0001104659-21-087806.txt : 20210701 0001104659-21-087806.hdr.sgml : 20210701 20210630211721 ACCESSION NUMBER: 0001104659-21-087806 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 20210701 DATE AS OF CHANGE: 20210630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Healthcare Royalty, Inc. CENTRAL INDEX KEY: 0001859651 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-257590 FILM NUMBER: 211063670 BUSINESS ADDRESS: STREET 1: 300 ATLANTIC ST STREET 2: SUITE 600 CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: (203) 487-8300 MAIL ADDRESS: STREET 1: 300 ATLANTIC ST STREET 2: SUITE 600 CITY: STAMFORD STATE: CT ZIP: 06901 S-1 1 tm2113163-6_s1.htm S-1 tm2113163-6_s1 - none - 31.2032586s
As filed with the Securities and Exchange Commission on June 30, 2021.
Registration No. 333-         
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Healthcare Royalty, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
2834
(Primary Standard Industrial
Classification Code Number)
86-3614695
(I.R.S. Employer
Identification Number)
300 Atlantic St, Suite 600
Stamford, Connecticut 06901
(203) 487-8300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Clarke B. Futch
Chairman & Chief Executive Officer
300 Atlantic St, Suite 600
Stamford, Connecticut 06901
(203) 487-8300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Jeffrey A. Letalien, Esq.
Andrew R. Mariniello, Esq.
Morgan, Lewis & Bockius LLP
1701 Market St.
Philadelphia, Pennsylvania 19103
(215) 963-5000
Richard C. Segal, Esq.
Eric Blanchard, Esq.
Charlie S. Kim, Esq.
Cooley LLP
55 Hudson Yards
New York, New York 10001
(212) 479-6000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☐
Emerging Growth Company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Security to be Registered
Proposed
Maximum Aggregate
Offering Price(1)(2)
Amount of
Registration Fee
Class A common stock, par value $      per share
$ 100,000,000 $ 10,910.00
Total
100,000,000 10,910.00
(1)
Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended
(2)
Includes      shares of Class A common stock subject to the underwriters’ option to purchase additional shares of Class A common stock.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated           , 2021
PRELIMINARY PROSPECTUS
           Shares
Healthcare Royalty, Inc.
Class A Common Stock
This is the initial public offering of shares of Class A common stock by Healthcare Royalty, Inc.
We are offering                 shares of Class A common stock. The selling stockholders identified in this prospectus are offering an additional      shares of Class A common stock. We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholders.
Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price per share will be between $      and $      . Application has been made for the quotation of the Class A common stock on the Nasdaq Global Market (“Nasdaq”) under the symbol “HCRX”.
Upon the closing of this offering, we will have two classes of common stock: Class A common stock offered hereby and Class B common stock, each of which has one vote per share.
This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. We are a holding company, and immediately after the consummation of the Reorganization Transactions (as defined under “Prospectus Summary — Our Structure”) and this offering, our principal asset will be our ownership interests in Healthcare Royalty Holdings, L.P. (“Holdings LP”). See “Organizational Structure”. Upon the closing of this offering, we and the Continuing Investor Partnership (as defined under “Prospectus Summary — Our Structure”) will hold    % and    % of the units of Holdings LP, respectively (or    % and    % of the units of Holdings LP, respectively, assuming the underwriters exercise their option to purchase additional shares of Class A common stock in full).
We are an "emerging growth company" as defined under the federal securities laws. Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 22.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Public offering price
$     $    
Underwriting discounts and commissions
$ $
Proceeds, before expenses, to us
$ $
Proceeds, before expenses, to the selling stockholders
$ $
To the extent that the underwriters sell more than           shares of Class A common stock, the underwriters have the option to purchase up to an additional           shares from us at the initial public offering price less underwriting discounts and commissions.
The underwriters expect to deliver the shares against payment in New York, New York on , 2021.
Goldman Sachs & Co. LLC
Citigroup
Credit Suisse
Jefferies Cowen
SVB Leerink
Truist Securities
BMO Capital Markets
Stifel
Raymond James
Prospectus dated           , 2021

 
TABLE OF CONTENTS
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F-1
 
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We, the underwriters and the selling stockholders have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We, the underwriters and the selling stockholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
For investors outside the United States:   None of us, the selling stockholders nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of shares of Class A common stock and the distribution of this prospectus outside the United States. See “Underwriting”.
BASIS OF PRESENTATION
Prior to the consummation of the Reorganization Transactions described under “Organizational Structure — Reorganization Transactions”, in this prospectus, “Healthcare Royalty”, “HCR”, the “Company”, “we”, “us” and “our” refer to the royalty acquiring and financing business of multiple private closed end investment fund limited partnerships individually managed directly or indirectly by HealthCare Royalty Management, LLC (the “Legacy Manager”), which funds will all be combined into Holdings LP as part of the Reorganization Transactions. After the consummation of the Reorganization Transactions described in this prospectus, “Healthcare Royalty”, “HCR”, the “Company”, “we”, “us” and “our” refer to Healthcare Royalty, Inc., a Delaware corporation, and its subsidiaries on a consolidated basis, as they exist upon the closing of this offering, and references to the “Manager” refer to HCRX Management, LLC, who will be our manager upon the closing of this offering.
HCR was founded in 2006 by three individuals, including our Chairman and Chief Executive Officer, Clarke B. Futch, our Senior Advisor, Gregory B. Brown, M.D., and a third individual who is no longer affiliated with the company, who we refer to as “our founders”.
Unless the context otherwise requires, “our royalties”, “our product portfolio” and “our interests in products” refer to our contractual interests in revenue streams from the sale of biopharmaceutical products. “Royalty-Related Transactions” refer to royalty acquisitions, royalty notes, SYNTHETIC ROYALTY™ financings, and structured debt, each as described further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
When we refer to the “Royalty Receipts” generated by our portfolio, we are referring to the summation of the following line items from our Statement of Cash Flows in our historical combined financial statements included elsewhere in this prospectus: (i) Cash collections from royalty interests, (ii) Cash collections from notes and (iii) Proceeds from sale of investments.
In this prospectus, we reference projected Royalty Receipts as of June 30, 2021. In each such instance, these projected Royalty Receipts represent preliminary projections and financial data that are subject to change as the Legacy Manager finalizes its valuation work in connection with the quarter close. The preliminary financial data included in this prospectus has been prepared by, and is the responsibility of, the Legacy Manager. PricewaterhouseCoopers LLP has not audited, reviewed, compiled, or applied agreed-upon procedures with respect to the preliminary financial data. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.
Prior to this offering, acquisitions of royalties have typically been accounted for as financial assets measured at fair value. We acquire royalties on both approved products and development-stage product candidates.
Following this offering, we will no longer prepare our consolidated financial statements on an investment company basis and will instead prepare our consolidated financial statements as an operating company, and we expect to measure the majority of our assets using the amortized cost
 
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accounting methodology (the “New Methodology”). As an operating company, the royalty interests and notes that we hold as of March 31, 2021 and will acquire in the future will be treated as investments in cash flow streams and classified as financial assets. For more information regarding our change in accounting methodology, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Understanding our Financial Reporting”.
Certain monetary amounts, percentages and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
MARKET AND INDUSTRY DATA
This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, and filings of public companies in our industry, unless otherwise expressly stated. These sources include government and industry sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Although we are responsible for all of the disclosure in this prospectus and believe the industry and market data to be reliable as of the date of this prospectus, we have not independently verified the accuracy or completeness of this third-party data. Industry and market data are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including because the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties, including those described in “Risk Factors”. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.
TRADEMARKS AND TRADE NAMES
This prospectus contains trademarks, service marks and trade names of third parties or their products, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, service marks and trade names.
NON-GAAP FINANCIAL MEASURES
In this prospectus, we have included financial measures that are compiled in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) as well as certain non-GAAP financial measures. These non-GAAP financial measures include Adjusted EBITDA and Adjusted Cash Flow, which are each presented as supplemental measures to our GAAP financial performance.
These non-GAAP financial measures exclude the impact of certain items and therefore have not been calculated in accordance with GAAP. In each case, because our operating performance is a function of our liquidity, the non-GAAP financial measures used by management are presented and defined as supplemental liquidity measures. We caution readers that amounts presented in accordance with our definitions of Adjusted EBITDA and Adjusted Cash Flow may not be the same as similar measures used by other companies. Not all companies and analysts calculate the non-GAAP financial measures we use in the same manner. We compensate for these limitations by using non-GAAP financial measures as supplements to GAAP financial measures and by presenting the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures, in each case being net cash provided by operating activities.
 
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Management relies on Adjusted EBITDA and Adjusted Cash Flow as indicators of our cash flow and operating performance. We believe that Adjusted Cash Flow provides meaningful information about our liquidity and operating performance because our business is heavily reliant on our ability to generate consistent cash flows and this measure reflects the core cash collections and cash charges comprising our operating results. Management believes that our significant operating cash flow is one of the attributes that attracts potential investors to our business. We also anticipate that Adjusted EBITDA will be used by our potential lenders to assess our ability to meet our financial covenants. If we cannot satisfy these financial covenants, we would be prohibited under our credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying dividends, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the assessment of our liquidity.
Adjusted EBITDA is intended to show our Royalty Receipts less operating expenses. Our Royalty Receipts represent our total cash inflows from our Royalty-Related Transactions and include repayments of amounts related to acquisitions from prior periods in the current period. Adjusted EBITDA gives effect to investments for new Royalty-Related Transactions for the current period to the extent cash flows are received from such investments during the current period.
In addition, we believe that Adjusted Cash Flow helps identify underlying trends in our business and permits investors to more fully understand how management assesses our performance, including planning and forecasting for future periods. Management uses Adjusted Cash Flow to evaluate our ability to generate cash, to evaluate the performance of the business and to evaluate our performance as compared to our peer group. Such measure is an indication of our financial strength and the performance of our business. Management uses Adjusted Cash Flow when considering available cash, including for decision-making purposes related to funding of acquisitions, voluntary debt repayments, dividends and other discretionary investments. Further, we believe this non-GAAP financial measure helps management and investors evaluate our ability to generate liquidity from operating activities.
Management also uses Adjusted Cash Flow to compare its performance against non-GAAP financial measures used by many companies in the biopharmaceutical industry, even though each company may customize its own calculation and therefore one company’s metric may not be directly comparable to another’s. We believe that non-GAAP financial measures, including Adjusted Cash Flow, are frequently used by sell-side research analysts, investors and other interested parties to evaluate companies in our industry.
The non-GAAP financial measures used in this prospectus have limitations as analytical tools, and you should not consider them in isolation or as a substitute for the analysis of our results as reported under GAAP. For more information regarding these non-GAAP financial measures and a reconciliation of such measures to comparable GAAP financial measures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures”.
 
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PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” section and the combined financial statements and the notes to those statements.
Overview
We are the leading mid-market royalty acquisition company, based upon the number of transactions and aggregate value of capital deployed since 2016. We focus on growth assets and emerging companies driving innovation in the biopharmaceutical industry. We consider “mid-market” to comprise royalty acquisitions for transaction sizes between $20 million and $250 million. Our founders have been pioneers in the healthcare royalty and debt financing markets since 2001, and formed HCR in 2006 to build on their leadership in collaborating with inventors, academic institutions, small and mid-cap biotechnology companies and leading global pharmaceutical companies. Our in-house scientific, regulatory and transactional capabilities differentiate us from other industry participants and are the basis for our reputation among potential partners as knowledgeable, creative, and able to solve complex and potentially significant financing needs. Our senior team’s acquisition and financing approach, which has been honed over two decades to be both scalable and repeatable, has resulted in a long history of acquiring interests in both pre-approval and approved innovative therapies targeting large unmet or underserved medical needs. We have purposefully built a diverse portfolio across the therapeutic spectrum, including blockbuster assets such as Shingrix, innovative growth products such as Krystexxa, and recently launched products such as Xpovio. We believe that our (i) proprietary internal research and regulatory capabilities, (ii) mid-market focus, (iii) structuring flexibility, (iv) refined process designed to enable repeatable results and (v) regional sourcing model enable us to participate in the compounding growth seen in the biopharmaceutical sector and will cement our leadership position.
Our mission is to facilitate innovation by deploying capital consistently and reliably in products that serve unmet or underserved medical needs. We intend to achieve this mission by expanding our portfolio of approved and pre-approval products using cash flow generated by our existing portfolio as well as capital raised in the public equity market and debt raised in the public and private markets. Our process for evaluating acquisition and financing opportunities has been optimized through decades of experience and is designed to efficiently assess opportunities, identify risks and establish appropriate Royalty-Related Transaction structures. Although each Royalty-Related Transaction is different, the approach for internal vetting remains consistent to ensure each opportunity fits our overall selection criteria and appropriately balances risk and reward. In addition, our ongoing active portfolio management serves as a feedback loop designed to ensure our screening is resulting in the performance and asset exposure we desire. At the core of our time-tested process is a culture of transparency and dissent as well as an efficient and rigorous diligence process focused on asset quality, scientific and clinical differentiation, commercial profile and intellectual property protection. We believe our existing portfolio, strong cash flow and differentiated approach position us well to execute on our mission.
From 2006 through June 30, 2021, we and our founders have deployed approximately $4.7 billion across 76 Royalty-Related Transactions involving 79 products. In addition, prior to 2006, our founders deployed approximately $532 million across 14 Royalty-Related Transactions involving 14 products. Our portfolio today provides curated exposure to a wide range of medically necessary products across multiple therapeutic categories. As of June 30, 2021, our portfolio consisted of 35 products that span the therapeutic spectrum, including neurology, gastroenterology, vaccines and anti-infectives, oncology, hematology and rare genetic disorders. In 2020, products in our current portfolio generated approximately $12 billion of sales, and we generated Royalty Receipts of approximately $405 million, compared to Royalty Receipts of approximately $253 million in 2019. For the three months ended March 31, 2021, products in our current portfolio generated approximately $151 million in Royalty Receipts, compared to Royalty Receipts of approximately $88 million in the three months ended March 31, 2020. When we refer to the “Royalty Receipts” generated by our portfolio, we are referring to the summation of the following line items from our combined Statement of Cash Flows in our historical combined financial statements included elsewhere in this prospectus: (i) Cash collections from royalty interests, (ii) Cash
 
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collections from notes and (iii) Proceeds from sale of investments. The growth in Royalty Receipts was primarily through the acquisition of new products (92% of such growth), with the remainder of such growth resulting from increased Royalty Receipts from pre-existing products. Over the past three fiscal years (2018 to 2020) the growth in Royalty Receipts was split almost evenly between existing products (49%) and new acquisitions (51%). For the three months ended March 31, 2021, net cash provided by operating activities was approximately $5.7 million, compared to net cash used in operating activities of approximately $204.7 million in the three months ended March 31, 2020. For the three months ended March 31, 2021, we generated Adjusted EBITDA of approximately $141 million, compared to Adjusted EBITDA of approximately $76 million in the three months ended March 31, 2020. Adjusted EBITDA is calculated as Royalty Receipts less Payments for operating costs and professional services from the combined Statements of Cash Flows. In the three months ended March 31, 2021, we generated Adjusted Cash Flow of approximately $138 million, compared to Adjusted Cash Flow of approximately $75 million in the three months ended March 31, 2020. Adjusted Cash Flow is defined as Adjusted EBITDA less Interest paid from the combined Statements of Cash Flows. In 2020, net cash used in operating activities was approximately $649.5 million, compared to net cash used in operating activities of approximately $174.2 million in 2019. In 2020, we generated Adjusted EBITDA of approximately $371 million, compared to Adjusted EBITDA of approximately $224 million in 2019, and Adjusted Cash Flow of approximately $364 million in 2020, compared to Adjusted Cash Flow of approximately $223 million in 2019. Over the past three fiscal years, we grew our Royalty Receipts, Adjusted EBITDA and Adjusted Cash Flow at compound annual growth rates of 50%, 53% and 52%, respectively.
Beginning in 2014, we implemented a thoughtful expansion and institutionalization of our business. Our expansion included significant investment in the build-out of our regional offices, the in-sourcing of scientific and regulatory expertise, and adding more industry veterans to our team of Senior Advisors. During this period, we put in place a well-defined acquisition and financing strategy, as well as an acquisition process that ensured all Royalty-Related Transactions go through the same rigorous, well-defined approval framework. These acquisition and process improvements allowed for an accelerated pace of deployment, averaging more than $500 million annually over the past five years, and growing to $1 billion deployed in 2020. We also believe that the acquisition and process improvements have established a strong foundation for future growth.
We currently have dedicated personnel in Boston, London, the New York metro area and San Francisco — the key biopharmaceutical centers globally. Over 90% of U.S. biopharmaceutical IPOs from 2016 to March 31, 2021 (excluding offering size less than $50 million and U.S. IPOs of foreign issuers) and 95% of the top 20 large-cap pharmaceutical companies by net sales either are headquartered or have offices in our current regional coverage areas. Our regional sourcing strategy enables us to develop and maintain direct relationships with emerging biopharmaceutical companies and other constituents involved in the biopharmaceutical ecosystem.
The biopharmaceutical industry has experienced explosive growth and rapid innovation over the last several years fueled by dramatic acceleration in medical research. In 2019, an estimated $186 billion was invested in research and development and this amount is expected to increase to $233 billion by 2026, according to Evaluate Pharma. At the same time, the increasing cost of drug development has created a significant capital need for industry innovators. The dramatic acceleration of medical research in recent years has led to a better understanding of the molecular origins of disease and identification of potential targets for therapeutic intervention. In addition, global prescription pharmaceutical sales are projected to grow from approximately $965 billion in 2021 to approximately $1.2 trillion in 2024. On a broader scale, global and secular trends, including population growth, increasing life expectancy and growth of the middle classes in emerging markets are also contributing factors to the growth of the biopharmaceutical industry. The significant pace of biopharmaceutical innovation, the proliferation of new biotechnology companies and the increasing cost of drug development have created a significant need for capital over recent years that we believe will continue in the future and will provide a sustainable tailwind for our business.
Royalties play a fundamental and growing role in the biopharmaceutical industry. The increasing complexity and cost of drug development today typically involves a number of industry participants, resulting in an increased pipeline of royalties. Academia and other research institutions conduct basic
 
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research and license new technologies to industry for further development. Biotechnology companies typically in-license these new technologies or develop new technologies themselves, add value through applied research and early-stage clinical development, and then either out-license the resulting development-stage product candidates to large biopharmaceutical companies for late-stage clinical development and commercialization, or commercialize the products themselves. The persistent funding needs of royalty holders, primarily emerging biopharmaceutical companies, has led to a robust royalty acquisition and related debt financing market that we estimate reached a record $9.5 billion in 2020. Given our leadership position within the mid-market royalty acquisition sector, we are able to capitalize on the growing volumes of royalties that are created as new therapies are developed to address unmet or underserved medical needs. Our focus on mid-market transactions also fits the quantum of capital emerging biopharmaceutical companies are often seeking.
Portfolio Highlights
Our portfolio is diversified across therapeutic categories, treatment modalities, indications and marketers. As of June 30, 2021, no single asset accounted for more than 11% of our portfolio, the top three products accounted for 26% of our portfolio and the top three marketers represented 33% of our portfolio, in each case as measured by projected Royalty Receipts. As of June 30, 2021, the assets in our portfolio represented 12 therapeutic categories, with the top category representing 21% and the top three categories representing 49% of the portfolio as measured by projected Royalty Receipts. We also have meaningful exposure to drugs that have received special designation from the FDA, including, but not limited to, Orphan Drug Exclusivity.(1) These products comprise 41% of the portfolio as of June 30, 2021 (by projected Royalty Receipts). We believe special designation by the FDA is indicative of our asset criterion that products satisfy an unmet or underserved medical need. Also, orphan drugs receive market protection along with intellectual property protection. Under the Orphan Drug Act, the FDA may grant orphan designation to a product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States.
Below are key characteristics regarding the diversity and duration of our current portfolio.
Diversification (as of June 30, 2021 unless otherwise indicated and based on projected Royalty Receipts)

35 products, with the largest product (Shingrix) expected to represent less than 11% of projected Royalty Receipts

13 drugs that have received FDA special designation (Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations)

12 therapeutic categories, with the largest therapeutic category (neurology) representing 21% of projected Royalty Receipts

Most therapeutic categories have subcategories; for instance, neurology includes several sub-categories such as epilepsy, sleep management, migraine and Parkinson’s disease

Nevertheless, Royalty Receipts to date have been concentrated among a limited number of products, with our top 10 products accounting for 86% of Royalty Receipts for the three months ended March 31, 2021 and 81% and 82% of our Royalty Receipts for the years ended December 31 2020 and 2019, respectively.
Projected Duration (as of June 30, 2021 and weighted by projected Royalty Receipts)

10.0 years of projected duration (the projected period of time during which we expect to receive Royalty Receipts from the specific asset) from the time of acquisition (certain transactions have a limit on proceeds to us (referred to as “multiple cap”) resulting in an earlier projected terminal date relative to the contractual royalty maturity date)
(1)
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations.
 
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11.5 years of maximum duration from the time of acquisition (excludes impact of multiple caps and uses the contractual royalty maturity date as terminal date)

In several cases, patent updates following our acquisition have resulted in a longer projected duration and/or a higher royalty rate over a longer time period; select examples include:

Myozyme — patent assumptions enhanced by 1.4 years due to resolution of a patent challenge

Brineura — patent term extension provided an additional 1.8 years at a higher royalty rate

Projected duration detail for our top 20 portfolio holdings is provided in the section titled “Business — Portfolio Highlights”.
The following table provides further detail on our top 20 portfolio holdings as of June 30, 2021, based on projected Royalty Receipts.
[MISSING IMAGE: tm2113163d6-tbl_approv4clr.jpg]
1.
Multiple cap refers to applicable acquisitions in which a maximum amount of potential proceeds to HCR is effectuated based on projected Royalty Receipts.
2.
Novel Drug are defined by the FDA as innovative products that serve previously unmet medical needs or otherwise significantly help to advance patient treatments.
3.
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, (collectively defined as ‘Expedited Programs for Serious Conditions’), Orphan Drug, and Qualified Infectious Disease Product designations. These designations are awarded by the FDA based on a comprehensive review process.
4.
The Movantik acquisition represents two distinct transactions with two separate counterparties in February 2020 (RedHill) and December 2020 (Nektar).
5.
Represents two transactions with Coherus, a convertible debt investment that comes due in 2022 and a senior debt investment that comes due in 2025.
 
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6.
Gocovri projected Royalty Receipts include a small portion of royalties from Namzaric, acquired from Adamas and marketed by AbbVie.
7.
Adynovate is an additional royalty interest that was acquired in the Nektar transaction referenced in footnote 4.
Projections of Projected Duration and Royalty Receipts are based upon forecasts by the Legacy Manager of future sales and cash flows anticipated to be generated by each asset determined through the use of internal models prepared by the Legacy Manager in the ordinary course of business in order to evaluate the performance of existing investments. The Legacy Manager is controlled by affiliates of HCR and has its own employees who provide services for HCR, but are not employees of HCR. The employees of the Legacy Manager will become employees of the Manager in connection with this offering. The Manager will be operated by the same personnel as currently operate the Legacy Manager and certain newly hired individuals engaged as a result of our growth and transition to operating as a public company. Such projections are based on certain assumptions and subject to various uncertainties relating to the performance of such products, including the impact of competition by new products and governmental or regulatory action.
Our Strengths
We believe that the following elements of our platform have enabled us to build a foundational product portfolio and will allow us to add to the portfolio in the future.

We employ a refined, efficient process to evaluate Royalty-Related Transaction opportunities that has been honed by our senior team over two decades and has delivered consistent results.   Our process for evaluating Royalty-Related Transaction opportunities has been optimized through decades of experience and is designed to efficiently assess opportunities, identify risks and establish appropriate Royalty-Related Transaction structures. Although each Royalty-Related Transaction is different, the approach for internal vetting remains consistent to ensure each opportunity fits our overall asset selection criteria and appropriately balances risk and reward.

Clearly defined asset selection criteria enable us to efficiently assess opportunities and leverage the expertise of our platform.   Our disciplined approach towards Royalty-Related Transactions is based on clearly established criteria. By focusing on assets that largely adhere to these fundamental criteria, we are able to more efficiently apply our investment process and maximize our resources, resulting in a robust product portfolio.

Our well-established business model and thoughtful expansion strategy has enabled the formation of deep industry relationships and differentiated sourcing capabilities.   Our investment in a robust regional presence has broadened our landscape of actionable opportunities and has accelerated our pace of Royalty-Related Transactions (averaging approximately $500 million of annual Royalty-Related Transactions since 2016, the initial stages of our regional sourcing model). From 2016 to 2020, more than 50% of our Royalty-Related Transactions were sourced on a proprietary and/or non-intermediated basis. Additionally, in 2020, all four regional offices generated an asset acquisition or financing, and three of our four regional offices have generated an asset acquisition as of the first half of 2021.

We have an established and consistent history of success driven by our deep, relevant experience.   Members of our team have more than an aggregate of 500 years of relevant healthcare experience. Since 2001, members of our senior team have executed on 90 Royalty-Related Transactions comprising 93 products. Our overall pace and rate of deployment have steadily increased since inception, particularly since the start of our expansion period in 2014. As we have grown, we have continued to refine and hone our process, methodically expanding our team’s capabilities and geographic presence to facilitate our pace of growth. Through our planned expansion, we have maintained a consistent process based on a high level of rigor and selectivity when evaluating acquisitions or financings. Over this same period, we have consistently generated, on average, unlevered mid teen gross returns at the asset level in our core focus on biopharmaceuticals.

Our creativity and ability to design flexible solutions enables us to create synergistic relationships with our partners.   To best serve potential partners, we often create a menu
 
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of customizable solutions across a wide range of transaction structures that are often more tailored than traditional options. We have executed bespoke transactions in royalty, SYNTHETIC ROYALTY™ financings, and debt structures across stages of development, therapeutic areas, geographies and risk/reward parameters.

Our extensive, diversified portfolio provides the foundation for future growth and serves as validation to future partners.   Our process, experience and flexibility have enabled us to create a portfolio of assets that we believe would be difficult to replicate, having been assembled largely over a seven-year period and consisting of 35 assets. In 2020, products in our current portfolio generated approximately $12 billion of sales, and we generated Royalty Receipts of $405 million, compared to Royalty Receipts of $253 million in 2019. Our portfolio is diversified across therapeutic categories, treatment modalities, indications and marketers. We also have meaningful exposure to drugs that have received special designation from the FDA, including but not limited Orphan Drug Exclusivity.(1) These products comprise 41% of the portfolio as of June 30, 2021 (by projected Royalty Receipts). We believe special designation by the FDA is indicative of our asset criterion that products satisfy an unmet or underserved medical need. Also, orphan drugs receive market protection along with intellectual property protection.

Our strong track record of pre-approval Royalty-Related Transactions provides another driver for future growth.   Our experience and institutionalized investment process also allow us to evaluate and execute Royalty-Related Transactions involving pre-approval assets and assets with indication expanding potential. Since 2001, members of our senior team have closed transactions related to 14 products that were not approved, in which such product was the primary driver of the acquisition. In each instance, the product was ultimately approved.
Our Competitive Advantages
We believe that we have established a number of significant competitive advantages that will enable us to further advance our leadership position and our status as a partner of choice to emerging biopharmaceutical companies.

Our highly refined and efficient acquisition and financing process creates a foundation to enable repeatable results and growth.   Since 2014, we have refined our operating efficiency by crafting our organizational culture to be process-driven, analytically-focused, and rewarding of collaboration and sharing of intellectual capital. This culture is also focused on continuous improvement, as we work to hone our sourcing, diligence and negotiation processes to increase their effectiveness. We believe the standardization and refinement of these elements have enabled us to consistently produce repeatable results and provide a meaningful competitive advantage. In 2020, we reviewed 160 potential new acquisition or financing opportunities, which resulted in seven closed transactions.

Our proprietary insights enable a more effective and efficient acquisition and financing process, which we believe drives better results.   Our established infrastructure of in-house scientists, regulatory experts and Senior Advisors are essential in directing the organization’s focus on therapeutic areas and products that could be most promising. Once potential Royalty-Related Transactions are under consideration, these teams are also fully integrated into the diligence review process and leverage our long-term investment in scientific expertise and proprietary research.

Our regional sourcing approach drives differentiated high-quality deal flow across the biopharmaceutical sector.   We have established regional offices in Boston, London, the New York metro area and San Francisco that allow us to develop and maintain direct relationships with emerging biopharmaceutical companies and other constituents involved in the biopharmaceutical ecosystem. Our systematic and institutionalized sourcing program generates a robust pipeline of proprietary opportunities that we believe is unrivalled in the royalty space.
(1)
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations.
 
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Our ability to customize solutions for our partners creates high-quality and expanded access to acquisition and financing opportunities.   The ability to present a number of creative solutions in a royalty, SYNTHETIC ROYALTY™ financing or debt structure differentiates our company from other industry participants and enables us to address the specific capital needs of potential partners. We believe our flexible mandate provides us with a large opportunity set of transactions to evaluate. Many of our peers generally focus on either royalty purchases or on debt investments.

Our foundational portfolio provides us with scale and enhances our brand as a top royalty partner in the biopharmaceutical ecosystem.   We have amassed a portfolio of 35 assets as of June 30, 2021, diversified across therapeutic categories, treatment modalities, indications and marketers. This portfolio was built deliberately over a more than seven-year period and now produces significant predictable cash flows. Our current portfolio and scale enable us to support our differentiated infrastructure and is a visible indicator of our consistent activity and expertise, reinforcing the HCR brand of being a partner of choice in this sector.
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Our Growth Strategy
Our mission is to facilitate innovation by deploying capital consistently and reliably in products that serve unmet or underserved medical needs. The key components of our growth strategy are summarized below.

Leverage our regional sourcing infrastructure and differentiated scientific expertise to capitalize on strong industry tailwinds.   The biopharmaceutical industry has experienced explosive growth and rapid innovation over the last several years fueled by dramatic acceleration in medical research. The significant ongoing growth and capital needs of the biopharmaceutical market provides a substantial tailwind for our business and expands our pipeline of potential partners. By combining our regional sourcing infrastructure with the expertise of our in-house scientists and Senior Advisors, we believe we are well positioned to take advantage of the favorable long-term industry tailwinds.

Broaden our Royalty-Related Transaction pipeline with access to increased capacity and attractively priced capital.   We believe access to the public equity market as well as the public and private debt markets will provide us access to capital at a meaningfully lower cost than what we have today. We believe this lower cost capital will enable us to acquire or finance high-quality opportunities at competitive prices, deliver favorable returns, and widen our opportunity set.

Leverage internal expertise and increased operational flexibility to acquire or invest in royalties on attractive late stage pre-approval assets.   We believe we have the differentiated ability to assess scientific, commercial and financial merits to identify attractive acquisition opportunities in late-stage, de-risked assets. We believe our new corporate structure will provide us enhanced operational flexibility to assess both pre-approval and commercial opportunities, and deploy our disciplined approach to further enhance the pipeline and in turn generate future growth.
 
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Maintain our disciplined approach and acquisition culture as we grow.   Our culture is defined by collaboration, creativity and thought leadership, as well as a commitment to support innovation and life-changing therapies by partnering with the biopharmaceutical industry. We believe our disciplined acquisition approach and refined repeatable process are critical to our success. We are committed to maintaining our culture as we move to the next stage of growth. We will also continue to recruit and expand our team to support our growth plans.
Our Approach
Our approach is to identify attractive products and therapeutic areas of focus and then evaluate how to (i) acquire royalties on, or (ii) finance the marketers of, products we believe fit our asset selection criteria. Our team combines scientific expertise, regional sourcing resources and sophisticated transaction knowledge to target and close on attractive growth biopharmaceutical assets. We actively monitor the evolving treatment landscape and leverage our broad network of relationships with biopharmaceutical firms, physicians, scientists, and other market participants to identify new acquisition or financing candidates. This approach ensures a robust and diversified pipeline of opportunities by product type and therapeutic area.
Our own internal projections with respect to the potential Royalty Receipts from a potential acquisition candidate are typically lower than and may differ substantially from the counterparty’s estimates or Wall Street consensus. For certain products such as Brineura, Gocovri and Xpovio, for which our sales estimates at the time of investment were lower than Wall Street consensus, we have negotiated and structured terms of the investments that have enabled us to generate strong rates of return. We seek to minimize risks related to underperformance of the products in our portfolio through various structural protections, including milestone payments, reverse-tiered royalties, underperformance or catch-up payments, royalty rate “ratchet” provisions or escalating hard caps, or by purchasing a lower portion of sales or structuring the investment as a debt instrument with a guaranteed repayment obligation. Over 70% of our existing portfolio contains one or more of these structural protections. Conversely, our use of our own internal models to generate projections that differ from Wall Street consensus has enabled us to identify potential opportunities for upside, including our investments in Shingrix, Udenyca and Trelegy Ellipta whose sales have outperformed Wall Street estimates.
Key characteristics across our existing portfolio and future acquisition or financing candidates are as follows:

Clinically validated: therapies that have received regulatory approval or are clinically de-risked, such as having complete Phase 3 data or a filed New Drug Application or a Biologics License Application with the FDA.

High unmet and/or underserved need: therapies that address areas of significant unmet or underserved medical need, either in smaller patient populations for rare disease indications or larger patient populations for more prevalent indications.

High value proposition: therapeutic areas and indications with favorable reimbursement dynamics and significant willingness to pay.

Differentiation within treatment landscape: therapies that disrupt the existing treatment paradigm and are founded on innovation with substantial potential.

Growth potential: therapies where we see strong long-term potential, based on our in-depth evaluation and in-house scientific expertise.

Strong marketer: therapies that fit our acquisition and financing model of providing support for emerging biopharmaceutical companies, while deriving most of the portfolio revenue from established marketers.

Barriers to entry: therapies that are protected with strong IP and/or other barriers including regulatory exclusivity and manufacturing complexity.
We foster a culture of dissent, accountability and transparency; we believe these firm values create better outcomes for our stockholders. A core element of our culture of accountability is the ongoing review of our existing portfolio as part of our broader portfolio management strategy, providing
 
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continued engagement with partners and an important feedback loop post-transaction. Our acquisition and financing platform is designed to serve as a long-term capital resource for our biopharmaceutical partners, offering flexible financing solutions that are directly aligned with their specific business models and objectives. We seek to not only provide capital but to also be a long-term partner to biopharmaceutical companies.
Our Organizational Structure
We are a corporation incorporated in Delaware. Upon the closing of this offering, our principal asset will be our direct or indirect 100% ownership of all of Holdings LP’s Class A limited partnership units (the “Holdings LP Class A Units”). In contemplation of this offering, we reassessed our status as an investment company for accounting purposes under U.S. GAAP. As a result of, among other things, the anticipated changes to our organizational structure, business strategy and capital return policy, we believe that, upon the closing of this offering, we will no longer meet the definition of an investment company under U.S. GAAP as we will not possess the characteristics of an investment company. Therefore, following the closing of this offering, we will prepare our consolidated financial statements as an operating company under the New Methodology.
The diagram below depicts our organizational structure immediately following the Reorganization Transactions, assuming the sale of the number of shares set forth on the cover page of this prospectus and no exercise of the underwriters’ option to purchase additional shares of our Class A common stock. The diagram is provided for illustrative purposes only and does not represent all legal entities affiliated with our organizational structure.
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Pursuant to a reorganization agreement entered into on June [ ], 2021, investors in the Legacy HCR Partnerships (as defined below) agreed to merge the Legacy HCR Partnerships with and into HCRX Investments HoldCo, L.P., a Delaware limited partnership and a wholly-owned subsidiary of
 
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Holdings LP (“Investments HoldCo”), with Investments HoldCo as the surviving limited partnership (collectively, the “Reorganization Merger”). As used in this prospectus, the term “Legacy HCR Partnerships” refers to (i) HealthCare Royalty Partners III, L.P., (ii) HealthCare Royalty Partners III-A, L.P., (iii) HealthCare Royalty Partners IV, L.P., (iv) HealthCare Royalty Partners IV-A, L.P., (v) HCR Canary Fund, L.P., (vi) HCR Molag Fund, L.P., (vii) HCRP Overflow Fund, L.P., (viii) HCR Stafford Fund, L.P., (ix) HCR H.O.P. Fund, L.P., (x) HCR Potomac Fund, L.P. and (xi) PPCF Harris Feeder, L.P.
The Reorganization Merger is expected to be consummated immediately prior to the closing of this offering. In connection with the Reorganization Merger, investors in Legacy HCR Partnerships will receive interests in HCRX Feeder Fund, L.P. (the “Continuing Investor Partnership”). As used in this prospectus, “Continuing GP Investors” refers to the legacy general partners of the Legacy HCR Partnerships, “Continuing LP Investors” refers to the limited partners of the Legacy HCR Partnerships, and “Continuing Investors” refers to the Continuing GP Investors and Continuing LP Investors collectively. The Continuing Investor Partnership owns, all of the outstanding Holdings LP Class B Units (the “Holdings LP Class B Units”).
Our corporate structure following the completion of the Reorganization Merger, as described above, is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering. We will operate and control the business affairs of Holdings LP through our direct or indirect ownership of 100% of Holdings LP’s Class A Units, conduct our business through Holdings LP and its subsidiaries and include Holdings LP and its subsidiaries in our consolidated financial statements. Our Up-C structure will allow the Continuing Investors to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following this offering. One of these benefits is that future taxable income of Holdings LP that is allocated to such owners in respect of their Holdings LP Class B Units will be taxed on a flow-through basis and, therefore, Holdings LP is not expected to be subject to corporate taxes at the entity level. In addition, the Up-C structure provides potential future tax benefits for us when the Continuing Investors ultimately exchange their Holdings LP Class B Units for shares of Class A common stock. Finally, certain of the Continuing Investors may prefer holding Class A common stock because it reduces the possibility of being exposed to Holdings LP income with potentially adverse tax consequences.
Immediately following the closing of this offering, a portion of the Holdings LP Class B Units indirectly held by each Continuing Investor in the Continuing Investor Partnership, including Holdings LP Class B Units indirectly held by our executive officers, will be repurchased on a pro rata basis by Holdings LP at the initial public offering price per share, assuming such Holdings LP Class B Units were exchanged for shares of Class A common stock on a one-for-one basis, and retired in exchange for cash. Assuming the sale by us of          shares of Class A common stock and the sale by the selling stockholders of          shares of Class A common stock, in each case at an assumed price per share equal to the midpoint of the price range on the cover page of this prospectus, and the completion of the Debt Financing (as described in “—Debt Financing” below) with an annual interest rate of     % on the Senior Notes and     % on the Term Loan, with no amounts drawn under the New Credit Facility, we will repurchase          Holdings LP Class B Units, including          Holdings LP Class B Units indirectly held by our executive officers. The Holdings LP Class B Units indirectly held by our executive officers repurchased in the Reorganization Buyback Transaction will not exceed the number of Holdings LP Class B Units necessary to satisfy applicable tax obligations incurred by our executive officers in connection with the Reorganization Transactions. We refer to this repurchase as the “Reorganization Buyback Transaction”. We intend to finance the Reorganization Buyback Transaction with a portion of the proceeds of this offering and the Debt Financing.
In connection with the closing of this offering, various reorganization transactions will be effected, including:

the Reorganization Merger;

the Reorganization Buyback Transaction;

the Debt Refinancing described under “—Debt Refinancing” below; and

the execution of the Management Agreements with the Manager.
 
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We refer to these transactions collectively as the “Reorganization Transactions”.
Following the closing of this offering, the Continuing Investor Partnership will hold a number of shares of our Class B common stock equal to the number of Holdings LP Class B Units held by it. The Continuing Investor Partnership will, upon the individual instruction of any of its partners from time to time, in accordance with procedures and limitations as set forth in the Holdings LP Agreement, the limited partnership agreement of the Continuing Investor Partnership, and the Exchange Agreement, distribute the Holdings LP Class B Units held on behalf of such partner that are subject to such instruction, which will then be exchanged for shares of our Class A common stock (which shares of Class A common stock will be subject to the terms of the underwriters’ “lock-up” agreements in connection with this offering and the additional transfer restrictions described below and, if applicable, will be held in escrow to satisfy obligations to pay additional carried interest to the Continuing GP Investors, as described below). Each Holdings LP Class B Unit will be exchangeable on a one-for-one basis, together with a corresponding share of Class B common stock, for a share of Class A common stock pursuant to the Exchange Agreement. Upon such exchange the Company will retire the corresponding share of Class B common stock. Our Class B common stock will not be publicly traded and holders of Class B common stock only have limited rights to receive a distribution equal to their nominal value upon a liquidation, dissolution or winding up of the Company. However, Holdings LP Class B Units are entitled to dividends and distributions. Our Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of stockholders, except as otherwise required by applicable law, with each share entitled to one vote.
The Continuing GP Investors have agreed with the Continuing LP Investors to realize any carried interest or performance fees, as the case may be, in respect of Legacy HCR Partnership arrangements, in the form of carried interest in the Continuing Investor Partnership, which will own the Holdings LP Class B Units following the Reorganization Transactions. The carried interest formula will be based on that of each Legacy HCR Partnership, if applicable, and will only apply to Continuing LP Investors that were subject to a carried interest or performance fee arrangement with the applicable Continuing GP Investor of the relevant Legacy HCR Partnership. A portion of such carried interest will be crystalized at the time of the Reorganization Buyback Transaction and this offering. Such carried interest crystallization will result in Continuing GP Investors indirectly receiving Holdings LP Class B Units through increased ownership in the Continuing Investor Partnership with a corresponding decrease in the ownership of Holdings LP Class B Units by applicable Continuing LP Investors through decreased ownership in the Continuing Investor Partnership. In addition, the Continuing GP Investors have agreed to crystallize their carried interest or performance fees in the same manner at the time of (i) any registered secondary sales of shares, based on the applicable sale price of such secondary sales and (ii) on a quarterly basis thereafter during the period between the first and the third anniversary of this offering (each of the events in clause (i) and (ii), together with this offering, a “Crystallization Event”).
Continuing LP Investors that are subject to such carry arrangements have agreed that if they exchange their Holdings LP Class B Units for shares of our Class A Common Stock, a portion of such shares of Class A Common Stock will be held in escrow until the third anniversary of this offering in order to implement the agreed upon arrangements with the Continuing GP Investors (such shares held in escrow, the “Escrowed Class A Common Stock”). The applicable Continuing GP Investor will receive its additional carried interest through the release of such Escrowed Class A Common Stock (the “Additional Carry Shares”) (or increased ownership of the Continuing Investor Partnership to the extent such Continuing LP Investor has not converted its Holdings LP Class B Units) (x) at the end of each fiscal quarter during the period beginning on the first anniversary of the closing of this offering and ending on the third anniversary of this offering and (y) at the time of and in connection with any secondary sales of shares by Continuing LP Investors. At the end of each such fiscal quarter, one-eighth of the total shares of Escrowed Class A Common Stock (or Holdings LP Class B Units, as applicable) that remain unsold at the first anniversary of the closing of this offering may be released from escrow to the Continuing GP Investors as additional carried interest on deemed releases of shares by Continuing LP Investors, the amount of which will be based on the then-current price per share of our Class A common stock. Any shares of Escrowed Class A Common Stock Units or Holdings LP Class B Units not released to the Continuing GP Investors following the third anniversary of this offering would be released from escrow back to the applicable Continuing LP Investor.
 
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A portion of the Escrowed Class A Common Stock that is not released as Additional Carry Shares shall be released from escrow to the owners thereof at each Crystallization Event (and any remaining Escrowed Class A Common Stock will be released following the third anniversary or earlier if applicable trading or sales prices described above are less than the price sufficient to earn any Additional Carry Shares).
The additional carried interest arrangement was aimed at aligning the carried interest realization associated with the Legacy HCR Partnerships with the liquidity events or deemed liquidity events of the Continuing LP Investors over a three year period. In addition, it was aimed to incentivize the management team of the Manager to complete an initial public offering and to maximize the trading price performance of the Company subsequent to the initial public offering.
The effect of the additional carried interest arrangement will be to transfer from the Continuing LP Investors to the Continuing GP Investors either limited partnership interests in the Continuing Investor Partnership exchangeable for, or shares of, Escrowed Class A Common Stock, of up to          shares of Class A Common Stock, or up to     % of the total outstanding shares of Class A Common Stock of the Company following completion of the offering, calculated on a fully diluted basis.
The additional carried interest arrangements only affect the Continuing Investors, through their ownership in the Continuing Investor Partnership and of Escrowed Class A Common Stock, and do not have a dilutive effect on investors that purchase shares of Class A Common Stock in this offering. As no additional Class B Units or shares of Class B Common Stock will be issued in connection with such arrangements, a portion of the Escrowed Class A Common Stock that is not released as Additional Carry Shares shall be released from escrow to the owners thereof at each Crystallization Event (and any remaining Escrowed Class A Common Stock will be released following the third anniversary or earlier if applicable trading or sales prices described above are less than the price sufficient to earn any Additional Carry Shares).
See “Organizational Structure — Ownership of Holdings LP Class B Units by Continuing Investor Partnership” for more information.
Except for sales by the selling stockholders in this offering, the shares of our Class A common stock issuable upon exchange of Holdings LP Class B Units (the “Underlying Shares”) will be non-transferable for one year following the closing of this offering, subject to limited exceptions. Such Underlying Shares will be subject to additional transfer restrictions following the first anniversary of this offering through periods between the third and fifth anniversary of this offering, as more fully described in “Organizational Structure — Ownership of Holdings LP Class B Units by Continuing Investor Partnership — Additional Transfer Restrictions”.
The Manager
HCR was founded in 2006 by three individuals, including our Chairman and Chief Executive Officer, Clarke B. Futch, our Senior Advisor, Gregory B. Brown, M.D., and Todd C. Davis, who ceased serving on Legacy Manager’s transaction review committee in 2016 and was no longer affiliated with HCR following December 31, 2017, who we refer to as “our founders”.
Historically, our business has been managed by the Legacy Manager. In connection with this offering we and Holdings LP will each enter into a management agreement (each a “Management Agreement”, and collectively, the “Management Agreements”) with the Manager pursuant to which the Manager will, among other things, manage the existing assets of our business and source and evaluate new Royalty-Related Transactions, subject to oversight by our board of directors. The Manager will be a newly formed legal entity providing the same services to us that have been provided to HCR by the Legacy Manager. The Manager will be a separate legal entity from us, operating pursuant to the Management Agreements, with its own employees who perform services for us, but are not our employees. The Legacy Manager also has its own employees who provide services for HCR, but are not employees of HCR. The employees of the Legacy Manager will become employees of the Manager in connection with this offering. The Manager will be operated by the same personnel as currently operate the Legacy Manager and certain newly hired individuals engaged as a result of our growth and
 
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transition to operating as a public company. The Manager will continue to use the same investment process and criteria currently applied by the Legacy Manager to evaluate potential investment opportunities. The Management Agreements have an initial term of ten years, after which they can be renewed for an additional term of three years, unless either the Company or the Manager provides notice of non-renewal 180 days prior the expiration of the initial term. We and Holdings LP will each pay the Manager a quarterly Operating and Personnel Payment pursuant to the terms of each Management Agreement. The Manager may not be removed during the initial or any renewal term without cause. The Manager is an “investment adviser” registered with the SEC under the U.S. Investment Advisers Act of 1940. For a description of the terms of the Management Agreements, including the Manager’s Operating and Personnel Payment, see “The Manager”, and see “Management” for information regarding the management team of the Manager.
The Manager is owned and controlled indirectly by Mr. Futch. Certain former owners of the Legacy Manager own a minority non-voting economic interest in the Manager, which entitles such persons to a portion of the revenue of the Manager for a period of time, with Mr. Futch having the right to buy out such minority non-voting economic members’ interest ten years after the closing of this offering. The former owner has no rights to control or direct the decision making or actions of the Manager
In addition, the executives and other employees of the Manager, including certain former founders and owners, will be entitled to equity performance awards based on the performance of investments, determined on a portfolio-by-portfolio basis. Investments made during each two-year period will be grouped together as separate portfolios, with the first portfolio commencing on the date of our initial public offering and ending on December 31, 2022. For a description of the terms of such awards, see “The Manager  —  Equity Performance Awards”.
Debt Financing
Prior to the completion of this offering, we expect to issue $        million aggregate principal amount of Senior Notes due 2029 (the “Senior Notes”) and enter into a $        million Senior Secured Term Loan (the “Term Loan”) and $     million Senior Secured Revolving Credit Facility (the “New Credit Facility” and together with the Senior Notes and Term Loan, the “Debt Financing”). We expect to issue the Senior Notes prior to the completion of this offering, with the proceeds of the issuance of Senior Notes held in escrow until the completion of this offering. We also expect to enter into the Term Loan and New Credit Facility prior to the completion of this offering; provided that the completion of this offering will be a condition to our ability to borrow thereunder.
Summary of the Offering Structure
In connection with the Reorganization Merger, which is expected to be consummated immediately prior to the closing of this offering, investors who invested in HCR through the Legacy HCR Partnerships will exchange their limited partnership interests in the Legacy HCR Partnerships for limited partnership interests in the Continuing Investor Partnership. Upon the closing of this offering, we will own directly or indirectly all of the outstanding Holdings LP Class A Units and the Continuing Investor Partnership will own, all of the outstanding Holdings LP Class B Units. As a result of the Reorganization Transactions, Holdings LP and its subsidiaries will own 100% of the assets of HCR.
Pursuant to agreements with the Continuing Investor Partnership, certain Continuing LP Investors, including the selling stockholders, have agreed to exchange, shortly before or upon consummation of this offering, interests in the Continuing Investor Partnership into an aggregate of          shares of Class A common stock representing     % of the total outstanding shares of Class A common stock after giving effect to this offering. Such shares of Class A common stock will be held in escrow as discussed above. “See — Additional Carried Interest”.
Upon the closing of this offering:

Our Class A common stock will be held as follows:

         shares (or           shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) by public investors; and
 
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         shares (or             shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) by the Continuing Investors (which shares will be held in escrow upon the closing of this offering as described under the section titled “Organizational Structure”)

Our Class B common stock (together with the same number of Holdings LP Class B Units) will be held as follows:

       shares by the Continuing Investor Partnership.

The combined voting power in the Company will be as follows:

   % by public investors (and the Continuing Investors through their ownership of Class A common stock) (or    % if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

    % by the Continuing Investors, including our management team, through the Continuing Investor Partnership (or    % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
See “Risk Factors — Risks Relating to Our Organization and Structure”, “Organizational Structure” and “Certain Relationships and Related Party Transactions”.
Summary Risk Factors
Before you invest in our Class A common stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors”. These risks and uncertainties include factors related to:

sales risks of biopharmaceutical products on which we receive royalties;

our ability to identify suitable assets for us to acquire or in which to invest;

uncertainties related to the acquisition of interests or investments in development-stage biopharmaceutical product candidates and our strategy to add development-stage product candidates and late stage funding opportunities to our product portfolio;

the assumptions underlying our business model;

our ability to successfully execute our Royalty-Related Transaction strategy;

our ability to leverage our competitive strengths;

actual and potential conflicts of interest with the Manager and its affiliates;

the ability of the Manager or its affiliates to attract and retain highly talented professionals;

our change in accounting methodology from that of an investment company to that of an operating company following the closing of this offering, pursuant to which we expect to measure the majority of our financial assets using the amortized cost accounting methodology, which may impair comparability of our financial results following this offering versus our historical results for periods prior to this offering and may cause our prior financial results not to be indicative of our future financial performance under the new accounting methodology;

our indebtedness, which was $493 million as of March 31, 2021, and which we expect will be approximately $1.5 billion as of the completion of this offering with the ability to draw an additional $      million under our New Credit Facility, may inhibit our operating flexibility and reduce cash flow available for dividends, as well as limit our ability to respond to changing business conditions;

the effect of changes to tax legislation and our tax position; and

the risks, uncertainties and other factors we identify in “Risk Factors” and elsewhere in this prospectus and in our filings with the SEC.
 
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Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our most recently completed fiscal year as of the initial filing date of the registration statement of which this prospectus forms a part, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include:

presentation of only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations in this prospectus;

reduced disclosure about our executive compensation arrangements;

no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and

exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of this offering; (ii) the first fiscal year after our annual gross revenues are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have taken advantage of reduced disclosure regarding the presentation of certain historical financial information in this prospectus, and we may choose to take advantage of some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies in which you hold stock.
The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies. When a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will adopt the new or revised standard at the time private companies adopt the new or revised standard, unless early adoption is permitted by the standard. As a result, our consolidated financial statements may not be comparable to the financial statements of companies that comply with new or revised accounting pronouncements as of public company effective dates.
Corporate Information
We were incorporated in Delaware on April 26, 2021. We are a newly formed company, previously had no material assets and have not engaged in any business or other activities except in connection with the Reorganization Transactions described under “Organizational Structure”. Our principal executive offices are located at 300 Atlantic Street, Suite 600, Stamford, Connecticut 06901, and our telephone number is (203) 487-8300. Our website is www.healthcareroyalty.com. Our website and the information contained therein or connected thereto is not incorporated into this prospectus or the registration statement of which it forms a part.
 
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OFFERING
Class A common stock offered by us
            shares.
Class A common stock offered by the selling stockholders
            shares.
Option to purchase additional Class A common stock
We have granted the underwriters an option to purchase up to an additional          shares of Class A common stock, exercisable for 30 days after the date of this prospectus.
Class A common stock to be outstanding after this
offering
            shares (or      shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock from us).
Class B common stock to be outstanding after this
offering
            shares.
Voting power held by holders of Class A common stock after giving effect to this
offering
    % (or     % if the underwriters exercise in full their option to purchase additional shares of Class A common stock from us).
Voting power held by holders of Class B common stock after giving effect to this offering and the Reorganization Transactions 
    % (or      % if the underwriters exercise in full their option to purchase additional shares of Class A common stock from us).
Reorganization Buyback Transaction
Immediately following the closing of this offering, a portion of the Holdings LP Class B Units indirectly held by Continuing Investors in the Continuing Investor Partnership, including           Holdings LP Class B Units indirectly held by our executive officers, will be repurchased on a pro rata basis by Holdings LP at the initial public offering price per share, assuming such Holdings LP Class B Units were exchanged for shares of Class A common stock on a one-for-one basis, and retired in exchange for cash. Assuming the sale by us of          shares of Class A common stock and the sale by the selling stockholders of           shares of Class A common stock, in each case at a price per share equal to the midpoint of the price range on the cover page of this prospectus, and the completion of the Debt Financing with an annual interest rate of     % on the Senior Notes and     % on the Term Loan, with no amounts drawn under the New Credit Facility, we will repurchase          Holdings LP Class B Units, including           Holdings LP Class B Units indirectly held by our executive officers. The Holdings LP Class B Units indirectly held by our executive officers repurchased in the Reorganization Buyback Transaction will not exceed the
 
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number of Holdings LP Class B Units necessary to satisfy applicable tax obligations incurred by our executive officers in connection with the Reorganization Transactions.
We intend to finance the Reorganization Buyback Transaction with a portion of the proceeds of this offering and the Debt Financing.
Use of proceeds
We estimate that the net proceeds to us from the sale of shares of our Class A common stock in this offering will be approximately $      , or approximately $      if the underwriters exercise their option to purchase additional shares of Class A common stock in full, assuming an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses.
We intend to use      of the net proceeds from the sale of shares of our Class A common stock in this offering and the Debt Financing for the Reorganization Buyback Transaction described above.
Assuming the sale by us of shares of Class A common stock and the sale by the selling stockholder of shares of Class A common stock, in each case at a price per share equal to the midpoint of the price range on the cover page of this prospectus, and the completion of the Debt Financing with an annual interest rate of     % on the Senior Notes and     % on the Term Loan, with no amounts drawn under the New Credit Facility, we will repurchase Holdings LP Class B Units, including [      ] Holdings LP Class B Units indirectly held by our executive officers and [       ] Holdings LP Class B Units indirectly held by other affiliates, including owners of 10% or more of outstanding shares upon completion of this offering and current equity owners of the Legacy Manager, with a portion of the proceeds from the Debt Financing and the proceeds this offering.
We intend to use the remainder of net proceeds from the sale of shares of our Class A common stock and the Debt Financing to purchase newly-issued Holdings LP Class A Units (or       Holdings LP Class A Units if the underwriters exercise in full their option to purchase additional shares of Class A common stock) directly from Holdings LP at a purchase price per unit equal to the initial public offering price per share of Class A common stock less underwriting discounts and commissions.
We intend to cause Holdings LP and its subsidiaries to use the net proceeds of this offering, including the net proceeds from the issuance and sale of any of the shares of Class A common stock pursuant to an exercise of the underwriters’ option to purchase additional shares, from the offering, after deducting underwriting discounts and other offering expenses, to pursue additional Royalty-Related Transactions and for other general corporate purposes, including payment of
 
17

 
operating expenses to our Manager and other professional and administrative fees. See “Use of Proceeds”.
Proposed Nasdaq trading
symbol
“HCRX”
Voting rights
Each share of our Class A common stock and Class B common stock entitles its holder to one vote on all matters to be voted on by our stockholders.
Holders of shares of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law. See “Description of Capital Stock”.
The Continuing Investor Partnership, which own all of our outstanding Class B common stock, will vote such shares as directed by the Continuing Investors.
Operating and personnel
payment
We and Holdings will each pay the Manager a quarterly Operating and Personnel Payment pursuant to the terms of each Management Agreement. We have no personnel of our own and the Operating and Personnel Payment is intended to fund operating and personnel costs of the Manager and its affiliates. The Operating and Personnel Payment made by Holdings LP is based on tiers of Royalty Receipts and will not be subject to adjustment based on actual operating and personnel expenses of the Manager. See “The Manager — Management Agreements”.
Reserved Shares Program
At our request, the underwriters have reserved up to      % of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to our directors, officers, Continuing Investors and other individuals associated with us and members of their respective families. The sales will be made by        , a selected dealer affiliated with        , an underwriter of this offering, through a reserved shares program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock. Participants in the directed share program who purchase more than $1.0 million of Class A common stock will be subject to a 25-day lock-up restriction with respect to any shares sold to them pursuant to the reserved shares program. This lock-up will have similar restrictions to the 180-day lock-up restrictions described in “Underwriting.” Any shares of Class A common stock sold to our directors, executive officers or Continuing Investors pursuant to the reserved shares program will be subject to the 180-day lock-up restrictions described in “Underwriting.”
 
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Risk Factors
See “Risk Factors” for a discussion of risks you should consider carefully before deciding to invest in our Class A common stock.
Unless we specifically state otherwise, the information in this prospectus does not take into account the issuance of up to             shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares of Class A common stock from us.
 
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following tables set forth certain summary historical combined financial and other data of HCR as of the dates and for the periods indicated. The business of HCR is the predecessor of Healthcare Royalty, Inc. for financial reporting purposes. The historical financial data as of and for the years ended December 31, 2020 and 2019 were derived from the audited combined financial statements of HCR included elsewhere in this prospectus. The historical financial data as of and for the three months ended March 31, 2021 and 2020 were derived from the unaudited combined financial statements of HCR included elsewhere in this prospectus. The three months ended March 31, 2021 is not representative of the year and the year is not representative of future performance. Healthcare Royalty, Inc. was formed as a Delaware corporation on April 26, 2021 and has not, to date, conducted any activities other than those incidental to its formation and the preparation of this prospectus and the registration statement of which this prospectus forms a part.
The unaudited pro forma information gives effect to (i) the Reorganization Transactions described under “Organizational Structure”, and (ii) the sale of             shares of Class A common stock in this offering, as if each had been completed as of December 31, 2020, in the case of the unaudited pro forma consolidated balance sheet data as of December 31, 2020, and as of January 1, 2020 with respect to the unaudited pro forma consolidated statements of comprehensive income data. See “Unaudited Pro Forma Financial Information” and “Capitalization”.
The summary historical and pro forma financial and other data presented below do not purport to be indicative of the results that can be expected for any future period and should be read together with “Capitalization”, “Unaudited Pro Forma Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined historical financial statements and related notes thereto included elsewhere in this prospectus.
Pro
Forma(1)(2)
Years Ended
December 31,
Three Months
Ended March 31,
2020
2020
2019
2021
2020
(in thousands)
Combined Results of Operations Data:
Royalty income
$              $ 166,467 $ 130,792 $ 65,303 $ 32,871
Note interest
            
50,397 38,060 15,245 11,422
Paid-in-kind interest
            
11,953 8,399 212 1,813
Other Income
             10 53
Total investment income
            
228,827 177,305 80,760 46,106
Expenses:
            
Management fees(3)
            
26,666 20,538 6,759 6,632
Performance fees(4)
            
8,531 4,267 2,574 1,061
Interest expense
             7,294 1,219 2,915 1,218
Net investment income
             183,550 147,627 68,047 36,418
Net realized and unrealized gain (loss) on investments:
            
Net realized gain (loss) on investments
            
11,102 (7,706) (1,284) 2,208
Net change in unrealized gain (loss) on investments
             58,599 32,631 45,009 3,587
Net realized and unrealized gain (loss) on investments
             69,701 24,925 43,725 5,795
Net increase in partners’ capital resulting from operations
            
253,252 172,552 111,772 42,213
Less: Income attributable to non-controlling
interest
            
Net increase in partners’ capital resulting from operations attributable to controlling interest
$
            
$ 253,252 $ 172,552 $ 111,772 $ 42,213
 
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Years Ended
December 31,
As of/for The
Three Months
Ended
2020
2019
March 31, 2021
(in thousands)
Combined Balance Sheet Data:
Cash and cash equivalents
$ 11,733 $ 10,145 $ 64,629
Investments, at fair value
2,418,499 1,511,328 2,524,325
Interest receivable
3,477 2,982 3,451
Total assets
2,435,273 1,525,506 2,593,601
Revolving credit
493,000 82,642 493,000
Partners’ capital
1,931,953 1,437,932 2,090,945
Cash Flow Data:
Net cash provided by (used in):
Operating activities
(649,540) (174,248) 5,676
Financing activities
651,128 174,020 47,220
Pro
Forma(1)(2)
Years Ended
December 31,
Three Months
Ended March 31,
2020
2020
2019
2021
2020
(in thousands)
Other Financial Measures:
Royalty Receipts
$              $ 405,081 $ 252,952 $ 151,496 $ 87,715
Total Royalty Receipts
$              $ 405,081 $ 252,952 $ 151,496 $ 87,715
Payments for operating costs and professional services
             (34,485) (28,478) (10,416) (11,639)
Adjusted EBITDA (non-GAAP)(5)
$              $ 370,596 $ 224,474 $ 141,080 $ 76,076
Interest Paid
             (6,456) (1,073) (2,904) (763)
Adjusted Cash Flow (non-GAAP)(5)
$              $ 364,140 $ 223,401 $ 138,176 $ 75,313
(1)
The unaudited pro forma Combined Results of Operations Data and the Cash Flow Data for the year ended December 31, 2020 and the unaudited pro forma Combined Balance Sheet Data as of December 31, 2020 present selected financial data after giving effect to the Reorganization Transactions and the sale of Class A common stock in this offering, as further described in “Unaudited Pro Forma Financial Information.” The assumptions and adjustments to the Combined Results of Operations Data are described in the notes to the unaudited pro forma financial information in “Unaudited Pro Forma Financial Information.”
(2)
The unaudited pro forma Other Financial Measures as of and for the period ended December 31, 2020 present selected non-GAAP financial measures, which are supplemental measures to our GAAP financial measures, after giving effect to the Reorganization Transactions and the sale of Class A common stock in this offering, as further described in “Unaudited Pro Forma Financial Information.” The adjustments and assumptions to the Other Financial Measures are described in “Non-GAAP Financial Measures.”
(3)
Reflects the recognition of incremental Operating and Personnel Payment of $      . Under the terms of the Management Agreements, the Operating and Personnel Payment will be calculated as described in “The Manager — Management Agreements.”
(4)
After giving effect to the Reorganization Transactions and the sale of Class A common stock pursuant to this offering, there will be a change to the amount of performance fees. No adjustment has been made as an amount cannot be quantified at this time.
(5)
Management relies on Adjusted EBITDA and Adjusted Cash Flow as indicators of our cash flow and operating performance. We believe both to be critical to the assessment of our liquidity. Each non-GAAP financial measure functions as a supplemental measure of liquidity and is not required by, or presented in accordance with, GAAP. They are not measurements of our performance or liquidity under GAAP and should not be considered as alternatives to Net cash used in operating activities or Net increase in partners’ capital resulting from operations or any other performance or liquidity measure derived in accordance with GAAP. The adjustments and assumptions to Adjusted EBITDA and Adjusted Cash Flow, together with reconciliations to their most comparable GAAP measures, are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.”
 
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RISK FACTORS
An investment in our Class A common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in our Class A common stock. If any of the adverse events described in the following risk factors, as well as other factors which are beyond our control, actually occurs, our business, results of operations and financial condition may suffer significantly. As a result, the trading price of our Class A common stock could decline, and you may lose all or part of your investment in our Class A common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Relating to Our Business
Biopharmaceutical products are subject to sales risks.
Biopharmaceutical product sales may be lower than expected due to a number of reasons, including pricing pressures; insufficient demand; product competition; failure of clinical trials; lack of market acceptance; obsolescence; lack of acceptance by Medicare, Medicaid, or private insurance providers; loss of patent protection; the impact of the COVID-19 pandemic or other factors. In addition, development-stage and other product candidates may fail to reach the market. Unexpected side effects, safety or efficacy concerns can arise with respect to a product, including after a product receives regulatory approval for commercialization, leading to product recalls, withdrawals or declining sales. Any of these occurrences could cause our financial performance to be weaker than expected and harm our business, financial condition and results of operations.
The royalty market may not grow at the same rate as it has in the past, or at all, and we may not be able to acquire sufficient royalties or investment in sufficient marketers to sustain the growth of our business.
We have been able to grow our business over time by primarily acquiring royalties and other related instruments with marketers of biopharmaceutical products. However, we may not be able to identify and acquire a sufficient number of royalties, or royalties of sufficient scale, or invest in a sufficient number of marketers, to invest the full amount of capital that may be available to us in the future, or at our targeted amount and rate of deployment, which could prevent us from executing our growth strategy and negatively impact our results of operations. The royalty market may not grow at the same rate as it has in the past, and we rely on counterparties’ willingness to sell their assets. Changes in the royalty market, including its structure and participants, changes in preferred methods of financing and capital raising in the biopharmaceutical industry, or a reduction in the growth of the biopharmaceutical industry, could lead to diminished opportunities for us to acquire royalties, fewer royalties or investment opportunities being available, or increased competition for royalties or other investment opportunities. Even if we continue to acquire royalties or engage in financing transactions with marketers, they may not generate a meaningful return for a period of several years, if at all, due to numerous factors including the structure of the transaction, or circumstances relating to the underlying products. As a result, we may not be able to continue to grow as we have in the past, or at all. Failure to acquire sufficient royalties or investment in sufficient marketers to sustain the growth of our business would adversely affect our ability to obtain royalty income, which would adversely affect our business, financial condition and results of operations.
Biopharmaceutical products are subject to substantial competition, which can affect royalty payments.
The biopharmaceutical industry is a highly competitive and rapidly evolving industry. The length of any product’s commercial life cannot be predicted with certainty. There can be no assurance that one or more products on which we are entitled to a royalty will not be rendered obsolete or non-competitive by new products or improvements on which we are not entitled to a royalty made to existing products, either by the current marketer of such products or by another marketer. Current marketers of products may undertake these development efforts in order to improve their products or to avoid paying our royalty.
 
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Adverse competition, obsolescence or governmental and regulatory action or healthcare policy changes could significantly affect the revenues, including royalty-related revenues, of the products underlying our Royalty-Related Transactions.
Competitive factors affecting the market position and success of each product include:

efficacy;

safety and side effect profile;

price, including third-party insurance reimbursement policies;

timing and introduction of the product;

effectiveness of marketing strategy and execution;

market acceptance;

manufacturing, supply and distribution;

governmental regulation;

availability of lower-cost generics and/or biosimilars;

intellectual property protection and exclusivity;

treatment innovations that eliminate or minimize the need for a product; and

product liability claims.
Products on which we have a royalty may be rendered obsolete or non-competitive by new products, including generics and/or biosimilars, improvements on existing products, or governmental or regulatory action. In addition, as biopharmaceutical companies increasingly devote significant resources to innovate next-generation products and therapies using gene editing and new curative modalities, such as cell and gene therapy, products on which we have a royalty may become obsolete. Further, any new product candidate within our royalty portfolio that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be successful commercially. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. These factors and developments could have an adverse effect on the sales of the biopharmaceutical products underlying our Royalty-Related Transactions, and consequently could materially adversely affect our business, financial condition and results of operations.
Our future income depends upon numerous product-specific assumptions, and if these assumptions prove to be inaccurate, we may not achieve our expected rates of returns.
Our business model is based on multiple-year internal and external forecasts regarding product sales and numerous product-specific assumptions in connection with each Royalty-Related Transaction, including where we have limited information regarding the product. There can be no assurance that the assumptions underlying our financial models, including those regarding product sales (such as projected Royalty Receipts) or competition, patent expirations, exclusivity terms or license terminations for the products underlying our portfolio, are accurate. These assumptions involve a significant element of subjective judgment. Despite established internal review processes and procedures, we may inadvertently deprioritize certain negative facts or data in favor of more attractive factors or other considerations, or we may fail to account for or recognize, or may overlook, key facts or data, including due to human error. These assumptions also may be, and in the past have been, adversely affected by post-acquisition changes in market conditions and other factors affecting the underlying product including potential changes in the marketer. The risks relating to these assumptions may be exacerbated for development-stage product candidates due to the uncertainties around their development, labeling, regulatory approval, commercialization timing, manufacturing and supply, competing products and related factors. Our assumptions regarding the financial stability or operational or marketing capabilities of the partner obligated to pay us royalties may also prove, and in the past have proven, to be incorrect. Due to
 
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these and other factors, the assets in our current portfolio or future assets may not generate their projected Royalty Receipts, expected returns or returns in line with our historical financial performance or in the time periods we expect or at all, which could adversely affect results of operations.
Acquisitions of royalties from or investments in biopharmaceutical development-stage or other product candidates that have not yet received FDA or other regulatory approval are subject to risks and uncertainties.
We intend to acquire more royalties on, or invest in companies with, product candidates, including development-stage product candidates, that have not yet received marketing approval by any regulatory authority. There can be no assurance that the FDA, the Medicines and Healthcare products Regulatory Agency (“MHRA”), the European Medicines Agency (“EMA”), Pharmaceuticals and Medical Devices Agency (“PMDA”) or other regulatory authorities will approve such product candidates or that such product candidates will be brought to market timely or at all, or that the market will be receptive to such products. If the FDA, MHRA, EMA, PMDA or other regulatory authority approves a product candidate that generates royalties for us, the labeling may be more restrictive or limited than we anticipated. In addition, the labeling, packaging, manufacturing, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with the product, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, including for certain patient populations, and could include withdrawal of the product from the market. Uncertainty relating to development-stage product candidates also make it more difficult to develop precise and accurate assumptions for our internal models relating to any such product candidate, which can result in reduced royalties compared to estimates.
We may continue, and may increase, this strategy of acquiring royalties in or investment in companies with product candidates that have not yet received marketing approval by any regulatory authority, including development-stage products. We also may seek to further expand our market opportunity by acquiring securities issued by biopharmaceutical companies, or we may provide capital to innovators to co-fund clinical development of a product candidate in exchange for a share of the future revenues of that asset, and when we do so, we will not control its clinical development. Where we may acquire equity securities as all or part of the consideration for business development activities, the value of those securities will fluctuate, and may depreciate in value. We will likely not control the company in which we acquire securities, and as a result, we may have limited ability to determine its management, operational decisions and policies. In addition, as a result of our activities we receive material non-public information about other companies from time to time. Where such information would relate to a company whose equity securities we hold, we may be delayed or prevented from selling such securities when we would otherwise choose to do so, and such delay or prohibition may result in a loss or reduced gain on such securities.
In addition, the developers of these product candidates may not complete activities on schedule or in accordance with our expectations or in compliance with applicable laws and regulations, and they also may not be able to raise additional capital to continue their discovery, development and commercialization activities, which may cause them to delay, reduce the scope of, or eliminate one or more of their clinical trials or research and development programs. If other product developers introduce and market products that are more effective, safer or less expensive than the relevant products underlying our Royalty-Related Transactions, or if such developers introduce their products prior to the competing products underlying our Royalty-Related Transactions, such products may not achieve expected commercial success and thereby result in diminished returns, or potentially reduced royalties for us, harming our results of operations. Developers of these product candidates, or their third-party contractual manufacturers, may also be unable to scale or ramp production of sufficient quantities of drug product to conduct pivotal clinical trials or other trials and studies required for regulatory approval or the desired product label, or for commercialization following regulatory approval. Any such delay or hindrance to manufacturing may result in delays in receipt of our royalties or inability of partners to pay any royalties to us, which would harm our results of operations.
Further, the developers of such products may not have sales, marketing or distribution capabilities. If no sales, marketing or distribution arrangements can be made on acceptable terms, or at all, the
 
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affected product may not be able to be successfully commercialized, which will result in diminished returns, or potentially a loss for us. Losses from such assets could have an adverse effect on our business, financial condition and results of operations.
While we believe that we can evaluate the likelihood of a development-stage product candidate’s approval and achieving significant sales, there can be no assurance that our assumptions will prove correct, that regulatory authorities will approve such development-stage product candidates, that such development-stage product candidates will be brought to market timely or at all, or that such products will achieve commercial success. While we may seek to mitigate the risks and liabilities of such transactions through, among other things, due diligence, there may be risks and liabilities that such due diligence efforts fail to discover, that are not disclosed to us, or that we inadequately assess.
Information available to us about the biopharmaceutical products underlying our investments may be limited and therefore our ability to analyze each product and its potential future cash flow may be similarly limited.
We may have limited information concerning the products generating the royalties we are evaluating for acquisition or financing, which could prevent us from achieving the expected benefits of our investments. The information we have regarding products following our acquisition or investment may even be limited to the information that is available in the public domain. Therefore, there may be material information that relates to such products that we would like to know but do not have and may not be able to obtain. For example, we do not always know the results of studies conducted by marketers of the products or others or the nature or amount of any complaints from doctors or users of such products. As a result, assets that we acquire or that underlie our investments may under-perform relative to the price paid or the resources committed by us. In addition, the market data that we obtain independently may also prove to be incomplete or incorrect. Due to the information asymmetry, we may also place undue emphasis on certain facts or data over others, which could result in unfavorable terms or a loss of part or all of our investment. As a result of these and other factors, the actual cash flow from a royalty may be significantly lower than our estimates, which could result in increased costs, lowered royalty income, ineffective deployment of capital, exit costs or diminished competitive position or reputation. In addition, our investments involve a number of risks and financial, accounting, strategic, managerial and operational challenges, which could adversely affect our consolidated results of operations and financial condition. While we seek to mitigate these risks through due diligence, among other things, these or other risk-mitigating provisions we put in place may not be sufficient to address these liabilities and contingencies and involve credit and execution risks associated with successfully seeking recourse from a biopharmaceutical company or other third-party.
Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may adversely affect our business and the value of our securities.
We rely, in part, on our reputation to attract new partners and expand our network in the biopharmaceutical industry. Damage to our reputation could undermine the confidence of our current and potential partners in our ability to acquire or investment in desirable assets and therefore harm our ability to effect transactions. Our actual or perceived failure to address various issues could give rise to reputational risk that could cause harm to us and our business prospects. These issues include, but are not limited to, our success in executing transactions with new partners; our ability to collaborate efficiently with new partners in the diligence and execution process; proper handling of confidential information relating to existing and potential partners; partner and other third-party fraud; illegal or fraudulent sales practices by marketers; ethical issues; and appropriately addressing potential conflicts of interest. Maintenance of our reputation depends not only on our success in controlling and mitigating the various risks described in this prospectus, but also on our success in identifying and appropriately addressing issues that may arise in the areas described above. If we fail to maintain our reputation for any reason, our business and the value of our securities could be adversely affected.
Unsuccessful attempts to acquire new royalties or engage in new investments could result in significant costs and negatively affect our reputation and subsequent attempts to locate and acquire or investment in other assets.
The investigation and diligence of each specific target royalty and the negotiation, drafting and execution of relevant agreements, disclosure and other documents requires substantial management
 
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time and attention and results in substantial costs. If a decision is made not to complete a specific acquisition or financing, the costs incurred for the proposed transaction may not be recoverable from a third party. Furthermore, even if an agreement is reached relating to a specific target asset, we may fail to consummate the acquisition or financing for any number of reasons, including, in the case of an acquisition of a royalty through a business combination with a public company, approval by the target company’s public stockholders. Multiple unsuccessful attempts to acquire new royalties could hurt our reputation, result in significant costs, hinder our ability to raise capital in the future and waste the Manager’s time. The opportunity cost of diverting management and financial resources could negatively affect our ability to locate and acquire or invest in other assets.
Misuse of confidential information relating to our partners, potential partners or other counterparties by employees or advisors could harm our reputation and subject us to liability.
As part of our diligence process for potential acquisitions or financing, we and employees of the Manager receive confidential information regarding biopharmaceutical companies and their products or product candidates. Although we have policies and procedures in place to avoid misuse of such confidential information, there can be no assurance that such policies and procedures will prevent misuse of confidential information. Further, certain of our advisors also receive confidential information for potential acquisitions or financings, and we have limited to no control over their handling and use of such information. Misuse of confidential information by the Manager’s employees or by our advisors could harm our reputation, as well as cause us to violate agreements and expose us to liability, both of which in turn could negatively affect our ability to acquire or investment in assets in the future and continue to grow our business.
We cannot guarantee that we will continue our current deployment strategy or that we will deploy expected amounts of capital during any given period.
We cannot guarantee that we will deploy capital in the amounts we expect or intend during any given period. If we do not identify assets that meet our criteria or we determine that a previously identified target does not meet our diligence requirements, or if we are unable to successfully identify assets or consummate Royalty-Related Transactions with respect to such assets, we may deploy less capital or not deploy any capital at all. Failure to deploy sufficient capital could adversely affect the growth of our business through additional Royalty-Related Transactions, which would adversely affect our business, financial condition and results of operations. In addition, historical capital deployment amounts, rates and targets for existing partners may not be indicative of our actual plan or strategy in the future, and we may shift our deployment strategy, including targeted verticals within the biopharmaceutical industry, at any time. If we deviate from historical deployment amounts, rates, or targets, or shift our deployment strategy, there can be no assurance that we will be able to achieve historical or planned returns, which may harm our business and growth. Although our aggregate returns historically in the biopharmaceutical sector have been in the mid-teens on a gross basis, we have invested in a limited number of assets outside our core focus, which in the aggregate have generated negative returns. These non-core assets were all either medical technology, diagnostics or equity investments. Nevertheless, if we are unable to identify and acquire assets in our core focus, we may encounter difficulty in replicating our success in our core focus with regard to assets outside our core focus in biopharmaceuticals.
Our results of operations have in the past varied from quarter to quarter and may not be indicative of our future results or long-term prospects, including due to our planned change in accounting method following this offering.
Our results of operations are subject to fluctuation and have historically varied from quarter to quarter. We expect our quarterly results to continue to fluctuate due to a number of factors, including sales of products from which we generate royalties, our ability to identify and acquire or investment in new assets, changes in the effective interest rate on our portfolio assets under GAAP and the recognition of provisions and resulting impairment of our royalty assets. In addition, prior results of operations may include assets that we no longer own or from which we are no longer entitled to receive royalties.
Following this offering, we will begin preparing our consolidated financial statements and reporting as an operating company, and expect to measure the majority of our financial assets using the amortized
 
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cost accounting methodology. Our combined financial statements included elsewhere in this prospectus have been prepared on an investment company basis. This change in accounting method may impair comparability of our financial results following this offering versus our historical results for periods prior to this offering. In particular, our historical method of accounting may result in quarterly unrealized gains or losses based on changes to our projected cash flows and related assumptions for our royalty assets, whereas our new method of accounting following this offering results in provisions to be recognized upon changes in commercial performance of a product and the projected duration. Therefore, our financial results in any one quarter or any other period may not be indicative of our future financial performance.
Following this offering, we will begin preparing our consolidated financial statements and reporting as an operating company. We are currently evaluating each of our financial assets to determine the measurement basis and expect that we will carry the majority of them using amortized cost methodology. As such, we will make assumptions regarding the projected duration for terms that are not contractually fixed. A shortened royalty term could result in a reduction in the effective interest rate, a decline in income from royalties, significant reductions in royalty payments compared to expectations, or a permanent impairment.
Following this offering, in accordance with GAAP, we expect we will classify most royalty assets and notes that we acquire as financial assets that are measured with an effective interest rate using the amortized cost method described in ASC 835-30. The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount, net of any purchased receivables. A critical component of such forecast is our assumptions regarding duration of the royalty.
The projected duration is important for purposes of accurately measuring interest income over the life of a royalty. In making assumptions around the projected duration for terms that are not contractually fixed, we consider the strength of existing patent protection, expected entry of generics, geographical exclusivity periods and potential patent term extensions tied to the underlying product.
The duration of a royalty usually varies on a country-by-country basis and can be based on a number of factors, such as patent expiration dates, regulatory exclusivity, years from first commercial sale of the patent-protected product, the entry of competing generic or biosimilar products, or other terms set out in the contracts governing the royalty. It is common for royalty durations to expire earlier or later than anticipated due to unforeseen positive or negative developments over time, including with respect to the granting of patents and patent term extensions, the invalidation of patents, litigation between the party controlling the patents and third party challengers of the patents, the ability of third parties to design around or circumvent valid patents, the granting of regulatory exclusivity periods or extensions, timing for the arrival of generic or biosimilar competitor products, changes to legal or regulatory regimes affecting intellectual property rights or the regulation of pharmaceutical products, product life cycles, and industry consolidations.
If an unexpected shortening of a royalty term were to occur, it could result in a reduction in the effective interest rate, a decline in income from royalties, a significant reduction in royalty payments compared to expectations, or a permanent impairment.
In addition, this change in accounting method will affect the comparability of our financial results following this offering versus our historical results for periods prior to this offering, which in turn may also affect the comparability of our financial statements to those of our competitors.
Our reliance on a limited number of products may have an adverse effect on our financial condition and results of operation.
While our current asset portfolio includes royalties relating to 35 marketed therapies, the top 10 products accounted for 86% of Royalty Receipts for the three months ended March 31, 2021 and 81% of our Royalty Receipts in the year ended December 31, 2020. In addition, our asset portfolio may not be fully diversified by geographic region or other criteria. Any significant deterioration in the cash flows
 
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from the top products in our asset portfolio could have an adverse effect on our business, financial condition and results of operations.
We face competition in acquiring assets and locating suitable assets to acquire or invest in, and as such may not be able to use the net proceeds from this offering or future offerings toward Royalty-Related Transactions.
We intend to use the net proceeds to us from this offering and the Debt Financing to pursue additional Royalty-Related Transactions and for general corporate purposes. However, there are a limited number of suitable and attractive opportunities to acquire high-quality royalties available in the market, and as such, we cannot assure you that the net proceeds from this or other future offerings will be used for Royalty-Related Transactions within a certain period of time or at all. Competition to acquire such royalties is intense and may increase. We compete with other potential acquirers for these opportunities, including companies that market the products on which royalties are paid, financial institutions and others. We have faced in the past, and may continue to face from time to time, competition from companies entering our market or targeting the middle-market royalty space. Any of these competitors may be able to access lower cost capital, may be larger than us with easier access to capital, may have better name recognition, may have relationships that provide them access to opportunities before us, or may be willing to acquire royalties for lower projected returns than we are. We also compete with other forms of financing available to biopharmaceutical companies, such as equity financing and licensing opportunities. If biopharmaceutical companies opt for financing through such other means, we may not be able to acquire additional assets or grow our business. If we fail to compete successfully against competitors or competing forms of financing, our business, results of operations, financial condition and growth could be harmed.
Until we use the net proceeds to us from this offering, we plan to invest them in short-term investments, and these investments may not yield a favorable rate of return. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results. You will not have the opportunity to influence our decisions on how we use our net proceeds from this offering. See “Use of Proceeds” for further information.
Our business relies on third parties to develop, manufacture and market products from which we expect to generate royalties, as well as to comply with applicable laws and regulations, and carry out contractual covenants and terms, the failure of which by any of these third parties may adversely affect our business, financial condition or results of operations.
Our income generation and the growth of our overall business depend on our partners, marketers and other third parties to carry out contractual covenants and terms of their agreements with us and with other parties. If a counterparty to any of our agreements does not carry out its contractual covenants or enters into an agreement with us in bad faith, we may not derive the intended benefits from such an agreement or transaction, including the generation of Royalty Receipts. We may also be negatively affected if a counterparty defaults on or breaches an agreement with a third party and becomes subject to a contractual dispute, litigation or other proceedings. We also have limited recourse if marketers or other third parties do not comply with their contractual obligations to allocate sufficient resources to the products underlying our Royalty-Related Transactions. We may not be successful if we choose to enforce any contractual obligations through legal disputes, and we would incur legal expenses and divert management’s attention away from managing and operating our business. Our limited control over counterparties could result in reduced royalties and harm our business, financial condition and results of operations. In addition, if any of our counterparties declare bankruptcy or otherwise cease operations or wind up their business, we may be left with little or no recourse to recover any capital deployed in connection with that acquisition or transaction.
Marketers of products underlying our Royalty-Related Transactions are outside of our control and may have interests that are different from our interests, and there can be no assurance that any such marketer or person with whom the marketer has a working relationship has adequate resources or motivation to continue to produce, market or sell the products underlying our Royalty-Related Transactions.
In the case of our royalty receivables, our cash flow consists primarily of payments supported by royalties paid by marketers, as well as revenue interests from SYNTHETIC ROYALTY™ financings.
 
