to Section 412, Section 430 or Section 431 of the Internal Revenue Code, in each case, except as could not reasonably be expected to have a Material Adverse Effect.

7.14Pledged Assets.

(a)Equity Interests.  Cause (i) 100% of the issued and outstanding Equity Interests of each Domestic Subsidiary (other than any Foreign Subsidiary Holding Company) directly owned by a Loan Party and (ii) 65% (or such greater percentage that, due to a change in an applicable Law after the Closing Date, (A) could not reasonably be expected to cause any earnings of such Foreign Subsidiary or such Foreign Subsidiary Holding Company as determined for United States federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary’s or such Foreign Subsidiary Holding Company’s United States parent and (B) could not reasonably be expected to cause any material adverse tax consequences) of the issued and outstanding Equity Interests entitled to vote (within the meaning of Treasury Regulations Section 1.956-2(c)(2)) and 100% of the issued and outstanding Equity Interests not entitled to vote (within the meaning of Treasury Regulations Section 1.956-2(c)(2)) in each Foreign Subsidiary and each Foreign Subsidiary Holding Company, in each case, directly owned by a Loan Party, in each case, to be subject at all times to a first priority, perfected Lien in favor of the Administrative Agent, for the benefit of the Lenders, pursuant to the terms and conditions of the Collateral Documents, together with opinions of counsel and any filings and deliveries necessary in connection therewith to perfect the security interests therein, all in form and substance satisfactory to the Required Lenders (it being understood and agreed that no agreement or filing governed by the laws of any jurisdiction other than New York state shall be required in connection with the pledge of any Equity Interests of an Immaterial Foreign Subsidiary).

(b)Other Property.  Cause all property (other than Excluded Property) of each Loan Party to be subject at all times to first priority (subject to Permitted Liens), perfected and, in the case of owned real property, title insured Liens in favor of the Administrative Agent to secure the Obligations pursuant to the Collateral Documents or, with respect to any such property acquired subsequent to the Closing Date, such other additional security documents as the Required Lenders shall request and, in connection with the foregoing, deliver to the Administrative Agent such other documentation as the Required Lenders may reasonably request including filings and deliveries necessary to perfect such Liens, Organization Documents, resolutions, and favorable opinions of counsel to such Person, all in form, content and scope reasonably satisfactory to the Required Lenders.  

7.15Compliance with Contractual Obligations.

Comply with each Contractual Obligation of such Person, except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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7.16Deposit Accounts. 

(a)Within thirty (30) days after the acquisition or establishment of any Deposit Account by any Loan Party, provide written notice thereof to the Administrative Agent and the Lenders.

(b)Within sixty (60) days of the Closing Date, cause all Deposit Accounts of the Loan Parties (other than Excluded Accounts) at all times to be subject to Deposit Account Control Agreements, in each case in form and substance reasonably satisfactory to the Required Lenders (it being understood that the Loan Parties shall have sixty (60) days to comply with this Section 7.16(b) solely with respect to any Deposit Account acquired or established after the Closing Date (such period to be measured from the date of acquisition or establishment)).

7.17Products.

Without limiting the generality of Section 7.08, in connection with the development, testing, manufacture, marketing or sale of each and any Product by the Borrower or any Subsidiary, the Borrower or such Subsidiary shall comply in all material respects with all Regulatory Permits.

7.18Consent of Licensors.

Promptly after entering into or becoming bound by any license or agreement (other than over-the-counter software that is commercially available to the public), the failure, breach or termination of which could reasonably be expected to have a Material Adverse Effect, the Loan Parties shall (a) unless it has already publicly disclosed such information, provide written notice to the Administrative Agent and the Lenders of the material terms of such license or agreement with a description of its likely impact on the Loan Parties’ business or financial condition and (b) in good faith take such commercially reasonable actions as the Required Lenders may request to obtain the consent of, or waiver by, any Person whose consent or waiver is necessary for (i) the applicable Loan Party’s interest in such licenses or contract rights to be deemed Collateral and for the Administrative Agent to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future and (ii) the Administrative Agent to have the ability in the event of a liquidation of any of the Collateral to dispose of such Collateral in accordance with the Administrative Agent’s rights and remedies under this Agreement and the other Loan Documents; provided, that, the failure to obtain any such consent or waiver shall not constitute a Default.

7.19Anti-Corruption Laws.

Conduct its business in compliance with the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010 and other similar anti-corruption legislation in other jurisdictions and maintain policies and procedures designed to promote and achieve compliance with such laws.

7.20Maintenance of Material IP Rights.

Renew, prosecute, enforce, defend and maintain all Material IP Rights except where the failure to renew, prosecute, enforce, defend or maintain any Material IP Rights could not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect.

7.21Post-Closing Matters.

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(a)Within sixty (60) days of the Closing Date (or such longer period as the Required Lenders may agree in their discretion), use commercially reasonable efforts to deliver to the Administrative Agent duly executed Collateral Access Agreements for each location described on Schedule 7.21.  

(b)Within thirty (30) days of the Closing Date (or such longer period as the Required Lenders may agree in their discretion), deliver to the Administrative Agent endorsements to the Borrower’s liability and casualty insurance policies.

 

ARTICLE VIII

NEGATIVE COVENANTS

So long as any Lender shall have any Term Loan Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnification obligations for which no claim has been asserted), no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirectly:

8.01Liens.

Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:

(a)Liens pursuant to any Loan Document;

(b)Liens existing on the date hereof and listed on Schedule 8.01 and any renewals or extensions thereof; provided, that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as contemplated by Section 8.03(b), (iii) the direct or any contingent obligor with respect thereto is not changed and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 8.03(b);

(c)Liens (other than Liens imposed under ERISA) for taxes, assessments or governmental charges or levies not yet delinquent or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(d)Liens in respect of property imposed by requirements of Law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as, without limitation, carriers’, warehousemen’s, materialmen’s, landlords’, workmen’s, suppliers’, repairmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business that are securing obligations (i) not then due, (ii) if due, not yet overdue by more than thirty (30) days, (iii) that if overdue by more than thirty (30) days, are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP or (iv) with respect to which the failure to make payment could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;

(e)pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA which has resulted or could reasonably be expected to result in liability,

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together with any other Lien imposed by ERISA, in an aggregate amount in excess of the Threshold Amount; 

(f)deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, indemnity and performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(g)easements, rights-of-way, restrictions and other similar encumbrances and title deficiencies affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(h)Liens securing judgments for the payment of money (or appeal or other surety bonds relating to such judgments) not constituting an Event of Default under Section 9.01(h);

(i)Liens securing Indebtedness permitted under Section 8.03(e); provided, that: (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (ii) the Indebtedness secured thereby does not exceed the cost (negotiated on an arm’s length basis) or fair market value, whichever is lower, of the property being acquired on the date of acquisition and (iii) such Liens attach to such property concurrently with or within one hundred and twenty days after the acquisition thereof;

(j)licenses, sublicenses, leases or subleases (other than relating to intellectual property) granted to others in the ordinary course of business not interfering in any material respect with the business of any Loan Party or any of its Subsidiaries;

(k)any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Agreement;

(l)normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions;

(m)Liens of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection;

(n)(i) Liens of sellers of goods to the Borrower and any of its Subsidiaries arising under Article 2 of the Uniform Commercial Code or similar provisions of applicable law in the ordinary course of business, covering only the goods sold and securing only the unpaid purchase price for such goods and related expenses and (ii) the filing of UCC financing statements solely as a precautionary measure in connection with operating leases or consignment of goods;

(o)solely after satisfaction of the Permitted Senior Revolving Credit Requirement, Liens of the financial institution providing the Permitted Senior Revolving Credit Indebtedness (the “Revolving Credit Lender”) in the Revolving Credit Priority Collateral securing only the Permitted Senior Revolving Credit Indebtedness, subject to compliance with Section 8.03(f) and the definition of “Permitted Senior Revolving Credit Indebtedness”;

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

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(q)Liens securing liability for reimbursement or indemnification obligations of the Borrower or any Subsidiary to insurance carriers providing insurance to the Borrower or any Subsidiary arising by virtue of deposits made in the ordinary course of business; 

(r)cash deposits securing Indebtedness permitted under Sections 8.03(g)(iii) and 8.03(i);

(s)Permitted Licenses;

(t)Liens securing Indebtedness permitted pursuant to Section 8.03(j); provided, that, (i) such Liens are not incurred in connection with, or in contemplation or anticipation of, the applicable Permitted Acquisition and do not attach to any other asset of the Borrower or any Subsidiary (other than improvements thereon) and (ii) such Liens secure only those obligations secured on the date of the applicable Permitted Acquisition; and

(u)other Liens securing Indebtedness not exceeding $1,000,000 in the aggregate at any one time outstanding;

 

8.02Investments.

