This Royalty Agreement involves
Title: ROYALTY AGREEMENT
Governing Law: New York Date: 8/28/2012
Industry: Medical Equipment and Supplies Sector: Healthcare
This ROYALTY AGREEMENT, dated as of August 24, 2012 (as amended, supplemented or otherwise modified from time to time, this “ Royalty Agreement ”), is made by and between ROS Acquisition Offshore LP, a Cayman Islands Exempted Limited Partnership (together with its Affiliates, successors, transferees and assignees, “ ROS ”), and Bacterin International, Inc., a Nevada corporation (“ Bacterin ”). ROS and Bacterin are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties; ”.
WHEREAS, ROS and Bacterin have entered into that certain Credit Agreement, dated as of the date hereof (as subsequently amended or otherwise modified, the “ Credit Agreement ”); and
WHEREAS, the execution and delivery of this Royalty Agreement is a condition precedent to the making of the Initial Loan pursuant to the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce ROS to make the Loans pursuant to the Credit Agreement, the Parties hereto agree as follows.
Section 1.1 Certain Terms . The following terms (whether or not underscored) when used in this Royalty Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof):
“ Applicable Amount ” has the meaning set forth in the definition of “ Purchase Price ”.
“ Applicable Period ” has the meaning set forth in the definition of “ Purchase Price ”.
“ Bacterin ” has the meaning set forth in the preamble hereto.
“ Buy-Out Notice ” has the meaning set forth in Section 2.6 .
“ Buy-Out Option ” has the meaning set forth in Section 2.6 .
“ Confidential Information ” means any and all information or material (whether written or oral, or in electronic or other form) that, at any time before, on or after the Closing Date, has been or is provided or communicated to the Receiving Party by or on behalf of the Disclosing Party pursuant to this Royalty Agreement or in connection with the transactions contemplated hereby or any discussions or negotiations with respect thereto.
“ Contract ” means any contract, license, indenture, instrument or agreement.
“ Contract Counterparty ” means any party (other than Bacterin or any of its Affiliates) to any Related Agreement.
“ Credit Agreement ” has the meaning set forth in the recitals hereto.
“ Default Rate ” means the rate of interest applicable to Loans under Section 3.5 of the Credit Agreement.
“ Disclosing Party ” means the Party disclosing Confidential Information.
“ Judgment ” means any judgment, injunction, order or decree.
“ Law ” means any law, statute, rule, regulation or ordinance of any Governmental Authority that may be in effect from time to time.
“ Net Sales ” means, with respect to each Product, the gross invoiced amount on sales of, and distribution income, stocking orders, transfer payments and other consideration received in respect of, such Product in any Territory by Bacterin, any of its Affiliates, any Related Party or any Sublicensee to or from, respectively, Third Parties after deduction of: (i) normal and customary trade, quantity or prompt settlement discounts (including chargebacks, shelf stock adjustments and allowances) with respect to customers actually allowed; (ii) amounts repaid or credited by reason of rejection, returns or recalls of goods, rebates or bona fide price reductions; (iii) rebates and similar payments actually made with respect to sales paid for by Federal or state Medicaid, Medicare or similar programs in the Territory; and (iv) excise taxes, customs duties, customs levies and import fees imposed on the sale, importation, use or distribution of such Product (to the extent included in the gross invoiced amount), in each case as calculated (x) in a manner consistent with Bacterin’s customary practice for its products and (y) consistent with GAAP. Net Sales with respect to sales of such Product that are not made on an arm’s length basis or that are made for consideration other than cash shall be calculated based on the average per-unit Net Sales of such Product during the applicable period without regard to such non-arm’s length or non-cash sales.
“ Party ” and “ Parties ” have the meanings set forth in the preamble hereto.
“ Payments ” means the Royalty Payments, the payment of the Purchase Price and any other payments to be made by Bacterin to ROS hereunder.
“ Purchase Price ” has the meaning set forth on Schedule 1.1 hereto.
“ Put Notice ” has the meaning set forth in Section 5.2 .
“ Put Option ” has the meaning set forth in Section 5.2 .
“ Receiving Party ” means the Party receiving Confidential Information.
“ Recipients ” has the meaning set forth in Section 7.1 .
“ Recovered Amount ” means, as of the time the Purchase Price is paid pursuant to Section 2.6 hereof, the aggregate amount of (i) all Royalty Payments previously paid to ROS by Bacterin pursuant to Section 2.1 as of the Fiscal Quarter last ended, and (ii) all principal payments made on the Loans, together with all interest accrued and paid thereon, as of the date the Purchase Price is paid (including payments made on such date).
“ Related Agreement ” means any existing or future Contract entered into before or during the Royalty Term by Bacterin or any of its Affiliates (i) relating, directly or indirectly, to any Product or any Intellectual Property or (ii) that could reasonably be expected to affect, directly or indirectly, the value of the Royalty Payments.
“ Related Party ” means any Affiliate of Bacterin.
“ Royalty Agreement ” has the meaning set forth in the preamble hereto.
“ Royalty Event of Default ” has the meaning set forth in Section 5.1 .
“ ROS ” has the meaning set forth in the preamble hereto.