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These marketers may have interests that are different from our interests. For example, these marketers may be motivated to maximize income by allocating resources to other products and, in the future, may decide to focus less attention on the products underlying our Royalty-Related Transactions or by allocating resources to develop products that do not generate royalties to us. There can be no assurance that any marketer or person with whom the marketer has a working relationship has adequate resources, access to capital sources and motivation to continue to produce, market and sell the products underlying our Royalty-Related Transactions. Aside from any limited audit rights relating to the activities of the marketers that we may have in certain circumstances pursuant to the terms of our arrangements with the licensor, we have limited oversight rights with respect to the marketers’ operations and we have limited rights allowing us to direct their operations or strategy and our agreements contain limited performance standards for their operations. Similarly, partners with which we enter into SYNTHETIC ROYALTY™ financings may have interests that are different from our interests and may be motivated to allocate resources to other products that do not generate royalties to us. The market performance of the products underlying our Royalty-Related Transactions may therefore be diminished by any number of factors relating to the marketers, which are outside of our control. Our limited information of and control over marketers could result in reduced royalties and harm our business, financial condition and results of operations.
In addition, the marketers of biopharmaceutical products are, generally, entirely responsible for the ongoing regulatory approval, commercialization, manufacturing and marketing of products. Generally, the holders of royalties on products have granted exclusive regulatory approval, commercialization, manufacturing and marketing rights to the marketers of such products. The marketers have full control over those efforts and sole discretion to determine the extent and priority of the resources they will commit to their program for a product. Accordingly, the successful commercialization of a product depends on the marketer’s efforts and is beyond our control. If a marketer does not devote adequate resources to the ongoing regulatory approval, commercialization and manufacture of a product, or if a marketer engages in illegal or otherwise unauthorized practices, the product’s sales may not generate sufficient royalties, or the product’s sales may be suspended, and consequently, could adversely affect our business, financial condition and results of operations.
The internal computer systems and cloud-based computing services used by our counterparties may fail or suffer security breaches, which could result in a significant disruption of their ability to operate their business effectively, adversely affect the cash flow generated by the related biopharmaceutical products, and adversely affect our business and operating results.
The internal computer systems and cloud-based computing services used by our counterparties and those of their current and any future collaborators and other contractors or consultants are vulnerable to damage or interruption from computer viruses, data corruption, cyber-based attacks, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in a counterparty’s operations, it could result in a disruption of their development and commercialization programs and business operations, whether due to a loss of trade secrets or other proprietary information or other similar disruptions. To the extent that any disruption or security breach were to result in a loss of, or damage to, a partner’s data or applications, or inappropriate disclosure of confidential or proprietary information, our partners’ operations may be harmed and the development and commercialization of their products, development-stage product candidates and technologies could be delayed. Such an event may reduce the amount of cash flow generated by the related biopharmaceutical products and therefore have an adverse effect on our business, financial condition and results of operations.
License agreements relating to products may be unilaterally terminated in some instances, or disputes may arise that may affect our income.
License agreements relating to the products underlying our Royalty-Related Transactions may be terminated, which may adversely affect sales of such products and therefore the payments we receive. For example, under certain license agreements, marketers retain the right to unilaterally terminate the agreements with the licensors. When the last patent covering a product expires or is otherwise invalidated in a country, a marketer may be economically motivated to terminate its license agreement, either in
 
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whole or with respect to such country, in order to terminate its payment and other obligations. In the event of such a termination, a licensor may no longer receive all of the payments it expected to receive from the licensee and may also be unable to find another company to continue developing and commercializing the product on the same or similar terms as those under the license agreement that has been terminated.
In addition, license agreements may fail to provide significant protection for the licensor in case of the licensee’s failure to perform or in the event of disputes. License agreements that relate to the products underlying our Royalty-Related Transactions are complex, and certain provisions in such agreements may be ambiguous. The resolution of any contract interpretation disagreement that may arise could narrow what the licensor believes to be the scope of its rights to the relevant intellectual property or technology, or decrease the licensee’s financial or other obligations under the relevant agreement, any of which could in turn impact the value of our royalties. If a marketer were to default on its obligations under a license agreement, the licensor’s remedy may be limited either to terminating certain licenses related to certain countries or to generally terminate the license agreement with respect to such country. In such cases, we may not have the right to seek to enforce the rights of the licensor and we may be required to rely on the resources and willingness of the licensor to enforce its rights against the licensee.
In any of these situations, if the expected payments under the license agreements do not materialize, this could result in a significant loss to us or otherwise adversely affect our business, financial condition and results of operations.
Our debt financing business exposes us to credit risk and may subject us to restrictions for tax purposes.
We have utilized a variety of structured financing solutions in the form of loans or issuances of debt to partners. The business of lending is inherently risky, including risks that the principal of or interest on any loan will not be repaid in a timely manner or at all or that the value of any collateral supporting the loan will be insufficient to cover our outstanding exposure. Our risk management practices, including our diligence, may not adequately reduce credit risk, and we may have limited to no ability to ensure liquidity or creditworthiness of our partners. We may also have limited to no visibility into a partner’s level of liquidity or credit beyond information in the public domain. Certain of our partners have in the past, and may from time to time in the future, face disputes relating to, or restrictions on, cash amounts owed to them under commercial arrangements with other parties, over which we have no control and which could potentially result in our partners’ inability to service outstanding debt. A failure to measure and limit the credit risk associated with our debt portfolio effectively could lead to unexpected losses and have a material adverse effect on our business, financial condition and results of operations.
In addition, if one of our partners were to go bankrupt, depending on the facts and circumstances and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct, including inappropriate managerial control over the debtor, or where the senior loan is re-characterized as an equity investment. Furthermore, if one of our partners files a bankruptcy petition or an involuntary bankruptcy petition is filed against it and such petition is not dismissed, the collection of amounts owed to us may be delayed, and, in some cases, the claims of creditors in such proceeding may have priority over our claims with the result that the amount that we would otherwise receive in connection with such partner’s liquidation may be reduced.
Also, certain types of lending activity at the Holdings LP (or a subsidiary level) may create adverse U.S. federal income tax results for certain Continuing Investors. Holdings LP has agreed to limit, avoid or otherwise restructure such activities for a three-year period in order to preserve the current U.S. federal income tax treatment of these indirect owners. This decision could limit financing opportunities for Holdings LP and its subsidiaries, which could adversely affect our business, financial condition and results of operations.
 
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The insolvency of a marketer could adversely affect our receipt of cash flows on the related royalties that we hold.
If a marketer were to become insolvent and seek to reorganize under Chapter 11 of Title 11 of the U.S. Code, as amended (the “Bankruptcy Code”), or liquidate under Chapter 7 of the Bankruptcy Code (or each of their foreign equivalents), such event could delay or impede the payment of the amounts due under a license agreement, pending a resolution of the insolvency proceeding. Any unpaid royalty payments due for the period prior to the filing of the bankruptcy proceeding would be unsecured claims against the marketer, which might not be paid in full or at all. While royalty payments due for periods after the filing may qualify as administrative expenses entitled to a higher priority, the actual payment of such post-filing royalty payments could be delayed for a substantial period of time and might not be in the full amount due under the license agreement. The licensor would be prevented by the automatic stay from taking any action to enforce its rights without the permission of the bankruptcy court. In addition, the marketer could elect to reject the license agreement, which would require the licensor to undertake a new effort to market the applicable product with another distributor. Such proceedings could adversely affect the ability of a payor to make payments with respect to a royalty, and could consequently adversely affect our business, financial condition and results of operations.
Sales of the products underlying our Royalty-Related Transactions are subject to uncertainty related to healthcare reimbursement policies, managed care considerations and pricing pressures.
In both the U.S. and non-U.S. markets, sales of biopharmaceutical products, and the success of such products, depends in part on the availability and extent of coverage and reimbursement from third-party payors, including government healthcare programs and private insurance plans.
In the United States, pharmaceutical product pricing is subject to enhanced government regulation, public scrutiny and calls for reforms. Some states have implemented, and other states are considering, pharmaceutical price controls or patient access constraints under their Medicaid program. There have also been recent state legislative efforts that have generally focused on increasing transparency around drug costs or limiting drug prices. In addition, the growth of large managed care organizations and prescription benefit managers, as well as the prevalence of generic substitution, has impacted price increases for prescription drugs. Continued intense public scrutiny of the price of drugs, together with government and payor dynamics, may limit the ability of producers and marketers to set or adjust the price of products based on their value. There can be no assurance that new or proposed products will be considered cost-effective or that adequate third-party reimbursement will be available to enable the producer or marketer of such product to maintain price levels sufficient to realize an appropriate return. Outside the United States, numerous major markets, including the EU, Japan and China, have pervasive government involvement in funding healthcare, and, in that regard, fix the pricing and reimbursement of pharmaceutical products. Consequently, in those markets, the products underlying our Royalty-Related Transactions are subject to government decision-making and budgetary actions.
These pricing pressures may have an adverse effect on certain of our current royalties and the attractiveness of future acquisitions of royalties.
The products underlying our Royalty-Related Transactions are subject to uncertainty related to the regulation of the healthcare industry.
The U.S. healthcare industry is highly regulated and subject to frequent and substantial changes. For example, the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the “ACA”) was enacted by Congress in March 2010 and established a major expansion of healthcare coverage, financed in part by a number of new rebates, discounts, and taxes that had a significant effect on the expenses and profitability on the companies that manufacture the products underlying our Royalty-Related Transactions. These companies and their products face uncertainty due to federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the ACA.
 
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Other U.S. federal or state legislative or regulatory action and/or policy efforts could adversely affect the healthcare industry, including, among others, general budget control actions, changes in patent laws, the importation of prescription drugs from outside the United States at prices that are regulated by governments of various foreign countries, revisions to reimbursement of biopharmaceutical products under government programs, restrictions on U.S. direct-to-consumer advertising or limitations on interactions with healthcare professionals. No assurances can be provided that these laws and regulations will not have an adverse effect on our business, financial condition and results of operations.
In addition, many of the products in our portfolio benefit from regulatory exclusivity. If, in an effort to regulate pricing, regulatory exclusivity is not maintained, our business, financial condition and results of operations may be adversely impacted.
The biopharmaceutical industry may be negatively affected by federal government deficit reduction policies, which could reduce the potential returns on our Royalty-Related Transactions.
In an effort to contain the U.S. federal deficit, the pharmaceutical industry could be considered a potential source of savings via legislative proposals. Government action to reduce federal spending on entitlement programs, including Medicare, Medicaid or other publicly funded or subsidized health programs, or to lower drug spending, may affect payment for the products underlying our Royalty-Related Transactions. These and any other cost controls and/or any significant additional taxes or fees that may be imposed on the biopharmaceutical industry as part of deficit reduction efforts could reduce cash flows from our Royalty-Related Transactions and therefore have an adverse effect on our business, financial condition and results of operations.
Sales of products underlying our Royalty-Related Transactions are subject to regulatory approvals and actions in the United States and foreign jurisdictions that could harm our business.
The procedures to approve biopharmaceutical products for commercialization vary among countries and can involve additional testing and time. Such procedures may include on-site inspections by regulatory authorities at clinical trial sites or manufacturing facilities, which inspections may be delayed by travel restrictions imposed in response to the COVID-19 pandemic or other pandemics. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval and many include additional risks, such as pricing approval.
There can be no assurance that any of these regulatory approvals will be granted or not be revoked or restricted in a manner that would have an adverse effect on the sales of such products and on the ability of marketers to make payments with respect to such royalties to us.
Product reliability, safety and effectiveness concerns can have significant negative impacts on sales of products underlying our Royalty-Related Transactions.
Concerns about product safety, whether raised by manufacturers, litigants, regulators or consumer advocates, and whether or not based on scientific evidence, can result in safety alerts, product recalls, governmental investigations, regulatory action on the part of the FDA (or its counterpart in other countries), private claims and lawsuits and declining sales. These circumstances can also result in damage to the manufacturer’s brand image and consumer trust in that company’s products. Product recalls could prompt government investigations and inspections, the shutdown of manufacturing facilities, continued product shortages and related sales declines and reputational damage to the manufacturer, all of which could harm royalty generation and in turn adversely affect our business, financial condition, or results of operations.
The manufacture and distribution of a biopharmaceutical product may be interrupted by regulatory agencies or supplier deficiencies.
The manufacture of products underlying our Royalty-Related Transactions is complex and highly regulated. In particular, biopharmaceutical products are manufactured in specialized facilities that require
 
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the approval of, and ongoing regulation by, the FDA in the United States and, if manufactured outside of the United States, both the FDA and non-U.S. regulatory agencies, such as the MHRA and the EMA. With respect to a product, to the extent that operational standards set by such agencies are not adhered to, manufacturing facilities may be closed or production interrupted until such time as any deficiencies noted by such agencies are remedied. Any such closure or interruption may interrupt, for an indefinite period of time, the manufacture and distribution of a product and therefore the cash flows from the related biopharmaceutical asset may be significantly less than expected.
In addition, manufacturers of a product may rely on third parties for selected aspects of product development, such as packaging or to supply bulk raw material used in the manufacture of such product. Licensees generally rely on a small number of key, highly specialized suppliers, manufacturers and packagers. Any interruptions, however minimal, in the operation of these manufacturing and packaging facilities could have an adverse effect on production and product sales and therefore adversely affect our business, financial condition and results of operations.
Product liability claims may diminish the returns on biopharmaceutical products.
The developer, manufacturer or marketer of a product could become subject to product liability claims. A product liability claim, regardless of its merits, could adversely affect the sales of the product and the amount of any related royalty payments, and consequently, could materially adversely affect the ability of a payor to make payments with respect to a royalty.
Although we believe that we will not bear responsibility in the event of a product liability claim against the developer, manufacturer, marketer or other seller of the product underlying our Royalty-Related Transactions, such claims could materially adversely affect our business, financial condition and results of operations due to the lower than expected cash flows from the royalty or funding arrangement.
We are typically not involved in maintaining, enforcing and defending patent rights on products underlying our Royalty-Related Transactions.
Our right to receive royalties generally depends on the existence of valid and enforceable claims of registered and/or issued patents in the United States and elsewhere in the world. The products on which we receive payments are dependent on patent protection and on the fact that the manufacturing, marketing and selling of such products do not infringe, misappropriate or otherwise violate intellectual property rights of third parties. Typically, we have limited ability to control the prosecution, maintenance, enforcement or defense of patent rights, but must rely on the willingness and ability of our partners or their marketers to do so. There can be no assurance that these third parties will vigorously prosecute, maintain, enforce or defend such rights. Even if such third parties seek to prosecute, maintain, enforce or defend such rights, they may not be successful.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation. Furthermore, changes in patent laws or interpretation of patent laws in the United States and in other jurisdictions could increase the uncertainties surrounding the successful prosecution of patent applications and the successful enforcement or defense of issued patents by our partners, all of which could diminish the value of patent protection relating to the biopharmaceutical assets. As a result, the issuance, scope, validity, enforceability and commercial value of the patent rights of our partners and their marketers are uncertain. In addition, such third parties’ pending and future patent applications may not result in patents being issued, which protect their products, development-stage product candidates and technologies or which effectively prevent others from commercializing competitive products, development-stage product candidates and technologies. Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance.
Even if the patent applications our partners and their marketers license or own do issue as patents, they may not issue in a form that will provide them with any meaningful protection, prevent competitors or other third parties from competing with them, or otherwise provide them with any competitive advantage. Competitors or other third parties may be able to circumvent patents of our partners and their marketers by developing similar or alternative products in a non-infringing manner. The issuance
 
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of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit the ability of our partners and their marketers from preventing others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of their products, development-stage product candidates and technologies. Typically, we do not conduct our own freedom to operate analysis and rely on marketers or developers for such analysis.
Any loss or reduction in the scope or duration of patent protection for any product underlying our Royalty-Related Transactions, or any failure to successfully prosecute, maintain, enforce or defend any patents that protect any such product may result in a decrease in the sales of such product and any associated royalties payable to us. Any such event would have an adverse effect on the ability of the payor to make payments of royalties to us or may otherwise reduce the value of our royalty interest, and could consequently materially adversely affect our business, financial condition and results of operations. In cases where our contractual arrangements with our partner permit us to do so, we could participate in patent suits brought by third parties but this could result in substantial litigation costs, divert management’s attention from our core business and there can be no assurance that such suits would be successful.
The existence of third-party patents, including claims of infringement by products underlying our Royalty-Related Transactions, may result in additional costs for the marketer and reduce or eliminate the amount of royalties paid to us.
The commercial success of a product depends, in part, on avoiding infringement, misappropriation or other violations of the intellectual property rights and proprietary technologies of others. Third-party issued patents or patent applications claiming subject matter necessary to manufacture and market a product could exist or issue in the future. Such third-party patents or patent applications may include claims directed to the mechanism of action of a product. There can be no assurance that a license would be available to marketers for such subject matter if such infringement were to exist or, if offered, would be offered on reasonable and/or commercially feasible terms. Without such a license, it may be possible for third parties to assert infringement or other intellectual property claims against the marketer of such product based on such patents or other intellectual property rights.
Even if a marketer of a product underlying our Royalty-Related Transactions was able to obtain a license, it could be non-exclusive, thereby giving its competitors and other third parties access to the same technologies. In addition, if the marketer is required to obtain a license from a third party, the marketer may, in some instances, have the right to offset the licensing and royalty payments to such third party against royalties that would be owed to our partner, which may ultimately reduce the value of our royalty interest. An adverse outcome in infringement or other intellectual property-related proceedings could subject a marketer to injunctive relief or significant liabilities to third parties, require disputed rights to be licensed from third parties or require the marketer to cease or modify its manufacturing, marketing and distribution of any affected product, any of which could reduce the amount of cash flow generated by the affected products and any associated royalties payable to us, and therefore have an adverse effect on our business, financial condition and results of operations.
Disclosure of trade secrets of marketers of products could negatively affect the competitive position of the products underlying our biopharmaceutical assets.
The marketers of the products underlying our Royalty-Related Transactions depend, in part, on trade secrets, know-how and technology, which are not protected by patents, to maintain the products’ competitive position. This information is typically protected through confidentiality agreements with parties that have access to such information, such as collaborative partners, licensors, employees and consultants. Any of these parties could breach the agreements and disclose the confidential information or competitors might independently develop or learn of the information in some other way, which could harm the competitive position of the products and therefore reduce the amount of cash flow generated by our royalty interest.
 
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The ongoing coronavirus (COVID-19) pandemic, or the future outbreak of any other highly infectious or contagious diseases or global public health crisis, could materially and adversely affect our results of business, financial conditions and operations. Further, the spread of COVID-19 and government actions in response thereto have caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.
The outbreak of COVID-19 has severely affected global economic activity and caused significant volatility and negative pressure in financial markets. The impact of the pandemic has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Many experts predict that the pandemic will lead to a period of global economic slowdown or a global recession. COVID-19 or another pandemic could have material and adverse effects on us due to, among other factors:

a general decline in business activity;

the destabilization of the markets could negatively impact our partners in the biopharmaceutical industry and the sales of products underlying our Royalty-Related Transactions;

difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our or our partners’ access to capital necessary to fund business operations or address maturing liabilities on a timely basis;

the potential negative impact on the health of our Manager’s highly qualified personnel, especially if a significant number of them are impacted;

a deterioration in our ability to ensure business continuity during a disruption;

interruptions, shortages, delivery delays and potential discontinuation of supply to our partners, which could (i) delay the clinical trials of the development-stage product candidates underlying our assets and result in a loss of our market share for products or development-stage product candidates underlying our Royalty-Related Transactions, if approved, and (ii) hinder our partners’ ability to timely distribute products underlying our Royalty-Related Transactions and satisfy customer demand;

travel restrictions, shelter-in-place policies or restrictions and other disruptions, which could cause or continue to cause delays and other direct impacts at our partners’ manufacturing sites, which could impact the ability of our partners to manufacture development-stage product candidates underlying our biopharmaceutical assets and products underlying our Royalty-Related Transactions; and

potential interruptions to our partners’ clinical trial programs of development-stage product candidates underlying our biopharmaceutical assets, including: (i) the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns; (ii) changes in hospital or research institution policies or government regulations, which could delay or adversely impact our partners’ ability to conduct their clinical trials; and (iii) pauses to or delays of trial procedures (particularly any procedures that may be deemed non-essential), patient dosing, shipment of our partners’ development-stage product candidates, distribution of clinical trial materials, study monitoring, site inspections and data analysis due to reasons related to the pandemic, each of which could cause or continue to cause a disruption or delay to the development or the approval of development-stage product candidates underlying our biopharmaceutical assets.
The COVID-19 pandemic presents material uncertainty that could adversely affect our business, financial condition, results of operations and cash flows.
We are subject to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.
Our and our partners’ operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act 2010 (“Bribery Act”), and
 
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other anti-corruption laws that apply in countries where we do business. The FCPA, the Bribery Act and these other laws generally prohibit us and the Manager’s employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. We, our partners and other counterparties operate in a number of jurisdictions that pose a high risk of potential FCPA or Bribery Act violations, and we participate in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject us to liability under the FCPA, the Bribery Act or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the U.S. and the U.K., and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the “Trade Control laws”.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA, the Bribery Act or other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA, the Bribery Act and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition and results of operations. Likewise, any investigation of any potential violations of the FCPA, the Bribery Act, other anti-corruption laws or Trade Control laws by the U.S., the U.K. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant criminal, civil and administrative sanctions, including monetary penalties, damages, fines, disgorgement, individual imprisonment and exclusion from participation in government-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm, and we may be required to curtail or restructure our operations, any of which could adversely affect our ability to operate our business and our results of operations.
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. 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 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.
Legal claims and proceedings could adversely impact our business.
We may be subject to a wide variety of legal claims and proceedings. Regardless of their merit, these claims can require significant time and expense to investigate and defend. Since litigation is inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such claims or proceedings, or that our assessment of the materiality of these matters, including any
 
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reserves taken in connection therewith, will be consistent with the ultimate outcome of such matters. The resolution of, or increase in the reserves taken in connection with, one or more of these matters could have an adverse effect on our business, financial condition and results of operations.
In addition, our counterparties or their affiliates may be subject to legal claims, proceedings, investigations and other disputes with third parties not related to us. While we may not be directly involved in any such proceedings, investigations, or disputes, any adverse outcomes suffered by our counterparties or their affiliates may harm their ability to make payments on our royalty or other funding arrangements with them. Further, any such outcomes, or even the perception of wrongdoing, could harm our reputation as a party doing business with such counterparty or affiliate. Any of these outcomes could harm our business, financial condition and results of operations.
Our business is subject to a variety of U.S. and foreign laws, all of which are subject to changes that could subject us to claims or otherwise harm our business. Any change in existing regulations or their interpretation, or the regulatory climate applicable to our business or changes in tax rules or regulations or interpretation thereof related to our business, could adversely affect our ability to operate our business as well as our financial condition and results of operations.
We are subject to general business regulations and laws, as well as regulations and laws specifically governing royalties. The laws and regulations to which we are subject vary from one jurisdiction to another, and future legislative and regulatory action, court decisions or other governmental action may have a material impact on our operations and financial results. Changes in existing regulations or their interpretation, or the regulatory climate applicable to our business, the partners with whom we engage in Royalty-Related Transactions, or the products underlying our investments, could adversely affect our ability to operate our business as well as our financial condition and results of operations. Similarly, changes in tax rules or regulations or their interpretation could adversely affect our financial condition or results of operations.
Risks Relating to Our Organization and Structure
We are a holding company with no operations and will rely on Holdings LP and its subsidiaries to provide us with the funds necessary to meet our financial obligations and to pay dividends.
We are a holding company with no material direct operations. Our principal asset is the controlling equity interest in Holdings LP. As a result, we will depend on distributions from Holdings LP to generate the funds necessary to meet our financial obligations and to pay dividends on our Class A common stock. Our subsidiaries are legally distinct from us and may be prohibited or restricted from distributing or otherwise making funds available to us under certain conditions. If the cash we receive from Holdings LP and its subsidiaries pursuant to distributions is insufficient for us to fund our obligations, we may be required to raise cash through the incurrence of debt, the issuance of equity or the sale of assets to fund the payment of the dividends. However, there is no assurance that we would be able to raise cash by these means. If the ability of any of Holdings LP or its subsidiaries to make distributions or payments is materially restricted by regulatory or legal requirements, bankruptcy or insolvency, or our need to maintain our financial strength ratings, or is limited due to operating results or other factors, it could materially adversely affect our ability to pay our operating costs and other corporate expenses and we may be unable to, or our board may exercise its discretion not to, pay dividends.
We anticipate that Holdings LP will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to Holdings LP partners, including us. Accordingly, we will be required to pay income taxes on our allocable share of any net taxable income of Holdings LP. Legislation that is effective for taxable years beginning after December 31, 2017, may impute liability for adjustments to a partnership’s tax return to the partnership itself in certain circumstances, absent an election to the contrary. Holdings LP may be subject to material liabilities pursuant to this legislation and related guidance if, for example, its calculations of taxable income are incorrect. In addition, the income taxes on our allocable share of Holdings LP’s net taxable income will increase over time as
 
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Holdings LP Class B Units are exchanged for our Class A common stock. Such increase in our tax expenses may have a material adverse effect on our business, results of operations and financial condition.
We could bear U.S. withholding taxes if Holdings LP or its subsidiaries were considered to be engaged in a U.S. trade or business.
The Legacy HCR Partnerships historically took the position their activities were investment activities that did not give rise to income that was effectively connected to the conduct of a U.S. trade or business for U.S. federal income tax purposes, and on the basis of that position did not withhold on allocations or distributions to, or transfers of interests by, their non-U.S. partners. If the U.S. Internal Revenue Service (“IRS”) were to successfully challenge that position, Holdings LP or its subsidiaries could be subject to liability for the failure of the Legacy HCR Partnerships to withhold in respect of their non-U.S. partners. In addition, after the Reorganization Transactions, if non-U.S. persons were to acquire and hold or dispose of interests in Holdings LP (including pursuant to exchanges), and Holdings LP does not withhold applicable withholding taxes, the IRS could challenge this position.
We have no employees and will be entirely dependent upon the Manager for all the services we require.
Because we are “externally managed”, we will not employ our own personnel, but will instead depend upon the Manager, its executive officers and its employees for virtually all of the services we require. The Manager selects and manages the acquisition of royalties and similar payment streams that meet our investment criteria and provides all of our other administrative services. Accordingly, our success is largely dependent upon the expertise and services of the executive officers and other personnel provided to us through the Manager. The Management Agreements have an initial term of ten years, after which they can be renewed for an additional term of three years, unless either we or the Manager provide notice of non-renewal 180 days prior to the expiration of the initial term or renewal term. The Manager may not be removed during the initial or any renewal term without cause. While our agreements with the Manager require its executives to devote substantially all of their time to managing us and any legacy vehicles related to HCR or Healthcare Royalty, Inc. unless otherwise approved by the Company’s board of directors, such resources may prove to be inadequate to meet our needs.
Our Manager will rely on a services agreement with a third party.
Our Manager is not yet established, and in connection with this offering, it will enter into an agreement for services with one of the owners of the Legacy Manager. Pursuant to such agreement, the counterparty will provide the Manager with services, including information technology, benefits, payroll, office space and accounts payable services, for a specified period of time. We will also have limited recourse if the counterparty does not comply with its contractual obligations under the services agreement. Further, at the end of the term of the services agreement, the Manager will need to perform the functions covered by such agreement or hire third parties to perform these functions on its behalf, and these costs may differ significantly from the comparable expenses the Manager has incurred in the past. We cannot assure you how long we will be reliant upon the services of the counterparty. Failure of the counterparty to carry out its contractual obligations may adversely affect us, the Manager, and our business and results of operations.
The success of our business depends upon key employees and members of the Manager’s management team.
We depend on the expertise, skill and network of business contacts of key employees and members of the Manager’s management team who evaluate, negotiate, structure, execute, monitor and service our assets. Our future success depends to a significant extent on the continued service and coordination of such employees and members of the Manager’s management team, particularly Mr. Futch. The departure of any of these individuals or competing demands on their time in the future could affect our ability to achieve our business objectives, which could harm our business, financial condition or results of operations.
 
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Key employees and members of the Manager’s management team have relationships with participants in the biopharmaceutical industry in key biopharmaceutical centers globally, which we rely upon to source potential opportunities. If these individuals fail to maintain such relationships, or to develop new relationships with other sources, or if we or any of these individuals fails to maintain sufficient presence or contacts in any key geographic region, we will not be able to grow our asset portfolio. In addition, we can offer no assurance that these relationships, even if maintained, will generate opportunities for us in the future, which could harm our business and results of operations.
There can be no assurance that the policies and procedures we have established to mitigate conflicts of interest will be effective in doing so.
Pursuant to the Management Agreements, the Manager cannot manage another entity that invests in or acquires royalties other than any legacy vehicle related to HCR or Healthcare Royalty, Inc. Every named executive of our Manager will be subject to non-compete agreements during and following termination of their employment with the Manager for any reason. In addition, executives of the Manager must devote substantially all of their business time to managing us and any legacy vehicle related to HCR or Healthcare Royalty, Inc., unless otherwise approved by the Board. Despite this, the ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreements, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, the structure of our Manager’s compensation arrangements may have unintended consequences for us. Holdings LP has agreed to pay our Manager the Operating and Personnel Payment, a portion of which is based on our Royalty Receipts. Consequently, the Manager may be incentivized to have us make investments regardless of our expected gain on such investments, which may not align with our or our stockholders’ long-term interests.
The equity performance awards payable to an affiliate of the Manager may create incentives that are not fully aligned with the interests of our stockholders.
An affiliate of the Manager is entitled to equity performance awards based on our performance as measured by our Net Economic Profit, as discussed in “The Manager — Equity Performance Awards”. The right to equity performance awards may create an incentive for the Manager to make riskier or more speculative asset acquisitions or investments than would be the case absent such equity performance awards. In addition, the Manager may cause us to incur more debt or otherwise use more leverage in connection with asset acquisitions or financings, as generally the use of leverage can increase the rate of return on an investment and therefore our profits. This equity performance awards structure may encourage the Manager to cause us to borrow money to finance additional asset acquisitions or investments or to maintain leverage which poses higher risks for our business when it would otherwise not be appropriate to use such leverage. Under certain circumstances, the use of borrowed money may increase the likelihood of default, which would disfavor our stockholders. In addition, there is no correlation between our profits and the obligation of our board of directors to pay dividends to stockholders. Consequently, you may receive limited or no dividends while an affiliate of the Manager remains entitled to equity performance awards based on our Net Economic Profit. In addition, even though Equity Performance Awards are payable on a portfolio-by-portfolio basis (with portfolios comprised of investments made during sequential two-year periods), Equity Performance Awards may nevertheless be payable to affiliates of the Manager when our overall portfolio of investments is not performing as well as the individual portfolios that are used as the basis for measuring the Equity Performance Awards. See “The Manager — Equity Performance Awards” for further information.
The Manager may be the subject of a change of control resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations.
There could be a change of control of the Manager and, in such a case, the new controlling party may have a different philosophy, employ advisory professionals who are less experienced, be unsuccessful in identifying asset acquisition or investment opportunities or have a track record that is not as successful as that of the Manager prior to such a change of control. If the foregoing were to occur, we could experience difficulty in making new asset acquisitions or investments, and the value of our existing assets, our business, results of operations and financial condition could materially suffer.
 
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The Manager’s liability is limited under the Management Agreements, and we have agreed to indemnify the Manager against certain liabilities. As a result, we could experience unfavorable operating results or incur losses for which the Manager would not be liable.
Pursuant to the Management Agreements, the Manager will not assume any responsibility other than to render the services called for thereunder. Under the terms of the Management Agreements, the Manager and its affiliates and their respective officers, directors, stockholders, members, employees, agents and partners, and any other person who is entitled to indemnification (each, an “Indemnitee”) will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the Management Agreement, except those resulting from acts constituting fraud, bad faith, willful misconduct, gross negligence (as such concept is interpreted under the laws of the State of Delaware) and a material breach of the Management Agreements that is not cured in accordance with its terms or a violation of applicable securities laws.
In addition, to the fullest extent permitted by law, we will agree to indemnify the Indemnitees from and against any and all claims, liabilities, damages, losses, penalties, actions, judgments, costs and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated that are incurred by any Indemnitee or to which such Indemnitee may be subject by reason of its activities on our behalf or any of its subsidiaries to the extent that such Indemnitee’s conduct did not constitute fraud, bad faith, willful misconduct, gross negligence (as such concept is interpreted under the laws of the State of Delaware), material breach of the Management Agreements that is not cured in accordance with the terms of the Management Agreements or a violation of applicable securities laws. As a result, we could experience unfavorable operating results or incur losses for which the Manager would not be liable.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as the change of control provisions of the Management Agreements, could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our Class A common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that may make the acquisition of our company more difficult, including the following:

our stockholders will only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter;

our certificate of incorporation will not provide for cumulative voting;

vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;

a special meeting of our stockholders may only be called by the chairperson of our board of directors, our Chief Executive Officer or a majority of our board of directors;

certain litigation against us can only be brought in Delaware;

our certificate of incorporation will authorize undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and

advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
 
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Furthermore, the Manager would no longer be bound by the non-competition covenants in the Management Agreements if there is (i) a sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company’s assets, (ii) a merger or consolidation of the Company with or into any other Person or any other transaction or a series of related transactions, the result of which is that a third party (or a group of third parties) that is not an Affiliate of the Company or its Stockholders immediately prior to such transaction acquires or holds capital stock of the Company representing a majority of the Company’s outstanding voting power immediately following such transaction or (iii) a change in the composition of the Company’s board of directors as a result of which the majority of the members of the Company’s board of directors cease to be Continuing Directors. For more information about the change in control provisions of the Management Agreements, see “The Manager — Management Agreements — Duration and Termination” below. These provisions could deter a third party from seeking to acquire some or all of our shares.
These provisions, alone or together, could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
Risks Relating to Our Capital Structure
Our level of indebtedness may increase and reduce our financial flexibility.
Our borrowings, current and future, will require interest payments and need to be repaid or refinanced, which could require us to divert funds identified for other purposes to debt service and could create additional cash demands or impair our liquidity position and add financial risk for us. Diverting funds identified for other purposes for debt service may adversely affect our business and growth prospects. We do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.
Our level of indebtedness could affect our operations in several ways, including the following:

a significant portion of our cash flows could be used to service our indebtedness;

it may be difficult for us to satisfy our obligations with respect to our debt;

the covenants contained in future agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets and make certain investments, and may require us to maintain certain financial, liquidity or leverage ratios;

our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;

a high level of debt would increase our vulnerability to general adverse economic and industry conditions;

a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; and

a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, investments or other purposes.
If we are unable to generate sufficient cash flows to pay the interest on our debt, future working capital, borrowings or equity financing may not be available to pay or refinance such debt. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sources of Capital — Borrowings” for further information.
 
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Changes in the application of accounting standards issued by the U.S. Financial Accounting Standards Board or other standard-setting bodies may adversely affect our financial statements.
Our financial statements are prepared in accordance with GAAP, which are periodically revised, interpreted and/or expanded. From time to time, we are required to adopt new or revised accounting standards issued by recognized authoritative bodies. It is possible that future accounting standards we are required to adopt may require changes to the current accounting treatment that we apply to our consolidated financial statements and may require us to make significant changes to our systems. Such changes could adversely affect our financial condition and results of operations.
Following this offering, we expect most of our royalties and notes will be classified as financial assets that are measured with an effective interest rate using the amortized cost methodology of accounting, as a result of which our GAAP results of operations can be volatile and unpredictable, which could adversely affect the trading price of our Class A common stock.
Following this offering, in accordance with GAAP, most of the royalty assets we acquire will be treated as investments in cash flow streams and will thus be classified as financial assets. Under this classification, our royalty assets and notes are treated as having a yield component that resembles loans measured at amortized cost under the effective interest accounting methodology. Under this accounting methodology, we calculate the effective interest rate on each royalty asset or note using a forecast of the expected cash flows to be received over the life of the royalty asset or note relative to the initial acquisition price. The yield, which is calculated at the end of each reporting period and applied prospectively, is then recognized via accretion into our income at the effective rate of return over the expected life of the royalty asset.
As a result of applying the amortized cost method of accounting, our income statement activity in respect of many of our royalties and notes can be volatile and unpredictable as a result of non-cash charges associated with the provision. Small declines in forecasts over a multi-year period can result in an immediate non-cash income statement expense recognition, even though the applicable cash inflows will not be realized for many years into the future. The financial statement impact caused by the application of the amortized cost accounting methodology could result in a negative perception of our results in a given period, which could cause the price of our Class A common stock to decline.
We may use leverage in connection with our capital deployment, which magnifies the potential for loss if the royalties acquired or the products underlying our investments do not generate sufficient income to us.
We may use borrowed funds to finance a significant portion of our deployed capital. The use of leverage creates an opportunity for an increased return but also increases the risk of loss if our assets do not generate sufficient income to us. The interest expense and other costs incurred in connection with such borrowings may not be covered by the income from our assets. In addition, leverage may inhibit our operating flexibility and reduce cash flow available for dividends to our stockholders. Historically, we have not operated with a significant amount of leverage. Accordingly, we will need to scale our organization and properly manage our growth while servicing our debt. We have limited experience as a company in a leveraged operating model, and our ability to forecast future results of operations and royalties using leverage is limited and subject to uncertainties. As a result, our historical results and growth may not be indicative of those in future periods.
The level of our indebtedness could limit our ability to respond to changing business conditions. The various agreements relating to our borrowings may impose operating and financial restrictions on us which could affect the number and size of the royalties that we may pursue. Therefore, no assurance can be given that we will be able to take advantage of favorable conditions or opportunities as a result of any restrictive covenants under our indebtedness. There can also be no assurance that additional debt financing, either to replace or increase existing debt financing, will be available when needed or, if available, will be obtainable on terms that are commercially reasonable. Additional risks related to our leverage include:

our royalties may be used as collateral for our borrowings;
 
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in the event of a default under any of our secured borrowings, one or more of our creditors or their assignees could obtain control of our royalties and, in the event of a distressed sale, these creditors could dispose of these royalties for significantly less value than we could realize for them;

we have to comply with various financial covenants in the agreements that govern our debt that may affect our ability to achieve our business objectives;

our ability to pay dividends to our stockholders may be restricted;

to the extent that interest rates at which we borrow increase, our borrowing costs will increase, and our leveraging strategy will become more costly, which could lead to diminished net profits; and

because our debt utilizes LIBOR as a factor in determining the applicable interest rate, the expected discontinuation and transition away from LIBOR may increase the cost of servicing our debt, lead to higher borrowing costs and have an adverse effect on our results of operations and cash flows.
If we were determined to be an investment company under the U.S. Investment Company Act of 1940, applicable restrictions could make it impractical for us to continue our business as contemplated and could have an adverse effect on our business, results of operations and financial condition.
We intend to conduct our business so as not to become regulated as an investment company under the U.S. Investment Company Act. An entity generally will be determined to be an investment company for purposes of the U.S. Investment Company Act and regulated thereunder if, absent an applicable exclusion, (i) it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (ii) it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We do not hold ourselves out as being engaged primarily, or propose to engage primarily, in the business of investing, reinvesting or trading in securities, and believe that we are not engaged primarily in the business of investing, reinvesting or trading in securities. We believe that, for U.S. Investment Company Act purposes, we are engaged primarily, through one or more of our subsidiaries, in the business of (i) purchasing or otherwise acquiring certain obligations that represent part or all of the sales price of merchandise, or (ii) making loans to manufacturers, wholesalers, and retailers of specified merchandise. Our subsidiaries that are so engaged rely on Section 3(c)(5) of the U.S. Investment Company Act, which, as interpreted by the SEC staff, requires each such subsidiary to invest at least 55% of its assets in “notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services”, which we refer to as the “ICA Exception Qualifying Assets”.
Our reliance on Section 3(c)(5) and Section 3(c)(6) is based on certain interpretive positions of the SEC staff relating to those exclusions from the definition of investment company. If the SEC or its staff in the future adopts contrary interpretations, and in particular interprets royalty interests no longer to be ICA Exception Qualifying Assets for purposes of Section 3(c)(5) and Section 3(c)(6), or the SEC or its staff in the future determines that some or all types of royalty receivables relating to biopharmaceutical assets are not ICA Exception Qualifying Assets, our business will be materially and adversely affected. In particular, we could be required to register as an investment company and requirements imposed by the Investment Company Act, including limitations on our capital structure, our ability to transact business with affiliates and our ability to compensate key employees, could make it impractical for us to continue our business as currently conducted. If we cease to qualify for an exclusion from the definition of investment company, and are required to register under the Investment Company Act, it would materially and adversely affect the value of your Class A common stock and our ability to pay dividends in respect of our Class A common stock.
 
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Risks Relating to Our Class A Common Stock and this Offering
There may not be an active trading market for our Class A common stock, which may cause shares of our Class A common stock to trade at a discount from the initial offering price and make it difficult to sell the shares of Class A common stock that you purchase.
Prior to this offering, there has not been a public trading market for our Class A common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on Nasdaq or how liquid that market may become. It is possible that after this offering an active trading market will not develop or, if one does develop, it may not be sustained, which would make it difficult for you to sell your shares of Class A common stock at an attractive price or at all. The initial public offering price per share will be determined by agreement among us and the representative of the underwriters of this offering, and may not be indicative of the price at which our Class A common stock will trade in the public market after this offering.
The market price of our Class A common stock may decline due to the large number of shares of Class A common stock eligible for future sale.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of Class A common stock in the market after this offering or the perception that such sales could occur. These sales, or the possibility that these sales could occur, also may make it more difficult for us to sell Class A common stock in the future at a time and at a price that we deem appropriate. See “Shares of Class A Common Stock Eligible for Future Sale” for further information. Subject to the lock-up restrictions described under “Underwriting”, we may issue and sell in the future additional shares of Class A common stock.
Upon the closing of this offering, except as otherwise described herein, all shares that are being offered hereby will be freely tradable without restriction, assuming they are not held by our “affiliates”, as that term is defined in Rule 144 under the Securities Act. In addition, we intend to grant registration rights to the holders of shares of Class A common stock or their transferees (including those holders of Holdings LP Class B Units exchangeable on a one-for-one basis for shares of Class A common stock pursuant to the Exchange Agreement), entitling them to the right to demand that we file a registration statement with the SEC registering the offer and sale of a specified number of shares of Class A common stock. See “Shares of Class A Common Stock Eligible for Future Sale — Registration Rights” for further information. Any shares of Class A common stock registered pursuant to the registration rights agreement will be freely tradable in the public market, subject to applicable lock-up periods, if any. In addition, in connection with this offering, we, all of our directors, our executive officers, the selling stockholders, the Manager, certain employees of the Manager, and the Continuing Investors (which hold all of our Class B common stock and Holdings LP Class B Units exchangeable for Class A common stock) have each agreed, subject to certain exceptions, to be subject to a 180-day lock-up restriction. See “Shares of Class A Common Stock Eligible for Future Sale — Lock-up Agreements” for further information. Goldman Sachs & Co. LLC may waive these restrictions at their discretion. The market price of our Class A common stock may decline significantly when this lock-up restriction lapses.
We may be unable to pay dividends in the future.
We have never declared nor paid cash dividends on our capital stock. Holders of our Class A common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. We are not required to declare or pay any dividends and there may be circumstances under which we may be unable to declare and pay dividends under applicable Delaware law or due to the impact of restrictive covenants in our debt agreements. In addition, we may elect not to pay dividends in the future for any reason. Any decision not to pay dividends or any reduction in the amount of our Class A common stock dividend compared to a level of dividends investors may expect could materially and adversely affect the market price of our Class A common stock.
Declarations of any future dividends will be contingent on our ability to earn sufficient profits and to remain well capitalized, including our ability to hold and generate sufficient capital to comply with the covenants in our debt agreements. Any other financing agreements that we enter into in the future may
 
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limit our ability to pay cash dividends. In the event that any other financing agreements in the future restrict our ability to pay such dividends, we may be unable to pay dividends unless we can refinance amounts outstanding under those agreements.
The market price of our Class A common stock may be volatile, which could cause the value of your investment to decline.
Even if a trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including:

market conditions in the broader stock market in general, or in our industry in particular;

variations in our quarterly operating results or dividends to stockholders;

additions or departures of key management personnel at the Manager;

timing and rate of capital deployment, including relative to estimates;

changes in our product portfolio mix or acquisition strategy;

failure to meet analysts’ earnings estimates;

publication of research reports about our industry;

third-party healthcare reimbursement policies and practices;

litigation and government investigations;

changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business;

no results, or projected results, from marketers of products underlying our Royalty-Related Transactions;

results from, and any delays to, the clinical trial programs of development-stage product candidates underlying our biopharmaceutical assets or other issues relating to such products, including regulatory approval or commercialization;

adverse market reaction to any indebtedness that we may incur or securities we may issue in the future;

changes in market valuations of similar companies or speculation in the press or investment community;

announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;

litigation;

economic and political conditions or events; and

adverse publicity about the industries in which we participate or individual scandals.
These and other factors may cause the market price of and demand for our Class A common stock to fluctuate significantly, which may limit or prevent you from reselling your Class A common stock at or above the initial public offering price.
The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against public companies. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
 
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You will suffer dilution in the net tangible book value of the Class A common stock that you purchase.
The initial public offering price of our Class A common stock will be substantially higher than the net tangible book value as further adjusted per share issued and outstanding immediately after this offering. Investors who purchase Class A common stock in this offering will pay a price per share that substantially exceeds the net tangible book value per share of Class A common stock. If you purchase our Class A common stock in this offering, you will experience immediate and substantial dilution of $      in the pro forma as adjusted net tangible book value per share as of March 31, 2021. See “Dilution” for further information.
Future offerings of debt or equity securities by us may adversely affect the market price of our Class A common stock.
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of Class A common stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, or debt securities convertible into equity. Future acquisitions or other investments could require substantial additional capital in excess of cash from operations. We would expect to finance the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness, asset-backed financing and/or cash from operations. In addition, an affiliate of the Manager is entitled to equity performance awards based on our performance as measured by our Net Economic Profit, as discussed in “The Manager — Equity Performance Awards”.
Issuing additional shares of Class A common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our stockholders at the time of such issuance or reduce the market price of our Class A common stock or both. Upon liquidation, holders of debt securities and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our Class A common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. Thus, holders of our Class A common stock bear the risk that our future offerings may reduce the market price of our Class A common stock and dilute their holdings in us. See “Description of Share Capital” for further information.
Our amended and restated certificate of incorporation will designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, and also provide that the federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors or officers or employees of our Manager.
Our amended and restated certificate of incorporation, which will become effective immediately prior to the closing of this offering, will provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers or other employees of our Manager to us or our stockholders, (iii) any action arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
Our amended and restated certificate of incorporation will also provide that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to
 
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such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. However, as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such provision. The provisions described in this risk factor will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States will be the sole and exclusive forum.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. Investors also cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors or officers or other employees of our Manager, which may discourage lawsuits against us and our directors or officers and other employees of our Manager. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors or officers or other employees of our Manager in a venue other than in the federal district courts of the United States of America. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and we cannot assure you that the provisions will be enforced by a court in those other jurisdictions. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
General Risk Factors
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
As a public entity, we will be subject to the reporting requirements of the Exchange Act, and of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”). The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. After the closing of this offering, we will be obligated to file with the SEC annual and quarterly information and other reports that are specified in the Exchange Act, and therefore will need to have the ability to prepare financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we will be subject to other reporting and corporate governance requirements, including certain requirements of Nasdaq and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required, and management’s attention may be diverted from other business concerns.
We expect our compliance with the requirements under the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations thereunder to increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
 
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We are an “emerging growth company”, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. We will remain an “emerging growth company” until the earliest to occur of:

the last day of the fiscal year during which our total annual revenue equals or exceeds $1.07 billion (subject to adjustment for inflation);

the last day of the fiscal year following the fifth anniversary of this offering;

the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or

the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.
We may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
In addition, the JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies. When a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, will adopt the new or revised standard at the time private companies adopt the new or revised standard, unless early adoption is permitted by the standard. As a result, our consolidated financial statements may not be comparable to the financial statements of companies that comply with new or revised accounting pronouncements as of public company effective dates.
Investors may find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our per share trading price may be materially adversely affected and more volatile.
We have broad discretion in the use of our cash and cash equivalents, including the net proceeds from this offering, and may not use them effectively.
We will have broad discretion in the application of our cash, cash equivalents and investments, including the net proceeds from this offering, and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our Class A common stock. The failure by management to apply these funds effectively could result in financial losses that could have an adverse effect on our business, cause the price of our Class A common stock to decline, and interfere with our ability to acquire royalty assets or make other investments. Pending their use, we may invest our cash and cash equivalents, including the net proceeds from this offering, in a manner that does not produce income or that loses value. See the section titled “Use of Proceeds” appearing elsewhere in this prospectus.
Cyber-attacks or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant disruption of our business operations.
We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the
 
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security of our systems and networks and the confidentiality, availability and integrity of our data. There can be no assurance that we will be successful in preventing cyber-attacks or mitigating their effects. Any cyber-attack or destruction or loss of data could have an adverse effect on our business. In addition, we may suffer reputational harm or face litigation as a result of cyber-attacks or other data security breaches and may incur significant additional expense to implement further data protection measures.
Operational risks may disrupt our businesses, result in losses or limit our growth.
We and the Manager rely heavily on our respective financial, accounting, information and other data processing systems and cloud computing services, as well as those of our current and future collaborators, contractors or consultants. Such systems are vulnerable to damage or interruption from computer viruses, data corruption, cyber-based attacks, unauthorized access, natural disasters, pandemics, such as the current COVID-19 pandemic, terrorism, war and telecommunication and electrical failures. If any of these events occur and such systems do not operate properly or are disabled or if there is any unauthorized disclosure of data, whether as a result of tampering, a breach of network security systems, a cyber-incident or attack or otherwise, we could suffer substantial financial loss, increased costs, a disruption of our business, loss of trade secrets or other proprietary information, liability to us, regulatory intervention or reputational damage.
Furthermore, federal, state and international laws and regulations relating to data privacy and protection, such as the European Union’s General Data Protection Regulation (“GDPR”), which took effect in May 2018, and the California Consumer Privacy Act (“CCPA”), which took effect in January 2020, can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties and significant legal liability, if our information technology security efforts or data privacy and protection compliance efforts fail. In addition, we operate a business that is dependent on information systems and technology. Our information systems and technology and that of the Manager may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current level. Such a failure to accommodate growth, or an increase in costs related to such information systems, could have an adverse effect on our business, financial condition and results of operations.
A disaster or a disruption in the public infrastructure that supports our business, including a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, could affect our ability to continue to operate our business without interruption. Our disaster recovery programs and those of the Manager may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all.
In addition, sustaining our growth may require us or the Manager to commit additional management, operational and financial resources to identify new professionals to join the team and to maintain appropriate operational and financial systems to adequately support expansion. Due to the fact that the market for hiring talented professionals is competitive, we may not be able to grow at the pace we desire.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, the trading price and trading volume of our Class A common stock could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our business, the market price of our Class A common stock may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our Class A common stock to decline and our Class A common stock to be less liquid.
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties, some of which cannot be predicted or quantified. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, or the negative of these words or other similar terms or expressions. In particular, information appearing under “Business”, “Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

the ability of the Manager to identify suitable candidates for us to acquire or finance that meet our asset selection criteria;

uncertainties related to the acquisition of interests in development-stage biopharmaceutical product candidates and our strategy to add development-stage product candidates and late stage funding opportunities to our product portfolio;

demand by the biopharmaceutical industry for royalty financing;

the assumptions underlying our business model;

our ability to successfully execute our Royalty-Related Transaction strategy;

our ability to deploy capital at our projected rates and amounts;

our ability to leverage our competitive strengths;

our ability to compete effectively with existing competitors and new market entrants;

our ability to effectively manage our growth;

the growth rates of the biopharmaceutical industry;

actual and potential conflicts of interest with the Manager and its affiliates;

the ability of the Manager or its affiliates, as well as our ability, to attract and retain highly talented professionals;

the effect of changes to tax legislation and our tax position; and

our expected use of proceeds from this offering.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus. Actual events or results may differ from those expressed in forward-looking statements. Each of our forward-looking statements are subject to the risks, uncertainties and other factors we identify in “Risk Factors” and elsewhere in this prospectus. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
Although we believe the expectations reflected in the forward-looking statements are reasonable, any of those expectations could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and business objectives will be achieved. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the
 
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date of this prospectus or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
 
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ORGANIZATIONAL STRUCTURE
Overview
This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies when they decide to undertake an initial public offering. We are a holding company, and upon the closing of this offering, our principal asset will be a direct or indirect 100% interest in the Class A units of Holdings LP, a limited partnership organized under the laws of the State of Delaware.
In connection with the Reorganization Merger, which is expected to be consummated immediately prior to the closing of this offering, investors who invested in HCR through the Legacy HCR Partnerships will exchange their limited partnership interests in the Legacy HCR Partnerships for limited partnership interests in the Continuing Investor Partnership. Upon the closing of this offering, we will own all of the outstanding Holdings LP Class A Units and the Continuing Investor Partnership will own, all of the outstanding Holdings LP Class B Units. As a result of the Reorganization Transactions, Holdings LP and its subsidiaries will own 100% of the assets of HCR.
Ownership Structure
The diagram below depicts our organizational structure immediately following this offering and the consummation of the Reorganization Transactions. The diagram is provided for illustrative purposes only and does not represent all legal entities affiliated with our organizational structure.
[MISSING IMAGE: tm2113163d3-fc_manage4clr.jpg]
Upon the closing of this offering:

Our Class A common stock will be held as follows:

           shares (or           shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) by public investors.
 
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           shares (or            shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) by the Continuing Investors (which shares will be held in escrow upon the closing of this offering as described under the section titled “Organizational Structure”)

Our Class B common stock (together with the same number of Holdings LP Class B Units) will be held as follows:

           shares by the Continuing Investor Partnership.

The combined voting power in the Company will be as follows:

    % by public investors (and the Continuing Investors through their ownership of Class A common stock) (or    % if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

    % by the Continuing Investors, including our management team, through the Continuing Investor Partnership (or    % if the underwriters exercise in full their option to purchase additional shares of Class A common stock).
Capitalization of Holdings LP
Class A Units
Upon the closing of this offering, we will own directly or indirectly all of the Class A Units in Holdings LP, which will entitle us to 100% of the voting power (subject to certain exceptions as described below) in Holdings LP, we will have the right to appoint the general partner and control the business and affairs of Holdings LP, and through Holdings LP and its subsidiaries, conduct our business.
Class B Units
Upon the closing of this offering, the Continuing Investor Partnership will own, all of the outstanding Holdings LP Class B Units. Each Class B Unit will be paired with a corresponding share of Class B common stock, which share will contain voting rights with respect to the Company, but will have no economic rights. See “Description of Capital Stock” for a more complete description of the rights of shares of Class B common stock.
Class C Special Interest
HCRX EPA Holdings, LLC, a Delaware limited liability company (“EPA Holdings”), which is an affiliate of the Manager and the general partner of the Continuing Investor Partnership, will hold the Class C Special Interest in Holdings LP. The Class C Special Interest will entitle EPA Holdings to the Equity Performance Awards. EPA Holdings will be owned by the executives and other employees of the Manager, including certain former founders and owners, who will be entitled to equity performance awards based on the performance of investments, determined on a portfolio-by-portfolio basis. Investments made during each two-year period will be grouped together as separate portfolios, with the first portfolio commencing on the date of this offering and ending on December 31, 2022. See “The Manager — Equity Performance Awards”.
Consolidation, Non-Controlling Interest and Distributions
We expect to include Holdings LP in our consolidated financial statements and report a non-controlling interest related to the Holdings LP Class B Units held by the Continuing Investor Partnership and the Class C Special Interest in Holdings LP.
Holders of the Holdings LP Class A Units and Holdings LP Class B Units have the right to receive ratably on a pari passu basis such dividends, if any, as may be approved from time to time as we instruct the general partner thereof out of funds legally available therefor.
 
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Exchangeability
Each Holdings LP Class B Unit, together with a corresponding share of Class B common stock, will be exchangeable on a one-for-one basis for shares of Class A common stock pursuant to the Exchange Agreement.
The Continuing Investor Partnership will, upon the individual instruction of any of its partners from time to time, distribute the Holdings LP Class B Units held on behalf of such partner that are subject to such instruction which may then be exchanged for shares of our Class A common stock. Any Class A common stock received by limited partners of the Continuing Investor Partnership will be subject to restrictions on sale pursuant to the underwriters’ “lock-up” agreements and as further described under “— Ownership of Holdings LP Class B Units by Continuing Investor Partnership — Additional Transfer Restrictions” below.
These exchanges are expected to result in increases in the Company’s share of the tax basis (for U.S. federal income tax purposes) of the assets of Holdings LP. Increases in the Company’s share of the tax basis of the assets of Holdings LP may increase (for tax purposes) the depreciation and amortization deductions available to the Company, and, therefore, may reduce the amount of tax that the Company would otherwise be required to pay in the future, although the IRS may challenge all or part of the validity of that tax basis, and a court could sustain such a challenge. This increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain assets to the extent the increase in tax basis is allocated to those assets.
Voting Rights
While the Holdings LP Class B Units and the Holdings Class C Special Interest are generally non-voting, the Holdings LP partnership agreement provides that the amendment of certain provisions of the Holdings LP partnership agreement that would alter or change the powers, preferences or special rights of the Holdings LP Class B Units or the Holdings LP Class C Special Interest so as to affect them adversely must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a single class, or as otherwise required by applicable law.
Ownership of Holdings LP Class B Units by Continuing Investor Partnership
The Holdings LP Class B Units will be owned by the Continuing Investor Partnership.
The relative allocation of Holdings LP Class B Units to the Continuing GP Investors and the Continuing LP Investors will be determined based on their respective ownership of the Legacy HCR Partnerships as of immediately prior to the closing of this offering plus an allocation to the Continuing GP Investors in respect of carried interest and performance fees in the Legacy HCR Partnerships relating to shares sold by the selling stockholders in this offering and the Reorganization Buyback Transaction and the firm value determined based upon such sales. The number of Holdings LP Class B Units allocated to the Continuing GP Investors at the closing of this offering shall be determined in part by the initial public offering price per share. In addition, the Continuing GP Investors shall be entitled to additional Holdings LP Class B Units as described below under “— Additional Carried Interest”.
Based on (i) our firm value using an assumed initial public offering price per share of $      , the midpoint of the price range set forth on the cover page of this prospectus and (ii) the number of shares offered by the selling stockholders in this offering and expected to be repurchased in the Reorganization Buyback Transaction, upon the completion of this offering, the Continuing LP Investors would be allocated           shares of Class B common stock and corresponding Holdings LP Class B Units (including Holdings LP Class B Units to be held in escrow as described below) and the Continuing GP Investors would be allocated           shares and corresponding units. The allocation information above is for illustration purposes only. The actual allocation of Class B common stock and Holdings LP Class B Units upon the completion of this offering will depend on the actual initial public offering price and other terms of the Reorganization Transactions and this offering determined at pricing.
 
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Additional Carried Interest
The Continuing GP Investors have agreed with the Continuing LP Investors to realize any carried interest or performance fees, as the case may be, in respect of Legacy HCR Partnership arrangements, in the form of carried interest in the Continuing Investor Partnership, which will own the Holdings LP Class B Units following the Reorganization Transactions. The carried interest formula will be based on that of each Legacy HCR Partnership, if applicable, and will only apply to Continuing LP Investors that were subject to a carried interest or performance fee arrangement with the applicable Continuing GP Investor of the relevant Legacy HCR Partnership. A portion of such carried interest will be crystalized at the time of the Reorganization Buyback Transaction and this offering. Such carried interest crystalization will result in Continuing GP Investors indirectly receiving Holdings LP Class B Units through increased ownership in the Continuing Investor Partnership with a corresponding decrease in the ownership of Holdings LP Class B Units by applicable Continuing LP Investors through decreased ownership in the Continuing Investor Partnership. In addition, the Continuing GP Investors have agreed to crystallize their carried interest or performance fees at the time of each Crystallization Event.
As discussed above, Continuing LP Investors that are subject to such carry arrangements have agreed that if they exchange their Holdings LP Class B Units for shares of our Class A Common Stock, a portion of such shares of Class A Common Stock will be held in escrow until the third anniversary of the completion of this offering in order to implement the agreed upon arrangements with the Continuing GP Investors. In such event, rather than receiving its additional carried interest through increased ownership of the Continuing Investor Partnership, the applicable Continuing GP Investor will receive its additional carried interest through the release of such Escrowed Class A Common Stock.
Such releases of Escrowed Class A Common Stock (or Holdings LP Class B Units to the extent such Continuing LP Investor has not converted such Holdings LP Class B Units) shall occur (x) at the end of each fiscal quarter during the period beginning on the first anniversary of the closing of this offering and ending on the third anniversary of this offering (the “Quarterly Carry Period”) and (y) at the time of and in connection with any secondary sales of shares by Continuing LP Investors following this offering. The number of Holdings LP Class B Units or Escrowed Class A Common Stock released from escrow to the Continuing GP Investors (the “Additional Carry Shares”) shall be determined during each Quarterly Carry Period shall be determined based upon the volume weighted average price of our Class A common stock during such period (the “Quarterly VWAP”) and (y) at the net price of shares in any such secondary offering prior to the first anniversary of this offering.
If you assume that all of the Continuing Investors exchanged their Holdings LP Class B Units for shares of our Class A common stock, the total number of Escrowed Class A Common Stock to satisfy the additional carried interest arrangements is         , which represents the maximum carried interest that could be earned by the Continuing GP Investors based on a firm value determined with reference to a share price of our Class A common stock that is 1.5 times the initial public offering price (and assuming the share price in connection with any secondary sales of shares by Continuing LP Investors following this offering is 1.5 times the initial public offering price). The effect of the additional carried interest arrangement will be to transfer from the Continuing LP Investors to the Continuing GP Investors either limited partnership interests in the Continuing Investor Partnership exchangeable for, or shares of, Escrowed Class A Common Stock, of up to        shares of Class A Common Stock, or up to     % of the total outstanding shares of Class A Common Stock of the Company following completion of the offering, calculated on a fully diluted basis (based on the assumptions in the foregoing sentence).
The additional carried interest arrangements only affect the Continuing Investors, through their ownership in the Continuing Investor Partnership or of Escrowed Class A Common Stock, and does not affect the number of outstanding shares of Class A Common Stock or have a dilutive effect on investors that purchase shares of Class A Common Stock in this offering.
The additional carried interest arrangement was aimed at aligning the carried interest realization associated with the Legacy HCR Partnerships with the liquidity events or deemed liquidity events of the Continuing LP Investors over a three year period. In addition, it was aimed to incentivize the management team of the Manager to complete an initial public offering and to maximize the trading price performance of the Company subsequent to the initial public offering.
 
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Based on the midpoint of the price range set forth on the cover page of this prospectus, and assuming that all of the Continuing Investors exchanged their Holdings LP Class B Units for shares of our Class A common stock to satisfy the additional carried interest obligations described above were converted to shares of Class A Common Stock, upon the closing of this offering, there would be                  shares of Escrowed Class A Common Stock. The table below sets forth the number of shares of Class A common stock (assuming all of the Continuing GP Investors exchange their Holdings LP Class B Units at the time of the offering) issuable to the Continuing GP Investors at the time of closing of this offering (based on the number of shares of Class A common stock offered by the selling stockholders and the Reorganization Buyback Transaction). In addition, the table sets forth the number of Additional Carry Shares that would be released from escrow to the Continuing GP Investors upon any secondary offerings of shares by the Continuing LP Investors and upon any deemed quarterly sales during the Quarterly Carry Period if the Quarterly VWAP (or sale price in such secondary offering) is (i) equal to the initial public offering price or (ii)     % of the initial public offering price (the “Maximum Carry Price”). The Escrowed Class A Common Stock consist of additional shares that may be earned by the Continuing GP Investors. In no event will any Holdings LP Class B Units issued to the Continuing GP Investors at the time of the closing of this offering be forfeited or otherwise reduced if the Quarterly VWAP or sale price in a secondary offering is below a certain amount. The maximum number of Additional Carry Shares in a particular quarter will be released from escrow to the Continuing GP Investors if the Quarterly VWAP is at or above the Maximum Carry Price; no additional Escrowed Class A Common Stock will be released if the Quarterly VWAP exceeds the Maximum Carry Price. A portion of the Escrowed Class A Common Stock that is not released as Additional Carry Shares shall be released from escrow to the owners thereof at each Crystallization Event (and any remaining Escrowed Class A Common Stock will be released following the third anniversary or earlier if applicable trading or sales prices described above are less than the price sufficient to earn any Additional Carry Shares).
Additional Carry
Shares at IPO Price
Additional Carry
Shares at Maximum
Carry Price
At this offering (based on secondary offering and the Reorganization Buyback Transaction)
First Secondary Offering
Second Secondary Offering
Quarterly Period Deemed Sales
Total (assuming same Quarterly VWAP for each of the eight Quarterly Carry Periods)
Additional Transfer Restrictions
Except for sales by the selling stockholders in this offering, the shares of our Class A common stock issuable upon exchange of Holdings LP Class B Units (the “Underlying Shares”) will not be able to be sold for one year following the closing of this offering, subject to limited exceptions. Following the first anniversary of this offering, one-eighth of the Underlying Shares that remain unsold at the first anniversary of the closing of this offering will become freely tradeable (subject to any other lock-up agreements that remain in place and compliance with federal and state securities laws) at the beginning of each Quarterly Carry Period. In addition to the quarterly limitations described above, each of our executive officers will be permitted to transfer a maximum of 20% of the sum of the shares underlying the Additional Carry Shares and the Underlying Shares owned thereby as of the closing of this offering until the fifth anniversary of the closing of this offering, subject to the terms of the underwriters’ “lock-up” agreements entered into in connection with this offering. In addition to the quarterly limitations described above, each of the other employees of our Manager, as well as certain founders of the Existing Manager, will also only be permitted to transfer a maximum of 20% of the sum of the shares underlying the Additional Carry Shares and the Underlying Shares owned thereby as of the closing of this offering, with such limitation applying to the period ending on the third anniversary of the closing of this offering.
 
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Registration Rights
Upon the closing of this offering, the Company, the Continuing Investor Partnership will enter into a registration rights agreement providing the Continuing Investor Partnership with the right to demand at the request of continuing investors, following the expiration of the underwriters’ “lock-up” agreements entered into connection with this offering, up to two underwritten secondary offerings of shares underlying the Holdings LP Units held thereby, subject to a minimum demand threshold of $500 million, and customary piggyback registration rights. If the underwriters of such a secondary offering are unable to sell at least two-thirds of the shares requested for inclusion in such offering, the offering will not be counted as an exercise of a demand registration right. See “Shares of Class A Common Stock Eligible for Future Sale — Registration Rights”.
 
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares of our Class A common stock in this offering will be approximately $      , or approximately $      if the underwriters exercise their option to purchase additional shares of Class A common stock from us in full, assuming an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, by $      (assuming no exercise of the underwriters’ option to purchase additional shares of Class A common stock). Each 1,000,000 increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease the net proceeds to us from this offering by approximately $      million, assuming that the initial public offering price per share for the offering remains at $      (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Prior to the completion of this offering, we expect to issue $       million aggregate principal amount of the Senior and enter into the $       million Term Loan and $       million New Credit Facility. We expect to issue the Senior Notes prior to the completion of this offering, with the proceeds of the issuance of Senior Notes held in escrow until the completion of this offering. We also expect to enter into the Term Loan and New Credit Facility prior to the completion of this offering; provided that the completion of this offering will be a condition to our ability to borrow thereunder.
Immediately following the closing of this offering, a portion of the Holdings LP Class B Units indirectly held by Continuing Investors in the Continuing Investor Partnership, including             Holdings LP Class B Units indirectly held by our executive officers, will be repurchased on a pro rata basis by Holdings LP at the initial public offering price per share, assuming such Holdings LP Class B Units were exchanged for shares of Class A common stock on a one-for-one basis, and retired in exchange for cash. Assuming the sale by us of             shares of Class A common stock and the sale by the selling stockholder of            shares of Class A common stock, in each case at a price per share equal to the midpoint of the price range on the cover page of this prospectus, and the completion of the Debt Financing with an annual interest rate of     % on the Senior Notes and    % on the Term Loan, with no amounts drawn under the New Credit Facility, we will repurchase             Holdings LP Class B Units, including             Holdings LP Class B Units indirectly held by our executive officers, and             Holdings LP Class B Units indirectly held by other affiliates, including owners of 10% or more of outstanding shares upon completion of this offering and current equity owners of the Legacy Manager with a portion of the proceeds of the Debt Financing the proceeds this offering. Each $1.00 increase or decrease in the public offering price per share would increase or decrease, respectively, the number of Holdings LP Class B Units we repurchase by         Holdings LP Class B Units. Each 1,000,000 increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease, respectively, the number of Holdings LP Class B Units we repurchase by           Holdings LP Class B Units. Each 1.0% increase or decrease in the annual interest rate of the Senior Notes and Term Loan would decrease or increase, respectively, the number of Holdings LP Class B Units we repurchase by           Holdings LP Class B Units. The Holdings LP Class B Units indirectly held by our executive officers repurchased in the Reorganization Buyback Transaction will not exceed the number of Holdings LP Class B Units necessary to satisfy applicable tax obligations incurred by our executive officers in connection with theReorganization Transactions.
We intend to use the remaining net proceeds from our sale of shares of Class A common stock and the Debt Financing, after using a portion of the net proceeds of this offering and the Debt Financing to consummate the Reorganization Buyback Transaction, to purchase           newly-issued Holdings LP Class A Units (or           Holdings LP Class A Units if the underwriters exercise in full their option to purchase additional shares of Class A common stock) directly from Holdings LP at a purchase price per unit equal to the initial public offering price per share of Class A common stock less underwriting discounts and commissions.
 
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We intend to cause Holdings LP and its subsidiaries to use the net proceeds of this offering and the Debt Financing, including the net proceeds from the issuance and sale of any of the shares of Class A common stock pursuant to an exercise of the underwriters’ options, from the offering, after deducting underwriting discounts and other offering expenses, to pursue additional Royalty-Related Transactions and for other general corporate purposes, including payment of operating expenses to our Manager and other professional and administrative fees.
Pending the identification of attractive Royalty-Related Transactions in accordance with our business objectives and policies, we plan to cause Holdings LP and its subsidiaries to invest any such net proceeds from this offering primarily in cash, cash equivalents, U.S. government securities and other high-quality debt instruments that mature in one year or less, or temporary investments, as appropriate. These assets may have lower yields than our other assets and accordingly result in lower returns or dividends, if any, by us during such period.
We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders.
 
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DIVIDEND POLICY
You should read the following discussion of our dividend policy in conjunction with the factors and assumptions included in this section. In addition, please read “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.
As a public company, we anticipate paying a quarterly dividend in an amount to be determined by our board of directors. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition and operating results, including our cash position, contractual restrictions (including under our debt arrangements), restrictions imposed by applicable laws and other factors that our board of directors may deem relevant. Immediately following this offering, we will be a holding company, and our principal asset will be our 100% ownership of Holdings LP’s Class A Units. If we decide to pay a dividend, to the extent permitted by applicable law, we will need to cause Holdings LP to make distributions to us in an amount sufficient to cover such dividend. If Holdings LP makes such distributions to us, the holders of Holdings LP Class B Units will be entitled to receive pro rata distributions.
 
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CAPITALIZATION
The following table sets forth our cash, cash equivalents and capitalization as of March 31, 2021:

on a historical basis,

on a pro forma basis to give effect to the Reorganization Transactions described under “Organizational Structure”; and

on a pro forma as adjusted basis to give further effect to the sale by us of                 shares of Class A common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the range set forth on the cover page of this prospectus, representing the receipt of approximately $      in net proceeds, after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
This table should be read in conjunction with “Organizational Structure”, “Use of Proceeds”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Unaudited Pro Forma Financial Information” and the historical consolidated financial statements and related notes included elsewhere in this prospectus. Cash and cash equivalents are not components of our total capitalization.
As of March 31, 2021
(in thousands)
Historical
Pro Forma
for the
Reorganization
Transactions
Pro Forma
As Adjusted for
Reorganization
Transactions
and This Offering
Cash and cash equivalents
$ 64,629      
Existing revolving credit facility
493,000             
New Credit Facility
Term Loan
Senior Notes due 2029
Partners' capital
2,090,945
Class A common stock, par value $       per
          share,        shares authorized;
     shares issued and outstanding, on an
actual basis;        shares authorized,
          shares issued and outstanding, on a
pro forma basis;        shares authorized;
       shares issued and outstanding, on a
pro forma as adjusted basis
Class B common stock, par value $       per
share, shares authorized;       shares
issued and outstanding, on an actual basis;
          shares authorized,       shares
issued and outstanding, on a pro forma basis;
       shares authorized, shares issued and
outstanding, on a pro forma as adjusted
basis
Additional paid-in capital
Retained earnings
Non-controlling interest
Total stockholders' equity
Total Capitalization
$ 2,648,574
              
 
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Each $1.00 increase (decrease) in the assumed initial public offering price of $      per share of our Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $      , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $      , assuming no change in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
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DILUTION
If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma net tangible book value per share of Class A common stock after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the pro forma as adjusted net tangible book value per share attributable to our existing owners. Pro forma calculations account for the occurrence of the Reorganization Transactions.
Our pro forma net tangible book value as of March 31, 2021 was $      , or $      per share. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities after giving effect to the Reorganization Transactions, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, assuming all Holdings LP Class B Units are exchanged for an equal number of shares of Class A common stock. Our pro forma as adjusted net tangible book value as of March 31, 2021 was $      , or $      per share. Pro forma as adjusted net tangible book value represents the total pro forma tangible assets less total liabilities, after giving further effect to the receipt by us of the net proceeds from our sale of                 shares of Class A common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share
$
Pro forma net tangible book value per share as of March 31, 2021
$      
Increase in pro forma net tangible book value per share attributable to investors in this offering
Pro forma as adjusted net tangible book value per share after this
offering
     
Dilution in pro forma as adjusted net tangible book value per share to investors in this offering
$
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share of our Class A common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $      , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $      , assuming no change in the assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The following table sets forth, on a pro forma basis, as of December 31, 2020, the number of shares of Class A common stock that we will issue and the total consideration paid, or to be paid, by the purchasers of Class A common stock in this offering, and the average price per share paid, or to be paid, by existing stockholders and by the new investors, assuming all Holdings LP Class B Units are exchanged for an equal number of shares of Class A common stock, at an assumed initial public offering price of $      per share, the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us:
 
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Shares of Class A
common stock
Purchased
Total Consideration
Average
Price
per Share
Number
Percentage
Amount
Percentage
(in thousands, except percentages)
Existing stockholders
% $ % $
New investors
% $ % $
Total
     100% $     100% $    
The foregoing tables assume no exercise of the underwriters’ option to purchase additional shares of Class A common stock. If the underwriters exercise their option to purchase additional shares of Class A common stock, there will be further dilution to new investors.
 
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet as of March 31, 2021 and the unaudited pro forma consolidated statements of comprehensive income for the year ended December 31, 2020 and for the three months ended March 31, 2021 present our consolidated financial position and results of operations after giving effect to:

the Reorganization Transactions; and

the sale by us of                 Class A common stock in this offering at an assumed initial public offering price of $      per share, the midpoint of the range set forth on the cover page of this prospectus, representing the receipt of $      in net proceeds to us after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
The Reorganization Transactions have already been reflected in the unaudited pro forma balance sheet as of March 31, 2021. The following pro forma balance sheet as of March 31, 2021 gives pro forma effect to all other transactions identified above as if such events had occurred as of March 31, 2021. The statements of comprehensive income for the year ended December 31, 2020 and for the three months ended March 31, 2021 present consolidated results of operations to give pro forma effect to all transactions identified above as if all such events had been completed as of January 1, 2020.
The unaudited pro forma consolidated financial information has been prepared by management and is based on the historical financial statements of HCR, and its successor for financial reporting purposes, Healthcare Royalty, Inc., and their respective consolidated subsidiaries and the assumptions and adjustments described in the notes to the unaudited pro forma financial information below. The presentation of the unaudited pro forma financial information is prepared in conformity with Article 11 of Regulation S-X.
The historical financial information of HCR, Healthcare Royalty, Inc. and their respective consolidated subsidiaries has been derived from the combined financial statements and accompanying notes included elsewhere in this prospectus.
We based the pro forma adjustments on available information and on assumptions that we believe are reasonable under the circumstances in order to reflect, on a pro forma basis, the impact of the relevant transactions on the historical financial information of HCR, Healthcare Royalty, Inc. and their respective consolidated subsidiaries. Refer to the notes to the unaudited pro forma financial information below for a discussion of assumptions applied. The pro forma adjustments represent only those transactions that are directly attributable to this offering, factually supportable, and expected to have a continuing impact on our results of operations. The unaudited pro forma financial information does not purport to be indicative of our results of operations or financial position had the relevant transactions occurred on the dates assumed and does not project our results of operations or financial position for any future period or date.
For purposes of the unaudited pro forma financial information, we have assumed that we will issue           shares of Class A common stock at a price per share equal to the midpoint of the range set forth on the cover page of this prospectus, and as a result, immediately following the closing of this offering, the ownership percentage of Healthcare Royalty, Inc. in Holdings LP will be    %, the ownership percentage of the selling stockholders in Healthcare Royalty, Inc. will be    %, and the net income attributable to           to holders of our Class A common stock will accordingly represent    % of our net income, with the remainder of our net income attributable to a minority interest in Holdings LP. If the underwriters’ option to purchase additional shares of Class A common stock is exercised in full, the ownership percentage represented by Holdings LP Class B Units will be    %, and the net income attributable to      will accordingly represent    % of our net income. The unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of the option to purchase up to an additional            shares of Class A common stock from us.
We will incur certain one-time costs in connection with this offering and the related Reorganization Transactions, such as accounting, tax, legal and other professional service costs, of approximately
 
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$      . Additionally, following the offering, we will incur costs associated with being a U.S. publicly traded company. Such costs will include new or increased expenses for such items as insurance, directors’ fees, accounting work, legal advice and compliance with applicable U.S. regulatory and stock exchange requirements, including costs associated with compliance with the Sarbanes-Oxley Act and periodic or current reporting obligations under the Exchange Act. No pro forma adjustments have been made to reflect such costs because they are not currently objectively determinable.
The unaudited pro forma consolidated financial statements and related notes should be read in conjunction with the information contained in “Organizational Structure”, “Use of Proceeds”, “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of HCR, Healthcare Royalty, Inc. and their respective consolidated subsidiaries and related notes thereto included elsewhere in this prospectus.
The amount shown for the issuance of Class A common stock in this offering is at an assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
 
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HealthCare Royalty, Inc.
Unaudited Pro Forma Consolidated Statement of Comprehensive Income
Three Months Ended March 31, 2021
Historical
Pro Forma (unaudited)
HealthCare Royalty
Partners
Reorganization
Transactions
Offering
HealthCare
Royalty, Inc.
($ thousands, except share-related amounts)
Investment income
Royalty income
$ 65,303
    
Note interest
15,245
Paid-in-kind interest
212
Total investment income
80,760
Expenses
Management fees
6,759 4,603(a) 11,362
Interest expense
2,916 (c)
Performance fees
2,574 (b)
Professional fees
348
Investment research and other expenses
299
Organizational expenses
Total expenses
12,896
Management fees waived
(183) 183(a)
Net expenses
12,713
Net investment income
68,047
Net realized and unrealized gain (loss) on
investments
Net realized gain (loss) on investments
(1,285)
Net change in unrealized gain (loss) on investments
45,010
Net realized and unrealized gain (loss) on investments
43,725
Net increase in partners’ capital resulting from operations
111,772
Less: Income attributable to non-controlling interest
Net increase in partners’ capital resulting
from operations attributable to
controlling interest
$
111,772
Pro forma earnings per share:
Basic
$ (d) $ (e)
Diluted
$ (d) $ (e)
Pro forma number of shares used in computing earnings per share:
Basic
Diluted
 
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HealthCare Royalty, Inc.
Unaudited Pro Forma Consolidated Statement of Comprehensive Income
Year Ended December 31, 2020
Historical
Pro Forma (unaudited)
HealthCare Royalty
Partners
Reorganization
Transactions
Offering
HealthCare
Royalty, Inc.
($ thousands, except share-related amounts)
Investment income
Royalty income
$ 166,467
Note interest
50,397
Paid-in-kind interest
11,953
Other Income
10
Total investment income
228,827
Expenses
Management fees
26,666 3,715(a) 30,381
Performance fees
8,531 (b)
Interest expense
7,294 (c)
Investment research and other
expenses
1,767
Professional fees
1,632
Organizational expenses
119
Total expenses
46,010
Management fees waived
(733) 733(a)
Net expenses
45,277
Net investment income
183,550
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on investments
11,102
Net change in unrealized gain (loss) on investments
58,599
Net realized and unrealized gain (loss) on investments
69,701
Net increase in partners’ capital resulting
from operations
253,252
Less: Income attributable to non-controlling
interest
Net increase in partners’ capital
resulting from operations attributable
to controlling interest
$
253,252
Pro forma earnings per share:
Basic
$ (d) $ (e)
Diluted
$ (d) $ (e)
Pro forma number of shares used in computing earnings per share:
Basic
Diluted
 
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HealthCare Royalty, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 2021
Historical
Pro Forma (unaudited)
HealthCare Royalty
Partners
Reorganization
Transactions
Offering
HealthCare
Royalty, Inc.
($ thousands, except share-related amounts)
Assets
Cash and cash equivalents
$ 64,629 $ (h)(i) $ (g) $       
Investments, at fair value
2,524,324
Interest receivable
3,451
Deferred borrowing costs
1,051
Prepaid assets
128
Receivable from affiliate
18
Total assets
$ 2,593,601 $ $ $
Liabilities and Partners’ Capital/Shareholders’ Equity
Liabilities
Revolving credit
$ 493,000 $ $ $
Debt Obligations
(h)
Performance Fee payable to Manager
6,871
Accrued expenses
1,391
Due to Manager
1,373
Management fees payable
21
Interest payable
(h)
Total liabilities
502,656
Partners’ Capital/Shareholders’ Equity
Class A common stock, par value
$      per share, shares authorized;
no shares issued and outstanding, on
an actual basis; shares authorized, no
shares issued and outstanding, on a
pro forma basis; million shares
authorized; shares issued and
outstanding, on a pro forma as adjusted
basis
(f) (g)
Class B common stock, par value $      per share, shares authorized; no shares issued and outstanding, on an actual basis; shares authorized; no shares issued and outstanding, on a pro forma basis; shares authorized; shares issued and outstanding, on a pro forma as adjusted basis
(f)(i) (g)
Partners’ capital
2,090,945
(f)
Additional paid-in capital
Retained earnings
Non-controlling interest
(f)
Total partners’ capital/shareholders’ equity
2,090,945
Total liabilities and partners’ capital/shareholders’ equity
$ 2,593,601 $ $ $
 
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(a)
Reflects the recognition of incremental Operating and Personnel Payments of $4.8 million and $4.4 million for the three months ended March 31, 2021 and for the year ended December 31, 2020, respectfully. Under the terms of the new Management Agreement, no management fees will be waived, and the Operating and Personnel Payments will be calculated as described in “The Manager — Management Agreement”.
(b)
After giving effect to the Reorganization Transactions and the sale of Class A common stock pursuant to this offering, there will be a change to the amount of performance fees. No adjustment has been made as an amount cannot be quantified at this time.
(c)
Reflects the interest expense for the $      million Senior Notes and the $     million Senior Secured Term Loan and the unused revolver fees on the $    million new Senior Secured Revolving Credit Facility we expect to issue and enter into prior to the offering.
(d)
Number of shares of Class A common stock issued in the Reorganization Transactions.
(e)
Number of shares of Class A common stock issued in this offering.
(f)
As a result of this offering and the Reorganization Transactions, we will initially own 100% of the economic interest of Holdings LP. Immediately following the closing of this offering, the ownership percentage held by the non-controlling interest will be    %. The non-controlling interest consists of the following: (i)    % attributable to non-controlling interest holders of certain subsidiaries of Holdings LP, (ii)    % attributable to non-controlling interest holders of Holdings LP held by the Continuing Investor Partnerships, and (iii)    % attributable to non-controlling interest holders of Holdings LP held by the Continuing Investors. In the future, there will be a non-controlling interest related to the Equity Performance Awards granted to Equity Performance Awards Holdings, as further described in “The Manager — Equity Performance Awards”. Upon the completion of the offering and reorganization the Class A common stock will consist of the       shares issued in this offering and      shares from the limited partners that elected to be exchanged from Class B units into Class A common shares, net of the Reorganization Buyback.
(g)
We estimate that the net proceeds to us from the sale of shares of our Class A common stock in this offering will be approximately $      , or approximately $      if the underwriters exercise their option to purchase additional shares of Class A common stock in full, assuming an initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses. There will be no proceeds to us from the issuance of shares of Class B common stock.
(h)
Concurrently with the completion of this offering, we expect to issue $ million Senior Notes and enter into a $ million Senior Secured Term Loan and a $    million new Senior Secured Revolving Credit Facility. Such proceeds, together with a portion of the proceeds from this offering will be used to fund the Reorganization Buyback Transaction.
(i)
Immediately following the closing of this offering, a portion of the Holdings LP Class B Units indirectly held by Continuing Investors in the Continuing Investor Partnership as well as a portion of Class A common stock will be repurchased on a pro rata basis by Holdings LP at the initial public offering price per share, assuming such Holdings LP Class B Units were exchanged for shares of Class A common stock on a one-for-one basis, and retired in exchange for cash.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our financial condition and results of operations. MD&A is provided as a supplement to, and should be read in conjunction with, our audited combined financial statements and the accompanying Notes to combined financial statements and Unaudited Pro Forma Financial Information. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus.
Business Overview
We are the leading mid-market royalty acquisition company, focusing on growth assets and emerging companies driving innovation in the biopharmaceutical industry. Our founders have been pioneers in the healthcare royalty and debt financing markets since 2001, and formed HCR in 2006 to build on their leadership in collaborating with inventors, academic institutions, small and mid-cap biotechnology companies and leading global pharmaceutical companies. Our in-house scientific, regulatory and transactional capabilities differentiate us from other industry participants and are the basis for our reputation among potential partners as knowledgeable, creative, and able to solve complex and potentially significant financing needs. Our senior team’s acquisition and financing approach, which has been honed over two decades to be both scalable and repeatable, has resulted in a long history of acquiring interests in both pre-approval and approved innovative therapies targeting large unmet or underserved medical needs. We have purposefully built a diverse portfolio across the therapeutic spectrum, including blockbuster assets such as Shingrix, innovative growth products such as Krystexxa, and recently launched products such as Xpovio. We believe that our (i) proprietary internal research and regulatory capabilities, (ii) mid-market focus, (iii) structuring flexibility, (iv) refined process designed to enable repeatable results and (v) regional sourcing model enable us to participate in the compounding growth seen in the biopharmaceutical sector and cement our leadership position.
Generally, we are agnostic with respect to transaction structure types if the underlying asset quality is attractive. We believe we are uniquely positioned as a firm with long-term experience and a track record of deploying substantial amounts of capital across a wide range of Royalty-Related Transaction types. Below are a variety of structure types that we have utilized since our inception in 2006 and that certain team members have utilized since 2001.
Counterparty is Royalty Recipient

Royalty purchases represent purchases of all or part of existing royalty contracts in exchange for some or all of the cash flows from those underlying contracts. These royalty contracts are entered into when an inventor, research institution, university, biopharmaceutical company or someone else with an interest in a product (a “licensor”) signs a licensing agreement with a third-party marketer, such as a larger pharmaceutical company. Under these license agreements, the licensor is entitled to receive a stream of cash flow payments based on the future sales of the product, including through royalties and milestones, but typically has no role in the product’s commercialization, which is performed by a third-party marketer. Royalty purchases are classified as royalty interests in our combined financial statements included elsewhere in this prospectus.

Royalty notes represent structured financing solutions whereby an issuer may place the royalty contract(s) and often the intellectual property and other assets underlying the royalty contract into a bankruptcy-remote special purpose vehicle (“SPV”) and issue debt from the SPV. The debt is then serviced by the applicable royalty stream related to the royalty contract. Royalty notes are classified as notes in our combined financial statements included elsewhere in this prospectus.
 
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Counterparty is Product Marketer

SYNTHETIC ROYALTY™ financings represent highly structured, non-dilutive financing alternatives where we create a royalty contract with a biopharmaceutical company that owns the rights to one or more products and typically plays the principal role in the commercialization, marketing and sales of such product. This contract entitles us to receive a portion of the cash flow payments from future sales of a product. We can also structure these contracts as debt financings with a fixed interest component as well as a contingent interest component based on product sales. SYNTHETIC ROYALTY™ financings are classified as royalty interests in our combined financial statements included elsewhere in this prospectus.