Make any Investments, except:

(a)(i) Investments held by the Borrower or such Subsidiary in the form of cash or Cash Equivalents and (ii) Investments made pursuant to the Borrower Investment Policy;

(b)Investments existing as of the Closing Date and set forth in Schedule 8.02;

(c)Investments in any Person that is a Loan Party prior to giving effect to such Investment;

(d)(i) Investments by the Borrower and its Subsidiaries consisting of the ownership of Equity Interests in their respective Subsidiaries outstanding on the Closing Date, (ii) Investments by any Subsidiary of the Borrower that is not a Loan Party in any other Subsidiary of the Borrower that is not a Loan Party, (iii) Investments by the Loan Parties in Subsidiaries that are not Loan Parties (other than Relypsa UK Ltd.) in an aggregate amount for all such Investments pursuant to this clause (d)(iii) not to exceed $500,000 in any fiscal year, and (iv) Investments by the Borrower in Relypsa UK Ltd. in an aggregate amount for all such Investments pursuant to this clause (d)(iv) not to exceed $2,000,000 in any fiscal year;

(e)Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(f)Permitted Acquisitions;

(g)loans and advances to officers, directors and employees of the Borrower and/or its Subsidiaries in an aggregate amount not to exceed $500,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes and to purchase Equity Interests of the Borrower;

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(h)Guarantees permitted by Section 8.03 (other than by reference to Section 8.02 (or any clause hereof)); 

(i)Investments consisting of (i) negotiable instruments held for collection in the ordinary course of business, (ii) lease, utility and other similar deposits in the ordinary course of business or (iii) Restricted Payments not prohibited by Section 8.06;

(j)promissory notes and other non-cash consideration that is permitted to be received in connection with Dispositions permitted by Section 8.05;

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

(l)Investments in joint ventures or strategic alliances in the ordinary course of the Borrower’s business consisting of the licensing or development of technology (it being understood that for purposes of this clause (l) neither Veltassa nor any IP Rights associated therewith shall be considered “technology” (unless such license is a Permitted Licsense)) or the providing of technological support, provided, that any cash Investments made by the Borrower and its Subsidiaries pursuant to this clause (l) do not exceed $1,000,000 in the aggregate at any one time outstanding;

(m)to the extent constituting Investments, Investments in the form of Permitted Bond Hedge Transactions and Permitted Warrant Transactions, in each case, entered into in connection with Convertible Bond Indebtedness permitted by Section 8.03(h); and

(n)other Investments not exceeding $1,000,000 in the aggregate at any one time outstanding.

8.03Indebtedness.

Create, incur, assume or suffer to exist any Indebtedness, except:

(a)Indebtedness under the Loan Documents;

(b)Indebtedness of the Borrower and its Subsidiaries existing on the Closing Date and described on Schedule 8.03 and any refinancings, refundings, renewals or extensions thereof; provided, that, (i) the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder, (ii) the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension; (iii) such refinancing, refunding, renewing or extending Indebtedness has a later or equal final maturity and longer or equal weighted average life than the Indebtedness being refinanced, refunded, renewed or extended; (iv) if the Indebtedness being refinanced, refunded, renewed or extended is subordinated in right of payment to the Obligations, such refinancing, refunding, renewal or extension is subordinated in right of payment to the Obligations on terms, taken as a whole, as favorable in all material respects to the Lenders (including, if applicable, as to Collateral) as those contained in the documentation governing the Indebtedness being refinanced, refunded, renewed or extended; (v) if the Indebtedness being refinanced, refunded, renewed or extended is secured, such refinancing, refunding, renewal or

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extension is, if secured, subject to intercreditor arrangements on terms, taken as a whole, as favorable in all material respects to the Lenders (including as to the applicable Collateral) as those contained in the documentation governing the Indebtedness being refinanced, refunded, renewed or extended; (vi) the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate; and (vii) such refinancing, refunding, renewing or extending Indebtedness may not have guarantors, obligors or security in any case more extensive than that which applied to the Indebtedness being refinanced, refunded, renewed or extended; 

(c)intercompany Indebtedness permitted under Section 8.02;

(d)obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided, that, such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;”

(e)purchase money Indebtedness (including obligations in respect of Capital Leases or Synthetic Leases) hereafter incurred by the Borrower or any of its Subsidiaries to finance the purchase of fixed assets, and renewals, refinancings and extensions thereof, provided, that, (i) the total of all such Indebtedness for all such Persons taken together shall not exceed an aggregate principal amount of $2,000,000 at any one time outstanding and (ii) such Indebtedness when incurred shall not exceed the purchase price of the asset(s) financed;

(f)solely after satisfaction of the Permitted Senior Revolving Credit Requirement, Permitted Senior Revolving Credit Indebtedness in an aggregate principal amount not to exceed $15,000,000 at any one time outstanding pursuant to a revolving credit facility; provided, that, (x) no Default or Event of Default shall have occurred and be continuing both immediately before and immediately after the incurrence of such Indebtedness and (y) not later than concurrently with the Borrower or any Subsidiary entering into any Permitted Senior Revolving Credit Document, (i) the Administrative Agent (at the direction of the Required Lenders), the Loan Parties and the Revolving Credit Lender shall have entered into an intercreditor agreement reasonably satisfactory to the Required Lenders pursuant to which (A) the Revolving Credit Lender shall be granted a first priority security interest only in the cash and accounts receivable of the Borrower and proceeds thereof (collectively, the “Revolving Credit Priority Collateral”), (B) the Administrative Agent, on behalf of the Lenders, shall be granted a second priority security interest in the Revolving Credit Priority Collateral, (C) the Administrative Agent, on behalf of the Lenders, shall maintain its first priority security interest in all other assets of the Loan Parties (other than Excluded Property) and (D) the Revolving Credit Lender shall not be granted a security interest in any property of the Loan Parties other than the Revolving Credit Priority Collateral and (ii) the Administrative Agent (at the direction of the Required Lenders) and the Loan Parties shall have entered into amendments, in each case in form and substance reasonably satisfactory to the Required Lenders, to this Agreement and such other Loan Documents as are required to, among other things, include in the Loan Documents such additional representations, warranties, covenants and defaults as are included in the Permitted Senior Revolving Credit Documents (but not included in the Loan Documents at such time);

(g)Indebtedness in respect of (i) surety and appeal bonds, performance bonds, bid bonds, appeal bonds, completion guarantees and similar obligations, (ii) customary indemnification obligations to purchasers in connection with Dispositions permitted by Section 8.05, and (iii) letters

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of credit issued in the ordinary course of business with respect to the leasing of real property, construction-related activities or other business transactions in the ordinary course; provided, that, the aggregate outstanding amount of such letters of credit plus the aggregate outstanding amount of Indebtedness incurred in reliance on Section 8.03(i) shall not exceed $5,000,000 at any time outstanding; 

(h)Convertible Bond Indebtedness; provided, that, (i) such Convertible Bond Indebtedness shall be unsecured, (ii) no Subsidiary shall Guarantee Convertible Bond Indebtedness if such Subsidiary does not also provide a Guarantee of the Obligations, (iii) Convertible Bond Indebtedness shall not mature, and no scheduled or mandatory principal payments, prepayments, cash settlements, repurchases, redemptions or sinking fund or like payments of any Convertible Bond Indebtedness shall be required at any time on or prior to the date that is one (1) year after the Maturity Date, (iv) Convertible Bond Indebtedness shall not include covenants and defaults (other than covenants and defaults customary for convertible indebtedness but not customary for loans) that are, taken as a whole, more restrictive on the Loan Parties than the provisions of this Agreement, (v) no Default or Event of Default shall have occurred and be continuing at the time of incurrence of such Convertible Bond Indebtedness or could result therefrom, (vi) immediately after giving effect to the incurrence of any Convertible Bond Indebtedness, the aggregate outstanding amount of all Convertible Bond Indebtedness shall not exceed the greater of (x) $200,000,000 and (y) twenty percent (20%) of the Borrower’s Market Capitalization as of such date of incurrence; provided, that, any Convertible Bond Indebtedness that is subordinated to the Obligations on terms and conditions reasonably satisfactory to the Required Lenders shall not fill the basket set forth in this sub-clause (vi) (but shall, for the avoidance of doubt, be required to satisfy each other condition of this Section 8.03(h)) and (vii) the Borrower shall have delivered to the Administrative Agent and the Lenders a certificate of a Responsible Officer of the Borrower certifying as to the foregoing;

(i)Indebtedness incurred in the ordinary course of business in respect of credit cards, credit processing services, debit cards, stored value cards and purchase cards (including so-called “procurement cards” or “P-cards”); provided, that, the aggregate outstanding amount of such Indebtedness plus the aggregate outstanding amount of Indebtedness incurred in reliance on Section 8.03(g)(iii) shall not exceed $5,000,000 at any one time outstanding;

(j)Indebtedness of a Subsidiary acquired pursuant to a Permitted Acquisition (or Indebtedness assumed by the Borrower or any Subsidiary pursuant to a Permitted Acquisition as a result of (x) a merger or consolidation or (y) the acquisition of an asset securing such Indebtedness); provided, that, (i) such Indebtedness was not incurred in connection with, or in anticipation or contemplation of, such Permitted Acquisition and such Indebtedness existed immediately prior to such Permitted Acquisition and (ii) the aggregate outstanding amount of all such Indebtedness shall not exceed $15,000,000 at any one time outstanding; and

(k)other unsecured Indebtedness in an aggregate amount not to exceed $2,500,000 at any one time outstanding.