“ Royalty Payment ” has the meaning set forth in Section 2.1(b) .
“ Royalty Report ” has the meaning set forth in Section 2.1(c) .
“ Royalty Term ” means the period commencing on the Closing Date and ending on the earlier of (i) the tenth anniversary of the Closing Date and (ii) the date of payment of the Purchase Price pursuant to the exercise of the Put Option by ROS or the exercise of the Buy-Out Option by Bacterin, as the case may be.
“ Sublicense Agreement ” has the meaning set forth in Section 2.5(a) .
“ Sublicensee ” means any party (other than Bacterin or any of its Affiliates) to any Sublicense Agreement.
“ Term ” has the meaning set forth in Section 6.1 .
“ Territory ” means all of the countries and territories of the world.
“ Third Party ” means any Person, other than Bacterin or any of its Affiliates.
Section 1.2 Credit Agreement Definitions . Unless otherwise defined herein or the context otherwise requires, terms used in this Royalty Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. In the event that the Credit Agreement terminates (in accordance with its terms or otherwise) prior to the expiration of the Term, terms used herein and defined in the Credit Agreement (as in effect immediately prior to such termination) shall continue to be used herein without regard to such earlier termination of the Credit Agreement (as if such agreement remained in full force and effect).
Section 2.1 Royalty Payments .
(a) Bacterin shall pay to ROS, in respect of each Fiscal Year (or portion of a Fiscal Year, in the case of the first Fiscal Year and last Fiscal Year of the Royalty Term) during the Royalty Term, a royalty amount equal to the sum of (i) 1.75% of the aggregate Net Sales of all Products during such Fiscal Year (or portion of a Fiscal Year, as the case may be) up to $45,000,000 of such Net Sales, plus (ii) 1.0% of the aggregate Net Sales of all Products during such Fiscal Year (or portion of a Fiscal Year, as the case may be) in excess of $45,000,000.
(b) Amounts payable pursuant to Section 2.1(a) shall be calculated quarterly as of the last day of each Fiscal Quarter during the Royalty Term, and shall be payable by Bacterin to ROS within 45 days after the end of each such Fiscal Quarter, except that the payment for the last Fiscal Quarter of each Fiscal Year shall be payable within 90 days after the end of such Fiscal Year (each such payment, a “ Royalty Payment ”). The first Royalty Payment shall be determined based on Net Sales for the entire Fiscal Quarter in which the Closing Date occurs, and the last Royalty Payment (other than in the case of the Royalty Term ending on the date of payment of the Purchase Price pursuant to the exercise of the Put Option by ROS or the exercise of the Buy-Out Option by Bacterin) shall be determined based on Net Sales for the entire Fiscal Quarter in which the last day of the Royalty Term occurs. Royalty Payments shall first be determined in the currency of the country in which the corresponding Net Sales occurred and then converted to its equivalent in U.S. Dollars. The rates of exchange for such payments shall be the average rate for U.S. Dollars, as quoted by JPMorgan Chase in New York City, at the close of business on the last day of the Fiscal Quarter in which such Net Sales occurred.
(c) Together with each Royalty Payment, Bacterin shall deliver a written report to ROS showing with respect to each Product (on a product-by-product, country-by-country and seller-by-seller basis) (i) Net Sales for such Product in such country and by such seller for the applicable Fiscal Quarter, including line items for any deductions to the gross invoiced amount made pursuant to the definition of Net Sales, and (ii) the calculation (in reasonable detail) of the Royalty Payment owed (including any applicable exchange rates used) and paid for such Fiscal Quarter (each, a “ Royalty Report ”). Each delivery of a Royalty Report hereunder shall also be deemed to constitute a representation and warranty by Bacterin that such Royalty Report is true, correct and complete in all material respects.
Section 2.2 General Provisions as to Payments . All amounts payable to ROS under this Royalty Agreement (including the Payments) shall be (i) made without set-off or counterclaim of any kind or nature whatsoever, (ii) made in U.S. Dollars and in immediately available funds and (iii) remitted by wire transfer to such bank account as shall have been designated by ROS in writing from time to time. Any Payments or other amounts due to ROS under this Royalty Agreement that are not made on or before the applicable due date shall bear interest, payable on demand (and compounded monthly), for each day from (and including) the applicable due date to (but excluding) the date of the payment thereof, at a rate per annum equal to the Default Rate.
Section 2.3 Taxes . The Parties hereby covenant and agree that, with respect to any Non-Excluded Taxes payable on any Payments payable to ROS under this Royalty Agreement, Section 4.3 of the Credit Agreement shall apply and is hereby incorporated herein by reference as if set forth herein in its entirety; provided that references in such Section 4.3 to the “Borrower” shall be deemed to mean Bacterin, references to the “Lender” shall be deemed to mean ROS, and references to the Credit Agreement shall be deemed to mean this Royalty Agreement.