Structured debt represents securities that are typically collateralized by all or certain assets. In these situations, our underwriting is based on the value of a product(s) owned by the company as well as general credit related factors. In addition, we have also purchased convertible notes, which may be either secured or unsecured. Structured debt acquisitions are classified as notes in our combined financial statements included elsewhere in this prospectus.
Background and Format of Presentation
The combined financial statements included elsewhere in this prospectus reflect the historical financial results of Legacy HCR Partnerships that will have contributed their assets into a single partnership (the “Continuing Investor Partnership”) that we controlled. Historically, Legacy HCR Partnerships operated independently as limited partnerships and prepared their financial statements in accordance with accounting standards for investment companies, which includes measuring investments on a fair value basis. As a result, the combined financial statements included elsewhere in this prospectus as well as this MD&A present our historical results as an investment company. Refer to Note 1 “Organization” of our combined financial statements included elsewhere in this prospectus.
Following this offering, we will prepare our consolidated financial statements as an operating company, and expect to measure the majority of our assets using the amortized cost method accounting methodology (the “New Methodology”). As an operating company, the royalty interests and notes that we hold upon the closing of this offering and will acquire in the future will be treated as investments in cash flow streams and classified as financial assets. Throughout this section and elsewhere in this prospectus, we have highlighted key differences between our Historical Methodology (as defined below) and the New Methodology.
Historically, we have been paid by each of the fee-paying Legacy HCR Partnerships on an individual basis. Each fund has a management fee component, generally set as a fixed fee or a fee based on the capital commitments or value of the assets in the fund. Most of the Legacy HCR Partnerships also paid a performance fee or provided us the opportunity to earn carried interest.
Following this offering, the Continuing Investor Partnership will pay an operating and personnel fee to the Manager. This fee will be based on Royalty Receipts, as more fully discussed below in “— Understanding our Results of Operations”. We will also provide an affiliate of the Manager with an opportunity to earn performance shares based on various performance metrics as more fully discussed in “The Manager — Equity Performance Awards”.
In accordance with GAAP, under both our historical accounting methodology and the New Methodology, we classify our financial assets as investments, with (i) royalty purchases and SYNTHETIC ROYALTY™ financings categorized as royalty interests and (ii) royalty notes and structured debt categorized as notes.
Understanding our Financial Reporting
Historical Accounting Methodology
In our historical combined financial statements, both royalty interests and notes are treated as debt transactions with contingent future payments to which we assign a fair value each period by applying a discounted cash flow methodology (the “Historical Methodology”). Under this methodology, we
 
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determine fair value based on the net present value of the projected cash flows, using future cash flows and a discount rate to reflect market conditions and other quantitative and qualitative factors. Payments received from royalty interests are treated in part as income, calculated using the projected internal rate of return (“IRR”) from the discounted cash flow, and in part as repayment of the acquisition cost. Payments received from notes are treated in part as interest and in part as principal payments based on the structure of each note. Repayments of acquisition cost and principal payments reduce the carrying value of our investments. Note interest and paid-in-kind interest are recorded on an accrual basis. Royalty income is recorded based on the calculated IRR for a particular asset, except where the investment fair value is less than the unrecovered cost. If the investment fair value is less than unrecovered cost, cash received is treated as a return of cost in the current and subsequent periods until the unrecovered cost is lower than or equal to fair value as of each measurement date.
The preparation of our historical combined financial statements in this manner requires the use of estimates and assumptions that affect the reported amounts and disclosures in the combined financial statements and accompanying notes. The most significant judgments and estimates applied by management are associated with determining fair value, including management’s judgment in forecasting the expected future cash flows of the underlying royalty interests and notes, the expected duration of the royalty interest and the discount rate used to determine net present value under a discounted cash flow methodology. Our cash flow forecasts and discount rates are evaluated each reporting period against the original underwriting conditions and adjusted, as necessary, based on several factors, including: (i) approval status and launch trajectory; (ii) change in commercial prospects, including approval of generic versions; (iii) change in regulatory environment, (iv) change in intellectual property, including remaining patent or license terms and exclusivity; (v) change in manufacturing; (vi) change in end market indications; (vii) change in foreign exchange rates and (vii) subsequent similar transactions. In any given reporting period, any increase or decrease in the expected future cash flows associated with a royalty interest or note is recognized as an unrealized gain or loss for that period which is presented on our combined Statements of Operations.
As a result of the immediate unrealized activity associated with applying the discounted cash flow methodology, our combined Statements of Operations activity in respect of many of our royalty interests and notes can be volatile and unpredictable across periods. Small changes to the expected future cash flows over a multi-year period can result in an immediate unrealized gain or loss on the combined Statement of Operations, even though the applicable cash inflows will not be received for many years into the future. For example, in the first half of 2018, we acquired our royalty interest on GIAPREZA from La Jolla Pharmaceutical Company. We recognized net increases in partners capital resulting from operations of $9.5 million over the ensuing six quarters. In the fourth quarter of 2019, certain events, including a slower than expected launch, caused us to update our cash flow forecasts and discount rates for this royalty interest. As a result of such updates, we recognized a net decrease in partners capital resulting from operations of $59.3 million on this royalty interest for that quarter. Over the course of the following four quarters in 2020, we again recognized a net increase in partners’ capital resulting from operations of $8.1 million as a result of the discounted cash flow methodology.
Income and loss recorded under the discounted cash flow methodology bears limited relation to actual cash received in any given quarter. For instance, in the La Jolla Pharmaceutical Company example noted above, during the first six quarters following our investment, we recognized an aggregate net increase of $9.5 million in partners capital resulting from operations but only received $1.9 million of Royalty Receipts from the GIAPREZA sales. In comparison, our acquisition of Vimpat yielded $34.5 million of unrealized gains, in the aggregate, during the first two quarters following our investment. However, we received $86.9 million of Royalty Receipts from Vimpat sales during the same period.
New Methodology
We are currently evaluating each of our financial assets and following this offering, we expect to measure the majority of our acquisitions at amortized cost under the amortized cost accounting methodology. Under this New Methodology, we will calculate the effective interest rate on each royalty interest or note using a forecast of the expected cash flows to be received over the life of the royalty interest or note relative to either the conversion price at the time of this offering, for existing investments,
 
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or the initial acquisition price, for new investments acquired following this offering. The yield, which will be calculated at the end of each reporting period and applied prospectively, will then be recognized via accretion into income at the effective rate of return over the expected life of the royalty interest or note. For structured debt acquisitions, where no additional cash flows are expected aside from the interest and amortization payments defined in the acquisition agreement, we will calculate interest income using the effective interest method.
The preparation of our consolidated financial statements under the New Methodology requires the use of similar estimates, judgments and assumptions that affect both our reported assets and liabilities and our income and revenue and expenses. As with the Historical Methodology, the most significant judgments and estimates applied by management are associated with the measurement of income derived from our royalty interests and notes. Under the New Methodology, our cash flow forecasts will be generated and updated each reporting period based on management’s internal analysis. We also may look to supplement this internal analysis through other means, such as by manually compiling sell-side equity research analysts’ consensus estimates for each of the products in which we have royalty interests or notes rather than a discounted cash flow analysis. We will then calculate our expected royalty cash flows using updated forecasts to derive an effective yield for accretion into income. Changes in projected future cash flows generally would not result in an immediate unrealized gain or loss, unlike with the Historical Methodology. However, small declines in forecasts over a multi-year period can also, in certain instances, result in an immediate non-cash income statement adjustment, in addition to the adjustments to applicable cash inflows that will be realized for many years into the future.
We expect the New Methodology to produce similar volatile and unpredictable activity on our Statement of Operations as with the Historical Methodology in certain cases, particularly in the case of large write-downs. However, as noted above, the recognition of this activity will be displayed differently than under the historical accounting method. In the previous GIAPREZA example, under the New Methodology, we would expect the write-downs to have a similar impact on our Statement of Operations, through which they would be recorded as a cumulative provision rather than an unrealized loss.
The GIAPREZA example above details the impact and timing of a large write-down under our historical and New Methodology. Set forth below are two examples highlighting instances where the magnitude of changes in projected future cash flows during a given period would result in immediate changes to future income under the Historical Methodology but would not warrant an immediate impact, including through the establishment of a provision, under the New Methodology.

Projected future cash flows of an investment increase 5%: Under the Historical Methodology, we would discount the increased projected future cash flows to present and record an unrealized gain in the current period. Under the New Methodology, the increase in projected future cash flows would not result in any immediate unrealized gain and would be recorded as additional income using an effective interest rate over the remaining life of the investment.

Projected future cash flows of an investment decrease 5%: Under the Historical Methodology, we would discount the decreased projected future cash flows to present and record an unrealized loss in the current period. Under the New Methodology, the decrease in projected future cash flows would not result in any immediate unrealized loss or provision and would be recorded as a reduction to income using an updated effective interest rate over the remaining life of the investment.
Non-GAAP Financial Measures
While the New Methodology may, in certain instances, result in less volatility in income, both methodologies produce results that management believes are not necessarily indicative of cash flow performance during a reporting period. Therefore, our management does not use income from royalties, interest from notes and the associated unrealized gains or losses under the Historical Methodology to assess our near-term operating performance, as a measure of our ability to meet our operating and working capital requirements or as a source for predicting future growth trends. Our management uses Adjusted EBITDA and Adjusted Cash Flow (each defined below), all non-GAAP financial measures,
 
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as indicators of our cash flow and operating performance. Our management also uses Adjusted Cash Flow to compare our performance against non-GAAP financial measures used by other comparable companies in the biopharmaceutical industry. We also anticipate that Adjusted EBITDA will be used by our potential lenders to assess our ability to meet our financial covenants.
Adjusted EBITDA and Adjusted Cash Flow are non-GAAP financial measures that are both most closely comparable to the GAAP measure, Net cash used in operating activities. We anticipate that Adjusted EBITDA will be important to our lenders and is calculated as Royalty Receipts less Payments for operating costs and professional services from the combined Statements of Cash Flows. Adjusted Cash Flow is defined as Adjusted EBITDA less Interest paid from the combined Statements of Cash Flows.
We expect our calculations of these non-GAAP financial measures to be substantially similar under the New Methodology.
Please refer to the following table for a reconciliation of our non-GAAP financial measures to their most closely comparable GAAP measure:
Three Months Ended March 31,
($ in thousands)
2021
2020
Cash flow data (GAAP)
Net cash provided by (used in):
Operating activities
$ 5,676 $ (204,687)
Net cash provided by (used in) operating activities
$ 5,676 $ (204,687)
Adjustments:
Interest paid
2,904 763
Acquisitions of investments
132,500 280,000
Adjusted EBITDA (non-GAAP)
$ 141,080 $ 76,076
Net cash provided by (used in) operating activities
$ 5,676 $ (204,687)
Adjustments:
Acquisitions of investments
132,500 280,000
Adjusted Cash Flow (non-GAAP)
$ 138,176 $ 75,313
Years Ended December 31,
($ in thousands)
2020
2019
Cash flow data (GAAP)
Net cash provided by (used in):
Operating activities
$ (649,540) $ (174,248)
Net cash used in operating activities
$ (649,540) $ (174,248)
Adjustments:
Interest paid
6,456 1,073
Acquisitions of investments
1,013,680 397,649
Adjusted EBITDA (non-GAAP)
$ 370,596 $ 224,474
Net cash used in operating activities
$ (649,540) $ (174,248)
Adjustments:
Acquisitions of investments
1,013,680 397,649
Adjusted Cash Flow (non-GAAP)
$ 364,140 $ 223,401
 
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Portfolio Overview
Our portfolio is diversified across therapeutic categories, treatment modalities, indications and marketers. As of June 30, 2021, no single asset accounted for more than 11% of our portfolio, the top three products accounted for 26% of our portfolio and the top three marketers represented 33% of our portfolio, in each case as measured by projected Royalty Receipts.
Royalty Receipts is the sum of the following items from our combined Statements of Cash Flows: (i) Cash collections from royalty interests, (ii) Cash collections from notes, and (iii) Proceeds from sale of investments. Projected Royalty Receipts represent our cumulative cash flow forecasts from July 2021 through the projected terminal date for our current portfolio. Our projections of Royalty Receipts for each investment are based upon various assumptions about the performance of the assets in which we invest, including the ability of marketers to generate sales, multiple caps and other variables dependent upon the efforts of third parties and other developments beyond our control. The following table shows how we calculate Royalty Receipts:
Three Months Ended March 31,
($ in thousands)
2021
2020
Royalty Receipts
Cash collections from royalty interests
$ 98,701 $ 26,179
Cash collections from notes
19,785 12,145
Proceeds from sales of investments
33,010 49,391
Royalty Receipts
$ 151,496 $ 87,715
Years Ended December 31,
($ in thousands)
2020
2019
Royalty Receipts
Cash collections from royalty interests
$ 227,440 $ 171,500
Cash collections from notes
55,803 45,836
Proceeds from sales of investments
121,838 35,616
Royalty Receipts
$ 405,081 $ 252,952
As of June 30, 2021, the assets in our portfolio represented 12 therapeutic categories, with the top category representing 21% and the top three categories representing 49% of the portfolio as measured by projected Royalty Receipts. We also have meaningful exposure to drugs that have received special designation from the FDA, including, but not limited to, Orphan Drug Exclusivity.(1) These products comprise 41% of the portfolio as of June 30, 2021 (by projected Royalty Receipts). We believe special designation by the FDA is indicative of our asset criterion that products satisfy an unmet or underserved medical need. Also, orphan drugs receive market protection along with intellectual property protection. Under the Orphan Drug Act, the FDA may grant orphan designation to a product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States.
Below are key characteristics regarding the diversity and duration of our current portfolio (as of the time of the prospectus).
Diversification (as of June 30, 2021 unless otherwise indicated and based on projected Royalty Receipts)

35 products, with the largest product (Shingrix) expected to represent less than 11% of projected Royalty Receipts
(1)
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations.
 
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13 drugs that have received FDA special designation (Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations)

12 therapeutic categories, with the largest therapeutic category (neurology) representing 21% of projected Royalty Receipts

Most therapeutic categories have subcategories; for instance, neurology includes several sub-categories such as epilepsy, sleep management, migraine and Parkinson’s disease

Nevertheless, Royalty Receipts to date have been concentrated among a limited number of products, with our top 10 products accounting for 86% of Royalty Receipts for the three months ended March 31, 2021 and 81% and 82% of our Royalty Receipts for the years ended December 31 2020 and 2019, respectively.
Projected Duration (as of June 30, 2021 and weighted by projected Royalty Receipts)

10.0 years of projected duration (the projected period of time during which we expect to receive Royalty Receipts from the specific asset) from the time of acquisition (certain transactions have a limit on proceeds to us (referred to as “multiple cap”) resulting in an earlier projected terminal date relative to the contractual royalty maturity date)

11.5 years of maximum duration from the time of acquisition (excludes impact of multiple caps and uses the contractual royalty maturity date as terminal date)

In several cases, patent updates following our acquisition have resulted in a longer projected duration and/or a higher royalty rate over a longer time period; select examples include:

Myozyme — patent assumptions enhanced by 1.4 years due to resolution of a patent challenge

Brineura — patent term extension provided an additional 1.8 years at a higher royalty rate

Projected duration detail for our top 20 portfolio holdings is provided in the section of this prospectus titled “Business — Portfolio Highlights”.
The table below presents the ten products in our portfolio contributing the most Royalty Receipts for the three months ended March 31, 2021:
($ in thousands)
Royalty Receipts for
Three Months Ended
March 31,
Top Ten Products
Marketer
Therapeutic Area
2021
2020
Vimpat
UCB
Neurology
$ 47,597 $
Relistor
Bausch
Gastroenterology
33,783 2,621
Shingrix
GSK
Vaccines and anti-infectives
16,247
Zolgensma
Novartis
Rare genetic disorder
9,469
Trelegy Ellipta
GSK
Pulmonary
7,969 50,916
Gocovri/Namzaric
Adamas/AbbVie
Neurology
3,657 2,044
Udenyca
Coherus
Oncology
3,272 3,291
Fampyra
Biogen
Neurology
2,990 2,715
AndexXa
Alexion
Hematology
2,946 3,619
Benlysta
GSK
Immunology
2,866 2,157
Top Ten Products
$ 130,796 $ 67,363
All Product Royalty Receipts
$ 151,496 $ 87,575
 
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The table below presents Royalty Receipts for 2020 and 2019 for the ten products in our portfolio contributing the most Royalty Receipts in 2020.
($ in thousands)
Royalty Receipts for
Year Ended
Total Top Ten Products
Marketer
Therapeutic Area
2020
2019
Vimpat
UCB
Neurology
$ 86,852 $
AndexXa
Alexion
Hematology
83,998 11,149
Trelegy Ellipta
GSK
Pulmonary
56,390 4,171
Shingrix
GSK
Vaccines and anti-infectives
30,298 35,624
Udenyca
Coherus
Oncology
13,203 14,391
Goofice
EA Pharma
Gastroenterology
11,905 3,716
Gocovri/Namzaric
Adamas/AbbVie
Neurology
11,738 6,450
Fampyra
Biogen
Neurology
11,211 10,021
Cetrotide
Merck Serono
Endocrine
11,158 11,140
Relistor
Bausch
Gastroenterology
10,472 9,974
Top Ten Products
$ 327,224 $ 106,636
All Product Royalty Receipts
$ 405,081 $ 252,952
Understanding our Results of Operations
Unless otherwise noted, this information is presented under the Historical Methodology, which we describe above under “— Understanding our Financial Reporting”.
Total Investment Income
Total investment income is primarily comprised of income from our royalty interests and interest from our notes. Our royalties and notes are investments for which we recognize interest income and our ownership rights are generally passive in nature.
For the three months ended March 31, 2021 and 2020, the royalty payors accounting for greater than 10% of our total investment income in any one period are shown in the table below:
($ in thousands)
Contribution to total investment income for the
three months ended March 31,
Royalty Asset
Royalty payor
2021
2020
Vimpat
UCB 18% NA
Shingrix
GSK 17% 20%
Trelegy Ellipta
Theravance Biopharma
10% 6%
For the years ended December 31, 2020 and 2019, the royalty payors accounting for greater than 10% of our total investment income in any one year are shown in the table below:
Contribution to total investment income for the
years ended December 31,
Royalty Asset
Royalty payor
2020
2019
Shingrix
GSK 17% 21%
Vimpat
UCB 14%
N/A
Lyrica
Pfizer 1% 13%
Royalty Income
Our royalty interests represent investments in cash flow streams with yield components that most closely resemble loans measured at fair value under the discounted cash flow method. At the time of
 
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underwriting, we project estimated quarterly cash flows to be received or paid with respect to each royalty interest, which results in a projected IRR for such royalty interest. Subsequent to the initial investment date, the fair value of any royalty interest is determined based on the net present value of the projected cash flows, using updated expectations of future cash flows and a discount rate to reflect market conditions and other quantitative and qualitative factors. Payments received are treated in part as income, calculated using the IRR, and in part as repayment of the investment cost.
Risk-adjusted anticipated cash flows are determined by performing appropriate due diligence utilizing currently available information including, but not limited to, actual historical product sales, trends, size of patient population, market share, competition and intellectual property rights. Our royalties are directly linked to sales of underlying pharmaceutical products whose life cycle typically peaks at a point in time, followed by declining sales trends due to the entry of generic competition. Generally, when generics enter the market, we stop receiving royalties as the patents relevant to our investments have expired. The recognition of income from royalties requires management to make estimates and assumptions around many factors, including those impacting the variables noted above.
Note Interest
Our notes represent fixed and variable interest instruments that are typically collateralized by all or certain assets or are secured by royalty streams related to one or multiple products. In these situations, our underwriting is typically based on the value of a specific product or products. Investments in notes are initially valued at cost and are recognized when we have incurred an obligation to fund the investment and have contractual rights to cash flows from the note, which is typically the funding date. Subsequent to the initial investment date, such investments are recorded at estimated fair value after giving consideration to actual interest and principal payments, market conditions, and other quantitative and qualitative factors, including the net present value of the projected cash flows, using updated expectations of future cash flows and a discount rate to reflect market conditions. Future cash flows are based on the structure of each note and can include a fixed interest coupon, variable revenue interest (revenue interest on note), final payment fees and principal payments. The timing of the payment of principal can vary depending on the structure of the note. Investments can be secured by the assets or revenue streams of the counterparty. Convertible notes, where the underlying equity is publicly traded and is near or above the conversion price, are valued using one or more convertible debt pricing models taking into account the share price, the volatility of the stock and other variables.
Paid-In-Kind Interest
Some of our royalty interests and notes are structured with the ability for us to receive payments in-kind. Payments in-kind are added to the principal and cost amounts and are recorded as Paid-In-Kind interest in the combined Statements of Operations.
Management Fees
In consideration of the services provided to the Legacy HCR Partnerships in certain instances the Legacy HCR Partnerships paid an annual fee to the Legacy Manager. Management fees paid to the Legacy Manager are generally calculated by applying the management fee rate in respect of each limited partner multiplied by either (x) the capital commitment of such limited partner or by (y) the lesser of (i) the net asset value of the fund and (ii) the aggregate cost basis of the unrealized investments held by us.
In connection with this offering, we expect to enter into the Management Agreements with the Manager, pursuant to which we will pay the Manager a quarterly Operating and Personnel Payment. Following this offering, we expect to charge Operating and Personnel Payments as General and Administrative (“G&A”) expenses on the consolidated Statement of Comprehensive Income. For example, we paid the Legacy Manager an aggregate of approximately $27 million in management fees in 2020. If the Management Agreements with the Manager had been in effect for 2020, we would have paid an aggregate of $30 million in Operating and Personnel Payments for the same services. We expect the Operating and Personnel Payments to be higher than the management fees that were charged in historical periods. The Operating and Personnel Payment will be calculated quarterly as
 
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(i) 7.5% of the Royalty Receipts up to $750 million, (ii) 7.0% of the Royalty Receipts from $750 million to $1.0 billion and (iii) 6.5% of the Royalty Receipts above $1.0 billion. In each case, Royalty Receipts for the preceding four quarters will be used to determine the applicable rate. We expect the expenses incurred in respect of Operating and Personnel Payments to comprise the most significant component of G&A expenses in future periods.
Performance Fees
In consideration of the services provided to the Legacy HCR Partnerships in certain instances the Legacy HCR Partnerships paid performance fees to the Legacy Manager. The performance fees range in percentage and are applied, generally, to either Royalty Receipts or to GAAP income received within specified measurement periods.
In connection with this offering and pursuant to the Management Agreements, we will provide an affiliate of the Manager with an opportunity to earn performance shares based on various performance metrics as more fully discussed in “The Manager — Equity Performance Awards”. Following this offering, under the New Methodology, performance fees will be reflected in G&A expenses in the consolidated Statement of Comprehensive Income.
Investment Research and Other Expenses
Pre-acquisition transaction costs (primarily due diligence, research and travel costs) incurred in connection with the evaluation of specific investments are deferred and capitalized as a component of the cost basis of such investments when the transactions are consummated or are recorded as investment research and other expenses when we believe the transaction will not be consummated. Following this offering, under the New Methodology, our pre-acquisition transaction costs will be included in G&A expenses in the consolidated Statement of Comprehensive Income.
Post-acquisition costs (mostly travel-related to meet with existing counterparties) incurred in connection with the ongoing holding of investments are expensed as incurred and are included in investment research and other expenses on the combined Statements of Operations. Following this offering, under the New Methodology, post-acquisition costs will be included in G&A expenses in the consolidated Statement of Comprehensive Income.
Professional Fees
Professional fees are related to our third-party advisors including costs related to financial, tax and legal advisors. Additionally, we have historically also incurred professional fees from a fund administrator engaged by certain of the Legacy HCR Partnerships, whose services will be much more limited following this offering. Following this offering, under the New Methodology, our professional fees will be included in the G&A expenses in the consolidated Statement of Comprehensive Income. We would expect certain of our professional fees to increase as a public company and we expect to incur new costs such as directors’ and officers’ insurance as a public company.
Organizational Fees
Organizational fees are incurred primarily when establishing a new commingled private fund. We do not expect to incur this expense following this offering.
Results of Operations
For the Three Months Ended March 31, 2021 and 2020
The key developments impacting our Royalty Receipts and income from our royalty interests are discussed below.

Vimpat.    Our acquisition of Vimpat in August 2020 resulted in meaningful Royalty Receipts received by HCR in the three months ended March 31 2021, representing approximately 31% of Royalty Receipts over this period.
 
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Relistor.    Our royalty note serviced by sales of Relistor was fully paid in March 2021 following the acquisition of our counterparty, Progenics Pharmaceuticals by Lantheus Holdings. The regularly scheduled interest and amortization payment, in addition to, the pay-off and exit of our royalty note resulted in $33.8 million in Royalty Receipts to HCR in the three months ended March 31, 2021.

Shingrix.   Shingrix Royalty Receipts in the three months ended March 31, 2021 represented $16.2 million, benefiting from strong fourth quarter 2020 sales. Shingrix did not generate Royalty Receipts in the three months ended March 31, 2020 as eligible royalties temporarily reverted to Agenus in order to satisfy certain contractual obligations. Shingrix sales surpassed $2.0 billion for the twelve months ended December 31, 2019; therefore the contract provided that $15.1 million would be paid to Agenus from royalty payments otherwise due to us in respect of first quarter 2020 and second quarter 2020 royalties. $12.7 million was netted from first quarter 2020 royalties (all available royalties for that quarter) and the remaining $2.4 million obligation was netted from second quarter 2020 royalties which satisfied the $15.1 million payment obligation in full. Once the $15.1 million obligation was satisfied, all remaining royalties reverted to us.
The following table compares our historical results of operations for the three months ended March 31, 2021 and 2020:
Combined Statements for Operations for Three
Months ended March 31
($ in thousands)
2021
2020
Change
Investment income
Royalty income
$ 65,303 $ 32,871 $ 32,432 98.7%
Note interest
15,245 11,422 3,823 33.5%
Paid-in-kind interest
212 1,813 (1,601) -88.3%
Total investment income
80,760 46,106 34,654 75.2%
Expenses
Management fees
6,759 6,632 127 1.9%
Interest expense
2,915 1,217 1,698 139.5%
Performance fees
2,575 1,061 1,514 142.7%
Professional fees
348 340 8 2.4%
Investment research and other expenses
299 560 (261) -46.6%
Organizational expenses
61 (61) -100.0%
Total expenses
12,896 9,871 3,025 30.6%
Management fees waived
(183) (183) -0.0%
Net expenses
12,713 9,688 3,025 31.2%
Net investment income
68,047 36,418 31,629 86.8%
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on investments
(1,285) 2,208 (3,493) -158.2%
Net change in unrealized gain (loss) on investments
45,010 3,587 41,423 1154.8%
Net realized and unrealized gain (loss) on investments
43,725 5,795 37,930 654.5%
 
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Combined Statements for Operations for
Three
Months ended March 31
($ in thousands)
2021
2020
Change
Net increase in partners’ capital resulting from operations
$ 111,772 $ 42,213 $ 69,559 164.8%
Investment Income
Income from royalty interests and notes increased by $34.6 million, or 75.0%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to increased income from the following investments: Vimpat, Movantik/Adynovate/Rebinyn (via Nektar) and Shingrix. Vimpat and Movantik/Adynovate/Rebinyn were acquired after March 31, 2020. Shingrix generated increased income as a result of strong performance of the product driven in part by increased wellness visits and continued growth in the United States, Europe and China.
Interest Expense
Interest expense increased by $1.7 million, or 139.3%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to HealthCare Royalty Partners IV, L.P.’s acquisition of new investments and payments of management fees and partnership expenses made through increased borrowings made on the revolving credit facility. The outstanding balances on the revolving credit facility for the three months ended March 31, 2021 and March 31, 2020, were $493.0 million and $247.1 million, respectively.
Performance Fees
Performance fees increased by $1.5 million, or 142.6%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to a net increase in partners’ capital resulting from operations from continued strong performance of Shingrix, as mentioned previously, and of Vimpat, which was acquired in 2020 and, as of March 31, 2021, was the largest asset in certain of the Legacy HCR Partnerships.
Investment Research and Other Expenses
Investment research and other expenses decreased by $0.3 million, or 46.7%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to decreased due diligence related travel as a result of the COVID-19 global pandemic and related quarantines and lockdown mandates.
Organizational Expenses
Organizational expenses decreased by $0.06 million, or 99.8%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease in Organizational expenses reflects the fact that HCR did not establish a new comingled fund in the three months ended March 31, 2021. In the three months ended March 31, 2020, HealthCare Royalty Partners Fund IV L.P. was paying ongoing expenses related to the fund being raised, resulting in Organizational expenses being incurred.
Net Change in Unrealized Gain (Loss) on Investments
Net change in unrealized gain (loss) on investments increased by $41.4 million, or 1,154.8% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily related to an increase in the fair value of Giapreza.
 
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For the Years Ended December 31, 2020 and 2019
The key developments impacting our Royalty Receipts and income from our royalty interests are discussed below.

Vimpat.   Our acquisition of Vimpat in August 2020 resulted in meaningful Royalty Receipts received by HCR in the third and fourth quarters, representing approximately 21% of 2020 Royalty Receipts.

Shingrix.   Shingrix sales met certain thresholds in 2019, triggering a milestone payment from GSK to Agenus, Inc. in the first and second quarters of 2020 from Royalty Receipts normally payable to HCR.

Lyrica.   Lyrica experienced a decrease in Royalty Receipts in 2020 following the expiration of the U.S. patent.

Trelegy Ellipta I.   Theravance Biopharma issued royalty notes in March 2020 serviced by royalties from Trelegy Ellipta. The proceeds from the royalty notes were used to repay and retire a previous note issuance also serviced by Trelegy Ellipta royalties. We held positions in the prior notes and also participated in the new issuance of notes.

Goofice.   Goofice’s 2019 sales performance resulted in a $4.4 million milestone payment to us in January 2020.

AndexXa.   Alexion acquired Portola, the marketer for AndexXa, in July 2020, resulting in a pay-off of the outstanding principal amount of our senior debt investment. We still retain a SYNTHETIC ROYALTY™ interest on AndexXa sales.

Erivedge.   Our royalty note backed by Erivedge royalties was repaid and retired by Curis in March 2019.
The following table compares our historical results of operations for the years ended December 31, 2020 and 2019:
Combined Statements for Operations for Years
ended December 31
($ in thousands, except
percentages)
2020
2019
Change
Investment income
Royalty income
$ 166,467 $ 130,792 $ 35,675
27.3%
Note interest
50,397 38,060 12,337
32.4%
Paid-in-kind interest
11,953 8,399 3,554
42.3%
Other Income
10 53 (43)
(81.1)%
Total investment income
228,827 177,305 51,522
29.1%
Expenses
Management fees
26,666 20,538 6,128
29.8%
Performance fees
8,531 4,267 4,264
99.9%
Interest expense
7,294 1,219 6,075
498.4%
Investment research and other expenses
1,767 2,146 (379)
(17.7)%
Professional fees
1,632 1,308 324
24.8%
Organizational expenses
119 692 (573)
(82.8)%
Total expenses
46,010 30,170 15,840
52.5%
Management fees waived
(733) (492) (241)
49.0%
Net expenses
45,277 29,678 15,599
52.6%
Net investment income
183,550 147,627 35,923
24.3%
Net realized and unrealized
gain (loss) on investments
Net realized gain (loss) on investments
11,102 (7,706) 18,808
NM
 
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Combined Statements for Operations for
Years
ended December 31
($ in thousands, except
percentages)
2020
2019
Change
Net change in unrealized gain (loss) on investments
58,599 32,631 25,968
79.6%
Net realized and unrealized gain (loss) on investments
69,701 24,925 44,776
179.6%
Net increase in partners’ capital resulting from operations
$ 253,252 $ 172,552 $ 80,700
46.8%
Total investment income
Investment Income
Income from royalty interests and notes increased by $51.5 million, or 29.1%, in 2020 compared to 2019 primarily due to increased income from the following investments: Gocovri/Namzaric, Goofice, Vimpat and Trelegy Ellipta, the latter two of which were newly acquired in 2020. Goofice generated increased income as a result of strong performance of the product as well as from a milestone payment received by HCR relating to sales. Gocovri/Namzaric generated increased income as a result of the effects of paid-in-kind interest. The increase in income from royalty interests and notes were partially offset due to a significant decline in income related to Lyrica, which ceased making royalty payments from U.S. sales in 2020 due to expiration of the U.S. patent.
Management Fees
Management fees increased by $6.1 million, or 29.8%, in 2020 compared to 2019, primarily due to HealthCare Royalty Partners IV, L.P. entering its investment period and beginning to charge management fees, effective October 1, 2019.
Performance Fees
Performance fees increased by $4.3 million, or 99.9%, in 2020 compared to 2019, primarily due to a net increase in partners’ capital resulting from operations from Vimpat, which was acquired in 2020 and, as of December 31, 2020, was the largest asset in certain of the Legacy HCR Partnerships.
Interest Expense
Interest expense increased by $6.1 million, or 498.3%, in 2020 compared to 2019, primarily due to HealthCare Royalty Partners IV, L.P.’s acquisition of new investments and payments of management fees and partnership expenses made through increased borrowings made on the revolving credit facility. The outstanding balances on the revolving credit facility for the years ended December 31, 2020 and 2019, were $493.0 million and $82.6 million, respectively.
Investment Research and Other Expenses
Investment research and other expenses decreased by $0.4 million, or 17.6%, in 2020 compared to 2019, primarily due to decreased due diligence related travel as a result of the COVID-19 global pandemic and related quarantines and lockdown mandates.
Professional Fees
Professional fees increased by $0.3 million, or 24.8%, in 2020 compared to 2019. This increase was driven by several new funds raised by HCR in 2020 that incurred administrative and audit fees.
 
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Organizational Expenses
Organizational expenses decreased by $0.6 million, or 82.7%, in 2020 compared to 2019. The decrease in Organizational expenses reflects the fact that HCR did not establish a new comingled fund in 2020. In 2019, HealthCare Royalty Partners Fund IV L.P. was being raised, resulting in Organizational expenses being incurred.
Other Financial Measures and Non-GAAP Financial Measures
Our management reviews Royalty Receipts as a key indicator of the performance of our business and our liquidity. In addition to analyzing our results on a GAAP basis, management also reviews our results on a non-GAAP basis. Adjusted EBITDA and Adjusted Cash Flow are non-GAAP liquidity measures that are both most closely comparable to the GAAP measure, Net cash used in operating activities. We anticipate that Adjusted EBITDA will be important to our lenders and is calculated as Royalty Receipts less Payments for operating costs and professional services from the combined Statements of Cash Flows. Adjusted Cash Flow is defined as Adjusted EBITDA less Interest paid from the combined Statements of Cash Flows.
Management uses Adjusted Cash Flow as a key liquidity measure in the evaluation of our ability to generate cash from operations. We believe this measure helps assess the strength of the Company and the performance of the business. Management also uses Adjusted Cash Flow to compare our performance against non-GAAP financial measures used by companies in the biopharmaceutical industry. We anticipate that Adjusted EBITDA will be used by our potential lenders to assess our ability to meet our financial covenants.
The table below includes Royalty Receipts and our non-GAAP financial measures for the three months ended March 31, 2021 and March 31, 2020 as well as the year-over-year variance. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.
Three months ended March 31
($ in thousands)
2021
2020
Change
Royalty Receipts
$ 151,496 $ 87,715 $ 63,781 72.7%
Total Royalty Receipts
$ 151,496 $ 87,715 $ 63,781 72.7%
Payments for operating costs and professional services
(10,416) (11,639) 1,223 -10.5%
Adjusted EBITDA (non-GAAP)
$ 141,080 $ 76,076 $ 65,004 85.4%
Interest Paid
(2,904) (763) (2,141) 280.5%
Adjusted Cash Flow (non-GAAP)
$ 138,176 $ 75,313 $ 62,863 83.5%
Royalty Receipts
Royalty Receipts increased by $63.8 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily as a result of changes in Royalty Receipts related to the following investments.

Vimpat — Royalty Receipts from our new $307.7 million investment in Vimpat in 2020 accounted for $47.6 million of the increase in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Relistor — Royalty Receipts from Relistor increased by $31.2 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, driven by Lantheus Holdings, Inc. completing its acquisition of Progenics Pharmaceuticals, Inc. in June 2020. In March 2021 Lantheus provided notice of their intent to payoff the debt and did so on March 31, 2021.
 
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Shingrix — Royalty Receipts from Shingrix increased by $16.2 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Shingrix did not generate any Royalty Receipts for the three months ended March 31, 2020.

Trelegy Ellipta — Royalty Receipts from Trelegy Ellipta decreased by $42.9 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The Trelegy Ellipta 2018 bonds were repaid in full during the three months ended March 31, 2020. The Trelegy Ellipta 2020 bonds received a scheduled interest and partial principal payment during the three months ended March 31, 2021.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased by $65.0 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 also as a result of the factors noted above in “— Royalty Receipts”. Payments for operating costs and professional services, the only adjustment between Royalty Receipts and Adjusted EBITDA, decreased in the three months ended Marched 31, 2021 as a result of lower management fees paid due to the end of the investment period of HealthCare Royalty Partners III, L.P. as mentioned previously in Results of Operations.
Adjusted Cash Flow (Non-GAAP)
Adjusted Cash Flow increased by $62.9 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily for the same reasons noted above “— Royalty Receipts” and “Adjusted EBITDA (Non-GAAP)”. Interest paid, the only adjustment between Adjusted EBITDA and Adjusted Cash Flow, increased in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to an increase in the average balance outstanding on the revolving credit facility utilized by HealthCare Royalty Partners IV, L.P.
The table below includes Royalty Receipts and our non-GAAP financial measures for the years ended December 31, 2020 and 2019 as well as the year-over-year variance. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.
Years ended December 31
($ in thousands, except percentages)
2020
2019
Change
Royalty Receipts
$ 405,081 $ 252,952 $ 152,129
60.1%
Total Royalty Receipts
$ 405,081 $ 252,952 $ 152,129
60.1%
Payments for operating costs and professional services
(34,485) (28,478) (6,007)
21.1%
Adjusted EBITDA (non-GAAP)
$ 370,596 $ 224,474 $ 146,122
65.1%
Interest Paid
(6,456) (1,073) (5,383)
501.7%
Adjusted Cash Flow (non-GAAP)
$ 364,140 $ 223,401 $ 140,738
63.0%
Royalty Receipts
Royalty Receipts increased by $152.1 million in 2020 compared to 2019 primarily as a result of changes in Royalty Receipts related to the following investments.

Vimpat — Royalty Receipts from our new $307.7 million investment in Vimpat in 2020 accounted for $86.9 million of the increase in 2020 compared to 2019.

AndexXa — Royalty Receipts from AndexXa increased by $72.8 million in 2020 compared to 2019, driven by Alexion Pharmaceuticals’ acquisition of Portola Pharmaceuticals on July 2, 2020 for $1.4 billion ($18 per share), a 132% premium to Portola’s share price at the time of announcement. The acquisition resulted in the repayment of HCR’s $62.5 million senior debt.
 
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Trelegy Ellipta — Royalty Receipts from Trelegy Ellipta increased by $52.2 million in 2020 compared to 2019. This increase was driven by Theravance’s upsized offering of Trelegy-backed royalty notes in March 2020 and the use of a portion of the proceeds to pay off the existing note.

Lyrica — Royalty Receipts from Lyrica decreased by $43.6 million in 2020 compared to 2019. This decrease was driven by the expiration of the U.S. patent.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased by $146.1 million in 2020 compared to 2019 also as a result of the factors noted above in “— Royalty Receipts”. Payments for operating costs and professional services, the only adjustment between Royalty Receipts and Adjusted EBITDA, increased in 2020 as a result of higher management fees paid due to HealthCare Royalty Partners IV, L.P. having a full year of operations in 2020 compared to only three months in 2019.
Adjusted Cash Flow (Non-GAAP)
Adjusted Cash Flow increased by $140.7 million in 2020 compared to 2019 primarily for the same reasons noted above “— Royalty Receipts” and “Adjusted EBITDA (Non-GAAP)”. Interest paid, the only adjustment between Adjusted EBITDA and Adjusted Cash Flow, increased in 2020 compared to 2019 due to an increase in the average balance outstanding on the revolving credit facility utilized by HealthCare Royalty Partners IV, L.P.
Recent Acquisition Activity Overview
Members of our team have more than an aggregate of 500 years of relevant healthcare experience. Since 2001, members of our senior team have executed on 90 Royalty-Related Transactions comprising 93 products. We have grown from $249 million deployed in 2014 to $1 billion deployed in 2020, reflecting a compound annual growth rate of 27%. As we have grown, we have continued to refine and hone our process, methodically expanding our team’s capabilities and geographic presence to facilitate our pace of growth. Through our planned expansion, we have maintained a consistent process based on a high level of rigor and selectivity when evaluating Royalty-Related Transactions.
Beginning in 2014, we implemented a thoughtful expansion of our business, including the addition of regional offices, insourcing of scientific and medical expertise, expansion of our Senior Advisors, and an accelerated pace of capital raised and deployed. These initiatives, including general infrastructure and corporate structuring, has resulted in future scalable growth and enabled the deployment of approximately $3.2 billion in capital over the last seven years. While annual deployment may be uneven from year to year due to the unpredictable timing of new Royalty-Related Transaction opportunities, we have consistently deployed significant amounts of capital when measured over multi-year periods.
Our current portfolio consists of thoughtfully curated exposure to emerging biopharmaceutical companies with innovative modalities across therapeutic categories. Included below is a description of Royalty-Related Transactions made in 2019, 2020 and the six months ended June 30, 2021.
Summary of Recent Royalty-Related Transaction Activity

In June 2021, we entered into a SYNTHETIC ROYALTY™ financing with Karyopharm, for up to $100 million on their lead product, Xpovio, a first-in-class oral therapy currently marketed in the U.S. for the treatment of patients with heavily pretreated multiple myeloma. $60 million was funded at closing, with two additional $20 million tranches contingent on certain sales and indication expansion thresholds.

In June 2021, we acquired royalties on Botox, specifically for use to prevent headaches in patients with chronic migraine, for an upfront payment of $40 million.

In March 2021, we acquired royalties on Ruxience, the second-to-market biosimilar for Rituxan, an oncology product for the treatment of patients with non-Hodgkins lymphoma, from
 
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Aptevo Therapeutics Inc. for up to $67.5 million. $35 million was funded at closing with the remaining $32.5 million subject to sales milestones from 2021 through 2023.

In February 2021, we acquired additional royalties on Krystexxa, a product used to treat chronic gout from a co-inventor.

In February 2021, we acquired royalties on Vafseo, an oral treatment for anemia in chronic kidney disease from Akebia Therapeutics for up to $60 million. $45 million was funded at closing with the remaining $15 million subject to sales milestones from 2021 through 2023.

In August 2020, we acquired royalties on Vimpat, an approved treatment for epilepsy, from an inventor for an upfront payment of $308 million.

In December 2020, we acquired royalties on Zolgensma, an approved gene therapy for children less than 2 years old with spinal muscular atrophy, from RegenxBio for $200 million.

In December 2020, we acquired royalties on Movantik, an approved product for opioid-induced constipation, Adynovate and Esperocet, both recombinant coagulation Factor VIII treatments for Hemophilia A, and Rebinyn, a recombinant coagulation Factor IX treatment for Hemophilia B, from Nektar Therapeutics for $150 million.

In June 2020, we acquired residual royalties on Goofice, an approved product for constipation, from Albireo Pharma for $15 million. We made an initial purchase of Goofice royalties in December 2017 for $45 million, which provided us with royalties up to 1.75x our purchase price. Our purchase in June 2020 provides us with all available royalties above the original 1.75x cap.

In April 2020, we entered into a SYNTHETIC ROYALTY™ financing with Chiasma, for up to $75 million on their lead product Mycappsa, an oral therapy for acromegaly, a rare, serious chronic disease causing the release of excessive growth hormone in adults. HCR funded the first tranche of $25 million in April 2020 prior to Mycappsa’s approval, $25 million in July 2020 upon FDA approval and $15 million in September 2020 upon the product’s launch. A final $10 million tranche is subject to certain sales levels being met by the end of 2021.

In February 2020, we acquired $200 million in royalty notes issued by Theravance Biopharma that are serviced from royalties on Trelegy Ellipta, a novel triple-combination oral inhaler therapy used to treat chronic obstructive pulmonary disease and asthma.

In February 2020, we entered into a term loan agreement with RedHill Biopharma for up to $100 million, of which $80 million was funded upfront. In addition to fixed interest of Libor + 8.20%, we purchased royalties on all of RedHill’s products (Movantik, Talicia, Aemcolo), of which Movantik, an approved product for opioid-induced constipation, is the most substantial.

In September 2019, we entered into a SYNTHETIC ROYALTY™ financing with Karyopharm Therapeutics for up to $150 million on their lead product Xpovio, a first-in-class oral therapy currently marketed in the U.S. for the treatment of patients with heavily pretreated multiple myeloma. $75 million was funded upfront with the remaining $75 million subject to our and Karyopharm’s mutual election and the achievement of certain sales and indication expansion thresholds.

In September 2019, we acquired royalties on Kryxtexxa, an approved therapy for the treatment of chronic gout, from a co-inventor.

In April 2019, we acquired royalties and potential milestones on Sunosi, an approved therapy for the treatment of excessive sleepiness in adult patients with narcolepsy or obstructive sleep apnea for $100 million.

In March 2019, we acquired royalties on Copiktra, an approved therapy for the treatment of chronic lymphocytic lymphoma (“CLL”) and small lymphocytic lymphoma (“SLL”) from Infinity Pharmaceuticals for up to $50 million. $30 million was funded at closing with the remaining $20 million subject to sales milestones in 2019 and 2020, which have since expired unfunded.
 
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In March 2019, we entered into a term loan agreement with Portola Pharmaceuticals for $62.5 million of which $31.25 million was funded upfront. The remaining $31.25 million was funded in September 2019 following the achievement of certain sales and regulatory milestones. This investment was exited in July 2020, following Alexion’s acquisition of Portola.

In February 2019, we acquired $32.5 million in royalty notes issued by Paratek Pharmaceuticals that are serviced from royalties on Seysara, the only oral antibiotic designed specifically for acne patients.

In January 2019, we entered into a $75 million term loan agreement with Coherus Biosciences.
Our aggregate returns historically in the biopharmaceutical sector have been in the mid-teens on a gross basis. However, although we have not done so in the past six years, in the past, we have invested in a limited number of assets outside of our core focus, which in the aggregate have generated negative returns. These non-core assets were all either medical technology, diagnostics or equity investments.
Liquidity and Capital Resources
Overview
Prior to this offering, our primary source of liquidity has been contributions from limited partners. For the three months ended March 31, 2021 and March 31, 2020, the limited partners contributed $139.0 million and $119.5 million, respectively. For the years ended December 31, 2020 and 2019, the limited partners contributed $555.9 million and $385.1 million, respectively. Following this offering, we believe that our primary source of liquidity will be cash provided by operations. We believe that the capital resources available to us following this offering and our Royalty Receipts will allow us to meet our operating and working capital requirements, to fund Royalty-Related Transactions and to meet potential debt service obligations for the foreseeable future. Our primary cash operating expenses following this offering, will include interest expense, our Operating and Personnel Payments, and legal and professional fees.
Following this offering, we expect to have access to substantial sources of funds from numerous banks worldwide, and we may, from time to time, seek additional capital through a combination of additional debt or equity financings. Our ability to satisfy our working capital needs and potential debt service and other obligations, and to comply with potential financial covenants under our financing agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.
We have historically funded our acquisitions through contributions from limited partners and debt. Our low operating costs coupled with a lack of capital expenditures have contributed to our strong financial profile, resulting in high conversion of our Royalty Receipts to Adjusted Cash Flow. Following this offering, we expect to fund current and planned operating costs (excluding acquisitions) principally through our cash flow from operations and our acquisition program through cash flow and issuances of equity and debt.
As of March 31, 2021 and December 31, 2020, we had an outstanding balance of $493.0 million on our existing revolving credit facility. HealthCare Royalty Partners IV, L.P. called capital from its limited partners and paid off the revolving credit facility balance in full on June 28th, 2021.
Cash flows
The following table summarizes our cash flow activities:
Three Months Ended March
Years Ended December 31,
($ in thousands)
2021
2020
2020
2019
Cash provided by (used in):
Operating activities
$ 5,676 $ (204,688) $ (649,540) $ (174,248)
 
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Three Months Ended March
Years Ended
December 31,
($ in thousands)
2021
2020
2020
2019
Financing activities
47,220 204,511 651,128 174,020
Analysis of Cash Flow Changes between the Three Months Ended March 31, 2021 and 2020 and the Years Ended December 31, 2020 and 2019
Operating activities
Cash provided by operating activities increased by $210.4 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily as a result of lower acquisition amounts for of Ruxience, Krystexxa and Vafseo when compared to the acquisitions made in the three months ended March 31, 2020. In addition, the increase was also a result of an increase in Royalty Receipts from Vimpat, Relistor and Shingrix as previously mentioned in Other Financial Measures and Non-GAAP Financial Measures.
Cash used in operating activities increased by $475.3 million during the year ended 2020 compared to the year ended 2019, primarily as a result of increased deployment, including the acquisitions of Vimpat, Trelegy Ellipta and Zolgensma, partially offset by an increase in Royalty Receipts from Vimpat of $86.9 million and the repayment of outstanding indebtedness by Portola and Theravance Biopharma.
Financing activities
Cash provided by financing activities decreased by $157.3 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily as a result of the revolving credit facility reaching its maximum commitment in 2020.
Cash provided by financing activities increased by $477.1 million during the year ended 2020 compared to the year ended 2019, primarily as a result of increased capital contributions from limited partners of $173.6 million and borrowings of $354.1 million under the revolving credit facility used to fund the acquisition of new royalty interests and notes, including those for Vimpat, Trelegy Ellipta and Zolgensma.
Sources of Capital
As of March 31, 2021 and December 31, 2020, our cash and cash equivalents totaled $64.6 million and $11.7 million, respectively. Following this offering, we intend to fund short-term and long-term financial obligations as they mature through cash and cash equivalents, future cash flows from operations or the issuance of additional equity and debt. Our ability to generate cash flows from operations, issue equity and debt or enter into financing arrangements on acceptable terms could be adversely affected if there is a material decline in the sales of the underlying pharmaceutical products in which we hold royalties, deterioration in our key financial ratios or credit ratings, or other material unfavorable changes in business conditions. Following this offering, we believe that we will have sufficient financial flexibility to issue equity and debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives.
Borrowings
On April 19, 2019, HealthCare Royalty Partners IV, L.P. entered into a revolving credit facility by and among HealthCare Royalty Partners IV, L.P. as Borrower, HealthCare Royalty Partners GP IV, LLC as Borrower’s General Partner, Citibank, N.A. as the Administrative Agent, Sole Lead Arranger and Book Manager, and the banks and financial institutions from time to time party thereto as Lenders (the “revolving credit facility”), which allowed HealthCare Royalty Partners IV, L.P. to borrow up to $250 million subject to certain borrowing base limitations, subject to bank approval. On March 23, 2020 and on July 20, 2020, HealthCare Royalty Partners IV, L.P. and the Lenders agreed to increase the size of the revolving credit facility by $100 million and $143 million, respectively, bringing the maximum amount
 
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available to be borrowed to $493 million. Prior to the increase on July 20, 2020, borrowings under the revolving credit facility bore daily interest at a rate equal to LIBOR plus 1.45%. After the increase on July 20, 2020, borrowings under the revolving credit facility bear daily interest at a rate equal to LIBOR plus 2.00%. Under the terms of the revolving credit facility, the unfunded capital commitments of HealthCare Royalty Partners IV, L.P. are pledged as collateral. The revolving credit facility matures on April 19, 2022. HCR has issued a capital call to the investors in the Legacy HCR Partnerships. HealthCare Royalty Partners IV, L.P. called capital from its limited partners and paid off the revolving credit facility balance in full on June 28th, 2021.
Uses of Capital
Acquisitions of royalty interests and notes
We acquire product royalty interests and make loans in a variety of ways that can be tailored to the needs of our partners. Please refer to the Business Overview for details regarding our structure types.
Distributions
For the three months ended March 31, 2021 and 2020 we made distributions of $93.1 million and $80.1 million, respectively. For the years ended December 31, 2020 and 2019 we made distributions of $318.9 million and $238.1 million, respectively. See “Dividend Policy” for a description of our dividend policy following this offering.
Debt service
Following this offering, we anticipate having debt service requirements relating to any future debt agreements.
Commitments, Contingencies and Guarantees
Certain acquisition agreements provide for future contingent payments to the seller based on the financial performance of the related pharmaceutical product generally over a multi-year period. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. For example, the acquisition of both our RedHill and Infinity royalties included contingent purchase price payments based on timing of certain sales thresholds of the underlying products. Amounts related to these contingent milestone payments are not considered contractual obligations as they are contingent on the successful completion of certain commercial milestones.
The table below summarizes our contractual obligations at December 31, 2020 and the effect that such obligations are expected to have on our liquidity and cash flows in future periods.
Payments due by period
(in thousands)
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Long-term debt
Existing credit facility scheduled principal payments(1)
$ 493,000 $ $ 493,000 $ $
Scheduled interest payments(2)
13,772 10,444 3,328
Total $ 506,772 $ 10,444 $ 496,328 $ $
(1)
The stated maturity date of the existing credit facility is April 19, 2022.
(2)
Interest payments are subject to change as interest rates are variable.
Other off-balance sheet arrangements
We do not have relationships with structured finance or special purpose entities that were established to facilitate off-balance sheet arrangements. Therefore, we are not exposed to any financing, liquidity, market or credit risk that may arise if we had engaged in such relationships.
 
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Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with GAAP in the United States requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Certain of these policies are considered critical as they have the most significant impact on the Company’s financial condition and results of operations and require the most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of these evaluations forms the basis for making judgments about the fair values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
As an investment company, our most critical accounting policies relate to our determination of fair value. The preparation of our combined financial statements in this manner requires the use of estimates and assumptions that affect the reported amounts and disclosures in the combined financial statements and accompanying notes. The most significant judgments and estimates applied by management are associated with the determination of fair value, including management’s judgment in forecasting the expected future cash flows of the underlying royalties and notes, the expected duration of the royalty interest and the discount rate used to determine net present value under a discounted cash flow methodology.
Under the New Methodology, we anticipate that our most critical accounting policies will relate to our royalties, notes and the significant judgments and estimates applied by management associated with the initial and subsequent measurement of our royalties and notes. The application of the prospective approach to measure income from our royalty interests and notes will require management’s judgment in forecasting the expected future cash flows. These estimates and judgments will arise because of the inherent uncertainty in predicting future events. Income and provision recognition from royalties and notes will be impacted by management’s assumptions around (i) product growth rates and sales trends in outer years, (ii) product and pricing mix for franchised products, (iii) the strength of patent protection, including anticipated entry of generics, and (iv) estimates of the duration of the royalty.
Under the discounted cash flow methodology as well as under the New Methodology, the projected duration is important for purposes of accurately measuring interest income over the life of a royalty or note. In making assumptions around the projected duration for terms that are not contractually fixed, management considers the strength of existing patent protection, expected entry of generics, geographical exclusivity periods and potential patent term extensions tied to the underlying product. Royalty durations can expire earlier or later than anticipated due to unforeseen positive or negative developments over time, including with respect to the granting of patents and patent term extensions, the invalidation of patents, litigation between the party controlling the patents and third party challengers of the patents, the ability of third parties to design around or circumvent valid patents, the granting of regulatory exclusivity period or extensions, timing for the arrival of generic or biosimilar competitor products, changes to legal or regulatory regimes affecting intellectual property rights or the regulation of pharmaceutical products, product life cycles, and industry consolidations.
Under the New Methodology, a shortened royalty term can result in a reduction in the effective interest rate, a decline in income from royalty interest and notes, reductions in royalty payments compared to expectations or a permanent impairment. Changes in forecasts will directly impact future interest income and recognition of any provision for income or expense in the same manner.
Recent Accounting Pronouncements
See Note 2 to our combined financial statements for additional information on recently issued accounting standards.
 
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Quantitative and Qualitative Disclosures about Market Risk
Due to the nature of HCR’s objective, as discussed in Note 1 to our combined financial statements included elsewhere in this prospectus, our portfolio consists of illiquid investments having a greater amount of both market and credit risk than more liquid investments. These investments may have restrictions on resale and may not be able to be immediately liquidated if needed. The fair values assigned to these investments may differ significantly from the fair values that would have been used had a broader market for the investments existed.
Market Risk
We are subject to certain risks which may affect our results of operations, cash flows and fair values of assets and liabilities, including volatility in foreign currency exchange rates and interest rate movements. We anticipate our primary exposure to market risk to be interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because we anticipate our cash equivalents to primarily be held in short-term money market funds. Although we do not have any interest rate swaps or foreign currency forward contracts in place, it is possible that we may manage the impact of foreign currency exchange rate and interest rate risk through various financial instruments, and derivative instruments. We anticipate possibly using derivatives strategically to hedge any interest rate exposure and to minimize volatility in cash flow and earnings arising from potential exposure to foreign currency risk. We do not anticipate entering into derivative instruments for trading or speculative purposes. We anticipate the counterparties to these contracts to all be major financial institutions.
Foreign Currency Exchange Risk
Because we are entitled to royalties on worldwide sales for various products, there is an underlying exposure to foreign currency as the marketer converts payment amounts from local currencies to U.S. dollars using a quarterly average exchange rate. Therefore, cash received may differ from the estimated receivable based on fluctuations in currency. In addition, certain products pay royalties in currencies other than U.S. dollars, which also creates foreign currency risk primarily with respect to the Euro and Japanese Yen, as our functional and reporting currency is the U.S. dollar. To manage foreign currency exchange risk, we may periodically utilize non-deliverable forward exchange contracts. We currently do not have any foreign exchange contracts in place.
Interest Rate Risk
We are subject to interest rate fluctuation exposure through our borrowings under our Revolving Credit Facility as described in “— Borrowings”. In addition, it is expected that LIBOR will be phased out by the end of 2021. The Alternative Reference Rates Committee of the Federal Reserve Board has identified the Secured Overnight Financing Rate (“SOFR”) as the preferred alternative to LIBOR. As this offering is anticipated to occur before the phase out, we do not anticipate any risk regarding our Revolving Credit Facility. In addition, it is possible that any new agreements put in place prior to, or in connection with, this offering could utilize the SOFR. We do not have any interest rate swaps or derivatives hedging our debt.
Credit and Counterparty Risk
We have credit risks that are generally related to the counterparties with which we do business. We are subject to credit risk from our royalty interests, notes and our receivables. The majority of our royalty interests, notes and receivables arise from contractual agreements that pay royalties on the sales of underlying pharmaceutical products in the United States, Europe, Japan and the rest of the world, with concentrations of credit risk limited due to the broad range of marketers responsible for paying royalties to us and the variety of geographies from which our royalties on product sales are derived. The products in which we hold royalties are marketed by leading biopharmaceutical industry participants, including, among others, AbbVie, Alexion, GlaxoSmithKline, Novartis, Pfizer and UCB. The individual marketers making up the largest balance of our current portion of royalty interests and notes, were UCB as of March 31, 2021 and GSK as of December 31, 2020, accounting for 31% and 24%, respectively. Refer to “— Understanding Our Results of Operations” for a discussion of the marketers or royalty payors
 
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accounting for greater than 10% of our total investment income for the three months ended March 31, 2021 and 2020 and for the years ended December 31, 2020 and 2019.
We monitor the financial performance and creditworthiness of the counterparties to our agreements so that we can properly assess and respond to changes in their credit profile. To date, we have not experienced any significant losses with respect to the collection of income or revenue on our royalty interests or notes.
 
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BUSINESS
Overview
We are the leading mid-market royalty acquisition company, based upon the number of transactions and aggregate value of capital deployed since 2016. We focus on growth assets and emerging companies driving innovation in the biopharmaceutical industry. We consider “mid-market” to comprise royalty acquisitions for transaction sizes between $20 million and $250 million. Our founders have been pioneers in the healthcare royalty and debt financing markets since 2001 and formed HCR in 2006 to build on their leadership in collaborating with inventors, academic institutions, small and mid-cap biotechnology companies and leading global pharmaceutical companies. Our in-house scientific, regulatory and transactional capabilities differentiate us from other industry participants and are the basis for our reputation among potential partners as knowledgeable, creative, and able to solve complex and potentially significant financing needs. Our senior team’s acquisition and financing approach, which has been honed over two decades to be both scalable and repeatable, has resulted in a long history of acquiring interests in both pre-approval and approved innovative therapies targeting large unmet or underserved medical needs. We have purposefully built a diverse portfolio across the therapeutic spectrum, including blockbuster assets such as Shingrix, innovative growth products such as Krystexxa, and recently launched products such as Xpovio. We believe that our (i) proprietary internal research and regulatory capabilities, (ii) mid-market focus, (iii) structuring flexibility, (iv) refined process designed to enable repeatable results and (v) regional sourcing model enable us to participate in the compounding growth seen in the biopharmaceutical sector and cement our leadership position.
Our mission is to facilitate innovation by deploying capital consistently and reliably in products that serve unmet or underserved medical needs. We intend to achieve this mission by expanding our portfolio of approved and pre-approval products using cash flow generated by our existing portfolio as well as capital raised in the public equity market and debt raised in the public and private markets. Our process for evaluating acquisition and financing opportunities has been optimized through decades of experience and is designed to efficiently assess opportunities, identify risks and establish appropriate Royalty-Related Transaction structures. Although each Royalty-Related Transaction is different, the approach for internal vetting remains consistent to ensure each opportunity fits our overall asset selection criteria and appropriately balances risk and reward. In addition, our ongoing active portfolio management serves as a feedback loop designed to ensure our screening is resulting in the performance and asset exposure we desire. At the core of our time-tested process is a culture of transparency and dissent as well as an efficient and rigorous diligence process focused on asset quality, scientific and clinical differentiation, commercial profile and intellectual property position. We believe our existing portfolio, strong cash flow and differentiated approach will position us well to execute on our mission.
From 2006 through June 30, 2021, we have deployed approximately $4.7 billion across 76 Royalty-Related Transactions involving 79 products. In addition, prior to 2006, our founders deployed approximately $532 million across 14 Royalty-Related Transactions involving 14 products. Our portfolio today provides curated exposure to a wide range of medically necessary products across therapeutic categories. As of June 30, 2021, our portfolio consists of 35 products that span the therapeutic spectrum, including neurology, gastroenterology, vaccines and anti-infectives, oncology, hematology and rare genetic disorders. In 2020, products in our current portfolio generated approximately $12 billion of sales, and we generated Royalty Receipts of approximately $405 million, compared to Royalty Receipts of approximately $253 million in 2019. For the three months ended March 31, 2021, products in our current portfolio generated approximately $151 million in Royalty Receipts, compared to Royalty Receipts of approximately $88 million in the three months ended March 31, 2020. When we refer to the “Royalty Receipts” generated by our portfolio, we are referring to the summation of the following line items from our Statement of Cash Flows in our historical combined financial statements included elsewhere in this prospectus: (i) Cash collections from royalty interests, (ii) Cash collections from notes and (iii) Proceeds from sale of investments. The growth in Royalty Receipts was primarily through the acquisition of new products (92% of such growth), with the remainder of such growth resulting from increased Royalty Receipts from pre-existing products. Over the past three fiscal years (2018-2020) the growth in Royalty Receipts was split almost evenly between existing products (49%) and new acquisitions (51%). In the three months ended March 31, 2021, we generated Adjusted EBITDA of approximately $141
 
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million, compared to Adjusted EBITDA of approximately $76 million in the three months ended March 31, 2020. Adjusted EBITDA is calculated as Royalty Receipts less Payments for operating costs and professional services from the combined Statements of Cash Flows. For the three months ended March 31, 2021, net cash provided by operating activities was approximately $5.7 million, compared to net cash used in operating activities of approximately $204.7 million in the three months ended March 31, 2020. In the three months ended March 31, 2021, we generated Adjusted Cash Flow of approximately $138 million, compared to Adjusted Cash Flow of approximately $75 million in the three months ended March 31, 2020. Adjusted Cash Flow is defined as Adjusted EBITDA less Interest paid from the combined Statements of Cash Flows. In 2020, net cash used in operating activities was approximately $649.5 million, compared to net cash used in operating activities of approximately $174.2 million in 2019. In 2020, we generated Adjusted EBITDA of approximately $371 million, compared to Adjusted EBITDA of approximately $224 million in 2019, and Adjusted Cash Flow of approximately $364 million in 2020, compared to Adjusted Cash Flow of approximately $223 million in 2019. Over the past three fiscal years during the period ended December 31, 2020, we grew our Royalty Receipts, Adjusted EBITDA and Adjusted Cash Flow at compound annual growth rates of 50%, 53% and 52%, respectively.
Beginning in 2014, we implemented a thoughtful expansion and institutionalization of our business. Our expansion included significant investment in the build out our regional offices, the in-sourcing of scientific and regulatory expertise, and adding industry veterans to our team of Senior Advisors. During this period, we put in place a well-defined acquisition and financing strategy, as well as an acquisition process that ensured all Royalty-Related Transactions go through the same rigorous, well-defined approval framework. These acquisition and process improvements allowed for an accelerated pace of deployment, averaging more than $500 million annually over the past five years, and growing to $1 billion deployed in 2020. We also believe that the acquisition and process improvements have established a strong foundation for future growth.
We currently have dedicated personnel in Boston, London, the New York metro area, and San Francisco — the key biopharmaceutical centers globally. Over 90% of U.S. biopharmaceutical IPOs from 2016 to March 31, 2021 (excluding offering size less than $50 million and U.S. IPOs of foreign issuers) and 95% of the top 20 large-cap pharmaceutical companies by net sales either are headquartered or have offices in our current regional coverage areas. Our regional sourcing strategy enables us to develop and maintain direct relationships with emerging biopharmaceutical companies and other constituents involved in the biopharmaceutical ecosystem.
The biopharmaceutical industry has experienced explosive growth and rapid innovation over the last several years fueled by dramatic acceleration in medical research. In 2019, an estimated $186 billion was invested in research and development and this amount is expected to increase to $233 billion by 2026, according to Evaluate Pharma. At the same time, the increasing cost of drug development has created a significant capital need for industry innovators. The dramatic acceleration of medical research in recent years has led to a better understanding of the molecular origins of disease and identification of potential targets for therapeutic intervention. In addition, global prescription pharmaceutical sales are projected to grow from approximately $965 billion in 2021 to approximately $1.2 trillion in 2024. On a broader scale, global and secular trends, including population growth, increasing life expectancy and growth of the middle classes in emerging markets are also contributing factors to the growth of the biopharmaceutical industry. The significant pace of biopharmaceutical innovation, the proliferation of new biotechnology companies and the increasing cost of drug development have created a significant need for capital over recent years that we believe will continue in the future and will provide a sustainable tailwind for our business.
Royalties play a fundamental and growing role in the biopharmaceutical industry. The increasing complexity and cost of drug development today typically involves a number of industry participants, resulting in an increased pipeline of royalties. Academia and other research institutions conduct basic research and license new technologies to industry for further development. Biotechnology companies typically in-license these new technologies or develop new technologies themselves, add value through applied research and early-stage clinical development, and then either out-license the resulting development-stage product candidates to large biopharmaceutical companies for late-stage clinical
 
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development and commercialization, or commercialize the products themselves. The persistent funding needs of royalty holders, primarily emerging biopharmaceutical companies, has led to a robust royalty acquisition and related debt financing market that we estimate reached a record $9.5 billion in 2020. Given our leadership position within the mid-market royalty acquisition sector, we are able to capitalize on the growing volumes of royalties that are created as new therapies are developed to address unmet or underserved medical needs. Our focus on mid-market transactions also fits the quantum of capital emerging biopharmaceutical companies are often seeking.
Our acquisition and financing approach and structures enable us to capture many of the most attractive characteristics of biopharmaceutical innovation, including high barriers to entry, long protected product life cycles and noncyclical revenues. Importantly, we are able to realize these benefits with substantially reduced or diversified exposure to many common industry challenges such as early stage development risk, therapeutic area constraints, high research and development expense, and high fixed manufacturing and marketing costs. We can acquire royalties or other interests in the most attractive therapies across the biopharmaceutical industry. We also expect to realize further growth through our continued partnering in the pre-approval space where we have found success selecting assets that we believe are likely to achieve approval and commercial launch. Although our partners tend to be emerging biopharmaceutical companies, over 75% of the payors of our biopharmaceutical Royalty Receipts were established marketers.
Portfolio Highlights
Our portfolio is diversified across therapeutic categories, treatment modalities, indications and marketers. As of June 30, 2021, no single asset accounted for more than 11% of our portfolio, the top three products accounted for 26% of our portfolio and the top three marketers represented 33% of our portfolio, in each case as measured by projected Royalty Receipts. As of June 30, 2021, the assets in our portfolio represented 12 therapeutic categories, with the top category representing 21% and the top three categories representing 49% of the portfolio as measured by projected Royalty Receipts. We also have meaningful exposure to drugs that have received special designation from the FDA, including, but not limited to, Orphan Drug Exclusivity.(1) These products comprise 41% of the portfolio as of June 30, 2021 (by projected Royalty Receipts). We believe special designation by the FDA is indicative of our asset criterion that products satisfy an unmet or underserved medical need. Also, orphan drugs receive market protection along with intellectual property protection. Under the Orphan Drug Act, the FDA may grant orphan designation to a product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States.
Below are key characteristics regarding the diversity and duration of our current portfolio.
Diversification (as of June 30, 2021 unless otherwise indicated and based on projected Royalty Receipts)

35 products, with the largest product (Shingrix) expected to represent less than 11% of projected Royalty Receipts

13 drugs that have received FDA special designation (Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations)

12 therapeutic categories, with the largest therapeutic category (neurology) representing 21% of projected Royalty Receipts

Most therapeutic categories have subcategories; for instance, neurology includes several sub-categories such as epilepsy, sleep management, migraine and Parkinson’s disease

Nevertheless, Royalty Receipts to date have been concentrated among a limited number of products, with our top 10 products accounting for 86% of Royalty Receipts for the three months
(1)
Special Designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations.
 
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ended March 31, 2021 and 81% and 82% of our Royalty Receipts for the years ended December 31 2020 and 2019, respectively.
Projected Duration (as of June 30, 2021 and weighted by projected Royalty Receipts)

10.0 years of projected duration (the projected period of time during which we expect to receive Royalty Receipts from the specific asset) from the time of acquisition (certain transactions have a limit on proceeds to us (referred to as “multiple cap”) resulting in an earlier projected terminal date relative to the contractual royalty maturity date)

11.5 years of maximum duration from the time of acquisition (excludes impact of multiple caps and uses the contractual royalty maturity date as terminal date)

In several cases, patent updates following our acquisition have resulted in a longer projected duration and/or a higher royalty rate over a longer time period; select examples include:

Myozyme — patent assumptions enhanced by 1.4 years due to resolution of a patent challenge

Brineura — patent term extension provided an additional 1.8 years at a higher royalty rate
The following tables provide further detail on our top 20 portfolio holdings as of June 30, 2021, based on projected Royalty Receipts.
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1.
Multiple cap refers to applicable acquisitions in which a maximum amount of potential proceeds to HCR is effectuated based on projected Royalty Receipts.
2.
Novel Drug are defined by the FDA as innovative products that serve previously unmet medical needs or otherwise significantly help to advance patient treatments.
 
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3.
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, (collectively defined as ‘Expedited Programs for Serious Conditions’), Orphan Drug, and Qualified Infectious Disease Product designations. These designations are awarded by the FDA based on a comprehensive review process.
4.
The Movantik acquisition represents two distinct transactions with two separate counterparties in February 2020 (RedHill) and December 2020 (Nektar).
5.
Represents two transactions with Coherus, a convertible debt investment that comes due in 2022 and a senior debt investment that comes due in 2025.
6.
Gocovri projected Royalty Receipts include a small portion of royalties from Namzaric, acquired from Adamas and marketed by AbbVie.
7.
Adynovate is an additional royalty interest that was acquired in the Nektar transaction referenced in footnote 4.
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1.
Structure indicates structural provisions including (i) milestone payments; (ii) reverse-tiered royalties; (iii) underperformance / catch-up payments; (iv) royalty ratchets; (v) purchase of lower strip of sales; (vi) escalating hard caps; and (vii) debt structures.
2.
Multiple cap refers to applicable acquisitions in which a maximum amount of potential proceeds to HCR is effectuated based on Projected Royalty Receipts and is calculated as a multiple of HCR’s invested capital.
3.
Vimpat’s U.S. patent which is responsible for the largest share of its projected Royalty Receipts expires in Q1’22, resulting in a meaningful step-down in Vimpat royalties beginning in Q3’22 (one quarter lag) through the projected terminal date (2035). Projected Royalty Receipts of Vimpat from Q2’21 through Q2’22 represent approximately two-thirds of total Vimpat Projected Royalty Receipts.
4.
Represents two transactions with Karyopharm, a synthetic royalty deal closed in 2019 that is projected to reach the cap in 2027 (Xpovio I) and a synthetic royalty deal closed in 2021 that is projected to reach the cap in 2029 (Xpovio II).
5.
Movantik acquisition represents two distinct transactions with two separate counterparties in February 2020 (RedHill) and December 2020 (Nektar) for a combined purchase price of $250 million. In both transactions Movantik was the primary driver of projected Royalty Receipts. The multiple cap of 1.60x is applicable to the aggregate Nektar transaction. The Nektar and RedHill transactions have projected terminal dates of 2028 and 2029, respectively
6.
Represents two transactions with Coherus, a convertible debt investment that comes due in 2022 and a senior debt investment that comes due in 2025.
7.
Gocovri projected Royalty Receipts include a small portion of royalties from Namzaric, acquired from Adamas and marketed by AbbVie.
 
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8.
Adynovate is an additional royalty interest that was acquired in the Nektar transaction referenced in footnote 5. Note the multiple cap of 1.60x is based on aggregate proceeds from the aggregate Nektar transaction relative to the aggregate investment cost for the Nektar transaction.
Projections of Projected Duration and Royalty Receipts are based upon forecasts by the Legacy Manager of future sales and cash flows anticipated to be generated by each asset determined through the use of internal models prepared by the Legacy Manager in the ordinary course of business in order to evaluate the performance of existing investments. Such projections are based on certain assumptions and subject to various uncertainties relating to the performance of such products, including the impact of competition by new products and governmental or regulatory action.
Our Strengths
We believe that the following elements of our platform have enabled us to build a foundational product portfolio and will allow us to add to the portfolio in the future.
We employ a refined, efficient process to evaluate Royalty-Related Transaction opportunities that has been honed by our senior team over two decades and has delivered consistent results.
Our process for evaluating Royalty-Related Transaction opportunities has been optimized through decades of experience and is designed to efficiently assess opportunities, identify risks and establish appropriate Royalty-Related Transaction structures. Although each Royalty-Related Transaction is different, the approach for internal vetting remains consistent to ensure each opportunity fits our overall asset selection criteria and appropriately balances risk and reward. In addition, our ongoing portfolio management serves as a feedback loop designed to ensure our screening is resulting in the performance and asset exposure we desire. At the core of our time-tested process is a culture of transparency and dissent as well as an efficient and rigorous diligence process focused on asset quality, scientific and clinical differentiation, commercial profile and intellectual property position.
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Each stage of the process highlighted in the illustration above is designed to ensure consistency and quality control for each transaction opportunity. Stage I is designed to determine if an opportunity generally fits our strategy and is worthy of committing internal resources to pursue. During this stage, the acquisition team vets the opportunity with the broader team, including our Senior Advisors and in-house specialists that serve on a transaction review committee. Stage II focuses on the diligence process when we are in advanced-stage discussions and fosters additional critical analysis. In addition to our internal scientists and network of key opinion leaders (“KOLs”), for each transaction opportunity that reaches Stage II, a member of the team who is not assigned to the transaction team is designated as a “devil’s advocate”. It is during this review period that the devil’s advocate supports the transaction review committee in critically assessing an opportunity, gathers questions from other team members and focuses on asset diligence, deal structuring and risk-reward considerations. By Stage III, our review process culminates with final review of our due diligence findings and includes contract negotiation.
 
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Each of these refined stages has been purposefully built to enable our process to be repeatable and to leverage the investment culture of our company.
Clearly defined asset selection criteria enable us to efficiently assess opportunities and leverage the expertise of our platform.
Our disciplined approach towards Royalty-Related Transactions is based on the following clearly established criteria:

satisfies an unmet or underserved medical need;

drives “willingness to pay” and market penetration through differentiated product profile;

supported by known marketers with established and specialized sales forces for specific product/category;

bolstered by strong and enduring barriers to entry, including IP protection; and

offers a compelling acquisition value proposition (i.e. risk/reward).
By focusing on assets that largely adhere to these fundamental criteria, we are able to more efficiently apply our investment process and maximize our resources, resulting in a robust product portfolio. The result is a highly efficient business model that focuses on our core competencies, protects against strategy drift, systematically seeks to minimize risk, allows team members to proactively target attractive acquisition targets and has historically produced strong returns for our investors.
Our well-established business model and thoughtful expansion strategy has enabled the formation of robust industry relationships and differentiated sourcing capabilities.
We believe our regional offices in key biopharmaceutical centers globally (Boston, London, the New York metro area and San Francisco) enable us to develop and maintain direct relationships with emerging biopharmaceutical companies and other constituents involved in the biopharmaceutical ecosystem. Our regional leads leverage our in-house resources to prosecute opportunities systematically and execute on Royalty-Related Transactions within their respective geographies. These resources are supplemented by our eight in-house scientists who are essential in developing early leads, which provide additional opportunities for our regional leads to pursue. By having more frequent touchpoints with emerging biopharmaceutical companies, we are able to maintain a proprietary list of near-term opportunities to proactively drive proficient deal sourcing and execution.
Our investment in a robust regional presence has broadened our landscape of actionable opportunities and has accelerated our pace of Royalty-Related Transactions (averaging approximately $500 million of annual Royalty-Related Transactions since 2016, the initial stages of our regional sourcing model). From 2016 to 2020, more than 50% of our Royalty-Related Transactions were sourced on a proprietary and/or non-intermediated basis. Additionally, in 2020, all four regional offices generated an asset acquisition or financing, and three of our four regional offices generated an asset acquisition in the first half of 2021.
We have an established and consistent history of success driven by our deep, relevant experience.
Members of our team have more than an aggregate of 500 years of relevant healthcare experience. Since 2001, members of our senior team have closed 90 Royalty-Related Transactions comprising 93 products. Our overall pace and rate of deployment have steadily increased since inception, particularly since the start of our expansion period in 2014. We have grown from $249 million deployed in 2014 to $1 billion deployed in 2020, reflecting a compound annual growth rate of 27%. Over the last five years, we have deployed on average over $500 million annually. As we have grown, we have continued to refine and hone our process, methodically expanding our team’s capabilities and geographic presence to facilitate our pace of growth. Through our planned expansion, we have maintained a consistent process based on a high level of rigor and selectivity when evaluating Royalty-Related Transactions. Over this same period, we have consistently generated, on average, unlevered mid-teen gross returns at the asset level in our core focus on biopharmaceuticals.
 
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Our track record begins in 2001, when our founders were partners in Paul Capital’s royalty investment business and the team acquired 14 products and deployed approximately $500 million in capital through 2006. HCR was founded in 2006 and subsequently over the next seven years, we acquired interests in 43 products representing an aggregate $1.4 billion in capital deployed.
Beginning in 2014, we implemented a thoughtful expansion and institutionalization of our business. Our expansion included significant investment in the build out of our regional offices, the in-sourcing of scientific and regulatory expertise, and adding more industry veterans to our team of Senior Advisors. During this period, we put in place a well-defined acquisition and financing strategy, as well as an acquisition process that ensured all Royalty-Related Transactions go through the same rigorous, well-defined approval framework. These acquisition and process improvements allowed for an accelerated pace of deployment, totaling approximately $3.2 billion over the last seven years, and more recently an average of $500 million annually over the past five years. Our team and regional office expansion have provided the resources, bandwidth and touchpoints necessary to be the leader in the middle-market royalty space. Our current portfolio consists of curated exposure to a wide range of medically necessary products across therapeutic categories that generate robust Royalty Receipts and cash flow.
The acceleration of our capital deployment was predicated on the thoughtful expansion of our team and consistent additions of high-quality assets to our portfolio, as detailed below:
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(1)
Does not include all biopharmaceutical transactions completed in any given year. All assets listed are expected to be contributed to the post-IPO entity with the exception of the Breo & Anoro Ellipta acquisition in 2015, which was fully exited in 2017.
Our creativity and ability to design flexible solutions enables us to create synergistic relationships with our partners.
We have long-term experience pioneering and pricing transaction structures that we believe enable us to creatively meet the needs of our partners. We have built a strong reputation around partnering with emerging biopharmaceutical companies that often seek bespoke financing options. To best serve these potential partners, we often create a menu of customizable solutions across a wide range of transaction structures that are typically more tailored than traditional options. We have executed bespoke transactions in royalty, SYNTHETIC ROYALTY™ financings, and debt structures across stages of development, therapeutic areas, geographies and risk/reward parameters. We have the flexibility to structure Royalty-Related Transactions as either SYNTHETIC ROYALTY™ financings or customized debt. This broad approach enables us to partner with a diverse set of emerging biopharmaceutical companies, forming synergistic relationships and addressing their significant and varied capital needs. Our experience and flexibility strengthen these partnerships and often can create opportunities for follow-on or additional Royalty-Related Transactions.
 
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Examples of the multiple structures our tailored approach provides for our partners and investors include:
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Note: All assets depicted are expected to be contributed to the post-IPO entity with the exception of Procysbi, Linzess, Portola and Raptor, each of which has been exited.
Our extensive, diversified portfolio provides the foundation for future growth and serves as validation to future partners.
Our process, experience and flexibility have enabled us to create a portfolio of assets that we believe would be difficult to replicate, having been assembled largely over a more than seven-year period and consisting of 35 assets, which generated $405 million in Royalty Receipts in 2020, compared to Royalty Receipts of $253 million in 2019. Although we tend to execute transactions with emerging biopharmaceutical companies, over 75% of the payors of our biopharmaceutical Royalty Receipts are established marketers. We also expect to realize further growth with our continued partnering in the pre-approval space where we have found tremendous success selecting assets that we believe are likely to achieve approval and commercial launch.
Our portfolio is diversified across therapeutic categories, treatment modalities, indications and marketers. No single asset accounts for more than 11% of our portfolio, the top three products account for 26% and the top three marketers represent 33% of our portfolio, in each case as measured by projected Royalty Receipts. The assets in our portfolio represent 12 therapeutic categories, with the top category representing 21% and the top three categories representing 49% of the portfolio, as measured by projected Royalty Receipts. We also have meaningful exposure to drugs that have received special designation from the FDA, including but not limited Orphan Drug Exclusivity.(1) These products comprise 41% of the portfolio as of June 30, 2021 (by projected Royalty Receipts). We believe special designation by the FDA is indicative of our asset criterion that products satisfy an unmet or underserved medical need. Also, orphan drugs receive market protection along with intellectual property protection.
The careful portfolio construction and structural consideration paid to where products are in their life cycle has culminated in highly-visible, recurring cash flows. These recurring cash flows can then be re-invested towards new Royalty-Related Transactions, providing a stable foundation for future growth and delivering ongoing value to our investors.
(1)
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations.
 
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A detailed breakdown of our existing portfolio by projected Royalty Receipts as of June 30, 2021 is as follows:
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(1)
Note that Adamas is the marketer for Gocovri. As part of the same investment, HCRx also receives a small royalty on Namzaric, marketed by AbbVie.
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(1)
Movantik projected Royalty Receipts include royalties generated from two additional RedHill products (Talicia and Aemcolo). Gocovri projected Royalty Receipts include a small portion of royalties from Namzaric, acquired from Adamas and marketed by AbbVie.
(2)
Special designations include Fast Track and/or Breakthrough Therapy, Accelerated Approval Pathway, Priority Review, Orphan Drug, and Qualified Infectious Disease Product designations.
Projected Royalty Receipts are based on internal HCR forecasted sales, current contractual royalty structures and current royalty rates as well as contractual interest rates and estimated amortization schedules assuming instruments are held through maturity.
Our strong track record of pre-approval Royalty-Related Transactions provides another driver for future growth.
Our experience and institutionalized investment process also allow us to evaluate and execute Royalty-Related Transactions involving pre-approval assets and assets with indication expansion potential. Since 2001, members of our senior team have closed transactions related to 14 products that were not approved, in which such product was the primary driver of the acquisition. Of these 14 assets,
 
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100% have since received FDA approval, such as AndexXa, the first and only reversal agent for Xarelto and Eliquis, when reversal of anticoagulation is needed due to life-threatening or uncontrolled bleeding. In addition, after acquisition, 14 additional indication expansions for existing products have been approved by the FDA, including Xpovio, an oncology product that has received two additional indication expansions since its original approval in 2019.
Our Competitive Advantages
We believe that we have established a number of significant competitive advantages that will enable us to further advance our leadership position and our status as a partner of choice to emerging biopharmaceutical companies.
Our highly refined and efficient acquisition and financing process creates a foundation for repeatable results and growth.
Since 2014, we have refined our operating efficiency by crafting our organizational culture to be process-driven, analytically-focused, and rewarding of collaboration and sharing of intellectual capital. This culture is also focused on continuous improvement, as we work to hone our sourcing, diligence and negotiation processes to increase their effectiveness. We believe the standardization and refinement of these have enabled us to consistently produce repeatable results and provide a meaningful competitive advantage. By employing a systematic, proactive approach to sourcing and monitoring opportunities, we are able to anticipate and identify opportunities and engage with partners early and often. We have historically produced, on average, unlevered returns across our biopharmaceutical Royalty-Related Transactions in the mid-teens using these standardized procedures. Through the continued use of these systematic processes, we believe we have the potential to continue generating meaningful returns while maintaining the pace of capital deployment.
Our transaction review committee remains at the core of our diligence process, utilizing primarily in-house and, selectively, external subject matter experts to ensure that each Royalty-Related Transaction undergoes extensive due diligence prior to close. In 2020, we reviewed 160 potential new Royalty-Related Transactions, which resulted in seven closed transactions. These figures reflect both our broad funnel of opportunities amassed from our robust sourcing efforts as well as the disciplined approach to capital deployment that we undertake when making new acquisitions. The Royalty-Related Transactions that move through the subsequent stages of our transaction review process to close are determined to be of high-quality and offer a positive risk-to-reward profile. We believe that our highly organized sourcing and diligence processes and stringent acquisition criteria provide the potential for significant capital deployment.
 