8.04Fundamental Changes.

Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person; provided, that, notwithstanding the foregoing provisions of this Section 8.04 but subject to the terms of Sections 7.12 and 7.14, (a) the Borrower may merge or consolidate with any of its Subsidiaries, provided that the Borrower shall be the continuing or surviving corporation, (b) any Loan Party (other than the Borrower) may merge or consolidate with any other Loan Party (other than the Borrower), (c)

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any Subsidiary that is not a Loan Party may be merged or consolidated with or into any Loan Party, provided that such Loan Party shall be the continuing or surviving corporation, (d) any Subsidiary that is not a Loan Party  may be merged or consolidated with or into any other Subsidiary that is not a Loan Party and (e) any Subsidiary that is not a Loan Party may dissolve, liquidate or wind up its affairs at any time provided that such dissolution, liquidation or winding up could not reasonably be expected to have a Material Adverse Effect and all of its assets and business are transferred to a Loan Party prior to or concurrently with such dissolution, liquidation or winding up.

8.05Dispositions.

Make any Disposition (other than, for the avoidance of doubt, Permitted Transfers) unless (a) the consideration paid in connection therewith shall be cash or Cash Equivalents paid contemporaneous with consummation of the transaction and shall be in an amount not less than the fair market value of the property disposed of, (b) no Event of Default shall have occurred and be continuing both immediately prior to and after giving effect to such Disposition, (c) such transaction does not involve the sale or other disposition of a minority equity interest in any Subsidiary, (d) such transaction does not involve a sale, transfer, license or other disposition of Veltassa (or any IP Rights associated therewith) in the United States or any state or political subdivision thereof and (e) the aggregate net book value of all of the assets sold or otherwise disposed of in the fiscal year in which such Disposition is made (including, for the avoidance of doubt, the assets sold or otherwise disposed of in such Disposition) does not exceed $1,000,000 in the aggregate.

8.06Restricted Payments.

Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that:

(a)each Subsidiary may make Restricted Payments to any  Loan Party;

(b)the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the Qualified Capital Stock of such Person;

(c)the Borrower may make (i) any payment of cash in lieu of a fractional share in accordance with the terms of any indenture governing Convertible Bond Indebtedness and (ii) subject to any subordination provisions applicable thereto (to the extent such Convertible Bond Indebtedness is subordinated to the Obligations), regularly scheduled interest payments and normal course fee payments as and when due in accordance with the terms of any indenture governing Convertible Bond Indebtedness;

 

(d)the Borrower may make any payment of premium to a counterparty under a Permitted Bond Hedge Transaction in accordance with the definition thereof; and

 

(e)the Borrower may make any payment in connection with a Permitted Warrant Transaction by (i) delivery of shares of the Borrower’s common stock upon net share settlement thereof or (ii) set-off and/or payment of an early termination payment or similar payment thereunder, in each case, in the Borrower’s common stock upon any early termination thereof.

 

8.07Change in Nature of Business.

Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the Closing Date or any business substantially related or incidental thereto.

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8.08Transactions with Affiliates and Insiders. 

Enter into or permit to exist any transaction or series of transactions with any officer, director or Affiliate of such Person other than (a) advances of working capital to any Loan Party, (b) transfers of cash and assets to any Loan Party, (c) intercompany transactions not prohibited by Section 8.02, Section 8.03, Section 8.04, Section 8.05 or Section 8.06, (d) normal and reasonable compensation and reimbursement of expenses of officers and directors in the ordinary course of business and (e) except as otherwise specifically limited in this Agreement, other transactions which are entered into in the ordinary course of such Person’s business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms-length transaction with a Person other than an officer, director or Affiliate.

8.09Burdensome Agreements.

Enter into, or permit to exist, any Contractual Obligation that (a) encumbers or restricts the ability of any such Person to (i) make Restricted Payments to any Loan Party, (ii) pay any Indebtedness or other obligations owed to any Loan Party, (iii) make loans or advances to any Loan Party, (iv) transfer any of its property to any Loan Party, (v) pledge its property pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof or (vi) act as a Loan Party pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (i) through (v) above) for (1) this Agreement and the other Loan Documents, (2) any document or instrument governing Indebtedness incurred pursuant to Section 8.03(e), provided, that, any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (3) any Permitted Lien or any document or instrument governing any Permitted Lien, provided, that, any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien, (4) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 8.05 pending the consummation of such sale, (5) solely after satisfaction of the Permitted Senior Revolving Credit Requirement, the Permitted Senior Revolving Credit Documents or (6) customary provisions regarding confidentiality or restricting assignment, pledges or transfer of any agreement entered into in the ordinary course of business or (b) requires the grant of any security for any obligation if such property is given as security for the Obligations.

8.10Use of Proceeds.

Use the proceeds of any Loan, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

8.11Prepayment of Other Indebtedness.

Make (or give any notice with respect thereto) any voluntary or optional payment or prepayment or redemption, cash settlement or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any Indebtedness of any Loan Party or any Subsidiary (other than (w) Indebtedness arising under the Loan Documents, (x) any Permitted Senior Revolving Credit Indebtedness, (y) any Convertible Bond Indebtedness (solely to the extent made with the proceeds of additional issuances of Convertible Bond Indebtedness permitted under Section 8.03(h) and subject to any subordination provisions applicable thereto) or (z) Indebtedness permitted by Section 8.03(e) (solely to the extent made with the proceeds of additional issuances of Indebtedness permitted under Section 8.03(e))).

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8.12Organization Documents; Fiscal Year; Legal Name, State of Formation and Form of Entity; Certain Amendments. 

(a)Amend, modify or change its Organization Documents in a manner materially adverse to the rights or remedies of the Lenders under the Loan Documents.

(b)Change its fiscal year.

(c)Without providing ten (10) days prior written notice to the Administrative Agent, change its name, state of organization or form of organization.

(d)Amend, modify or change any of the terms or provisions of any Permitted Senior Revolving Credit Document in violation of the terms and provisions of any intercreditor agreement entered into by the Administrative Agent with respect thereto.

8.13Ownership of Subsidiaries.

Notwithstanding any other provisions of this Agreement to the contrary, (a) permit any Person (other than any Loan Party or any Wholly Owned Subsidiary of the Borrower) to own any Equity Interests of any Subsidiary of any Loan Party, except to qualify directors where required by applicable law or to satisfy other requirements of applicable law with respect to the ownership of Equity Interests of Foreign Subsidiaries, (b) permit any Loan Party or any Subsidiary to issue or have outstanding any Disqualified Capital Stock or (c) create, incur, assume or suffer to exist any Lien on any Equity Interests of any Subsidiary of any Loan Party, except for Permitted Liens.

8.14Sale Leasebacks.

Enter into any Sale and Leaseback Transaction.

8.15Sanctions; Anti-Corruption Laws.

(a)Directly or indirectly, use the proceeds of the Term Loan, or lend, contribute or otherwise make available such proceeds of the Term Loan to any Person, to fund any activities of or business with any Person, or in any Designated Jurisdiction, that, at the time of such funding, is the subject of Sanctions, or in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as Lender, Administrative Agent, or otherwise) of Sanctions.

(b)Directly or indirectly, use the proceeds of the Term Loan for any purpose which would breach the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010 and other similar anti-corruption legislation in other jurisdictions.

8.16Liquidity.