Section 2.4 Records and Audit . Bacterin shall keep and maintain at its chief executive office in the United States complete and accurate records (on a seller-by-seller, product-by-product, country-by-country basis) of all sales, Net Sales, and deductions to arrive at Net Sales until the latest of (i) five years after the period to which such records relate, (ii) the expiration of the applicable tax statute of limitations, and (iii) such longer period as applicable Law requires. ROS shall have the right once per Fiscal Quarter during the Royalty Term and for a period of one year thereafter, at ROS’ expense (except as set forth below), to investigate and audit such records, upon reasonable notice, during regular business hours (and may, if it so chooses, retain an independent accountant to conduct such investigation and audit). Bacterin shall, and shall cause its Affiliates to, cooperate fully and completely with such investigation and audit (and the Persons conducting such investigation and audit), and all results of any investigation and audit under this Section 2.4 (and any associated underlying data and information) shall be made available to both Bacterin and ROS. If such investigation and audit reveals an underpayment, Bacterin shall remit such underpayment to ROS no later than 30 days after the completion of such investigation and audit. If the underpayment with respect to any Fiscal Quarter that is included as a part of such investigation and audit is equal to or greater than five percent (5%) of the amount that was otherwise due under the terms and conditions of this Royalty Agreement with respect to such Fiscal Quarter, Bacterin shall pay all of the costs incurred by ROS in connection with such investigation and audit. If the audit reveals an overpayment, ROS shall remit such overpayment to Bacterin no later than 30 days after the completion of such investigation and audit.
Section 2.5 Related Agreements; Sublicense Agreements; Access to Records .
(a) Bacterin shall provide ROS, upon request, with true, correct and complete copies of (i) each Related Agreement (including all amendments and supplements thereto) and (ii) each Contract (including all amendments and supplements thereto) (1)(x) relating, directly or indirectly, to any Product or any Intellectual Property or (y) that could reasonably be expected to affect, directly or indirectly, in any material respect the value of the Royalty Payments and (2) that involves rights relating to any Product or any Intellectual Property that were originally obtained, directly or indirectly, from Bacterin (or any Affiliate of Bacterin) (a “ Sublicense Agreement ”).
(b) Bacterin shall, shall cause its Affiliates to, and shall use commercially reasonable efforts to cause each Contract Counterparty and Sublicensee to, (i) furnish ROS with any Related Agreement or Sublicense Agreement required to be furnished pursuant to Section 2.5(a) , (ii) keep and maintain at its respective chief executive office complete and accurate records (on a seller-by-seller, product-by-product and country-by-country basis) of all sales, Net Sales, and deductions to arrive at Net Sales effected by such Person until the latest of (x) five years after the period to which such records relate, (y) the expiration of the applicable tax statute of limitations and (z) such longer period as applicable Law requires, and (iii) provide ROS with access to such records to verify and audit the Net Sales attributable to Bacterin or such Affiliate, Related Party or Sublicensee in accordance with the audit and inspection process described in Section 2.4 .
Section 2.6 Buy-Out Option . At any time after the Closing Date, Bacterin shall have the right, exercisable in its sole discretion (the “ Buy-Out Option ”), to purchase from ROS all (but not less than all) of its rights to the remaining Royalty Payments that will become due pursuant to Section 2.1 . The amount payable by Bacterin to ROS in respect of the Buy-Out Option shall be the Purchase Price. If Bacterin elects to exercise its Buy-Out Option, it shall so notify ROS in writing (the “ Buy-Out Notice ”). Delivery of a Buy-Out Notice (and exercise of the Buy-Out Option) shall be irrevocable. Upon receipt of a Buy-Out Notice, ROS shall promptly (and, in any event, within three Business Days) advise Bacterin of the Purchase Price, which Purchase Price shall be conclusive absent manifest error. Bacterin shall, on the fifth Business Day following ROS’ receipt of such Buy-Out Notice, (i) purchase from ROS all (but not less than all) of its rights to the remaining Royalty Payments that will become due pursuant to Section 2.1 , and (ii) repay in full all outstanding principal of the Loans and all other monetary Obligations, together with all accrued but unpaid interest and fees thereon or in respect thereof, if any. The payment of the Purchase Price shall be made by wire transfer of immediately available funds to an account designated by ROS. Repayment of principal, interest or fees shall be made in accordance with the applicable terms of the Credit Agreement. Any term or provision hereof to the contrary notwithstanding, Bacterin shall only have the right to exercise the Buy-Out Option if, prior to or simultaneously with the payment of the Purchase Price, Bacterin shall have repaid in full in cash the entire principal amount of the Loans, together with all accrued and unpaid interest thereon, and all outstanding fees, expenses and other monetary Obligations, if any, payable under the Credit Agreement, this Royalty Agreement or any other Loan Document.
REPRESENTATIONS AND WARRANTIES
Bacterin hereby represents and warrants to ROS as of the Closing Date as follows:
Section 3.1 Credit Agreement Representations and Warranties . The representations and warranties of the Borrower contained in Article VI of the Credit Agreement are true and correct in all material respects, each such representation and warranty set forth in such Article and all other terms of the Credit Agreement to which reference is made therein, together with all related definitions and ancillary provisions, being hereby incorporated into this Royalty Agreement by this reference as though specifically set forth in this Article.
Section 3.2 Enforceability . Bacterin has the power and authority and the legal rig