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Well-Established Acquisitions Process
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(1)
Does not include two acquisitions under Letters of Intent in 2020 that closed in 2021.
Our proprietary insights enable a more effective and efficient acquisition and financing process, which we believe drives better results.
Our established infrastructure of in-house scientists, regulatory experts and Senior Advisors are essential in directing the organization’s focus on therapeutic areas and products that could be most promising. Once potential Royalty-Related Transactions are under consideration, these teams are also fully integrated into the diligence review process and leverage our long-term investment in scientific expertise and proprietary research.
Our in-house research team generates proprietary internal content on a wide variety of themes within the biopharmaceutical industry from macroeconomic factors to specific therapeutic areas and modalities. These experts help to educate and focus our sourcing teams on clinically validated assets treating conditions with (i) high unmet or underserved medical need, (ii) significant therapeutic benefit to patients and (iii) meaningful commercial potential. Subsequently, our regional teams leverage these proprietary market insights to systematically target potential assets with attractive value propositions based on their competitive positioning, robust intellectual property, strong marketers and potential for growth. Finally, upon identifying an opportunity and taking it under consideration, we bring our entire intellectual capabilities to bear, taking a balanced approach to fully assessing the asset from scientific, clinical, regulatory, patent and commercial perspectives. This has resulted in multiple examples where we have been able to materially extend our patent assumptions (greater than one year) from underwriting with limited cases of shorting assumptions. Extension examples include issuance of new patents, new patent terminal date achieved via legal settlement or delayed generic entry, all of which further de-risk our portfolio while increasing future cash flows.
Our in-house subject matter expertise, which includes collective experience from 81 product approvals and launches, broadens the universe of acquisition and financing opportunities that we are able to assess thoroughly, ranging from pre-approval to mature commercial assets. Furthermore, our expertise enables us to better collaborate with potential partners, to customize solutions, and to expand our network of relationships across the biopharmaceutical ecosystem.
 
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We interact with many of our partners on a quarterly basis, both to update on recent developments and to share thoughts on key business topics. This may include commercial positioning, launch strategy, regulatory processes, business development activities and other key benchmarks. We believe in not only providing our capital but to lend ourselves as a thought partner to the emerging biopharmaceutical companies we partner with through our transactions.
Our regional sourcing approach drives differentiated high-quality deal flow across the biopharmaceutical sector.
Many of the world’s biopharmaceutical companies, both mature and emerging, are either headquartered or have significant operations in the Boston, London, the New York metro area and San Francisco regions. These regions are supported by their unique ecosystems of scientific talent, serial entrepreneurs, academic institutions and investors. We have established regional offices in each of these geographies, which allows us to develop and maintain direct relationships with emerging biopharmaceutical companies and other constituents involved in the biopharmaceutical ecosystem. Over 90% of U.S. biopharmaceutical IPOs from 2016 to March 31, 2021 (excluding offering size less than $50 million and U.S. IPOs of foreign issuers) and 95% of the top 20 large-cap pharmaceutical companies by net sales either are headquartered or have offices in our current regional coverage areas.
Our systematic and institutionalized sourcing program has generated a robust pipeline of proprietary opportunities both organically among our current portfolio and with new partners across the biopharmaceutical landscape that we believe is unrivalled in the royalty space. Our relationship management approach includes continued engagement with our existing partners, which has created opportunities for additional organic deal flow. For example, in the current portfolio, there are several examples such as Udenyca, AndexXa and Krystexxa, where we have consummated follow-on acquisitions and financings with the same counterparty. In addition to traditional relationship management, our sourcing professionals in each region utilize various tools to systematically track and engage with potential partners early and often. These tools include a list of targeted companies with attractive assets that have a near-term financing need, and a schedule of pharmaceutical products on the cusp of FDA approval. HCR’s evolution to a regional sourcing model has yielded compelling results with more than 50% of our Royalty-Related Transactions sourced on a proprietary and/or non-intermediated basis since 2016.
Our sourcing and execution efforts are led by senior, highly experienced, transaction-oriented regional leads. Our regional leads have proven histories of identifying, evaluating and acquiring royalties in the biopharmaceutical sector, have deep ties to their regions’ ecosystems, and are supported by our Senior Advisors. Furthermore, all of our Senior Advisors are also based in our coverage regions, further deepening our ties to those local ecosystems. Utilizing this model, we have built a reputation within the biopharmaceutical ecosystem as the leader in middle market Royalty-Related Transactions. We believe this extensive network of industry relationships will continue to broaden our universe of potential opportunities and potentially accelerate our pace of acquisitions.
This sourcing function is supplemented and refined through our research activities. The research group seeks to identify attractive products and product categories to more efficiently focus our sourcing efforts. In addition to approved products, research professionals also perform extensive analyses on late-stage development products with near term expected approvals. Periodically, the research team will develop a “White Paper” intended to educate the investment team on a therapeutic area. In most instances, these White Papers provide the transaction team with a roadmap for potentially attractive opportunities in the identified therapeutic category. In some instances, however, the research conclusion is that HCR should avoid a therapeutic area.
Since 2015, our research group has published 17 White Papers, addressing therapeutic areas such as Alzheimer’s disease, immuno-oncology, migraine, gastroenterology, diabetes as well as broader White Papers focused on the pricing and reimbursement environment in the United States. Separately, the research group has proactively identified and referred 137 sourcing opportunities for the regional leads to pursue since 2016. We believe our dedicated research activities have meaningfully enhanced our ability to identify attractive products prior to approval and to develop insightful views on matters such as competitive landscape, clinical efficacy and potential product sales.
 
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Our ability to customize solutions for our partners creates high-quality and expanded access to acquisition and financing opportunities.
Our long history and track record of acquiring royalties, SYNTHETIC ROYALTY™ financings and debt has proven effective in engaging with partners who are typically evaluating a myriad of financing options. The ability to present a number of creative solutions in a royalty, SYNTHETIC ROYALTY™ financing or debt structure differentiates our Company from other industry participants and enables us to address the specific capital needs of potential partners. We believe our flexible mandate provides us with a large opportunity set of transactions to evaluate. Many of our peers generally focus on either royalty purchases or on debt investments.
Historically, we have employed a variety of transaction structures, including acquisitions of existing royalties, SYNTHETIC ROYALTY™ financings, and customized debt (including convertible debt). Our demonstrated flexibility with respect to transaction structures allows us to engage with a wider range of potential partners and diversify our asset base to acquire unique revenue streams. Our senior team has been a pioneer in SYNTHETIC ROYALTY™ financings, having closed 17 such transactions. Our extensive knowledge of these financing solutions allows us to present a range of bespoke alternatives to partners and to price different structures. These financing solutions provide biopharmaceutical companies with an attractive and non-dilutive source of capital to fund research and development and/or commercial launch activities. We believe that our proven track record of structural flexibility and creativity positions us as a partner of choice for emerging biopharmaceutical companies, which represent approximately 74% of our partners historically.
Our foundational portfolio provides us with scale and enhances our brand as a top royalty partner in the biopharmaceutical ecosystem.
We have amassed a portfolio of 35 assets as of June 30, 2021, diversified across therapeutic categories, treatment modalities, indications and marketers. This portfolio was built deliberately over a more than seven-year period and now produces significant predictable cash flows. Our current portfolio and scale enable us to support our differentiated infrastructure across sourcing, diligence, structuring and monitoring. We believe that we are now at an important inflection point where this infrastructure can increasingly support sustained growth. Importantly, our existing portfolio and scale are a visible indicator of our consistent activity and expertise, reinforcing the HCR brand of being a partner of choice in this sector. We intend to continue building on this virtuous cycle going forward.
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Our Growth Strategy
Our mission is to facilitate innovation by deploying capital consistently and reliably in products that serve unmet or underserved medical needs. We intend to achieve this mission by expanding our portfolio of approved and pre-approval products using cash flow generated by our existing portfolio as well as capital raised in the public equity market and debt raised in the public and private markets. We believe our proprietary research insights combined with our regional sourcing capabilities and rigorous investment
 
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process will allow us to support an expanding pool of eligible biopharmaceutical partners, further validating our proven formula for success. The key components of our growth strategy are summarized below.

Leverage our regional sourcing infrastructure and differentiated scientific expertise to capitalize on strong industry tailwinds.   The biopharmaceutical industry has experienced explosive growth and rapid innovation over the last several years fueled by dramatic acceleration in medical research. In 2019, an estimated $186 billion was invested in biopharmaceutical research and development and this amount is expected to increase to $233 billion in 2026, according to Evaluate Pharma. At the same time, the increasing cost of drug development has created a significant capital need for biopharma companies. The increasing pace of innovation and growing cost of drug development is reflected in the recent capital markets activity with over $200 billion in capital raised in public markets since 2015, including approximately $45 billion raised across 325 IPOs. The significant ongoing growth and capital needs of the biopharmaceutical market provides a substantial tailwind for our business and expands our pipeline of potential partners.
Our average size of investment has increased from approximately $35 million in 2016 to $150 million in 2020, which we believe is commensurate with the growing capital needs of our counterparties. By combining our regional sourcing infrastructure with the expertise of our in-house scientists and Senior Advisors, we believe we are well positioned to take advantage of the favorable long-term industry tailwinds. Our regional leads are able to maintain a robust source of proprietary acquisition and financing opportunities and our experienced team has the differentiated ability to prosecute these opportunities and expand our portfolio.

Broaden our Royalty-Related Transaction pipeline with access to increased capacity and attractively priced capital.   We believe access to the public equity market as well as the public and private debt markets will provide us access to capital at a meaningfully lower cost than what we have today. We believe this lower cost capital will enable us to acquire or finance high-quality opportunities at competitive prices and deliver favorable returns. We believe more favorable cost of capital will enable us to widen our opportunity set and provide access to additional accretive acquisitions or financings that would otherwise have been excluded with our previous capital structure and yield criteria, potentially resulting in increased capital deployment. In addition, we believe the public markets will provide us access to increased capacity at a much faster rate and help us replenish firepower to take advantage of the market opportunities as they become available. We anticipate that the new capital structure will also generate more recyclable capital that can be reinvested in new royalty opportunities.

Leverage internal expertise and increased operational flexibility to acquire or invest in royalties on attractive late stage pre-approval assets.   Our senior team has a history of successful acquisitions of pre-approval assets driven by our rigorous investment process honed over the last two decades, anchored by our Chief Medical Officer and Chief Scientific Officer. We believe we have the differentiated ability to assess scientific, commercial and financial merits to identify attractive acquisition opportunities in late-stage, de-risked assets. However, our prior organizational structure limited our capital deployment in pre-approval assets to 10% of each individual fund, constraining our capacity for these types of acquisitions. We believe the new corporate structure will provide us enhanced operational flexibility to assess both pre-approval and commercial opportunities, and deploy our disciplined approach to further enhance the pipeline and in turn generate future growth. We also believe partnerships with emerging biopharmaceutical companies in assets prior to approval will make us an attractive partner and position us favorably for further business, including opportunities post approval.

Maintain our disciplined approach and acquisition culture as we grow.   We have a highly talented, long-tenured management team with deep domain expertise that we have assembled over the last 14 years. As of June 30, 2021, we have 34 team members, including 10 Senior Advisors, with combined relevant experience of over 500 years. Our culture is defined by collaboration, creativity and thought leadership, as well as a commitment to support innovation and life-changing therapies by partnering with the biopharmaceutical industry. We
 
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believe our disciplined acquisition approach and refined repeatable process are critical to our success. We are committed to maintaining our culture as we move to the next stage of growth.
Our Approach
We are a leading funder of innovation across the growing emerging biopharmaceutical ecosystem. Our approach is to identify attractive products and therapeutic areas of focus and then evaluate how to (i) acquire royalties on, or (ii) finance the marketers of, products we believe fit our asset selection criteria. Our team combines scientific expertise, regional sourcing resources and sophisticated transaction knowledge to target and close on attractive growth biopharmaceutical products. We actively monitor the evolving treatment landscape and leverage our broad network of relationships with biopharmaceutical firms, physicians, scientists and other market participants to identify new acquisition or financing candidates. This approach ensures a robust and diversified pipeline of opportunities by product type and therapeutic area.
Our own internal projections with respect to the potential Royalty Receipts from a potential acquisition candidate are typically lower than and may differ substantially from the counterparty’s estimates or Wall Street consensus. For certain products such as Brineura, Gocovri and Xpovio for which our sales estimates at the time of investment were lower than Wall Street consensus, we have negotiated and structured terms of the investments that have enabled us to invest in attractive opportunities. We seek to minimize risks related to underperformance of the products in our portfolio through various structural protections, including milestone payments, reverse-tiered royalties, underperformance or catch-up payments, royalty rate “ratchet” provisions or escalating hard caps, or by purchasing a lower portion of sales or structuring the investment as a debt instrument with a guaranteed repayment obligation. Over 70% of our existing portfolio contains one or more of these structural protections. Conversely, our use of our own internal models to generate projections that differ from Wall Street consensus has enabled us to identify potential opportunities for upside, including our investments in Shingrix, Udenyca and Trelegy Ellipta whose sales have outperformed initial Wall Street estimates.
Key characteristics across our existing portfolio and future acquisition or financing candidates are as follows:

Clinically validated: therapies that have received regulatory approval or are clinically de-risked, such as having complete Phase 3 data or a filed New Drug Application or a Biologics License Application with the FDA.

Substantial unmet and/or underserved need: therapies that address areas of significant unmet or underserved medical need, either in smaller patient populations for rare disease indications or larger patient populations for more prevalent indications.

High value proposition: therapeutic areas and indications with favorable reimbursement dynamics and significant willingness to pay.

Differentiation within treatment landscape: therapies that disrupt or expand the existing treatment paradigm and are founded on innovation with substantial potential.

Growth potential: therapies where we see strong long-term potential, based on our in-depth evaluation and in-house scientific expertise.

Strong marketer: therapies that fit our acquisition and financing model of providing capital to emerging biopharmaceutical companies, while deriving most of the portfolio revenue from established marketers.

Barriers to entry: therapies that are protected with strong IP and/or other barriers, including regulatory exclusivity and manufacturing complexity.
We foster a culture of dissent, accountability and transparency; we believe these firm values create better outcomes for our stockholders. A core element of our culture of accountability is the ongoing review of our existing portfolio as part of our broader portfolio management strategy, providing continued engagement with partners and an important feedback loop post-transaction. Our acquisition
 
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and financing platform is designed to serve as a long-term capital resource for our biopharmaceutical partners, offering flexible financing solutions that are directly aligned with their specific business models and objectives. As an alternative or complement to an equity issuance, our funding options allow biopharmaceutical companies to eliminate or delay equity dilution while enabling them to fund product launches, acquire or license products, or re-invest capital in earlier-stage R&D projects. We implement our business model through customized royalty monetizations, corporate financing products and other combinations. We seek to not only provide capital but to also be a long-term partner to biopharmaceutical companies.
Generally, we are agnostic with respect to structure types if the underlying asset quality is attractive. At various points in time our portfolio has tilted more towards royalties and SYNTHETIC ROYALTY™ structures and at other times more towards debt and debt-like investments. We believe we are the only firm with long-term experience and a track record of deploying substantial amounts of capital across all transaction types. Below are a variety of structure types that we and our founders have utilized in 90 transactions since 2001.
Partner is Royalty Recipient

Royalty purchases represent purchases of all or part of existing royalty contracts in exchange for some or all of the cash flows from those underlying contracts. These royalty contracts are entered into when an inventor, research institution, university, or a biopharmaceutical company (a “licensor”) signs a licensing agreement with a third-party marketer, such as a larger pharmaceutical company. Under these license agreements, the licensor is entitled to receive a stream of cash flow payments based on the future sales of the product, including through royalties and milestones, but typically has no role in the product’s commercialization, which is performed by a third-party marketer.

Royalty notes represent structured financing solutions whereby an issuer may place the royalty contract(s) and often the intellectual property and other assets underlying the royalty contract into a bankruptcy-remote special purpose vehicle (“SPV”) and issue debt from the SPV. The debt is then serviced by the applicable royalty stream related to the royalty contract. We have found royalty notes to be compelling investment opportunities because the interest and principal payments are typically based on consistent, predictable royalty streams that are over-collateralized and the asset is generally insulated from bankruptcy risk of the issuer.
Partner is Product Marketer

SYNTHETIC ROYALTY™ financings represent highly structured, non-dilutive financing alternatives where we create a royalty contract with a biopharmaceutical company that owns the rights to one or more products and typically plays the principal role in the commercialization, marketing and sales of such product. This contract entitles us to receive a portion of future sales of a product. We can also structure these contracts as debt financings with a fixed interest component as well as a contingent interest component that is based on product sales.

Structured debt represents securities that are typically collateralized by all or certain assets. In these situations, our underwriting is based on the value of a product(s) owned by the company as well as general credit related factors. In addition, we have also purchased convertible notes, which may be either secured or unsecured.
From 2001 through June 30, 2021, we and our founders have deployed over $5 billion in Royalty-Related Transactions. Over the last five years (2016 — 2020), we acquired $2.6 billion in royalties and related assets, averaging $518 million of new Royalty-Related Transactions per annum over this period. While annual deployment may be uneven from year to year due to the unpredictable timing of new Royalty-Related Transaction opportunities, we have consistently deployed significant amounts of capital when measured over multi-year periods. Our approach is rooted in a highly disciplined evaluation process that is not driven by a minimum annual capital deployment requirement.
 
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Select Case Studies
The following case studies represent selected examples highlighting the modularity of our investment platform:

Shingrix:   our ability to take a differentiated view on an asset, source through our regional model, and creatively structure a financing to fit the needs of an emerging biopharmaceutical company.

AndexXa:   our long-term commitment to companies and willingness to follow up original investments with subsequent financings in both pre-approval and approved assets.

Krystexxa:   our differentiated ability to source proprietary investment opportunities and participate in multiple acquisitions through the lifecycle of a product.
Shingrix (Product) / Agenus (Counterparty)
Acquisition & Asset Overview

In January 2018, we agreed to pay up to $230 million to purchase a 2% royalty on net sales of Shingrix marketed by GlaxoSmithKline (“GSK”) from Agenus, Inc. (“Agenus”).

Shingrix is a vaccine for the prevention of shingles (herpes zoster) in adults aged 50 years and older that was approved in the United States in October 2017 and in Europe and Japan in March 2018; it also received a recommendation from the Committee on Vaccines (division of the CDC) in October 2017.
Sourcing Summary

Our lead sourcing professional in Boston was proactively in close dialogue with Agenus (based in Lexington, Massachusetts) on a potential royalty acquisition prior to Shingrix’s regulatory approval.

Agenus had engaged an investment bank to run a formal process, but that process did not result in an offer that met Agenus’ objectives.

We re-engaged directly with Agenus over a series of in-person meetings to agree on terms that addressed the company’s goal of maximizing proceeds as well as our goal of acquiring an under-appreciated but high value product royalty.
Our View of the Asset

Our in-house research scientists developed a differentiated view from Wall Street consensus, believing that Shingrix’s superior efficacy over the previous standard of care and importance to GSK would result in a blockbuster product with peak sales above $2 billion.

Because the product was just launching, it became clear to us that Wall Street analysts had not yet focused on Shingrix as consensus peak sales were below $2 billion with a much slower sales ramp.
Transaction Structure

We provided $190 million to Agenus at closing with an additional $40 million in milestones if the product reached certain sales thresholds.

We also structured the acquisition to protect against a slower launch of Shingrix by structuring in a rebate payment that would require Agenus to refund $26 million to us if certain sales thresholds were not met within a specific timeframe.

As a $300 million market cap company at that time, this transaction enabled Agenus to unlock meaningful value for an under-appreciated asset.
 
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Asset Performance Post-Close

Shingrix sales have meaningfully exceeded initial Wall Street estimates and our original forecast, finishing 2018 as the top launching non-specialty product with over $1 billion of sales and recording over $2.4 billion of sales in 2020.

In six months after launch, Shingrix captured an estimated 98% of the U.S. shingles vaccine market.

On recent earnings calls, GSK has touted not just growth in the U.S. and Europe but also the opportunity in China, where Shingrix was approved in 2019.

Consensus figures for Shingrix have increased significantly, now estimated at $5.75 billion in peak sales for 2026.
AndexXa (Product) / Portola (Counterparty)
Acquisition & Asset Overview

We completed two transactions with Portola Pharmaceuticals (“Portola”): a $150 million SYNTHETIC ROYALTY™ acquisition in February 2017 and a $125 million senior secured loan financing in March 2019 (of which we retained $62.5 million).

Portola is one of several examples in which a partnership spans multiple transactions; in each case we met the evolving needs of our partners, highlighting our structural flexibility, proclivity for repeat business; and ability to successfully diligence and acquire pre-approval products.

Portola’s lead product, AndexXa, was approved by the FDA in May 2018 (EU approval granted in April 2019) as the only antidote to reverse the anticoagulant effects in patients treated with an oral or injectable Factor Xa inhibitor (e.g., Xarelto, Eliquis).

AndexXa was awarded Breakthrough Designation and Orphan Drug Designation and had been developed using the Accelerated Approval pathway, highlighting the product’s value add in an unmet clinical need.
Sourcing Summary

Our lead sourcing professional in San Francisco had closely tracked AndexXa’s development and began serious discussion with Portola management in the summer of 2016 after the product completed Phase 3 trials, but prior to FDA approval.

We submitted a proactive acquisition proposal, designed to preempt a broader process, which resulted in Portola signing a term sheet with us in late August 2016.
Our View of the Asset

Through the work of our in-house scientists, we developed conviction on the future sales potential of AndexXa.

As we progressed with our confirmatory diligence, Portola received a complete response letter (“CRL”) from the FDA. While many other market participants may have backed away at this point, we “leaned in”, believing the issues highlighted by the FDA were addressable.
Transaction Structure

After the CRL, the acquisition was structured to compensate us for additional risk, including:

Closing fee paid at the funding of the first (pre-approval) and second tranche (approval).

A reverse-tiered royalty whereby we received a higher SYNTHETIC ROYALTY™ rate on lower level of sales to protect against sales underperformance.

An escalating royalty feature that increases the rate for every quarter that FDA approval of AndexXa was delayed.
 
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The asset was significantly de-risked when the FDA approved a “second generation” manufacturing process, encouraging us to re-engage in early 2019 and culminating in a $125 million senior secured debt financing.

The debt facility was comprised of two tranches, with $62.5 million funded at closing and the remaining $62.5 million contingent upon AndexXa meeting certain sales and regulatory milestones in 2019 (which were met).
Asset Performance Post-Close

AndexXa finished 2019, its first full year of full commercial launch, with sales of $112 million.

Our belief in AndexXa was validated in July 2020 when Alexion Pharmaceuticals (“Alexion”) acquired Portola. AndexXa was the key driver for this acquisition.

As part of the acquisition, Alexion repaid the senior debt, resulting in a meaningful and early realization. Our SYNTHETIC ROYALTY™ structure remained in place with the closing of the Alexion acquisition.

In December 2020, Alexion itself became the target of a larger acquirer, and agreed to terms with AstraZeneca for a $39 billion acquisition.

The SYNTHETIC ROYALTY™ structure will remain in place and we will receive payments from AstraZeneca on product sales.
Krystexxa (Product) / Co-inventor (Counterparty)
Acquisition & Asset Overview

We completed three transactions with Krystexxa’s co-inventor, the most recent being an acquisition for the entire remaining royalty interest on Krystexxa in February 2021.

Krystexxa was approved by the FDA for the treatment of chronic gout in 2010.
Sourcing Summary

We have longstanding relationships within the inventor and academic community, and this purchase was our third separate transaction with this university co-inventor.
Our View of the Asset

Our three interests in Krystexxa showcase our ability to identify attractive assets and “leg in” to an asset as it becomes de-risked.
Transaction Structure

We first purchased Krystexxa royalties in 2011, approximately one year after FDA approval.

We acquired royalties on the first $110 million of Krystexxa annual net sales for 10 years.

Krystexxa’s strong performance led us to partner with the product’s co-inventor again in 2019.

We purchased 55% of royalties payable on the first $350 million of Krystexxa annual net sales and 10% of royalties payable on annual net sales above $350 million.

Our third and final purchase of Krystexxa royalties provides us with all remaining royalties previously held by the product’s co-inventor.
Asset Performance Post-Close

The product’s initial marketer, Savient Pharmaceuticals, filed for Chapter 11 bankruptcy in October 2013. Two months later, Crealta Pharmaceuticals LLC (“Crealta”), paid $120 million to acquire Krystexxa.

Crealta was successful in repositioning Krystexxa and more than doubled annualized sales over the course of their ownership.
 
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Product sales continued throughout the bankruptcy process and we did not experience any meaningful interruption in royalty payments.

In December 2015, Horizon Pharmaceuticals (“Horizon”) paid $510 million to acquire Crealta.

Under Horizon’s stewardship, Krystexxa sales have grown meaningfully, reaching over $400 million in 2020 as compared to $37 million in 2014.
The Manager
Historically, our business has been managed by the Legacy Manager. In connection with this offering we and Holdings LP will each enter into a management agreement (each a “Management Agreement”, and collectively, the “Management Agreements”) with the Manager pursuant to which the Manager will, among other things, manage the existing assets of our business and source and evaluate new Royalty-Related Transactions, subject to oversight by our board of directors. The Manager will be a newly formed legal entity providing the same services to us that have been provided to HCR by the Legacy Manager. The Manager will be a separate legal entity from us, operating pursuant to Management Agreements, with its own employees who perform services for us, but are not our employees. The Legacy Manager also has its own employees who provide services for HCR, but are not employees of HCR. The employees of the Legacy Manager will become employees of the Manager in connection with this offering. The Manager will be operated by the same personnel as currently operate the Legacy Manager and certain newly hired individuals engaged as a result of our growth and transition to operating as a public company. The Manager will continue to use the same investment process and criteria currently applied by the Legacy Manager to the evaluation of potential investment opportunities. The Management Agreements have an initial term of ten years, after which it can be renewed for an additional term of three years, unless either the Company or the Manager provides notice of non-renewal 180 days prior the expiration of the initial term. We and Holdings LP will each pay the Manager a quarterly Operating and Personnel Payment pursuant to the Management Agreements. The Manager may not be removed during the initial or any renewal term without cause. The Manager is an “investment adviser” registered with the SEC under the U.S. Investment Advisers Act of 1940. For a description of the terms of the Management Agreements, including the Manager’s Operating and Personnel Payment, see “The Manager”, and see “Management” for information regarding the management team of the Manager.
Competition
There are a limited number of suitable and attractive opportunities to acquire high-quality royalties available in the market. Competition to acquire such royalties is intense and may increase. We compete with other potential acquirers for these opportunities, including companies that market the products on which royalties are paid, financial institutions and others.
We face competition from other entities that acquire biopharmaceutical royalties, including competitors to the Manager that are in the similar business of acquiring biopharmaceutical royalties. There are a limited number of suitable and attractive acquisition opportunities available in the market. Therefore, competition to acquire such assets is intense. The Manager is subject to competition from other potential royalty buyers, including from the companies that market the products on which royalties are paid, financial institutions and other entities. These Other potential royalty buyers may be larger and better capitalized than us.
We also compete with other forms of financing available to biopharmaceutical companies, such as equity financing and licensing opportunities. If biopharmaceutical companies opt for financing through such other means, we may not be able to acquire additional assets or grow our business. If we fail to compete successfully against competitors or competing forms of financing, our business, results of operations, financial condition and growth could be harmed.
The products that provide the basis for the cash flows of the biopharmaceutical products in which we invest are also subject to intense competition. The biopharmaceutical industry is a highly competitive and rapidly evolving industry. The length of any product’s commercial life cannot be predicted. Current
 
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marketers of products may undertake these development efforts in order to improve their products or to avoid paying our royalty. Adverse competition, obsolescence, governmental and regulatory action, or healthcare policy changes could significantly affect the revenues, including royalty-related revenues, of the products underlying our Royalty-Related Transactions.
Competitive factors affecting the market position and success of each product include:

efficacy;

safety and side effect profile;

price, including third-party insurance reimbursement policies;

timing and introduction of the product;

effectiveness of marketing strategy and execution;

market acceptance;

manufacturing, supply and distribution;

governmental regulation;

availability of lower-cost generics and/or biosimilars;

intellectual property protection and exclusivity;

treatment innovations that eliminate or minimize the need for a product; and

product liability claims.
Products on which we have a royalty may be rendered obsolete or non-competitive by new products, including generics and/or biosimilars, improvements on existing products, or governmental or regulatory action. In addition, as biopharmaceutical companies increasingly devote significant resources to innovate next-generation products and therapies using gene editing and new curative modalities, such as cell and gene therapy, products on which we have a royalty may become obsolete. Further, any new product candidate within our royalty portfolio that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. These factors and developments could have an adverse effect on the sales of the biopharmaceutical products underlying our Royalty-Related Transactions, and consequently could materially adversely affect our business, financial condition and results of operations.
Employees
Our directors and executive officers will manage our operations and activities. However, we do not currently have any employees or any officers other than our executive officers. Our executive officers are employees of our Manager. Pursuant to the Management Agreements with the Manager, the Manager will perform corporate and administration services for us. Please see “The Manager”.
As of December 31, 2020, the Manager and its affiliates had 25 employees. None of these employees are represented by labor unions or covered by any collective bargaining agreement. We believe that the Manager’s relations with its employees are satisfactory.
Properties
Our executive offices are located at 300 Atlantic Street, Suite 600, Stamford, Connecticut 06901, and are provided by the Manager. We also have regional offices located in Boston, London, the New York metro area and San Francisco. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.
Legal Proceedings
From time to time, we or the Manager may be a party to various claims, charges and litigation matters arising in the ordinary course of business. At this time, we have no legal proceedings that we believe would have a material adverse effect on our business, financial condition or results of operations.
 
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THE MANAGER
Management Agreements
We have no personnel of our own. Historically, our business has been managed by the Legacy Manager. Following this offering we and Holdings LP will be managed by the Manager pursuant to the Management Agreements. Under the Management Agreements, the Manager will, among other things, manage the existing assets of our business and source and evaluate new Royalty-Related Transactions. The Manager will be a newly formed legal entity providing the same services to us that have been provided to HCR by the Legacy Manager. The Manager will be a separate legal entity from us, operating pursuant to Management Agreements, with its own employees who perform services for us, but are not our employees. The Legacy Manager also has its own employees who provide services for HCR, but are not employees of HCR. The employees of the Legacy Manager will become employees of the Manager in connection with this offering. The Manager will be operated by the same personnel as currently operate the Legacy Manager and certain newly hired individuals engaged as a result of our growth and transition to operating as a public company. The Manager will continue to use the same investment process and criteria currently applied by the Legacy Manager to the evaluation of potential investment opportunities.
None of the Manager’s personnel will receive any direct compensation from us in connection with the management of our assets. Mr. Futch, through his ownership interests in the Manager, is entitled to a portion of any profits earned by the Manager, which includes the Operating and Personnel Payments payable to the Manager under the terms of the Management Agreements, less expenses incurred by the Manager in performing its services under the Management Agreements. Although the Manager is responsible for compensating its employees who provide services to us, including our executive officers, we are responsible for the compensation of our Senior Advisors. In addition, we may engage consultants or other service providers from time to time.
The Manager is owned and controlled indirectly by Mr. Futch. Certain former owners of the Legacy Manager own a minority non-voting economic interest in the Manager, which entitles such persons to a portion of the revenue of the Manager for a period of time, with Mr. Futch having the right to buy out such minority non-voting economic members’ interest ten years after the closing of this offering. The former owner has no rights to control or direct the decision making or actions of the Manager. Investment decisions by the Manager will be determined by a Transaction Review Committee comprised of certain of our executive officers and Senior Advisors, as indicated in their biographies in “Management” below.
Conflicts of Interest
Pursuant to the Management Agreements, the Manager cannot manage another entity that invests in or acquires royalties, other than any legacy vehicle related to HCR. Executives of the Manager are subject to a non-compete agreement following termination of their employment with the Manager, and the Company is a beneficiary of this agreement. In addition, executives of the Manager must devote substantially all of their business time to managing the Company and any legacy vehicle related to HCR, unless otherwise approved by the Board.
Operating and Personnel Payment
Under our Management Agreement, we will pay a flat quarterly fee to the Manager for services provided thereunder. Under the Management Agreement for Holdings LP, Holdings LP will pay a quarterly fee (the “Operating and Personnel Payment”) in respect of operating and personnel expenses to the Manager or its affiliates equal to a percentage (the “Applicable Percentage”) of Royalty Receipts of the Company. The Applicable Percentage, for a particular quarter, will be determined based on the amount of Royalty Receipts of the Company in such quarter together with the Royalty Receipts of the preceding three quarters (the “Trailing Royalty Receipt Amount”) and in accordance with the following schedule:
 
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Applicable Percentage
Trailing Royalty Receipt Amount
7.5%
Less than $750 million
7.0%
More than or equal to $750 million but less than $1 billion
6.5%
More than or equal to $1 billion
Under the Management Agreements, the Operating and Personnel Payments will be payable (i) for the first fiscal quarter, on the date that is three business days from the date of the Management Agreement, and (ii) thereafter, quarterly in arrears as of the last business day of each fiscal quarter. The Operating and Personnel Payments are intended to fund operating and personnel expenses of the Manager and its affiliates.
Duration and Termination
The Management Agreements will be approved by our board of directors prior to this offering. The Management Agreements will each have an initial term of 10 years, after which it shall automatically renew for a term of three years, unless either the Company or the Manager provides notice of nonrenewal 180 days prior the expiration of the initial term. During the initial term and the renewal term, the Management Agreements may only be terminated by the Company for Cause (as defined below). A termination of the Management Agreements will automatically lead to the removal of the Manager as the manager of HCR, Holdings LP and Holdings LP’s subsidiaries.
The board of directors will have the right to terminate the appointment of the Manager following (i) a determination of Cause, by a court or governmental body of competent jurisdiction in a final judgment, or (ii) an admission of Cause, by the Manager. In the event that Mr. Futch commits an act constituting Cause, such action would be imputed to EPA Holdings and the Manager so long as Mr. Futch is acting as Chief Executive Officer of the Company, otherwise any act of Mr. Futch’s will not be imputed to the Manager. Any act constituting Cause committed by any other executive of the Manager would not be imputed to the Manager if the Manager terminates such executive’s engagement with, employment by or relationship with the Manager.
“Cause” will exist where (i) the Manager or an executive of the Manager (including Mr. Futch) (each an “Applicable Party”) has committed (or in the case of Applicable Parties who are executives, caused the Manager to commit) a material breach of a material provision of the governing documents of the Company, the limited partnership agreement of Holdings LP or the Management Agreements; (ii) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused the Manager to commit) willful misconduct in connection with the performance of his or its duties under the terms of the governing documents of the Company, or the Management Agreements, (iii) there is a declaration of bankruptcy by the Applicable Party and (iv) there is a determination by any court with proper jurisdiction that an Applicable Party has committed an intentional felony or engaged in any fraudulent conduct, in each such case of clauses (ii) and (iv) which has a material adverse effect on the business, assets or condition (financial or otherwise) or prospects of the Company and its affiliates (taken as a whole).
The Manager and its affiliates would be subject to a 12-month non-compete and non-solicit following any termination of the Management Agreements by us for Cause.
In the event of a Change of Control (as defined below) or for Good Reason (as defined below) of the Company or its subsidiaries, the Manager will no longer be bound by the covenants not to compete or solicit in the Management Agreements. A “Change of Control” will occur if there is (i) a sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company’s assets, (ii) a merger or consolidation of the Company with or into any other Person or any other transaction or a series of related transactions, the result of which is that a third party (or a group of third parties) that is not an Affiliate of the Company or its Stockholders immediately prior to such transaction acquires or holds capital stock of the Company representing a majority of the Company’s outstanding voting power immediately following such transaction or (iii) a change in the composition of the Company’s board of directors as a result of which the majority of the members of the Company’s board of directors cease to be Continuing Directors (as defined below). The Management Agreements
 
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clarify, however, that the following events do not constitute a Change of Control: (A) a transaction (other than a sale of all or substantially all of the Company’s assets) in which the holders of the voting securities of the Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting securities in the successor corporation or its parent immediately after such transaction; (B) a sale, lease, exchange or other transaction in one transaction or a series of related transactions of all or substantially all of the Company’s assets to an Affiliate of the Company; (C) this offering and any subsequent registered offerings or secondary sales by the Continuing Investors of any of the Company’s securities, unless any such subsequent registered offering or secondary sale results in a third party who is not an Affiliate owning more than 40% of the Company’s outstanding voting power immediately following such offering or sale; (D) a reincorporation of the Company solely to change its jurisdiction; or (E) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof. ‘‘Good Reason’’ means the occurrence of either of the following: (i) a failure by the board of directors to obtain the Manager’s consent to an amendment of the organizational documents of the Company or Holdings LP pursuant to section 9(b) or to the adoption or amendment of any policy, compliance procedure or reporting requirement pursuant to section 9(c) of the Management Agreements or (ii) a material breach by the Company or Holdings LP, as applicable, (at the direction of the board of directors) of its obligations to the Manager (without the Manager’s prior waiver or consent) under the Management Agreements, which breach, if capable of being cured, is not cured within 30 days after the Company or the Partnership, as applicable, receives notice of such breach.
“Continuing Director” means, as of any date of determination, any member of the Company’s board of directors who:

was a member of the Company’s board of directors upon the closing of this offering; or

was nominated for election or elected to the Company’s board of directors with the approval of a majority of the Continuing Directors who were members of such board of directors at the time of such nomination or election.
Indemnification
To the fullest extent permitted by law, we will agree to indemnify the Indemnitees from and against any and all claims, liabilities, damages, losses, penalties, actions, judgments, costs and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated that are incurred by any Indemnitee or to which such Indemnitee may be subject by reason of its activities on our behalf or any of its subsidiaries to the extent that such Indemnitee’s conduct did not constitute fraud, bad faith, willful misconduct, gross negligence (as such concept is interpreted under the laws of the State of Delaware), material breach of the Management Agreements that is not cured in accordance with the terms of the Management Agreements or a violation of applicable securities laws. As a result, we could experience unfavorable operating results or incur losses for which the Manager would not be liable.
Equity Performance Awards
EPA Holdings, an affiliate of the Manager, in which executives, employees, and former founders and owners have an interest, will be entitled to Equity Performance Awards (as defined below) determined on a portfolio-by-portfolio basis. Investments made during each two-year period will be grouped together as separate portfolios (each, a “Portfolio”). The first Portfolio will commence on the date of our initial public offering and will end on December 31, 2022.
Subject to the three conditions listed below and applicable law, at the end of each fiscal quarter, EPA Holdings is entitled to a distribution from Holdings LP in respect of each Portfolio equal to 20% of the Net Economic Profit (defined as the aggregate cash receipts for all new portfolio investments in such Portfolio less Total Expenses (defined as interest expense, operating expense and recovery of acquisition cost in respect of such Portfolio)) for such Portfolio for the applicable measuring period (the
 
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“Equity Performance Awards”). The Equity Performance Awards will be allocated and paid by Holdings LP to EPA Holdings as the holder of the Holdings LP Class C Special Interest. The Equity Performance Awards will be payable in Holdings LP Class B Units that may be exchanged for shares of Class A common stock of the Company. The number of shares of Class A common stock of the Company payable is based on a 10-day trailing volume-weighted average trading price (“VWAP”) ending two days prior to the payment date. EPA Holdings may also receive a periodic cash advance in respect of the Holdings LP Class C Special Interest to the extent necessary for EPA Holdings or any of its beneficial owners to pay when due any income tax imposed on it or them as a result of it holding such Holdings LP Class C Special Interest, calculated using an assumed tax rate. To the extent EPA Holdings receives any such periodic cash advance, the amount of the Holdings LP Class B Units received by EPA Holdings will be reduced by the amount of such periodic cash advance.
EPA Holdings is not entitled to Equity Performance Awards on any Net Economic Profit derived from investments made by Legacy HCR Partnerships prior to the date of our initial public offering and transferred to Holdings LP and its subsidiaries in the Reorganization Transactions. Such investments of Legacy HCR Partnerships will be deemed to be in a separate Portfolio (the “Old HCR Portfolio”).
On any quarterly equity distribution date, the Equity Performance Awards payable are subject to each of the following three conditions:
Condition One: Cumulative Net Economic Profit for such Portfolio for all periods prior to the relevant quarterly determination date is positive. Cumulative Net Economic Profit is positive if the aggregate cash receipts for all investments in a Portfolio for all prior periods is greater than the Total Expenses allocated to such for all prior periods.
Condition Two: The aggregate projected cash receipts, as determined on a basis consistent with the effective interest method used in our GAAP financial statements, for all investments in such Portfolio for all periods commencing after such quarterly determination date are equal to or greater than the product of 1.3 and the projected Total Expenses for all investments in such Portfolio through the expected termination dates of all investments in such Portfolio.
Condition Three: The aggregate projected cash receipts, as determined on a basis consistent with the effective interest method used in our GAAP financial statements, for all investments in all Portfolios, other than the Old HCR Portfolio, for all periods commencing after such quarterly determination date are equal to or greater than the product of 1.3 and the projected Total Expenses for all of the Portfolios through the termination or disposition dates of all investments in all of the Portfolios, other than the Old HCR Portfolio.
The Equity Performance Awards are structured on a portfolio-by-portfolio basis, with portfolios based on two-year periods, to mitigate the risk that Equity Performance Awards are paid on a profitable investment even though, in the aggregate, the investments made over a two year period are not profitable. The three conditions above are also intended to reduce the risk that Equity Performance Awards are payable at a time when our portfolio of investments is not performing well overall.
We do not currently expect any material Equity Performance Awards to be payable for five to seven years after the closing of this offering.
 
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors to be appointed prior to effectiveness of the registration statement of which this prospectus forms a part:
Name
Age
Position
Clarke B. Futch
54 Chairman and Chief Executive Officer
Christopher A. White
56 President and Chief Financial Officer
Timothy R.M. Bryant 57 General Counsel
Thomas K. Conner
60 Chief Accounting Officer and Treasurer
Carlos M. Almodóvar
42 Chief Business Officer
Executive Officers
Clarke B. Futch is the Company’s Chairman and Chief Executive Officer and will serve as Chairman of the Manager’s Transaction Review Committee. Mr. Futch co-founded HCR in 2006 and brings over 30 years of experience in biopharmaceutical/healthcare investing and financing, having raised over $8 billion in equity and debt principal capital across eleven vehicles and executed more than 165 transactions, including royalty, equity, debt and M&A transactions. Before co-founding HCR, Mr. Futch served as a partner at Paul Capital Partners, where he co-managed the firm’s royalty activities as a member of the royalty management committee. Previously, he served as a founding member of the healthcare group at Thomas Weisel Partners (now Stifel), and as a vice president at Raymond James. Since November 2020, Mr. Futch has served on the board of directors of Population Health Investment Co., Inc., a Nasdaq-listed special purpose acquisition company. Mr. Futch holds a B.A., magna cum laude, from Vanderbilt University and a J.D. from the University of Virginia School of Law. We believe Mr. Futch is qualified to serve on our board of directors because of his extensive experience in biopharmaceutical/healthcare investing and financing, including his role as an early pioneer in the royalty space.
Christopher A. White is the Company’s President and Chief Financial Officer and will serve as a member of the Manager’s Transaction Review Committee. Mr. White has served as HCR’s President and Chief Financial Officer since April 2021. From 2014 until 2021 Mr. White was the Chief Operating Officer of HCR. Mr. White has been an Investment Committee member since 2015 and joined HCR as a Managing Director and Chief Operating Officer in 2014. Mr. White previously served on HCR’s Investment Committee as a Cowen, Inc. representative from HCR’s inception through 2011. Mr. White has over 30 years of legal, financial and operational experience. He previously served as managing director and head of investment banking at Janney Montgomery Scott. Prior to that position, Mr. White spent over a decade at Cowen & Company, where he held a number of senior management positions, including chief of staff from May 2010 to February 2011. He previously served in leadership positions at Salomon Smith Barney Holdings Inc. and as a securities and mergers and acquisitions lawyer. Mr. White holds a B.A. from Amherst College and a J.D. from the University of Michigan Law School.
Timothy R.M. Bryant will become the Company’s General Counsel, effective on the date of this offering. From 2009 to 2021, Mr. Bryant was the General Counsel of Adams Street Partners, the global private markets firm. From 1995 to 2009, he was a partner at the law firm of McDermott Will & Emery, where his corporate transactional practice focused on public securities offerings and compliance, M&A, and royalty monetizations, including twelve Royalty-related transactions on behalf of HCR’s founders. Mr. Bryant received his BA, MA, and JD, all from Northwestern University.
Thomas K. Conner is the Company’s Chief Accounting Officer and Treasurer. Mr. Conner has served as HCR’s Chief Accounting Officer and Treasurer since April 2021. From 2011 until April 2021, Mr. Conner served as our Chief Financial Officer. Prior to joining HCR, Mr. Conner was the chief operating officer of investment banking at Cowen & Company. Mr. Conner spent more than 20 years with Cowen & Company, serving as chief financial officer until its merger with Ramius. He began his career
 
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at Deloitte Haskins & Sells in 1983. Mr. Conner holds a B.B.A. from the University of Massachusetts, Amherst and is a Certified Public Accountant licensed in the State of New York.
Carlos M. Almodóvar is the Company’s Chief Business Officer. Mr. Almodóvar has served as HCR’s Chief Business Officer since April 2021. Mr. Almodóvar’s responsibilities include, among other things, corporate communications, executing on strategic initiatives and assisting in corporate strategy. From 2019 until April 2021, Mr. Almodóvar served as Managing Director — Head of Investor Relations of HCR. From 2015 until 2019, Mr. Almodóvar served as Principal — Investor Relations of HCR, having joined HCR in 2012. Prior to joining HCR, Mr. Almodóvar was director, business development at Strategic Value Partners, an alternative investment firm focused on distressed debt. Previously, Mr. Almodóvar served as an associate director at UBS, where he focused on raising capital for external private fund managers. Mr. Almodóvar began his career as an analyst in the real estate investment banking group at Lehman Brothers. Mr. Almodóvar holds a B.S. from Cornell University.
Key Employees
Matthew H. Bullard is a Managing Director for the Company. Mr. Bullard, based in San Francisco, is focused primarily on HCR’s activities on the West Coast, including transaction sourcing and structuring. Prior to joining HCR, Mr. Bullard was a partner and a member of the product finance investment committee at NovaQuest Capital Management, L.L.C., a leading investor in the healthcare industry. Mr. Bullard worked at NovaQuest Capital for 20 years in a number of roles, including, for the last 10 years, leading the structuring, negotiation and management of product-based, equity and debt investments in global private and public biopharmaceutical companies of all sizes. Mr. Bullard holds a B.S. in Accounting from the University of North Carolina at Greensboro and a M.B.A from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill.
Warren D. Cooper, MB, BS, BSc, MFPM is the Company’s Chief Medical Officer and Head of the Manager’s Portfolio Management Committee. HCR draws extensively on Dr. Cooper’s four decades of clinical, regulatory and operational expertise as it evaluates new investment opportunities. Dr. Cooper previously served as an advisor to HCR and has been well known to the Firm since its inception having worked on numerous projects with HCR and having completed a Royalty-Related Transaction with a predecessor firm of the founders. Dr. Cooper is a UK-trained physician with over 40 years of experience in the global pharmaceutical industry. With a background in cardiology and cardiac surgery, he spent 12 years with Merck in various positions, ultimately becoming the head of worldwide clinical research operations for Merck Research Laboratories across all therapeutic areas. Moving to AstraMerck (now part of AstraZeneca PLC), he led that company’s cardiovascular business division, with responsibility for all aspects of the business from in-licensing and development to commercialization (including sales and marketing). He was the founding CEO of Prism Pharmaceuticals, a specialty pharmaceutical company that he led from inception to the sale of the company to Baxter International and a portfolio investment of Mr. Futch’s prior firm. Dr. Cooper currently serves as the lead outside director of Zynerba Pharmaceuticals. He holds degrees in physiology, medicine and surgery from The London Hospital (University of London) and is a Member of the Faculty of Pharmaceutical Medicine of the Royal Colleges of Physicians of the United Kingdom, and of the International Society of Hypertension.
Paul J. Hadden is a Senior Managing Director for the Company and will serve as a member of the Manager’s Transaction Review Committee. Mr. Hadden, based in London, is focused primarily on HCR’s activities in the United Kingdom, Europe and rest of world, including transaction sourcing and structuring. Mr. Hadden previously led the firm’s global business development activities. Mr. Hadden has over a decade of healthcare investing experience in the royalty and debt markets, and has worked on investments representing over $1 billion in transaction value. Prior to joining HCR in 2007 as HCR’s second employee, Mr. Hadden served as a principal at The Frankel Group LLC, a boutique management consulting firm serving the life sciences industry, where he advised pharmaceutical, biotechnology and generic clients. Mr. Hadden started his career at New York-Presbyterian Hospital as a senior financial analyst. Mr. Hadden holds a B.A. from Yale College and an M.P.H. from the Yale School of Public Health.
Shin W. Kang, Ph.D. is the Company’s Chief Scientific Officer and Head of Research. Dr. Kang leads HCR’s research efforts as well as sourcing related to universities, research institutions and
 
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inventors. Since Dr. Kang’s arrival in 2015, he has successfully integrated HCR’s research efforts into both the investment and business development processes. Prior to joining HCR, Dr. Kang served as a vice president of equity research at Wells Fargo Securities covering the biotechnology sector. Previously, Dr. Kang managed technology, intellectual property and business development at the Mount Sinai School of Medicine. He holds a Ph.D. in Biological Chemistry/Immunology from the University of California, Los Angeles, an M.B.A. from Columbia Business School and a B.S. from the University of California, Davis. Dr. Kang also conducted research at Genentech as a postdoctoral fellow.
Anthony G. Rapsomanikis is a Managing Director for the Company. Mr. Rapsomanikis opened HCR’s San Francisco office in 2015, and is now focused primarily on HCR’s activities in the mid-Atlantic region, including the greater NY metropolitan area, where he is responsible for transaction sourcing and structuring. Since joining HCR in 2012, Mr. Rapsomanikis has worked on investments representing over $2.0 billion in transaction value. Prior to joining HCR, Mr. Rapsomanikis worked as an analyst in the healthcare investment banking group at Stifel Nicolaus Weisel and its predecessor firm Thomas Weisel Partners, where he was focused on mergers and acquisitions, and debt and equity financings. Mr. Rapsomanikis holds a B.B.A., cum laude, from the University of Massachusetts, Amherst.
John A. Urquhart is a Senior Managing Director for the Company and will serve as a member of the Manager’s Transaction Review Committee. Mr. Urquhart, based in Boston, is focused primarily on HCR’s activities in New England, including transaction sourcing and structuring. Mr. Urquhart has over a decade of healthcare investing experience in the royalty and debt markets. Since 2012, he has worked on eighteen investments representing over $1 billion in transaction value. Prior to joining HCR in 2007 as HCR’s first employee, Mr. Urquhart was an investment banking analyst at Cowen and Company, where he focused on mergers and acquisitions as well as debt and equity financings. Mr. Urquhart holds a B.A. from Brown University and an M.B.A. from The Wharton School of the University of Pennsylvania with a concentration in healthcare.
Directors
For biographical information regarding Mr. Futch, please see “—Executive Officers” above.
Senior Advisors
Our Senior Advisors are part-time consultants who provide advice to HCR as members of HCR’s Senior Advisory Board and, following the completion of this offering, will provide advice to us with respect to the evaluation of potential acquisitions. Following the completion of this offering, the Senior Advisors will be compensated directly by the Company for their services.
Frank M. Armstrong, M.D. has been a Senior Advisor since 2009. Dr. Armstrong is particularly focused on the medical assessment of product candidates and clinical data. Over the course of his tenured career, Dr. Armstrong has served as chief executive officer at a number of healthcare and biopharmaceutical companies, including Fulcrum Pharma, CuraGen Corporation, Bioaccelerate Holdings, Provensis and Phoqus Pharmaceuticals. Dr. Armstrong has also worked in large pharma as head of worldwide product development at Bayer AG, a senior vice president at Zeneca Pharmaceuticals (now AstraZeneca plc) and a senior vice president at Merck Serono. Dr. Armstrong holds an MBChB from the University of Edinburgh and is a Fellow of the Royal College of Physicians Edinburgh and the Faculty of Pharmaceutical Physicians. He serves as a non-executive chair for Faron Pharmaceuticals, a publicly held company, as well as BioCaptiva, Enhance 3D Genomics and Caldan Therapeutics, all privately-held companies and as a non executive director of Newcells Biotech and Eco Animal Health (AIM). Dr. Armstrong is also a Member of the Court of the University of Edinburgh.
Gregory B. Brown, M.D. is a co-founder of HCR. Currently CEO of Memgen, a biotechnology company, Dr. Brown remains Vice Chairman of HCR and a Senior Advisor. Dr. Brown focuses his efforts for HCR on business development activities and the review of promising therapeutic categories and products. Educated as a transplantation immunologist and trained as a thoracic and vascular surgeon, Dr. Brown practiced thoracic and vascular surgery in a community setting where he also founded and led an HMO. He brings particular expertise in the scientific, technical, clinical and medical evaluation of products as well as in healthcare systems and payor / reimbursement dynamics. He has been involved
 
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in sourcing, diligencing and closing more than $1 billion of royalty investments. Before co-founding HCR, Dr. Brown was a partner at Paul Capital Partners, where he co-managed that firm’s royalty investments as a member of the royalty management committee. Prior to beginning his principal investment career in 2003, Dr. Brown was co-head of investment banking and head of healthcare at Adams, Harkness & Hill (now Canaccord Genuity) and a ranked biotechnology research analyst at Vector Securities International. Dr. Brown holds a B.A. from Yale, an M.D. from SUNY Upstate Medical Center and an M.B.A. from Harvard Business School. He currently serves as an outside director on the boards of Aquestive Therapeutics, Caladrius Biosciences, Faron Pharmaceuticals, and FAST Biomedical.
William M. Burns has been a Senior Advisor since 2020. HCR utilizes Mr. Burns’ extensive international commercial, business development, and operational experience in the pharmaceutical industry to evaluate potential investment opportunities, particularly in Europe. Mr. Burns has more than 40 years of industry experience, including 23 years at Roche Pharmaceuticals, culminating in his tenure as chief executive officer from 2001 to 2009. During his time with Roche, Mr. Burns had significant involvement in the privatization of Genentech, the integration of Boehringer Mannheim and the negotiations that resulted in Roche becoming a majority owner of Chugai in Japan. Over the past decade, Mr. Burns has held numerous non-executive board positions including F. Hoffmann La Roche, Chugai Pharmaceuticals, Genentech, Shire PLC and Biotie. Mr. Burns retired from the board of Wellcome Trust in 2020 and continues as a trustee of the Institute of Cancer Research, London. Mr. Burns currently serves as the non-executive chairman of the board of directors for both Molecular Partners and Vestergaard Holding, and the non-executive vice chairman of Mesoblast. Mr. Burns is a member of the Novo Holdings Advisory Group and a member of the Scientific Advisory Board of the Center for Integrated Oncology of the University of Cologne/Bonn. Mr. Burns holds a bachelor’s degree in economics from the University of Strathclyde, Glasgow.
Michael G. Carter, M.D. has been a Senior Advisor since 2009 and a member of HCR’s Transaction Review Committee since 2015. He will continue to serve as a member of the Manager’s Transaction Review Committee. HCR primarily utilizes Dr. Carter’s skill set in the assessment of product candidates, clinical data and market opportunities. Dr Carter was a Venture Partner at SVHealthInvestors for 18 years from 1998-2016 and now serves as a Non Executive Director of Oncternal Therapeutics. He has held numerous Non Exec Director positions over the last 25 years including Artois Pharma, GTx, Inc., Warner-Chilcot, Micromet, Santarus, Kudos, Oncoethix, Metris Therapeutics, Fulcrum, Cancervax, Atopix Therapeutics and Salick Health Care. Previously, Dr. Carter was a member of the strategic advisory board for the predecessor firm of the founders. From 1984 to 1998, Dr. Carter held numerous positions with ICI Pharmaceutical (Zeneca), including international marketing director, international medical director and serving on that company’s board of directors for 15 years. Dr. Carter also held numerous positions with Roche Products Ltd from 1976 to 1984, including director of the pharmaceutical division, head of medical development and medical affairs, and an adverse reactions physician. For nearly a decade he served on the UK Government’s Medicines Commission and, prior to entering the pharmaceutical industry, was a practicing physician. Dr Carter holds a Diploma in Pharmaceutical Medicine, an MBChB from Sheffield University Medical School, and a B.Pharm(Hons) from London University’s School of Pharmacy. He is an elected Fellow of the Royal Pharmaceutical Society, a Fellow of Faculty of Pharmaceutical Medicine of the Royal College of Physicians and a Fellow of the Royal College of Physicians Edinburgh.
Mardi C. Dier has been a Senior Advisor since 2020. HCR utilizes Ms. Dier’s significant financial, strategic and operational expertise to evaluate potential investment opportunities, particularly on the West Coast. Ms. Dier is the chief financial officer of Ultragenyx Pharmaceutical and is responsible for leading corporate finance, strategy and other operational functions. Ms. Dier previously served as chief financial officer and chief business officer of Portola Pharmaceuticals, after joining the company in August 2006. During her tenure, Ms. Dier oversaw the development of the finance and operations functions. Ms. Dier was responsible for raising over $1.8 billion, including two non-dilutive financings, to fund the development and launch of two hematologic products. Ms. Dier also led the merger process for Portola when it combined with Alexion in 2020. Previously, Ms. Dier served as vice president of Investor Relations at Chiron Corporation from 2003 until its acquisition by Novartis Pharmaceuticals in April 2006. Prior to joining Chiron, she served as a director in the West Coast investment banking
 
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practice at Prudential Securities, where she focused on biotechnology and other life sciences companies. Ms. Dier serves on the board of directors of Synthekine Inc., Prelude Therapeutics and ORIC Pharmaceuticals. Ms. Dier holds a B.S. in biology from Stanford University and an M.B.A. from The Anderson School at the University of California, Los Angeles.
Marc D. Kozin is Chairman of HCR’s Senior Advisors board and has been a member since 2013. HCR utilizes Mr. Kozin in both its investment process and its business development efforts. He was a senior advisor and former president of L.E.K. Consulting, a global management consulting firm. Mr. Kozin has three decades of global experience in strategy consulting, and mergers and acquisition management. He also has substantial industry expertise advising biopharmaceutical, life sciences and medtech companies. During his tenure at L.E.K., Mr. Kozin advised senior executives in life sciences to help them identify new growth opportunities, build value, pursue highly-profitable mergers and acquisitions, and support sustained growth. He helped open L.E.K.’s Boston office in 1987 and oversaw the growth of the firm’s U.S. operations including the company’s acquisition of shareholder value consulting firm Alcar in 1993. In 2002 Consulting Magazine named Mr. Kozin one of the 25 most influential consultants in recognition of his leadership and results for clients. He holds a B.A., magna cum laude, from Duke University, and an M.B.A. with distinction from The Wharton School at the University of Pennsylvania. Mr. Kozin currently serves as an outside board director of Dicerna Pharmaceuticals, UFP Technologies, Isleworth Healthcare Acquisition Corp. and VBL Therapeutics, all publicly held companies, and Greenlight Fund, nonprofit organization.
Robert S. Langer, Sc.D. has been a Senior Advisor since 2013. He is the David H. Koch Institute Professor at the Massachusetts Institute of Technology. Dr. Langer previously served as a member of the FDA’s SCIENCE Board from 1995 – 2002, including as its chairman from 1999 – 2002. He has helped start 40 companies, and more than 400 pharmaceutical, chemical, biotechnology and medical device companies have licensed or sublicensed his patents. Over the course of his career, Dr. Langer has received over 220 major awards including the 2013 Wolf Prize in Chemistry, which is considered the Israeli Nobel Prize; the 2006 United States National Medal of Science; the 2011 United States National Medal of Technology and Innovation; the Charles Stark Draper Prize, considered the equivalent of the Nobel Prize for engineers; the 2014 Breakthrough Prize in Life Sciences; and the 2015 Queen Elizabeth Prize for Engineering. He has also been elected to the National Academy of Medicine, the National Academy of Inventors, the National Academy of Engineering and the National Academy of Sciences. Dr. Langer currently serves on the board of directors for the following public companies: PureTech Ventures, Moderna Therapeutics, Frequency Therapeutics, Abpro Bio and Seer. Dr. Langer has received 36 honorary doctorates including honorary degrees from both Harvard and Yale. He received his bachelor’s degree from Cornell University and his Sc.D. from Massachusetts Institute of Technology, both in chemical engineering.
Gary A. Lyons has been a Senior Advisor since 2018. HCR utilizes Mr. Lyons’ decades-long experience as a CEO and senior manager in the biopharmaceutical sector to evaluate potential products of interest, particularly on the West Coast. Mr. Lyons has more than 35 years of industry experience, including as Chief Executive Officer of Neurocrine Biosciences, Inc., a position he held from 1993 through 2008. Mr. Lyons remains on the Board of Directors of Neurocrine. Prior to Neurocrine, Mr. Lyons held several senior management positions at Genentech, including Vice President of Business Development and Vice President of Sales. While at Genentech, Mr. Lyons also served as a member of the company’s Executive Committee and was responsible for international licensing, acquisitions and partnering for Genentech’s Corporate Venture Program. Mr. Lyons currently serves on the board of directors of Brickell Biotech, Inc., and Eledon Pharmaceuticals and is the chairman of the board of directors of both Rigel Pharmaceuticals, Inc. and Travere Therapeutics. He holds a B.S. in Marine Biology from the University of New Hampshire and an M.B.A. from the Kellogg School of Management at Northwestern University.
Julie H. McHugh has been a Senior Advisor since 2016. HCR utilizes Ms. McHugh’s experience commercializing products and operating businesses when reviewing potential investments. Ms. McHugh most recently served as chief operating officer for Endo Health Solutions, from March 2010 through May 2013, where she was responsible for the specialty pharmaceutical and generic drug businesses. Previously, Ms. McHugh was the chief executive officer of Nora Therapeutics, a biotech start-up company
 
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focused on developing novel therapies for the treatment of infertility disorders. Before that she served as company group chairman for Johnson & Johnson’s (J&J) worldwide virology business unit, and as president of Centocor, Inc., a J&J subsidiary. While at J&J, Ms. McHugh oversaw the development and launches of several products, including Remicade® (infliximab), Prezista® (darunavir) and Intelence® (etravirine), and she was responsible for oversight of a research and development portfolio including compounds for HIV, hepatitis C and tuberculosis. Prior to joining Centocor, Ms. McHugh led the marketing communications for gastrointestinal drug Prilosec® (omeprazole) at Astra-Merck Inc. Ms. McHugh is an outside board member of Ironwood Pharmaceuticals, Aerie Pharmaceuticals, Lantheus Medical Imaging and Evelo Biosciences, all publicly held companies, and The New Xellia Group, a privately held company. She currently serves on the board of visitors for the Smeal College of Business of the Pennsylvania State University. Ms. McHugh previously served on the board of directors for ViroPharma, Epirus Biopharmaceuticals, the Biotechnology Industry Organization, the Pennsylvania Biotechnology Association and the New England Healthcare Institute. Ms. McHugh received her M.B.A. from St. Joseph’s University and her B.S. from Pennsylvania State University.
Natale S. Ricciardi has been a Senior Advisor since 2013. HCR seeks Mr. Ricciardi’s input on manufacturing issues for all transactions as well as any portfolio investments. He spent nearly four decades at Pfizer Inc. Prior to his retirement in 2011, Mr. Ricciardi served as president, Pfizer Global Manufacturing, senior vice president, Pfizer Inc. and as a member of the Pfizer Executive Leadership Team. In addition to his corporate leadership role, Mr. Ricciardi was directly responsible for all of Pfizer’s internal and external supply organization – a global enterprise with as many as 38,000 employees and more than 100 manufacturing facilities supplying small and large molecule pharmaceuticals, vaccines, consumer, nutrition and animal health products. His first decade at Pfizer was spent performing technical and supervisory roles in the New York area. Mr. Ricciardi then relocated to Puerto Rico where he led Pfizer’s growing manufacturing operations, which ultimately included sales and marketing in the Caribbean. He returned to the mainland in 1995 as vice president of Manufacturing for Pfizer’s Animal Health Group. In 1999 he was given responsibility for Pfizer’s U.S. manufacturing operations and assumed global responsibilities in 2004. Mr. Ricciardi holds a B.S. in chemical engineering from The City College of New York and an M.B.A. from Fordham University. He currently serves as an outside board member of Dynavax Technologies Corporation, Prestige Consumer Healthcare, Inc., and Rapid Micro Biosystems.
Board Composition
Structure
Following this offering, our board will consist of           members. At each annual meeting of stockholders, all of the directors will (subject to any need to maintain a minimum board quorum) automatically retire and may stand for reelection. The term of the directors will expire upon the next annual meeting of stockholders, or as otherwise provided by our certificate of incorporation.
Our certificate of incorporation, which will be effective upon the closing of this offering, provides that the number of our directors shall be fixed from time to time by a resolution of the majority of our board of directors. Each of our current directors will continue to serve as a director until the election and qualification of their successor, or until their earlier death, resignation or removal.
We do not have a fixed policy as to whether the chairman of the board should be an independent director and believe that our board of directors should maintain the flexibility to select the chairman and reorganize the leadership structure, from time to time, based on the criteria that is in our best interests and the best interests of our stockholders at such times.
Director Independence
Under applicable Nasdaq rules, a director will qualify as “independent” if our board of directors affirmatively determines that he or she has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). Ownership of a significant amount of shares of our Class A common stock, by itself, does not constitute a material
 
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relationship. Because Mr. Futch is our Chief Executive Officer, our board of directors has determined that he does not qualify as an independent director.
The applicable rules and regulations of Nasdaq require us to have a majority of independent directors within one year of the date the shares of our Class A common stock are listed on Nasdaq. Our board has determined that each of           meet the categorical standards described above, that none of these directors has a material relationship with us and that each of these directors is “independent” under the applicable rules of Nasdaq.
There is no family relationship among any of our directors or executive officers.
Committees of the Board of Directors
To support effective governance, our board of directors will delegate certain of its responsibilities to committees. Upon the closing of this offering, our board of directors will establish three standing committees — the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee — and may from time to time form other committees.
Audit Committee
The audit committee will operate pursuant to a charter to be approved by our board of directors. The charter will set forth the responsibilities of the audit committee, which will include:

selecting our independent registered public accounting firm;

reviewing with such independent registered public accounting firm the planning, scope and results of their audit of our financial statements;

pre-approving the fees for services performed;

reviewing with the independent registered public accounting firm the adequacy of internal control systems; and

reviewing our annual financial statements and periodic filings and receiving our audit reports and financial statements.
The audit committee also will establish guidelines and make recommendations to our board of directors regarding the valuation of our assets. Upon the closing of this offering, the audit committee will be composed of       ,         and             will be considered independent under the rules of the            and will serve as chairman of the audit committee. In addition, our board of directors has determined that             is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the Securities and Exchange Commission. In compliance with Nasdaq listing requirements, a majority of the members of the audit committee will be independent directors within 90 days of the date the shares of our Class A common stock are listed on Nasdaq and all of the members of the audit committee will be independent directors within one year of the listing date.
Compensation Committee
Upon the closing of this offering, our compensation committee will be comprised of       ,       and            will be chairman of the committee. Our compensation committee will be authorized to, among other matters:

determine from time to time the remuneration for our independent directors;

ensure appropriate leadership development and succession planning is in place; and

prepare the report of the compensation committee that the rules of the SEC require to be included in our annual meeting proxy statement.
Our executive officers are not directly compensated by us and, as a result, the Compensation Committee does not produce and/or review and report on executive compensation practices.
 
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The applicable rules and regulations of Nasdaq require us to have one independent compensation committee member upon the closing of this offering, a majority of independent members within 90 days of the date the shares of our Class A common stock are listed on Nasdaq and all independent compensation committee members within one year of the listing date.
Upon the listing of our Class A common stock on Nasdaq, the compensation committee will operate under a written charter, which the compensation committee will review and evaluate at least annually.
Nominating and Corporate Governance Committee
Upon the closing of this offering, our nominating and governance committee will be comprised of        , and            .        will be the chairman of the committee. Our nominating and governance committee is authorized to, among other matters:

identify and nominate candidates for election to the board of directors;

review and recommend the compensation arrangements for certain members of our board of directors;

develop and recommend to the board of directors a set of corporate governance principles applicable to our company; and

oversee the evaluation of our board of directors.
The applicable rules and regulations of the Nasdaq require us to have one independent nominating and governance committee member upon the closing of this offering, a majority of independent members within 90 days of the date the shares of our Class A common stock are listed on Nasdaq and all independent nominating and governance committee members within one year of the listing date.
Upon the listing of our Class A common stock on Nasdaq, the nominating and corporate governance committee will operate under a written charter, which the nominating and corporate governance committee will review and evaluate at least annually.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee has at any time been an employee of ours. Our named executive officers do not serve as a member of another entity’s board of directors or compensation committee that has one or more executive officers serving as a member of our board of directors or compensation committee.
Code of Business Conduct and Ethics
Prior to the closing of this offering, we will adopt a code of business conduct and ethics that applies to all of our directors and the employees and officers of our Manager, including those officers responsible for financial reporting. Upon the closing of this offering, the code of business conduct and ethics will be available on our website. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
 
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DIRECTOR AND EXECUTIVE COMPENSATION
Director Compensation
We have not yet paid any compensation to our directors. Following the closing of this offering, we intend to pay an annual fee to each independent director equal to $      , a portion of which will consist of an annual equity award with a grant date value of $      . Affiliated directors, however, will not be separately compensated by us. All members of the board of directors will be reimbursed for reasonable costs and expenses incurred in attending meetings of our board of directors. We may determine in the future to adopt a policy for compensation of our independent directors that may include fees for such a director’s service on one or more of the standing committees of our Board of Directors, and may also provide for annual awards of equity.
Named Executive Officers
We consider the following executive officers as our named executive officers:

Clarke B. Futch, Chairman and Chief Executive Officer;

Christopher A. White, President and Chief Financial Officer; and

Thomas K. Conner, Chief Accounting Officer and Treasurer.
All of our named executive officers are employees of the Legacy Manager, and provide all of their services to the Legacy HCR Partnerships under the Legacy Management Agreement between the Legacy HCR Partnerships and the Legacy Manager. Because we are a newly-formed entity that had no operations prior to this offering, we did not have any other executive officers in 2020. Following this offering, we expect our executive officers to be employees of the Manager and to provide their services to Healthcare Royalty, Inc. under the Management Agreements between us and the Manager, to be in effect upon the closing of this offering.
Compensation Discussion and Analysis
Each of our named executive officers is compensated for his services to us by the Legacy Manager and does not receive any compensation directly from us. We do not reimburse the Legacy Manager or any of its affiliates for the compensation of any of our named executive officers and do not make any decisions regarding the amount or nature of their compensation.
For a description of our obligations to pay the Operating and Personnel Payments to the Manager under the Management Agreements following the closing of this offering, as well as the Equity Performance Awards to which our named executive officers will be entitled under the Management Agreements, please see “The Manager — Management Agreements.”
Summary Compensation Table
The following table provides summary information concerning the compensation of our named executive officers for 2020. All such compensation was paid by the Legacy Manager. Following the closing of this offering, all such compensation will be paid by the Manager. Our named executive officers did not receive any equity awards from us for 2020.
Name and Principal Position
Year
Salary
($)(1)
Bonus
($)
All Other
Compensation
($)(2)
Total
($)
Clarke B. Futch
2020
   Chairman and Chief Executive
Officer
$ 1,250,000 $ 4,584,492  —  $ 5,834,492
Christopher A. White
2020
   President and Chief Financial Officer
$ 500,000 $ 910,247  —  $ 1,410,247
Thomas K. Conner
2020
   Chief Accounting Officer and Treasurer
$ 400,000 $ 419.907  —  $ 819,907
 
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(1)
Reflects salary paid by the Legacy Manager to each named executive officer for services in 2020.
(2)
Following the completion of this offering, executives and other employees of the Manager will be entitled to receive Equity Performance Awards determined on a portfolio-by-portfolio basis, as described in “The Manager — Equity Performance Awards.”
Potential Payments upon Termination or Change in Control
The Manager will maintain a separation pay plan that provides for an unspecified amount of separation pay upon a qualifying termination of employment, such as in connection with a reduction of force, job elimination or voluntary acceptance of a Manager-initiated termination. Each of the named executive officers would be eligible to participate in this benefit in the absence of an individual employment or separation pay agreement.
Management Agreements
We and Holdings LP will each enter into the Management Agreements with the Manager prior to the closing of this offering pursuant to which the Manager will receive a separate Operating and Personnel Payment for its provision of advisory and management services to our royalty business. To the extent that the Manager outsources any of its functions we will pay the fees associated with such functions on a direct basis without profit to the Manager. See “The Manager — Management Agreements”.
Indemnification Agreements
We expect that we and the Manager, as appropriate, will enter into indemnification agreements with or as to each of the named executive officers and its other officers and our directors, as well as with individuals serving as directors or officers of our or its subsidiaries, providing for the indemnification of, and advancement of expenses to, these persons to the fullest extent permitted by law. See “Certain Relationships and Related Party Transactions — Indemnification of Directors and Officers”.
Related Party Transaction Policy
Our audit committee will review any potential related party transactions referred to it by our board of directors, including consideration of affiliated transaction restrictions applicable to Royalty-Related Transaction decisions of the Manager, acting as our advisor, and Royalty-Related Transactions by us after the this offering that involve certain of our affiliates, including the Manager, or funds advised by them. See “Certain Relationships and Related Party Transactions — Policies and Procedures for Related Party Transactions”.
 
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We describe below transactions and series of similar transactions, during our last three fiscal years or currently proposed, to which we were a party or will be a party, in which:

the amounts involved exceeded or will exceed $120,000; and

any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock had or will have a direct or indirect material interest.
Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions meeting this criteria to which we have been or will be a party other than compensation arrangements, which are described where required under “Director and Executive Compensation”.
The forms of the agreements described in this section are filed as exhibits to the registration statement of which this prospectus forms a part, and the following descriptions are qualified by reference thereto.
Management Agreements
For a description of the Management Agreements, please refer to “The Manager”.
Holdings LP Partnership Agreement
As a result of the Reorganization Transactions, we will become the direct or indirect owner of all of the Holdings LP Class A Units, which have the sole voting power in Holdings LP (subject to certain exceptions as described herein), and we will continue to own all of the interests of HCRX Master GP, LLC, a Delaware limited liability company and the general partner of Holdings LP (the “General Partner”). As a result we will control the business and affairs of Holdings LP, and through Holdings LP and its subsidiaries, including HCR, conduct our business. The General Partner will determine when distributions will be paid to the limited partners of Holdings LP and the amount of any such distributions. If Holdings LP pays a distribution, such distribution will be paid to us and the Continuing Investor Partnership, pro rata and pari passu in accordance with our respective ownership of Holdings LP Class A Units and Holdings LP Class B Units
Exchange Agreement
The Continuing Investor Partnership will, upon the individual instruction of any of its partners from time to time, in accordance with procedures and limitations as set forth in the Holdings LP Agreement and Exchange Agreement, distribute the Holdings LP Class B Units held on behalf of such partner that are subject to such instruction which will then be exchanged for our Class A common stock (which shares of Class A common stock will be subject to the terms of the underwriters’ “lock-up” agreements entered into in connection with this offering, as well as the one-year “lock-up” agreements entered into by each of the Legacy HCR Partnerships in connection with this offering and the additional transfer restrictions described above and, if applicable, will be held in escrow to satisfy obligations to pay additional carried interest to the Continuing GP Investors, as described above). Any Class A common stock received by limited partners of the Continuing Investor Partnership may be subject to restrictions on sale as further described under “— Additional Transfer Restrictions” below.
Policies and Procedures for Related Party Transactions
Upon the closing of this offering, we will adopt a written Related Person Transaction Policy (the “policy”), which will set forth our policy with respect to the review, approval, ratification and disclosure of all related person transactions by our Audit Committee. In accordance with the policy, our Audit Committee will have overall responsibility for implementation of and compliance with the policy.
For purposes of the policy, a “related person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved exceeded, exceeds or will exceed $120,000 and in which any related
 
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person (as defined in the policy) had, has or will have a direct or indirect material interest. A “related person transaction” does not include any employment relationship or transaction involving an executive officer and any related compensation resulting solely from that employment relationship that has been reviewed and approved by our board of directors or Audit Committee.
The policy will require that notice of a proposed related person transaction be provided to our legal department prior to entry into such transaction. If our legal department determines that such transaction is a related person transaction, the proposed transaction will be submitted to our Audit Committee for consideration. Under the policy, our Audit Committee may approve only those related person transactions that are in, or not inconsistent with, our best interests and the best interests of our stockholders. In the event that we become aware of a related person transaction that has not been previously reviewed, approved or ratified under the policy and that is ongoing or is completed, the transaction will be submitted to the Audit Committee so that it may determine whether to ratify, rescind or terminate the related person transaction.
The policy will also provide that the Audit Committee review certain previously approved or ratified related person transactions that are ongoing to determine whether the related person transaction remains in our best interests and the best interests of our stockholders. Additionally, we will make periodic inquiries of directors and executive officers with respect to any potential related person transaction of which they may be a party or of which they may be aware.
Indemnification of Directors and Officers
We generally will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts on an after tax basis: any director or officer, any director or officer who is or was serving at our request as a director, officer, employee, member, partner, partnership representative, agent, fiduciary or trustee of another person, any person who is named in the registration statement of which this prospectus forms a part as being or about to become a director or a person performing similar functions and any person the board of directors in its sole discretion designates as an indemnitee, which includes the members of the board of directors of Healthcare Royalty, Inc. We have agreed to provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in fraud or willful misconduct, subject to the limitations set forth in the following paragraph. We have also agreed to provide this indemnification for criminal proceedings, subject to the limitations set forth in the following paragraph. Any indemnification under these provisions will only be out of our assets.
We may also purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the persons against such liabilities.
In addition, we or our Manager may enter into indemnification agreements with each of our directors and its officers. See “Director and Executive Compensation — Indemnification Agreements.”
Registration Rights Agreements
Certain of our stockholders, including the Continuing Investors, will be provided with certain piggyback and demand registration rights subject to customary limitations and restrictions. See “Shares of Class A Common Stock Eligible for Future Sale — Registration Rights”.
 
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PRINCIPAL AND SELLING STOCKHOLDERS
The following tables set forth information regarding beneficial ownership of our Common Stock as of           , 2021, by:

each of our named executive officers;

each of our directors and director nominees;

all of our directors and executive officers as a group; and

each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our Class A common stock or Class B common stock.
The numbers of shares of Class A common stock and Class B common stock beneficially owned and percentages of beneficial ownership before this offering that are set forth below are based on the number of shares of Class A common stock and Class B common stock to be issued and outstanding prior to this offering after giving effect to the Reorganization Transactions. See “Organizational Structure”. The numbers of Class A common stock and Class B common stock beneficially owned and percentages of beneficial ownership after this offering that are set forth below are based on (a) the number of shares of Class A common stock and Class B common stock to be issued and outstanding immediately after this offering and (b) an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus).
The amounts and percentages of Class A common stock and Class B common stock beneficially owned are reported on the basis of the rules and regulations of the SEC governing the determination of beneficial ownership of securities. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
Unless otherwise noted below, the address of the persons listed on the table is c/o Healthcare Royalty, Inc., 300 Atlantic St., Suite 600 Stamford, Connecticut 06901. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Class A common stock.
The following table assumes the underwriters’ option to purchase additional shares of Class A common stock is not exercised.
Class A Common Stock
Beneficially Owned(1)
Class B Common Stock
Beneficially Owned(1)
Combined Voting Power
Name of Beneficial Owner
Before this
Offering
Number of
Shares
Offered
After this
Offering
Before this
Offering
After this
Offering
Before this
Offering
After this
Offering
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Percent
Percent
5% Equity Holders
Directors and Named Executive Officers
Clarke B. Futch
Chris A. White
Timothy R.M. Bryant
Thomas K. Conner
Carlos M. Almodóvar
All executive officers and directors as a group (ten persons)
    
    
    
    
    
    
    
    
    
    
    
Selling Stockholders
 
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(1)
Following the Reorganization Transactions, the Continuing Investors will indirectly own Holdings LP Class B Units and a corresponding number of shares of Class B common stock held by the applicable limited partnership and will be entitled to one vote for each share of Class B common stock held by them.
The following table assumes the underwriters’ option to purchase additional shares of Class A common stock is exercised in full.
Class A Common Stock
Beneficially Owned(1)
Class B Common Stock
Beneficially Owned(1)
Combined Voting Power
Name of Beneficial Owner
Before this
Offering
Number of
Shares
Offered
After this
Offering
Before this
Offering
After this
Offering
Before this
Offering
After this
Offering
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Percent
Percent
5% Equity Holders
    
    
    
    
    
    
    
    
    
    
    
Directors and Named Executive Officers
Clarke B. Futch
Chris A. White
Timothy R.M. Bryant
Thomas K. Conner
Carlos M. Almodóvar
All executive officers and directors as a group (ten persons)
Selling Stockholders
(1)
Following the Reorganization Transactions, the Continuing Investors will indirectly own Holdings LP Class B Units and a corresponding number of shares of Class B common stock held by the applicable limited partnership and will be entitled to one vote for each share of Class B common stock held by them.
 
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DESCRIPTION OF CAPITAL STOCK
In connection with this offering, we will amend and restate our certificate of incorporation and our bylaws. The following is a description of the material terms of, and is qualified in its entirety by, our certificate of incorporation and bylaws, each of which will be in effect upon the closing of this offering, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part. Under “Description of Capital Stock”, “we”, “us”, “our” and “our company” refer to Healthcare Royalty, Inc.
General
Upon the closing of this offering, our authorized capital stock will consist of           shares of Class A common stock, par value $0.01 per share,           shares of Class B common stock, par value $0.01 per share, and           shares of preferred stock, par value $0.01 per share. Unless our board of directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
Common Stock
Class A Common Stock
Holders of shares of our Class A common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. The holders of shares of our Class A common stock do not have cumulative voting rights in the election of directors.
Holders of shares of our Class A common stock are entitled to receive dividends when and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.
Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock will be entitled to receive pro rata our remaining assets available for distribution.
All shares of our Class A common stock that will be outstanding at the time of the completion of the offering will be fully paid and non-assessable. Shares of Class A common stock will not be subject to further calls or assessments by us. The rights, powers and privileges of our Class A common stock will be subject to those of the holders of any shares of our preferred stock or any other series or class of stock we may authorize and issue in the future.
Class B Common Stock
Each share of Class B common stock will entitle its holder to one vote per share on all matters submitted to a vote of our stockholders. If at any time the ratio at which Holdings LP Class B Units are redeemable or exchangeable for shares of our Class A common stock changes from one-for-one as described under “Certain Relationships and Related Party Transactions — Holdings LP Partnership Agreement”, the number of votes to which holders of Class B common stock are entitled will be adjusted accordingly. The holders of shares of our Class B common stock do not have cumulative voting rights in the election of directors.
Except for transfers to us pursuant to the Holdings LP partnership agreement or to certain permitted transferees, the Holdings LP Class B Units and corresponding shares of Class B common stock may not be sold, transferred or otherwise disposed of. Holders of shares of our Class B common stock will vote together with holders of shares of our Class A common stock as a single class on all matters on which stockholders are entitled to vote, except as otherwise required by law.
 
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Shares of Class B common stock are not entitled to economic interests in Healthcare Royalty, Inc. Holders of shares of our Class B common stock do not have any right to receive dividends or to receive a distribution upon a liquidation or winding up of Healthcare Royalty, Inc. However, if Holdings LP makes distributions to us, the other holders of Holdings LP Class B Units, including the Continuing Investor Partnership, will be entitled to receive distributions pro rata in accordance with the percentages of their respective Holdings LP Class B Units. Shares of Class B common stock will not be subject to further calls or assessment by us.
Preferred Stock
No shares of preferred stock will be issued or outstanding immediately after the offering contemplated by this prospectus. Our certificate of incorporation will authorize our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by holders of our common stock. Our board of directors will be able to determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, including, without limitation:

the designation of the series;

the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding);

whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;

the dates at which dividends, if any, will be payable;

the redemption rights and price or prices, if any, for shares of the series;

the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;

the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of our company;

whether the shares of the series will be convertible into shares of any other class or series, or any other security, of our company or any other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;

restrictions on the issuance of shares of the same series or of any other class or series; and

the voting rights, if any, of the holders of the series.
We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium over the market price of the shares of common stock. Additionally, the issuance of preferred stock may adversely affect the holders of our common stock by restricting dividends on the common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.
Dividends
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board
 
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of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See the section titled “Dividend Policy” for additional information.
Certain Anti-Takeover, Limited Liability and Indemnification Provisions
Certain provisions in our certificate of incorporation and amended and restated bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they also give our board of directors the power to discourage acquisitions that some stockholders may favor.
No Cumulative Voting
Our certificate of incorporation will provide that stockholders do not have the right to cumulative votes in the election of directors.
Stockholder Action by Written Consent
Our certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Our bylaws will further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our amended and restated bylaws will provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder’s notice generally must be delivered to and received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, that, in the event that the date of such meeting is advanced more than 30 days prior to, or delayed by more than 60 days after, the anniversary of the preceding year’s annual meeting of our stockholders, a stockholder’s notice to be timely must be so delivered not earlier than the close of business on the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made. Our amended and restated bylaws will also specify certain requirements as to the form and content of a stockholder’s notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.
Special Meetings of Stockholders
Subject to the rights of the preferred stock, special meetings of our stockholders may be called only by the chairman of our board of directors or by a resolution adopted by a majority of our board of directors. Stockholders are not permitted to call a special meeting of stockholders, to require that the
 
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chairman call such a special meeting, or to require that our board of directors request the calling of a special meeting of stockholders.
Removal of Directors
Our certificate of incorporation will provide that our directors may be removed only for cause by the affirmative vote of at least 66 2/3% of the voting power of our outstanding common stock. This requirement of a supermajority vote to remove directors could enable a minority of our stockholders to prevent a change in the composition of our board.
Limitation of Officer and Director Liability and Indemnification Agreements
Our certificate of incorporation will limit the liability of our directors to the fullest extent permitted by the DGCL and provides that we will provide them with customary indemnification. We expect to enter into indemnification agreements with each of our executive officers and directors that provide them, in general, with customary indemnification in connection with their service to us or on our behalf.
Forum Selection
Our amended and restated certificate of incorporation will provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a breach of a duty (including any fiduciary duty owed by any current or former director, officer, stockholder, employee or agent of the Company or our stockholders), (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Our certificate of incorporation and our amended and restated bylaws further provide that any person or entity purchasing, otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and consented to the forum selection clause. It is possible that a court of law could rule that the choice of forum provisions contained in our certificate of incorporation and bylaws are inapplicable or unenforceable if they are challenged in a proceeding or otherwise. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation and bylaws has been challenged in legal proceedings and it is possible that a court could find our forum selection provision to be inapplicable or unenforceable.
In the event that the Court of Chancery lacks jurisdiction over any such action or proceeding, our amended and restated certificate of incorporation will provide that the sole and exclusive forum for such action or proceeding will be another state or federal court located within the State of Delaware. The exclusive forum provisions will not apply to suits brought to enforce any liability or duty created by the Securities Act and the Exchange Act, or to any claim for which the federal courts have exclusive jurisdiction. Unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act and the rules and regulations promulgated thereunder, including all causes of action asserted against any defendant named in such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. However, as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such provision. Investors also cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Delaware Anti-Takeover Law
We will be governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination”
 
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with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

the business combination or transaction which resulted in the stockholder becoming an interested stockholder was approved by the board of directors prior to the time that the stockholder became an interested stockholder;

upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by directors who are also officers of the corporation and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

at or subsequent to the time the stockholder became an interested stockholder, the business combination was approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
In general, Section 203 defines a “business combination” to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing changes in control of our company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be                 .
Securities Exchange
We intend to apply to list the shares of Class A common stock on the Nasdaq Global Market under the symbol “HCRX”.
 