Permit cash, Cash Equivalents and Investments made pursuant to the Borrower Investment Policy, in each case, of the Borrower held in Deposit Accounts for which the Administrative Agent shall have received a Deposit Account Control Agreement at any time to be less than $45,000,000; provided, that, (x) if the financial statements delivered by the Loan Parties pursuant to Section 7.01(a) or (b) for any four fiscal quarter period and the related Compliance Certificate demonstrate that Consolidated Net Sales for such four fiscal quarter period were greater than $85,000,000, the minimum cash, Cash Equivalents and Investments made pursuant to the Borrower Investment Policy requirement set forth above shall be $0 for each day that

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follows the delivery of such financial statements and Compliance Certificate until delivery of the financial statements and Compliance Certificate for the next succeeding four fiscal quarter period pursuant to Section 7.01(a) or (b), as applicable and (y) solely until the date that is sixty (60) days after the Closing Date, the Borrower shall not be required to maintain such $45,000,000 of cash, Cash Equivalents and Investments made pursuant to the Borrower Investment Policy in Deposit Accounts for which the Administrative Agent has received Deposit Account Control Agreements but may rather maintain such amount in Deposit Accounts for which the Administrative Agent has not received a Deposit Account Control Agreement.

ARTICLE IX

EVENTS OF DEFAULT AND REMEDIES

9.01Events of Default.

Any of the following shall constitute an Event of Default:

(a)Non-Payment.  The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within three Business Days after the same becomes due, any interest on any Loan, or any fee due hereunder, or (iii) within five Business Days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

(b)Specific Covenants.  Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Section 7.02(a), (b), (d), (e), (f), (h) or (i), 7.03(a), (b) or (c), 7.05(a), 7.10, 7.11, 7.12, 7.14, 7.16, 7.17, 7.18 or 7.19 or Article VIII; or

(c)Other Defaults.  Any Loan Party fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty days after the earlier of the date on which (i) a Responsible Officer of any Loan Party becomes aware of such failure and (ii) written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or

(d)Representations and Warranties.  Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be materially incorrect or materially misleading when made or deemed made; or

(e)Cross-Default.  (i) Any Loan Party or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), but only after the expiration of any grace period applicable thereto, in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate outstanding principal amount (including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to

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repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which the Borrower or any Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by the Borrower or such Subsidiary as a result thereof is greater than the Threshold Amount; or 

(f)Insolvency Proceedings, Etc.  Any Loan Party or any of its Subsidiaries institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty calendar days, or an order for relief is entered in any such proceeding; or

(g)Inability to Pay Debts; Attachment.  (i) Any Loan Party or any of its Subsidiaries becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within sixty (60) days after its issue or levy; or

(h)Judgments.  There is entered against any Loan Party or any Subsidiary one or more final judgments or orders for the payment of money in an aggregate amount exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) or any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (i) enforcement proceedings are commenced by any creditor upon such judgment or order or (ii) there is a period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

(i)ERISA.  (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $5,000,000, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $5,000,000; or

(j)Invalidity of Loan Documents.  Any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or

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(k)Material Adverse Effect.  There occurs any circumstance or circumstances that could reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect; or 

(l)Change of Control.  There occurs any Change of Control; or

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

(n)Injunction.  Any court order enjoins, restrains, or prevents any Loan Party from conducting any material part of its business;

(o)Permitted Senior Revolving Credit Indebtedness.  There occurs an “Event of Default” (or any comparable term) under, and as defined in, any Permitted Senior Revolving Credit Document;

(p)Veltassa.  (i) The FDA shall revoke, withdraw, suspend, cancel, materially limit, terminate or materially adversely modify any Regulatory Permit related to Veltassa; or (ii) any Governmental Authority (other than the FDA) shall revoke, withdraw, suspend, cancel, materially limit, terminate or materially modify any Regulatory Permit related to Veltassa (in each case, a “Non-FDA Governmental Action”) and Consolidated Revenues shall decrease by greater than twenty percent (20%), as assessed as at the end of each of the four fiscal quarters immediately following such Non-Governmental FDA Action by comparing Consolidated Revenues for the four fiscal quarter period most recently ended prior to such Non-FDA Governmental Action for which the Borrower was required to deliver financial statements pursuant to Section 7.01(a) or (b) as against Consolidated Revenues for the four fiscal quarter period ending on the applicable date of assessment; or (iii) any Safety Notice is issued or initiated in connection with Veltassa and Consolidated Revenues shall decrease by greater than twenty percent (20%), as assessed as at the end of each of the four fiscal quarters immediately following the issuance or initiation of such Safety Notice by comparing Consolidated Revenues for the four fiscal quarter period most recently ended prior to the issuance or initiation of such Safety Notice for which the Borrower was required to deliver financial statements pursuant to Section 7.01(a) or (b) as against Consolidated Revenues for the four fiscal quarter period ending on the applicable date of assessment; or

(q)Permitted Bond Hedge Transactions and Permitted Warrant Transactions.  There occurs under any Permitted Bond Hedge Transaction or Permitted Warrant Transaction an Early Termination Date (as defined therein) resulting from any event of default or termination event thereunder as to which the Borrower or any Subsidiary is the Defaulting Party (as defined therein) or the Affected Party (as defined therein) and the termination value owed by the Borrower or such Subsidiary as a result thereof, taken together, is greater than the Threshold Amount, and such termination value is required to be paid in cash and may not be settled by the delivery of common stock of the Borrower.

 

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9.02Remedies Upon Event of Default. 

If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:

(a)declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

(b)exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Administrative Agent or any Lender.

If the Obligations are accelerated for any reason, the prepayment premium required by Section 2.03(e) and the exit fee required by Section 2.06(b) will also be due and payable as though such Obligations were voluntarily prepaid and any discount on the Term Loan shall be deemed earned in full and, in each case, shall constitute part of the Obligations, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of each Lender’s lost profits as a result thereof.  Any prepayment premium required by Section 2.03(e) and any exit fee required by Section 2.06(b) payable pursuant to the preceding sentence shall be presumed to be the liquidated damages sustained by each Lender as the result of the early termination and the Borrower agrees that it is reasonable under the circumstances currently existing.  The prepayment premium required by Section 2.03(e) and the exit fee required by Section 2.06(b) shall also be payable and any discount on the Term Loan shall be deemed earned in full, in each case, in the event that the Obligations (and/or this Agreement) are satisfied or released by foreclosure (whether by power of judicial proceeding), deed in lieu of foreclosure or by any other means.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER EXPRESSLY WAIVES THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR LAW THAT PROHIBITS OR MAY PROHIBIT THE COLLECTION OF THE FOREGOING PREPAYMENT PREMIUM, EXIT FEE AND ANY DISCOUNT ON THE TERM LOAN IN CONNECTION WITH ANY SUCH ACCELERATION.  The Borrower expressly agrees that (i) the prepayment premium required by Section 2.03(e), the exit fee required by Section 2.06(b) and any discount on the Term Loan provided for herein is reasonable and is the product of an arm’s length transaction between sophisticated business people, ably represented by counsel, (ii) the prepayment premium required by Section 2.03(e), the exit fee required by Section 2.06(b) and any discount on the Term Loan shall be payable notwithstanding the then prevailing market rates at the time payment is made, (iii) there has been a course of conduct between the Lenders and the Borrower giving specific consideration in this transaction for such agreement to pay the prepayment premium required by Section 2.03(e), the exit fee required by Section 2.06(b) and any discount on the Term Loan, and (iv) the Borrower shall be estopped hereafter from claiming differently than as agreed to in this paragraph.  The Borrower expressly acknowledges that its agreement to pay the prepayment premium required by Section 2.03(e), the exit fee required by Section 2.06(b) and any discount on the Term Loan to the Lenders as herein described is a material inducement to the Lenders to make the Term Loan hereunder.

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9.03Application of Funds. 

After the exercise of remedies provided for in Section 9.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 9.02), any amounts received by any Lender or the Administrative Agent on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest, prepayment premiums and exit fees) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders) arising under the Loan Documents and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on and prepayment premium and exit fees with respect to the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Third held by them;

Fourth, to payment of that portion of the Obligations constituting accrued and unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and

Last, the balance, if any, after all of the Obligations have been paid in full in cash, to the Borrower or as otherwise required by Law.

ARTICLE X

ADMINISTRATIVE AGENT

10.01Appointment and Authority.

(a)Each of the Lenders hereby irrevocably appoints Cantor Fitzgerald Securities to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are incidental thereto.  Except for the Borrower’s specific rights contained in Section 10.06, the provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.  It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law.  Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

(b)The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders hereby irrevocably appoints and authorizes the Administrative

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Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are incidental thereto.  In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 10.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent, shall be entitled to the benefits of all provisions of this Article X and Article XI (including Section 11.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto.  It is understood and agreed that the Administrative Agent shall not be obligated to enforce any remedies against the Collateral to the extent that the Administrative Agent concludes that such enforcement would cause it personal liability.  It is understood and agreed that the Required Lenders may, notwithstanding such failure to enforce by the Administrative Agent, enforce remedies against the Collateral. 

10.02Rights as a Lender.

The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with any Loan Party or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

10.03Exculpatory Provisions.

The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature.  Without limiting the generality of the foregoing, the Administrative Agent:

(a)shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(b)shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided, that, the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may affect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and

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

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The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Section 9.02) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and non-appealable judgment. If the Administrative Agent shall request direction from the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.01 and 9.02) with respect to any action or actions (including failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from taking such action unless and until it shall have received instruction from such Lenders and the Administrative Agent shall not incur any liability to any Person by reason of so refraining.  The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given in writing to the Administrative Agent by the Borrower, or a Lender.

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

10.04Reliance by Administrative Agent.

The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Loan, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan.  The Administrative Agent may consult with legal counsel (who may be counsel for the Loan Parties), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

10.05Delegation of Duties.

The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties.  The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.  The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that

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the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.

10.06Resignation of Administrative Agent.

(a)Notice.  The Administrative Agent may at any time give written notice of its resignation to the Lenders and the Borrower.  Upon receipt of any such notice of resignation, a successor Administrative Agent may be appointed in accordance with subsection (b) hereof.  Such resignation shall be effective on the date thirty (30) days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”).  Whether or not a successor has been appointed and accepted such appointment by the Resignation Effective Date, such resignation shall nonetheless become effective in accordance with such notice on the Resignation Effective Date.

(b)Appointment of Successor Administrative Agent.  Following the resignation of the Administrative Agent in accordance with the foregoing, the Required Lenders shall have the right, with the consent of the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States; provided that (i) such consent of the Borrower shall not be unreasonably withheld if such successor is a commercial bank with a combined capital and surplus of at least $5.0 billion, (ii) no consent of the Borrower shall be required if an Event of Default has occurred and is continuing at the time of such appointment, and (iii) in no event shall any successor Administrative Agent be a Defaulting Lender at the time of such appointment.

(c)Effect of Resignation.  With effect from the Resignation Effective Date: (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except as set forth in the next sentence and except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments or other amounts then owed to the retiring Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Administrative Agent (other than any rights to indemnity payments or other amounts owed to the retiring Administrative Agent as of the Resignation Effective Date), and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section), other than any obligations under Section 11.07 hereof.  The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor.  After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 11.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub‑agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

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10.07Non-Reliance on Administrative Agent and Other Lenders. 

Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

10.08Administrative Agent May File Proofs of Claim.

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a)at the direction of the Required Lenders, to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 11.04) allowed in such judicial proceeding; and

(b)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 11.04.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

10.09Collateral and Guaranty Matters.

The Lenders irrevocably authorize the Administrative Agent, upon the direction of the Required Lenders:

(a)to release any Lien on any Collateral granted to or held by the Administrative Agent under any Loan Document (i) upon payment in full of all Obligations (other than contingent

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indemnification obligations for which no claim has been asserted) under the Loan Documents, (ii) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other Disposition permitted hereunder or under any other Loan Document or any Involuntary Disposition, or (iii) as approved in accordance with Section 11.01; 

(b)to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 8.01(i);

(c)to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted under the Loan Documents; and

(d)to enter into (i) any intercreditor agreement approved by the Required Lenders in connection with Permitted Senior Revolving Credit Indebtedness or (ii) any subordination agreement approved by the Required Lenders in connection with Convertible Bond Indebtedness.

Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty, pursuant to this Section 10.09.

The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.

ARTICLE XI

MISCELLANEOUS

11.01Amendments, Etc.

No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, further, that:

(a)no such amendment, waiver or consent shall:

(i)postpone any date fixed by this Agreement or any other Loan Document for any payment of principal (excluding mandatory prepayments), interest, prepayment premiums, fees or other amounts due to the Lenders (or any of them) without the written consent of each Lender entitled to receive such payment;

(ii)reduce the principal of, the rate of interest specified herein on or the prepayment premium specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to receive such payment of principal, interest, fees or other amounts; provided,

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however, that, only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate; 

(iii)change any provision of this Section 11.01(a) or the definition of “Required Lenders” without the written consent of each Lender directly affected thereby;

(iv)except in connection with a Disposition permitted under Section 8.05, release all or substantially all of the Collateral without the written consent of each Lender directly affected thereby;

(v)release the Borrower or, except in connection with a merger or consolidation permitted under Section 8.04 or a Disposition permitted under Section 8.05, all or substantially all of the Guarantors without the written consent of each Lender directly affected thereby, except to the extent the release of any Guarantor is permitted pursuant to Section 10.10 (in which case such release may be made by the Administrative Agent acting alone);

(vi)change any provision of Section 2.12 without the written consent of each Lender directly affected thereby; and

(b)unless also signed by the Administrative Agent, no amendment, waiver or consent shall affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document;

provided, however, that, notwithstanding anything to the contrary herein, (i) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than other affected Lenders shall require the consent of such Defaulting Lender, (ii) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code of the United States supersedes the unanimous consent provisions set forth herein, (iii) the Required Lenders shall determine whether or not to allow a Loan Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and such determination shall be binding on all of the Lenders and (iv) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto (and no other Person).

Notwithstanding anything herein to the contrary, as to any amendment, amendment and restatement or other modification otherwise approved in accordance with this Section, it shall not be necessary to obtain the consent or approval of any Lender that, upon giving effect to such amendment, amendment and restatement or other modification, would have no Term Loan Commitment or outstanding Loans so long as such Lender receives payment in full of the principal of and interest accrued on each Loan made by, and all other amounts owing to, such Lender or accrued for the account of such Lender under this Agreement and the other Loan Documents at the time such amendment, amendment and restatement or other modification becomes effective.

11.02Notices and Other Communications; Facsimile Copies.

(a)Notices Generally.  Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all

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notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: 

(i)if to the Borrower or any other Loan Party or the Administrative Agent, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 11.02; and

(ii)if to any other Lender, to the address, facsimile number, electronic mail address or telephone number of its Lending Office (whether specified on Schedule 11.02 or separately specified to the Borrower and the Administrative Agent).

Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient).  Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

(b)Electronic Communications.  Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided, that, the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may each, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided, that, approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided, that, for both clauses (i) and (ii), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.

(c)Change of Address, Etc.  Each of the Borrower, the Lenders and the Administrative Agent may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the other parties hereto.  In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

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(d)Reliance by Administrative Agent and Lenders.  The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic or electronic Loan Notices) purportedly given by or on behalf of any Loan Party even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof.  The Loan Parties shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of a Loan Party.  All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. 

11.03No Waiver; Cumulative Remedies; Enforcement.

No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 10.01 for the benefit of all the Lenders; provided, however, that, the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 11.08 (subject to the terms of Section 2.10), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that, if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 10.01 and (ii) in addition to the matters set forth in clauses (b) and (c) of the preceding proviso and subject to Section 2.10, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.

11.04Expenses; Indemnity; and Damage Waiver.

(a)Costs and Expenses.  The Loan Parties shall pay, promptly following written demand therefor, (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, Athyrium and their respective Affiliates (but limited, in the case of legal fees and expenses, to the reasonable and documented fees, charges and disbursements of one primary counsel for the Administrative Agent, Athyrium and their respective Affiliates and, if necessary, one local counsel in any relevant jurisdiction) (and, in the case of an actual or perceived conflict of interest where the party affected by such conflict warns the Borrower of such conflict and thereafter retains its own counsel, of one additional firm or counsel for all such affected parties taken as a whole), in connection with (A) the preparation, negotiation, execution and delivery of this Agreement and the other Investment Documents and (B) any amendments, modifications or

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waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) or the administration of this Agreement and the other Loan Documents and (ii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. 

(b)Indemnification by the Loan Parties.  The Loan Parties shall indemnify the Administrative Agent (and any sub-agent thereof) and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (but limited, in the case of legal counsel, to the reasonable fees, disbursements and other charges of one firm of counsel for the Indemnitees (taken as a whole), and, if necessary, one firm of local counsel in each appropriate jurisdiction, in each case for all such Indemnitees (and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel, of one additional firm of counsel for all such affected Indemnitees taken as a whole)), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Investment Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Investment Documents, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by a Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to a Loan Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided, that, such indemnity shall not, (x) as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee (or any Related Indemnified Party of such Indemnitee) or (B) result from a claim brought by any Loan Party against such Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction, or (y) be available to the extent that such losses, claims, damages, liabilities or related expenses arise solely from a dispute solely among Indemnitees (except when and to the extent that one of the Indemnitees party to such dispute was acting in its capacity or in fulfilling its role as an agent or any similar role under this Agreement or any Loan Document) that does not involve any act or omission by the Borrower or any of its Affiliates.