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SHARES OF CLASS A COMMON STOCK ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Class A common stock. Future sales of substantial amounts of our Class A common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our Class A common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
Upon the closing of this offering, we will have shares of Class A common stock (or      shares of Class A common stock if the underwriters exercise their option to purchase additional shares in full) outstanding. Of these shares, the           shares of Class A common stock sold in this offering (or      shares if the underwriters exercise their option to purchase additional shares in full) will be freely tradable without further restriction or registration under the Securities Act, except any shares held by our “affiliates”, as that term is defined in Rule 144 under the Securities Act, and shares purchased by our directors, executive officers, Continuing Investors and other individuals in the reserved shares program described below and in “Underwriting”. In the absence of registration under the Securities Act, shares held by affiliates may only be sold in compliance with the limitations of Rule 144 described below or another exemption from the registration requirements of the Securities Act. As defined in Rule 144, an affiliate of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Company. Upon the closing of this offering, all of the Underlying Shares will be deemed “restricted securities”, as that term is defined under Rule 144, if converted within six months of the closing of this offering, and would also be subject to the “lock-up” period noted below.
Restricted securities may be sold in the public market only if they qualify for an exemption from registration under Rule 144 under the Securities Act, which is summarized below, or any other applicable exemption under the Securities Act, or pursuant to a registration statement that is effective under the Securities Act. The holders of approximately           shares of our Class A common stock (on an assumed as-exchanged basis) will be entitled to dispose of their shares following the expiration of the initial 180-day underwriter “lock-up” period pursuant to the holding period, volume and other restrictions of Rule 144, subject to any other lock-up restrictions thereon described below. Goldman Sachs & Co. LLC may waive these lock-up provisions at their discretion prior to the expiration dates of such “lock-up” agreements.
Registration Rights
Upon the closing of this offering, the Company, the Continuing Investor Partnership will enter into a registration rights agreement providing the Continuing Investor Partnership with the right to demand at the request of Century Investors, following the expiration of the underwriters’ “lock-up” agreements entered into in connection with this offering, up to two underwritten secondary offerings of shares underlying the Holdings LP Units held thereby, subject to a minimum offering size of $500 million, and customary piggyback registration rights. If the underwriters of such a secondary offering are unable to sell all of the shares requested for inclusion in such offering, the offering will not be counted as an exercise of a demand registration right.
Lock-Up Arrangements
We, all of our directors, our executive officers, the selling stockholders, the Manager, certain employees of the Manager and the Continuing Investor Partnership (which hold all shares of our Class B common stock and all Holdings LP Class B Units exchangeable for shares of Class A common stock) have agreed, subject to certain exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of Class A common stock or any securities convertible into or exercisable or
 
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exchangeable for shares of Class A common stock for a period of 180 days after the date of this prospectus, without the prior written consent of Goldman Sachs & Co. LLC. See “Underwriting” for more information.
During the 180 days after the date of this prospectus, holders of limited partnership interests in the Continuing Investor Partnership and Continuing Investors that have exchanged Class B Units to shares of our Class A Common Stock will be restricted from transferring shares of Class A common stock as a result of the foregoing lock-up arrangements and the terms of the Exchange Agreement. In addition, during the lockup-period, such holders are prohibited by the terms of the Continuing Investor Partnership limited partnership agreements from offering, pledging, selling, contracting to sell, selling any option or contract to purchase, purchasing any option or contract to sell, granting any option, right or warrant to purchase, or otherwise transferring or disposing of, directly or indirectly, or entering into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of Class A common stock or any securities convertible into or exercisable or exchangeable for shares of Class A common stock.
Immediately following the closing of this offering, stockholders subject to “lock-up” agreements will hold           shares of our Class A common stock (assuming all Holdings LP Class B Units are exchanged for shares of Class A common stock), representing approximately    % of shares of our then-issued and outstanding Class A common stock (or      shares of Class A common stock, representing approximately    % of our then-issued and outstanding Class A common stock if the underwriters exercise their option to purchase additional shares of Class A common stock in full, in each case excluding shares subject to a lock-up arrangement).
In addition, the Holdings LP Class B Units held by the Continuing LP Investors and the Continuing GP Investors upon the closing of this offering will be subject to restrictions on transfers and exchanges for periods ranging from three to five years after the closing of this offering, as more fully described in “Organizational Structure”.
Rule 144
In general, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of Class A common stock for at least six months would be entitled to sell such securities, provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of Class A common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three month period only a number of securities that does not exceed the greater of either of the following:

1% of the number of shares of Class A common stock then outstanding, which will equal approximately           shares immediately after this offering, assuming no exercise of the underwriters’ option to purchase additional shares of Class A common stock; or

the average weekly trading volume of our Class A common stock on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale;
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144 to the extent applicable.
 
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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of material U.S. federal income and estate tax consequences of the purchase, ownership and disposition of shares of our Class A common stock as of the date hereof. Except where noted, this summary deals only with Class A common stock that is held as a capital asset by a non-U.S. holder (as defined below).
A “non-U.S. holder” means a beneficial owner of shares of our Class A common stock (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes, any of the following:

an individual who is a citizen or resident of the United States;

a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

a trust if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income and estate tax consequences different from those summarized below. This summary does not address all aspects of U.S. federal income and estate taxes, does not address alternative minimum tax or Medicare contribution tax considerations or special tax accounting rules under Section 451(b) of the Code, and does not deal with foreign, state, local or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances. In addition, it does not represent a detailed description of the U.S. federal income and estate tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws (including if you are a U.S. expatriate, foreign pension fund, financial institution, broker-dealer or trader in securities, “controlled foreign corporation”, “passive foreign investment company”, person holding our Class A common stock as part of a hedge, straddle or other integrated investment, a person who acquired our Class A common stock as compensation or otherwise in connection with the performance of services, or a partnership or other pass-through entity for U.S. federal income tax purposes (or investor therein)). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds shares of our Class A common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Class A common stock, you should consult your tax advisors.
If you are considering the purchase of our Class A common stock, you should consult your own tax advisors concerning the particular U.S. federal income and estate tax consequences to you of the purchase, ownership and disposition of our Class A common stock, as well as the consequences to you arising under other U.S. federal tax laws and the laws of any other taxing jurisdiction.
Dividends
In the event that we make a distribution of cash or other property (other than certain pro rata distributions of our Class A common stock) in respect of shares of our Class A common stock, the distribution generally will be treated as a dividend for U.S. federal income tax purposes to the extent it is paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Any portion of a distribution that exceeds our current and accumulated earnings and profits
 
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generally will be treated first as a tax-free return of capital, causing a reduction in the adjusted tax basis of a non-U.S. holder’s Class A common stock, and to the extent the amount of the distribution exceeds a non-U.S. holder’s adjusted tax basis in shares of our Class A common stock, the excess will be treated as gain from the disposition of shares of our Class A common stock (the tax treatment of which is discussed below under “Gain on Disposition of Class A Common Stock”).
Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, subject to the discussion of FATCA below under “Additional Withholding Requirements”. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a U.S. person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A non-U.S. holder who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to provide the applicable withholding agent with a properly executed IRS Form W-8BEN or Form W-8BEN-E (or other applicable form) certifying under penalty of perjury that such holder is not a U.S. person as defined under the Code and is eligible for treaty benefits or (b) if our Class A common stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable U.S. Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that are pass-through entities rather than corporations or individuals.
A non-U.S. holder eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Gain on Disposition of Class A Common Stock
Subject to the discussion of backup withholding below, any gain realized by a non-U.S. holder on the sale or other disposition of our Class A common stock generally will not be subject to U.S. federal income tax unless:

the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder);

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes and certain other conditions are met.
A non-U.S. holder described in the first bullet point immediately above will be subject to tax on the gain derived from the sale or other disposition in the same manner as if the non-U.S. holder were a U.S. person as defined under the Code. In addition, if any non-U.S. holder described in the first bullet point immediately above is a foreign corporation, the gain realized by such non-U.S. holder may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a 30% tax on the gain derived from the sale or other disposition (unless an applicable income tax treaty provides for different treatment), which gain may be offset by U.S. source capital losses even though the individual is not considered a resident of the United States.
Generally, a corporation is a “U.S. real property holding corporation” if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real
 
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property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We believe we are not and do not anticipate becoming a “U.S. real property holding corporation” for U.S. federal income tax purposes.
Federal Estate Tax
Class A common stock owned or treated as owned by an individual who is not a U.S. citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of such person’s death will be included in such holder’s gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
Distributions paid to a non-U.S. holder and the amount of any tax withheld with respect to such distributions generally will be reported to the IRS. Copies of the information returns reporting such distributions and any withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty.
Dividends paid by us or our paying agents to a non-U.S. holder may also be subject to backup withholding (currently at a rate of 24%). A non-U.S. holder will not be subject to backup withholding on dividends received if such holder certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person as defined under the Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition of our Class A common stock made within the United States or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code), or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Additional Withholding Requirements on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code, the Treasury Regulations promulgated hereunder and other official guidance (commonly referred to as “FATCA”), a 30% U.S. federal withholding tax may apply to any dividends paid on our Class A common stock to (i) a “foreign financial institution” ​(as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a “non-financial foreign entity” ​(as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA or (y) adequate information regarding certain substantial U.S. beneficial owners of such entity (if any). If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “Dividends”, the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Under proposed U.S. Treasury regulations promulgated by the Treasury Department on December 13, 2018, the preamble to which state that taxpayers may rely on the proposed Treasury regulations until final Treasury regulations are issued, this FATCA withholding tax will not apply to the gross proceeds from the sale or disposition of our Class A common stock. You should consult your own tax advisors regarding these requirements and whether they may be relevant to your ownership and disposition of our Class A common stock.
 
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UNDERWRITING
We, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares of Class A common stock indicated in the following table. Goldman Sachs & Co. LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Jefferies LLC, Cowen and Company, LLC and SVB Leerink LLC are the representatives of the underwriters.
Underwriters
Number of Shares
Goldman Sachs & Co. LLC
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Jefferies LLC
Cowen and Company, LLC
SVB Leerink LLC
Truist Securities, Inc.
BMO Capital Markets Corp.
Stifel, Nicolaus & Company, Incorporated
Raymond James and Associates, Inc.
Total
         
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
The underwriters have an option to buy up to an additional           shares of Class A common stock from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to           additional shares from us.
No Exercise
Full Exercise
Per Share
$           $          
Total
$ $
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $      per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.
We and our officers, directors, the selling stockholders, the Manager, certain employees of the Manager, and the Continuing Investor Partnership (which hold all shares of our Class B common stock and all Holdings LP Class B Units exchangeable for shares of Class A common stock) have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into, exchangeable for or that represent the right to receive shares of Class A common stock during the period from the date of this prospectus continuing through the date 180 days
 
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after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC. See “Shares of Class A Common Stock Available for Future Sale” for a discussion of certain additional transfer restrictions.
Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among the Company and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our company’s historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
We intend to apply to list the shares of Class A common stock on the Nasdaq Global Market under the symbol “HCRX”.
In connection with the offering, the underwriters may purchase and sell shares of our Class A common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the amount of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of Class A common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our Class A common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the Class A common stock. As a result, the price of our Class A common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on Nasdaq, in the over-the-counter market or otherwise.
We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $      . We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $      .
We and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of our shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make internet distributions on the same basis as other allocations.
 
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Reserved Shares Program
At our request, the underwriters have reserved up to      % of the shares of Class A common stock offered by this prospectus for sale, at the initial public offering price, to our directors, officers, Continuing Investors and other individuals associated with us and members of their respective families. The sales will be made by                  , a selected dealer affiliated with               , an underwriter of this offering, through a reserved shares program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock. Participants in the reserved shares program who purchase more than $1.0 million of Class A common stock will be subject to a 25-day lock-up restriction with respect to any shares sold to them pursuant to the reserved shares program. This lock-up will have similar restrictions to the 180-day lock-up restrictions described above. Any shares of Class A common stock sold to our directors, executive officers or Continuing Investors pursuant to the reserved shares program will be subject to the 180-day lock-up restrictions described above.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they will receive customary fees and expenses. For example, an affiliate of Cowen and Company, LLC is a member of the general partners of certain of the Legacy HCR Partnerships, and following the Reorganization Transactions and this offering will be a limited partner of the Continuing Investor Partnership. As a result, an affiliate of Cowen and Company, LLC will have an indirect ownership interest in certain Holdings LP Class B Units and shares of Class B common stock following the closing of this offering. In addition, such affiliate of Cowen and Company, LLC currently controls our Legacy Manager, and following this offering will retain a minority non-voting economic interest in our Manager.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. Certain of the underwriters may offer and sell the shares through one or more of their respective affiliates or other registered broker-dealers or selling agents.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area (each a “Relevant State”), no shares of Class A common stock have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the Class A common stock which has been approved by the competent authority in that Relevant State (or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation), except that offers of Class A common stock may be made to the public in that Relevant State at any time:
 
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(a)
to any legal entity which is a qualified investor as defined under Article 2 of the Prospectus Regulation;
(b)
to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
(c)
in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of Class A common stock shall require us or any representative to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to any Class A common stock in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any Class A common stock to be offered so as to enable an investor to decide to purchase or subscribe for any Class A common stock, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
United Kingdom
No shares of Class A common stock have been offered or will be offered pursuant to the offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the Class A common stock which is to be treated as if it had been approved by the Financial Conduct Authority in accordance with the transitional provisions in Article 74 (transitional provisions) of the Prospectus Amendment (EU Exit) Regulations 2019/1234, except that the Class A common stock may be offered to the public in the United Kingdom at any time:
(a)
to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation;
(b)
to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of representatives for any such offer; or
(c)
in any other circumstances falling within Section 86 of the FSMA.
provided that no such offer of the Class A common stock shall require us, the selling stockholders or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation. For the purposes of this provision, the expression an “offer to the public” in relation to the Class A common stock in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any Class A common stock to be offered so as to enable an investor to decide to purchase or subscribe for any Class A common stock and the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser
 
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within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The Class A common stock may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (“Companies Ordinance”) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“Securities and Futures Ordinance”), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the Class A common stock may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of Class A common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Class A common stock may not be circulated or distributed, nor may the Class A common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the Class A common stock under Section 275 of the SFA except: (i) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (ii) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (iii) where no consideration is or will be given for the transfer, (iv) where the transfer is by operation of law, (v) as specified in Section 276(7) of the SFA, or (vi) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (“Regulation 32”).
Where the shares of Class A common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares of Class A common stock under
 
149

 
Section 275 of the SFA except: (i) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (ii) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (iii) where no consideration is or will be given for the transfer, (iv) where the transfer is by operation of law, (v) as specified in Section 276(7) of the SFA, or (vi) as specified in Regulation 32.
Solely for the purposes of its obligations pursuant to Section 309B of the SFA, we have determined, and hereby notify all relevant persons (as defined in the CMP Regulations 2018), that the shares of Class A common stock are “prescribed capital markets products” ​(as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (the ‘‘FIEA’’). The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (‘‘ASIC’’), in relation to the offering. This offering document does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the Class A common stock may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” ​(within the meaning of section 708(8) of the Corporations Act), “professional investors” ​(within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the Class A common stock without disclosure to investors under Chapter 6D of the Corporations Act.
The shares of Class A common stock applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring Class A common stock must observe such Australian on-sale restrictions.
This offering document contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this offering document is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Dubai International Financial Centre
This offering document relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This offering document is intended for distribution
 
150

 
only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth in this prospectus and has no responsibility for the offering document. The securities to which this offering document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this offering document you should consult an authorized financial advisor.
Switzerland
We have not and will not register with the Swiss Financial Market Supervisory Authority (“FINMA”) as a foreign collective investment scheme pursuant to Article 119 of the Federal Act on Collective Investment Scheme of 23 June 2006, as amended (“CISA”), and accordingly the securities being offered pursuant to this prospectus have not and will not be approved, and may not be licensable, with FINMA. Therefore, the securities have not been authorized for distribution by FINMA as a foreign collective investment scheme pursuant to Article 119 CISA and the securities offered hereby may not be offered to the public (as this term is defined in Article 3 CISA) in or from Switzerland. The securities may solely be offered to “qualified investors”, as this term is defined in Article 10 CISA, and in the circumstances set out in Article 3 of the Ordinance on Collective Investment Scheme of 22 November 2006, as amended (“CISO”), such that there is no public offer. Investors, however, do not benefit from protection under CISA or CISO or supervision by FINMA. This prospectus and any other materials relating to the securities are strictly personal and confidential to each offeree and do not constitute an offer to any other person. This prospectus may only be used by those qualified investors to whom it has been handed out in connection with the offer described in this prospectus and may neither directly or indirectly be distributed or made available to any person or entity other than its recipients. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in Switzerland or from Switzerland. This prospectus does not constitute an issue prospectus as that term is understood pursuant to Article 652a and/or 1156 of the Swiss Federal Code of Obligations. We have not applied for a listing of the securities on the SIX Swiss Exchange or any other regulated securities market in Switzerland, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange.
Israel
This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus is being distributed only to, and is directed only at, and any offer of the Class A common stock is directed only at, (i) a limited number of persons in accordance with the Israeli Securities Law and (ii) investors listed in the first addendum (the “Addendum”) to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case, purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors are required to submit written confirmation that they fall within the scope of the Addendum, are aware of the meaning of the same and agree to it.
 
151

 
LEGAL MATTERS
The validity of shares of the Class A common stock will be passed upon for us and for the selling stockholders by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cooley LLP, New York, New York.
EXPERTS
The combined financial statements as of December 31, 2020 and 2019 and for each of the two years in the period ended December 31, 2020 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of Class A common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by such reference. For further information about us and our Class A common stock, we refer you to the registration statement and to its exhibits and schedules.
We currently do not file periodic reports with the SEC. Upon the closing of this offering, we will become subject to the informational requirements of the Exchange Act and will be required to file reports and other information with the SEC.
You can review this registration statement, as well as our future SEC filings, by accessing the SEC’s website at www.sec.gov.
We intend to make available to our stockholders annual reports containing consolidated financial statements audited by an independent registered public accounting firm.
 
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HealthCare Royalty Partners
Combined Financial Statements
Index
Page(s)
Combined Financial Statements
F-2
F-3
F-9
F-10
F-11
F-12
F-30
Combined Financial Statements
F-31
F-32
F-38
F-39
F-40
F-41
 
F-1

 
HealthCare Royalty Partners
Combined Statements of Assets, Liabilities and Partners’ Capital (unaudited)
March 31, 2021 & December 31, 2020
(in U.S. Dollars)
As of
March 31,
2021
As of
December 31,
2020
Assets
Cash and cash equivalents
$ 64,629,198 $ 11,732,921
Investments, at fair value (cost of $2,261,484,065 and $2,223,489,375 at March 31, 2021 and December 31, 2020, respectively)
2,524,324,949 2,418,498,879
Interest receivable
3,450,813 3,476,577
Deferred borrowing costs
1,050,895 1,297,817
Prepaid assets
127,828 249,238
Receivable from affiliate (Note 5)
17,625 17,625
Total assets
$ 2,593,601,308 $ 2,435,273,057
Liabilities and Partners’ Capital
Liabilities
Revolving credit
$ 493,000,000 $ 493,000,000
Performance Fee payable to Manager (Note 6)
6,870,862 6,494,702
Accrued expenses (Note 5)
1,391,287 1,220,216
Due to Manager (Note 5)
1,372,676 1,411,083
Management fees payable (Note 6)
21,250 891,534
Interest payable
302,626
Total liabilities
502,656,075 503,320,161
Commitments and contingencies (Note 8)
Partners’ capital
2,090,945,233 1,931,952,896
Total liabilities and partners’ capital
$ 2,593,601,308 $ 2,435,273,057
The accompanying notes are an integral part of these combined financial statements.
F-2

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedule of Investments (Unaudited)
March 31, 2021
As of March 31, 2021
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Direct Investments(1)
United States
Pharmaceuticals
Acorda Therapeutics, Inc.
Royalty Interests
$ 14,966,239 $ 15,730,569 0.75%
Adamas Pharma, LLC
Note, 11%, December 31, 2026
$ 117,087,060 115,832,352 120,658,769 5.77
Aerial BioPharma, LLC
Royalty Interests
100,000,954 126,721,914 6.06
Agenus, Inc.
Royalty Interests
188,032,861 279,785,407 13.37
Akebia Therapeutics, Inc.
Royalty Interests
45,118,405 45,000,000 2.15
Aptevo Therapeutics Inc.
Royalty Interests
35,000,000 35,000,000 1.67
Chiasma, Inc.
Royalty Interests
65,040,536 72,309,244 3.46
Coherus Biosciences
Senior Convertible Note, 8.2%, March 31, 2022
$ 75,000,000 75,000,000 80,470,276 3.85
Senior Secured Term Loan, Variable, January 7, 2025
$ 75,000,000 74,329,327 75,929,591 3.63
Total Coherus Biosciences
149,329,327 156,399,867 7.48
Infinity Pharmaceuticals, Inc.
Royalty Interests
30,020,063 32,861,824 1.57
Karyopharm Therapeutics, Inc.
Royalty Interests
75,050,725 85,850,774 4.11
Krystexxa
Royalty Interests
76,885,461 81,386,710 3.89
La Jolla Pharma, LLC(2)
Royalty Interests
119,389,799 115,955,321 5.55
Lexiva/Telzir
Royalty Interests
208,004 0.01
The accompanying notes are an integral part of these combined financial statements.
F-3

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedule of Investments (Unaudited)
March 31, 2021
As of March 31, 2021
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Lyrica
Royalty Interests
86,445 86,445
Miotox, LLC
Royalty Interests
35,373,481 35,373,481 1.69
Myozyme
Royalty Interests
2,216,476 9,203,440 0.44
Nektar Therapeutics
Royalty Interests
146,532,245 160,074,996 7.66
Orenitram
Royalty Interests
19,353,813 20,187,647 0.97
Paratek Royalty Corporation
Secured Promissory Note, 12%, May 1, 2029
$ 32,500,000 31,910,205 32,591,100 1.56
Portola Pharmaceuticals, Inc.
Royalty Interests
125,634,813 150,767,722 7.21
RedHill Biopharma Inc.
Note, 9.95%, February 23, 2026
$ 80,000,000 80,041,148 86,700,003 4.15
ReGenXBio Inc.
Royalty Interests
190,533,523 188,944,996 9.04
Rutgers
Royalty Interests
8,759,202 13,435,595 0.64
Suneva Medical, Inc.
Note, 10.9% Cash, 10.9% PIK, December 31, 2021
$ 10,734,496 11,388,424 10,734,496 0.51
Series AA Preferred Stock(2)
9,200,000 19,356,997 7,360,000 0.35
Total Suneva Medical, Inc.
30,745,421 18,094,496 0.86
Triple Royalty Sub II LLC
Note, 9.5%, June 5, 2035
$ 204,652,493 207,143,815 207,143,815 9.90
Vimpat
Royalty Interest
220,796,025 252,405,264 12.07
Total United States
2,113,793,334 2,342,877,403 112.03
The accompanying notes are an integral part of these combined financial statements.
F-4

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedule of Investments (Unaudited)
March 31, 2021
As of March 31, 2021
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Japan
Pharmaceuticals
Albireo
Royalty Interests
58,116,956 92,894,995 4.45
Inavir
Royalty Interests
30,894,075 31,778,501 1.52
Total Japan
89,011,031 124,673,496 5.97
Germany
Pharmaceuticals
Cetrotide
Royalty Interests
30,307,382 30,376,494 1.46
Total Germany
30,307,382 30,376,494 1.46
Switzerland
Pharmaceuticals
Benlysta
Royalty Interests
26,397,556 26,397,556 1.27
Cardiorentis
Warrants(2)
1,272 1,974,762
Total Switzerland
28,372,318 26,397,556 1.27
Total Investments
$ 2,261,484,065 $ 2,524,324,949 120.73%
Investment classification by type
Royalty Interests
$ 1,644,507,035 $ 1,902,736,899 91.01%
Notes
595,645,271 614,228,050 29.37
Preferred Stock
19,356,997 7,360,000 0.35
Warrants
1,974,762
Total Investments
$ 2,261,484,065 $ 2,524,324,949 120.73%
(1)
All investments are valued using significant unobservable inputs
(2)
Non-income producing securities
The accompanying notes are an integral part of these combined financial statements.
F-5

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedule of Investments
December 31, 2020
As of December 31, 2020
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Direct Investments(1)
United States
Pharmaceuticals
Acorda Therapeutics, Inc.
Royalty Interests
$ 17,403,950 $ 17,403,950 0.90%
Adamas Pharma, LLC
Note, 11% Cash, 11% PIK, December 31, 2026
$ 117,512,573 117,640,664 123,087,021 6.37
Aerial BioPharma, LLC
Royalty Interests
100,000,954 122,818,396 6.36
Agenus, Inc.
Royalty Interests
190,307,425 284,703,837 14.73
Chiasma, Inc.
Royalty Interests
65,040,536 69,958,836 3.62
Coherus Biosciences
Senior Convertible Note, 8.2%, March 31, 2022
$ 75,000,000 75,000,000 80,168,084 4.15
Senior Secured Term Loan, Variable, January 7, 2025
$ 75,000,000 74,282,454 75,792,270 3.92
Total Coherus Biosciences
149,282,454 155,960,354 8.07
Infinity Pharmaceuticals, Inc.
Royalty Interests
30,020,063 31,949,826 1.65
Karyopharm Therapeutics, Inc.
Royalty Interests
75,050,725 85,382,711 4.42
Krystexxa
Royalty Interests
24,714,772 26,001,396 1.35
La Jolla Pharma, LLC(2)
Royalty Interests
119,959,065 78,065,123 4.04
Lexiva/Telzir
Royalty Interests
264,576 0.01
Lyrica
Royalty Interests
268,203 268,203 0.01
Miotox, LLC
Royalty Interests
37,496,004 37,496,004 1.94
The accompanying notes are an integral part of these combined financial statements.
F-6

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedule of Investments
December 31, 2020
As of December 31, 2020
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Myozyme
Royalty Interests
3,274,176 3,274,176 0.17
Nektar Therapeutics
Royalty Interests
150,249,361 150,000,000 7.76
Orenitram
Royalty Interests
20,912,661 21,836,936 1.13
Paratek Royalty Corporation
Secured Promissory Note, 12%, May 1, 2029
$ 32,500,000 31,903,893 32,616,037 1.69
Portola Pharmaceuticals, Inc.
Royalty Interests
125,850,165 149,957,234 7.76
Progenics Pharmaceuticals
Note, 9.5%, June 30, 2025
$ 32,552,521 31,953,317 32,752,358 1.70
RedHill Biopharma Inc.
Note, 9.95%,
February 23, 2026
$ 80,000,000 80,041,148 85,757,671 4.44
ReGenXBio Inc.
Royalty Interests
196,129,549 195,999,999 10.15
Rutgers
Royalty Interests
9,092,801 11,848,229 0.61
Suneva Medical, Inc.
Note, 10.9% Cash, 10.9% PIK, December 31, 2021
$ 10,522,639 11,176,567 10,522,639 0.54
Series AA Preferred Stock(2)
9,200,000 19,356,997 7,360,000 0.38
Total Suneva Medical, Inc.
30,533,564 17,882,639 0.92
Triple Royalty Sub II LLC
Note, 9.5% Cash, 9.5% PIK, June 5, 2035
$ 209,285,872 209,312,531 210,301,909 10.89
Vimpat
Royalty Interest
253,465,293 287,960,628 14.91
Total Direct Investments (United States)
2,069,903,274 2,233,548,049 115.60
Interest in affiliated investment fund(1)
HealthCare Royalty Partners II, L.P.
LP Interest
1,250,459 1,710,360 0.09
The accompanying notes are an integral part of these combined financial statements.
F-7

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedule of Investments
December 31, 2020
As of December 31, 2020
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Total United States
2,071,153,733 2,235,258,409 115.69
Japan
Pharmaceuticals
Albireo
Royalty Interests
58,116,956 92,294,222 4.78
Inavir
Royalty Interests
31,212,457 31,478,730 1.63
Total Japan
89,329,413 123,772,952 6.41
Germany
Pharmaceuticals
Cetrotide
Royalty Interests
30,307,382 29,869,751 1.55
Eligard
Royalty Interests
2,276,956 2,002,045 0.10
Total Germany
32,584,338 31,871,796 1.65
Switzerland
Pharmaceuticals
Benlysta
Royalty Interests
28,447,129 27,595,722 1.42
Cardiorentis
Warrants(2)
1,272 1,974,762
Total Switzerland
30,421,891 27,595,722 1.42
Total Investments
$ 2,223,489,375 $ 2,418,498,879 125.17%
Investment classification by type
Royalty Interests
$ 1,569,596,583 $ 1,758,430,530 91.00%
Notes
631,310,574 650,997,989 33.70
Preferred Stock
19,356,997 7,360,000 0.38
LP Interest
1,250,459 1,710,360 0.09
Warrants
1,974,762
Total Investments
$ 2,223,489,375 $ 2,418,498,879 125.17%
(1)
All investments are valued using significant unobservable inputs
(2)
Non-income producing securities
The accompanying notes are an integral part of these combined financial statements.
F-8

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Statements of Operations (Unaudited)
Three Months Ended March 31, 2021 & March 31, 2020
For the Three Months Ended
(in U.S. Dollars)
March 31, 2021
March 31, 2020
Investment income
Royalty income
$ 65,302,838 $ 32,871,083
Note interest
15,245,432 11,422,188
Paid-in-kind interest
211,857 1,812,795
Total investment income
80,760,127 46,106,066
Expenses
Management fees (Note 6)
6,759,266 6,632,338
Interest expense
2,915,421 1,217,887
Performance fees (Note 6)
2,573,565 1,060,620
Professional fees
348,266 340,194
Investment research and other expenses
299,303 559,625
Organizational expenses
152 60,976
Total expenses
12,895,973 9,871,640
Management fees waived
(182,609) (183,266)
Net expenses
12,713,364 9,688,374
Net investment income
68,046,763 36,417,692
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on investments
(1,284,466) 2,208,361
Net change in unrealized gain (loss) on investments
45,009,762 3,586,508
Net realized and unrealized gain (loss) on investments
43,725,296 5,794,869
Net increase in partners’ capital resulting from operations
$ 111,772,059 $ 42,212,561
The accompanying notes are an integral part of these combined financial statements.
F-9

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Statements of Changes in Partners’ Capital (Unaudited)
Three Months Ended March 31, 2021 & March 31, 2020
(in U.S. Dollars)
General
Partners
Limited
Partners
Total
Partners’ capital at January 1, 2021
$ 85,037,996 $ 1,846,914,900 $ 1,931,952,896
Capital contributions
1,354,142 138,992,959 140,347,101
Distributions
(764,514) (92,362,309) (93,126,823)
Net investment income
594,614 67,452,149 68,046,763
Net realized and unrealized gain (loss) on investments
325,908 43,399,388 43,725,296
Carried interest
14,160,136 (14,160,136)
Partners’ capital at March 31, 2021
$ 100,708,282 $ 1,990,236,951 $ 2,090,945,233
General
Partners
Limited
Partners
Total
Partners’ capital at January 1, 2020
$ 47,834,522 $ 1,390,096,991 $ 1,437,931,513
Capital contributions
624,000 119,450,865 120,074,865
Distributions
(252,545) (79,806,639) (80,059,184)
Syndication costs
(3) (295) (298)
Net investment income
293,469 36,124,223 36,417,692
Net realized and unrealized gain (loss) on investments
42,667 5,752,202 5,794,869
Carried interest
4,956,983 (4,956,983)
Partners’ capital at March 31, 2020
$ 53,499,093 $ 1,466,660,364 $ 1,520,159,457
The accompanying notes are an integral part of these combined financial statements.
F-10

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2021 & March 31, 2020
For the Three Months Ended
(in U.S. dollars)
March 31, 2021
March 31, 2020
Cash flows from operating activities:
Cash collections from royalty interests
$ 98,701,163 $ 26,179,409
Cash collections from notes
19,785,392 12,144,994
Proceeds from sale of investments
33,009,581 49,390,625
Payments for operating costs and professional services
(10,416,051) (11,639,402)
Interest paid
(2,904,086) (763,160)
Acquisitions of investments
(132,500,000) (280,000,000)
Net cash provided by / (used in) operating activities
5,675,999 (204,687,534)
Cash flows from financing activities:
Distributions
(93,126,823) (80,059,184)
Capital contributions
140,347,101 120,149,900
Syndication costs
(298)
Borrowings on Revolving Credit
164,420,863
Net cash provided by financing activities
47,220,278 204,511,281
Net change in cash and cash equivalents
52,896,277 (176,253)
Cash and cash equivalents, beginning of period
11,732,921 10,145,258
Cash and cash equivalents, end of period
$ 64,629,198 $ 9,969,005
The accompanying notes are an integral part of these combined financial statements.
F-11

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
1.   Organization
HealthCare Royalty Partners III, L.P., HealthCare Royalty Partners IV, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P., HCR Molag Fund, L.P., HCR H.O.P. Fund, L.P., HCR Potomac Fund, L.P., HCR Canary Fund, L.P. and PPCF Harris Feeder, L.P. (collectively, the “Master Funds”), along with HealthCare Royalty Partners III-A, L.P. and HealthCare Royalty Partners IV-A, L.P. (collectively, the “Feeder Funds”) are Delaware limited partnerships organized for the purpose of making investments principally in commercial stage healthcare products.
The Master Funds and the Feeder Funds (collectively, “HealthCare Royalty Partners” or the “Funds”) seek to achieve their investment objectives by (i) purchasing cash flow streams related to biopharmaceutical product sales and (ii) investing in the debt of biopharmaceutical companies with attractive assets. The ultimate structure of the Funds’ investments are typically determined by the type of counterparty with which the Funds contract. Below are the four primary structures employed across counterparty type.
Counterparty is Royalty Recipient

Royalty purchases represent investments in existing royalty contracts. These royalty contracts are entered into when an inventor, research institution, university or biopharmaceutical company signs an IP licensing agreement with a third-party marketer, such as a larger pharmaceutical company. Under these license agreements, the inventor, university or biopharmaceutical company is entitled to receive a stream of cash flow payments based on the future sales of the product, but typically has no role in the product’s commercialization, which is performed by a third-party marketer. In a royalty purchase, the Funds acquire all or part of the royalty contract and receive the resulting cash flows.

Royalty notes represent structured financing solutions whereby an issuer may place the royalty contract(s) into a special purpose vehicle (“SPV”) and issue debt from the SPV. The debt is then serviced by the applicable royalty stream related to the royalty contract. The interest and principal payments are typically based on consistent, predictable royalty streams that are over-collateralized.
Counterparty is Product Marketer

Revenue interest (aka synthetic royalty) financings represent highly structured, non-dilutive financing alternatives for healthcare companies seeking to raise capital in lieu of issuing traditional debt or equity. In a revenue interest investment, the Funds create a royalty contract with a biopharmaceutical company that owns the rights to one or more products and typically plays the principal role in the commercialization, marketing and sales of such product. This contract entitles the Funds to receive a stream of cash flow payments that are derived from future sales of a product. The Funds can also structure these contracts as debt financing with a fixed interest component as well as a contingent interest component based on product sales.
Structured debt represents fixed interest instruments that are typically collateralized by all assets. In these situations, the Funds’ underwriting is typically based on the value of a product(s) owned by the company.
 
F-12

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
The Funds were organized on and commenced operations on the following dates:
Master Funds
Organization Date
Commencement of Operations
HealthCare Royalty Partners III, L.P.
July 17, 2013
July 17, 2013
HealthCare Royalty Partners IV, L.P.
November 28, 2018
January 3, 2019
HCRP Overflow Fund, L.P.
February 2, 2010
February 4, 2010
HCR Stafford Fund, L.P.
June 28, 2016
June 28, 2016
HCR Molag Fund, L.P.
August 8, 2017
August 8, 2017
HCR H.O.P. Fund, L.P.
September 28, 2016
September 28, 2016
HCR Potomac Fund, L.P.
December 16, 2019
February 26, 2020
HCR Canary Fund, L.P.
July 31, 2020
August 6, 2020
PPCF Harris Feeder, L.P.
August 5, 2020
August 5, 2020
Feeder Funds
Organization Date
Commencement of Operations
HealthCare Royalty Partners III-A, L.P.
September 28, 2016
September 28, 2016
HealthCare Royalty Partners IV-A, L.P.
November 28, 2018
January 3, 2019
The Feeder Funds’ have a participation interest in the affiliated Master Funds, as detailed in the table below, and are treated as feeder funds. The Feeder Funds pay management fees and carried interest at the Feeder Fund level.
Feeder Fund
Affiliated Master Fund
Feeder Fund
ownership of
capital commitments
in Master Fund
as of March 31,
2021
Unfunded
capital
commitments
as of March 31,
2021
HealthCare Royalty Partners III-A, L.P.
HealthCare Royalty Partners III, L.P.
11.8% 5,617,034
HealthCare Royalty Partners IV-A, L.P.
HealthCare Royalty Partners IV, L.P.
20.3% 209,081,026
HealthCare Royalty GP III, LLC, HealthCare Royalty GP IV, LLC, HCRP Overflow GP, LLC, HCR Stafford Fund GP, LLC, HCR Molag Fund GP, LLC, HCR H.O.P. Fund GP, LLC, HCR Potomac Fund GP, LLC, HCR Canary Fund GP, LLC, and HCR Harris Feeder GP, LLC (collectively, the “General Partners”) are the General Partners of the Master Funds and Feeder Funds as detailed in the table below:
 
F-13

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
General Partner
Fund
HealthCare Royalty GP III, LLC
HealthCare Royalty Partners III, L.P.
HealthCare Royalty GP III, LLC
HealthCare Royalty Partners III-A, L.P.
HealthCare Royalty GP IV, LLC
HealthCare Royalty Partners IV, L.P.
HealthCare Royalty GP IV, LLC
HealthCare Royalty Partners IV-A, L.P.
HCRP Overflow GP, LLC
HCRP Overflow Fund, L.P.
HCR Stafford Fund GP, LLC
HCR Stafford Fund, L.P.
HCR Molag Fund GP, LLC
HCR Molag Fund, L.P.
HCR H.O.P. Fund GP, LLC
HCR H.O.P. Fund, L.P.
HCR Potomac Fund, GP LLC
HCR Potomac Fund, L.P.
HCR Canary Fund, GP LLC
HCR Canary Fund, L.P.
HCR Harris Feeder GP, LLC
PPCF Harris Feeder, L.P.
HealthCare Royalty Management, LLC (the “Manager”) is the investment manager of the Funds. The Manager is a registered investment advisor with the Securities Exchange Commission (“SEC”). Except as set forth in the various agreements of the Funds, the General Partners direct all affairs of the Funds as the management, policies and control of the Funds are vested exclusively in the General Partners.
The Funds, General Partners and Manager are related parties of Cowen, Inc., an SEC registered financial services firm providing alternative investment management, investment banking, research, and brokerage services through its wholly-owned subsidiaries Cowen Investment Management, LLC and Cowen Holdings, Inc.
SS&C GlobeOp Fund Services Private Equity Industry Solutions (the “Former Administrator”) acted as administrator to the Funds through June 30, 2020, pursuant to an agreement between the Funds and the Former Administrator. Beginning July 1, 2020, HealthCare Royalty Partners III, L.P., HealthCare Royalty Partners IV, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P. and HCR H.O.P. Fund, L.P. transitioned fund accounting responsibilities to a new administrator, Mainstream Fund Services, Inc. (“Mainstream”). Mainstream acted as administrator to HCR Canary Fund, L.P. and PPCF Harris Feeder, L.P. beginning with their respective commencement of operations. Beginning January 1, 2021, HCR Molag Fund, L.P. and HCR Potomac Fund, L.P. transitioned fund accounting responsibilities to Mainstream.
2.   Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) and are stated in U.S. Dollars. The General Partners have determined that the Funds meet the criteria of investment companies and therefore apply specialized accounting for investment companies. The following is a summary of significant accounting policies followed by HealthCare Royalty Partners in preparation of its combined financial statements. In the opinion of the Manager, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal and recurring adjustments. The results for the interim periods are not necessarily indicative of results for the full year.
Combined Financial Statements
The HealthCare Royalty Partners combined financial statements include the accounts of the Master Funds and the Feeder Funds. Combined financials statements are presented because
 
F-14

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
HealthCare Royalty Partners has a common management team, common investment types and largely common investments, commonly financed activities, common operations and defined methods of allocating expenses. All intercompany balances are eliminated in the combination.
Use of Estimates
The preparation of combined financial statements in conformity with GAAP requires the General Partners to make estimates and assumptions that affect the reported amounts and disclosures in the combined financial statements and accompanying notes. In particular, estimates are made relating to the fair value of the Funds’ investments. The General Partners believe that the estimates utilized in preparing its combined financial statements are reasonable; however, actual results could differ from those estimates and the differences could be material to the combined financial statements.
Investments
Due to the inherent uncertainty of valuation of assets like those held by the Funds, the General Partners’ determination of fair value may differ significantly from values that would have been realized had a ready market for the investments existed, and such differences could be material to the Funds’ combined financial statements.
Royalty Interests
Royalty interests are treated as debt transactions with contingent future payments and are recognized when the Funds have incurred an obligation to fund the investment and has contractual rights to cash flows to the royalty interests. At the time of underwriting, the General Partners project estimated quarterly cash flows to be received or paid with respect to each royalty interest, which results in a projected internal rate of return (“IRR”) for such royalty interest. Subsequent to the initial investment date, the fair value of any royalty interest is determined based on the net present value of the projected cash flows, using updated expectations of future cash flows and a discount rate to reflect market conditions and other quantitative and qualitative factors. Payments received are treated in part as income, calculated using the IRR, and in part as repayment of the investment cost.
Risk adjusted anticipated cash flows are determined by the General Partners by performing appropriate due diligence utilizing currently available information including, but not limited to, actual historical product sales, trends, size of patient population, market share, competition and intellectual property rights. Additionally, the General Partners attempt to limit counterparty risk of its royalty and revenue interests through transaction structures that are specific to each individual investment and by generally requiring cash payments be made directly to the Funds by the marketer or to a lockbox set up specifically to collect and allocate payments in accordance with terms as outlined in the individual investment agreements.
Notes
Investments in notes are initially valued at cost and are recognized when the Funds have incurred an obligation to fund the investment and has contractual rights to cash flows from the note, which is typically the funding date. Subsequent to the initial investment date, such investments are recorded at estimated fair value after giving consideration to actual interest and principal payments, market conditions, and other quantitative and qualitative factors, including the net present value of the projected cash flows, using updated expectations of future cash flows and a discount rate to reflect market conditions. Future cash flows are based on the structure of each note and can include fixed interest coupon, variable revenue interest (revenue interest on note), final payment fees and principal payments. The timing of the payment of principal can vary depending on the structure of the note. Investments can be secured by
 
F-15

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
the assets or revenue streams of the counterparty. Convertible notes, where the underlying equity is publicly traded and is near or above the conversion price, are valued using one or more convertible debt pricing models taking into account the share price, the volatility of the stock and other variables.
Equities, including Preferred Stock
Investments in freely tradable equity securities are valued as of the close of trading on the date as of which the value is being determined and are equal to the last reported trade price of such security on such date on the exchange where it is primarily traded. If such security is not traded on an exchange, such security shall be valued at the reported closing bid price (or average of bid prices) last quoted on such date as reported by an established quotation service for over-the-counter securities. Investments in the common or preferred stock of private companies are stated at fair value. Where these investments are not traded in an active market, the estimated fair values assigned by the General Partners are determined in good faith and are based on available information considering, among other things, pricing models and/or recent private transactions.
Limited Partnerships
The Funds measure the fair value of limited partnership interests based on its proportionate investment in the net assets of the limited partnership. Where the limited partnership is an affiliate of the General Partners, the fair value of the underlying investments of the limited partnership are determined in a manner consistent with the policies of the Funds. Payments received from such limited partnerships are allocated to the original purchase cost or accounted for as a realized gain after taking into account factors such as realized gains on the limited partnership’s underlying investment and any distribution hierarchy.
Warrants
Investments in warrants in public companies are valued using a Black-Scholes valuation model, based on observable and unobservable inputs directly related to the warrants and discounted as deemed relevant by the General Partners. Where these investments are not traded in an active market, the estimated fair values assigned by the General Partners are determined in good faith and are based on available information considering, among other things, pricing models and/or recent private transactions.
Cash and Cash Equivalents
Cash is held in demand accounts with large commercial banks in the United States. Deposits in these accounts may exceed the amount of federal insurance provided on such deposits. The Funds consider all highly liquid investments with original maturities of three months or less from the time of purchase to be cash equivalents. There are no cash equivalents as of March 31, 2021 and December 31, 2020.
Investment Income and Operating Expenses
Interest income and operating expenses are recorded on an accrual basis. Royalty income is recorded based on the calculated IRR (as discussed above) except where the investment fair value is less than unrecovered cost. If the investment fair value is less than unrecovered cost, cash received is treated as a return of cost in the current and subsequent periods until the unrecovered cost is lower than or equal to fair value as of each measurement date. Dividend income is recorded on the ex-dividend date, net of any applicable withholding taxes. Discount or premium on notes are accreted or amortized based on the effective yield method. Payment–in–kind interest is added to the principal and cost amounts of the note and recorded as interest income.
 
F-16

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
Pre-acquisition transaction costs incurred in connection with the evaluation of specific investments are deferred and capitalized as a component of the cost basis of such investments when the transactions are consummated or are recorded as portfolio management costs and other expenses when management believes the transaction will not be consummated.
Post-acquisition costs incurred in connection with the ongoing holding of investments are expensed as incurred and are included in investment research and other expenses.
Income Taxes
The Funds themselves are not subject to U.S. Federal income taxes and each partner is individually liable for income taxes, if any, on its share of the Funds’ net taxable income. Interest, dividends and other income realized by the Funds from non-U.S. sources and capital gains realized from the sale of investments of non-U.S. issuers may be subject to withholding and other taxes levied by the jurisdiction in which the income is sourced. Certain activities of the Funds may cause partners in the Funds to be subject to state taxes. The authoritative guidance on accounting for and disclosure of uncertainty in tax positions requires the General Partners to determine whether a tax position of the Funds is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the combined financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no uncertain tax positions as of March 31, 2021 or as of December 31, 2020.
The Funds file tax returns as prescribed by the tax laws of the jurisdictions in which they operate. In the normal course of business, the Funds are subject to examination by federal, state, local and foreign jurisdictions, where applicable. As of March 31, 2021, and December 31, 2020, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are from year 2017 and 2016, respectively, forward (with limited exceptions). Certain foreign jurisdictions may not have a statute of limitations.
The Funds may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, the Funds might be found to have a tax liability that has not been recorded in the combined financial statements. Also, the General Partners’ conclusions may be subject to review and adjustment at a later date based on changing tax laws, regulations and interpretations thereof.
Based on its analysis, the General Partners have determined that the Funds have not obtained any asset, or incurred any liability for unrecognized tax benefits or tax liabilities, respectively, as of, or for the three months ended March 31, 2021 or March 31, 2020.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the valuation date. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. Dollars on transaction dates. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments. Such fluctuations, if any, are included with net realized and net change in unrealized gain (loss) from investments in the statement of operations.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform—Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance
 
F-17

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
for a limited period meant to ease the potential burden in accounting for, or recognizing the effects of, reform to LIBOR and certain other reference rates. The standard is effective for all entities beginning on March 12, 2020 and may be elected over time. However, ASU 2020-04 is only applicable to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, and that were entered into or evaluated prior to January 1, 2023. The Funds are currently evaluating the impact that the adoption of ASU 2020-04 would have on its combined financial statements.
3.   Fair Value Measurements
The Funds utilize various methods to measure the fair value of their investments. GAAP establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access.
Level 2
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3
Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Funds’ own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.
The availability of observable inputs can vary from investment to investment and is affected by a variety of factors, including, for example, the type of investment, whether the investment is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the investment. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for investments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table summarizes the Funds’ investments that were accounted for at fair value by level within the hierarchy as of March 31, 2021 and December 31, 2020:
Assets at Fair Value as of March 31, 2021
Level 1
Level 2
Level 3
Total
Royalty Interests
$    — $    — $ 1,902,736,899 $ 1,902,736,899
Notes
614,228,050 614,228,050
Preferred Stock
7,360,000 7,360,000
Warrants
$ $ $ 2,524,324,949 $ 2,524,324,949
 
F-18

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
Assets at Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Total
Royalty Interests
$    — $    — $ 1,758,430,530 $ 1,758,430,530
Notes
650,997,989 650,997,989
Preferred Stock
7,360,000 7,360,000
LP Interest
1,710,360 1,710,360
Warrants
$ $ $ 2,418,498,879 $ 2,418,498,879
The following tables include a rollforward of the amounts for the three months ended March 31, 2021 and March 31, 2020 for the investments classified within Level 3. The classification of an investment within Level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement.
Fair Value Measurements Using Level 3 Inputs for the three months ended March 31, 2021
Royalty
Interests
Notes
Preferred
Stock
LP Interest
Total
Balance at January 1, 2021
$ 1,758,430,530 $ 650,997,989 $ 7,360,000 $ 1,710,360 $ 2,418,498,879
Purchases of investments
132,500,000 132,500,000
Paid-in-kind interest
211,857 211,857
Amortization of note discount
59,060 59,060
Capitalized investment expenses
311,013 311,013
Investment cost paydowns
(56,219,935) (3,424,231) (1,149,027) (60,793,193)
Unrealized royalty income
22,821,616 22,821,618
Proceeds from sale of investments
(33,009,581) (33,009,581)
Net change in unrealized gain (loss) on investments
46,635,199 (1,064,104) (561,333) 45,009,762
Net realized gain (loss) on investments
(1,741,526) 457,060 (1,284,466)
Balance at March 31, 2021
$ 1,902,736,899 $ 614,228,050 $ 7,360,000 $ $ 2,524,324,949
Change in unrealized gain (loss) related to investments still held at March 31, 2021
$ 62,627,872 $ (864,267) $ $ $ 61,763,605
 
F-19

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
Fair Value Measurements Using Level 3 Inputs for the three months ended March 31, 2020
Royalty
Interests
Notes
LP Interest
Preferred
Stock
Total
Balance at January 1, 2020
$ 1,024,392,971 $ 485,260,043 $ 1,674,819 $    — $ 1,511,327,833
Purchases of investments
280,000,000 280,000,000
Paid-in-kind interest
1,812,795 1,812,795
Amortization of note discount
104,635 104,635
Capitalized investment expenses
2,299 2,299
Investment cost paydowns
(16,003,701) (1,682,703) (17,686,404)
Unrealized royalty income
22,695,377 22,695,377
Proceeds from sale of investments
(49,363,516) (27,109) (49,390,625)
Net change in unrealized gain (loss) on investments
1,430,775 2,131,269 24,464 3,586,508
Net realized gain (loss) on investments
2,181,666 26,695 2,208,361
Balance at March 31, 2020
$ 1,032,515,422 $ 720,446,488 $ 1,698,869 $ $ 1,754,660,779
Change in unrealized gain (loss) related to investments still held at March 31, 2020
$ 18,401,989 $ 1,212,579 $ 24,464 $ $ 19,639,032
The Funds recognize all transfers at the beginning of the reporting period and related net change in unrealized gain (loss) is also transferred at the beginning of the reporting period.
Transfers between Level 1 and Level 2 generally relate to whether the principal market for the instrument becomes active or inactive. Transfers between Level 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurements in their entirety or due to changes in liquidity restrictions for the financial instrument.
During the three months ended March 31, 2021 and March 31, 2020 there were no transfers of investments among levels.
The following charts provide quantitative information about the Level 3 fair value measurements of the Funds’ investments as of March 31, 2021 and December 31, 2020. In addition to the techniques and inputs noted in the chart below, according to the Funds’ valuation policy the General Partners may also use other valuation techniques and methodologies when determining the Funds’ fair value measurements. The chart below provides information on the significant Level 3 inputs as they relate to the Funds’ fair value measurements.
Qualitative Information about Level 3 Fair Value Measurements as of March 31, 2021
Fair Value at
March 31, 2021
Valuation Techniques
Unobservable Inputs
Range (weighted average)
Royalty Interests(1)
$ 1,822,736,899
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
1 -14 years
Discount rates: 6% – 15% (12%)
Notes(2)
$ 603,493,554
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
1 -9 years
Discount rates: 10% – 14% (11%)
Preferred Stock(3)
$
N/A
N/A
N/A
(1)
The quantitative disclosures exclude investments valued at $80,000,000 for which the determination of fair value is based on prices from recent transactions.
(2)
The quantitative disclosures exclude investments valued at $10,734,496 for which the determination of fair value is based on prices from recent transactions.
(3)
The quantitative disclosures exclude investments valued at $7,360,000 for which the determination of fair value is based on prices from recent transactions.
 
F-20

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
Qualitative Information about Level 3 Fair Value Measurements as of December 31, 2020
Fair Value at
December 31,
2020
Valuation Techniques
Unobservable Inputs
Range (weighted average)
Royalty Interests(1)
$ 1,412,430,531
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
1 -14 years
Discount rates: 6% — 15% (11%)
Notes(2) $ 640,475,350
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
1 -9 years
Discount rates: 10% — 14% (11%)
LP Interest
$ 1,710,360
Discounted cash flows
Projected cash flows and
discount rate
N/A
Preferred Stock(3)
$
N/A
N/A
N/A
(1)
The quantitative disclosures exclude investments valued at $345,999,999 for which the determination of fair value is based on prices from recent transactions.
(2)
The quantitative disclosures exclude investments valued at $10,522,639 for which the determination of fair value is based on prices from recent transactions.
(3)
The quantitative disclosures exclude investments valued at $7,360,000 for which the determination of fair value is based on prices from recent transactions.
The valuation of royalty interests, notes and LP interests are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows and discount rate used to discount the estimated future cash flows expected to be received from the underlying investment. The significant inputs including the estimated cash flows and discount rate are determined by the General Partners by performing appropriate due diligence utilizing currently available information including, but not limited to, the stage of the underlying product’s life cycle, actual historical product sales for each product, market trends, size of patient population, market share, competition and intellectual property rights. The discount rate is also determined based on the market rates an investor would expect for a similar investment with similar risks.
Increases and decreases in estimated cash flows and/or discount rates would result in a decrease or increase in the fair value measurement, and those changes could be significant.
For the valuation of preferred stock, recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:
•    Transactions in similar instruments;
•    Industry multiples and public comparable multiples.
Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including:
•    Current financial performance as compared to projected performance;
•    Capitalization rates and multiples; and
•    Market yields implied by transactions of similar or related assets.
Increases and decreases in performance of the underlying investment or comparable companies could result in a decrease or increase in the fair value measurement, and those changes could be significant.
The General Partners have established valuation policies and procedures over its fair value measurement of financial instruments which include oversight by a valuation committee that, among other things, is responsible for overseeing and monitoring the pricing of the Funds’ investments.
 
F-21

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
The GAAP fair value leveling hierarchy is designated and monitored by the General Partners. In determining the designation, the General Partners take into consideration a number of factors including the observability of inputs, liquidity of the investment and the significance of a particular input to the fair value measurement. Models and inputs used to derive fair market value are subject to review by the valuation committee. The General Partners periodically review its valuation policy guidelines and may adjust them in light of, improved valuation metrics and models, the availability of reliable inputs and information, and prevailing market conditions. The General Partners and the valuation committee review periodic reports and material changes from period-to-period as part of their valuation procedures.
The fair market value for Level 3 investments may be highly sensitive to the use of industry standard models, unobservable inputs and subjective assumptions. The degree of fair market value sensitivity is also contingent upon the subjective weight given to specific inputs and valuation metrics. The interrelationship between unobservable inputs may vary significantly amongst Level 3 investments. Increases and decreases in any of those inputs in isolation can result in a significantly lower (higher) fair value measurement.
4.   Indirect Cash Flow
Adjustments to reconcile net increase in partners’ capital to net cash provided by operating activities are summarized below.
 
F-22

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
For the Three Months Ended
March 31, 2021
March 31, 2020
Cash flows from operating activities
Net increase in partners’ capital resulting from operations
$ 111,772,059 $ 42,212,561
Adjustments to reconcile net increase in partners’ capital resulting
from operations to net cash provided by / (used in) operating
activities
Acquisitions of investments
(132,500,000) (280,000,000)
Paid-in-kind interest
(211,857) (1,812,795)
Amortization of original issue discount
(59,060) (104,635)
Capitalized investment expenses
(311,013) (2,299)
Proceeds from sale of investments
33,009,581 49,390,625
Investment cost paydowns
60,793,193 17,686,404
Net realized gain (loss) on investments
1,284,466 (2,208,361)
Unrealized royalty income
(22,821,618) (22,695,377)
Net change in unrealized gain (loss) on investments
(45,009,762) (3,586,508)
Changes in assets and liabilities:
Increase / (decrease) in Performance Fee payable to Manager
376,160 (2,292,412)
(Increase) / decrease in deferred borrowing costs
246,922 (256,032)
Increase in prepaid assets
121,410
(Increase) / decrease in interest receivable
25,764 (822,140)
Increase in receivable from affiliate
(1,556,126)
Increase / (decrease) in accrued expenses and other liabilities
171,071 (404,124)
Decrease in management fees payable
(870,284)
Increase / (decrease) in interest payable
(302,626) 325,320
Increase / (decrease) in due to Manager
(38,407) 1,438,365
Net cash provided by / (used in) operating activities
5,675,999 (204,687,534)
5.   Related Party Transactions
In the normal course of business, all the Funds’ expenses other than management fees are paid by, and reimbursed to, the Manager. At March 31, 2021 and December 31, 2020, $1,372,676 and $1,411,083 of such expenses were recorded on the statement of assets, liabilities and partners’ capital as Due to Manager, respectively.
The Funds include investors affiliated with the General Partners which are not charged management fees. The total capital commitments and partners’ capital of the investors affiliated with the General Partners as of March 31, 2021 are $10,165,000 and $5,088,132, respectively. The total capital commitments and partners’ capital of the investors affiliated with the General Partners as of December 31, 2020 are $10,165,000 and $4,497,186, respectively.
 
F-23

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
6.   Partners’ Capital
At March 31, 2021 and December 31, 2020, capital commitments and contributions were as follows:
Capital Commitments and Contributions as of March 31, 2021
Capital
Commitments
Cumulative Capital
Contributions
Unfunded Capital
Commitments
% Funded
Limited Partners
4,345,769,834 2,995,205,937 1,385,897,502 69%
General Partners
31,587,741 18,231,692 13,738,566 58%
Total
4,377,357,575 3,013,437,629 1,399,636,069 69%
Capital Commitments and Contributions as of December 31, 2020
Capital
Commitments
Cumulative Capital
Contributions
Unfunded Capital
Commitments
% Funded
Limited Partners
4,338,664,646 2,856,212,980 1,496,991,155 66%
General Partners
31,393,599 16,877,550 14,688,526 54%
Total
4,370,058,245 2,873,090,529 1,511,679,681 66%
The agreements of the Funds provide for discretionary cash or in-kind distributions during the term of the Funds. The policy of the Funds is to make distributions of available cash as promptly as practicable after the end of each fiscal month and in any event within ninety days after the Funds’ receipt of such available cash.
Investment proceeds from each investment are distributed among the limited partners in the Funds consistent with the terms set forth in each of the Funds’ limited partnership agreements. Funds’ whose terms call for the calculation of carried interest shall generally distribute among the limited partners in proportion to their respective capital contributions. All amounts apportioned to the limited partners and General Partners generally follow the same methodology and are distributed as follows:
i.
First, 100% to such limited partner to the extent necessary to cause the aggregate distributions made to such limited partner to be no less than the preferred return on such limited partner’s unreturned capital contributions;
ii.
Second, 100% to such limited partner to the extent necessary to cause the aggregate distributions made to such limited partner (excluding distributions made in accordance with the clause above) to be no less than such limited partner’s then current unreturned capital contributions;
iii.
Third, 100% to the General Partner to the extent necessary to cause the aggregate distributions to the General Partner under this clause in respect of such limited partner to be no less than the carried interest percentage multiplied by the sum of (A) the aggregate amount of all distributions made to such limited partner in accordance with the first clause above plus (B) the aggregate amount of all distributions made to the General Partner in respect of such limited partner in accordance with this clause;
iv.
Thereafter, (A) to the General Partner, an amount equal to such limited partner’s carried interest percentage, which ranges between 0% and 20%, multiplied by the remainder of such amount apportioned to such limited partner, and (B) to such limited partner, the remainder of such amount apportioned to such limited partner (after reducing such amount by the amount determined under the preceding clause (A)).
 
F-24

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
The allocation to the General Partners in “iii” and “iv” above is referred to as the “Carried Interest.” Certain investors may not be charged carried interest or may be charged based on different terms at the sole discretion of the General Partners. The amounts distributed to the limited partners in HealthCare Royalty Partners IV, L.P. in ‘i’ and ‘ii’ above are reversed in that ‘i’ becomes ‘ii’ and ‘ii’ becomes ‘i’.
The agreements of the Funds provide for the clawback of Carried Interest payments made to the General Partners under certain circumstances.
In consideration of the services provided to some Funds by the General Partners and in lieu of carried interest, the Funds shall pay to the General Partners a performance fee. The performance fees range from 12.5% – 25% and are applied, generally, to either cash proceeds received by the Funds or to GAAP income received within specified measurement periods. Some Funds make provisions for different income levels and apply multiple performance fee percentages to the different levels. Some Funds, as well as some Series’ within certain Funds, do not charge carried interest or performance fees.
Allocation of Profits and Losses
The net profits and losses of the Funds’ (including any realized and unrealized gains and losses) are allocated to the partners in a manner consistent with the distribution procedures specific to each of the Funds. Accordingly, any applicable Carried Interest or Carried Interest clawback, for those Funds who charge Carried Interest as well as for some Funds that charge performance fees, related to unrealized gains/losses will be accrued even though not currently realized.
Because of the inherent uncertainty of the valuation of the Funds’ investments, the allocation of profits and losses to all partners as reflected within these combined financial statements may not necessarily represent amounts that might ultimately be allocated or distributed. At March 31, 2021, the General Partner’s capital account balance includes a $84,837,609 allocation of accrued Carried Interest, of which $14,160,136 was accrued during the three months ended March 31, 2021. At March 31, 2020, the General Partner’s capital account balance includes a $42,566,412 allocation of accrued Carried Interest, of which $4,956,983 was accrued during the three months ended March 31, 2020.
Cumulatively, the General Partner has elected not to receive $6,095,305 in Carried Interest distributions as of March 31, 2021 and March 31, 2020. The General Partner may subsequently distribute to itself, out of available funds, any amount that it has previously elected not to receive.
At March 31, 2021 and December 31, 2020, $6,870,862 and $6,494,702 of accrued performance fees are included in the statements of assets, liabilities and partners’ capital, respectively. For the three months ended March 31, 2021 and March 31, 2020, performance fees totaled $2,573,565 and $1,060,620, respectively.
Management Fees
In consideration of the services provided to the Funds under their respective management agreements, the Funds shall pay to the Manager an annual fee (the “Management Fee”). The General Partners may agree to apply a different management fee to any limited partner. Management Fees are calculated consistent with the terms set forth in each of the Funds’ limited partnership agreements.
The Funds generally calculate Management Fees by applying the Management Fee rate in respect to each limited partner multiplied by either (x) the capital commitment of such limited partner (the initial period calculation) or by (y) the lesser of (i) the net asset value of the Fund and (ii) the aggregate cost basis of the unrealized investments held by the Fund (in each case, as reflected in the Funds’ books of accounts as of the date immediately prior to the date upon which the Management Fee is to be paid).
 
F-25

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
The Funds that do not follow the calculation above generally calculate Management Fees by applying a Management Fee rate, ranging from 0.15% through 1.00% (with certain minimums and maximums in some instances) multiplied by the net asset value of the Fund as of the last day of the quarter that just ended.
For the three months ended March 31, 2021, Management Fees totaled $6,759,266, $182,609 of which were waived by the General Partners and of which $21,250 is payable as of March 31, 2021. For the three months ended March 31, 2020, Management Fees totaled $6,632,338, $183,266 of which were waived by the General Partners and all of which was paid as of March 31, 2020.
Pursuant to the agreements of some of the Funds, the General Partners are authorized to waive a portion of the management fees if the aggregate amount of the limited partners’ capital commitments meet certain thresholds ($25,000,000) and such limited partners have engaged the same investment manager or consultant. For the three months ended March 31, 2021 and March 31, 2020, the General Partners waived fees of $182,609 and $183,266, respectively, in accordance with this provision.
7.   Risks
Due to the nature of the Funds’ objective (as discussed in Note 1), the Funds’ portfolio consists of illiquid investments having a greater amount of both market and credit risk than more liquid investments. These investments may have restrictions on resale and may not be able to be immediately liquidated if needed. The fair values assigned to these investments may differ significantly from the fair values that would have been used had a broader market for the investments existed.
Credit risk is the potential loss the Funds may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. The Funds’ exposure to credit risk at any point in time is represented by the fair value of the amounts reported as Notes on the Schedule of Investments at such time. The Funds are also exposed to credit risk as a result of cash balances being held at two banks (Silicon Valley Bank and Citibank). The Funds invest in a limited number of investments concentrated in the healthcare industry and in specific medical and pharmaceutical products. As such, the aggregate returns realized by the Fund may be substantially adversely affected by industry trends and events and the unfavorable performance of a small number of such investments. The investments held by the Funds involve a high degree of business and financial risk that can result in substantial losses.
The Funds have unfunded commitments from their limited partners. These unfunded commitments are subject to the risk of default by such limited partners. As of March 31, 2021, and December 31, 2020, four limited partners owned an aggregate of 52.16% and 53.29% of the Funds’ capital, respectively. The Funds could be materially affected by the actions of these limited partners.
The Funds are subject to risks associated with unforeseen or catastrophic events, including terrorist attacks, natural disasters, and the emergence of a pandemic, which could create economic, financial, and business disruptions. These events could negatively impact the Funds’ investments and/or lead to operational difficulties that could impair the Manager’s ability to manage the Funds’ activities. The Manager seeks to manage these risks by investing in medically necessary products and through continuity and resiliency planning.
Beginning in the first quarter of 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID-19. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand, and general market uncertainty. The effects of COVID-19 have
 
F-26

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
and may continue to adversely affect the global economy, the economies of certain nations, and individual issuers, all of which may negatively impact the Funds’ Combined Statement of Assets, Liabilities and Partners’ Capital.
The Manager has been in communication with the limited partners in the Funds, both directly and through the quarterly performance letters, in order to discuss the effects of COVID-19 on the Funds’ investments as well as on the operations of the Manager. The nature of the products the Funds invest in, senior-like structures utilized in many investments and long duration of cash flows have thus far proven helpful in mitigating the economic effects of the COVID-19 outbreak and in preserving the Funds’ long-term return objectives. However, future prospects could be materially impacted by further developments which are unpredictable and could impact the underlying demand for the products that secure the Funds’ investments.
The Funds are exposed to market risk. This is the risk of potential loss due to the fluctuation in the market or fair value of investments owned by the Funds. The Funds are also exposed to currency, foreign market risk and regulatory risk. Currency risk arises from the possibility that fluctuations in foreign currency exchange rates will affect the value of financial instruments, including direct or indirect investments, in non-U.S. issuers. Foreign investments may be subject to greater market and regulatory risks than United States investments because of fluctuation of currency exchange rates, change in governmental policies, and confiscation of assets by government decree, war or political upheaval.
The Manager provides investment management services to the Funds. The Funds could be materially affected by the actions and operations of the Manager.
U.S. federal agencies including the SEC, the Commodity Futures Trading Commission and the Federal Reserve Bank regulate certain activities of the Funds and the Manager. Regulatory changes could adversely affect the Funds by restricting their trading activities and/or causing the Funds to utilize certain structures that could result in increased costs or taxes on the Fund or its investors.
Legal, tax and regulatory developments are likely to occur during the life of the Funds and such changes may adversely affect the Funds. The financial services industry generally, and the activities of hedge funds and their managers, in particular, have been subject to intense and increasing regulatory scrutiny. Such scrutiny may increase the Funds’ exposure to potential liabilities and to legal, compliance and other related costs. The effect of any future regulatory change on the Funds could be substantial and adverse including, for example, increased compliance costs, the prohibition of certain types of trading and/or restrictions on the Funds’ ability to pursue its investment approach. The Funds, the Manager and/or the General Partners may also be subject to regulation in jurisdictions in which the Funds, Manager, and/or the General Partners engage in business. Such regulations may have a significant impact on the partners or the operations of the Funds, including, without limitation, restricting the types of investments the Funds may make and preventing the Funds from exercising their voting rights with regard to certain financial instruments.
There can be no assurance that the principals or other employees or partners of the Manager or the General Partners will continue to be employed by, or associated with, the Manager or the General Partners throughout the life of the Funds. The loss of key personnel could have a material adverse effect on the Funds.
As part of its business, the Manager processes, stores and transmits large amounts of electronic information, including information relating to the transactions of the Funds and personally identifiable information of the limited partners. Breach of the Manager’s information systems may cause information relating to the transactions of the Funds and personally identifiable information of the limited partners to be lost or improperly accessed, used or disclosed. The loss or improper access, use or disclosure of the Manager’s or the Funds’ proprietary information may cause the Manager or the Funds to suffer,
 
F-27

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
among other things, financial loss, the disruption of its business, liability to third parties, regulatory intervention or reputational damage.
As part of its investment program, the Funds may hold non-quoted equities as a result of, among other things, the Funds’ purchase of debt instruments that convert to equity interests in the event of a reorganization of an entity’s capital structure. The Funds’ holdings, if any, in non-quoted equity would involve a high degree of business and financial risk. The entities in which the Funds would hold equity may be financially distressed, they may require substantial additional capital to support expansion or to achieve or maintain a competitive position, they may produce substantial variations in operating results from period to period and they may operate at a loss. Such risks may adversely affect the performance of such investments and result in substantial losses.
An investment in the Funds provides limited liquidity because a limited partner may not transfer its interest in the Funds to a third party without the consent of the General Partners and withdrawals of a limited partner’s interest held in its capital account are not permitted.
8.   Commitments and Contingencies
In the normal course of business the Funds enter into contracts that contain a variety of representations and warranties and that provide for general indemnifications in the event of a breach. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. The General Partners expect the risk of loss from indemnification to be remote and do not expect these indemnification provisions to have a material adverse effect on the combined financial statements of the Funds.
As of March 31, 2021, the Partnership has committed to fund an additional $10,000,000 in existing portfolio investments.
9.   Revolving Credit
On April 19, 2019, HealthCare Royalty Partners IV, L.P. entered into a revolving credit facility (the “credit facility”) by and among HealthCare Royalty Partners IV, L.P. as Borrower, HealthCare Royalty Partners GP IV, LLC as Borrower’s General Partner, Citibank, N.A. as the Administrative Agent, Sole Lead Arranger and Book Manager, and the banks and financial institutions from time to time party thereto as Lenders (the “lenders”), which allowed HealthCare Royalty Partners IV, L.P. to borrow up to $250,000,000 subject to certain borrowing base limitations, subject to bank approval. On March 23, 2020 and on July 20, 2020 HealthCare Royalty Partners IV, L.P. and the lenders agreed to increase the size of the facility by $100,000,000 and $143,000,000 respectively bringing the maximum amount available to be borrowed to $493,000,000. Prior to the facility increase on July 20, 2020, borrowings under the credit facility bore daily interest at a rate equal to LIBOR plus 1.45%. After the facility increase on July 20, 2020, borrowing under the credit facility bear daily interest at a rate equal to LIBOR plus 2.00%. Under the terms of the credit facility, the unfunded capital commitments of HealthCare Royalty Partners IV, L.P. are pledged as collateral. The credit facility matures on April 19, 2022. As of March 31, 2021, there was $493,000,000 borrowed under the credit facility. As of March 31, 2021, the carrying value of the debt approximates its fair value. As of December 31, 2020, there was $493,000,000 borrowed under the credit facility and the interest payable is $302,626. As of December 31, 2020, the carrying value of the debt approximates its fair value due to the floating nature of the interest rate.
 
F-28

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Unaudited)
March 31, 2021 & March 31, 2020
10.   Financial Highlights
The following financial highlights are for the limited partners, on a combined basis, in the Funds:
Three Months Ended March 31, 2021
Limited
Partners
Ratios to average limited partners’ capital
Expenses before carried interest and performance fee allocation
2.12%
Carried interest and performance fee allocation
0.88%
Expenses after carried interest and performance fee allocation
3.00%
Net investment income
14.57%
Internal rate of return
Inception to March 31, 2021
12.94%
Inception to December 31, 2020
12.30%
Three Months Ended March 31, 2020
Limited
Partners
Ratios to average limited partners’ capital
Expenses before carried interest and performance fee allocation
2.40%
Carried interest and performance fee allocation
0.42%
Expenses after carried interest and performance fee allocation
2.82%
Net investment income
10.28%
Internal rate of return
Inception to March 31, 2020
11.38%
Inception to December 31, 2019
11.41%
The ratios and IRR are calculated for the limited partners taken as a whole. The ratios are calculated using the average monthly limited partners’ capital. The expenses and the net investment income ratios are calculated on an annualized basis, except the impact of carried interest and performance fee which are performance based, and nonrecurring organizational costs. The IRR calculation is net of all fees and carried interest. Such percentages are after fee waivers. The General Partner waived a portion of management fees (equal to 0.04% of average limited partners’ capital) for the three months ended March 31, 2021 and (equal to 0.05% of average limited partners’ capital) for the three months ended March 31, 2020. The IRR is measured from the date investment activity commenced based on contributions and distributions, and partners’ capital at the end of the period (residual value). The net investment income ratio does not include the effect of the carried interest allocation. The computation of the ratios and IRR for an individual partner may vary from these ratios and IRR based on different fee arrangements (as applicable) and the timing of capital transactions.
11.   Subsequent Events
Subsequent events for the Funds have been evaluated through June 14, 2021, which is the date the combined financial statements were available to be issued. There were no subsequent events that required adjustments to, or disclosure in, these combined financial statements.
 
F-29

 
Report of Independent Registered Public Accounting Firm
To the General Partners and Limited Partners of HealthCare Royalty Partners
Opinion on the Financial Statements
We have audited the accompanying combined statements of assets, liabilities and partners’ capital, including the combined schedules of investments, of HealthCare Royalty Partners III, L.P., HealthCare Royalty Partners IV, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P., HCR Molag Fund, L.P., HCR H.O.P. Fund, L.P., HCR Potomac Fund, L.P., HCR Canary Fund, L.P., PPCF Harris Feeder, L.P., HealthCare Royalty Partners III-A, L.P., and HealthCare Royalty Partners IV-A, L.P. (the “Partnerships” or “HealthCare Royalty Partners”) as of December 31, 2020 and 2019, and the related combined statements of operations, changes in partners’ capital and cash flows for the years then ended, including the related notes (collectively referred to as the “combined financial statements”). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Partnerships as of December 31, 2020 and 2019, and the results of their operations, changes in their partners’ capital and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These combined financial statements are the responsibility of the Partnerships’ management. Our responsibility is to express an opinion on the Partnerships’ combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnerships in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these combined financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
May 5, 2021
We have served as the Partnerships’ auditor since 2009.
 

 
HealthCare Royalty Partners
Combined Statements of Assets, Liabilities and Partners’ Capital
December 31, 2020 & December 31, 2019
(in U.S. Dollars)
As of
December 31, 2020
As of
December 31, 2019
Assets
Cash and cash equivalents
$ 11,732,921 $ 10,145,258
Investments, at fair value (cost of $2,223,489,375 and $1,415,618,651 at December 31, 2020 and 2019, respectively)
2,418,498,879 1,511,327,833
Interest receivable
3,476,577 2,982,405
Deferred borrowing costs
1,297,817 1,050,347
Prepaid assets
249,238
Receivable from affiliate (Note 5)
17,625
Total assets
$ 2,435,273,057 $ 1,525,505,843
Liabilities and Partners’ Capital
Liabilities
Revolving credit
$ 493,000,000 $ 82,641,781
Performance Fee payable to Manager (Note 6)
6,494,702 3,353,032
Due to Manager (Note 5)
1,411,083 843,251
Accrued expenses (Note 5)
1,220,216 589,643
Management fees payable (Note 6)
891,534
Interest payable
302,626 146,623
Total liabilities
503,320,161 87,574,330
Commitments and contingencies (Note 8)
Partners’ capital
1,931,952,896 1,437,931,513
Total liabilities and partners’ capital
$ 2,435,273,057 $ 1,525,505,843
The accompanying notes are an integral part of these combined financial statements.
F-31

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedules of Investments
December 31, 2020 & December 31, 2019
As of December 31, 2020
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Direct Investments(1)
United States
Pharmaceuticals
Acorda Therapeutics, Inc.
Royalty Interests
$ 17,403,950 $ 17,403,950 0.90%
Adamas Pharma, LLC
Note, 11% Cash, 11% PIK, December 31, 2026
$ 117,512,573 117,640,664 123,087,021 6.37
Aerial BioPharma, LLC
Royalty Interests
100,000,954 122,818,396 6.36
Agenus, Inc.
Royalty Interests
190,307,425 284,703,837 14.73
Chiasma, Inc.
Royalty Interests
65,040,536 69,958,836 3.62
Coherus Biosciences
Senior Convertible Note, 8.2%, March 31, 2022
$ 75,000,000 75,000,000 80,168,084 4.15
Senior Secured Term Loan, Variable,
January 7, 2025
$ 75,000,000 74,282,454 75,792,270 3.92
Total Coherus Biosciences
149,282,454 155,960,354 8.07
Infinity Pharmaceuticals, Inc.
Royalty Interests
30,020,063 31,949,826 1.65
Karyopharm Therapeutics, Inc.
Royalty Interests
75,050,725 85,382,711 4.42
Krystexxa
Royalty Interests
24,714,772 26,001,396 1.35
La Jolla Pharma, LLC(2)
Royalty Interests
119,959,065 78,065,123 4.04
Lexiva/Telzir
Royalty Interests
264,576 0.01
Lyrica
Royalty Interests
268,203 268,203 0.01
Miotox, LLC
Royalty Interests
37,496,004 37,496,004 1.94
Myozyme
Royalty Interests
3,274,176 3,274,176 0.17
Nektar Therapeutics
Royalty Interests
150,249,361 150,000,000 7.76
The accompanying notes are an integral part of these combined financial statements.
F-32

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedules of Investments (Continued)
December 31, 2020 & December 31, 2019
As of December 31, 2020
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Orenitram
Royalty Interests
20,912,661 21,836,936 1.13
Paratek Royalty Corporation
Secured Promissory Note, 12%, May 1, 2029
$ 32,500,000 31,903,893 32,616,037 1.69
Portola Pharmaceuticals, Inc.
Royalty Interests
125,850,165 149,957,234 7.76
Progenics Pharmaceuticals
Note, 9.5%, June 30, 2025
$ 32,552,521 31,953,317 32,752,358 1.70
RedHill Biopharma Inc.
Note, 9.95%, February 23,
2026
$ 80,000,000 80,041,148 85,757,671 4.44
ReGenXBio Inc.
Royalty Interests
196,129,549 195,999,999 10.15
Rutgers
Royalty Interests
9,092,801 11,848,229 0.61
Suneva Medical, Inc.
Note, 10.9% Cash, 10.9% PIK, December 31, 2021
$ 10,522,639 11,176,567 10,522,639 0.54
Series AA Preferred Stock(2)
9,200,000 19,356,997 7,360,000 0.38
Total Suneva Medical, Inc.
30,533,564 17,882,639 0.92
Triple Royalty Sub II LLC
Note, 9.5% Cash, 9.5% PIK, June 5, 2035
$ 209,285,872 209,312,531 210,301,909 10.89
Vimpat
Royalty Interest
253,465,293 287,960,628 14.91
Total Direct Investments (United States)
2,069,903,274 2,233,548,049 115.60
Interest in affiliated investment fund(1)
HealthCare Royalty Partners II, L.P.
LP Interest
1,250,459 1,710,360 0.09
Total United States
2,071,153,733 2,235,258,409 115.69
Japan
Pharmaceuticals
Albireo
Royalty Interests
58,116,956 92,294,222 4.78
Inavir
Royalty Interests
31,212,457 31,478,730 1.63
Total Japan
89,329,413 123,772,952 6.41
The accompanying notes are an integral part of these combined financial statements.
F-33

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedules of Investments (Continued)
December 31, 2020 & December 31, 2019
As of December 31, 2020
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Germany
Pharmaceuticals
Cetrotide
Royalty Interests
30,307,382 29,869,751 1.55
Eligard
Royalty Interests
2,276,956 2,002,045 0.10
Total Germany
32,584,338 31,871,796 1.65
Switzerland
Pharmaceuticals
Benlysta
Royalty Interests
28,447,129 27,595,722 1.42
Cardiorentis
Warrants(2)
1,272 1,974,762
Total Switzerland
30,421,891 27,595,722 1.42
Total Investments
$ 2,223,489,375 $ 2,418,498,879 125.17%
Investment classification by type
Royalty Interests
$ 1,569,596,583 $ 1,758,430,530 91.00%
Notes
631,310,574 650,997,989 33.70
Preferred Stock
19,356,997 7,360,000 0.38
LP Interest
1,250,459 1,710,360 0.09
Warrants
1,974,762
Total Investments
$ 2,223,489,375 $ 2,418,498,879 125.17%
(1)
All investments are valued using significant unobservable inputs
(2)
Non-income producing securities
The accompanying notes are an integral part of these combined financial statements.
F-34

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedules of Investments (Continued)
December 31, 2020 & December 31, 2019
As of December 31, 2019
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Direct Investments(1)
United States
Pharmaceuticals
Acorda Therapeutics, Inc.
Royalty Interests
$ 26,961,666 $ 25,397,548 1.77%
Adamas Pharma, LLC
Note, 11% Cash, 11% PIK, December 31, 2026
$ 116,356,294 116,484,385 125,229,979 8.71
Aerial BioPharma, LLC
Royalty Interests
100,000,954 108,001,459 7.51
Agenus, Inc.
Royalty Interests
190,307,425 284,373,376 19.77
Cervarix
Royalty Interests
1,319,799 161,661 0.01
Coherus Biosciences
Senior Convertible Note, 8.2%, March 31, 2022
$ 75,000,000 75,000,000 79,025,604 5.50
Senior Secured Term Loan, Variable, January 7, 2025
$ 75,000,000 74,094,954 75,275,292 5.23
Total Coherus Biosciences
149,094,954 154,300,896 10.73
Infinity Pharmaceuticals, Inc.
Royalty Interests
30,014,963 32,352,574 2.25
Karyopharm Therapeutics, Inc.
Royalty Interests
75,050,725 77,498,299 5.39
Krystexxa
Royalty Interests
27,058,326 28,555,079 1.99
La Jolla Pharma, LLC(2)
Royalty Interests
122,740,774 72,779,552 5.06
Lyrica
Royalty Interests
8,090,552 8,090,552 0.56
Miotox, LLC
Royalty Interests
33,856,062 41,928,133 2.92
Myozyme
Royalty Interests
8,976,792 7,164,592 0.50
Orenitram
Royalty Interests
24,842,475 24,842,475 1.73
The accompanying notes are an integral part of these combined financial statements.
F-35

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedules of Investments (Continued)
December 31, 2020 & December 31, 2019
As of December 31, 2019
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Paratek Royalty Corporation
Secured Promissory Note, 12%, May 1, 2029
$ 32,500,000 31,845,274 32,709,013 2.27
Portola Pharmaceuticals, Inc.
Royalty Interests
125,850,165 142,240,842 9.89
Senior Secured Loan, 9.75%, February 28, 2025
$ 62,500,000 61,570,056 62,865,317 4.37
Total Portola Pharmaceuticals, Inc.
187,420,221 205,106,159 14.26
Progenics Pharmaceuticals
Note, 9.5%, June 30, 2025
$ 39,519,705 38,461,264 39,755,207 2.76
Rutgers
Royalty Interests
9,889,633 11,601,982 0.81
Suneva Medical, Inc.
Note, 10.9% Cash, 10.9% PIK, May 31, 2021
$ 23,610,214 24,264,142 24,136,470 1.68
Series 1-C Preferred Stock(2)
5,000,000 4,758,631
Total Suneva Medical, Inc.
29,022,773 24,136,470 1.68
Triple Royalty Sub, LLC
Note, 9% Cash, 9% PIK, April 15,
2033
$ 47,069,503 47,612,349 46,263,161 3.22
Total Direct Investments (United States)
1,259,051,366 1,350,248,167 93.90
Interest in affiliated investment fund(1)
HealthCare Royalty Partners II, L.P.
LP Interest
1,149,441 1,674,819 0.12
Total United States
1,260,200,807 1,351,922,986 94.02
Japan
Pharmaceuticals
Albireo
Royalty Interests
45,182,486 53,122,150 3.69
Inavir
Royalty Interests
32,172,073 32,941,166 2.29
Total Japan
77,354,559 86,063,316 5.98
The accompanying notes are an integral part of these combined financial statements.
F-36

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Schedules of Investments (Continued)
December 31, 2020 & December 31, 2019
As of December 31, 2019
(in U.S. Dollars)
Shares/
Principal
Amount
Current
Cost
Fair
Value
Fair Value
as a % of
Partners’
Capital
Germany
Pharmaceuticals
Cetrotide
Royalty Interests
39,026,447 37,831,085 2.63
Eligard
Royalty Interests
5,099,670 3,548,040 0.25
Total Germany
44,126,117 41,379,125 2.88
Switzerland
Pharmaceuticals
Benlysta
Royalty Interests
31,962,406 31,962,406 2.22
Cardiorentis
Warrants(2)
1,272 1,974,762
Total Switzerland
33,937,168 31,962,406 2.22
Total Investments
$ 1,415,618,651 $ 1,511,327,833 105.10%
Investment classification by type
Royalty Interests
$ 938,403,393 $ 1,024,392,971 71.24%
Notes
469,332,424 485,260,043 33.74
LP Interest
1,149,441 1,674,819 0.12
Preferred Stock
4,758,631
Warrants
1,974,762
Total Investments
$ 1,415,618,651 $ 1,511,327,833 105.10%
(1)
All investments are valued using significant unobservable inputs
(2)
Non-income producing securities
The accompanying notes are an integral part of these combined financial statements.
F-37

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Statements of Operations
Years Ended December 31, 2020 & December 31, 2019
For the Years Ended
(in U.S. Dollars)
December 31, 2020
December 31, 2019
Investment income
Royalty income
$ 166,467,435 $ 130,792,412
Note interest
50,397,184 38,060,174
Paid-in-kind interest
11,952,943 8,399,147
Other Income
9,727 53,128
Total investment income
228,827,289 177,304,861
Expenses
Management fees (Note 6)
26,666,102 20,537,612
Performance fees (Note 6)
8,530,752 4,267,404
Interest expense
7,294,277 1,219,183
Investment research and other expenses
1,767,354 2,145,690
Professional fees
1,631,933 1,308,113
Organizational expenses
119,459 692,454
Total expenses
46,009,877 30,170,456
Management fees waived
(732,915) (492,414)
Net expenses
45,276,962 29,678,042
Net investment income
183,550,327 147,626,819
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on investments
11,102,470 (7,705,851)
Net change in unrealized gain (loss) on investments
58,599,027 32,631,338
Net realized and unrealized gain (loss) on investments
69,701,497 24,925,487
Net increase in partners’ capital resulting from operations
$ 253,251,824 $ 172,552,306
The accompanying notes are an integral part of these combined financial statements.
F-38

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Statements of Changes in Partners’ Capital
Years Ended December 31, 2020 & December 31, 2019
(in U.S. Dollars)
General
Partners
Limited
Partners
Total
Partners’ capital at January 1, 2020
$ 47,834,522 $ 1,390,096,991 $ 1,437,931,513
Capital contributions
3,730,932 555,891,167 559,622,099
Distributions
(1,909,113) (316,943,129) (318,852,242)
Syndication costs
(3) (295) (298)
Net investment income
1,654,819 181,895,508 183,550,327
Net realized and unrealized gain (loss) on investments
658,792 69,042,705 69,701,497
Carried interest
33,068,047 (33,068,047)
Partners’ capital at December 31, 2020
$ 85,037,996 $ 1,846,914,900 $ 1,931,952,896
General
Partners
Limited
Partners
Total
Partners’ capital at January 1, 2019
$ 29,213,705 $ 1,142,287,554 $ 1,171,501,259
Capital contributions
3,456,136 385,055,779 388,511,915
Return of capital contributions(1)
(425,000) (55,585,046) (56,010,046)
Distributions
(1,282,781) (236,811,685) (238,094,466)
Syndication costs
(5,295) (524,160) (529,455)
Net investment income
1,030,048 146,596,771 147,626,819
Net realized and unrealized gain (loss) on investments
138,811 24,786,676 24,925,487
Carried interest
15,708,898 (15,708,898)
Partners’ capital at December 31, 2019
$ 47,834,522 $ 1,390,096,991 $ 1,437,931,513
(1)
Return of capital contributions represent capital contributions that were returned within 90 days of receipt and returns of capital contributions resulting from subsequent closings that occurred in HealthCare Royalty Partners IV, L.P.
The accompanying notes are an integral part of these combined financial statements.
F-39

 
HealthCare Royalty Partners
(Delaware limited partnership)
Combined Statements of Cash Flows
Years Ended December 31, 2020 & December 31, 2019
For the Years Ended
(in U.S. dollars)
December 31, 2020
December 31, 2019
Cash flows from operating activities:
Cash collections from royalty interests
$ 227,439,825 $ 171,499,762
Cash collections from notes
55,803,111 45,836,039
Proceeds from sale of investments
121,837,989 35,615,865
Payments for operating costs and professional
services
(34,485,229) (28,477,863)
Interest paid
(6,455,966) (1,072,560)
Acquisitions of investments
(1,013,679,845) (397,649,441)
Net cash used in operating activities
(649,540,115) (174,248,198)
Cash flows from financing activities:
Distributions
(318,852,242) (238,094,466)
Capital contributions
559,622,099 386,012,379
Return of capital contributions
(56,010,046)
Syndication costs
(298) (529,455)
Payments on Revolving Credit
(26,424,917)
Borrowings on Revolving Credit
436,783,136 82,641,781
Net cash provided by financing activities
651,127,778 174,020,193
Net change in cash and cash equivalents
1,587,663 (228,005)
Cash and cash equivalents, beginning of year
10,145,258 10,373,263
Cash and cash equivalents, end of year
$ 11,732,921 $ 10,145,258
The accompanying notes are an integral part of these combined financial statements.
F-40

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements
December 31, 2020 & December 31, 2019
1.   Organization
HealthCare Royalty Partners III, L.P., HealthCare Royalty Partners IV, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P., HCR Molag Fund, L.P., HCR H.O.P. Fund, L.P., HCR Potomac Fund, L.P., HCR Canary Fund, L.P. and PPCF Harris Feeder, L.P. (collectively, the “Master Funds”), along with HealthCare Royalty Partners III-A, L.P. and HealthCare Royalty Partners IV-A, L.P. (collectively, the “Feeder Funds”) are Delaware limited partnerships organized for the purpose of making investments principally in commercial stage healthcare products.
The Master Funds and the Feeder Funds (collectively, “HealthCare Royalty Partners” or the “Funds”) seek to achieve their investment objectives by (i) purchasing cash flow streams related to biopharmaceutical product sales and (ii) investing in the debt of biopharmaceutical companies with attractive assets. The ultimate structure of the Funds’ investments are typically determined by the type of counterparty with which the Funds contract. Below are the four primary structures employed across counterparty type.
Counterparty is Royalty Recipient

Royalty purchases represent investments in existing royalty contracts. These royalty contracts are entered into when an inventor, research institution, university or biopharmaceutical company signs an IP licensing agreement with a third-party marketer, such as a larger pharmaceutical company. Under these license agreements, the inventor, university or biopharmaceutical company is entitled to receive a stream of cash flow payments based on the future sales of the product, but typically has no role in the product’s commercialization, which is performed by a third-party marketer. In a royalty purchase, the Funds acquire all or part of the royalty contract and receive the resulting cash flows.

Royalty notes represent structured financing solutions whereby an issuer may place the royalty contract(s) into a special purpose vehicle (“SPV”) and issue debt from the SPV. The debt is then serviced by the applicable royalty stream related to the royalty contract. The interest and principal payments are typically based on consistent, predictable royalty streams that are over-collateralized.
Counterparty is Product Marketer

Revenue interest (aka synthetic royalty) financings represent highly structured, non-dilutive financing alternatives for healthcare companies seeking to raise capital in lieu of issuing traditional debt or equity. In a revenue interest investment, the Funds create a royalty contract with a biopharmaceutical company that owns the rights to one or more products and typically plays the principal role in the commercialization, marketing and sales of such product. This contract entitles the Funds to receive a stream of cash flow payments that are derived from future sales of a product. The Funds can also structure these contracts as debt financing with a fixed interest component as well as a contingent interest component based on product sales.
Structured debt represents fixed interest instruments that are typically collateralized by all assets. In these situations, the Funds’ underwriting is typically based on the value of a product(s) owned by the company.
 
F-41

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
1.   Organization (Continued)
The Funds were organized on and commenced operations on the following dates:
Master Funds
Organization Date
Commencement of Operations
HealthCare Royalty Partners III, L.P.
July 17, 2013
July 17, 2013
HealthCare Royalty Partners IV, L.P.
November 28, 2018
January 3, 2019
HCRP Overflow Fund, L.P.
February 2, 2010
February 4, 2010
HCR Stafford Fund, L.P.
June 28, 2016
June 28, 2016
HCR Molag Fund, L.P.
August 8, 2017
August 8, 2017
HCR H.O.P. Fund, L.P.
September 28, 2016
September 28, 2016
HCR Potomac Fund, L.P.
December 16, 2019
February 26, 2020
HCR Canary Fund, L.P.
July 31, 2020
August 6, 2020
PPCF Harris Feeder, L.P.
August 5, 2020
August 5, 2020
Feeder Funds
Organization Date
Commencement of Operations
HealthCare Royalty Partners III-A, L.P.
September 28, 2016
September 28, 2016
HealthCare Royalty Partners IV-A, L.P.
November 28, 2018
January 3, 2019
The Feeder Funds’ have a participation interest in the affiliated Master Funds, as detailed in the table below, and are treated as feeder funds. The Feeder Funds pay management fees and carried interest at the Feeder Fund level.
Feeder Fund
Affiliated Master Fund
Feeder Fund ownership of
capital commitments in Master
Fund
Unfunded capital
commitments
HealthCare Royalty Partners III-A, L.P.
HealthCare Royalty Partners III, L.P.
11.8%
5,617,034
HealthCare Royalty Partners IV-A, L.P.
HealthCare Royalty Partners IV, L.P.
20.3%
245,149,770
HealthCare Royalty GP III, LLC, HealthCare Royalty GP IV, LLC, HCRP Overflow GP, LLC, HCR Stafford Fund GP, LLC, HCR Molag Fund GP, LLC, HCR H.O.P. Fund GP, LLC, HCR Potomac Fund GP, LLC, HCR Canary Fund GP, LLC, and HCR Harris Feeder GP, LLC (collectively, the “General Partners”) are the General Partners of the Master Funds and Feeder Funds as detailed in the table below:
General Partner
Fund
HealthCare Royalty GP III, LLC
HealthCare Royalty Partners III, L.P.
HealthCare Royalty GP III, LLC
HealthCare Royalty Partners III-A, L.P.
HealthCare Royalty GP IV, LLC
HealthCare Royalty Partners IV, L.P.
HealthCare Royalty GP IV, LLC
HealthCare Royalty Partners IV-A, L.P.
HCRP Overflow GP, LLC
HCRP Overflow Fund, L.P.
HCR Stafford Fund GP, LLC
HCR Stafford Fund, L.P.
HCR Molag Fund GP, LLC
HCR Molag Fund, L.P.
HCR H.O.P. Fund GP, LLC
HCR H.O.P. Fund, L.P.
HCR Potomac Fund, GP LLC
HCR Potomac Fund, L.P.
HCR Canary Fund, GP LLC
HCR Canary Fund, L.P.
HCR Harris Feeder GP, LLC
PPCF Harris Feeder, L.P.
 
F-42

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
1.   Organization (Continued)
HealthCare Royalty Management, LLC (the “Manager”) is the investment manager of the Funds. The Manager is a registered investment advisor with the Securities Exchange Commission (“SEC”). Except as set forth in the various agreements of the Funds, the General Partners direct all affairs of the Funds as the management, policies and control of the Funds are vested exclusively in the General Partners.
The Funds, General Partners and Manager are related parties of Cowen, Inc., an SEC registered financial services firm providing alternative investment management, investment banking, research, and brokerage services through its wholly-owned subsidiaries Cowen Investment Management, LLC and Cowen Holdings, Inc.
SS&C GlobeOp Fund Services Private Equity Industry Solutions (the “Former Administrator”) acted as administrator to the Funds through June 30, 2020, pursuant to an agreement between the Funds and the Former Administrator. Beginning July 1, 2020, HealthCare Royalty Partners III, L.P., HealthCare Royalty Partners IV, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P. and HCR H.O.P. Fund, L.P. transitioned fund accounting responsibilities to a new administrator, Mainstream Fund Services, Inc. (“Mainstream”). Mainstream acted as administrator to HCR Canary Fund, L.P. and PPCF Harris Feeder, L.P. beginning with their respective commencement of operations. The Former Administrator continued to act as administrator to HCR Molag Fund, L.P. and HCR Potomac Fund, L.P. through December 31, 2020.
2.   Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) and are stated in U.S. Dollars. The General Partners have determined that the Funds meet the criteria of investment companies and therefore apply specialized accounting for investment companies. The following is a summary of significant accounting policies followed by HealthCare Royalty Partners in preparation of its combined financial statements.
Combined Financial Statements
The HealthCare Royalty Partners combined financial statements include the accounts of the Master Funds and the Feeder Funds. Combined financials statements are presented because HealthCare Royalty Partners has a common management team, common investment types and largely common investments, commonly financed activities, common operations and defined methods of allocating expenses. All intercompany balances are eliminated in the combination.
Use of Estimates
The preparation of combined financial statements in conformity with GAAP requires the General Partners to make estimates and assumptions that affect the reported amounts and disclosures in the combined financial statements and accompanying notes. In particular, estimates are made relating to the fair value of the Funds’ investments. The General Partners believe that the estimates utilized in preparing its combined financial statements are reasonable; however, actual results could differ from those estimates and the differences could be material to the combined financial statements.
Investments
Due to the inherent uncertainty of valuation of assets like those held by the Funds, the General Partners’ determination of fair value may differ significantly from values that would have been realized
 
F-43

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
2.   Significant Accounting Policies (Continued)
had a ready market for the investments existed, and such differences could be material to the Funds’ combined financial statements.
Royalty Interests
Royalty interests are treated as debt transactions with contingent future payments and are recognized when the Funds have incurred an obligation to fund the investment and has contractual rights to cash flows to the royalty interests. At the time of underwriting, the General Partners project estimated quarterly cash flows to be received or paid with respect to each royalty interest, which results in a projected internal rate of return (“IRR”) for such royalty interest. Subsequent to the initial investment date, the fair value of any royalty interest is determined based on the net present value of the projected cash flows, using updated expectations of future cash flows and a discount rate to reflect market conditions and other quantitative and qualitative factors. Payments received are treated in part as income, calculated using the IRR, and in part as repayment of the investment cost.
Risk adjusted anticipated cash flows are determined by the General Partners by performing appropriate due diligence utilizing currently available information including, but not limited to, actual historical product sales, trends, size of patient population, market share, competition and intellectual property rights. Additionally, the General Partners attempt to limit counterparty risk of its royalty and revenue interests through transaction structures that are specific to each individual investment and by generally requiring cash payments be made directly to the Funds by the marketer or to a lockbox set up specifically to collect and allocate payments in accordance with terms as outlined in the individual investment agreements.
Notes
Investments in notes are initially valued at cost and are recognized when the Funds have incurred an obligation to fund the investment and has contractual rights to cash flows from the note, which is typically the funding date. Subsequent to the initial investment date, such investments are recorded at estimated fair value after giving consideration to actual interest and principal payments, market conditions, and other quantitative and qualitative factors, including the net present value of the projected cash flows, using updated expectations of future cash flows and a discount rate to reflect market conditions. Future cash flows are based on the structure of each note and can include fixed interest coupon, variable revenue interest (revenue interest on note), final payment fees and principal payments. The timing of the payment of principal can vary depending on the structure of the note. Investments can be secured by the assets or revenue streams of the counterparty. Convertible notes, where the underlying equity is publicly traded and is near or above the conversion price, are valued using one or more convertible debt pricing models taking into account the share price, the volatility of the stock and other variables.
Equities, including Preferred Stock
Investments in freely tradable equity securities are valued as of the close of trading on the date as of which the value is being determined and are equal to the last reported trade price of such security on such date on the exchange where it is primarily traded. If such security is not traded on an exchange, such security shall be valued at the reported closing bid price (or average of bid prices) last quoted on such date as reported by an established quotation service for over-the-counter securities. Investments in the common or preferred stock of private companies are stated at fair value. Where these investments are not traded in an active market, the estimated fair values assigned by the General Partners are determined in good faith and are based on available information considering, among other things, pricing models and/or recent private transactions.
 
F-44

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
2.   Significant Accounting Policies (Continued)
Limited Partnerships
The Funds measure the fair value of limited partnership interests based on its proportionate investment in the net assets of the limited partnership. Where the limited partnership is an affiliate of the General Partners, the fair value of the underlying investments of the limited partnership are determined in a manner consistent with the policies of the Funds. Payments received from such limited partnerships are allocated to the original purchase cost or accounted for as a realized gain after taking into account factors such as realized gains on the limited partnership’s underlying investment and any distribution hierarchy.
Warrants
Investments in warrants in public companies are valued using a Black-Scholes valuation model, based on observable and unobservable inputs directly related to the warrants and discounted as deemed relevant by the General Partners. Where these investments are not traded in an active market, the estimated fair values assigned by the General Partners are determined in good faith and are based on available information considering, among other things, pricing models and/or recent private transactions.
Cash and Cash Equivalents
Cash is held in demand accounts with large commercial banks in the United States. Deposits in these accounts may exceed the amount of federal insurance provided on such deposits. The Funds consider all highly liquid investments with original maturities of three months or less from the time of purchase to be cash equivalents. There are no cash equivalents as of December 31, 2020 and December 31, 2019.
Investment Income and Operating Expenses
Interest income and operating expenses are recorded on an accrual basis. Royalty income is recorded based on the calculated IRR (as discussed above) except where the investment fair value is less than unrecovered cost. If the investment fair value is less than unrecovered cost, cash received is treated as a return of cost in the current and subsequent periods until the unrecovered cost is lower than or equal to fair value as of each measurement date. Dividend income is recorded on the ex-dividend date, net of any applicable withholding taxes. Discount or premium on notes are accreted or amortized based on the effective yield method. Payment-in-kind interest is added to the principal and cost amounts of the note and recorded as interest income.
Pre-acquisition transaction costs incurred in connection with the evaluation of specific investments are deferred and capitalized as a component of the cost basis of such investments when the transactions are consummated or are recorded as portfolio management costs and other expenses when management believes the transaction will not be consummated.
Post-acquisition costs incurred in connection with the ongoing holding of investments are expensed as incurred and are included in investment research and other expenses.
Income Taxes
The Funds themselves are not subject to U.S. Federal income taxes and each partner is individually liable for income taxes, if any, on its share of the Funds’ net taxable income. Interest, dividends and other income realized by the Funds from non-U.S. sources and capital gains realized from the sale of investments of non-U.S. issuers may be subject to withholding and other taxes levied by the jurisdiction
 
F-45

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
2.   Significant Accounting Policies (Continued)
in which the income is sourced. Certain activities of the Funds may cause partners in the Funds to be subject to state taxes. The authoritative guidance on accounting for and disclosure of uncertainty in tax positions requires the General Partners to determine whether a tax position of the Funds is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the combined financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. There are no uncertain tax positions as of December 31, 2020 or as of December 31, 2019.
The Funds file tax returns as prescribed by the tax laws of the jurisdictions in which they operate. In the normal course of business, the Funds are subject to examination by federal, state, local and foreign jurisdictions, where applicable. As of December 31, 2020, and December 31, 2019, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are from year 2017 and 2016, respectively, forward (with limited exceptions). Certain foreign jurisdictions may not have a statute of limitations.
The Funds may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, the Funds might be found to have a tax liability that has not been recorded in the combined financial statements. Also, the General Partners’ conclusions may be subject to review and adjustment at a later date based on changing tax laws, regulations and interpretations thereof.
Based on its analysis, the General Partners have determined that the Funds have not obtained any asset, or incurred any liability for unrecognized tax benefits or tax liabilities, respectively, as of, or for the years ended December 31, 2020 or December 31, 2019.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the valuation date. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. Dollars on transaction dates. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments. Such fluctuations, if any, are included with net realized and net change in unrealized gain (loss) from investments in the statement of operations.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820) — Changes to the Disclosure Requirements for Fair Value Measurement”. This ASU is intended to improve the effectiveness of disclosure requirements on fair value measurement. The ASU is effective for the Funds for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. Management has elected to early adopt ASU No. 2018-13. The effect of the change includes the elimination of certain footnote disclosures to the financial statements and does not have a material impact on the Funds’ combined financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period meant to ease the potential burden in accounting for, or recognizing the effects of, reform to LIBOR and certain other reference rates. The standard is effective for all entities
 
F-46

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
2.   Significant Accounting Policies (Continued)
beginning on March 12, 2020 and may be elected over time. However, ASU 2020-04 is only applicable to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, and that were entered into or evaluated prior to January 1, 2023. The Funds are currently evaluating the impact that the adoption of ASU 2020-04 would have on its combined financial statements.
3.   Fair Value Measurements
The Funds utilize various methods to measure the fair value of their investments. GAAP establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access.
Level 2
Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3
Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Funds’ own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.
The availability of observable inputs can vary from investment to investment and is affected by a variety of factors, including, for example, the type of investment, whether the investment is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the investment. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for investments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
 
F-47

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
3.   Fair Value Measurements (Continued)
The following table summarizes the Funds’ investments that were accounted for at fair value by level within the hierarchy as of December 31, 2020 and December 31, 2019:
Assets at Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Total
Royalty Interests
$ $ $ 1,758,430,530 $ 1,758,430,530
Notes
650,997,989 650,997,989
Preferred Stock
7,360,000 7,360,000
LP Interest
1,710,360 1,710,360
Warrants
$ $ $ 2,418,498,879 $ 2,418,498,879
Assets at Fair Value as of December 31, 2019
Level 1
Level 2
Level 3
Total
Royalty Interests
$ $ $ 1,024,392,971 $ 1,024,392,971
Notes
485,260,043 485,260,043
LP Interest
1,674,819 1,674,819
Preferred Stock
Warrants
$ $ $ 1,511,327,833 $ 1,511,327,833
 
F-48

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
3.   Fair Value Measurements (Continued)
The following tables include a rollforward of the amounts for the years ended December 31, 2020 and December 31, 2019 for the investments classified within Level 3. The classification of an investment within Level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement.
Fair Value Measurements Using Level 3 Inputs for the year ended December 31, 2020
Royalty
Interests
Notes
Preferred
Stock
LP Interest
Total
Balance at January 1, 2020
$ 1,024,392,971 $ 485,260,043 $ $ 1,674,819 $ 1,511,327,833
Purchases of investments
733,679,845 280,000,000 1,013,679,845
Transfer In
14,598,366 14,598,366
Transfer Out
(14,598,366) (14,598,366)
Paid-in-kind interest
11,952,943 11,952,943
Amortization of note discount
1,178,244 1,178,244
Capitalized investment expenses
477,470 77,668 555,138
Investment cost paydowns
(101,691,325) (6,967,183) (101,433) (108,759,941)
Unrealized royalty income
40,701,309 40,701,309
Proceeds from sale of investments
(121,837,989) (121,837,989)
Net change in unrealized gain (loss) on investments
62,012,898 3,788,539 (7,238,366) 35,956 58,599,027
Net realized gain (loss) on investments
(1,142,638) 12,144,090 101,018 11,102,470
Balance at December 31, 2020
$ 1,758,430,530 $ 650,997,989 $ 7,360,000 $ 1,710,360 $ 2,418,498,879
Change in unrealized gain (loss) related to investments still held at December 31, 2020
$ 60,946,302 $ 4,165,113 $ (7,238,366) $ 35,956 $ 57,909,005
 
F-49

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
3.   Fair Value Measurements (Continued)
Fair Value Measurements Using Level 3 Inputs for the year ended December 31, 2019
Royalty
Interests
Notes
LP Interest
Preferred
Stock
Total
Balance at January 1, 2019
$ 819,197,552 $ 344,595,521 $ $ 1,184,536 $ 1,164,977,609
Purchases of investments
226,500,000 170,000,000 1,149,441 397,649,441
Paid-in-kind interest
8,399,147 8,399,147
Amortization of note discount
368,945 368,945
Capitalized investment expenses
232,860 76,795 309,655
Investment cost paydowns
(71,155,853) (6,272,983) (77,428,836)
Unrealized royalty income
30,448,500 30,448,500
Proceeds from sale of investments
(35,615,865) (35,615,865)
Original issue discount on new purchases
(2,706,250) (2,706,250)
Net change in unrealized gain (loss) on
investments
26,723,022 6,567,474 525,378 (1,184,536) 32,631,338
Net realized gain (loss) on
investments
(7,553,110) (152,741) (7,705,851)
Balance at December 31, 2019
$ 1,024,392,971 $ 485,260,043 $ 1,674,819 $ $ 1,511,327,833
Change in unrealized gain (loss) related to investments still held at December 31, 2019
$ 19,814,664 $ 6,567,474 $ 525,378 $ $ 26,907,516
The Funds recognize all transfers at the beginning of the reporting period and related net change in unrealized gain (loss) is also transferred at the beginning of the reporting period.
Transfers between Level 1 and Level 2 generally relate to whether the principal market for the instrument becomes active or inactive. Transfers between Level 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurements in their entirety or due to changes in liquidity restrictions for the financial instrument.
During the years ended December 31, 2020 and December 31, 2019 there were no transfers of investments among levels.
The following charts provide quantitative information about the Level 3 fair value measurements of the Funds’ investments as of December 31, 2020 and December 31, 2019. In addition to the techniques and inputs noted in the chart below, according to the Funds’ valuation policy the General Partners may also use other valuation techniques and methodologies when determining the Funds’ fair value measurements. The chart below provides information on the significant Level 3 inputs as they relate to the Funds’ fair value measurements.
 
F-50

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
3.   Fair Value Measurements (Continued)
Qualitative Information about Level 3 Fair Value Measurements as of December 31, 2020
Fair Value at
December 31, 2020
Valuation Techniques
Unobservable Inputs
Range (weighted average)
Royalty Interests(1)
$ 1,412,430,531
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
1 – 4 years
Discount rates: 6% – 15% (11)%
Notes(2) $ 640,475,350
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
1 – 9 years
Discount rates: 10% – 14% (11)%
LP Interest
$ 1,710,360
Discounted cash flows
Projected cash flows and
discount rate
N/A
Preferred Stock(3)
$
N/A
N/A
N/A
(1)
The quantitative disclosures exclude investments valued at $345,999,999 for which the determination of fair value is based on prices from recent transactions.
(2)
The quantitative disclosures exclude investments valued at $10,522,639 for which the determination of fair value is based on prices from recent transactions.
(3)
The quantitative disclosures exclude investments valued at $7,360,000 for which the determination of fair value is based on prices from recent transactions.
Qualitative Information about Level 3 Fair Value Measurements as of December 31, 2019
Fair Value at
December 31, 2019
Valuation Techniques
Unobservable Inputs
Range (weighted average)
Royalty Interests
$ 1,024,392,971
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
2 – 13 years
Discount rates: 6% – 15% (12)%
Notes
$ 485,260,043
Discounted cash flows
Projected cash flows and
discount rate
Timing of projected cash flows:
2 -11 years
Discount rates: 9% – 13% (11)%
LP Interest
$ 1,674,819
Discounted cash flows
Projected cash flows and
discount rate
N/A
The valuation of royalty interests, notes and LP interests are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows and discount rate used to discount the estimated future cash flows expected to be received from the underlying investment. The significant inputs including the estimated cash flows and discount rate are determined by the General Partners by performing appropriate due diligence utilizing currently available information including, but not limited to, the stage of the underlying product’s life cycle, actual historical product sales for each product, market trends, size of patient population, market share, competition and intellectual property rights. The discount rate is also determined based on the market rates an investor would expect for a similar investment with similar risks.
Increases and decreases in estimated cash flows and/or discount rates would result in a decrease or increase in the fair value measurement, and those changes could be significant.
 
F-51

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
3.   Fair Value Measurements (Continued)
For the valuation of preferred stock, recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:
•    Transactions in similar instruments;
•    Industry multiples and public comparable multiples.
Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including:
•    Current financial performance as compared to projected performance;
•    Capitalization rates and multiples; and
•    Market yields implied by transactions of similar or related assets.
Increases and decreases in performance of the underlying investment or comparable companies could result in a decrease or increase in the fair value measurement, and those changes could be significant. The General Partners have established valuation policies and procedures over its fair value measurement of financial instruments which include oversight by a valuation committee that, among other things, is responsible for overseeing and monitoring the pricing of the Funds’ investments.
The GAAP fair value leveling hierarchy is designated and monitored by the General Partners. In determining the designation, the General Partners take into consideration a number of factors including the observability of inputs, liquidity of the investment and the significance of a particular input to the fair value measurement. Models and inputs used to derive fair market value are subject to review by the valuation committee. The General Partners periodically review its valuation policy guidelines and may adjust them in light of, improved valuation metrics and models, the availability of reliable inputs and information, and prevailing market conditions. The General Partners and the valuation committee review periodic reports and material changes from period-to-period as part of their valuation procedures.
The fair market value for Level 3 investments may be highly sensitive to the use of industry standard models, unobservable inputs and subjective assumptions. The degree of fair market value sensitivity is also contingent upon the subjective weight given to specific inputs and valuation metrics. The interrelationship between unobservable inputs may vary significantly amongst Level 3 investments. Increases and decreases in any of those inputs in isolation can result in a significantly lower (higher) fair value measurement.
4.   Indirect Cash Flow
Adjustments to reconcile net increase in partners’ capital to net cash provided by operating activities are summarized below.
 
F-52

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
4.   Indirect Cash Flow (Continued)
For the Years Ended
December 31, 2020
December 31, 2019
Cash flows from operating activities
Net increase in partners’ capital resulting from
operations
$ 253,251,824 172,552,306
Adjustments to reconcile net increase in partners’ capital resulting from operations to net cash used in operating activities
Purchases of investments
(1,013,679,845) (397,649,441)
Paid-in-kind interest
(11,952,943) (8,399,147)
Amortization of original issue discount
(1,178,244) (368,945)
Capitalized investment expenses
(555,138) (309,655)
Proceeds from sale of investments
121,837,989 35,615,865
Investment cost paydowns
108,759,941 77,428,836
Original issue discount on new purchases
2,706,250
Net realized gain (loss) on investments
(11,102,470) 7,705,851
Unrealized royalty income
(40,701,309) (30,448,500)
Net change in unrealized gain (loss) on investments
(58,599,027) (32,631,338)
Changes in assets and liabilities:
Increase in interest receivable
(494,172) (887,551)
Increase in prepaid assets
(249,238)
Increase in deferred borrowing costs
(247,470) (1,050,347)
Increase in receivable from affiliate
(17,625)
Increase in Performance Fee payable to Manager
3,141,670 1,745,532
Increase / (decrease) in management fees
payable
891,534 (500,000)
Increase in accrued expenses and other liabilities
630,573 130,200
Increase / (decrease) in due to Manager
567,832 (34,737)
Increase in interest payable
156,003 146,623
Net cash used in operating activities
(649,540,115) (174,248,198)
5.   Related Party Transactions
In the normal course of business, all the Funds’ expenses other than management fees are paid by, and reimbursed to, the Manager. At December 31, 2020 and December 31, 2019, $1,411,083 and $843,251 of such expenses were recorded on the statement of assets, liabilities and partners’ capital as Due to Manager, respectively.
The Funds include investors affiliated with the General Partners which are not charged management fees. The total capital commitments and partners’ capital of the investors affiliated with the General Partners as of December 31, 2020 are $10,165,000 and $4,497,186, respectively. The total capital commitments and partners’ capital of the investors affiliated with the General Partners as of December 31, 2019 are $10,165,000 and $4,109,755, respectively.
 
F-53

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
6.   Partners’ Capital
At December 31, 2020 and December 31, 2019, capital commitments and contributions were as follows:
Capital Commitments and Contributions as of December 31, 2020
Capital
Commitments
Cumulative Capital
Contributions
Unfunded Capital
Commitments
% Funded
Limited Partners
4,338,664,646 2,856,212,980 1,496,991,155 66%
General Partners
31,393,599 16,877,550 14,688,526 54%
Total
4,370,058,245 2,873,090,529 1,511,679,681 66%
Capital Commitments and Contributions as of December 31, 2019
Capital
Commitments
Cumulative Capital
Contributions
Unfunded Capital
Commitments
% Funded
Limited Partners
3,918,853,859 2,309,350,727 1,588,432,529 59%
General Partners
28,157,802 13,146,617 14,823,962 47%
Total
3,947,011,661 2,322,497,344 1,603,256,491 59%
The agreements of the Funds provide for discretionary cash or in-kind distributions during the term of the Funds. The policy of the Funds is to make distributions of available cash as promptly as practicable after the end of each fiscal month and in any event within ninety days after the Funds’ receipt of such available cash.
Investment proceeds from each investment are distributed among the limited partners in the Funds consistent with the terms set forth in each of the Funds’ limited partnership agreements. Funds’ whose terms call for the calculation of carried interest shall generally distribute among the limited partners in proportion to their respective capital contributions. All amounts apportioned to the limited partners and General Partners generally follow the same methodology and are distributed as follows:
i.
First, 100% to such limited partner to the extent necessary to cause the aggregate distributions made to such limited partner to be no less than the preferred return on such limited partner’s unreturned capital contributions;
ii.
Second, 100% to such limited partner to the extent necessary to cause the aggregate distributions made to such limited partner (excluding distributions made in accordance with the clause above) to be no less than such limited partner’s then current unreturned capital contributions;
iii.
Third, 100% to the General Partner to the extent necessary to cause the aggregate distributions to the General Partner under this clause in respect of such limited partner to be no less than the carried interest percentage multiplied by the sum of (A) the aggregate amount of all distributions made to such limited partner in accordance with the first clause above plus (B) the aggregate amount of all distributions made to the General Partner in respect of such limited partner in accordance with this clause;
iv.
Thereafter, (A) to the General Partner, an amount equal to such limited partner’s carried interest percentage, which ranges between 0% and 20%, multiplied by the remainder of such amount apportioned to such limited partner, and (B) to such limited partner, the remainder of such amount apportioned to such limited partner (after reducing such amount by the amount determined under the preceding clause (A)).
 
F-54

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
6.   Partners’ Capital (Continued)
The allocation to the General Partners in “iii” and “iv” above is referred to as the “Carried Interest”. Certain investors may not be charged carried interest or may be charged based on different terms at the sole discretion of the General Partners. The amounts distributed to the limited partners in HealthCare Royalty Partners IV, L.P. in ‘i’ and ‘ii’ above are reversed in that ‘i’ becomes ‘ii’ and ‘ii’ becomes ‘i’.
The agreements of the Funds provide for the clawback of Carried Interest payments made to the General Partners under certain circumstances.
In consideration of the services provided to some Funds by the General Partners and in lieu of carried interest, the Funds shall pay to the General Partners a performance fee. The performance fees range from 12.5% — 25% and are applied, generally, to either cash proceeds received by the Funds or to GAAP income received within specified measurement periods. Some Funds make provisions for different income levels and apply multiple performance fee percentages to the different levels. Some Funds, as well as some Series’ within certain Funds, do not charge carried interest or performance fees.
Allocation of Profits and Losses
The net profits and losses of the Funds’ (including any realized and unrealized gains and losses) are allocated to the partners in a manner consistent with the distribution procedures specific to each of the Funds. Accordingly, any applicable Carried Interest or Carried Interest clawback, for those Funds who charge Carried Interest as well as for some Funds that charge performance fees, related to unrealized gains/losses will be accrued even though not currently realized.
Because of the inherent uncertainty of the valuation of the Funds’ investments, the allocation of profits and losses to all partners as reflected within these combined financial statements may not necessarily represent amounts that might ultimately be allocated or distributed. At December 31, 2020, the General Partner’s capital account balance includes a $70,677,473 allocation of accrued Carried Interest, of which $33,068,047 was accrued during the year. At December 31, 2019, the General Partner’s capital account balance includes a $37,609,430 allocation of accrued Carried Interest, of which $15,708,898 was accrued during the year.
Cumulatively, the General Partner has elected not to receive $6,095,305 in Carried Interest distributions as of December 31, 2020 and December 31, 2019. The General Partner may subsequently distribute to itself, out of available funds, any amount that it has previously elected not to receive.
At December 31, 2020 and December 31, 2019, $6,494,702 and $3,353,032 of accrued performance fees are included in the statements of assets, liabilities and partners’ capital, respectively. For the years ended December 31, 2020 and December 31, 2019, performance fees totaled $8,530,752 and $4,267,404, respectively.
Management Fees
In consideration of the services provided to the Funds under their respective management agreements, the Funds shall pay to the Manager an annual fee (the “Management Fee”). The General Partners may agree to apply a different management fee to any limited partner. Management Fees are calculated consistent with the terms set forth in each of the Funds’ limited partnership agreements.
The Funds generally calculate Management Fees by applying the Management Fee rate in respect to each limited partner multiplied by either (x) the capital commitment of such limited partner (the initial period calculation) or by (y) the lesser of (i) the net asset value of the Fund and (ii) the
 
F-55

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
6.   Partners’ Capital (Continued)
aggregate cost basis of the unrealized investments held by the Fund (in each case, as reflected in the Funds’ books of accounts as of the date immediately prior to the date upon which the Management Fee is to be paid). For the year ended December 31, 2019, both HealthCare Royalty Partners III, L.P. (January 1, 2019 through September 30, 2019) and HealthCare Royalty Partners IV, L.P. (October 1, 2019 through December 31, 2019) were in the initial period of the Management Fee calculation.
The Funds that do not follow the calculation above generally calculate Management Fees by applying a Management Fee rate, ranging from 0.15% through 1.00% (with certain minimums and maximums in some instances) multiplied by the net asset value of the Fund as of the last day of the quarter that just ended.
For the year ended December 31, 2020, Management Fees totaled $26,666,102, $732,915 of which were waived by the General Partners and of which $891,534 is payable as of December 31, 2020. For the year ended December 31, 2019, Management Fees totaled $20,537,612, $492,414 of which were waived by the General Partners and all of which was paid as of December 31, 2019.
Pursuant to the agreements of some of the Funds, the General Partners are authorized to waive a portion of the management fees if the aggregate amount of the limited partners’ capital commitments meet certain thresholds ($25,000,000) and such limited partners have engaged the same investment manager or consultant. For the years ended December 31, 2020 and December 31, 2019, the General Partners waived fees of $732,915 and $492,414, respectively, in accordance with this provision.
7.   Risks
Due to the nature of the Funds’ objective (as discussed in Note 1), the Funds’ portfolio consists of illiquid investments having a greater amount of both market and credit risk than more liquid investments. These investments may have restrictions on resale and may not be able to be immediately liquidated if needed. The fair values assigned to these investments may differ significantly from the fair values that would have been used had a broader market for the investments existed.
Credit risk is the potential loss the Funds may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. The Funds’ exposure to credit risk at any point in time is represented by the fair value of the amounts reported as Notes on the Schedule of Investments at such time. The Funds are also exposed to credit risk as a result of cash balances being held at two banks (Silicon Valley Bank and Citibank). The Funds invest in a limited number of investments concentrated in the healthcare industry and in specific medical and pharmaceutical products. As such, the aggregate returns realized by the Fund may be substantially adversely affected by industry trends and events and the unfavorable performance of a small number of such investments. The investments held by the Funds involve a high degree of business and financial risk that can result in substantial losses.
The Funds have unfunded commitments from their limited partners. These unfunded commitments are subject to the risk of default by such limited partners. As of December 31, 2020, and December 31, 2019, four limited partners owned an aggregate of 53.29% and 54.99% of the Funds’ capital, respectively. The Funds could be materially affected by the actions of these limited partners.
The Funds are subject to risks associated with unforeseen or catastrophic events, including terrorist attacks, natural disasters, and the emergence of a pandemic, which could create economic, financial, and business disruptions. These events could negatively impact the Funds’ investments and/or lead to operational difficulties that could impair the Manager’s ability to manage the Funds’ activities. The
 
F-56

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
7.   Risks (Continued)
Manager seeks to manage these risks by investing in medically necessary products and through continuity and resiliency planning.
Beginning in the first quarter of 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID- 19. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand, and general market uncertainty. The effects of COVID- 19 have and may continue to adversely affect the global economy, the economies of certain nations, and individual issuers, all of which may negatively impact the Funds’ Combined Statement of Assets, Liabilities and Partners’ Capital.
The Manager has been in communication with the limited partners in the Funds, both directly and through the quarterly performance letters, in order to discuss the effects of COVID-19 on the Funds’ investments as well as on the operations of the Manager. The nature of the products the Funds invest in, senior-like structures utilized in many investments and long duration of cash flows have thus far proven helpful in mitigating the economic effects of the COVID-19 outbreak and in preserving the Funds’ long-term return objectives. However, future prospects could be materially impacted by further developments which are unpredictable and could impact the underlying demand for the products that secure the Funds’ investments.
The Funds are exposed to market risk. This is the risk of potential loss due to the fluctuation in the market or fair value of investments owned by the Funds. The Funds are also exposed to currency, foreign market risk and regulatory risk. Currency risk arises from the possibility that fluctuations in foreign currency exchange rates will affect the value of financial instruments, including direct or indirect investments, in non-U.S. issuers. Foreign investments may be subject to greater market and regulatory risks than United States investments because of fluctuation of currency exchange rates, change in governmental policies, and confiscation of assets by government decree, war or political upheaval.
The Manager provides investment management services to the Funds. The Funds could be materially affected by the actions and operations of the Manager.
U.S. federal agencies including the SEC, the Commodity Futures Trading Commission and the Federal Reserve Bank regulate certain activities of the Funds and the Manager. Regulatory changes could adversely affect the Funds by restricting their trading activities and/or causing the Funds to utilize certain structures that could result in increased costs or taxes on the Fund or its investors.
Legal, tax and regulatory developments are likely to occur during the life of the Funds and such changes may adversely affect the Funds. The financial services industry generally, and the activities of hedge funds and their managers, in particular, have been subject to intense and increasing regulatory scrutiny. Such scrutiny may increase the Funds’ exposure to potential liabilities and to legal, compliance and other related costs. The effect of any future regulatory change on the Funds could be substantial and adverse including, for example, increased compliance costs, the prohibition of certain types of trading and/or restrictions on the Funds’ ability to pursue its investment approach. The Funds, the Manager and/or the General Partners may also be subject to regulation in jurisdictions in which the Funds, Manager, and/or the General Partners engage in business. Such regulations may have a significant impact on the partners or the operations of the Funds, including, without limitation, restricting the types of investments the Funds may make and preventing the Funds from exercising their voting rights with regard to certain financial instruments.
 
F-57

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
7.   Risks (Continued)
There can be no assurance that the principals or other employees or partners of the Manager or the General Partners will continue to be employed by, or associated with, the Manager or the General Partners throughout the life of the Funds. The loss of key personnel could have a material adverse effect on the Funds.
As part of its business, the Manager processes, stores and transmits large amounts of electronic information, including information relating to the transactions of the Funds and personally identifiable information of the limited partners. Breach of the Manager’s information systems may cause information relating to the transactions of the Funds and personally identifiable information of the limited partners to be lost or improperly accessed, used or disclosed. The loss or improper access, use or disclosure of the Manager’s or the Funds’ proprietary information may cause the Manager or the Funds to suffer, among other things, financial loss, the disruption of its business, liability to third parties, regulatory intervention or reputational damage.
As part of its investment program, the Funds may hold non-quoted equities as a result of, among other things, the Funds’ purchase of debt instruments that convert to equity interests in the event of a reorganization of an entity’s capital structure. The Funds’ holdings, if any, in non-quoted equity would involve a high degree of business and financial risk. The entities in which the Funds would hold equity may be financially distressed, they may require substantial additional capital to support expansion or to achieve or maintain a competitive position, they may produce substantial variations in operating results from period to period and they may operate at a loss. Such risks may adversely affect the performance of such investments and result in substantial losses.
An investment in the Funds provides limited liquidity because a limited partner may not transfer its interest in the Funds to a third party without the consent of the General Partners and withdrawals of a limited partner’s interest held in its capital account are not permitted.
8.    Commitments and Contingencies
In the normal course of business the Funds enter into contracts that contain a variety of representations and warranties and that provide for general indemnifications in the event of a breach. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. The General Partners expect the risk of loss from indemnification to be remote and do not expect these indemnification provisions to have a material adverse effect on the combined financial statements of the Funds.
As of December 31, 2020, the Partnership has committed to fund an additional $30,000,000 in existing portfolio investments. As of the date these combined financials statements were available to be issued, $20,000,000 of previously made commitments expired.
9.   Revolving Credit
On April 19, 2019, HealthCare Royalty Partners IV, L.P. entered into a revolving credit facility (the “credit facility”) by and among HealthCare Royalty Partners IV, L.P. as Borrower, HealthCare Royalty Partners GP IV, LLC as Borrower’s General Partner, Citibank, N.A. as the Administrative Agent, Sole Lead Arranger and Book Manager, and the banks and financial institutions from time to time party thereto as Lenders (the “lenders”), which allowed HealthCare Royalty Partners IV, L.P. to borrow up to $250,000,000 subject to certain borrowing base limitations, subject to bank approval. On March 23, 2020 and on July 20, 2020 HealthCare Royalty Partners IV, L.P. and the lenders agreed to increase the size of the facility by $100,000,000 and $143,000,000 respectively bringing the maximum amount
 
F-58

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
9.   Revolving Credit (Continued)
available to be borrowed to $493,000,000. Prior to the facility increase on July 20, 2020, borrowings under the credit facility bore daily interest at a rate equal to LIBOR plus 1.45%. After the facility increase on July 20, 2020, borrowings under the credit facility bear daily interest at a rate equal to LIBOR plus 2.00%. Under the terms of the credit facility, the unfunded capital commitments of HealthCare Royalty Partners IV, L.P. are pledged as collateral. The credit facility matures on April 19, 2022. As of December 31, 2020, there was $493,000,000 borrowed under the credit facility and the interest payable was $302,626. As of December 31, 2020, the carrying value of the debt approximates its fair value due to the floating nature of the interest rate. As of December 31, 2019, there was $82,641,781 borrowed under the credit facility and the interest payable was $146,623. As of December 31, 2019, the carrying value of the debt approximates its fair value due to the floating nature of the interest rate.
10.   Financial Highlights
The following financial highlights are for the limited partners, on a combined basis, in the Funds:
Year Ended December 31, 2020
Limited
Partners
Ratios to average limited partners’ capital
Expenses before carried interest and performance fee allocation
2.38%
Carried interest and performance fee allocation
2.70%
Expenses after carried interest and performance fee allocation
5.08%
Net investment income
11.80%
Internal rate of return
Inception to December 31, 2020
12.30%
Year Ended December 31, 2019
Limited
Partners
Ratios to average limited partners’ capital
Expenses before carried interest and performance fee allocation
1.92%
Carried interest and performance fee allocation
1.51%
Expenses after carried interest and performance fee allocation
3.43%
Net investment income
11.09%
Internal rate of return
Inception to December 31, 2019
11.41%
Inception to December 31, 2018
10.87%
The ratios and IRR are calculated for the limited partners taken as a whole. The ratios are calculated using the average monthly limited partners’ capital. The expenses and the net investment income ratios are calculated on a non-annualized basis. The IRR calculation is net of all fees and carried interest. Such percentages are after fee waivers. The General Partner waived a portion of management fees (equal to 0.05% of average limited partners’ capital) for the year ended December 31, 2020 and equal to 0.04% of average limited partners’ capital for the year ended December 31, 2019. The IRR is measured from the date investment activity commenced based on contributions and distributions, and partners’ capital at the end of the period (residual value). The net investment income ratio does not include the
 
F-59

 
HealthCare Royalty Partners
(Delaware limited partnership)
Notes to Combined Financial Statements (Continued)
December 31, 2020 & December 31, 2019
10.   Financial Highlights (Continued)
effect of the carried interest allocation. The computation of the ratios and IRR for an individual partner may vary from these ratios and IRR based on different fee arrangements (as applicable) and the timing of capital transactions.
11.   Subsequent Events
Subsequent events for the Funds have been evaluated through May 5, 2021, which is the date the combined financial statements were available to be issued.
Beginning January 1, 2021 Mainstream began acting as administrator for HCR Molag Fund, L.P. and HCR Potomac Fund, L.P.
Effective February 28, 2021, HCR Molag Fund, L.P. transferred its interest in HealthCare Royalty Partners II, L.P. to Missouri Local Government Employees Retirement System which is the same entity that invests as the lone limited partner in HCR Molag Fund, L.P.
On March 31, 2021, the Progenics Pharmaceuticals note was paid in full.
There were no other subsequent events that required adjustments to, or disclosure in, these combined financial statements.
 
F-60

       Shares
Healthcare Royalty, Inc.
Class A Common Stock
PRELIMINARY PROSPECTUS
Goldman Sachs & Co. LLC
Citigroup
Credit Suisse
Jefferies
Cowen
SVB Leerink
Truist Securities
BMO Capital Markets
Stifel
Raymond James
Through and including           , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.   OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by us, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, and the exchange listing fee.
Amount to Be Paid
SEC registration fee
$        *
FINRA filing fee
*
Exchange listing fee
*
Blue sky fees and expenses
*
Printing and engraving expenses
*
Legal fees and expenses
*
Accounting fees and expenses
*
Transfer agent and registrar fees
*
Miscellaneous fees and expenses
*
Total
$ *
*
To be filed by amendment.
ITEM 14.   INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We plan to enter into indemnification agreements with each of our directors and executive officers to indemnify them to the maximum extent allowed under applicable law. These agreements indemnify these individuals against certain costs, charges, losses, liabilities, damages and expenses incurred by such director or officer in the execution or discharge of his or her duties or the exercise of his or her powers or otherwise in relation to or in connection with his or her duties, powers or office.
We also maintain directors and officers insurance to insure such persons against certain liabilities.
In the underwriting agreement, the underwriters will agree to indemnify, under certain conditions, us, members of our board of directors, and persons who control us within the meaning of the Securities Act against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our certificate of incorporation, agreement, vote of stockholders or disinterested directors or otherwise.
ITEM 15.   RECENT SALES OF UNREGISTERED SECURITIES.
The following is a description of all securities sold or issued by the predecessors to the registrant in the three years preceding the date of this registration statement. No underwriters were involved in these sales. There was no general solicitation of investors or advertising, and we did not pay or give, directly or indirectly, any commission or other remuneration, in connection with the offering of these shares.
The offers, sales and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act as transactions
 
II-1

 
by an issuer not involving any public offering. The recipients in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof.
ITEM 16.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index prior to the signature page below for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference. All financial statement schedules are omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or the notes thereto.
ITEM 17.   UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the U.S. Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the U.S. Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the U.S. Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1)   For purposes of determining any liability under the U.S. Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the U.S. Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2)   For the purpose of determining any liability under the U.S. Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
II-2

 
EXHIBIT INDEX
 1.1* Form of Underwriting Agreement
 3.1
 3.2
 4.1* Form of Class A Common Stock Certificate
 5.1
10.1
10.2
10.3†
10.4†* Form of Equity Performance Award Agreement
10.5
10.6
10.7
10.8**
10.9**
10.10** Royalty Interest Acquisition Agreement, dated as of April 22, 2016, between Aviragen Therapeutics, Inc., Biota Scientific Management Pty. Ltd. and Biota Holdings Pty Ltd. and Healthcare Royalty Partners III, L.P.
10.11
21.1* List of subsidiaries
23.1
23.2
24.1
*
To be submitted or filed by amendment.
**
Portions of this exhibit are redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

Management contract or compensatory plan or arrangement.
 
II-3

 
SIGNATURES
Pursuant to the requirements of the U.S. Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Stamford, Connecticut, on June 30, 2021.
HEALTHCARE ROYALTY, INC.
By:
/s/ Clarke B. Futch
Name:
Clarke B. Futch
Title:
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints each of Clarke B. Futch and Christopher A. White as the other individual’s true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for the person and in his or her name, place and stead, in any and all capacities, to sign this registration statement and any or all amendments, including post-effective amendments to the registration statement, including a prospectus or an amended prospectus therein and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the U.S. Securities Act of 1933, as amended, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact as agent or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Clarke B. Futch
Clarke B. Futch
Chairman and Chief Executive Officer
(Principal Executive Officer)
June 30, 2021
/s/ Christopher A. White
Christopher A. White
President and Chief Financial Officer
(Principal Financial Officer)
June 30, 2021
/s/ Thomas K. Conner
Thomas K. Conner
Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
June 30, 2021
Director June 30, 2021
Director June 30, 2021
Director June 30, 2021
Director June 30, 2021
 
II-4

EX-3.1 2 tm2113163d7_ex3-1.htm EXHIBIT 3.1

 

Exhibit 3.1 

 

AMENDED & RESTATED

CERTIFICATE OF INCORPORATION

OF

HEALTHCARE ROYALTY, INC.

 

Healthcare Royalty, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY AS FOLLOWS:

 

1. The name of the Corporation is “Healthcare Royalty, Inc.” The original certificate of incorporation was filed with the Secretary of State of the State of Delaware on April 26, 2021 (the “Original Certificate”).

 

2. This Amended and Restated Certificate of Incorporation (this “Amended and Restated Certificate”) was duly adopted by the Board of Directors of the Corporation (the “Board”) and the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware.

 

3. This Amended and Restated Certificate restates, integrates and amends the provisions of the Original Certificate. Certain capitalized terms used in this Amended and Restated Certificate are defined where appropriate herein.

 

4. The text of the Original Certificate is hereby restated and amended in its entirety to read as follows:

 

ARTICLE I

NAME

 

The name of the corporation is Healthcare Royalty, Inc. (the “Corporation”).

 

ARTICLE II

PURPOSE

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”). In addition to the powers and privileges conferred upon the Corporation by law and those incidental thereto, the Corporation shall possess and may exercise all the powers and privileges that are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation.

 

ARTICLE III

REGISTERED AGENT

 

The address of the registered office of the Corporation in the State of Delaware is 251 Little Falls Drive, in the City of Wilmington, County of New Castle, 19808. The name of the Corporation’s registered agent at such address is the Corporation Service Company.

 

ARTICLE IV

CAPITALIZATION

 

Section 4.1 Authorized Capital Stock. The total number of shares of all classes of capital stock, each with a par value of $0.01 per share, which the Corporation is authorized to issue is [●] shares, which shall be divided into three classes, consisting of (i) [●]shares of Class A Common Stock (the “Class A Common Stock”), (ii) [●] shares of Class B Common Stock (the “Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”) and (iii) 1,000,000 shares of preferred stock (the “Preferred Stock”). The number of authorized shares of any of the Class A Common Stock, Class B Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL, and no vote of the holders of any of the Class A Common Stock, Class B Common Stock or Preferred Stock voting separately as a class shall be required therefor, unless a vote of any such holder is required pursuant to this Amended and Restated Certificate (including any Preferred Stock Designation (as defined below).

 

 

 

 

Section 4.2 Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series. The Board is hereby expressly authorized to provide for the issuance of shares of the Preferred Stock in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional and other special rights, if any, of each such series and any qualifications, limitations and restrictions thereof, as shall be stated in the resolution or resolutions adopted by the Board providing for the issuance of such series and included in a certificate of designation (a “Preferred Stock Designation”) filed pursuant to the DGCL, and the Board is hereby expressly vested with the authority to the full extent provided by law, now or hereafter, to adopt any such resolution or resolutions.

 

Section 4.3 Common Stock.

 

(a) Except as otherwise required by law or this Amended and Restated Certificate (including any Preferred Stock Designation), the holders of the Common Stock shall possess all voting power with respect to the Corporation. The holders of shares of Common Stock shall be entitled to one vote for each such share on each matter properly submitted to the stockholders on which the holders of the Common Stock are entitled to vote. The holders of shares of Class A Common Stock and Class B Common Stock shall at all times vote together as one class on all matters submitted to a vote of the stockholders of the Corporation.

 

(b) Except as otherwise required by law or this Amended and Restated Certificate (including any Preferred Stock Designation), at any annual or special meeting of the stockholders of the Corporation, the holders of the Common Stock shall have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Notwithstanding the foregoing, except as otherwise required by law or this Amended and Restated Certificate (including a Preferred Stock Designation), the holders of the Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate (including any amendment to any Preferred Stock Designation) that relates solely to the terms of one or more outstanding series of the Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate (including any Preferred Stock Designation) or applicable law.

 

(c) Subject to the rights, if any, of the holders of any outstanding series of the Preferred Stock, the holders of the Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when, as and if declared thereon by the Board from time to time out of any assets or funds of the Corporation legally available therefor, and shall share equally on a per share basis in such dividends and distributions; provided, however, that the holders of Class B Common Stock shall not be entitled to share in any such dividends or other distributions.

 

(d) Subject to the rights, if any, of the holders of any outstanding series of the Preferred Stock, in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them; provided, however, that the holders of Class B Common Stock shall not be entitled to receive any portion of any such assets in respect of their shares of Class B Common Stock (other than an amount equal to the par value of such shares).

 

(e) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, such number of shares of Class A Common Stock that shall from time to time be sufficient to effect the exchange of all outstanding Class B Units (excluding any Class B Units held by the Corporation) for shares of Class A Common Stock; provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the exchange of Class B Units by delivery of shares of Class A Common Stock that are held in the treasury of the Corporation.

 

 

 

 

Section 4.5 Class B Common Stock.

 

(a) Shares of Class B Common Stock may only be issued to and held by the Existing Partners and their respective Permitted Transferees (as defined in the LP Agreement) and any other transferee of Class B Units to the extent permitted by the LP Agreement (collectively, the “Permitted Holders”).

 

(b) At any time Master Fund issues a Class B Unit to a Permitted Holder, the Corporation shall issue a share of Class B Common Stock to such Permitted Holder. The Corporation shall use its best efforts to cause to be reserved and kept available for issuance at all times a sufficient number of authorized but unissued shares of Class B Common Stock to permit issuance of shares of Class B Common Stock to Permitted Holders of newly issued Class B Units. .Upon the conversion or cancellation of any Class B Units pursuant to the Exchange Agreement and the LP Agreement, the corresponding share of Class B Common Stock automatically shall be cancelled for no consideration being paid or issued with respect thereto and without any action on the part of any person, including the Corporation, subject to the terms of the Exchange Agreement and LP Agreement. Any such cancelled shares of Class B Common Stock shall be deemed no longer outstanding, and all rights with respect to such shares shall automatically cease and terminate. Shares of Class B Common Stock may only be transferred to a person other than the Corporation or Master Fund if the transferee is a Permitted Holder and an equal number of Class B Units are simultaneously transferred to such transferee in accordance with the LP Agreement. If Class B Units are being transferred to a Permitted Holder in accordance with the LP Agreement, an equal number of shares of Class B Common Stock must be simultaneously transferred to such transferee. The Corporation shall take all actions necessary so that, for so long as the Class B Common Stock is outstanding, the number of shares of Class B Common Stock outstanding equals the number of Class B Units outstanding and held by the Permitted Holders. For the avoidance of doubt, nothing herein restricts the ability of the Permitted Holders from surrendering shares of Class B Common Stock to the Corporation or Master Fund pursuant to the Exchange Agreement.

 

(c) The Corporation shall, and shall cause the General Partner and Master Fund to, take all actions necessary so that, for as long as the Class B Common Stock is outstanding, the number of Class B Units outstanding equals the number of shares of Class B Common Stock outstanding. The Corporation shall take all such other actions as may be reasonably necessary or advisable to give effect to the intended substantive economic results of the provisions of this Amended and Restated Certificate, the Exchange Agreement and the LP Agreement.

 

(d) At any time when there are no longer any shares of Class B Common Stock outstanding, this Amended and Restated Certificate automatically shall be deemed amended to delete this Section 4.5 in its entirety.

 

(e) As used in this Amended and Restated Certificate, the term:

 

(i) “Class A Units” means the Class A Units of Master Fund.

 

(ii) “Class B Units” means the Class B Units of Master Fund.

 

(iii) “Existing Partners” means the limited partners of Master Fund after giving effect to the transactions contemplated by the Reorganization Agreement, dated as of June [_], 2021, by and among HealthCare Royalty Management, LLC, HCRX Management, LLC, the Corporation, HCRX Master GP, LLC, the Master Fund, HCRX Investments HoldCo, L.P. and the other parties named therein.

 

(iv) “Exchange Agreement” means the Exchange Agreement, dated as of July [●], 2021, by and among the Corporation, HCRX CH, Inc., Master Fund, HCRX Feeder Fund, L.P. and such other holders of Class B Units from time to time party thereto, as it may be amended from time to time in accordance with its terms.

 

(v) “General Partner” means HCRX Master GP, LLC, a Delaware limited liability company, or any person who becomes an additional, successor or substitute general partner of Master Fund pursuant to the LP Agreement.

 

(vi) “Master Fund” means Healthcare Royalty Holdings, L.P., a Delaware limited partnership.

 

(vii) “LP Agreement” means the Amended and Restated Limited Partnership Agreement of Master Fund, dated as of the date hereof, as amended from time to time in accordance with its terms.

 

 

 

 

ARTICLE V

BOARD OF DIRECTORS

 

Section 5.1 Board Powers. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board. In addition to the powers and authority expressly conferred upon the Board by statute, this Amended and Restated Certificate or the Amended and Restated Bylaws of the Corporation (“Bylaws”), the Board is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL and this Amended and Restated Certificate.

 

Section 5.2 Number, Election and Term.

 

(a) The total number of directors of the Corporation, other than those who may be elected by the holders of one or more series of the Preferred Stock voting separately by class or series, shall be fixed from time to time exclusively by the Board pursuant to a resolution adopted by the Board; provided, however, that such total number of directors shall not exceed eleven (11) directors.

 

(b) Subject to Section 5.5 hereof, at each annual meeting of the stockholders of the Corporation, beginning with the first annual meeting of the stockholders of the Corporation following the effectiveness of this Amended and Restated Certificate, all directors shall be elected for a one year term. Subject to Section 5.5 hereof, a director shall hold office until next succeeding annual meeting of the stockholders and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal. Directors shall be elected by a plurality of the votes cast at an annual meeting of stockholders by holders of the Common Stock.

 

(c) Unless and except to the extent that the Bylaws shall so require, the election of directors need not be by written ballot.

 

Section 5.3 Newly Created Directorships and Vacancies. Subject to Section 5.5 hereof, newly created directorships resulting from an increase in the number of directors and any vacancies on the Board resulting from death, resignation, retirement, disqualification, removal or other cause shall be filled solely by a majority vote of the remaining directors then in office, even if less than a quorum, or by a sole remaining director (and not by stockholders), and any director so chosen shall hold office for until the next annual meeting of the stockholders and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal.

 

Section 5.4 Removal. Subject to Section 5.5 hereof, any or all of the directors may be removed from office at any time by the affirmative vote of holders of sixty-six and two-thirds percent (66 2/3%) of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class; provided, however, any director of the Corporation who is designated for nomination by a stockholder may be removed with or without cause by the by the affirmative vote of the holders of a majority of the total voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, if the holder entitled to designate such director has delivered a written instrument to the Corporation consenting to the removal of such director prior to the time at which the Corporation delivers notice of the meeting of stockholders at which the proposal to remove such directors is submitted to stockholders.

 

Section 5.5 Preferred Stock – Directors. Notwithstanding any other provision of this Article V, and except as otherwise required by law, whenever the holders of one or more series of the Preferred Stock shall have the right, voting separately by class or series, to elect one or more directors, the term of office, the filling of vacancies, the removal from office and other features of such directorships shall be governed by the terms of such series of the Preferred Stock as set forth in this Amended and Restated Certificate (including any Preferred Stock Designation) and such directors shall not be included in any of the classes created pursuant to this Article V unless expressly provided by such terms. During any period when the holders of one or more outstanding series of Preferred Stock have the right to elect one or more directors pursuant to this Amended and Restated Certificate, then upon commencement of, and for the duration of the period during which such right continues: (a) the then otherwise total number of directors constituting the Board shall automatically be increased by such specified number of directors elected by the holders of one or more series of Preferred Stock (voting separately by class or series), and the holders of such outstanding series of Preferred Stock shall be entitled to elect such directors; and (b) each such director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to this Amended and Restated Certificate, subject to such director’s earlier death, resignation, disqualification or removal. Except as otherwise provided in this Amended and Restated Certificate, whenever the holders of any outstanding series of Preferred Stock having the right to elect a director (voting as a separate class or series) are divested of such right, the term of office of such director shall forthwith terminate (and such director shall thereupon cease to be qualified as, and shall cease to be, a director) and the total number of directors constituting the Board shall automatically be decreased by one.

 

 

 

 

ARTICLE VI

BYLAWS

 

In furtherance and not in limitation of the powers conferred upon it by law, the Board shall have the power to adopt, amend, alter or repeal the Bylaws. The Bylaws also may be adopted, amended, altered or repealed by the stockholders; provided, however, that in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by this Amended and Restated Certificate (including any Preferred Stock Designation), the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to adopt, amend, alter or repeal the Bylaws; and provided further, however, that no Bylaws hereafter adopted by the stockholders shall invalidate any prior act of the Board that would have been valid if such Bylaws had not been adopted.

 

ARTICLE VII

MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT

 

Section 7.1 Meetings. Subject to the rights of the holders of any outstanding series of the Preferred Stock, and to requirements of applicable law, special meetings of stockholders of the Corporation may be called only by the Chairman of the Board or Executive Chairman of the Board, as applicable, Chief Executive Officer of the Corporation, , the Board pursuant to a resolution adopted by the Board, or by the holders of a majority of the outstanding stock of the Corporation..

 

Section 7.2 Advance Notice. Advance notice of stockholder nominations for the election of directors and of other business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws.

 

Section 7.3 Action by Written Consent. Subject to the rights of any outstanding series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by written consent of the stockholders in lieu of a meeting.

 

ARTICLE VIII

LIMITED LIABILITY; INDEMNIFICATION

 

Section 8.1 Limitation of Director Liability. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.

 

Section 8.2 Indemnification and Advancement of Expenses.

 

(a) To the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended, the Corporation shall indemnify and hold harmless each person who is or was made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation to procure a judgment in its favor (each, a “proceeding”), by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, other enterprise or nonprofit entity, including service with respect to an employee benefit plan (an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent, against all liability and loss suffered and expenses (including, without limitation, attorneys’ fees and disbursements, judgments, fines, ERISA excise taxes, damages, claims and penalties and amounts paid in settlement) reasonably incurred by such indemnitee in connection with such proceeding. The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by an indemnitee in defending or otherwise participating in any proceeding in advance of its final disposition; provided, however, that, to the extent required by applicable law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking, by or on behalf of the indemnitee, to repay all amounts so advanced if it shall ultimately be determined that the indemnitee is not entitled to be indemnified under this Section 8.2 or otherwise. The rights to indemnification and advancement of expenses conferred by this Section 8.2 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent of the Corporation (or has ceased to serve at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, other enterprise or nonprofit entity, including service with respect to an employee benefit plan) and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding the foregoing provisions of this Section 8.2(a), except for proceedings to enforce rights to indemnification and advancement of expenses, the Corporation shall indemnify and advance expenses to an indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board.

 

 

 

 

(b) The rights to indemnification and advancement of expenses conferred on any indemnitee by this Section 8.2 shall not be exclusive of any other rights that any indemnitee may have or hereafter acquire under law, this Amended and Restated Certificate, the Bylaws, an agreement, vote of stockholders or disinterested directors, or otherwise.

 

(c) Any repeal or amendment of this Section 8.2 by the stockholders of the Corporation or by changes in law, or the adoption of any other provision of this Amended and Restated Certificate inconsistent with this Section 8.2, shall, unless otherwise required by law, be prospective only (except to the extent such amendment or change in law permits the Corporation to provide broader rights to indemnification or advancement of expenses on a retroactive basis than permitted prior thereto), and shall not in any way diminish or adversely affect any right or protection with respect to any action or omission occurring prior to the time of such repeal or amendment or adoption of such inconsistent provision in respect of any proceeding (regardless of when such proceeding is first threatened, commenced or completed) arising out of, or related to, any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.

 

(d) This Section 8.2 shall not limit the right of the Corporation, to the extent and in the manner authorized or permitted by law, to indemnify and to advance expenses to persons other than indemnitees.

 

ARTICLE IX

CORPORATE OPPORTUNITY

 

(a) The doctrine of corporate opportunity, or any other analogous doctrine, shall not apply with respect to the Corporation or any of its officers or directors in circumstances where the application of any such doctrine to a corporate opportunity would conflict with any fiduciary duties or contractual obligations they may have as of the date of this Amended and Restated Certificate or in the future. In addition to the foregoing, the doctrine of corporate opportunity shall not apply to any other corporate opportunity with respect to any of the directors or officers of the Corporation unless such corporate opportunity is offered to such person solely in his or her capacity as a director or officer of the Corporation and such opportunity is one the Corporation is legally and contractually permitted to undertake and would otherwise be reasonable for the Corporation to pursue.

 

 

 

 

(b) Without limiting the foregoing, to the extent permitted by applicable law, each of the Existing Partners, their respective affiliates (other than the Corporation and its subsidiaries) and, to the extent any Existing Partner is a series limited liability company, any series thereof and all of their respective partners, principals, directors, officers, members, managers, equity holders and/or employees, including any of the foregoing who serve as officers or directors of the Corporation (each, an “Exempted Person”) shall not have any fiduciary duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Corporation or any of its subsidiaries, except as otherwise expressly provided in any agreement entered into between the Company and such Exempted Person. To the fullest extent permitted by applicable law, the Corporation, on behalf of itself and its subsidiaries, renounces any interest or expectancy of the Corporation and its subsidiaries in, or in being offered an opportunity to participate in, business opportunities that are from time to time available to the Exempted Persons, even if the opportunity is one that the Corporation or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and each such Exempted Person shall have no duty to communicate or offer such business opportunity to the Corporation (and there shall be no restriction on the Exempted Persons using the general knowledge and understanding of the industry in which the Corporation operates which it has gained as an Exempted Person in considering and pursuing such opportunities or in making investment, voting, monitoring, governance or other decisions relating to other entities or securities) and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation or any of its subsidiaries or stockholders for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such Exempted Person pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or its subsidiaries, or uses such knowledge and understanding in the manner described herein, in each case, except as otherwise expressly provided in any agreement entered into between the Company and such Exempted Person. In addition to and notwithstanding the foregoing, a corporate opportunity shall not be deemed to belong to the Corporation if it is a business opportunity that the Corporation is not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the Corporation’s business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable expectancy. Any person or entity purchasing or otherwise acquiring any interest in any shares of stock of the Corporation shall be deemed to have notice of the provisions of this Article IX.

 

(c) Neither the alteration, amendment, addition to or repeal of this Article IX, nor the adoption of any provision of this Amended and Restated Certificate inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any business opportunity first identified or any other matter occurring, or any cause of action, suit or claim that, but for this Article IX, would accrue or arise, prior to such alteration, amendment, addition, repeal or adoption. This Article IX shall not limit any protections or defenses available to, or indemnification or advancement rights of, any director or officer of the Corporation under this Amended and Restated Certificate, the Bylaws or applicable law.

 

ARTICLE X

AMENDMENT OF AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate (including any Preferred Stock Designation), in the manner now or hereafter prescribed by this Amended and Restated Certificate and the DGCL; and, except as set forth in Article VIII, all rights, preferences and privileges herein conferred upon stockholders, directors or any other persons by and pursuant to this Amended and Restated Certificate in its present form or as hereafter amended are granted subject to the right reserved in this Article X. Notwithstanding anything to the contrary contained in this Amended and Restated Certificate, and notwithstanding that a lesser percentage may be permitted from time to time by applicable law, no provision of Section 4.2, Article V, Section 7.1, Section 7.3, Article VIII, Article IX of this Amended and Restated Certificate or this Article X may be altered, amended or repealed in any respect, nor may any provision or bylaw inconsistent therewith be adopted, unless, in addition to any other vote required by this Amended and Restated Certificate or otherwise required by law, such alteration, amendment, repeal or adoption is approved by the affirmative vote of the holders of at least sixty-six and two thirds percent (66 2.3%) of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

 

 

 

 

ARTICLE XI

CHOICE OF FORUM

 

(a) Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for: (a) any derivative action or proceeding brought on behalf of the Corporation; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of the Corporation to the Corporation or the Corporation’s stockholders; (c) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL, this Amended and Restated Certificate or the Bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; (d) any action to interpret, apply, enforce or determine the validity of this Amended and Restated Certificate or the Bylaws; or (e) any action asserting a claim against the Corporation governed by the internal affairs doctrine, provided, however, that, for the avoidance of doubt, nothing in this Article XI shall preclude the filing of claims in the federal district courts of the United States of America under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder, or any successor thereto or under the Securities and Exchange Act of 1934, as amended, or the rules and regulations promulgated thereunder, or any successor thereto.

 

(b) Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.

 

(c) Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XI.

 

ARTICLE XII

SEVERABILITY

 

If any provision of this Amended and Restated Certificate shall be held to be invalid, illegal, or unenforceable, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of this Amended and Restated Certificate (including without limitation, all portions of any section of this Amended and Restated Certificate containing any such provision held to be invalid, illegal, or unenforceable, which is not invalid, illegal, or unenforceable) shall remain in full force and effect, in each case, to the fullest extent permitted by law.

 

 

 

 

IN WITNESS WHEREOF, Healthcare Royalty, Inc. has caused this Amended and Restated Certificate to be duly executed in its name and on its behalf by an authorized officer as of this __ day of _______________, 2021.

 

  Healthcare Royalty, Inc.
 
  By: /s/ Clarke B. Futch  
  Name: Clarke B. Futch
  Title: Chairman & Chief Executive Officer

 

[Signature Page to Healthcare Royalty, Inc. Amended & Restated Certificate of Incorporation]

 

 

 

EX-3.2 3 tm2113163d7_ex3-2.htm EXHIBIT 3.2

 

Exhibit 3.2

 

AMENDED AND RESTATED BYLAWS

 

OF

 

HEALTHCARE ROYALTY, INC.

 

(a Delaware corporation)

 

(Adopted effective July __ ,2021)

 

ARTICLE I

OFFICES

 

The Corporation may have offices at such places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

 

ARTICLE II

STOCKHOLDERS MEETINGS

 

Section 2.1 Annual Meetings. An annual meeting of stockholders shall be held for the election of directors and the transaction of such other business as may properly be brought before the meeting in accordance with these Amended and Restated Bylaws (as the same may be amended and/or restated, the “Bylaws”) at such date, time and place, if any, as may be fixed by resolution of the Board of Directors of the Corporation from time to time. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but shall be held solely by means of remote communication, subject to such guidelines and procedures as the Board of Directors may adopt, as permitted by applicable law. The Board of Directors may postpone, recess, reschedule or cancel at any time and for any reason any previously scheduled annual meeting of stockholders before it is to be held.

 

Section 2.2 Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time only by (i) the Chief Executive Officer; (ii) the Chairman, if any, (iii) pursuant to a resolution approved by a majority of the Board of Directors; or (iv) by the holders of a majority of the outstanding stock of the Corporation. The business transacted at a special meeting of stockholders shall be limited solely to matters relating to the purpose or purposes stated in the notice of meeting. The Board of Directors may postpone, recess, reschedule or cancel at any time and for any reason any previously scheduled special meeting of stockholders before it is to be held.

 

Section 2.3 Notice of Meetings. Notice of each annual or special meeting of stockholders shall be given stating the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the Amended and Restated Certificate of Incorporation of the Corporation (as the same may be amended and/or restated, the “Certificate of Incorporation”) or these Bylaws, such notice of meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. When a previously called annual or special meeting is postponed to another time, date or place, if any, notice of the place, if any, date and time of the postponed meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and the means of remote communications, if any, by which stockholders and proxy holders may be deemed present and vote at such postponed meeting, shall be given in conformity with this Section 2.3.

 

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Section 2.4 Adjournments. Any annual or special meeting of stockholders may be adjourned from time to time to reconvene at the same or some other place, if any. When a meeting is adjourned to another time or place, notice need not be given of any such adjourned meeting if the date, time and place, if any, thereof and the means of remote communication, if any, by which stockholders and proxyholders may be deemed present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date is fixed for the reconvened meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 2.9 and applicable law and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.

 

Section 2.5 Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presence in person or by proxy of the holders of stock having a majority of the votes which could be cast by the holders of all outstanding stock entitled to vote at the meeting shall constitute a quorum at each meeting of stockholders. Except as provided in this Section 2.5 or by law or the Certificate of Incorporation, no business may be lawfully transacted at a meeting of the stockholders unless a quorum is present. In the absence of a quorum, the chairman of the meeting or the stockholders so present, by the affirmative vote of the holders of stock having a majority of the votes which could be cast by all such holders, may adjourn the meeting from time to time in the manner provided in Section 2.4 of these Bylaws until a quorum is present. If a quorum is present when a meeting is convened, the subsequent withdrawal of stockholders, even though less than a quorum remains, shall not affect the ability of the remaining stockholders lawfully to transact business.

 

Section 2.6 Conduct; Remote Communications.

 

(a)                Meetings of stockholders shall be presided over by the Chairman, if any, or if there is none or in his or her absence, by the President or the Chief Executive Officer, or in his or her absence, by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

 

(b)               If authorized by the Board of Directors in accordance with these Bylaws and applicable law, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication, (1) participate in a meeting of stockholders and (2) be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.

 

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Section 2.7 Voting. Except as otherwise provided by the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each outstanding share of Common Stock. Voting at meetings of stockholders need not be by written ballot. Unless otherwise provided in the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast in the election of directors. Each other matter to be acted upon shall, unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, be decided by the vote of the holders of stock having a majority of the votes that could be cast by the holders of all stock entitled to vote on such matter that are present in person or by proxy at the meeting, provided a quorum as defined in Section 2.5 is present at the meeting.

 

Section 2.8 Proxies.Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy given in accordance with applicable law. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by subsequently filing with the Secretary an instrument in writing revoking the proxy or another duly executed proxy bearing a later date.

 

Section 2.9 Fixing Date of Determination of Stockholders of Record.

 

(a)        In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.

 

(b)        In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) days prior to such action. If no such record date is fixed by the Board of Directors, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

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Section 2.10 List of Stockholders Entitled to Vote. The Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting, (i) on a reasonably accessible electronic network, provided that the information required to gain access to the list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, the list shall be open to the examination of any stockholder during the whole time thereof on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders or to vote in person or by proxy at any meeting of stockholders.

 

Section 2.11: Inspectors of Elections.

 

(a)       Unless otherwise required by the Certificate of Incorporation or by applicable law, the following provisions of this Section 2.11 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 2.11 shall be optional, and at the discretion of the Board of Directors.

 

(b)       The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.

 

(e)       Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.

 

(d)        At a meeting of stockholders, the inspector(s) shall (i) ascertain the number of shares outstanding and the voting power of each share, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

 

(e)       The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise.

 

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(f)       In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided pursuant to Section 211(a)(2)b.(i) of the General Corporation Law of the State of Delaware (the “DGCL”), or in accordance with Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 2.11 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

 

Section 2.12: Notice of Stockholder Business; Nominations.

 

(a)Annual Meeting of Stockholders.

 

(i) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only: (A) pursuant to the Corporation’s notice of such meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors or any committee thereof or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.12 (the “Record Stockholder”), who is entitled to vote at such meeting and who complies with the notice and other procedures set forth in this Section 2.12 in all applicable respects. For the avoidance of doubt, the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations or propose business (other than business included in the Corporation’s proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the “Exchange Act”)), at an annual meeting of stockholders, and such stockholder must fully comply with the notice and other procedures set forth in this Section 2.12 to make such nominations or propose such other business before an annual meeting.

 

(ii)       Except as otherwise required by law, for nominations or other business to be properly brought before a meeting of stockholders by a Record Stockholder pursuant to this Section 2.12: (A) the Record Stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and provide any updates or supplements to such notice at the times and in the forms required by this Section 2.12; (B) such other business (other than the nomination of persons for election to the Board of Directors) must be a proper matter for stockholder action; (C) if the Proposing Person (as defined below) has provided the Corporation with a Solicitation Notice (as defined below), such Proposing Person must, in the case of a proposal other than the nomination of persons for election to the Board of Directors, have delivered a proxy statement and form of proxy to holders of at least the percentage of the voting power of the shares of stock of the Corporation required by the Certificate of Incorporation, these Bylaws and applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the voting power of the shares of stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such Record Stockholder, and must, in either case, have included in such materials the Solicitation Notice; and (D) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 2.12, the Proposing Person proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 2.12. To be timely, a Record Stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than 5:00 p.m. Eastern Time on the ninetieth (90th) day nor earlier than 5:00 p.m. Eastern Time on the one hundred and twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting (provided that, with respect to the first annual meeting following the Corporation’s initial public offering, the anniversary date of the preceding year’s annual meeting shall be deemed to be ___________ __, 2022); provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the Record Stockholder to be timely must be so delivered (x) no earlier than 5:00 p.m. Eastern Time on the one hundred and twentieth (120th) day prior to such annual meeting and (y) no later than 5:00 p.m. Eastern Time on the later of the ninetieth (90th) day prior to such annual meeting or 5:00 p.m. Eastern Time on the tenth (10th) day following the day on which Public Announcement (as defined below) of the date of such meeting is first made by the Corporation. In no event shall an adjournment or postponement of a meeting of stockholders (or the Public Announcement thereof) commence a new time period (or extend any time period) for providing the Record Stockholder’s notice.

 

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(iii) As to each person whom the Record Stockholder proposes to nominate for election or reelection as a director, in addition to the matters set forth in Section 2.12.1(e) of these Bylaws, such Record Stockholder’s notice shall set forth: (A) the name, age, business address and residence address of such person; (B) the principal occupation or employment of such nominee; (C) the class, series and number of any shares of stock of the Corporation that are beneficially owned or owned of record by such person or any Associated Person (as defined below); (D) the date or dates such shares were acquired and the investment intent of such acquisition; (E) all other information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or would be otherwise required, in each case pursuant to and in accordance with Section 14(a) (or any successor provision) under the Exchange Act; (F) such person’s written consent to being named in the Corporation’s proxy statement as a nominee, to the public disclosure of information regarding or related to such person provided to the Corporation by such person or otherwise pursuant to this Section 2.12 and to serving as a director if elected; (G) whether such person meets the independence requirements of the stock exchange upon which shares of the Corporation’s Class A Common Stock are listed; (H) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among such Proposing Person or any of its respective affiliates and associates (as each is defined below), on the one hand, and each proposed nominee, and his or her respective affiliates and associates, on the other hand, including all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the Proposing Person or any of its respective affiliates and associates were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; and (I) a completed and signed questionnaire, representation and agreement required by this Section 2.12.

 

(iv)       As to any business (other than the nomination of a person or persons for election to the Board of Directors) that the Record Stockholder proposes to bring before the meeting, in addition to the matters set forth in paragraph (v) below, such Record Stockholder’s notice shall set forth: (A) a brief description of the business proposed to be brought before the meeting, the text of the proposed business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws, the text of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such Proposing Person, including any anticipated benefit to any Proposing Person therefrom; and (B) a description of all agreements, arrangements and understandings between or among any such Proposing Person and any of its respective affiliates or associates, on the one hand, and any other person or persons (including their names), on the other hand, in connection with the proposal of such business by such Proposing Person;

 

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(v) As to each Proposing Person giving the notice, such Record Stockholder’s notice shall set forth: (A) the current name and address of such Proposing Person, including, if applicable, the name and address of such Proposing Person as they appear on the Corporation’s stock ledger, if different; (B) the class or classes or series and number of shares of stock of the Corporation that are directly or indirectly owned of record or beneficially owned by such Proposing Person, including any shares of any class or classes or series of stock of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future; (C) whether and the extent to which any derivative interest in the Corporation’s equity securities (including without limitation any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of stock of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of shares of stock of the Corporation or otherwise, and any cash-settled equity swap, total return swap, synthetic equity position or similar derivative arrangement (any of the foregoing, a “Derivative Instrument”), as well as any rights to dividends on the shares of any class or series of stock of the Corporation that are separated or separable from the underlying shares of the Corporation) or any short interest in any security of the Corporation (for purposes of this Section 2.12(a)(v), a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, agreement, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any increase or decrease in the value of the subject security, including through performance-related fees) is held directly or indirectly by or for the benefit of such Proposing Person, including without limitation whether and the extent to which any ongoing hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including without limitation any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such Proposing Person with respect to any share of stock of the Corporation (any of the foregoing, a “Short Interest”); (D) any proportionate interest in shares of stock of the Corporation or Derivative Instruments held, directly or indirectly, by a general, limited or limited liability limited partnership in which such Proposing Person or any of its respective affiliates or associates is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general, limited or limited liability limited partnership; (E) any direct or indirect material interest of such Proposing Person in any material contract or agreement with the Corporation, any affiliate of the Corporation or any Competitor (as defined below) (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement); (F) any significant equity interests or any Derivative Instruments or Short Interests in any Competitor held by such Proposing Person and/or any of its respective affiliates or associates; (G) any other material relationship between such Proposing Person, on the one hand, and the Corporation, any affiliate of the Corporation or any Competitor, on the other hand; (H) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Exchange Act by such Proposing Person and/or any of its respective affiliates or associates; (I) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) (or any successor provision) under the Exchange Act; (J) such Proposing Person’s written consent to the public disclosure of information provided to the Corporation pursuant to this Section 2.12; (K) a complete written description of any agreement, arrangement or understanding (whether oral or in writing) (including any knowledge that another person or entity is Acting in Concert (as defined below) with such Proposing Person) between or among such Proposing Person, any of its respective affiliates or associates and any other person Acting in Concert with any of the foregoing persons; (L) a representation that the Record Stockholder is a holder of record of one or more shares of stock of the Corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination; (M) a representation whether such Proposing Person intends (or is part of a group that intends) to deliver a proxy statement or form of proxy to holders of, in the case of a proposal other than the nomination of any person or persons for election to the Board of Directors, at least the percentage of the voting power of the shares of stock of the Corporation required under applicable law to carry the proposal or, in the case of a nomination or nominations of a person or persons for election to the Board of Directors, at least the percentage of the voting power of the shares of stock of the Corporation reasonably believed by the Proposing Person to be sufficient to elect such nominee or nominees (an affirmative statement of such intent being a “Solicitation Notice”); and (N) any proxy, contract, agreement, arrangement, understanding or relationship pursuant to which the Proposing Person has a right to vote, directly or indirectly, any shares of stock or other any security of the Corporation. The disclosures to be made pursuant to the foregoing clauses (B), (C), (D) and (F) shall not include any information with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by this Section 2.12 on behalf of a beneficial owner.

 

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(vi)       A stockholder providing written notice required by this Section 2.12 shall update such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (A) the record date for determining the stockholders entitled to notice of the meeting and (B) 5:00 p.m. Eastern Time on the tenth (10th) business day prior to the date of the meeting or any adjournment or postponement thereof. In the case of an update pursuant to clause (A) of the foregoing sentence, such update shall be received by the Secretary of the Corporation at the principal executive office of the Corporation not later than five (5) business days after the record date for determining the stockholders entitled to notice of the meeting, and in the case of an update and supplement pursuant to clause (B) of the foregoing sentence, such update and supplement shall be received by the Secretary of the Corporation at the principal executive office of the Corporation not later than eight (8) business days prior to the date of the meeting, and, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed). For the avoidance of doubt, the obligation to update as set forth in this paragraph shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines under this Section 2.12 or enable or be deemed to permit a stockholder who has previously submitted notice under this Section 2.12 to amend or update any proposal or nomination or to submit any new proposal, including by changing or adding nominees, matters, business and/or resolutions proposed to be brought before a meeting of the stockholders.

 

(b)       Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee of any stockholder for election or reelection as a director of the Corporation, the person proposed to be nominated must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.12 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a completed and signed questionnaire in the form required by the Corporation (which form the stockholder shall request in writing from the Secretary of the Corporation and which the Secretary shall provide to such stockholder within ten (10) days of receiving such request) with respect to the background and qualification of such person to serve as a director of the Corporation and the background of any other person or entity on whose behalf, directly or indirectly, the nomination is being made and a signed representation and agreement (in the form available from the Secretary upon written request) that such person: (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (ii) is not and will not become a party to any Compensation Arrangement (as defined below) that has not been disclosed therein, (iii) if elected as a director of the Corporation, will comply with all informational and similar requirements of applicable insurance policies and laws and regulations in connection with service or action as a director of the Corporation, (iv) if elected as a director of the Corporation, will comply with all corporate governance, conflict of interest, stock ownership requirements, confidentiality and trading policies and guidelines of the Corporation publicly disclosed from time to time, (v) if elected as a director of the Corporation, will act in the best interests of the Corporation and its stockholders and not in the interests of individual constituencies, (vi) consents to being named as a nominee in the Corporation’s proxy statement pursuant to Rule 14a-4(d) under the Exchange Act and any associated proxy card of the Corporation and agrees to serve if elected as a director and (vii) intends to serve as a director for the full term for which such individual is to stand for election.

 

(c)       Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of such meeting (i) by or at the direction of the Board of Directors or any committee thereof or (ii) provided that the Board of Directors has determined that one or more directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice and other procedures set forth in this Section 2.12 in all applicable respects. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 2.12(a)(ii) of these Bylaws shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation (x) no earlier than the one hundred and twentieth (120th) day prior to such special meeting and (y) no later than 5:00 p.m. Eastern Time on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for providing such notice.

 

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(d)       General.