(c)Reimbursement by Lenders.  To the extent that the Loan Parties for any reason fail to pay in full in cash any amount required under subsection (a) or (b) of this Section to be paid by them to the Administrative Agent (or any sub-agent thereof) or any Related Party thereof, each

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Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s share of the Total Credit Exposure at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender), such payment to be made severally among them based on such Lenders’ Applicable Percentages (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought), provided, further, that, the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), or against any Related Party thereof acting for the Administrative Agent (or any such sub-agent) in connection with such capacity.  The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.09(c). 

(d)Waiver of Consequential Damages, Etc.  To the fullest extent permitted by applicable law, no Loan Party shall assert, and each Loan Party hereby waives any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Investment Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof.  No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Investment Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final nonappealable judgment of a court of competent jurisdiction.

(e)Payments.  All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

(f)Survival.  The agreements in this Section and the indemnity provisions of Section 11.02(d) shall survive the resignation of the Administrative Agent, the replacement of any Lender, and the repayment, satisfaction or discharge of all the other Obligations.

11.05Payments Set Aside.

To the extent that any payment by or on behalf of any Loan Party is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

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11.06Successors and Assigns. 

(a)Successors and Assigns Generally.  The provisions of this Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder or thereunder without the prior written consent of the Administrative Agent and each Lender (other than any Defaulting Lender) and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (e) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (e) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)Assignments by Lenders.  Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of the Loans at the time owing to it); provided, that, any such assignment shall be subject to the following conditions:

(i)Minimum Amounts.

(A)in the case of an assignment of the entire remaining amount of the assigning Lender’s Loans at the time owing to it or contemporaneous assignments to related Approved Funds that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B)in any case not described in subsection (b)(i)(A) of this Section, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $1,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);

(ii)Proportionate Amounts.  Each partial assignment shall be made as an assignment of a proportionate part of all of the assigning Lender’s rights and obligations under this Agreement with respect to the Loans;

(iii)Required Consents.  No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

(A)the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a

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Lender, an Affiliate of a Lender or an Approved Fund; provided, that, the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; 

(B)the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Term Loan to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund;

(iv)Assignment and Assumption.  The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment.  The assignee, if it is not a Lender, shall deliver to the Administrative Agent such information, including notice information, as the Administrative Agent shall reasonably require.

(v)No Assignment to Certain Persons.  No such assignment shall be made (A) to the Borrower or any of the Borrower’s Affiliates or Subsidiaries, (B) to any Defaulting Lender or any of its Subsidiaries or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B) or (C) to a natural Person.

(vi)Certain Additional Payments.  In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans in accordance with its Applicable Percentage.  Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.02 and 11.04 with respect to facts and circumstances occurring

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prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.  Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

(c)Register.  The Administrative Agent, acting solely for this purpose as an agent of the Borrower (and such agency being solely for tax purposes), shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the Term Loan Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.  In addition, the Administrative Agent shall maintain on the Register information regarding the designation, and revocation of designation, of any Lender as a Defaulting Lender.  The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(d)Participations.  Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural Person, a Defaulting Lender or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Term Loan Commitment and/or the Loans owing to it); provided, that, (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 11.04(c) without regard to the existence of any participation.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided, that, such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in clauses (i) through (vi) of Section 11.01(a) that affects such Participant.  The Borrower agrees that each Participant shall be entitled to the benefits of Section 3.01 (subject to the requirements and limitations therein (it being understood that the documentation required under Section 3.01(c) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section, provided that such Participant (1) agrees to be subject to the provisions of Section 11.13 as if it were an assignee under paragraph (b) of this Section and (2) shall not be entitled to receive any greater payment under Section 3.01, with respect to any participation, than its participating Lender would be entitled to receive, except to the extent such entitlement to receive a greater payment results from a change in Law that occurs after the Participant acquired the applicable Participation.  To the fullest extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.08 as though it were a Lender;

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provided, that, such Participant agrees to be subject to Section 2.10 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Term Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Treasury Regulations Section 5f.103-1(c).  The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.  For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(e)Certain Pledges.  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided, that, no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

11.07Treatment of Certain Information; Confidentiality.

Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) as may be reasonably necessary in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to a Loan Party and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the credit facilities provided hereunder or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the credit facilities provided hereunder, (h) with the consent of the Borrower, (i) to the members of its investment committee (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential) or (j) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.

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For purposes of this Section, “Information” means all information received from a Loan Party or any Subsidiary relating to the Loan Parties or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by such Loan Party or any Subsidiary, provided, that, in the case of information received from a Loan Party or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

11.08Set-off.

If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Required Lenders, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or its Affiliates, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a branch office or Affiliate of such Lender different from the branch office or Affiliate holding such deposit or obligated on such indebtedness; provided, that, in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.11 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff.  The rights of each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or their respective Affiliates may have.  Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided, that, the failure to give such notice shall not affect the validity of such setoff and application.

11.09Interest Rate Limitation.

Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower.  In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

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11.10Counterparts; Integration; Effectiveness. 

This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement, the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic imaging means (e.g. “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Agreement.

11.11Survival of Representations and Warranties.

All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof and shall continue in full force and effect as long as any Loan or other Obligation hereunder shall remain unpaid or unsatisfied.  Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Borrowing, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.

11.12Severability.

If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.  Without limiting the foregoing provisions of this Section 11.12, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Required Lenders, then such provisions shall be deemed to be in effect only to the extent not so limited.

11.13Replacement of Lenders.

If (x) the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 or (y) if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.06), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01) and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided, that:

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(a)the Borrower shall have paid to the Administrative Agent the assignment fee set forth in Section 11.06; 

(b)such Lender shall have received payment of an amount equal to one hundred percent (100%) of (x) the outstanding principal of its Loans, accrued interest thereon and all other amounts payable to it hereunder and under the other Loan Documents (other than prepayment premium and exit fees) from the assignee (to the extent of such outstanding principal and accrued interest) or the Borrower (in the case of all other amounts) and (y) the prepayment premium required by Section 2.03(e) and the exit fee required by Section 2.06(b), in each case, from the Borrower, as if such assignment was a prepayment of one hundred percent (100%) of the outstanding principal amount of such assignor’s Loans on the effective date of such assignment;

(c)such assignment does not conflict with applicable Laws; and

(d)in the case of any such assignment resulting from a Non-Consenting Lender’s failure to consent to a proposed change, waiver, discharge or termination with respect to any Loan Document, the applicable replacement bank, financial institution or Fund consents to the proposed change, waiver, discharge or termination; provided, that, the failure by such Non-Consenting Lender to execute and deliver an Assignment and Assumption shall not impair the validity of the removal of such Non-Consenting Lender and the mandatory assignment of such Non-Consenting Lender’s outstanding Loans pursuant to this Section 11.13 shall nevertheless be effective without the execution by such Non-Consenting Lender of an Assignment and Assumption.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

11.14Governing Law; Jurisdiction; Etc.

(a)GOVERNING LAW.  This Agreement and the other LOAN Documents (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other LOAN Document (except, as to any other LOAN Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of NEW YORK.

(b)SUBMISSION TO JURISDICTION.  THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY OTHER FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK AND ANY UNITED STATES DISTRICT COURT IN THE STATE OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF LOCATED IN NEW YORK COUNTY, NEW YORK, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND

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AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. 

(c)WAIVER OF VENUE.  THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

11.15Waiver of Right to Trial by Jury.

EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

11.16Electronic Execution of Assignments and Certain Other Documents.

The words “execute,” “execution,” “signed,” “signature” and words of like import in any Assignment and Assumption or in any amendment or other modification hereof (including waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of

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records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

11.17USA PATRIOT Act.

Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower and the other Loan Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act.  The Borrower and the Loan Parties agree to, promptly following a request by the Administrative Agent or any Lender, provide all such other documentation and information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act.

11.18No Advisory or Fiduciary Relationship.

In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (a)(i) the arranging and other services regarding this Agreement provided by the Administrative Agent, Athyrium, and the Lenders are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, Athyrium and the Lenders on the other hand, (ii) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (b)(i) the Administrative Agent, Athyrium and each Lender is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not and will not be acting as an advisor, agent or fiduciary, for the Borrower or any of Affiliates or any other Person and (ii) neither the Administrative Agent nor any Lender has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (c) the Administrative Agent, Athyrium and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent, Athyrium nor any Lender has any obligation to disclose any of such interests to the Borrower or its Affiliates.  To the fullest extent permitted by law, the Borrower hereby waives and releases, any claims that it may have against the Administrative Agent, Athyrium or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

11.19Acknowledgement and Consent to Bail-In of EEA Financial Institutions.

Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender that is an EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by (a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising

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hereunder which may be payable to it by any Lender that is an EEA Financial Institution; and (b) the effects of any Bail-In Action on any such liability, including, if applicable: (i) a reduction in full or in part or cancellation of any such liability; (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.

 

[SIGNATURE PAGES FOLLOW]

 

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

a Delaware corporation

By:/s/ Kristine Ball

Name:  Kristine Ball

Title:  Sr. Vice President, Chief Financial Officer

 

 

 

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By:  /s/ James Bond

Name:  James Bond

Title:  Chief Operating Officer

 

 

 

 

 

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a Delaware limited partnership

By:ATHYRIUM OPPORTUNITIES

ASSOCIATES II LP, its General Partner

By:ATHYRIUM OPPORTUNITIES

ASSOCIATES II GP LLC, the General

Partner of Athyrium Opportunities

Associates II LP

By:/s/ Jeffrey A. Ferrell

Name:  Jeffrey A. Ferrell

Title:  Authorized Signatory

 

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a Delaware limited partnership

By:/s/ Clark B. Futch

Name:  Clark B. Futch

Title:  Managing Partner

 

 

Exhibit 10.2

[***]

Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Amendment No. 1 to

Manufacturing and Supply Agreement

between Lanxess Corporation and Relypsa, Inc.

 

 

This Amendment No. 1 to the Manufacturing and Supply Agreement (“Amendment No. 1”) is made and entered into effective as of June 21, 2016 (the “Amendment No. 1 Effective Date”) by and between Relypsa, Inc., a Delaware corporation, located at 100 Cardinal Way, Redwood City, CA 94063 (“Relypsa”) and Lanxess Corporation, a Delaware corporation, with an address at 111 RIDC Park West Drive, Pittsburgh, PA 15275 (“Lanxess”).

 

Whereas, Relypsa and Lanxess entered into that certain Manufacturing and Supply Agreement effective as of November 27, 2012 (the “Agreement”);

 

Whereas, Relypsa and Lanxess shall enter into that certain Settlement Agreement and Mutual General Release (the “Release”) simultaneously as this Amendment No. 1, to be effective on the same date herewith, and that this Amendment No. 1 is partial consideration for entry into such Release; and  

 

Whereas, the parties now desire to amend the Agreement to implement certain updates to the Agreement, all as set forth below.

 

Now, Therefore, in consideration of the premises and mutual covenants herein contained as well as for entry into the Release and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:  

 

 

 

Agreement

 

 

1.Amendment of the Agreement

 

The parties hereby agree to amend the terms of the Agreement as provided below, effective as of the Amendment No. 1 Effective Date.  Capitalized terms used in this Amendment No. 1 that are not otherwise defined herein shall have the same meanings as such terms have in the Agreement.

 

1.1Amendment of Appendix 8.2 and Appendix 9.1 (Delivery Dates).  Appendices 8.2 and 9.1 of the Agreement are hereby deleted in their entirety and replaced with the new Appendices 8.2 and 9.1, attached hereto as Attachment 1, that have been updated to reflect expected production quantities and timing.

 

1.2Amendment of Section 8.5 (Milestone-Based Payments).  Section 8.5 of the Agreement is hereby deleted in its entirety and replaced with “Deleted”.

 

1.3Amendment of Section 8.6(b) ([***] Payments).  Section 8.6(b) of the Agreement is hereby deleted in its entirety and replaced with “Deleted”.   However, the parties agree that any [***] payments that have been agreed upon prior to the Amendment No. 1 Effective Date and their payment status are listed in the table below in this Section 1.3.  Lanxess shall invoice Relypsa for the payments listed but not yet made within [***] ([***]) days of the Amendment No. 1 Effective Date.

 

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1.4Amendment of Appendix 8.7 (Initial PO Payment Schedule).  Appendix 8.7 of the Agreement is hereby deleted in its entirety and replaced with the new Appendix 8.7 attached hereto as Attachment 2.

 

1.5Amendment of Sections 9.4(a), 11.4(c), and 11.5 (Calculation of Base Price in the Incentive PO).  The Base Price of Bulk Drug under the Incentive PO is hereby amended to reflect that the out of pocket costs of any MFA necessary for the Manufacture of Bulk Drug under such PO is not included in the Base Price.  Specifically,

 

(a) the second sentence of Section 9.4(a) of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“The Parties agree that, with respect to the Initial PO and any PO following the Initial PO, the Base Price does not include the cost MFA.”

 

(b) the fourth sentence of Section 11.4(c) of the Agreement is hereby deleted in its entirety; and

 

(c) the third sentence of Section 11.5 of the Agreement is hereby deleted in its entirety and replaced with the following:

 

“Except as otherwise expressly provided in this Agreement, the Base Price for Bulk Drug shall include the purchase price of all Raw Materials (other than MFA) plus the costs of transportation and freight expenses to Manufacturing Facility [***] in [***] and any associated taxes, duties, customs, insurance and fees for the export, import, carriage and transportation of such Raw Materials, all at LANXESS’ actual cost, without any administrative fee or other mark up.”

1.6Amendment of Section 9.  Section 9 of the Agreement is hereby amended to add a new Section 9.10 as follows:

 

“9.10Option for Materials Not Meeting Specifications.  If Relypsa determines, in its sole discretion, that it has legitimate use (other than for commercial sale) for material manufactured by LANXESS that does not meet required Specifications, then Relypsa will purchase such material from LANXESS provided that the price for such material is no higher than [***] percent ([***]%) of the agreed upon price for batches manufactured before or after ([***]) the material not meeting Specifications.”  

 

 

 

1.7Amendment of Section 10.2.  Section 10.2 of the Agreement is hereby amended to add a new paragraph at the end of the section as follows:

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“cGMP requires manufacturers to produce API of consistent quality. LANXESS has controlled and managed the procurement of Raw Materials and their quality (except MFA) that allowed it to consistently manufacture API that met the most recently introduced impurity limits even before they were implemented. To ensure its ability to continue to manufacture API of the same quality LANXESS might want to add additional controls (introduce or modify specifications) at the stage of the Raw Materials it procures. If a change in Specifications is required as a result of changes in the supply of Raw Materials ([***]) managed by LANXESS or if LANXESS wants to introduce changes to existing Specifications of Raw Materials it procures ([***]), then such changes are not considered Changes in Specifications requested by Relypsa as defined in this section and LANXESS is responsible for maintaining and managing compliance with such changed Specifications as well as the continued Manufacture of Product in accordance with established Specifications.  Risk and responsibility for such Raw Material Specification changes shall be borne by LANXESS under this Agreement.”

  

1.8Amendment of Section 28(a) (Notices).  Relypsa’s address as set forth in Section 28(a) of the Agreement is hereby deleted and replaced with its current address as follows:  Relypsa, Inc., 100 Cardinal Way, Redwood City, CA 94063.

 

2.Miscellaneous

 

2.1Full Force and Effect.   This Amendment No. 1 amends the terms of the Agreement and is deemed incorporated into, and governed by all other terms of, the Agreement.  To the extent that the Agreement is explicitly amended by this Amendment No. 1, the terms of this Amendment No. 1 will control where the terms of the Agreement are contrary to or conflict with the provisions amended by this Amendment No. 1.  Where the Agreement is not explicitly amended, the terms of the Agreement will remain in full force and effect.  The parties agree that execution of this Amendment No. 1 without a fully-executed Release effective as of the Amendment No. 1 Effective Date shall cause this Amendment No. 1 to be null and void.

 

2.2Further Actions.  Each party shall execute, acknowledge and deliver such further instruments, and do all other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Amendment No. 1.

 

2.3Counterparts.  This Amendment No. 1 may be signed in counterparts, each and every one of which shall be deemed an original, notwithstanding variations in format or file designation, which may result from the electronic transmission, storage and printing of copies of this Amendment No. 1 from separate computers or printers.  Facsimile signatures shall be treated as original signatures.

 

Signature Page Follows

 

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In Witness Whereof, the parties hereto have caused this Amendment No. 1 to be executed by their duly authorized representatives as of the Amendment No. 1 Effective Date.