 

(i)       Except as otherwise expressly provided under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 2.12 shall be eligible to be elected at a meeting of stockholders and serve as directors and only such other business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.12. Except as otherwise provided by applicable law or these Bylaws, the person presiding over the meeting shall have the power and duty to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.12 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.12, unless otherwise required by applicable law, if the stockholder (or a Qualified Representative (as defined below) of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination or proposed business shall be disregarded and shall not be considered or transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

 

(ii)       Notwithstanding the foregoing provisions of this Section 2.12, a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to the matters set forth in this Section 2.12. Nothing in this Section 2.12 shall be deemed to affect any rights of (a) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) the holders of any series of preferred stock of the Corporation to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

 

(iii)       For purposes of these Bylaws the following definitions shall apply:

 

(A)       a person shall be deemed to be “Acting in Concert” with another person if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or toward a common goal relating to the management, governance or control of the Corporation in substantial parallel with, such other person where (1) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decision-making processes and (2) at least one additional factor suggests that such persons intend to act in concert or in substantial parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions or making or soliciting invitations to act in concert or in substantial parallel; provided, however, that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with, Section 14(a) (or any successor provision) of the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A and a person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person;

 

(B)       “affiliate” and “associate” shall have the meanings ascribed thereto in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”); provided, however, that the term “partner” as used in the definition of “associate” shall not include any limited partner that is not involved in the management of the relevant partnership;

 

(C)       “Associated Person” shall mean with respect to any subject stockholder or other person (including any proposed nominee) (1) any person directly or indirectly controlling, controlled by or under common control with such stockholder or other person, (2) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder or other person, (3) any associate of such stockholder or other person, and (4) any person directly or indirectly controlling, controlled by or under common control or Acting in Concert with any such Associated Person;

 

(D)       “Compensation Arrangement” shall mean any direct or indirect compensatory payment or other financial agreement, arrangement or understanding with any person or entity other than the Corporation, including any agreement, arrangement or understanding with respect to any direct or indirect compensation, reimbursement or indemnification in connection with candidacy, nomination, service or action as a nominee or as a director of the Corporation;

 

(E)       “Competitor” shall mean any entity that provides products or services that compete with or are alternatives to the principal products produced or services provided by the Corporation or its affiliates;

 

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(F)       “Proposing Person” shall mean (1) the Record Stockholder providing the notice of business proposed to be brought before an annual meeting or nomination of persons for election to the Board of Directors at a meeting of stockholders, (2) the beneficial owner or beneficial owners, if different, on whose behalf the notice of business proposed to be brought before the annual meeting or nomination of persons for election to the Board of Directors at a meeting of stockholders is made, and (3) any Associated Person on whose behalf the notice of business proposed to be brought before the annual meeting or nomination of persons for election to the Board of Directors at a meeting of stockholders is made;

 

(G)       “Public Announcement” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act; and

 

(H)       to be considered a “Qualified Representative” of a stockholder, a person must be a duly authorized officer, manager, trustee or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as a proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction thereof, at the meeting. The Secretary of the Corporation, or any other person who shall be appointed to serve as secretary of the meeting, may require, on behalf of the Corporation, reasonable and appropriate documentation to verify the status of a person purporting to be a “Qualified Representative” for purposes hereof.

ARTICLE III

 

BOARD OF DIRECTORS

 

Section 3.1 Number. The total number of directors constituting the Board of Directors shall be fixed in, or in the manner provided by, the Certificate of Incorporation.

 

Section 3.2 Election; Resignation; Vacancies.

 

(a)                Except as otherwise provided by the Certificate of Incorporation, at each annual meeting of stockholders, the stockholders shall elect directors, each of whom shall hold office until the next annual meeting of stockholders and the election and qualification of his or her successor, or until his or her earlier death, resignation or removal.

 

(b)               Any director may resign at any time by giving notice in writing or by electronic transmission to the Chief Executive Officer, the President or the Secretary. Unless otherwise stated in a notice of resignation, such resignation shall take effect when delivered, without any need for its acceptance.

 

(c)                Except as otherwise provided by the Certificate of Incorporation or applicable law, any newly created directorship or any vacancy occurring in the Board of Directors for any reason shall be filled solely by a majority of the remaining directors, or the single remaining director. Each director elected to replace a former director shall hold office until the expiration of the term of office of the director whom he or she has replaced and the election and qualification of his or her successor, or until his or her earlier death, resignation or removal. A director elected to fill a newly created directorship shall serve until the next annual meeting of stockholders and the election and qualification of his or her successor, or until his or her earlier death, resignation or removal.

 

Section 3.3 Regular Meetings. Unless otherwise determined by the Board of Directors, a regular annual meeting of the Board of Directors shall be held, without call or notice, immediately after and, if the annual meeting of stockholders is held at a place, at the same place as the annual meeting of stockholders, for the purpose of organizing the Board of Directors, electing officers and transacting any other business that may properly come before such meeting.

 

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Section 3.4 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman, if any, the Chief Executive Officer, or by any three members of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least 24 hours before the special meeting. The purpose or purposes of a special meeting need not be stated in the call or notice.

 

Section 3.5 Organization. Meetings of the Board of Directors shall be presided over by the Chairman, if any, or if there is none or in his or her absence, by the Chief Executive Officer or President, or if he or she is also a director or in his or her absence, by a chairman chosen by a majority of directors present at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. A majority of the directors present at a meeting, whether or not they constitute a quorum, may adjourn such meeting to any other date, time or place without notice other than announcement at the meeting.

 

Section 3.6 Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Unless the Certificate of Incorporation or these Bylaws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

 

Section 3.7 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees , each committee to consist of one or more directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members present at any meeting and not disqualified from voting, whether or not a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and provided in these Bylaws or in the resolution of the Board of Directors designating such committee, or an amendment to such resolution, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it.

 

Section 3.8 Telephonic Meetings. Directors, or any committee of directors designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.8 shall constitute presence in person at such meeting.

 

Section 3.9 Action by Unanimous Consent of Directors in Lieu of a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, (a) any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission (which may be in counterparts), and (b) a consent may be documented, signed and delivered in any manner permitted by Section 116 of the DGCL. After an action is taken, the written consent or consents shall be filed with the minutes of proceedings of the Board of Directors or such committee.

 

Section 3.10 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to this Article III of these Bylaws.

 

Section 3.11 Reliance upon Records. Every director, and every member of any committee of the Board of Directors, shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the director or member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, including, but not limited to, such records, information, opinions, reports or statements as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which the Corporation’s capital stock might properly be purchased or redeemed.

 

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Section 3.12 Compensation. Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. In addition to the foregoing, and without limitation thereof, the directors shall be paid their reasonable expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof and may be paid a fixed sum for attendance at each such meeting and an annual retainer or salary for services as a director or committee member.

 

ARTICLE IV

 

OFFICERS

 

Section 4.1 Executive Officers; Election; Qualification; Term of Office. The Board of Directors may elect a President and/or a Chief Executive Officer and may, if it so determines, elect a Chairman from among the members of the Board of Directors. The Board of Directors shall also elect a Secretary and may elect one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers and other officers. Any number of offices may be held by the same person. Each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election, and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.

 

Section 4.2 Resignation; Removal; Vacancies. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Chief Executive Officer, the Chairman, if any, or the Secretary. Unless otherwise stated in a notice of resignation, the resignation shall take effect when delivered, without any need for its acceptance. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. A vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term thereof by the Board of Directors at any regular or special meeting.

 

Section 4.3 Powers and Duties of Executive Officers. Except as provided herein, in the Certificate of Incorporation, the officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties.

 

Section 4.4 Chairman. The Chairman, if there be a chairman, shall preside at all meetings of the shareholders, of the board of directors and of the executive committees, if any, and he shall have such other powers and duties as the board of directors may from time to time prescribe. The Chairman may execute, in the name and on behalf of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors or a committee thereof has authorized to be executed, except in cases where the execution shall have been expressly delegated by the Board of Directors or a committee thereof to some other officer or agent of the Corporation.

 

Section 4.5 Chief Executive Officer. The Chief Executive Officer, if there be a Chief Executive Officer, shall in general supervise and control all of the business affairs of the Corporation, subject to the direction of the Board of Directors. The Chief Executive Officer may execute, in the name and on behalf of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors or a committee thereof has authorized to be executed, except in cases where the execution shall have been expressly delegated by the Board of Directors or a committee thereof to some other officer or agent of the Corporation.

 

Section 4.6 The President. The President along with the Chief Executive Officer of the Corporation, if there be a Chief Executive Officer, shall have the general direction of the affairs of the corporation except as otherwise prescribed by the Board of Directors. In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, the President, if there be any, shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.

 

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Section 4.7 Secretary. In addition to such other duties, if any, as may be assigned to the Secretary by the Board of Directors, or the Chief Executive Officer, the Secretary shall (i) keep the minutes of proceedings of the stockholders, the Board of Directors and any committee of the Board of Directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) be the custodian of the records and seal of the Corporation; (iv) affix or cause to be affixed the seal of the Corporation or a facsimile thereof, and attest the seal by his or her signature, to all certificates for shares of stock of the Corporation and to all other documents the execution of which under seal is authorized by the Board of Directors; and (v) unless such duties have been delegated by the Board of Directors to a transfer agent of the Corporation, keep or cause to be kept a register of the name and address of each stockholder, as the same shall be furnished to the Secretary by such stockholder, and have general charge of the stock transfer records of the Corporation.

 

Section 4.8 Assistant Secretary. The Assistant Secretary, if any, or, if there be more than one, the Assistant Secretaries, in the order determined by the Board of Directors or by the Chief Executive Officer, shall, in the absence or disability of the secretary, exercise the powers and perform the duties of the Secretary; and he or they shall perform such other duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

 

Section 4.9 Vice President. In the absence of the Chief Executive Officer or President, or in the event of their inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall have all the powers and perform all the duties of the Chief Executive Officer or President. The Vice President shall perform, also, such other duties as may be assigned to him or her from time to time by the Board of Directors.

 

Section 4.10 Treasurer. The Treasurer shall be the Chief Financial Officer of the Corporation and keep full and correct account of receipts and disbursements in the book belonging to the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation, in such banks of deposit as may be designated by the Board of Directors. He shall dispose of funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, whenever they may require it of him, an account of all his transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as may be assigned to him from time to time by the Board of Directors. If the Board of Directors chooses not to elect a Treasurer, the Chief Executive Officer shall perform the duties of the Treasurer.

 

Section 4.11 Assistant Treasurer. The Assistant Treasurer, if any, or, if there be more than one, the Assistant Treasurers, in the order determined by the Board of Directors or by the Chief Executive Officer, shall, in the absence or disability of the Treasurer, exercise the powers and perform the duties of the Treasurer; and he or they shall perform such other duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe.

 

ARTICLE V

 

STOCK CERTIFICATES AND TRANSFERS

 

Section 5.1 Certificate. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman, if any, Chief Executive Officer, the President or a Vice President, and by the Secretary or an Assistant Secretary or Treasurer or an Assistant Treasurer, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation, provided, however, that the Board of Directors may provide by resolution or resolutions that some or all of any class or series shall be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock. Any or all of the signatures on the certificate, if any, may be facsimile, stamp or other imprint. In case any officer, transfer agent or registrar who has signed or whose facsimile, stamp or other imprint signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar continued to be such at the date of issue.

 

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Section 5.2 Lost, Stolen or Destroyed Certificates; Issuance of New Certificates. The Corporation may issue a new certificate for stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such stockholder’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

 

Section 5.3 Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for stock of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer or, in the case of uncertificated shares, proper instructions, the Corporation shall issue a new certificate or certificates for such stock or uncertificated shares to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of stock shall be made only on the books of the Corporation by the registered holder thereof or by such holder’s attorney or successor duly authorized as evidenced by documents filed with the Secretary or transfer agent of the Corporation.

 

Section 5.4 Stockholders of Record. The Corporation shall be entitled to treat the holder of record of any stock of the Corporation as the holder thereof and shall not be bound to recognize any equitable or other claim to or interest in such stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by the laws of the State of Delaware.

 

ARTICLE VI

 

NOTICES

 

Section 6.1 Manner of Notice. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provisions of the DGCL, the Certificate of Incorporation, or these Bylaws may be given in writing directed to the stockholder’s mailing address (or by electronic transmission directed to the stockholder’s electronic mail address, as applicable) as it appears on the records of the Corporation and shall be given (1) if mailed, when the notice is deposited in the U.S. mail, postage prepaid, (2) if delivered by courier service, the earlier of when the notice is received or left at such stockholder’s address or (3) if given by electronic mail, when directed to such stockholder’s electronic mail address unless the stockholder has notified the Corporation in writing or by electronic transmission of an objection to receiving notice by electronic mail. A notice by electronic mail must include a prominent legend that the communication is an important notice regarding the Corporation.

 

Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice or electronic transmission to the Corporation. Notwithstanding the provisions of this paragraph, the Corporation may give a notice by electronic mail in accordance with the first paragraph of this Section 6.1 without obtaining the consent required by this paragraph.

 

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Any notice given pursuant to the preceding paragraph shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iii) if by any other form of electronic transmission, when directed to the stockholder. Notwithstanding the foregoing, a notice may not be given by an electronic transmission from and after the time that (1) the Corporation is unable to deliver by such electronic transmission two consecutive notices given by the Corporation and (2) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice, provided, however, the inadvertent failure to discover such inability shall not invalidate any meeting or other action.

 

An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

Section 6.2 Dispensation with Notice.

 

(a)                Whenever notice is required to be given by law, the Certificate of Incorporation or these Bylaws to any stockholder to whom (i) notice of two consecutive annual meetings of stockholders has been given, and all notices of meetings of stockholders or of the taking of action by stockholders by consent without a meeting have been given to such stockholder during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities of the Corporation during a 12-month period, have been mailed addressed to such stockholder at the address of such stockholder as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such stockholder shall not be required. Any action or meeting which shall be taken or held without notice to such stockholder shall have the same force and effect as if such notice had been duly given. If any such stockholder shall deliver to the Corporation a written notice setting forth the then current address of such stockholder, the requirement that notice be given to such stockholder shall be reinstated.

 

(b)               Whenever notice is required to be given by law, the Certificate of Incorporation or these Bylaws to any person with whom communication is unlawful, the giving of such notice to such person shall not be required, and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given.

 

Section 6.3 Waiver of Notice. Any written waiver of notice, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee or directors need be specified in any written waiver of notice.

 

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ARTICLE VII

 

INDEMNIFICATION

 

Section 7.1 Right to Indemnification.

 

(a)                The Corporation shall indemnify and hold harmless, to the fullest extent permitted by law as in effect on the date of adoption of these Bylaws or as it may thereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, against any and all liability and loss (including judgments, fines, penalties and amounts paid in settlement) suffered or incurred and expenses reasonably incurred by such person; provided, that, any standard of conduct applicable to whether a director or officer may be indemnified shall be equally applicable to an employee or agent under this Article VII. Notwithstanding the foregoing, but subject to Section 7.3 below, the Corporation shall not be required to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person unless the Proceeding (or part thereof) was authorized in the first instance by the Board of Directors.

 

(b)               For purposes of this Article VII: (i) any reference to “other enterprise” shall include all plans, programs, policies, agreements, contracts and payroll practices and related trusts for the benefit of or relating to employees of the Corporation and its related entities (an “Employee Benefit Plan”); (ii) any reference to “fines”, “penalties”, “liability” and “expenses” shall include any excise taxes, penalties, claims, liabilities and reasonable expenses (including reasonable legal fees and related expenses) assessed against or incurred by a person with respect to any Employee Benefit Plan; (iii) any reference to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation or trustee or administrator of any Employee Benefit Plan which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an Employee Benefit Plan, its participants, beneficiaries, fiduciaries, administrators and service providers; (iv) any reference to serving at the request of the Corporation as a director, officer, employee or agent of a partnership or trust shall include service as a partner or trustee; and (v) a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an Employee Benefit Plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” for purposes of this Article VII.

 

Section 7.2 Prepayment of Expenses. The Corporation shall pay or reimburse the reasonable expenses incurred in defending any Proceeding in advance of its final disposition if the Corporation has received an undertaking by the person receiving such payment or reimbursement to repay all amounts advanced if it should be ultimately determined that he or she is not entitled to be indemnified under this Article VII or otherwise.

 

Section 7.3 Claims. If a claim for indemnification or payment of expenses under this Article VII is not paid in full within 60 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

 

Section 7.4 Non-Exclusivity of Rights. The rights conferred on any person by this Article VII shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

 

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Section 7.5 Other Indemnification. The Corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee, partner or agent of another corporation, partnership, joint venture or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture or other enterprise.

 

Section 7.6 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.

 

Section 7.7 Indemnification Contracts. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture or other enterprise, providing indemnification rights to such person. Such rights may be greater than those provided in this Section 7.

 

Section 7.8 Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

 

ARTICLE VIII

 

GENERAL

 

Section 8.1 Fiscal year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.

 

Section 8.2 Seal. The Corporation may have a corporate seal. The corporate seal, if there be a corporate seal, shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.

 

Section 8.3 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, electronic format or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.

 

Section 8.4 Amendment of Bylaws. Subject to the limitations set forth in the Certificate of Incorporation, the Board of Directors of the Corporation is expressly authorized to make, alter or repeal the Bylaws of the Corporation by vote of a majority of the Board of Directors at any regular or special meeting of directors.

 

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EX-5.1 4 tm2113163d7_ex5-1.htm EXHIBIT 5.1

 

Exhibit 5.1

 

Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, NY 10178

 

June __, 2021

 

Healthcare Royalty, Inc.

300 Atlantic Street, Suite 600

Stamford, CT 06901

 

RE: Registration Statement on Form S-1  

 

Ladies and Gentlemen:

 

We have acted as counsel to Healthcare Royalty, Inc., a Delaware corporation (the “Company”), in connection with the filing of the referenced Registration Statement (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Act”), with the Securities and Exchange Commission (the “SEC”). The Registration Statement relates to the proposed offering and sale of shares of common stock, par value $0.01 per share, of the Company, including shares of common stock (the “Primary Shares”) to be sold by the Company, and shares of common stock (the “Secondary Shares” and, together with the “Primary Shares,” the “Shares”)) to be sold by certain equity holders of the Company (the “Selling Stockholders”). The Primary Shares include shares of common stock that may be sold by the Company upon the exercise of the underwriters’ option to purchase additional shares of common stock. The Secondary Shares will be issued by the Company in the Reorganization Transactions (as defined in the Registration Statement) immediately prior to the completion of the proposed offering.

 

In connection with this opinion letter, we have examined the Registration Statement and originals, or copies certified or otherwise identified to our satisfaction, of (i) the Company’s Form of Amended and Certificate of Incorporation and the Company’s Form of Amended and Restated Bylaws and (ii) such other documents, records and other instruments as we have deemed appropriate for purposes of the opinion set forth herein.

 

We have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of the documents submitted to us as originals, the conformity with the originals of all documents submitted to us as certified, facsimile or photostatic copies and the authenticity of the originals of all documents submitted to us as copies.

 

Based upon the foregoing, we are of the opinion that:

 

  (i) the Primary Shares, when issued and sold by the Company and delivered by the Company against receipt of the purchase price therefor, in the manner contemplated by the Registration Statement, will be validly issued, fully paid and non-assessable; and

 

  (ii) the Secondary Shares, when issued and delivered by the Company to the Selling Stockholders, in the manner contemplated by the Registration Statement, will be validly issued, fully paid and non-assessable.

 

The opinions expressed herein are limited to the Delaware General Corporation Law and reported judicial decisions applicable thereto and we express no opinion as to laws of any other jurisdiction.

 

We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to us under the caption “Legal Matters” in the prospectus included in the Registration Statement. In giving such consent, we do not hereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the SEC thereunder.

 

Very truly yours,  
   
Morgan, Lewis & Bockius LLP  

 

 

 

 

EX-10.1 5 tm2113163d7_ex10-1.htm EXHIBIT 10.1

 

Exhibit 10.1

 

MANAGEMENT AGREEMENT

 

Dated as of July [●], 2021

 

This MANAGEMENT AGREEMENT (this “Agreement”) is effective as of the [●]th day of [July], 2021, among HEALTHCARE ROYALTY, INC., a Delaware corporation (the “Company”), and HCRX MANAGEMENT, LLC, a Delaware limited liability company (the “Manager”). Capitalized terms used in the preamble and recitals of this Agreement and not otherwise defined therein are defined in Section 1 (Definitions).

 

R E C I T A L S:

 

WHEREAS, the Company was formed for the purpose of investing its assets in Healthcare Royalty Holdings, L.P. (“Holdings”) and the Subsidiaries of Holdings;

 

WHEREAS, the Company desires to avail itself of the experience, sources of information, advice and assistance of the Manager and to have the Manager perform various investment management services for the Company; and

 

WHEREAS, the Manager is willing to perform such services under the terms and conditions as set forth herein and in accordance with the terms of the Certificate of Incorporation and Bylaws of the Company (“Organizational Documents”) and subject to the oversight of the Board of Directors.

 

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

 

Section 1. Definitions.

 

Unless otherwise expressly provided in this Agreement, the following terms used in this Agreement shall have the following meanings:

Advisers Act

means the U.S. Investment Advisers Act of 1940, as amended.

Affiliate with respect to any specified Person, any Person directly or indirectly Controlling, Controlled by or under common Control with such Person; provided that for purposes of this Agreement, each of the Company and Cowen shall not be deemed to be an Affiliate of the Manager.
Agreement shall have the meaning set forth in the preamble of this Agreement.

 

 

 

 

Applicable Party means HCRX EPA, the Manager or an executive officer of the Manager or HCRX EPA (including Mr. Futch).
Board of Directors means the board of directors of the Company.
Business Day means a day which is not a Saturday, Sunday or a day on which banks in New York City are authorized or required by law to close.
Cause will exist where (i) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused HCRX EPA or the Manager to commit) a material breach of a material provision of the Organizational Documents of the Company, the limited partnership agreement of Holdings, or this Agreement; (ii) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused HCRX EPA or the Manager to commit) willful misconduct in connection with the performance of its duties under the terms of the Organizational Documents of the Company, the limited partnership agreement of Holdings, or this Agreement, (iii) there is a declaration of bankruptcy by an Applicable Party, or (iv) there is a determination by any court with proper jurisdiction that an Applicable Party has committed an intentional felony or engaged in any fraudulent conduct, in each such case of clauses (ii) and (iv) which has a material adverse effect on the business, assets or condition (financial or otherwise) of the HCRX Group and its Affiliates (taken as a whole).

 

 

 

 

Change of Control a change of control shall be deemed to have occurred if: (i) a sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company’s assets, (ii) a merger or consolidation of the Company with or into any other Person or any other transaction or a series of related transactions, the result of which is that a third party (or a group of third parties) that is not an Affiliate of the Company or the Manager immediately prior to such transaction acquires or holds capital stock of the Company representing 40% of the Company’s outstanding voting power immediately following such transaction, or (iii) a change in the composition of the Board of Directors as a result of which the majority of the members of the Board of Directors cease to be Continuing Directors. Notwithstanding the foregoing, the following events do not constitute a Change of Control: (A) a transaction (other than a sale of all or substantially all of the Company’s assets) in which the holders of the voting securities of the Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting securities in the successor corporation or its parent immediately after such transaction; (B) a sale, lease, exchange or other transaction in one transaction or a series of related transactions of all or substantially all of the Company’s assets to an Affiliate of the Company or the Manager; (C) the Company’s initial public offering and any subsequent registered offerings or secondary sales by the Continuing Investors of any of the Company’s securities, unless any such subsequent registered offering or secondary sale results in a third party who is not an Affiliate owning more than 40% of the Company’s outstanding voting power immediately following such offering or sale; (D) a reincorporation of the Company solely to change its jurisdiction; or (E) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof.
Code means the U.S. Internal Revenue Code of 1986, as amended and as hereafter amended, or any successor law.
Company shall have the meaning set forth in the preamble of this Agreement.
Competing Fund means a Person or pooled investment or asset management vehicle investing Royalty Investments, other than (i) the Company, Holdings or any of their respective direct or indirect Subsidiaries, (ii) any of the Legacy Vehicles for which the Manager or any of its Affiliates acts as the general partner or investment manager, or (iii) any Person or vehicle approved by the independent members of the Board of Directors.
Confidential Information means any proprietary information relating to the organization, finances, business, transactions or affairs of the Company or the Manager or any of their Affiliates as the case may be.
Continuing Director means, as of any date of determination, any member of the Board of Directors who: (i) was a member of the Board of Directors upon closing of the Company’s initial public offering, or (ii) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.
Continuing Investors means the investors who received limited partnership interests in HCRX Feeder Fund L.P.

 

 

 

 

Control means, with respect to any Person, the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of such Person; provided, however, that customary approval and veto rights granted to minority equity holders of a Person shall not be deemed to constitute “Control” of such Person.
Cowen means Cowen, Inc., a Delaware corporation, and its Affiliates
Exchange Act means the Securities Exchange Act of 1934, as amended.
Good Reason means the occurrence of either of the following: (i) a failure by the Board of Directors to obtain Manager’s consent to an amendment of the Organizational Documents pursuant to Section 9(b) or to the adoption or amendment of any policy, compliance procedure or reporting requirement pursuant to Section 9(c) of this Agreement or (ii) a material breach by the Company (at the direction of the Board of Directors) of its obligations to Manager (without Manager’s prior waiver or consent) under this Agreement, which breach, if capable of being cured, is not cured within 30 days after the Company receives notice of such breach.
HCRX EPA means HCRX EPA Holdings, LLC, a Delaware limited liability company.
HCRX Group means the Company and its Subsidiaries.
Holdings shall have the meaning set forth in the preamble to this Agreement.
Initial Term

shall have the meaning set forth in Section 16.

Indemnitee shall have the meaning set forth in Section 13(a).
Legacy Vehicle means each of HealthCare Royalty Partners, L.P. and HealthCare Royalty Partners II, L.P. and HealthCare Royalty Partners II-A, L.P..
Manager shall have the meaning set forth in the preamble of this Agreement.
Operating and Personnel Payment shall have the meaning set forth in Section 10.
Organizational Documents shall have the meaning set forth in the recitals of this Agreement.

 

 

 

 

Person means a natural person, partnership, limited liability company, corporation, unincorporated association, joint venture, trust, state or any other entity or any governmental agency or political subdivision thereof.
Renewal Term shall have the meaning set forth in Section 16.
Royalties means intellectual property (including patents) or other contractual rights to income derived from the sales of, or revenues generated by, pharmaceutical, biopharmaceutical, medical and/or healthcare products, processes, devices, or enabling and delivery technologies that are protected by patents, trademarks or copyrights, governmental or other regulations or otherwise by contract, contractual rights to debt, and synthetic rights.

Royalty Investment

means any acquisition of (including, without limitation, any secondary purchase of existing assets), or financing or investment in, or any acquisition, financing or investment relating directly or indirectly to Royalties, which may include, without limitation (i) purchases of Royalties, (ii) Royalty notes, (iii) SYNTHETIC ROYALTYTM financings, (iv) ownership interests in any entities, including entities formed for the purpose of holding Royalties or substantially all of the assets of which consist of Royalties; (v) structured debt, (vi) any securities, investments or contracts that may provide a hedge for Royalties; and (vii) other assets and investments considered by the Manager to be related to the foregoing.
Royalty Receipts means, with respect to each investment that is indirectly held by the Company through a Subsidiary, all cash or other proceeds received in respect of such investment during the applicable period.
Stockholder means a stockholder of the Company.
Subsidiary of any Person means any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, more than 50% of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.

 

 

 

 

Section 2. Interpretation and Construction.

 

(a)       In this Agreement, unless a clear contrary intention appears:

 

(i)       common nouns and pronouns and any variation thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the Person, Persons or other reference in the context requires;

 

(ii)      where specific language is used to clarify by example a general statement contained in this Agreement, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates;

 

(iii)     “any” shall mean “one or more”;

 

(iv)     “including” and with correlative meaning “include” means including without limiting the generality of any description preceding such term; and

 

(v)     all references to “funds”, “dollars” or “payments” shall mean United States dollars.

 

(b)       The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of construction or interpretation requiring this Agreement to be construed or interpreted against any party shall apply.

 

Section 3.            Appointment of the Manager. The Company hereby appoints the Manager to act as manager to the Company on the terms and conditions set forth in this Agreement, and Manager hereby accepts such appointment. The Company and the Manager agree that the Manager shall have the discretion to make all day-to-day decisions of the Company relating to its investment activities subject to the oversight, direction and control by the Board of Directors, which may include, without limitation, (a) sourcing, identifying and evaluating prospective Royalty Investments, (b) structuring and negotiating the acquisition and disposition of Royalty Investments on behalf of the Company and its Subsidiaries, (c) monitoring Royalty Investments and (d) performing the day-to-day investment and administrative operations of the Company and its Subsidiaries. The Manager shall perform its obligations under this Agreement in a diligent and timely manner.

 

Section 4.           Authority of the Manager. In connection with its obligations hereunder, the Manager shall have the authority for and in the name of the Company, subject to Section 5 (Policies of the Company) and Section 9 (Investments), to:

 

(a)              invest the Company’s assets, through Holdings or any other Subsidiary of the Company;

 

(b)             direct the formulation of investment policies and strategies for the Company in accordance with Section 9 hereof, and identify, source, select, evaluate and approve the investment of Company funds, all in accordance with the provisions and limitations of this Agreement;

 

(c)             open, maintain and close bank accounts, make wire transfers and draw checks or other orders for the payment of money and open, maintain and close brokerage, money market fund and similar accounts;

 

(d)             incur expenses and obtain reimbursement from the Company for such expenses in accordance with Section 12 of this Agreement;1

 

(e)             investigate, select and, on behalf of the Company, engage and conduct business with (including enter contracts with) such Persons as the Manager deems necessary to the proper performance of its obligations as set forth in this Agreement, including but not limited to consultants, accountants, lenders, technical and scientific advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, consultants and any and all Persons acting in any other capacity deemed by the Manager necessary or desirable for the performance of any of the foregoing services;

 

(f)                negotiate, enter into, execute, maintain, modify and/or terminate contracts, undertakings, agreements and any and all other documents and instruments in the name of the Company and do or perform all such things as may be necessary or advisable in furtherance of the Company’s powers, objects or purposes or to the conduct of the Company’s activities, including (i) entering into acquisition agreements to make or dispose of investments (or consenting or authorizing any Subsidiary to do the same) which agreements may include such representations, warranties, covenants, indemnities and guaranties as the Manager deems necessary or advisable and (ii) entering in financing, loan or credit agreements contracts, undertakings or arrangements, and incurring indebtedness thereunder, in such amounts as the Manager deems necessary or advisable;

 

 

1 Note to Ropes: The idea here was to clarify that Manager is permitted to undertake the activities for which it is permitted to seek reimbursement pursuant to Section 12.

 

 

 

 

(g)             make, in its sole discretion, any and all elections for U.S. federal, state, local and foreign tax matters;

 

(h)             manage, acquire or dispose of investments for the Company as permitted hereunder and under the Organizational Documents;

 

(i)              vote, in its sole discretion, any shares, units or interests of any Subsidiary held by the Company or otherwise authorize, approve or adopt any matter presented to the holders of shares, units or interests of any Subsidiary held by the Company;

 

(j)               engage attorneys, independent accountants, other service providers, investment banks, accountants and other advisers and such other Persons as the Manager may deem necessary or advisable;

 

(k)             provide service providers and advisers to the Company, with such information and instructions as may be necessary to enable such service providers and advisers to perform their duties in accordance with the applicable agreements;

 

(l)               oversee all reporting, recordkeeping, internal controls and similar matters in a manner to allow the Company to comply with applicable law, including the Sarbanes-Oxley Act of 2002;

 

(m)             manage communications with Stockholders, including answering phone calls, preparing and sending written and electronic reports and other communications;

 

(n)             maintain accounting data and any other information concerning the activities of the Company as shall be needed to prepare and file all periodic financial reports and returns required to be filed by the Company with the Securities and Exchange Commission and any other regulatory agency, including annual financial statements; and

 

(o)             authorize any partner, member, employee or other agent of the Manager or its Affiliates or other agent of the Company to act for and on behalf of the Company in all matters incidental to the foregoing; and

 

(p)             do any and all acts on behalf of the Company as the Manager may deem necessary or advisable in connection with the maintenance and administration of the Company, and exercise all rights of the Company, with respect to their interest in any Person, including the voting of securities, participation in arrangements with creditors, the institution and settlement or compromise of proceedings and other like or similar matters.

 

The Company hereby appoints the Manager as its attorney-in-fact to act in the Company’s name, place and stead on behalf of the Company in any and all matters relating to the investment of the cash and other assets of the Company and to sign, execute and deliver any and every conceivable right (including, without limitation, any contract, agreement, instrument, consent, notice or acknowledgement) and to do all other acts and things and take any and every act or action, in each case in the Company’s name and on the Company’s behalf, which the Manager in its sole discretion deems necessary or otherwise appropriate in the performance of its duties under this Agreement. The power of attorney hereby granted by the Company to the Manager pursuant to this Section shall remain in force during the continuance of this Agreement and all acts done and documents signed or executed by the Manager in good faith in the purported exercise of any authority conferred by or purport to this power of attorney shall for all purposes be valid and binding on the Manager.

 

Section 5. Policies of the Company.

 

(a)The activities engaged in by the Manager on behalf of the Company shall be subject to the written policies, instructions, oversight and control of the Board of Directors.
  
(b)Within 30 days after the beginning of each quarter, the Manager shall provide the Board of Directors with a summary of all investment activities undertaken in the prior quarter, along with any other material developments in the business or activities of the Company. In addition, the Manager shall meet with the Board of Directors on a quarterly basis to discuss its activities on behalf of the Company.
  

(c)The Board of Director’s rights pursuant to Section 5(b) are informational only, and the the Board of Directors shall have no consent rights over any investments except as otherwise provided in the Organizational Documents of the Company or in the investment policies of the Company.

 

 

 

 

Section 6.           Covenant/Devotion of Time. The Manager shall not manage another entity that invests or acquires, directly or indirectly, Royalty Investments, other than the Company, Holdings, or any of their direct or indirect Subsidiaries, and any Legacy Vehicle. The executives of the Manager must devote substantially all of their business time to managing the Company, Holdings, or any of their direct or indirect Subsidiaries, and any Legacy Vehicle, unless otherwise approved by the Board of Directors. Any action that has been approved by the Board of Directors as set forth in the immediately preceding sentence shall be set forth on Exhibit A, which shall be amended from time to time to reflect any actions approved by the Board of Directors after the date of this Agreement. The provisions of this Section 6 shall no longer apply following the occurrence of a Change of Control or a Good Reason event, and the taking of any actions inconsistent with this Section 6 shall not be taken into account in determining whether an Applicable Party has committed an act that would constitute “Cause”.

 

Section 7. Non-Competition and Non-Solicit.

 

(a)       Every named executive officer of the Manager shall not during its tenure as an executive of the Manager and for a period of 12-months following the termination of its engagement with or employment by the Manager directly or indirectly, close, advise, raise money for, manage or act as the general partner, investment manager, investor, consultant, independent contractor, servicer, advisor, director, officer, member, manager or employee to, of, in or for any Competing Fund. Manager shall cause each of its key employees to enter into non-competition agreements with Manager that are substantially consistent with the terms of this Section 7, unless such agreement would be prohibited by applicable law, rule or regulation.

 

(b)       Each of the Manager and its Affiliates shall not during the time it is acting as manager or general partner or in a similar capacity for the Company and for a period of 12-months following any termination of this Agreement for Cause directly or indirectly, close, advise, raise money for, manage or act as the general partner, investment manager, investor, consultant, independent contractor, servicer, advisor, director, officer, member, manager or employee to, of, in or for any Competing Fund.

 

(c)       The provisions of Section 7(a) and Section 7(b) shall no longer apply upon the occurrence of a Change of Control or a Good Reason event, and the taking of any such actions shall not be taken into account in determining whether an Applicable Party has committed an act that would constitute “Cause”.

 

(d)       During the time that Manager is acting as manager or general partner or in a similar capacity for the Company and for a period of 12-months following any termination of this Agreement for Cause, the Manager shall use commercially reasonable efforts to cause Cowen not to, directly or indirectly, close, advise, raise money for, manage or act as the general partner, investment manager, investor, consultant, independent contractor, servicer, advisor, director, officer, member, manager or employee to, of, in or for any Competing Fund.

 

Section 8.          Status of the Manager. The Manager shall, for all purposes hereof, be an independent contractor and not an employee of the Company and nothing in this Agreement shall be construed as making the Company a partner or co-venturer with the Manager or any of its Affiliates or other funds, investment vehicles or accounts to which the Manager provides investment services. The Manager shall not have authority to act for, represent, bind or obligate the Company, except as specifically provided in this Agreement.

 

 

 

 

Section 9.         Investments. All investments of the Company and other activities undertaken by the Manager on behalf of the Company shall at all times conform to and be in accordance with the requirements imposed by the following:

 

(a)              any provisions of applicable law and regulation;

 

(b)             provisions of the Organizational Documents; provided, however, that the Manager shall not be bound by any amendment of any Organizational Document unless and until it has been given written notice thereof and has been provided with a copy of such amendment and, provided, further, that Manager’s consent shall be required for any such amendment that is materially adverse to the Manager or that imposes materially different obligations or restrictions on the Manager; and

 

(c)              without prejudice to Section 5, such policies, compliance procedures and reporting requirements as may be adopted from time to time by the Board of Directors; provided, however, that the Manager shall not be bound by any such policies, unless and until it has been given written notice thereof and provided, further, that Manager’s consent shall be required for any such policies that constitute a materially adverse change or materially different change to the policies applicable to Manager.

 

For the purpose of Section 9(b)-(c), a “materially different” provision or policy shall include, without limitation, any material change in the number of investments the Manager may execute in a given year or any change in the industries in which Manager may make investments.

 

Section 10. Operating and Personnel Payment.

 

(a)               The Manager shall receive a quarterly operating and personnel payment equal to the $100,000 (the “Operating and Personnel Payment”). The Operating and Personnel Payment shall be payable by the Company (i) for the first fiscal quarter, on the date that is 3 Business Days from the date hereof, and (ii) thereafter, quarterly in arrears as of the last Business Day of each fiscal quarter.

 

(b)               The Company and its Subsidiaries shall have no employees of their own.

 

(c)               For any partial fiscal quarter in respect of which the Operating and Personnel Payment is being paid, including in the event that this Agreement is terminated for Cause during a quarter, the Company shall pay only a proportionate amount thereof based on the number of days in such fiscal quarter.

 

(d)               To the extent that an investment of the Company is made through any Affiliate or a Subsidiary other than Holdings, then the Company shall cause, or permit the Manager to cause, such Affiliate or Subsidiary to enter into a management agreement with the Manager on substantially the same terms as the Management Agreement between the Manager and Holdings, including with respect to any operating and personnel payment.

 

Section 11.         Expenses of the Manager. The Manager or its Affiliates, but not the Company or any of its Subsidiaries or any Stockholder, shall bear and be charged with the following costs and expenses of the Company’s activities: (a) any costs and expenses of providing to the Company the office overhead necessary for the Company’s operations, including, but not limited to, rent and other normal overhead and operating expenses; (b) the compensation of the Manager’s personnel, including, but not limited to, benefits, and other expenses for such personnel; and (c) similar expenses to the extent that such expenses are not subject to reimbursement by the Company pursuant to Section 12 (Company Expenses).

 

 

 

 

Section 12.          Company Expenses. The Company shall bear and be charged with all expenses of the Company and its Subsidiaries (through its investment in such Subsidiaries) other than expenses that are expressly borne by the Manager pursuant to Section 11 (Expenses of the Manager) including, without limitation, the following costs and expenses of the Company:

 

(a)               all organizational, administrative and operating expenses incurred on its behalf, including interest and financing expenses, expenses of custodians, administrators, accountants, auditors, outside counsel and other similar service providers, the cost of the preparation of financial statements, reports to Stockholders, the annual audit, financial and tax returns, tax and other similar reports required for the Company and the Stockholders, extraordinary items such as litigation, indemnification and other similar expenses, and any taxes, fees or other government charges levied against the Company;

 

(b)                independent valuation expenses (if applicable);

 

(c)               expenses incurred in providing any reporting to Stockholders or regulatory reporting, printing and mailing costs;

 

(d)               third party research costs and expenses, including consultants, senior advisors and regional advisors to the Company and its Subsidiaries;

 

(e)               administrative expenses (including any fee payable to an administrator, if appointed by the Company), government fees and taxes (if any);

 

(f)               expenses incurred in connection with any meeting of the Stockholders, including, without limitation, travel, meal and lodging expenses and ancillary activities related thereto;

 

(g)               fees and expenses related to regulatory compliance burdens of the Company or any Subsidiary or any investment of any Subsidiary;

 

(h)               premiums for insurance;

 

(i)                 any registration or filing fees relating to the Company or any Subsidiary;

 

(j)               all out-of-pocket costs and expenses, if any, incurred in sourcing, analyzing, conducting due diligence, holding, developing, negotiating, structuring, acquiring and disposing of investments and prospective investments, whether or not ultimately made, and managing and disposing of actual investments, including without limitation any financing, legal, accounting, advisory and consulting expenses in connection therewith (to the extent the Manager is not otherwise reimbursed by another party or the costs are not capitalized as part of the acquisition price of the transaction);

 

(k)               expenses (including travel expenses) incurred in connection with sourcing and investigating investment opportunities, developing business opportunities for the Subsidiaries of the Company and monitoring their investments (including attending medical and industry conferences) and in connection with attending or sponsoring life science industry conferences and marketing events;

 

(l)                interest on and fees and expenses arising out of all borrowings made by or on behalf of the Company, including, but not limited to, the arranging thereof;

 

(m)             costs of any litigation, Directors & Officers liability or other insurance and indemnification or extraordinary expense or liability relating to the affairs of the Company;

 

(n)               expenses of liquidating the Company;

 

(o)               all expenses incurred in connection with any tax audit, investigation, settlement or review of the Company;

 

 

 

 

(p)               any expenses in connection with the Board of Directors;

 

(q)               contributions to charities, research hospitals and academic institutions reasonably related to the biopharmaceutical industry, in each case to strengthen the “Healthcare Royalty” brand and relationships in the life sciences community; provided that the expenses set forth in this clause shall not exceed 0.25% of annual Royalty Receipts during any fiscal year (measured as of the end of such fiscal year) without the approval of the Board of Directors;

 

(r)                legal and accounting fees and expenses and other expenses incurred by the Company in connection with the preparation for, and conduct and closing of any offering of additional shares in the Company;

 

(s)                the Company’s pro rata share of the expenses incurred in the formation of any Subsidiary; and

 

(t)                any costs and expenses incurred in connection with the contemplation of, formation of, listing and ongoing operation of the Company, including any third-party expenses of managing the Company, such as accounting, audit, legal, reporting, compliance, administration (including directors’ fees), financial advisory, consulting, investor relations, and insurance expenses relating to the affairs of the Company.

 

The Company shall promptly reimburse the Manager or any of its Affiliates, as the case may be, to the extent that any of the costs and expenses set forth in this Section 12 are paid by such entities, provided, however, that any expenses incurred by the Manager or any of its Affiliates on behalf of the Company and its Subsidiaries shall only be reimbursed once, and the Company will have no obligation to reimburse the Manager for any expenses to the extent Holdings has reimbursed the Manager for such expenses pursuant to the Management Agreement by and between Holdings and the Manager.

 

Section 13. Exculpation.

 

(a)               To the fullest extent permitted by law, none of the Manager, its Affiliates including HCRX EPA and their respective officers, directors, stockholders, members, employees, agents and partners, and any other person who serves at the request of the Manager on behalf of the Company as an officer, director, employee or agent of, or with respect to, any other entity (each, an “Indemnitee”) shall be liable to the Company or any Subsidiary or any Stockholder for (i) any act or omission taken or suffered by an Indemnitee in connection with the conduct of the affairs of the Company or otherwise in connection with this Agreement or the matters contemplated herein, unless such act or omission resulted from fraud, bad faith, willful misconduct, gross negligence, a material breach of this Agreement which is not cured in accordance with the terms of this Agreement or a violation of applicable securities laws by such Indemnitee, and except that nothing herein shall constitute a waiver or limitation of any rights which a Stockholder of the Company may have under applicable securities laws or other laws and which may not be waived, or (ii) any mistake, negligence, dishonesty or bad faith of any broker or other agent of the Company selected and monitored by the Manager with reasonable care.  

 

(b)               To the extent that, at law or in equity, the Manager has duties (including fiduciary duties) and liabilities relating thereto to the Company or another Stockholder, the Manager acting under this Agreement or refraining from taking action under this Agreement, shall not be liable to the Company or to any such other Stockholder for its actions or inaction, taken or suffered in good faith and in reliance on the provisions of this Agreement, provided, that such action or inaction does not constitute fraud, bad faith, willful misconduct or gross negligence. The provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities of the Manager otherwise existing at law or in equity, are agreed by the Stockholders to modify to that extent such other duties and liabilities of the Manager.

 

(c)               The Manager may consult with legal counsel and accountants selected by it and any act or omission taken or suffered by it on behalf of the Company or in furtherance of the interests of the Company, taken or suffered in good faith and in reasonable reliance thereon, upon and in accordance with the advice of such counsel or accountants shall be full justification for any such act or omission, and the Manager shall be fully protected and held harmless in so acting or omitting to act; provided, such counsel or accountants were selected and monitored with reasonable care. Notwithstanding any of the foregoing to the contrary, the provisions of this Section shall not be construed so as to provide for the exculpation of any Indemnitee for any liability (including liability under U.S. federal or state securities laws (which includes liability for violation of the anti-fraud provisions contained in Section 206 of the Advisers Act) which, under certain circumstances, impose liability even on Persons that act in good faith), to the extent (but only to the extent) that such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Section to the fullest extent permitted by law.

 

 

 

 

Section 14. Indemnification.

 

(a)               To the fullest extent permitted by law, the Company shall indemnify and save harmless each Indemnitee from and against any and all claims, liabilities, damages, losses, penalties, actions, judgments, costs and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated, that are incurred by any Indemnitee or to which such Indemnitee may be subject by reason of its activities on behalf of the Company or any of its Subsidiaries or in furtherance of the interests of the Company or otherwise arising out of or in connection with the affairs of the Company, its Subsidiaries or Affiliates, including the performance by such Indemnitee of any of the Manager’s responsibilities under this Agreement and/or under the governing documents of any Subsidiary or otherwise in connection with the matters contemplated herein or therein; provided, that: (i) an Indemnitee shall be entitled to indemnification hereunder only to the extent that such Indemnitee’s conduct did not constitute fraud, bad faith, willful misconduct, gross negligence, a material breach of this Agreement which is not cured in accordance with the terms of this Agreement or a violation of applicable securities laws; (ii) nothing herein shall constitute a waiver or limitation of any rights which a Stockholder or the Company may have under applicable securities laws or other laws and which may not be waived; and (iii) the Company’s obligations hereunder shall not apply with respect to (x) economic losses or tax obligations incurred by any Indemnitee as a result of such Indemnitee’s ownership of an interest in the Company, or in Royalty Investments, (y) expenses of the Company that an Indemnitee has agreed to bear or (z) amounts recoverable by the Indemnitee from other sources (including without limitation insurance) as provided in Section 14(d). The satisfaction of any indemnification and any saving harmless pursuant to this Section shall be from and limited to Company assets, and no Stockholder shall have any personal liability on account thereof. The conduct of the Manager and HCRX EPA shall be attributed to one another for purposes of determining whether indemnification is available pursuant to this Section and whether conduct meets the standards set forth in Section 13 (Exculpation).

 

(b)               Expenses reasonably incurred by an Indemnitee in defense or settlement of any claim that may be subject to a right of indemnification hereunder shall be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount to the extent that it shall be determined ultimately that such Indemnitee is not entitled to be indemnified hereunder.

 

(c)               The right of any Indemnitee to the indemnification provided herein shall extend to such Indemnitee’s heirs, executors, administrators, successors, assigns and legal representatives and shall be cumulative of, and in addition to, any and all rights to which such Indemnitee may otherwise be entitled by contract or as a matter of law or equity. Notwithstanding the foregoing, no Indemnitee may have any other rights to indemnification from the Company or enter into, or make any claim under, any other agreement with the Company (whether direct or indirect) providing for indemnification except as otherwise set forth in this Agreement.

 

(d)                Any Person entitled to indemnification from the Company hereunder shall first seek recovery under any other indemnity or any insurance policies by which such Person is indemnified or covered, as the case may be, but only to the extent that the indemnitor with respect to such indemnity or the insurer with respect to such insurance policy provides (or acknowledges its obligation to provide) such indemnity or coverage on a timely basis, as the case may be, and, if such Person is other than the Manager, such Person shall obtain the written consent of the Manager prior to entering into any compromise or settlement which would result in an obligation of the Company to indemnify such Person; and if liabilities arise out of the conduct of the affairs of the Company and any other Person for which the Person entitled to indemnification from the Company hereunder was then acting in a similar capacity, the amount of the indemnification provided by the Company shall be limited to the Company’s proportionate share thereof as determined by the Manager in light of its fiduciary duties to the Company and the Stockholders.

 

(e)               Notwithstanding any of the foregoing to the contrary, the provisions of this Section shall not be construed so as to provide for the indemnification of any Indemnitee for any liability (including liability under U.S. federal or state securities laws (which includes liability for violation of the anti-fraud provisions contained in Section 206 of the Advisers Act) which, under certain circumstances, impose liability even on Persons that act in good faith), to the extent (but only to the extent) that such indemnification would be in violation of law, but shall be construed so as to effectuate the provisions of this Section to the fullest extent permitted by law.

 

 

 

 

Section 15.       Limitations on Reference to the Manager. The Company shall not distribute or circulate any sales literature, promotional or, save where required by applicable law, regulation or court order, other material which contains any reference to the Manager without the prior approval of the Manager, and, where practicable, shall submit in draft form all such materials requiring approval of the Manager, allowing sufficient time for review by the Manager and its counsel prior to any deadline for printing. If the Manager ceases to furnish services to the Company, the Company at its expense:

 

(a)               as promptly as practicable, shall take all necessary action to cause the Organizational Documents to be amended to eliminate any reference to the Manager; and

 

(b)              within 60 days after the date on which the Manager ceases to furnish services to the Company, shall cease to use in any other manner, including use in any `sales literature or promotional material, the name of the Manager, save where required by applicable law, regulation or court order.

 

Section 16.        Term. This Agreement shall have an initial term of ten years ending on [July] [●], 2031 (the “Initial Term”), after which it shall automatically renew for a term of three years thereafter (a “Renewal Term”), unless either the Manager or the Company provides to the other party prior written notice of non-renewal at least 180 days prior to the expiration of the Initial Term.

 

Section 17. Removal.

 

(a)               Subject to the following provisions of this Section 17, during the Initial Term and the Renewal Term, this Agreement may only be terminated by the Company for Cause.

 

(b)               If the Management Agreement with Holdings LP or any other Subsidiary is terminated for Cause then this Agreement shall automatically be terminated, and the provisions of Section 6 and Sections 7(a) and (b) shall no longer apply.

 

(c)               The Company shall have the right to terminate the Manager following (i) a determination of Cause by a court or governmental body of competent jurisdiction in a final judgement, or (ii) an admission in writing of Cause by the Manager or HCRX EPA. In the event that Mr. Futch commits an act constituting Cause (while he is acting as chief executive officer of the Company), such action shall be imputed to HCRX EPA and the Manager. Any act constituting Cause committed by any other named executive officer of HCRX EPA or the Manager (including Mr. Futch if he is no longer acting as chief executive officer of the Company) shall not be imputed to HCRX EPA and the Manager if the Manager terminates such executive’s engagement with, employment by or relationship with the Manager and HCRX EPA within such reasonable period of time as may be agreed to by the Board of Directors; provided that if such executive is not terminated within such period of time then such Cause event shall be imputed to HCRX EPA and the Manager.

 

Section 18.        Choice of Law. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all of the terms and provisions hereof shall be governed by and construed under the laws of the State of Delaware applicable to contracts made and to be entirely performed in such state.

 

 

 

 

Section 19.          Confidentiality. Except as may be required by applicable law or by any regulatory authority or agency or as may otherwise be contemplated by this Agreement, each of the parties hereto hereby covenants and undertakes with the other party hereto to keep secret and confidential and not to disclose to any person any Confidential Information; provided, however, that no party shall be required to keep secret and confidential any Confidential Information which has properly entered the public domain otherwise than through the default of such party except where the parties are compelled to do so by any self-regulatory body or by applicable law. No public announcement shall be made or circular, notice or advertisement issued in connection with the subject matter of this Agreement by either of the parties hereto without the prior approval of the other party hereto.

 

Section 20.         Severability. If any provision of this Agreement is invalid or unenforceable under any applicable law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such applicable law. Any provision hereof which may be held invalid or unenforceable under any applicable law shall not affect the validity or enforceability of any other provisions hereof, and to this extent the provisions hereof shall be severable.

 

Section 21.         Force Majeure. The Manager shall not be responsible for any loss of or damage to any property, securities, instruments or other assets of the Company for any failure to fulfil any of its duties hereunder if such loss, damage or failure is directly or indirectly caused by or due to any act of God, storm, tempest, accident, fire, water damage, riot, civil commotion, rebellion, strike, lock-out, government or military action or any other cause or circumstance beyond the control of the Manager, provided that the Manager shall use all reasonable efforts to minimize the effects thereof.

 

Section 22.         Forum. To the fullest extent permitted by law, in the event of any proceeding arising out of the terms and conditions of this Agreement, the parties hereto irrevocably (i) consent and submit to the exclusive jurisdiction of the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (unless the Delaware Court of Chancery shall decline jurisdiction over a particular matter, in which case, any state or federal court within the State of Delaware), (ii) waive any defense based on doctrines of venue or forum non conveniens, or similar rules or doctrines, and (iii) agree that all claims in respect of such a proceeding must be heard and determined exclusively in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (unless the Delaware Court of Chancery shall decline jurisdiction over a particular matter, in which case, any state or federal court within the State of Delaware). Process in any such proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court.

 

Section 23.          Notices.

 

(a)               Each notice relating to this Agreement shall be in writing and delivered in person, by registered or certified mail, by Federal Express or similar overnight courier service, by electronic mail (e-mail) to the address or e-mail address on record.

 

(b)              Unless otherwise specifically provided in this Agreement, a notice shall be deemed to have been effectively given when delivered personally, if delivered on a Business Day; the next Business Day after personal delivery, if delivered personally on a day that is not a Business Day; four Business Days after being deposited in the United States mail, postage prepaid, return receipt requested, if mailed; on the next Business Day after being deposited for next day delivery with Federal Express or similar overnight courier; and when a reply e-mail acknowledging receipt is received by the sender, if e-mailed.

 

 

 

 

Section 24.          Entire Agreement. This Agreement contains all of the terms agreed upon or made by the parties relating to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter.

 

Section 25.           Amendments and Waivers. No provision of this Agreement may be amended, modified, waived or discharged except as agreed to in writing by the parties. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

Section 26.          Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit the Company, the Manager, each Indemnified Party and their respective successors and permitted assigns. Any Person that is not a signatory to this Agreement but is nevertheless conferred any rights or benefits hereunder (e.g., officers, partners and employees of the Manager and others who are entitled to indemnification hereunder) shall be entitled to such rights and benefits as if such Person were a signatory hereto, and the rights and benefits of such Person hereunder may not be impaired without such Person’s express written consent. No assignment (as that term is defined under the Advisers Act) by either party of all or any portion of its rights, obligations or liabilities under this Agreement shall be permitted without the prior written consent of the other party to this Agreement.

 

Section 27.           Headings. The headings of the Sections of this Agreement are for convenience of reference only, and are not to be considered in construing the terms and provisions of this Agreement. References to “Section” in this Agreement shall be deemed to refer to the indicated Section of this Agreement, unless the context clearly indicates otherwise.

 

Section 28.           Discretion; Good Faith. Whenever in this Agreement the Manager is permitted or required to make a decision (i) in its “discretion” or under a grant of similar authority or latitude, the Manager shall be entitled to consider such interests and factors as it desires, including its own interests, or (ii) in its “good faith” or under another express standard, the Manager shall act under such express standard, shall not be subject to any other or different standard imposed by applicable law and may exercise its discretion differently with respect to different investors.

 

Section 29.           Counterparts. Counterparts may be executed through the use of separate signature pages or in any number of counterparts with the same effect as if the parties executing such counterparts had all executed one counterpart. Each party understands and agrees that any portable document format (PDF) file, facsimile or other reproduction of its signature on any counterpart shall be equal to and enforceable as its original signature and that any such reproduction shall be a counterpart hereof that is fully enforceable in any court or arbitral panel of competent jurisdiction.

 

Section 30.          Survival. The provisions of the Section entitled Operating and Personnel Payment (only to the extent that the Operating and Personnel Payment is earned by the Manager prior to termination of this Agreement), and the Sections entitled Covenant/Devotion of Time, Non-Competition, Exculpation, Indemnification, Limitations on Reference to the Manager, Choice of Law, Forum, Notices, Entire Agreement, Binding Effect; Assignment, Survival and Waiver of Jury Trial shall survive the termination of this Agreement.

 

Section 31.          Waiver of Jury Trial. EACH PARTY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RIGHT TO A TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW IN ANY PROCEEDING ARISING OUT OF THE TERMS AND CONDITIONS OF THIS AGREEMENT. THIS WAIVER APPLIES TO ANY PROCEEDING, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY ACKNOWLEDGES THAT IT HAS RECEIVED THE ADVICE OF COMPETENT COUNSEL.

 

[The rest of this page is intentionally left blank.]

 

 

 

 

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date first set forth above.

 

     
HEALTHCARE ROYALTY, INC.   HCRX MANAGEMENT, LLC

 

By: /s/   By: /s/

Name: Clarke B. Futch   Name:
Title: Chairman & Chief Executive Officer   Title:
     

 

Management Agreement Signature Page

 

 

 

 

Exhibit A –Approved Actions

 

To be determined.

 

 

 

 

 

MANAGEMENT AGREEMENT

 

Dated as of July [●], 2021

 

This MANAGEMENT AGREEMENT (this “Agreement”) is effective as of the [●]th day of [July], 2021, among HEALTHCARE ROYALTY HOLDINGS, L.P., a Delaware limited partnership (“Holdings”), HCRX INTERMEDIATE HOLDCO, L.P., a Delaware limited partnership (“Intermediate HoldCo”), HCRX INVESTMENTS HOLDCO, L.P. a Delaware limited partnership (“Investments HoldCo”, and collectively with Intermediate HoldCo and Holdings, the “Partnership”), and HCRX MANAGEMENT, LLC, a Delaware limited liability company (the “Manager”). Capitalized terms used in the preamble and recitals of this Agreement and not otherwise defined therein are defined in Section 1 (Definitions).

 

R E C I T A L S:

 

WHEREAS, the Partnership was formed by Healthcare Royalty, Inc., a Delaware corporation (“Parent”) for the purpose of investing Parent’s assets in the Partnership and its Subsidiaries;

 

WHEREAS, the Partnership desires to avail itself of the experience, sources of information, advice and assistance of the Manager and to have the Manager perform various investment management services for the Partnership; and

 

WHEREAS, the Manager is willing to perform such services under the terms and conditions as set forth herein and in accordance with the terms of the Partnership’s Organizational Documents (as defined below) and subject to the oversight of the General Partner (as defined below).

 

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

 

Section 1.     Definitions.

 

Unless otherwise expressly provided in this Agreement, the following terms used in this Agreement shall have the following meanings:

 

Advisers Act

 

means the U.S. Investment Advisers Act of 1940, as amended.

Affiliate with respect to any specified Person, any Person directly or indirectly Controlling, Controlled by or under common Control with such Person; provided that for purposes of this Agreement, each of the Parent, the Partnership and Cowen shall not be deemed to be an Affiliate of the Manager.
Agreement shall have the meaning set forth in the preamble of this Agreement.

 

 

 

Applicable Party means HCRX EPA, the Manager or an executive officer of the Manager or HCRX EPA (including Mr. Futch).
Applicable Percentage shall have the meaning set forth in Section 10.
Board of Directors means the board of directors of the Parent.
Business Day means a day which is not a Saturday, Sunday or a day on which banks in New York City are authorized or required by law to close.
Cause will exist where (i) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused HCRX EPA or the Manager to commit) a material breach of a material provision of the Organizational Documents of Parent or the Partnership, or this Agreement; (ii) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused HCRX EPA or the Manager to commit) willful misconduct in connection with the performance of its duties under the terms of the Organizational Documents of Parent or the Partnership, or this Agreement, (iii) there is a declaration of bankruptcy by an Applicable Party, or (iv) there is a determination by any court with proper jurisdiction that an Applicable Party has committed an intentional felony or engaged in any fraudulent conduct, in each such case of clauses (ii) and (iv) which has a material adverse effect on the business, assets or condition (financial or otherwise) of the HCRX Group and its Affiliates (taken as a whole).

 

 

 

Change of Control a change of control shall be deemed to have occurred if: (i) a sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Parent’s assets, (ii) a merger or consolidation of the Parent with or into any other Person or any other transaction or a series of related transactions, the result of which is that a third party (or a group of third parties) that is not an Affiliate of the Parent or the Manager immediately prior to such transaction acquires or holds capital stock of the Parent representing 40% of the Parent’s outstanding voting power immediately following such transaction, or (iii) a change in the composition of the Board of Directors as a result of which the majority of the members of the Board of Directors cease to be Continuing Directors. Notwithstanding the foregoing, the following events do not constitute a Change of Control: (A) a transaction (other than a sale of all or substantially all of the Parent’s assets) in which the holders of the voting securities of the Parent immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting securities in the successor corporation or its parent immediately after such transaction; (B) a sale, lease, exchange or other transaction in one transaction or a series of related transactions of all or substantially all of the Parent’s assets to an Affiliate of the Parent or the Manager; (C) the Parent’s initial public offering and any subsequent registered offerings or secondary sales by the Continuing Investors of any of the Parent’s securities, unless any such subsequent registered offering or secondary sale results in a third party who is not an Affiliate owning more than 40% of the Parent’s outstanding voting power immediately following such offering or sale; (D) a reincorporation of the Parent solely to change its jurisdiction; or (E) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Parent or any successor or indebtedness of the Parent is cancelled or converted or a combination thereof.
Code means the U.S. Internal Revenue Code of 1986, as amended and as hereafter amended, or any successor law.
Competing Fund means a Person or pooled investment or asset management vehicle investing in Royalty Investments, other than (i) the Parent, the Partnership or any of their respective direct or indirect Subsidiaries, (ii) any of the Legacy Vehicles for which the Manager or any of its Affiliates acts as the general partner or investment manager, or (iii) any Person or vehicle approved by the independent members of the Board of Directors.
Confidential Information means any proprietary information relating to the organization, finances, business, transactions or affairs of the Partnership or the Manager or any of their Affiliates as the case may be.
Continuing Director means, as of any date of determination, any member of the Board of Directors who: (i) was a member of the Board of Directors upon closing of the Parent’s initial public offering, or (ii) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.
Continuing Investors means the investors who received limited partnership interests in HCRX Feeder Fund L.P.

 

 

 

Control means, with respect to any Person, the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of such Person; provided, however, that customary approval and veto rights granted to minority equity holders of a Person shall not be deemed to constitute “Control” of such Person.
Cowen means Cowen, Inc, a Delaware corporation, and its Affiliates
Exchange Act means the Securities Exchange Act of 1934, as amended.
General Partner means HCRX Master GP, LLC.
Good Reason means the occurrence of either of the following: (i) a failure by the Board of Directors to obtain Manager’s consent to an amendment of the Organizational Documents pursuant to Section 9(b) or to the adoption or amendment of any policy, compliance procedure or reporting requirement pursuant to Section 9(c) of this Agreement or (ii) a material breach by the Partnership (at the direction of the Board of Directors) of its obligations to Manager (without Manager’s prior waiver or consent) under this Agreement, which breach, if capable of being cured, is not cured within 30 days after the Partnership receives notice of such breach.  
HCRX EPA means HCRX EPA Holdings, LLC, a Delaware limited liability company.
HCRX Group means the Parent and its Subsidiaries.
Holdings shall have the meaning set forth in the preamble to this Agreement.
Initial Term

 shall have the meaning set forth in Section 16.

Indemnitee shall have the meaning set forth in Section 13(a).
Legacy Vehicle means each of HealthCare Royalty Partners, L.P., HealthCare Royalty Partners II, L.P. and HealthCare Royalty Partners, II-A, L.P.
Manager shall have the meaning set forth in the preamble of this Agreement.
Operating and Personnel Payment shall have the meaning set forth in Section 10.

 

 

 

Organizational Documents shall mean, (i) with respect to Parent, its certificate of incorporation and bylaws, (ii) with respect to each of Holdings, Intermediate HoldCo and Investments HoldCo, their respective certificates of limited partnership and limited partnership agreements.
Partners means the limited partners of the Partnership.
Person means a natural person, partnership, limited liability company, corporation, unincorporated association, joint venture, trust, state or any other entity or any governmental agency or political subdivision thereof.
Renewal Term shall have the meaning set forth in Section 16.
Royalties means intellectual property (including patents) or other contractual rights to income derived from the sales of, or revenues generated by, pharmaceutical, biopharmaceutical, medical and/or healthcare products, processes, devices, or enabling and delivery technologies that are protected by patents, trademarks or copyrights, governmental or other regulations or otherwise by contract, contractual rights to debt, and synthetic rights.

 

Royalty Investment

means any acquisition of (including, without limitation, any secondary purchase of existing assets), or financing or investment in, or any acquisition, financing or investment relating directly or indirectly to Royalties, which may include, without limitation (i) purchases of Royalties, (ii) Royalty notes, (iii) SYNTHETIC ROYALTYTM financings, (iv) ownership interests in any entities, including entities formed for the purpose of holding Royalties or substantially all of the assets of which consist of Royalties; (v) structured debt, (vi) any securities, investments or contracts that may provide a hedge for Royalties; and (vii) other assets and investments considered by the Manager to be related to the foregoing.
Royalty Receipts means, with respect to each investment that is indirectly held by the Partnership through a Subsidiary, all cash or other proceeds received in respect of such investment during the applicable period.
Subsidiary of any Person means any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other subsidiary) owns, directly or indirectly, more than 50% of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.

 

 

 

Section 2.        Interpretation and Construction.

 

(a)       In this Agreement, unless a clear contrary intention appears:

 

(i)       common nouns and pronouns and any variation thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the Person, Persons or other reference in the context requires;

 

(ii)       where specific language is used to clarify by example a general statement contained in this Agreement, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates;

 

(iii)       “any” shall mean “one or more”;

 

(iv)       “including” and with correlative meaning “include” means including without limiting the generality of any description preceding such term; and

 

(v)       all references to “funds”, “dollars” or “payments” shall mean United States dollars.

 

(b)       The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of construction or interpretation requiring this Agreement to be construed or interpreted against any party shall apply.

 

Section 3.     Appointment of the Manager. The General Partner, pursuant to Section 5.2(a) of the Partnership Agreement, hereby appoints the Manager to assist the General Partner in the performance of the investment advisory duties and responsibilities of the General Partner as the general partner of the Partnership in accordance with the Partnership Agreement, which may include, without limitation, (a) sourcing, identifying and evaluating prospective Royalty Investments, (b) structuring and negotiating the acquisition and disposition of Royalty Investments on behalf of the Partnership, (c) monitoring Royalty Investments and (d) performing the day-to-day investment and administrative operations of the Partnership. Pursuant to Section 17-403 of the Delaware Act, such delegation of authority to the Manager shall not cause the Manager to be a general partner of the Partnership and shall not cause the General Partner to cease to be a general partner of the Partnership. The Manager shall perform its obligations under this Agreement in a diligent and timely manner that complies with the terms and conditions set forth in the Partnership Agreement.

 

Section 4.     Authority of the Manager. In connection with its obligations hereunder, the Manager shall have the authority for and in the name of the Partnership, subject to Section 5 (Policies of the Partnership) and Section 9 (Investments), to:

 

(a)               invest the Partnership’s assets, through Holdings or any other Subsidiary of Holdings;

 

(b)               direct the formulation of investment policies and strategies for the Partnership in accordance with Section 9 hereof, and identify, source, select, evaluate and approve the investment of Partnership funds, all in accordance with the provisions and limitations of this Agreement;

 

 

 

(c)               open, maintain and close bank accounts, make wire transfers and draw checks or other orders for the payment of money and open, maintain and close brokerage, money market fund and similar accounts;

 

(d)               incur expenses and obtain reimbursement from the Partnership for such expenses in accordance with Section 12 of this Agreement;1

 

(e)               investigate, select and, on behalf of the Partnership, engage and conduct business with (including enter contracts with) such Persons as the Manager deems necessary to the proper performance of its obligations as set forth in this Agreement, including but not limited to consultants, accountants, lenders, technical and scientific advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, consultants and any and all Persons acting in any other capacity deemed by the Manager necessary or desirable for the performance of any of the foregoing services;

 

(f)                negotiate, enter into, execute, maintain, modify and/or terminate contracts, undertakings, agreements and any and all other documents and instruments in the name of the Partnership and do or perform all such things as may be necessary or advisable in furtherance of the Partnership’s powers, objects or purposes or to the conduct of the Partnership’s activities, including (i) entering into acquisition agreements to make or dispose of investments (or consenting or authorizing any Subsidiary to do the same) which agreements may include such representations, warranties, covenants, indemnities and guaranties as the Manager deems necessary or advisable and (ii) entering in financing, loan or credit agreements contracts, undertakings or arrangements, and incurring indebtedness thereunder, in such amounts as the Manager deems necessary or advisable;

 

(g)               make, in its sole discretion, any and all elections for U.S. federal, state, local and foreign tax matters;

 

(h)               manage, acquire or dispose of investments for the Partnership as permitted hereunder and under the Organizational Documents;

 

(i)                 vote, in its sole discretion, any shares, units or interests of any Subsidiary held by the Partnership or otherwise authorize, approve or adopt any matter presented to the holders of shares, units or interests of any Subsidiary held by the Partnership;

 

(j)                 engage attorneys, independent accountants, other service providers, investment banks, accountants and other advisers and such other Persons as the Manager may deem necessary or advisable;

 

 

1 Note to Ropes: The idea here was to clarify that Manager is permitted to undertake the activities for which it is permitted to seek reimbursement pursuant to Section 12.

 

 

 

(k)               provide service providers and advisers to the Partnership, with such information and instructions as may be necessary to enable such service providers and advisers to perform their duties in accordance with the applicable agreements;

 

(l)                 oversee all reporting, recordkeeping, internal controls and similar matters in a manner to allow the Partnership and Parent to comply with applicable law, including the Sarbanes-Oxley Act of 2002;

 

(m)             manage communications with Partners of the Partnership and stockholders of Parent, including answering phone calls, preparing and sending written and electronic reports and other communications;

 

(n)               maintain accounting data and any other information concerning the activities of the Partnership and Parent as shall be needed to prepare and file all periodic financial reports and returns required to be filed by the Parent with the Securities and Exchange Commission and any other regulatory agency, including annual financial statements;

 

(o)               authorize any partner, member, employee or other agent of the Manager or its Affiliates or other agent of the Partnership to act for and on behalf of the Partnership in all matters incidental to the foregoing; and

 

(p)               do any and all acts on behalf of the Partnership as the Manager may deem necessary or advisable in connection with the maintenance and administration of the Partnership, and exercise all rights of the Partnership, with respect to their interest in any Person, including the voting of securities, participation in arrangements with creditors, the institution and settlement or compromise of proceedings and other like or similar matters.

 

The Partnership hereby appoints the Manager as its attorney-in-fact to act in the Partnership’s name, place and stead on behalf of the Partnership in any and all matters relating to the investment of the cash and other assets of the Partnership and to sign, execute and deliver any and every conceivable right (including, without limitation, any contract, agreement, instrument, consent, notice or acknowledgement) and to do all other acts and things and take any and every act or action, in each case in the Partnership’s name and on the Partnership’s behalf, which the Manager in its sole discretion deems necessary or otherwise appropriate in the performance of its duties under this Agreement. The power of attorney hereby granted by the Partnership to the Manager pursuant to this Section shall remain in force during the continuance of this Agreement and all acts done and documents signed or executed by the Manager in good faith in the purported exercise of any authority conferred by or purport to this power of attorney shall for all purposes be valid and binding on the Manager.

 

Section 5.     Policies of the Partnership.

 

(a)The activities engaged in by the Manager on behalf of the Partnership shall be subject to the written policies, instructions, oversight and control of the General Partner.

 

(b)Within 30 days after the beginning of each quarter, the Manager shall provide the General Partner with a summary of all investment activities undertaken in the prior quarter, along with any other material developments in the business or activities of the Partnership. In addition, the Manager shall meet with the General Partner on a quarterly basis to discuss its activities on behalf of the Partnership.

 

 

 

(c)The General Partner’s rights pursuant to Section 5(b) are informational only, and the General Partner shall have no consent rights over any investments except as otherwise provided in the Organizational Documents of the Partnership or in the investment policies of the Partnership.

 

Section 6.     Covenant/Devotion of Time. The Manager shall not manage another entity that invests or acquires, directly or indirectly, Royalty Investments, other than the Parent, the Partnership, or any of their direct or indirect Subsidiaries, and any Legacy Vehicle. The executives of the Manager must devote substantially all of their business time and attention to managing the Parent, the Partnership, or any of their direct or indirect Subsidiaries, and any Legacy Vehicle, unless otherwise approved by the General Partner and the Board of Directors. Any action that has been approved by the General Partner and the Board of Directors as set forth in the immediately preceding sentence shall be set forth on Exhibit B, which shall be amended from time to time to reflect any actions approved by the General Partner and the Board of Directors after the date of this Agreement. The provisions of this Section 6 shall no longer apply following the occurrence of a Change of Control or Good Reason event, and the taking of any actions inconsistent with this Section 6 shall not be taken into account in determining whether an Applicable Party has committed an act that would constitute “Cause”.

 

Section 7.     Non-Competition and Non-Solicit.

 

(a)       Every named executive officer of the Manager shall not during its tenure as an executive of the Manager and for a period of 12-months following the termination of its engagement with or employment by the Manager directly or indirectly, close, advise, raise money for, manage or act as the general partner, investment manager, investor, consultant, independent contractor, servicer, advisor, director, officer, member, manager or employee to, of, in or for any Competing Fund. Manager shall cause each of its key employees to enter into non-competition agreements with Manager that are substantially consistent with the terms of this Section 7, unless such agreement would be prohibited by applicable law, rule or regulation.

 

(b)       Each of the Manager and its Affiliates shall not during the time it is acting as manager or general partner or in a similar capacity for the Partnership and for a period of 12-months following any termination of this Agreement for Cause directly or indirectly, close, advise, raise money for, manage or act as the general partner, investment manager, investor, consultant, independent contractor, servicer, advisor, director, officer, member, manager or employee to, of, in or for any Competing Fund.

 

(c)       The provisions of Section 7(a) and Section 7(b) shall no longer apply upon the occurrence of a Change of Control or a Good Reason event, and the taking of any such actions shall not be taken into account in determining whether an Applicable Party has committed an act that would constitute “Cause”.

 

 

 

(d)        During the time that Manager is acting as manager or general partner or in a similar capacity for the Company and for a period of 12-months following any termination of this Agreement for Cause, the Manager shall use commercially reasonable efforts to cause Cowen not to, directly or indirectly, close, advise, raise money for, manage or act as the general partner, investment manager, investor, consultant, independent contractor, servicer, advisor, director, officer, member, manager or employee to, of, in or for any Competing Fund.

 

Section 8.      Status of the Manager. The Manager shall, for all purposes hereof, be an independent contractor and not an employee of the Partnership and nothing in this Agreement shall be construed as making the Partnership a partner or co-venturer with the Manager or any of its Affiliates or other funds, investment vehicles or accounts to which Manager provides investment services. The Manager shall not have authority to act for, represent, bind or obligate the Partnership, except as specifically provided in this Agreement.

 

Section 9.      Investments. All investments of the Partnership and other activities undertaken by the Manager on behalf of the Partnership shall at all times conform to and be in accordance with the requirements imposed by the following:

 

(a)               any provisions of applicable law and regulation;

 

(b)              provisions of the Organizational Documents; provided, however, that the Manager shall not be bound by any amendment of any Organizational Document unless and until it has been given written notice thereof and has been provided with a copy of such amendment and, provided, further, that Manager’s consent shall be required for any such amendment that is materially adverse to the Manager or that imposes materially different obligations or restrictions on the Manager;

 

(c)               without prejudice to Section 5, such policies, compliance procedures and reporting requirements as may be adopted from time to time by the General Partner; provided, however, that the Manager shall not be bound by any such policies, unless and until it has been given written notice thereof and provided, further, that Manager’s consent shall be required for any such policies that constitute a materially adverse change or materially different change to the policies applicable to Manager.

 

For the purpose of Section 9(b)-(c), a “materially different” provision or policy shall include, without limitation, any material change in the number of investments the Manager may execute in a given year or any change in the industries in which Manager may make investments.

 

Section 10.       Operating and Personnel Payment.

 

(a)               The Partnership shall pay the Manager a quarterly operating and personnel payment equal to the Applicable Percentage (as defined below) multiplied by the amount of Royalty Receipts in such quarter (such aggregate amount, the “Operating and Personnel Payment”). For purposes of this Section 10 and with respect to a particular quarter, the “Applicable Percentage” will be determined based on the amount of Royalty Receipts of the Partnership in such quarter together with the Royalty Receipts of the preceding three quarters (the “Trailing Royalty Receipt Amount”) and in accordance with the following schedule:

 

 

 

Applicable Percentage Trailing Royalty Receipt Amount
7.5% Less than $750 million.
7.0% More than or equal to $750 million but less than $1 billion
6.5% More than or equal to $1 billion

 

(b)               The Operating and Personnel Payment shall be payable by the Company (i) for the first fiscal quarter, on the date that is 3 Business Days after the date hereof, and (ii) therafter, quarterly in arrears as of the last Business Day of each fiscal quarter based, in each case on the estimated projected Royalty Receipts from Royalty Investments as of such date. The Manager shall recalculate the Operating and Personnel Payment based on the actual Royalty Receipts from Royalty Investments following the date on which the Partnership’s financial statements are finalized. If it is determined based on such recalculation that (i) the finalized Operating and Personnel Payment exceeded prior payments of the Operating and Personnel Payment, then the amount of any shortfall shall be added to the next Operating and Personnel Payment that becomes due or (ii) prior payments of the Operating and Personnel Payment exceeded the finalized Operating Personnel and Expense Fee, then such excess shall be deducted from the next Operating and Personnel Payment that becomes due.

 

(c)               The Partnership and its Subsidiaries shall have no employees of their own.

 

(d)               For any partial fiscal quarter in respect of which the Operating and Personnel Payment is being paid, including in the event that this Agreement is terminated for Cause, the Partnership shall pay an amount equal to the Applicable Percentage multiplied by the amount of Royalty Receipts received during such partial fiscal quarter.

 

(e)               The Operating and Personnel Payment shall be reduced by the amount of any operating and personnel payments that are paid to the Manager by Parent pursuant to the management agreement between Parent and the Manager.

 

(f)                To the extent that an investment of the Partnership is made through any Affiliate or Subsidiary other than Intermediate HoldCo or Investment HoldCo, then the Partnership shall cause, or permit the Manager to cause, such Affiliate or Subsidiary to enter into a management agreement with the Manager on substantially the same terms as the Management Agreement between the Manager and Holdings, including with respect to any operating and personnel payment.

 

 

 

Section 11.      Expenses of the Manager. The Manager or its Affiliates, but not the Partnership or any of its Subsidiaries or any Partner, shall bear and be charged with the following costs and expenses of the Partnership’s activities: (a) any costs and expenses of providing to the Partnership the office overhead necessary for the Partnership’s operations, including, but not limited to, rent and other normal overhead and operating expenses; (b) the compensation of the Manager’s personnel, including, but not limited to, benefits, and other expenses for such personnel; and (c) similar expenses to the extent that such expenses are not subject to reimbursement by the Partnership pursuant to Section 12 (Partnership Expenses).

 

Section 12.     Partnership Expenses. The Partnership shall bear and be charged with all expenses of the Partnership and its Subsidiaries (through its investment in such Subsidiaries) other than expenses that are expressly borne by the Manager pursuant to Section 11 (Expenses of the Manager) including, without limitation, the following costs and expenses of the Partnership:

 

(a)               all organizational, administrative and operating expenses incurred on its behalf, including interest and financing expenses, expenses of custodians, administrators, accountants, auditors, outside counsel and other similar service providers, the cost of the preparation of financial statements, reports to Partners, the annual audit, financial and tax returns, tax and other similar reports required for the Partnership and the Partners, extraordinary items such as litigation, indemnification and other similar expenses, and any taxes, fees or other government charges levied against the Partnership;

 

(b)                independent valuation expenses (if applicable);

 

(c)               expenses incurred in providing any reporting to Partners, the General Partner, the Parent or the stockholders of the Parent or regulatory reporting, printing and mailing costs;

 

(d)               third party research costs and expenses, including consultants, senior advisors, and regional advisors to the Partnership;

 

(e)               administrative expenses (including any fee payable to an administrator, if appointed by the Partnership), government fees and taxes (if any);

 

(f)                expenses incurred in connection with any meeting of the Partners, including, without limitation, travel, meal and lodging expenses and ancillary activities related thereto;

 

(g)               fees and expenses related to regulatory compliance burdens of the Partnership or any Subsidiary or any investment of any Subsidiary;

 

(h)               premiums for insurance;

 

(i)                 out-of-pocket expenses incurred in connection with complying with the provisions of any side letters;

 

(j)                 any registration or filing fees relating to the Partnership or any Subsidiary;

 

(k)               all out-of-pocket costs and expenses, if any, incurred in sourcing, analyzing, conducting due diligence, holding, developing, negotiating, structuring, acquiring and disposing of investments and prospective investments, whether or not ultimately made, and managing and disposing of actual investments, including without limitation any financing, legal, accounting, advisory and consulting expenses in connection therewith (to the extent the Manager is not otherwise reimbursed by another party or the costs are not capitalized as part of the acquisition price of the transaction);

 

 

 

(l)                 expenses (including travel expenses) incurred in connection with sourcing and investigating investment opportunities, developing business opportunities for the Subsidiaries of the Partnership and monitoring their investments (including attending medical and industry conferences), and in connection with attending and or sponsoring life science industry conferences and marketing events;

 

(m)             interest on and fees and expenses arising out of all borrowings made by or on behalf of the Partnership, including, but not limited to, the arranging thereof;

 

(n)               costs of any litigation, Directors & Officers liability or other insurance and indemnification or extraordinary expense or liability relating to the affairs of the Partnership;

 

(o)               expenses of liquidating the Partnership;

 

(p)               all expenses incurred in connection with any tax audit, investigation, settlement or review of the Partnership;

 

(q)               any expenses in connection with the General Partner;

 

(r)                legal and accounting fees and expenses and other expenses incurred by the Partnership in connection with the preparation for, and conduct and closing of any offering of additional interests in the Partnership or shares in the Parent;

 

(s)                 the Partnership’s pro rata share of the expenses incurred in the formation of any Subsidiary; and

 

(t)               any costs and expenses incurred in connection with the contemplation of, formation of, listing and ongoing operation of the Partnership, including any third-party expenses of managing the Partnership, such as accounting, audit, legal, reporting, compliance, administration (including directors’ fees), financial advisory, consulting, investor relations, and insurance expenses relating to the affairs of the Partnership.

 

The Partnership shall promptly reimburse the Manager or any of its Affiliates, as the case may be, to the extent that any of the costs and expenses set forth in this Section 12 are paid by such entities, provided, however, that any expenses incurred by the Manager or any of its Affiliates on behalf of the Partnership and the Parent shall only be reimbursed once, and the Partnership will have no obligation to reimburse the Manager for any expenses to the extent the Parent has reimbursed the Manager for such expenses pursuant to the Management Agreement between the Parent and the Manager.

 

 

 

Section 13.      Exculpation.

 

(a)               To the fullest extent permitted by law, none of the Manager, its Affiliates including HCRX EPA and their respective officers, directors, stockholders, members, employees, agents and partners, and any other person who serves at the request of the Manager on behalf of the Partnership as an officer, director, employee or agent of, or with respect to, any other entity (each, an “Indemnitee”) shall be liable to the Partnership or any Subsidiary or any Partner for (i) any act or omission taken or suffered by an Indemnitee in connection with the conduct of the affairs of the Partnership or otherwise in connection with this Agreement or the matters contemplated herein, unless such act or omission resulted from fraud, bad faith, willful misconduct, gross negligence, a material breach of this Agreement which is not cured in accordance with the terms of this Agreement or a violation of applicable securities laws by such Indemnitee, and except that nothing herein shall constitute a waiver or limitation of any rights which a Partner of the Partnership may have under applicable securities laws or other laws and which may not be waived, or (ii) any mistake, negligence, dishonesty or bad faith of any broker or other agent of the Partnership selected and monitored by the Manager with reasonable care.  

 

(b)               To the extent that, at law or in equity, the Manager has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or another Partner, the Manager acting under this Agreement or refraining from taking action under this Agreement, shall not be liable to the Partnership or to any such other Partner for its actions or inaction, taken or suffered in good faith and in reliance on the provisions of this Agreement, provided, that such action or inaction does not constitute fraud, bad faith, willful misconduct or gross negligence. The provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities of the Manager otherwise existing at law or in equity, are agreed by the Partners to modify to that extent such other duties and liabilities of the Manager.

 

(c)               The Manager may consult with legal counsel and accountants selected by it and any act or omission taken or suffered by it on behalf of the Partnership or in furtherance of the interests of the Partnership, taken or suffered in good faith and in reasonable reliance thereon, upon and in accordance with the advice of such counsel or accountants shall be full justification for any such act or omission, and the Manager shall be fully protected and held harmless in so acting or omitting to act; provided, such counsel or accountants were selected and monitored with reasonable care. Notwithstanding any of the foregoing to the contrary, the provisions of this Section shall not be construed so as to provide for the exculpation of any Indemnitee for any liability (including liability under U.S. federal or state securities laws (which includes liability for violation of the anti-fraud provisions contained in Section 206 of the Advisers Act) which, under certain circumstances, impose liability even on Persons that act in good faith), to the extent (but only to the extent) that such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Section to the fullest extent permitted by law.

 

 

 

Section 14.     Indemnification.

 

(a)               To the fullest extent permitted by law, the Partnership shall indemnify and save harmless each Indemnitee from and against any and all claims, liabilities, damages, losses, penalties, actions, judgments, costs and expenses (including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated, that are incurred by any Indemnitee or to which such Indemnitee may be subject by reason of its activities on behalf of the Partnership or any of its Subsidiaries or in furtherance of the interests of the Partnership or otherwise arising out of or in connection with the affairs of the Partnership, its Subsidiaries or Affiliates, including the performance by such Indemnitee of any of the Manager’s responsibilities under this Agreement and/or under the governing documents of any Subsidiary or otherwise in connection with the matters contemplated herein or therein; provided, that: (i) an Indemnitee shall be entitled to indemnification hereunder only to the extent that such Indemnitee’s conduct did not constitute fraud, bad faith, willful misconduct, gross negligence, a material breach of this Agreement which is not cured in accordance with the terms of this Agreement or a violation of applicable securities laws; (ii) nothing herein shall constitute a waiver or limitation of any rights which a Partner or the Partnership may have under applicable securities laws or other laws and which may not be waived; and (iii) the Partnership’s obligations hereunder shall not apply with respect to (x) economic losses or tax obligations incurred by any Indemnitee as a result of such Indemnitee’s ownership of an interest in the Partnership, or in Royalty Investments, (y) expenses of the Partnership that an Indemnitee has agreed to bear or (z) amounts recoverable by the Indemnitee from other sources (including without limitation insurance) as provided in Section 14(d). The satisfaction of any indemnification and any saving harmless pursuant to this Section shall be from and limited to Partnership assets, and no Partner shall have any personal liability on account thereof. The conduct of the Manager and HCRX EPA shall be attributed to one another for purposes of determining whether indemnification is available pursuant to this Section and whether conduct meets the standards set forth in Section 13 (Exculpation).