 

 

 

 

Signature:/s/ Dirk FischerSignature:/s/ Wilhelm Stahl

 

Print Name: Dirk FischerPrint Name: Wilhelm Stahl

 

Title:CFO LXS CorpTitle: CTO    

 

Date:7/11/2016Date:7/13/16

 

 

/s/ John A. Orwin

 

John  A. Orwin

 

President & CEO

 

7/14/16

 

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ATTACHMENT 1

 

 

Appendix 8.2 Initial PO

 

LXS Production Schedule for Manufacture of the initial [***]MT API in [***]

Dates refer to API quantities manufactured, released and ready for shipment from LANXESS´s (Saltigo) [***] site.

LXS will arrange shipment of material to required destinations immediately after release. Delivery dates can only be modified when mutually agreed.

Shipment to be in [***] unless otherwise requested by Relypsa.

Qualification of 3^rd party MFA suppliers has [***].

[***]

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Appendix 9.1  Incentive PO Delivery Dates

LXS Production Schedule for manufacture of the [***] MT API ([***]) according to the Incentive PO in [***].

Dates refer to API quantities manufactured, released and ready for shipment at LANXESS´s (Saltigo) [***] site.

LXS will arrange shipment of material to required destinations immediately after release. Delivery dates can only be modified when mutually agreed.

Shipment to be in [***] unless otherwise requested by Relypsa.

[***]

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ATTACHMENT 2

 

 

Appendix 8.7 Initial PO Payment Schedule

Summary of Invoice and payment schedule May 2016 onwards

[***]

 

 

 

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Exhibit 10.3

 

[***]

Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE

This Settlement Agreement and Mutual General Release (this "Agreement") is made and entered into as of June 21, 2016 (the “Effective Date”), by and among Relypsa, Inc., a Delaware corporation, with its principal office located at 100 Cardinal Way, Redwood City, CA 94063 ("Relypsa") and LANXESS Corporation, a Delaware corporation, with its principal office located at 111 RIDC Park West Drive, Pittsburgh, PA 15275 ("Lanxess").

WHEREAS, Relypsa and Lanxess entered into a Manufacturing and Supply Agreement effective as of November 27, 2012 (the “MSA”);

WHEREAS, during the course of the performance of the MSA [***] between the parties;

WHEREAS, the parties desire to settle the [***] and reduce the terms of such settlement in writing in this Agreement.

NOW, THEREFORE, in consideration of the promises and covenants set forth herein, the parties agree as follows:

1.After the Effective Date and upon receipt of an invoice from Lanxess, Relypsa shall pay Lanxess the amount of [***] Euros (€[***]) in full settlement of [***] and as partial consideration for entering into an amendment to the MSA (“Amendment No. 1 to the MSA”).  

2.Relypsa and Lanxess shall execute Amendment No. 1 to the MSA modifying the terms of the MSA [***] as well as incorporate certain updates to the MSA. The parties agree that this Agreement shall be executed simultaneously as Amendment No. 1 to the MSA and that both shall be effective on the same day.  For clarity, execution of this Agreement without a fully-executed Amendment No. 1 to the MSA as of the Effective Date shall cause this Agreement to be null and void.  

3.From the effective date of the MSA through the Effective Date, [***] between the parties [***] regarding [***], shall be referred to herein collectively as the [***].

4.Other than the obligations set forth in this Agreement, each party, on behalf of itself and its parents, subsidiaries, affiliates, officers, directors, employees, agents, insurers, assigns, and attorneys, hereby generally and fully and forever releases and discharges the other party and its  parents, subsidiaries, affiliates, officers, directors, employees, agents, insurers, assigns, and attorneys from any and all claims, demands, damages, debts, liens, obligations, costs, expenses, accounts, causes of action, losses, or liabilities of any kind, whether known or unknown, suspected or unsuspected, or fixed or contingent, which such party ever had, now has, or hereafter may have arising out of or related to the [***].

5.Each party, on behalf of itself and its parents, subsidiaries, affiliates, officers, directors, employees, agents, insurers, assigns, and attorneys, further agrees, promises and covenants that it will not commence or file any proceeding, arbitration, action, claim,

 

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counterclaim, cross-claim, third‑party claim or complaint for damages or any other relief (including injunctive or declaratory relief) against the other party or its parents, subsidiaries, affiliates, officers, directors, employees, agents, insurers, assigns, or attorneys arising out of or relating to the [***]. 

6.Each party intends this Agreement to be effective as a full and final accord and satisfaction and release of each and every matter specifically or generally released herein.  In furtherance of this intention, each party expressly acknowledges that it is familiar with California Civil Code § 1542 (“Section 1542”), which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

Each party, on behalf of itself and its parents, subsidiaries, affiliates, officers, directors, employees, agents, insurers, assigns, and attorneys, waives and relinquishes any rights and benefits that it may have under Section 1542 or any similar law of any state or territory of the United States or any other jurisdiction with regard to the matters released herein.

7.Each party acknowledges that it may hereafter discover facts in addition to or different from those that they now know or believe to be true with respect to the subject matter of this Agreement.  Each party expressly assumes the risk of the existence of such additional or different facts, and agrees that this Agreement shall be in all respects effective and not subject to termination or rescission by reason of any additional or different facts.

8.This Agreement is to be deemed to have been drafted jointly by the parties.  Any uncertainty or ambiguity shall not be construed for or against any party based upon attribution of drafting to any party.  Capitalized terms used in this Agreement that are not otherwise defined herein shall have the same meanings as such terms have in the MSA.

9.This Agreement contains the entire agreement and understanding concerning the subject matter hereof and supersedes and replaces all prior negotiations, proposed agreements, and agreements, whether written or oral.  The parties acknowledge that no one has made any promise, representation or warranty whatever, express or implied, not contained herein concerning the subject matter hereof to induce them to execute this Agreement.  The parties acknowledge and warrant that they are not executing this Agreement in reliance upon any promise, representation, or warranty not contained herein.

10.No modification, amendment or waiver of any of the provisions of this Agreement shall be effective or binding upon any party unless made in writing and signed on behalf of each party by a duly authorized person.

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11.This Agreement shall not constitute an admission or acknowledgment of liability or wrongdoing on the part of any party. 

12.The terms of this Agreement shall be confidential, and no party will engage in any action which might reveal the contents of this Agreement to any third party, except (a) to the parties’ attorneys, advisors, consultants, corporate partners, appraisers, accountants or auditors; and (b) where required by law.  No party shall make any statement regarding this Agreement or its terms other than to state in response to any inquiries that the matter has been resolved to the parties’ mutual satisfaction.

13.Each party represents and warrants to the other as follows:

(a)it has received independent legal advice from its attorneys with respect to the advisability of entering into this Agreement;

(b)it has carefully read this Agreement and understands the contents and legal effects of each provision of this Agreement, including the releases contained herein;

(c)the person executing this Agreement on behalf of such party has the full right and authority to enter into this Agreement on behalf of such party and to fully bind such party to the terms and obligations of this Agreement; and

(d)it has not assigned, encumbered or in any manner transferred to any other person or entity all or any portion of the claims covered by this Agreement.

14.It is the intent of the parties to enter into a valid, legal, and enforceable agreement, and each provision herein shall be interpreted in such a manner as to be valid, legal, and enforceable.  A determination that any provision of this Agreement is for any reason invalid, illegal, or unenforceable shall not affect the validity of this Agreement or any other provisions herein, and the parties shall make a good faith effort to replace any such provision with a valid and enforceable one such that the objectives contemplated by the parties when entering into this Agreement may be realized.  

15.This Agreement is binding upon and shall inure to the benefit of the parties and their respective parents, subsidiaries, affiliates, officers, directors, employees, agents, insurers, assigns, and attorneys.

16.This Agreement may be executed in two or more counterparts, all of which when executed and delivered shall constitute the entire instrument.  The executed signature pages of this Agreement may be exchanged by facsimile transmission.  Photocopies of such signed counterparts may be used instead of the originals for any purpose.

17.In the event of any dispute relating to this Agreement, [***].

18.This Agreement shall be construed under and governed by the laws of the State of Delaware.

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IN WITNESS WHEREOF, the parties have approved and executed this Agreement as of the Effective Date.

 

 

 

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Exhibit 31.1

CERTIFICATION

I, John A. Orwin, certify that:

 

Date: August 4, 2016

 

 

Exhibit 31.2

CERTIFICATION

I, Kristine M. Ball, certify that:

 

Date: August 4, 2016

 

 

Exhibit 32.1

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 2002, John A. Orwin, President, Chief Executive Officer and Director, and Kristine M. Ball, Chief Financial Officer, of Relypsa, Inc. (the “Company”) each hereby certifies that to the best of his or her knowledge:

Date: August 4, 2016