 

(b)               Expenses reasonably incurred by an Indemnitee in defense or settlement of any claim that may be subject to a right of indemnification hereunder shall be advanced by the Partnership prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount to the extent that it shall be determined ultimately that such Indemnitee is not entitled to be indemnified hereunder.

 

(c)               The right of any Indemnitee to the indemnification provided herein shall extend to such Indemnitee’s heirs, executors, administrators, successors, assigns and legal representatives and shall be cumulative of, and in addition to, any and all rights to which such Indemnitee may otherwise be entitled by contract or as a matter of law or equity. Notwithstanding the foregoing, no Indemnitee may have any other rights to indemnification from the Partnership or enter into, or make any claim under, any other agreement with the Partnership (whether direct or indirect) providing for indemnification except as otherwise set forth in this Agreement.

 

(d)               Any Person entitled to indemnification from the Partnership hereunder shall first seek recovery under any other indemnity or any insurance policies by which such Person is indemnified or covered, as the case may be, but only to the extent that the indemnitor with respect to such indemnity or the insurer with respect to such insurance policy provides (or acknowledges its obligation to provide) such indemnity or coverage on a timely basis, as the case may be, and, if such Person is other than the Manager, such Person shall obtain the written consent of the Manager prior to entering into any compromise or settlement which would result in an obligation of the Partnership to indemnify such Person; and if liabilities arise out of the conduct of the affairs of the Partnership and any other Person for which the Person entitled to indemnification from the Partnership hereunder was then acting in a similar capacity, the amount of the indemnification provided by the Partnership shall be limited to the Partnership’s proportionate share thereof as determined by the Manager in light of its fiduciary duties to the Partnership and the Partners.

 

 

 

(e)               Notwithstanding any of the foregoing to the contrary, the provisions of this Section shall not be construed so as to provide for the indemnification of any Indemnitee for any liability (including liability under U.S. federal or state securities laws (which includes liability for violation of the anti-fraud provisions contained in Section 206 of the Advisers Act) which, under certain circumstances, impose liability even on Persons that act in good faith), to the extent (but only to the extent) that such indemnification would be in violation of law, but shall be construed so as to effectuate the provisions of this Section to the fullest extent permitted by law.

 

Section 15.     Limitations on Reference to the Manager. The Partnership shall not distribute or circulate any sales literature, promotional or, save where required by applicable law, regulation or court order, other material which contains any reference to the Manager without the prior approval of the Manager, and, where practicable, shall submit in draft form all such materials requiring approval of the Manager, allowing sufficient time for review by the Manager and its counsel prior to any deadline for printing. If the Manager ceases to furnish services to the Partnership, the Partnership at its expense:

 

(a)               as promptly as practicable, shall take all necessary action to cause the Organizational Documents to be amended to eliminate any reference to the Manager; and

 

(b)               within 60 days after the date on which the Manager ceases to furnish services to the Partnership, shall cease to use in any other manner, including use in any `sales literature or promotional material, the name of the Manager, save where required by applicable law, regulation or court order.

 

Section 16.    Term. This Agreement shall have an initial term of ten years ending on [●] [●], 2031 (the “Initial Term”), after which it shall automatically renew for a term of three years thereafter (a “Renewal Term”), unless either the Manager or the Partnership provides to the other party prior written notice of non-renewal at least 180 days prior to the expiration of the Initial Term.

 

Section 17.     Removal.

 

(a)               Subject to the following provisions of this Section 17, during the Initial Term and the Renewal Term, this Agreement may only be terminated by the Partnership for Cause.

 

(b)               If the Management Agreement with Parent or any other Subsidiary is terminated for Cause then this Agreement shall automatically be terminated, and the provisions of Section 6 and Sections 7(a) and (b) shall no longer apply.

 

 

 

(c)               The Partnership shall have the right to terminate the Manager following (i) a determination of Cause by a court or governmental body of competent jurisdiction in a final judgement, or (ii) an admission in writing of Cause by the Manager or HCRX EPA. In the event that Mr. Futch commits an act constituting Cause (while he is acting as chief executive officer of the Company), such action shall be imputed to HCRX EPA and the Manager. Any act constituting Cause committed by any other named executive officer or key employee of HCRX EPA or the Manager (including Mr. Futch if he is no longer acting as chief executive officer of the Company) shall not be imputed to HCRX EPA and the Manager if the Manager terminates such executive’s engagement with, employment by or relationship with the Manager and HCRX EPA within such reasonable period of time as may be agreed to by the General Partner; provided that if such executive is not terminated within such period of time then such Cause event shall be imputed to HCRX EPA and the Manager.

 

Section 18.     Choice of Law. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all of the terms and provisions hereof shall be governed by and construed under the laws of the State of Delaware applicable to contracts made and to be entirely performed in such state.

 

Section 19.     Confidentiality. Except as may be required by applicable law or by any regulatory authority or agency or as may otherwise be contemplated by this Agreement, each of the parties hereto hereby covenants and undertakes with the other party hereto to keep secret and confidential and not to disclose to any person any Confidential Information; provided, however, that no party shall be required to keep secret and confidential any Confidential Information which has properly entered the public domain otherwise than through the default of such party except where the parties are compelled to do so by any self-regulatory body or by applicable law. No public announcement shall be made or circular, notice or advertisement issued in connection with the subject matter of this Agreement by either of the parties hereto without the prior approval of the other party hereto.

 

Section 20.      Severability. If any provision of this Agreement is invalid or unenforceable under any applicable law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such applicable law. Any provision hereof which may be held invalid or unenforceable under any applicable law shall not affect the validity or enforceability of any other provisions hereof, and to this extent the provisions hereof shall be severable.

 

Section 21.      Force Majeure. The Manager shall not be responsible for any loss of or damage to any property, securities, instruments or other assets of the Parent for any failure to fulfil any of its duties hereunder if such loss, damage or failure is directly or indirectly caused by or due to any act of God, storm, tempest, accident, fire, water damage, riot, civil commotion, rebellion, strike, lock-out, government or military action or any other cause or circumstance beyond the control of the Manager, provided that the Manager shall use all reasonable efforts to minimize the effects thereof.

 

Section 22.     Forum. To the fullest extent permitted by law, in the event of any proceeding arising out of the terms and conditions of this Agreement, the parties hereto irrevocably (i) consent and submit to the exclusive jurisdiction of the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (unless the Delaware Court of Chancery shall decline jurisdiction over a particular matter, in which case, any state or federal court within the State of Delaware), (ii) waive any defense based on doctrines of venue or forum non conveniens, or similar rules or doctrines, and (iii) agree that all claims in respect of such a proceeding must be heard and determined exclusively in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (unless the Delaware Court of Chancery shall decline jurisdiction over a particular matter, in which case, any state or federal court within the State of Delaware). Process in any such proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court.

 

 

 

Section 23.     Notices.

 

(a)               Each notice relating to this Agreement shall be in writing and delivered in person, by registered or certified mail, by Federal Express or similar overnight courier service, by electronic mail (e-mail) to the address or e-mail address on record.

 

(b)               Unless otherwise specifically provided in this Agreement, a notice shall be deemed to have been effectively given when delivered personally, if delivered on a Business Day; the next Business Day after personal delivery, if delivered personally on a day that is not a Business Day; four Business Days after being deposited in the United States mail, postage prepaid, return receipt requested, if mailed; on the next Business Day after being deposited for next day delivery with Federal Express or similar overnight courier; and when a reply e-mail acknowledging receipt is received by the sender, if e-mailed.

 

Section 24.     Entire Agreement. This Agreement contains all of the terms agreed upon or made by the parties relating to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter.

 

Section 25.      Amendments and Waivers. No provision of this Agreement may be amended, modified, waived or discharged except as agreed to in writing by the parties. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

Section 26.    Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit the Parent, the Manager, each Indemnified Party and their respective successors and permitted assigns. Any Person that is not a signatory to this Agreement but is nevertheless conferred any rights or benefits hereunder (e.g., officers, partners and employees of the Manager and others who are entitled to indemnification hereunder) shall be entitled to such rights and benefits as if such Person were a signatory hereto, and the rights and benefits of such Person hereunder may not be impaired without such Person’s express written consent. No assignment (as that term is defined under the Advisers Act) by either party of all or any portion of its rights, obligations or liabilities under this Agreement shall be permitted without the prior written consent of the other party to this Agreement.

 

Section 27.     Headings. The headings of the Sections of this Agreement are for convenience of reference only, and are not to be considered in construing the terms and provisions of this Agreement. References to “Section” in this Agreement shall be deemed to refer to the indicated Section of this Agreement, unless the context clearly indicates otherwise.

 

 

 

Section 28.     Discretion; Good Faith. Whenever in this Agreement the Manager is permitted or required to make a decision (i) in its “discretion” or under a grant of similar authority or latitude, the Manager shall be entitled to consider such interests and factors as it desires, including its own interests, or (ii) in its “good faith” or under another express standard, the Manager shall act under such express standard, shall not be subject to any other or different standard imposed by applicable law and may exercise its discretion differently with respect to different investors.

 

Section 29.    Counterparts. Counterparts may be executed through the use of separate signature pages or in any number of counterparts with the same effect as if the parties executing such counterparts had all executed one counterpart. Each party understands and agrees that any portable document format (PDF) file, facsimile or other reproduction of its signature on any counterpart shall be equal to and enforceable as its original signature and that any such reproduction shall be a counterpart hereof that is fully enforceable in any court or arbitral panel of competent jurisdiction.

 

Section 30.    Survival. The provisions of the Section entitled Operating and Personnel Payment (only to the extent that the Operating and Personnel Payment is earned by the Manager prior to termination of this Agreement), and the Sections entitled Covenant/Devotion of Time, Non-Competition, Exculpation, Indemnification, Limitations on Reference to the Manager, Choice of Law, Forum, Notices, Entire Agreement, Binding Effect; Assignment, Survival and Waiver of Jury Trial shall survive the termination of this Agreement.

 

Section 31.     Waiver of Jury Trial. EACH PARTY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RIGHT TO A TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW IN ANY PROCEEDING ARISING OUT OF THE TERMS AND CONDITIONS OF THIS AGREEMENT. THIS WAIVER APPLIES TO ANY PROCEEDING, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY ACKNOWLEDGES THAT IT HAS RECEIVED THE ADVICE OF COMPETENT COUNSEL.

 

[The rest of this page is intentionally left blank.]

 

 

 

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date first set forth above.

 

HEALTHCARE ROYALTY HOLDINGS, LP   HCRX MANAGEMENT, LLC
By: HCRX Master GP, LLC    
       
By: /s/   By: /s/
Name: Clarke B. Futch   Name:
Title: Chairman & Chief Executive Officer   Title:
     
HCRX INTERMEDIATE HOLDCO, L.P.    
By: HCRX Master GP, LLC    
       
By: /s/    
Name: Clarke B. Futch    
Title: Chairman & Chief Executive Officer    
     
HCRX INVESTMENTS HOLDCO, L.P.    
By: HCRX Master GP, LLC    
       
By: /s/    
Name: Clarke B. Futch    
Title: Chairman & Chief Executive Officer    

  

 

 

Exhibit B

 

Approved Actions

 

Discuss.

 

 

EX-10.2 6 tm2113163d7_ex10-2.htm EXHIBIT 10.2

 

Exhibit 10.2

 

EXHIBIT G TO PLAN OF REORGANIZATION
APPENDIX H TO INFORMATION STATEMENT

 

FORM OF

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of [●], 2021, is made and entered into by and among each of Healthcare Royalty, Inc. (the “Company”) and HCRX Feeder Fund, L.P., a Delaware limited partnership the (“Continuing Investor Partnership”), together with any person or entity who hereafter becomes a party to this Agreement pursuant to Section 5.2 of this Agreement (each, a “Holder” and collectively, the “Holders”).

 

RECITALS

 

WHEREAS, the Company has issued the Continuing Investor Partnership an aggregate of [__________] shares (the “Class B Shares”) of the Company’s Class B common stock, $0.01 par value per share (the “Class B Common Stock”) and an aggregate of [________] Class B units (“Class B Units”) of Healthcare Royalty Holdings, L.P. (“Holdings LP”);

 

WHEREAS, each Class B Share, together with a Class B Unit, is convertible into a share of the Company’s Class A common stock, par value $0.01 per share (the “Common Stock”), on the terms and conditions provided in the Company’s amended and restated certificate of incorporation;

 

NOW, THEREFORE, in consideration of the representations, covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

Article I
DEFINITIONS

 

1.1          Definitions. The terms defined in this Article I shall, for all purposes of this Agreement, have the respective meanings set forth below:

 

Adverse Disclosure” shall mean any public disclosure of material non-public information, which disclosure, in the good faith judgment of the Board or the Chairman, Chief Executive Officer or principal financial officer of the Company (i) would be required to be made in any Registration Statement or Prospectus in order for the applicable Registration Statement or Prospectus not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein (in the case of any Prospectus and any preliminary Prospectus, in the light of the circumstances under which they were made) not misleading, (ii) would not be required to be made at such time if the Registration Statement were not being filed, and (iii) the Company has a bona fide business purpose for not making such information public.

 

Affiliate” of a person or entity means any other person or entity directly or indirectly controlling, controlled by or under common control with such person or entity.

 

Agreement” shall have the meaning given in the Preamble.

 

 

 

 

Board” shall mean the Board of Directors of the Company.

 

Business Day” means any day, other than a Saturday or a Sunday, that is neither a legal holiday nor a day on which banking institutions are generally authorized or required by law or regulation to close in the City of New York, New York.

 

Commission” shall mean the United States Securities and Exchange Commission and any successor agency performing comparable functions.

 

Common Stock” shall have the meaning given in the Recitals hereto.

 

Company” shall have the meaning given in the Preamble.

 

Demand Exercise Notice” shall have the meaning given in subsection 2.1.2.

 

Demanding Holders” shall mean Holders of a number of Registrable Securities with an aggregate Fair Market Value at least equal to $300,000,000, determined as of the applicable date of any Demand Registration Request or Shelf Underwriting Request.

 

Demand Registration” shall have the meaning given in subsection 2.1.2.

 

Demand Registration Period” shall have the meaning given in subsection 2.1.2.

 

Demand Registration Request” shall have the meaning given in subsection 2.1.2.

 

Exchange Act” shall mean the Securities Exchange Act of 1934, as it may be amended from time to time, and the rules and regulations promulgated thereunder.

 

Fair Market Value” shall mean the VWAP of the shares of Common Stock issued or issuable upon conversion, exercise or exchange of any Registrable Security.

 

Filing Date” shall have the meaning given in subsection 2.1.1(a).

 

Form S-1” shall mean Form S-1 for the registration of securities under the Securities Act promulgated by the Commission.

 

Form S-3” shall mean Form S-3 for the registration of securities under the Securities Act promulgated by the Commission.

 

Holders” shall have the meaning given in the Preamble.

 

Holdings” shall have the meaning set forth in the Recitals hereto.

 

Initiating Holders” shall have the meaning given in subsection 2.1.2.

 

Joinder Agreement” means a joinder agreement, substantially in the form attached hereto as Annex A.

 

2 

 

 

Lock-Up Agreement” means that certain Lock-Up Agreement by and between the Company and the Holders of even date herewith.

 

Maximum Number of Securities” shall have the meaning given in subsection 2.1.3.

 

Minimum Demand Threshold” shall mean $500,000,000.

 

Misstatement” shall mean an untrue statement of a material fact or an omission to state a material fact required to be stated in a Registration Statement, preliminary Prospectus or Prospectus, or necessary to make the statements in a Registration Statement, preliminary Prospectus or Prospectus (in the case of the preliminary Prospectus or Prospectus, in light of the circumstances under which they were made) not misleading.

 

Permitted Transferees” shall mean with respect to any Holder, (i) any Affiliates of such Holder, (ii) any general or limited partner thereof and any managing director, general partner, director, limited partner, officer or employee of any Affiliate thereof, or any spouse, lineal descendant, sibling, parent, heir, executor, administrator, testamentary trustee, legatee or beneficiary of any of the foregoing persons described in this clause, (iii) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, consist solely of any one or more of such Holder or Permitted Transferee, any general or limited partner of such Holder or Permitted Transferee, their spouses or their lineal descendants or (iv) any other Holder.

 

Piggy-back Registration” shall have the meaning given in Section 2.2.1.

 

Pro Rata” shall have the meaning given in Section 2.1.3.

 

Prospectus” shall mean the prospectus included in any Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all post-effective amendments and including all materials incorporated by reference in such prospectus.

 

Registrable Security” shall mean (a) the shares of Common Stock issued or issuable upon the conversion of any Class B Shares and Class B Units, (b) any shares of Common Stock acquired by a Holder after the date hereof and prior to the termination of this Agreement and (c) any other equity security of the Company issued or issuable with respect to any such shares of Common Stock by way of a stock dividend or stock split or in connection with a combination of stock, acquisition, recapitalization, consolidation, reorganization, stock exchange, stock reconstruction and amalgamation or contractual control arrangement with, purchasing all or substantially all of the assets of, or engagement in any other similar transaction; provided, however, that, as to any particular Registrable Security, such securities shall cease to be Registrable Securities when: (i) if a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act, the date that such securities shall have been sold, transferred, disposed of or exchanged pursuant to such Registration Statement; (ii) such securities shall have ceased to be outstanding; (iii) such securities have been sold to, or through, a broker, dealer or underwriter in a public distribution or other public securities transaction; or (iv) such securities shall have been sold or transferred pursuant to Rule 144. For the avoidance of doubt, it being understood that any Common Stock issuable pursuant to subsection (a) of this definition and held by the Holder of the Class B Units with respect to which it is issuable for all purposes hereunder prior to its issuance or a Permitted Transferee thereof shall be considered a Registrable Security.

 

Registration” shall mean a registration effected by preparing and filing a Registration Statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such Registration Statement becoming effective.

 

3 

 

 

Registration Expenses” shall mean the out-of-pocket expenses of a Registration, including, without limitation, the following:

 

(A)         all registration and filing fees (including fees with respect to filings required to be made with the Financial Industry Regulatory Authority and any securities exchange on which the Common Stock is then listed);

 

(B)          fees and expenses of compliance with securities or blue sky laws (including reasonable and documented fees and disbursements of counsel for the Underwriters in connection with blue sky qualifications of Registrable Securities);

 

(C)          printing, messenger, telephone and delivery expenses;

 

(D)          reasonable fees and disbursements of counsel for the Company;

 

(E)          reasonable fees and expenses of a single firm of legal counsel for the Holders participating in such Registration; and

 

(F)          reasonable fees and disbursements of all independent registered public accountants of the Company incurred specifically in connection with such Registration.

 

Registration Statement” shall mean any registration statement that covers the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all materials incorporated by reference in such registration statement.

 

Requesting Holder” shall have the meaning given in subsection 2.1.3.

 

Requisite Holders” means Holders (including Permitted Transferees) that are parties to this Agreement and hold a majority of the aggregate number of outstanding Registrable Securities; provided that, for the purpose of this definition, Class B Units are to be counted as if all such Class B Units have been exchanged for shares of Common Stock.

 

Securities Act” shall mean the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder.

 

Shelf Registrable Securities” shall have the meaning given in subsection 2.1.1(b).

 

Shelf Registration Statement” shall have the meaning given in subsection 2.1.1(a).

 

4 

 

 

Shelf Underwriting” shall have the meaning given in subsection 2.1.1(b).

 

Shelf Underwriting Notice” shall have the meaning given in subsection 2.1.1(b).

 

Shelf Underwriting Request” shall have the meaning given in subsection 2.1.1(b).

 

Synthetic Secondary Transaction” shall have the meaning given in subsection 2.5.

 

Underwriter” shall mean a securities dealer who purchases any Registrable Securities as principal in an Underwritten Offering and not as part of such dealer’s market-making activities.

 

Underwritten Registration” or “Underwritten Offering” shall mean a Registration in which securities of the Company are sold to an Underwriter in a firm commitment underwriting for distribution to the public.

 

VWAP” shall mean the volume-weighted average price of the Common Stock on the principal market on which such shares of Common Stock are traded for the ten trading days immediately preceding the date of determination of Fair Market Value.

 

Article II
REGISTRATIONS

 

2.1          Demand Registration.

 

2.1.1       Shelf Registration Statement. (a) As soon as practicable but no later than sixty (60) Business Days after the later of (x) the first anniversary of the date hereof or (y) the first date upon which the Company shall have qualified for the use of a Registration Statement on Form S-3 or any other form which permits incorporation of substantial information by reference to other documents filed by the Company with the Commission (the “Filing Date”), the Company shall prepare and file with (or confidentially submit to) the Commission a shelf registration statement under Rule 415 of the Securities Act (such registration statement, a “Shelf Registration Statement”) covering the resale of all the Registrable Securities (determined as of two Business Days prior to such filing) on a delayed or continuous basis (and which may also cover any other securities of the Company) and shall use its commercially reasonable efforts to have such Shelf Registration Statement declared effective as soon as practicable after the filing thereof and no later than the earlier of (x) the 60th calendar day (or 80th calendar day if the Commission notifies the Company that it will “review” the Registration Statement) following the Filing Date and (y) the fifth (5th) Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the Commission that the Registration Statement will not be “reviewed” or will not be subject to further review. Such Shelf Registration Statement shall provide for the resale of the Registrable Securities included therein pursuant to any method or combination of methods legally available to, and reasonably requested by, any Holder named therein. The Company shall use its commercially reasonable efforts to maintain the Shelf Registration Statement in accordance with the terms hereof, and shall prepare and file with the Commission such amendments, including post-effective amendments, and supplements as may be necessary to keep a Shelf Registration Statement continuously effective, available for use to permit all Holders named therein to sell their Registrable Securities included therein and in compliance with the provisions of the Securities Act until such time as there are no longer any Registrable Securities.

 

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(b)            Subject to Section 2.3 and Section 2.4, at any time after the effectiveness of the Shelf Registration Statement, the Demanding Holders may make a written demand from time to time to elect to sell all or any part of their Registrable Securities, with a total offering price reasonably expected to exceed, in the aggregate, the Minimum Demand Threshold, pursuant to an Underwritten Offering pursuant to the Shelf Registration Statement, which written demand shall describe the amount and type of securities to be included in such Registration and the intended method(s) of distribution thereof. The Demanding Holders shall make such election by delivering to the Company a written request (a “Shelf Underwriting Request”) for such Underwritten Offering specifying the number of Registrable Securities that the Demanding Holders desire to sell pursuant to such Underwritten Offering (the “Shelf Underwriting”). As promptly as practicable, but no later than two (2) Business Days after receipt of a Shelf Underwriting Request, the Company shall give written notice (the “Shelf Underwriting Notice”) of such Shelf Underwriting Request to the Holders of record of other Registrable Securities registered on such Shelf Registration Statement (“Shelf Registrable Securities”). The Company, subject to Section 2.1.3, shall include in such Shelf Underwriting (x) the Registrable Securities of the Demanding Holders and (y) the Shelf Registrable Securities of any other Holder of Shelf Registrable Securities that shall have made a written request to the Company for inclusion in such Shelf Underwriting (which request shall specify the maximum number of Shelf Registrable Securities intended to be disposed of by such Holder) within five (5) days after the receipt of the Shelf Underwriting Notice. The Company shall, as expeditiously as possible (and in any event within fifteen (15) Business Days after the receipt of a Shelf Underwriting Request), but subject to Section 2.3, use its reasonable best efforts to effect such Shelf Underwriting. The Company shall, at the request of any Demanding Holders, file any prospectus supplement or, if the applicable Shelf Registration Statement is an automatic shelf registration statement, any post-effective amendments and otherwise take any action necessary to include therein all disclosure and language deemed necessary or advisable by the Demanding Holders or any other Holder of Shelf Registrable Securities to effect such Shelf Underwriting. Once a Shelf Registration Statement has been declared effective, the Demanding Holders may request, and the Company shall be required to facilitate an aggregate of two (2) Shelf Underwritings pursuant to this subsection 2.1.1(b) with respect to any or all Registrable Securities, which number of Shelf Underwritings that the Company shall be required to facilitate shall be reduced by the number of any Demand Registrations pursuant to subsection 2.1.2; provided, however, that, in each case, a Shelf Underwriting shall not be counted for such purposes unless a Registration Statement has become effective and all of the Registrable Securities requested by the Demanding Holders to be registered on behalf of the Demanding Holders in such Shelf Underwriting have been sold.

 

2.1.2        Other Demand Registration. At any time after the date of this Agreement that a Shelf Registration Statement provided for in Section 2.1.1(a) is not available for use by the Holders (a “Demand Registration Period”), subject to this Section 2.1.2 and Section 2.3 and Section 2.4, the Demanding Holders shall have the right to make a written demand from time to time to effect one or more registration statements under the Securities Act covering all or any part of their Registrable Securities, with a total offering price reasonably expected to exceed, in the aggregate, the Minimum Demand Threshold, by delivering a written demand therefor to the Company, which written demand shall describe the amount and type of securities to be included in such Registration and the intended method(s) of distribution thereof. Any such request by any Demanding Holder pursuant to this Section 2.1.2 is referred to herein as a “Demand Registration Request,” and the registration so requested is referred to herein as a “Demand Registration” (with respect to any Demand Registration, the Demanding Holders making such demand for registration being referred to as the “Initiating Holders”). Subject to Section 2.3, the Demanding Holders shall be entitled to request (and the Company shall be required to effect) an aggregate of two (2) Demand Registrations pursuant to this subsection 2.1.2 with respect to any or all Registrable Securities held by the Holders; provided, however, that a Demand Registration shall not be counted for such purposes unless a Registration Statement has become effective and more than two-thirds (2/3) of the Registrable Securities requested by the Demanding Holders to be registered on behalf of the Demanding Holders in such Demand Registration have been sold; and provided, further, that the number of Demand Registrations the Demanding Holders shall be entitled to request shall be reduced by each Shelf Underwriting effected for such Demanding Holder pursuant to Section 2.1.1(b). The Company shall give written notice (the “Demand Exercise Notice”) of such Demand Registration Request to each of the Holders of record of Registrable Securities as promptly as practicable but no later than two (2) Business Days after receipt of the Demand Registration Request. The Company, subject to Sections 2.3 and 2.4, shall include in a Demand Registration (x) the Registrable Securities of the Initiating Holders and (y) the Registrable Securities of any other Holder of Registrable Securities which shall have made a written request to the Company for inclusion in such registration pursuant to Section 2.1.2 (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder) within five (5) days following the receipt of any such Demand Exercise Notice. The Company shall, as expeditiously as possible, but subject to Section 2.3, use its reasonable best efforts to (x) file or confidentially submit with the Commission no later than sixty (60) days from the Company’s receipt of the applicable Demand Registration Request, (y) cause to be declared effective as soon as reasonably practicable such registration statement under the Securities Act that includes the Registrable Securities which the Company has been so requested to register, for distribution in accordance with the intended method of distribution and (z) if requested by the Initiating Holders, obtain acceleration of the effective date of the registration statement relating to such registration.

 

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2.1.3       Reduction of Underwritten Offering. If the managing Underwriter or Underwriters in an Underwritten Registration pursuant to a Shelf Underwriting or Demand Registration, in good faith, advises the Company, the Demanding Holders and any other Holders participating in the Underwritten Registration (if any) (the “Requesting Holders”) in writing that the dollar amount or number of Registrable Securities that such Holders desire to sell, taken together with all other shares of Common Stock or other equity securities that the Company desires to sell and the shares of Common Stock, if any, as to which a Registration has been requested pursuant to separate written contractual piggy-back registration rights held by any other stockholders who desire to sell, exceeds the maximum dollar amount or maximum number of equity securities that can be sold in the Underwritten Offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of such securities, as applicable, the “Maximum Number of Securities”), then the Company shall include in such Underwritten Offering, as follows:

 

(i)first, the Registrable Securities of the Demanding Holders and the Requesting Holders (if any) (pro rata based on the respective number of Registrable Securities that each Demanding Holder and Requesting Holder (if any) has requested be included in such Underwritten Registration and the aggregate number of Registrable Securities that the Demanding Holders and Requesting Holders have collectively requested be included in such Underwritten Registration (such proportion is referred to herein as “Pro Rata”)) that can be sold without exceeding the Maximum Number of Securities; provided, that any securities thereby allocated to a Holder that exceed such Holder’s request shall be reallocated among the remaining Holders in like manner;

 

(ii)second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i), the shares of Common Stock or other equity securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Securities; and

 

(iii)third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the shares of Common Stock or other equity securities of other persons or entities that the Company is obligated to register in a Registration pursuant to separate written contractual arrangements with such persons and that can be sold without exceeding the Maximum Number of Securities.

 

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2.1.4       Demand Registration Withdrawal. Any Demanding Holder initiating a Shelf Underwriting or Demand Registration, pursuant to a Registration under subsection 2.1.1 or 2.1.2 shall have the right in their sole discretion to withdraw from a Registration pursuant to such Demand Registration upon written notification to the Company and the Underwriter or Underwriters (if any) of their intention to withdraw from such Registration prior to (i) in the case of a Shelf Underwriting, the filing of a preliminary prospectus supplement setting forth the terms of the Underwritten Offering with the Commission and (ii) in the case of a Demand Registration, the effectiveness of the Registration Statement filed with the Commission with respect to the Registration of their Registrable Securities pursuant to such Demand Registration. Notwithstanding anything to the contrary in this Agreement, the Company shall be responsible for the Registration Expenses incurred in connection with a Registration pursuant to a Shelf Underwriting or Demand Registration prior to its withdrawal under this Section 2.1.4; provided, however, that a Demand Registration shall not be counted for such purposes of Section 2.1.2 if such Demand Registration is withdrawn pursuant to this Section 2.1.4.

 

2.2          Piggy-back Registration.

 

2.2.1       Piggy-back Rights. If, at any time on or after the date hereof, the Company proposes to file a Registration Statement under the Securities Act with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into equity securities, for its own account or for the account of stockholders of the Company, other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan, (ii) for an exchange offer, as part of a merger, consolidation or similar transaction or for an offering of securities solely to the Company’s existing stockholders, (iii) for an offering of debt that is convertible into equity securities of the Company, or (iv) for a dividend reinvestment plan, (v) filed pursuant to Section 2.1 hereof, then the Company shall give written notice of such proposed filing to all of the Holders of Registrable Securities as soon as practicable but not less than ten (10) days before the anticipated filing date of such Registration Statement, which notice shall (A) describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing Underwriter or Underwriters, if any, in such offering, and (B) offer to all of the Holders of Registrable Securities the opportunity to register the sale of such number of Registrable Securities as such Holders may request in writing within five (5) Business Days after receipt of such written notice (such Registration a “Piggy-back Registration”). The Company shall, in good faith, cause such Registrable Securities to be included in such Piggy-back Registration and shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed Underwritten Offering to permit the Registrable Securities requested by the Holders pursuant to this subsection 2.2.1 to be included in a Piggy-back Registration on the same terms and conditions as any similar securities of the Company included in such Registration and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All such Holders proposing to distribute their Registrable Securities through an Underwritten Offering under this subsection 2.2.1 shall enter into an underwriting agreement in customary form with the Underwriter(s) selected for such Underwritten Offering. The Company may postpone or withdraw the filing or the effectiveness of a Piggy-back Registration at any time in its sole discretion.

 

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2.2.2       Reduction of Piggy-back Registration. If the managing Underwriter or Underwriters in an Underwritten Registration that is to be a Piggy-back Registration, in good faith, advises the Company and the Holders of Registrable Securities participating in the Piggy-back Registration in writing that the dollar amount or number of the shares of Common Stock that the Company desires to sell, taken together with (i) the shares of Common Stock, if any, as to which Registration has been demanded pursuant to separate written contractual arrangements with persons or entities other than the Holders of Registrable Securities hereunder, (ii) the Registrable Securities as to which registration has been requested pursuant to Section 2.2.1 hereof, and (iii) the shares of Common Stock, if any, as to which Registration has been requested pursuant to separate written contractual piggy- back registration rights of other stockholders of the Company, exceeds the Maximum Number of Securities, then:

 

(a)            If the Registration is undertaken for the Company’s account, the Company shall include in any such Registration

 

(A) first, the shares of Common Stock or other equity securities that the Company desires to sell, which can be sold without exceeding the Maximum Number of Securities;

 

(B) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (A), the Registrable Securities of Holders exercising their rights to register their Registrable Securities pursuant to subsection 2.2.1 hereof, Pro Rata, which can be sold without exceeding the Maximum Number of Securities; provided, that any securities thereby allocated to a Holder that exceed such Holder’s request shall be reallocated among the remaining Holders in like manner; and

 

(C) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A) and (B), the shares of Common Stock, if any, as to which Registration has been requested pursuant to written contractual registration rights of other stockholders of the Company, with such priorities among them as the Company shall determine, which can be sold without exceeding the Maximum Number of Securities; and

 

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(b)           If the Registration is pursuant to a request by persons or entities other than the Holders of Registrable Securities, then the Company shall include in any such Registration

 

(A) first, the shares of Common Stock or other equity securities, if any, of such requesting persons or entities, which can be sold without exceeding the Maximum Number of Securities;

 

(B) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (A), the Registrable Securities of Holders exercising their rights to register their Registrable Securities pursuant to subsection 2.2.1, Pro Rata, which can be sold without exceeding the Maximum Number of Securities; provided, that any securities thereby allocated to a Holder that exceed such Holder’s request shall be reallocated among the remaining Holders in like manner;

 

(C) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A) and (B), the shares of Common Stock or other equity securities that the Company desires to sell which can be sold without exceeding the Maximum Number of Securities; and

 

(D) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A), (B) and (C), the shares of Common Stock or other equity securities for the account of other persons or entities that the Company is obligated to register pursuant to separate written contractual arrangements with such persons or entities, with such priorities among them as the Company shall determine, which can be sold without exceeding the Maximum Number of Securities.

 

2.2.3       Piggy-back Registration Withdrawal. Any Holder of Registrable Securities shall have the right to withdraw from a Piggy-back Registration for any or no reason whatsoever upon written notification to the Company and the Underwriter or Underwriters (if any) of his, her or its intention to withdraw from such Piggy-back Registration prior to the effectiveness of the Registration Statement filed with the Commission with respect to such Piggy-back Registration. The Company (in its sole discretion or as the result of a request for withdrawal by persons pursuant to separate written contractual obligations) may postpone or withdraw the filing or effectiveness of a Piggy-back Registration. Notwithstanding anything to the contrary in this Agreement, the Company shall be responsible for the Registration Expenses incurred in connection with the Piggy-back Registration prior to its withdrawal under this subsection 2.2.3.

 

2.2.4       Unlimited Piggy-back Registration Rights. For purposes of clarity, any Registration effected pursuant to Section 2.2 hereof shall not be counted as a Registration pursuant to a Shelf Underwriting or Demand Registration effected under Section 2.1 hereof.

 

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2.3          Restrictions on Registration Rights. The Company shall not be obligated to effect any Shelf Underwriting or Demand Registration within 90 days after the effective date of a previous Shelf Underwriting or Demand Registration or a previous Piggy-back Registration in which holders of Registrable Securities were permitted to register 75% of the Registrable Securities requested to be included therein, if any. If in the good faith judgment of the Board, Registration would be detrimental to the Company and the Board concludes as a result that it is essential to defer the filing of such Registration Statement or the undertaking of such Underwritten Offering at such time, then in each case the Company shall furnish to such Holders a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board it would be detrimental to the Company for such Registration Statement to be filed or to undertake such Underwritten Offering in the near future and that it is therefore essential to defer the filing of such Registration Statement or undertaking of such Underwritten Offering, then in such event, the Company shall have the right to defer its obligation for up to 120 days; provided, however, that the Company shall not defer its obligation in this manner more than twice in any period of twelve consecutive months.

 

2.4          Lock-Up. Notwithstanding anything to the contrary in this Agreement, the Company shall not be obligated to effect any Shelf Underwriting, Demand Registration or Piggy-back Registration of any Registrable Securities if the Transfer (as defined in the Lock-Up Agreement) of such Registrable Securities is prohibited by the Lock-Up Agreement, subject to any waiver or release set forth therein.

 

2.5          Synthetic Secondary Transactions. The Company may, in its sole discretion, fulfill its obligations to effect a Shelf Underwriting or Demand Registration under Section 2.1 and any Piggy-Back Registration under Section 2.2 for any Holder by selling newly issued shares of Common Stock, the proceeds of which will be used to purchase a number of such Holder’s Registrable Securities (or redeem such number of Class B Units held by the Holder that are exchangeable into such Registrable Securities) at the closing of the offering at a price per share equal to the price per share of Common Stock received by the Company (net of all underwriting discounts and commissions) in such offering and to pay related offering expenses, except for any Registration Expenses payable by the Company pursuant to this Agreement (such sale, a “Synthetic Secondary Transaction”). If the Company elects to conduct a Synthetic Secondary Transaction with respect to a Holder’s Registrable Securities, such Holder shall execute and deliver a purchase agreement and other documents and instruments in such form and substance as is reasonably requested by the Company. Notwithstanding anything herein to the contrary, a Synthetic Secondary Transaction may be conducted in combination with sales directly by the Holder pursuant to its rights hereunder.

 

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Article III
COMPANY PROCEDURES

 

3.1          General Procedures. If at any time on or after the date hereof the Company is required to effect the Registration of Registrable Securities, the Company shall use its reasonable best efforts to effect such Registration to permit the sale of such Registrable Securities in accordance with the intended plan of distribution thereof, and pursuant thereto the Company shall:

 

3.1.1        prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective until all Registrable Securities covered by such Registration Statement have been sold;

 

3.1.2        prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be reasonably requested by any Holder or any Underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective until all Registrable Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to the Prospectus and either (i) any Underwriter overallotment option has terminated by its terms or (ii) the Underwriters have advised the Company that they will not exercise such option or any remaining portion thereof;

 

3.1.3        furnish without charge to the Underwriters, if any, and each Holder of Registrable Securities included in such Registration, or such Holders’ legal counsel, copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus), and each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), and such other documents as the Underwriters and each Holder of Registrable Securities included in such Registration or the legal counsel for any such Holders may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holders;

 

3.1.4        prior to any public offering of Registrable Securities, use its best efforts to (i) register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States as any Holder of Registrable Securities included in such Registration Statement (in light of their intended plan of distribution) may reasonably request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable the Holders of Registrable Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify or take any action to which it would be subject to general service of process or taxation in any such jurisdiction where it is not then otherwise so subject;

 

3.1.5        use commercially reasonable efforts to cause all such Registrable Securities to be listed on the primary securities exchange or automated quotation system on which similar securities issued by the Company are then listed;

 

3.1.6        provide a transfer agent or warrant agent, as applicable, and registrar for all such Registrable Securities no later than the effective date of such Registration Statement;

 

3.1.7        advise each seller of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its commercially reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued;

 

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3.1.8        at least five (5) days prior to the filing of any Registration Statement or Prospectus or any amendment or supplement to such Registration Statement or Prospectus (or promptly upon filing, with respect to any document that is to be incorporated by reference into such Registration Statement or Prospectus), furnish a copy thereof to each seller of such Registrable Securities and its counsel, including, without limitation, providing copies promptly upon receipt of any comment letters received with respect to any such Registration Statement or Prospectus. The Company shall not include the name of any Holder or any information regarding any Holder in any Registration Statement or Prospectus, any amendment or supplement to such Registration Statement or Prospectus, any document that is to be incorporated by reference into such Registration Statement or Prospectus, or any response to any comment letter, without the prior written consent of such Holder and providing each such Holder or its counsel a reasonable amount of time to review and comment on such applicable document, which comments the Company shall include unless contrary to applicable law or the Company reasonably expects that so doing would cause the Prospectus to contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;

 

3.1.9        in the event of an Underwritten Offering, obtain for delivery to the Company and the managing underwriter or underwriters, with copies to the Holders included in such Registration or sale, a comfort letter from the Company’s independent certified public accountants or independent auditors (and, if necessary, any other independent certified public accountants or independent auditors of any subsidiary of the Company or any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) in customary form and covering such matters of the type customarily covered by comfort letters as the managing underwriter or underwriters reasonably request, dated the date of execution of the underwriting agreement and brought down to the closing under the underwriting agreement;

 

3.1.10    in the event of an Underwritten Offering, permit the participating Holders to rely on any opinion(s) of counsel representing the Company for the purposes of such Registration issued to the managing Underwriter of such offering covering legal matters with respect to the Registration;

 

3.1.11    in the event of any Underwritten Offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing Underwriter of such offering;

 

3.1.12    furnish to the underwriters, if any, and to the Holders of the Registrable Securities covered by such Registration Statement, copies of all documents prepared to be filed, which documents shall be subject to the review of such underwriters and such Holders and their respective counsel, (y) subject to applicable law, make such changes in such documents concerning the Holders prior to the filing thereof as such Holders, or their counsel, may reasonably request;

 

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3.1.13    make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months beginning with the first day of the Company’s first full calendar quarter after the effective date of the Registration Statement which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act;

 

3.1.14    use its reasonable efforts to make available senior executives of the Company to participate in customary “road show” presentations that may be reasonably requested by the Underwriter thereof; and

 

3.1.15    otherwise, in good faith, cooperate reasonably with, and take such customary actions as may reasonably be requested by the Holders, in connection with such Registration.

 

3.2          Registration Expenses. The Registration Expenses of all Registrations shall be borne by the Company. It is acknowledged by the Holders that the Holders shall bear all incremental selling expenses relating to the sale of Registrable Securities, such as Underwriters’ commissions and discounts, brokerage fees, Underwriter marketing costs and fees, applicable transfer taxes and expenses of legal counsel representing the Holders in excess or in addition to the legal fees and expenses included as Registration Expenses.

 

3.3          Requirements for Registration; Participation in Underwritten Offerings.

 

3.3.1        The Company may require each participating Holder promptly to furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required or the Company may deem reasonably advisable in connection with such Registration and shall not have any obligation to include a Holder on any Registration Statement if such information is not promptly provided.

 

3.3.2        The Company shall have the right to select an Underwriter or Underwriters in connection with any Underwritten Offering. No person may participate in any Underwritten Offering for equity securities of the Company pursuant to a Registration initiated by the Company hereunder unless such person (i) agrees to sell such person’s securities on the basis provided in any underwriting arrangements approved by the Company and (ii) completes and executes all customary questionnaires, powers of attorney, indemnities, lock-up agreements, underwriting agreements and other customary documents as may be reasonably required under the terms of such underwriting arrangements.

 

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3.4          Suspension of Sales; Adverse Disclosure. Upon receipt of written notice from the Company that a Registration Statement or Prospectus contains a Misstatement, each of the Holders shall forthwith discontinue disposition of Registrable Securities until he, she or it is advised in writing by the Company that the use of the Prospectus may be resumed and he, she or it has received copies of a supplemented or amended Prospectus correcting the Misstatement (it being understood that the Company hereby covenants to prepare and file such supplement or amendment as soon as reasonably practicable after the time of such notice) and, if so directed by the Company, each Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities at the time of receipt of such notice. If the continued use of a Registration Statement in respect of any Registration at any time would require the Company to make an Adverse Disclosure, or would require the inclusion in such Registration Statement of (i) financial statements that are unavailable to the Company for reasons beyond the Company’s control, (ii) audited financial statements as of a date other than the Company’s fiscal year end (unless the Holders requesting Registration agree to pay the reasonable expenses of this audit), or (iii) pro forma financial statements that are required to be included in a registration statement, the Company may, upon giving prompt written notice of such action to the Holders, delay the filing or initial effectiveness of, or suspend the use of, such Registration Statement for no more than 90 days per delay or suspension or more than 120 total calendar days, in each case during any twelve-month period. In the event the Company exercises its rights under the preceding sentence, the Holders agree to suspend, immediately upon their receipt of the notice referred to above, their use of the Prospectus relating to any Registration in connection with any sale or offer to sell Registrable Securities. The Company shall immediately notify the Holders of the expiration of any period during which it exercised its rights under this Section 3.4.

 

3.5          Reporting Obligations. As long as any Holder shall own Registrable Securities, the Company, at all times while it shall be reporting under the Exchange Act, covenants to use reasonable best efforts to file timely (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly upon request by a Holder furnish such Holder with true and complete copies of such filings. The Company further covenants that it shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to remove restrictive legends from shares that may be transferred without such restrictions and to sell shares of Common Stock held by such Holder without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any reasonably requested legal opinions. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.

 

3.6          Additional Shares. The Company, at its option, may register, under any Registration Statement and any filings under any state securities laws filed pursuant to this Agreement, any number of unissued, treasury or other shares of Common Stock to be sold by the Company or any of its subsidiaries or any shares of Common Stock or other securities of the Company owned by any other security holder or security holders of the Company.

 

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Article IV
INDEMNIFICATION AND CONTRIBUTION

 

4.1          Indemnification.

 

4.1.1        The Company agrees to indemnify, to the extent permitted by law, each Holder of Registrable Securities, its officers and directors and each person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including reasonable and documented attorneys’ fees) caused by any untrue or alleged untrue statement of material fact contained in any Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by or on behalf of such Holder expressly for use therein.

 

4.1.2        In connection with any Registration Statement in which a Holder of Registrable Securities is participating (including any Synthetic Secondary Transaction effected with respect to such Holder’s Registrable Securities), such Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus, in conformity therewith and, to the extent permitted by law, shall indemnify the Company, its directors and officers and agents and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses (including, without limitation, reasonable and documented attorneys’ fees) resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue or alleged untrue statement or omission is contained in any information or affidavit so furnished in writing by or on behalf of such Holder expressly for use therein; provided, however, that the obligation to indemnify shall be several, not joint and several, among such Holders of Registrable Securities, and the liability of each such Holder of Registrable Securities shall be in proportion to and limited to the net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. The Holders of Registrable Securities shall indemnify the Underwriters, their officers, directors and each person who controls such Underwriters (within the meaning of the Securities Act) to the same extent as provided in the foregoing with respect to indemnification of the Company.

 

4.1.3        Any person entitled to indemnification herein shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person’s right to indemnification hereunder to the extent such failure has not materially prejudiced the indemnifying party) and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel (plus local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. No indemnifying party shall, without the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement which cannot be settled in all respects by the payment of money (and such money is so paid by the indemnifying party pursuant to the terms of such settlement) or which settlement does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

 

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4.1.4        The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and shall survive the transfer of securities. The Company and each Holder of Registrable Securities participating in an offering also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Company’s or such Holder’s indemnification is unavailable for any reason.

 

4.1.5        If the indemnification provided under Section 4.1 hereof from the indemnifying party is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities and expenses referred to herein, then the indemnifying party, in lieu of indemnifying the indemnified party, shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities and expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, was made by, or relates to information supplied by, such indemnifying party or indemnified party, and the indemnifying party’s and indemnified party’s relative intent, knowledge, access to information and opportunity to correct or prevent such action; provided, however, that the liability of any Holder under this subsection 4.1.5 shall be limited to the amount of the net proceeds received by such Holder in such offering giving rise to such liability. The amount paid or payable by a party as a result of the losses or other liabilities referred to above shall be deemed to include, subject to the limitations set forth in subsections 4.1.1, 4.1.2 and 4.1.3 above, any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this subsection 4.1.5 were determined by pro rata allocation or by any other method of allocation, which does not take account of the equitable considerations referred to in this subsection 4.1.5. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution pursuant to this subsection 4.1.5 from any person who was not guilty of such fraudulent misrepresentation.

 

17 

 

 

Article V
MISCELLANEOUS

 

5.1          Notices. Any notice or communication under this Agreement must be in writing and given by (i) deposit in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, (ii) delivery in person or by courier service providing evidence of delivery, or (iii) transmission by hand delivery, electronic mail or facsimile. Each notice or communication that is mailed, delivered, or transmitted in the manner described above shall be deemed sufficiently given, served, sent, and received, in the case of mailed notices, on the third business day following the date on which it is mailed and, in the case of notices delivered by courier service, hand delivery, electronic mail or facsimile, at such time as it is delivered to the addressee (with the delivery receipt of the intended recipient or the affidavit of messenger) or at such time as delivery is refused by the addressee upon presentation. Any notice or communication under this Agreement must be addressed to

 

the Company at:
[Conform to other documents]
 
with a copy to:
 
Morgan, Lewis & Bockius LLP
1701 Market St.
Philadelphia, PA 19103
Attention: Andrew R. Mariniello
Jeffrey A. Letalien
 
Telephone: (215) 963-5000
 
Email:  andrew.mariniello@morganlewis.com
 Jeffrey.letalien@morganlewis.com

 

 

and to the Holders, at such Holder’s address referenced in Schedule A.

 

Any party may change its address for notice at any time and from time to time by written notice to the other parties hereto, and such change of address shall become effective thirty (30) days after delivery of such notice as provided in this Section 5.1.

 

5.2          Assignment; No Third Party Beneficiaries.

 

5.2.1        This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated, in whole or in part, by operation of law or otherwise, by any party, except for any assignment or delegation (i) by a Holder to a Permitted Transferee who agrees to become bound by the transfer restrictions, if any, set forth in this Agreement and the Lock-Up Agreement, or (ii) with the prior written consent of the Company, with respect to an assignment by a Holder, or the Requisite Holders, with respect to an assignment by the Company.

 

5.2.2        This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the Holders, the permitted assigns and its successors and the permitted assigns of the Holders.

 

5.2.3        This Agreement shall not confer any rights or benefits on any persons that are not parties hereto, other than as expressly set forth in this Agreement and Section 5.2 hereof.

 

5.2.4        No assignment by any party hereto of such party’s rights, duties and obligations hereunder shall be binding upon or obligate the Company unless and until the Company shall have received (i) written notice of such assignment or delegation from the assignor and assignee and (ii) the written agreement of the assignee, by execution of a Joinder Agreement, to be bound by the terms and provisions of this Agreement. Any transfer, assignment or delegation made other than as provided in this Section 5.2 shall be null and void.

 

18 

 

 

5.3          Counterparts. This Agreement may be executed in multiple counterparts (including facsimile or PDF counterparts), each of which shall be deemed an original, and all of which together shall constitute the same instrument, but only one of which need be produced.

 

5.4          Governing Law; Venue. THE PARTIES EXPRESSLY AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS OF SUCH JURISDICTION. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts located in the State of Delaware or the Delaware Court of Chancery, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.

 

5.5          WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY OR TO THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.5.

 

5.6          Amendments and Modifications. Upon the written consent of the Company and the Requisite Holders, compliance with any of the provisions, covenants and conditions set forth in this Agreement may be waived, or any of such provisions, covenants or conditions may be amended or modified; provided, however, that notwithstanding the foregoing, (i) any amendment hereto or waiver hereof that adversely affects one Holder or a group of Holders, solely in its or their capacity as a holder of the shares of capital stock of the Company, in a manner that is materially different from the other Holders (in such capacity) shall require the consent of each Holder so affected and (ii) this Agreement may be amended and restated or amended without consent of the Holders solely to allow for the addition of new Holders and the granting to such new Holders rights hereunder and any additional rights after the date hereof that does not adversely affect or is not inconsistent with the existing rights and priorities of the Holders (other than by virtue of adding a Person with additional similar rights and Common Stock). Notwithstanding the foregoing, a consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by each Holder of the Registrable Securities being sold by such Holders pursuant to such Shelf Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified, or waived except in accordance with the provisions of the immediately preceding sentence. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification or waiver or thereafter shall be bound by any such amendment, modification or waiver effected pursuant to this Section 5.6, whether or not any notice, writing or marking indicating such amendment, modification or waiver appears on the Registrable Securities or is delivered to such Holder. No course of dealing between any Holder or the Company and any other party hereto or any failure or delay on the part of a Holder or the Company in exercising any rights or remedies under this Agreement shall operate as a waiver of any rights or remedies of any Holder or the Company. No single or partial exercise of any rights or remedies under this Agreement by a party shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or thereunder by such party.

 

19 

 

 

5.7          Other Registration Rights. The Company represents and warrants that no person, other than a Holder of Registrable Securities, has any right to require the Company to register any securities of the Company for sale or to include such securities of the Company in any Registration filed by the Company for the sale of securities for its own account or for the account of any other person.

 

5.8          Termination. This Agreement shall terminate upon the date as of which (A) all of the Registrable Securities have either been sold pursuant to a Registration Statement or cease to be Registrable Securities (but in no event prior to the applicable period referred to in Section 4(a)(3) of the Securities Act and Rule 174 thereunder) or (B) the Holders of all Registrable Securities are permitted to sell the Registrable Securities under Rule 144 (or any similar provision) under the Securities Act without limitation on the amount of securities sold or the manner of sale. The provisions of Section 3.5 and Article IV shall survive any termination.

 

5.9          Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

 

5.10        Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the Parties in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the Parties with respect to such registration rights. No party shall have any rights, duties or obligations other than those specifically set forth in this Agreement.

 

[Signature Pages Follow]

 

20 

 

 

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.

 

  COMPANY:
     
  HEALTHCARE ROYALTY, INC.
  a Delaware corporation
   
  By:                  
    Name:
    Title:
     
  HOLDERS:
     
  HCRX FEEDER FUND, L.P.
  a Delaware limited partnership
     
  By:  
    Name:
    Title:

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

Schedule A

 

Holder

 

Address

     

 

 

 

 

Annex A

FORM OF JOINDER AGREEMENT

 

This JOINDER AGREEMENT (“Joinder”), dated [________], is executed by [________] (the “Transferee”) and by [________] (the “Transferor”) pursuant to the terms of the Registration Rights Agreement, dated as of [__], 20[__] (the “Registration Rights Agreement”), by and among Healthcare Royalty, Inc. (the “Company”), HCRX Feeder Fund, L.P. and any Holders party thereto. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Registration Rights Agreement.

 

1.Acknowledgment. Transferee and Transferor each acknowledge that Transferee is acquiring Registrable Securities of the Company from Transferor, upon the terms and subject to the conditions of the Registration Rights Agreement.

 

2.Assignment. Transferor hereby assigns its rights under the Registration Rights Agreement to the Transferee.

 

Transferor and Transferee each confirm that Transferee is a Permitted Transferee and that Transferor and Transferee have each provided notice of this assignment to the Company pursuant to Section 5.2.4 of the Registration Rights Agreement.

 

3.Agreement. Transferee agrees that it shall be fully bound by and subject to the terms of this Joinder and the Registration Rights Agreement as a Holder thereunder.

 

4.Notice. Any notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee’s signature below.

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

 

  TRANSFEROR
   
  [   ]
   
  By:                 
  Name:
  Title:
   
  TRANSFEREE
   
  [   ]
   
  By:               
  Name:
  Title:
   
  Address for Notices:
   
   
   

 

[Signature Page to Joinder Agreement to Registration Rights Agreement]

 

 

EX-10.3 7 tm2113163d7_ex10-3.htm EXHIBIT 10.3

 

Exhibit 10.3

 

INDEMNIFICATION AGREEMENT

 

This INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into effective as of [●], by and between Healthcare Royalty, Inc., a Delaware corporation (the “Company”), and [●], an individual (“Indemnitee”).

 

WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;

 

WHEREAS, Indemnitee is a director and/or officer of the Company;

 

WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies;

 

WHEREAS, the Company’s Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) and Amended and Restated By-laws (“By-laws”) require the Company to indemnify and advance expenses to its directors and officers to the extent provided therein, and Indemnitee serves as a director and/or officer of the Company, in part, in reliance on such provisions in the Company’s Certificate of Incorporation and By-laws;

 

WHEREAS, the Company has determined that its inability to retain and attract as directors and officers the most capable persons would be detrimental to the interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage will be available in the future; and

 

WHEREAS, in recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance Indemnitee’s continued service to the Company in an effective manner and Indemnitee’s reliance on the Certificate of Incorporation and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Company’s Certificate of Incorporation and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the applicable provisions of the Certificate of Incorporation or By-laws, any change in the composition of the governing bodies of the Board of Directors of the Company (the “Board of Directors”), or any acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the directors’ and officers’ liability insurance policy of the Company.

 

NOW, THEREFORE, in consideration of the premises and of Indemnitee’s continuing to serve the Company directly on its behalf or at its request as an officer, director, manager, member, partner, tax matters partner, fiduciary, or trustee of, or in any other capacity with, another Person (as defined below) or any employee benefit plan, and intending to be legally bound hereby, the parties hereto agree as follows:

 

1. Certain Definitions:

 

(a)    Change in Control shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (the “Initial Board”), cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets.

 

 

 

 

(b)    Claim means any threatened, asserted, pending, or completed civil, criminal, administrative, investigative, or other action, suit, or proceeding of any kind whatsoever, including any arbitration or other alternative dispute resolution mechanism, or any appeal of any kind thereof, or any inquiry or investigation, whether instituted by the Company, any governmental agency, or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other, including any arbitration or other alternative dispute resolution mechanism.

 

(c)    DGCL means the General Corporation Law of the State of Delaware.

 

(d)    Exchange Act means the Securities Exchange Act of 1934, as amended.

 

(e)    ERISA means the Employee Retirement Income Security Act of 1974, as amended.

 

(f)    Expenses means all direct or indirect costs, expenses, and obligations, including attorneys’ fees, judgments, fines, penalties, interest, appeal bonds, amounts paid in settlement with the approval of the Board of Directors, and counsel fees and disbursements (including, without limitation, experts’ fees, court costs, retainers, appeal bond premiums, transcript fees, duplicating, printing, and binding costs, as well as telecommunications, postage, and courier charges), paid or incurred in connection with investigating, prosecuting, defending, being a witness in, or participating in (including on appeal), or preparing to investigate, prosecute, defend, be a witness in, or participate in, any Claim relating to any Indemnifiable Event, and shall include (without limitation) all attorneys’ fees and all other expenses incurred by or on behalf of Indemnitee in connection with preparing and submitting any requests or statements for indemnification, advancement, or any other right provided by this Agreement (including, without limitation, such fees or expenses incurred in connection with legal proceedings contemplated by Section 2(d) hereof).

 

(g)    Indemnifiable Amounts means (i) any and all liabilities, Expenses, damages, judgments, fines, penalties, ERISA excise taxes, and amounts paid in settlement (including all interest, assessments, and other charges paid or payable in connection with or in respect of such liabilities, Expenses, damages, judgments, fines, penalties, ERISA excise taxes, or amounts paid in settlement) arising out of or resulting from any Claim relating to an Indemnifiable Event, (ii) any liability pursuant to a loan, guaranty or otherwise, for any indebtedness of the Company or any subsidiary of the Company, including, without limitation, any indebtedness that the Company or any subsidiary of the Company has assumed or taken subject to, and (iii) any liability that an Indemnitee incurs as a result of acting on behalf of the Company (whether as a fiduciary or otherwise) in connection with the operation, administration, or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liability is in the form of an excise tax assessed by the United States Internal Revenue Service, a penalty assessed by the Department of Labor, restitution to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust, or other funding mechanism, or otherwise).

 

(h)    Indemnifiable Event means any event or occurrence, whether occurring before, on, or after the date of this Agreement, related to the fact that Indemnitee is or was a director or officer, employee, agent or fiduciary of the Company, or is or was serving on behalf of the Company at the request of the Company as a director, officer, employee, manager, member, partner, tax matter partner, trustee, partnership representative, agent, fiduciary, or similar capacity, of another corporation, limited liability company, partnership, joint venture, employee benefit plan, trust, or other entity or enterprise, or by reason of act or omission by Indemnitee in any such capacity (in all cases whether or not Indemnitee is acting or serving in any such capacity or has such status at the time any Indemnifiable Amount is incurred for which indemnification, advancement or any other right can be provided by this Agreement). The term “Company,” where the context requires when used in this Agreement, shall be construed to include such other corporation, limited liability company, partnership, joint venture, employee benefit plan, trust, or other entity or enterprise.

 

 

 

 

(i)    Indemnitee-Related Entity means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Company or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise for which Indemnitee on behalf of the Company at the Company’s request, is serving as a director, officer, employee, or agent, which service is covered by the indemnity described in this Agreement) from which an Indemnitee may be entitled to indemnification or advancement of Expenses with respect to which, in whole or in part, the Company may also have an indemnification or advancement obligation (other than as a result of obligations under an insurance policy).

 

(j)    Independent Legal Counsel means an attorney or firm of attorneys, selected pursuant to and in accordance with the provisions of Section 3, who is experienced in matters of corporate law and who shall not have otherwise performed services for the Company or Indemnitee within the last three (3) years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

 

(k)    Jointly Indemnifiable Claim means any Claim for which Indemnitee may be entitled to indemnification from both an Indemnitee-Related Entity and the Company pursuant to applicable law, any indemnification agreement, or the certificate of incorporation, by-laws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership, or comparable organizational documents of the Company and such Indemnitee-Related Entity.

 

(l)    Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity, or other entity.

 

(m)    Reviewing Party means any appropriate person or body consisting of a member or members of the Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.

 

(n)    Voting Securities means any securities of the Company that vote generally in the election of directors.

 

2.      Basic Indemnification Arrangement; Advancement of Expenses.

 

(a)    In the event that Indemnitee was, is or becomes subject to, a party to or witness or other participant in, or is threatened to be made subject to, a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee, or cause Indemnitee to be indemnified, to the fullest extent permitted by Delaware law in effect on the date hereof and as amended from time to time; provided, however, that no change in Delaware law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Delaware law as in effect on the date hereof or as such benefits may improve as a result of amendments to Delaware law that become effective after the date hereof. The rights of Indemnitee provided in this Section 2 shall include, without limitation, the rights set forth in the other sections of this Agreement. Payments of Indemnifiable Amounts shall be made as soon as practicable but in any event no later than thirty (30) days after written demand is presented to the Company.

 

(b)    If so requested by Indemnitee, the Company shall advance, or cause to be advanced (within five (5) business days of such request), any and all Expenses incurred by Indemnitee (an “Expense Advance”). The Company shall, in accordance with such request (but without duplication), pay, or caused to be paid, such Expenses on behalf of Indemnitee, unless Indemnitee shall have elected to pay such Expenses and have such Expenses reimbursed, in which case the Company shall reimburse, or cause to be reimbursed, Indemnitee for such Expenses. To the fullest extent permitted by Delaware law, Indemnitee’s right to an Expense Advance is absolute and shall not be subject to any prior determination by the Reviewing Party that Indemnitee has satisfied any applicable standard of conduct for indemnification. Indemnitee hereby undertakes to repay any amounts advanced (without interest) to the extent it is ultimately determined by final decision of a court of competent jurisdiction from which there is no future right to appeal that Indemnitee is not entitled under this Agreement to be indemnified by the Company in respect thereof. No other form of undertaking shall be required of Indemnitee other than execution of this Agreement. If Indemnitee commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, then Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto.

 

 

 

 

(c)    Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless (i) the Company has joined in, or the Board of Directors has authorized or consented to, the initiation of such Claim or (ii) the Claim is one to enforce Indemnitee’s rights under this Agreement (including an action pursued by Indemnitee to secure a determination that Indemnitee should be indemnified under applicable law).

 

(d)    Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(b) shall be subject to the condition that, if, when, and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who, by execution of this Agreement, hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that, if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control that has been approved by a majority of the members of the Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3. If there has been no determination by the Reviewing Party, or if the Reviewing Party determines that Indemnitee would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.

 

3.    Change in Control. The Company agrees that, if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Board of Directors who were directors immediately prior to such Change in Control), then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or under any provision of the certificate of incorporation or by-laws now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities, and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

4.    Indemnification for Additional Expenses. The Company shall indemnify, or cause the indemnification of, Indemnitee against any and all Expenses and, if requested by Indemnitee, shall advance such Expenses to Indemnitee, subject to and in accordance with Section 2, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (a) indemnification or an Expense Advance by the Company under this Agreement or any other agreement or provision of the certificate of incorporation or by-laws now or hereafter in effect relating to Claims for Indemnifiable Events and (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, in each case, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advance, or insurance recovery, as the case may be.

 

5.    Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses or other Indemnifiable Amounts in respect of a Claim but not, however, for the entire amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding.

 

 

 

 

6.    Burden of Proof. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the Reviewing Party, court, or other finder of fact or appropriate Person shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, the burden of proof shall be on the Company (or its representative) to establish by clear and convincing evidence that Indemnitee is not so entitled.

 

7.    Reliance as Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith if the following circumstances do not exist, Indemnitee shall be deemed to have acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports, or statements furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board of Directors, or by any other Person (including legal counsel, accountants, and financial advisors) as to matters Indemnitee reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and actions, or failures to act, of any director, officer, agent, or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.

 

8.    No Other Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval), or conviction, or upon a plea of nolo contendere or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.

 

9.    Nonexclusivity, etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the certificate of incorporation, the DGCL, or otherwise. To the extent that a change in the DGCL (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Certificate of Incorporation or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. To the extent that there is a conflict or inconsistency between the terms of this Agreement and the Certificate of Incorporation or By-laws, it is the intent of the parties hereto that Indemnitee shall enjoy the greater benefits regardless of whether contained herein or in the Certificate of Incorporation or By-laws. No amendment or alteration of the Certificate of Incorporation or By-laws or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement.

 

10.    Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. If the Company has such insurance in effect at the time the Company receives from Indemnitee any notice of the commencement of an action, suit, or proceeding, the Company shall give prompt notice of the commencement of such action, suit, or proceeding to the insurers in accordance with the procedures set forth in the applicable policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.

 

11.    Amendments, etc. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

 

12.    Subrogation. Subject to Section 14, in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. The Company shall pay or reimburse all Expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.

 

 

 

 

13.    No Duplication of Payments. Subject to Section 14, the Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy or any provision of the Certificate of Incorporation or By-laws or otherwise) of the amounts otherwise indemnifiable hereunder.

 

14.    Jointly Indemnifiable Claims. Given that certain Jointly Indemnifiable Claims may arise as a result of the relationship between the Indemnitee-Related Entities and the Company and the service of Indemnitee as a director and/or officer of the Company at the request of the Indemnitee-Related Entities, the Company acknowledges and agrees that the Company shall be fully and primarily responsible for the payment to Indemnitee in respect of indemnification and advancement of expenses in connection with any such Jointly Indemnifiable Claim, pursuant to and in accordance with the terms of this Agreement, irrespective of any right of recovery Indemnitee may have from the Indemnitee-Related Entities. Under no circumstance shall the Company be entitled to any right of subrogation or contribution by the Indemnitee-Related Entities, and no right of recovery Indemnitee may have from the Indemnitee-Related Entities shall reduce or otherwise alter the rights of Indemnitee or the obligations of the Company hereunder. In the event that any of the Indemnitee-Related Entities shall make any payment to Indemnitee in respect of indemnification or advancement of expenses with respect to any Jointly Indemnifiable Claim, the Indemnitee-Related Entity making such payment shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee against the Company, and Indemnitee shall execute all papers reasonably required and shall do all things that may be reasonably necessary to secure such rights, including the execution of such documents as may be necessary to enable the Indemnitee-Related Entities effectively to bring suit to enforce such rights. Each of the Indemnitee-Related Entities shall be third-party beneficiaries with respect to this Section 14, entitled to enforce this Section 14 against the Company as though each such Indemnitee-Related Entity were a party to this Agreement.

 

15.     Notification and Defense of Claims.

 

(a)    Indemnitee shall notify the Company in writing as soon as practicable of any Claim that could relate to an Indemnifiable Event or for which Indemnitee could seek Expense Advances, including a brief description (based upon information then available to Indemnitee) of the nature of, and the facts underlying, such Claim. The failure by Indemnitee to timely notify the Company hereunder shall not relieve the Company from any liability hereunder unless the Company’s ability to participate in the defense of such claim was materially and adversely affected by such failure.

 

(b)    The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event or to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided that, if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict of interest, (ii) the named parties in any such Claim (including any impleaded parties) include the Company or any subsidiary of the Company, on the one hand, and Indemnitee, on the other hand, and Indemnitee concludes, after consultation with counsel selected by Indemnitee, that there may be one or more legal defenses available to him that are different from or in addition to those available to the Company or any subsidiary of the Company, or (iii) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm, plus, if applicable, local counsel in respect of any particular Claim) at the Company’s expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any Claim relating to an Indemnifiable Event effected without the Company’s prior written consent. The Company shall not, without the prior written consent of Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event to which Indemnitee is or could have been a party unless such settlement involves solely the payment of money and includes a complete and unconditional release of Indemnitee from all liability on all claims that are the subject matter of such Claim. Neither the Company nor Indemnitee shall unreasonably withhold, condition, or delay its or his consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.

 

16.    Section 409A. It is intended that any indemnification payment or advancement of Expenses made hereunder shall be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the guidance issued thereunder (“Section 409A”) pursuant to Treasury Regulation Section 1.409A-1(b)(10). Notwithstanding the foregoing, if any indemnification payment or advancement of Expenses made hereunder shall be determined to be “nonqualified deferred compensation” within the meaning of Section 409A, then (a) the amount of the indemnification payment or advancement of Expenses during one taxable year shall not affect the amount of the indemnification payments or advancement of Expenses during any other taxable year, (b) the indemnification payments or advancement of Expenses must be made on or before the last day of the Indemnitee’s taxable year following the year in which the expense was incurred, and (c) the right to indemnification payments or advancement of Expenses hereunder is not subject to liquidation or exchange for another benefit.

 

 

 

 

17.    Binding Effect, etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs, executors, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer and/or director of the Company or of any other enterprise at the Company’s request.

 

18.    Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, illegal, void, or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law.

 

19.    Notices. All notices, requests, consents, and other communications hereunder to any party shall be deemed to be sufficient if contained in a written document delivered in person or sent by facsimile, e-mail or other electronic transmission, nationally recognized overnight courier, or personal delivery, addressed to such party at the address set forth below or such other address as may hereafter be designated on the signature pages of this Agreement or in writing by such party to the other party:

 

If to the Company, to:

 

Healthcare Royalty, Inc.

300 Atlantic Street, Suite 600

Stamford, CT 906901

Attn: Chief Legal Officer

 

If to Indemnitee, to the address set forth on the signature page hereof.

 

All such notices, requests, consents, and other communications shall be deemed to have been given or made if and when received (including by overnight courier) by the parties at the above addresses, sent by electronic transmission (including e-mail), or sent by facsimile transmission (in each case to such other address, or such e-mail address or facsimile number for a party as shall be specified by like notice). Any notice delivered by any party hereto to any other party hereto shall also be delivered to each other party hereto simultaneously with delivery to the first party receiving such notice.

 

20.    Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

 

21.    Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought need be produced to evidence the existence of this Agreement.

 

22.    Specific Performance. The parties recognize that if any provision of this Agreement is violated by the parties hereto, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute proceedings, either at law or in equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

 

23.    Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.

 

[Remainder of page intentionally left blank]

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 HEALTHCARE ROYALTY, INC.

 

By: 
 Name: 
 Title: 

 

  INDEMNITEE
   
  Name:

 

Address: 
   
   

 

 

 

EX-10.5 8 tm2113163d7_ex10-5.htm EXHIBIT 10.5

 

Exhibit 10.5

 

HEALTHCARE ROYALTY HOLDINGS, L.P.

 

(a Delaware Limited Partnership)

 

_______________________________________

 

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

 

_______________________________________

 

Dated as of July [●], 2021

 

THE INTERESTS REPRESENTED BY THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR UNDER ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MAY NOT BE SOLD, ASSIGNED, PLEDGED, DISPOSED OF OR OTHERWISE TRANSFERRED AT ANY TIME WITHOUT EFFECTIVE REGISTRATION UNDER SUCH ACT AND LAWS OR EXEMPTION THEREFROM, AND COMPLIANCE WITH THE OTHER RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.

 

 

 

TABLE OF CONTENTS

 

Page

Article I         DEFINITIONS 1
 
Section 1.1 Definitions 1
Section 1.2 Cross References 9
Section 1.3 Construction 9
     
Article II        CONTINUATION OF PARTNERSHIP 10
     
Section 2.1 Continuation 10
Section 2.2 Name 10
Section 2.3 Principal Place of Business 11
Section 2.4 Registered Office and Registered Agent 11
Section 2.5 Purposes and Powers 11
Section 2.6 Term 11
     
Article III       PARTNERS 11
     
Section 3.1 Admission of Partners Withdrawal of Initial Limited Partner; Authorization of Reorganization 11
Section 3.2 Admission of Additional Limited Partners 13
Section 3.3 Voting Rights 13
Section 3.4 Limitation of Liability of Limited Partners 13
Section 3.5 Priority and Return of Capital 14
Section 3.6 Representations and Warranties 14
     
Article IV       MEETINGS OF LIMITED PARTNERS 15
     
Section 4.1 Record Date 15
Section 4.2 Action Without a Meeting 15
     
Article V        MANAGEMENT 15
     
Section 5.1 Management and Control of the Partnership 15
Section 5.2 Powers of General Partner 15
Section 5.3 Management Agreement 15
Section 5.4 Partnership Books 16
Section 5.5 Fiduciary Obligations; Outside Businesses 16
Section 5.6 Relationships with Affiliates 16
Section 5.7 Title to Assets 17
Section 5.8 Reliance by Third Parties 17
Section 5.9 Meetings and Action of the General Partner 17
Section 5.10 Reimbursement of Expenses 17

 

-i-

 

 

Article VI       INDEMNIFICATION AND EXCULPATION 17
     
Section 6.1 Exculpatory Provisions 17
Section 6.2 Indemnification of General Partner and Other Covered Persons 18
Section 6.3 Indemnification of LPAC 21
Section 6.4 Non-Exclusivity 21
     
Article VII CAPITAL STRUCTURE 21
     
Section 7.1 Capital Structure 21
Section 7.2 Class C Unit 23
Section 7.3 Effect of Exchange 25
Section 7.4 Capital Accounts 25
Section 7.5 Capital Contributions of Limited Partners 26
     
Article VIII    ALLOCATIONS AND DISTRIBUTIONS 26
     
Section 8.1 Allocations 26
Section 8.2 Interim Allocations Due to Partners’ Interest Adjustment 26
Section 8.3 Certain Tax Matters 27
Section 8.4 Distributions 29
Section 8.5 Distributions in Kind 29
Section 8.6 Distribution Rules and Tax Withholding 29
Section 8.7 Restrictions on Distributions 30
Section 8.8 Interest on and Return of Capital Contributions 30
Section 8.9 Taxes 30
Section 8.10 Partnership Representative 31
Section 8.11 Accounting Decisions; Auditors 31
Section 8.12 Tax Classification 31
Section 8.13 Accounting Method 32
Section 8.14 Tax Treatment of Class C Unit and EPA Shares 32
Section 8.15 Accounting Records 33
     
Article IX      ASSIGNMENT; ADMISSION AND WITHDRAWAL OF PARTNERS 33
     
Section 9.1 Assignment of Interest in the General Partner 33
Section 9.2 Transfers by Limited Partners 33
Section 9.3 Admission of Substitute Limited Partners 36
Section 9.4 Multiple Ownership 37
Section 9.5 Death, Incompetency, Bankruptcy or Dissolution of a Limited Partner 37
Section 9.6 Withdrawal from the Partnership 37
Section 9.7 Bankruptcy of the General Partner 37

 

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Article X        DISSOLUTION AND TERMINATION OF THE PARTNERSHIP 38
     
Section 10.1 Dissolution of the Partnership 38
Section 10.2 Winding Up, Liquidation and Distribution of Assets of the Partnership Upon Dissolution of the Partnership 38
Section 10.3 Certificate of Cancellation 39
Section 10.4 Returns of Contributions Nonrecourse to Partners 39
     
Article XI      MISCELLANEOUS PROVISIONS 40
     
Section 11.1 Notices 40
Section 11.2 Side Letters; Entire Agreement; Non-Waiver 40
Section 11.3 Amendments 41
Section 11.4 No Waivers 41
Section 11.5 Applicable Law 41
Section 11.6 Submission to Jurisdiction; Waiver of Jury Trial; Selection of Forum 41
Section 11.7 Further Assurances 42
Section 11.8 Assignment of Contracts and Rights 42
Section 11.9 No Right to Partition 42
Section 11.10 No Third-Party Rights 43
Section 11.11 Successors and Assigns 43
Section 11.12 Severability 43
Section 11.13 Remedies Not Exclusive 43
Section 11.14 Representation by Counsel 43
Section 11.15 Counterparts; Effectiveness 43
Section 11.16 Attorneys’ Fees 43

 

Schedule A   Schedule of Partners
Schedule B    Tax Representations

 

-iii-

 

 

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

OF

HEALTHCARE ROYALTY HOLDINGS, L.P.

 

THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this “Agreement”) of Healthcare Royalty Holdings, L.P. (the “Partnership”), is made as of July [●], 2021, by and among the General Partner (as defined herein) and the Persons (as defined herein) whose names are set forth as Limited Partners (as defined herein) on Schedule A attached hereto.

 

RECITALS

 

WHEREAS, the General Partner has heretofore formed the Partnership under the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101, et seq., as amended from time to time (the “Act”), by filing the Certificate of Limited Partnership of the Partnership with the office of the Secretary of State of the State of Delaware on April 30, 2021, and entering into a Limited Partnership Agreement of the Partnership, dated as of April 30, 2021 (the “Original Partnership Agreement”) with Healthcare Royalty, Inc. (the “Initial Limited Partner”);

 

WHEREAS, the parties hereto desire to continue the Partnership as a limited partnership under the Act and this Agreement;

 

WHEREAS, concurrently with the amendment and restatement of the Original Partnership Agreement, HCRX (as defined herein), the Partnership, the Feeder Fund (as defined herein) and certain other parties are entering into the Exchange Agreement (as defined herein), which agreement is integral to this Agreement; and

 

WHEREAS, the parties hereto desire to amend and restate the Original Partnership Agreement as set forth herein and permit the withdrawal of the Initial Limited Partner.

 

NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the parties, intending to be legally bound, hereby agree to amend and restate the Original Partnership Agreement in its entirety as follows:

  

 

 

Article I

DEFINITIONS

 

Section 1.1            Definitions. The following terms used in this Agreement shall have the following meanings:

 

Affiliate” shall mean, with respect to any specified Person, any Person directly or indirectly Controlling, Controlled by, or under common Control with such Person. For the purposes of this definition “control,” when used with respect to any specified Person, shall mean the possession, directly or indirectly, of power to direct or cause the direction of the management or policies of such Person (whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise); provided, however, that customary approval and veto rights granted to minority equity holders of a Person shall not be deemed to constitute “Control” of such Person. The terms “Controlling” and “Controlled” shall have correlative meanings.

 

Agreement” shall mean this Amended and Restated Limited Partnership Agreement, as amended, modified or supplemented from time to time.

 

Applicable Party” means HCRX EPA, the Manager or an executive officer of the Manager or HCRX EPA (including Mr. Futch).

 

Assumed Income Tax Rate” means the highest effective marginal combined U.S. federal, state and local income tax rate (including tax rates under Section 1411 of the Code) for a Fiscal Year (as defined in Schedule C) prescribed for an individual residing in New York City, New York, taking into account: (a) the deductibility of state and local income taxes for U.S. federal income tax purposes, if any, and (b) the character of the applicable income (e.g., long-term or short-term capital gain or ordinary or exempt); provided, however, that HCRX EPA shall be permitted to reasonably adjust the calculation of the Assumed Income Tax Rate in an equitable manner after taking into account the status of HCRX EPA and its direct and/or indirect partners, members, shareholders, or other beneficial owners of the Class C Unit as U.S. taxpaying individuals or entities, as applicable, in each case in its good faith discretion. Notwithstanding the foregoing, the Assumed Income Tax Rate can only be increased to the extent HCRX EPA provides evidence to the General Partner that HCRX EPA’s direct and/or indirect partners, members, shareholders, or other beneficial owners of the Class C Unit as U.S. taxpaying individuals or entities are actually subject to a tax rate that exceeds the highest effective marginal combined U.S. federal, state and local income tax rates (including tax rates under Section 1411 of the Code) prescribed for an individual residing in New York City, New York.

 

Bankruptcy” means, with respect to any Person, if such Person (a) makes an assignment for the benefit of creditors, (b) files a voluntary petition in bankruptcy, (c) is adjudged a bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings, (d) files a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, law or regulation, (e) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding of this nature, or (f) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the Person or of all or any substantial part of its properties, or if 120 days after the commencement of any proceeding against the Person seeking reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, law or regulation, if the proceeding has not been dismissed, or if within 90 days after the appointment without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated.

 

BBA Audit Rules” shall mean Subchapter C of Chapter 63 of the Code (Sections 6221 et seq.), as enacted by the Bipartisan Budget Act of 2015, as amended from time to time, and any Treasury Regulations, other guidance promulgated thereunder, and any similar U.S. state or local or non-U.S. legislation, regulations or guidance.

 

Business” shall mean any and all activities and transactions which are determined by the General Partner to be necessary, convenient, desirable or incidental to holding any equity interest in HCRX Intermediate HoldCo, L.P. and any of its Subsidiaries.

 

-2 -

 

 

Business Day” shall mean a day which is not a Saturday, Sunday or a day on which banks located in the State of New York are authorized or required by law to be closed.

 

Capital Account” shall mean, with respect to each Partner, the capital account maintained for such Partner in accordance with Section 7.4.

 

Capital Contribution” shall mean, with respect to each Partner, any contribution to the Partnership in money or other property (at such other property’s initial Gross Asset Value) by such Partner whenever made.

 

Cause” will exist where (i) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused HCRX EPA or the Manager to commit) a material breach of a material provision of the certificate of incorporation or bylaws of HCRX, the Certificate of Limited Partnership or this Agreement, or the Management Agreement; (ii) an Applicable Party has committed (or in the case of Applicable Parties who are executives, caused HCRX EPA or the Manager to commit) willful misconduct in connection with the performance of its duties under the terms of the certificate of incorporation or bylaws of HCRX, the Certificate of Limited Partnership or this Agreement, or the Management Agreement, (iii) there is a voluntary bankruptcy petition filed by an Applicable Party for itself, or (iv) there is a determination by any court with proper jurisdiction that an Applicable Party has committed an intentional felony or engaged in any fraudulent conduct, in each such case of clauses (ii) and (iv) which has a material adverse effect on the business, assets or condition (financial or otherwise) of HCRX or any of its Affiliates.

 

Certificate of Limited Partnership” shall mean the Certificate of Limited Partnership of the Partnership and any and all amendments thereto or restatements thereof filed by the General Partner with the office of the Secretary of State of the State of Delaware pursuant to the Act.

 

Class A Common Stock” means the Class A Common Stock of HCRX, par value $0.01 per share, or the common stock or other equity securities for which such common stock has been converted.

 

Class A Units” shall mean any Units that are designated as Class A Units on Schedule A attached hereto.

 

Class B Common Stock” means the Class B Common Stock of HCRX, par value $0.01 per share, or the common stock or other equity securities for which such common stock has been converted.

 

Class B Units” shall mean any Units that are designated as Class B Units on Schedule A attached hereto.

 

Class C Unit” shall mean the Unit that is designated as the Class C Unit on Schedule A attached hereto.

 

Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any superseding federal tax law. A reference herein to a specific section (§) of the Code refers not only to such specific section of the Code, but also to any corresponding provision of any superseding federal tax statute, as such specific section of the Code or such corresponding provision is in effect on the date of application of the provisions of this Agreement containing such reference.

 

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Covered Person” shall mean any Partner (including the General Partner), as applicable, any Affiliate of a Partner (including the Manager), and any director, officer, stockholder, partner, member, manager, trustee, employee or agent of the Partnership, a Partner or any Affiliate thereof, and the Partnership Representative of the Partnership; provided, that in no event shall any stockholder of HCRX (or an Affiliate of such stockholder), be a Covered Person hereunder by virtue of the fact that such Person is a stockholder of HCRX; provided further, that in no event shall any limited partner of the Limited Partners be a Covered Person hereunder by virtue of the fact that such Person is a limited partner of a Limited Partner.

 

Depreciation” shall mean, in any Fiscal Year (or other period), an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for federal income tax purposes, except that: (a) with respect to any asset the Gross Asset Value of which differs from its adjusted tax basis for federal income tax purposes and which difference is being eliminated by use of the “remedial method” defined by Treasury Regulations Section 1.704-3(d), Depreciation for such Fiscal Year (or other period) shall be the amount of book basis recovered for such Fiscal Year (or other period) under the rules prescribed by Treasury Regulations Section 1.704-3(d)(2); and (b) with respect to any other asset whose Gross Asset Value differs from its adjusted tax basis, Depreciation shall be determined in accordance with the methods used for federal income tax purposes and shall equal the amount that bears the same ratio to the Gross Asset Value of such asset as the depreciation, amortization or other cost recovery deduction computed for federal income tax purposes with respect to such asset bears to the adjusted federal income tax basis of such asset; provided, however, that if any such asset that is depreciable or amortizable has an adjusted federal income tax basis of zero, then the rate of Depreciation shall be as determined by the General Partner.

 

Distributable Cash” shall mean all cash, revenues and funds received by the Partnership and its Subsidiaries from the Partnership’s and its Subsidiaries’ operations and assets, less the sum of the following to the extent paid or set aside by the Partnership or its Subsidiaries, as applicable: (a) all principal and interest payments on indebtedness of the Partnership and its Subsidiaries and all other sums paid to lenders with respect to the Partnership and its Subsidiaries; (b) all cash expenditures incurred in the normal operation of the business of the Partnership and its Subsidiaries; and (c) such reserves as the General Partner deems reasonably necessary for the proper operation of the Business.

 

Entity” shall mean any partnership (general or limited), limited liability company, corporation, joint venture, trust, business trust, cooperative, association, foreign trust or foreign business organization or other legal entity.

 

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

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Exchange Agreement” shall mean the Exchange Agreement, dated as of the date hereof, by and among HCRX, HCRX CH, Inc., the Partnership, the Feeder Fund, and such other holders of Class B Units from time to time party thereto, as it may be amended and/or restated from time to time in accordance with its terms.

 

fair market value” shall mean, with respect to any property or asset (other than cash) (including any Units and any other equity securities of the Partnership), the price at which such property or asset is likely to be sold in an arm’s-length transaction between a willing and able buyer and a willing and able seller, neither of which is an Affiliate of a Partner or of the other, based on the then prevailing market conditions. “Fair market value” shall be determined by the General Partner.

 

Feeder Fund” means HCRX Feeder Fund, L.P., a Delaware limited partnership.

 

Fiscal Year” shall mean (a) the period commencing upon the date hereof and ending on December 31, 2021, (b) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (c) any portion of the period described in clause (b) of this sentence ending on the date on which a certificate of cancellation of the Certificate of Limited Partnership is filed in accordance with the Act; provided, in each case unless changed by the General Partner or such other period as may be required by the Code.

 

GAAP” means generally accepted accounting principles in the United States.

 

General Partner” shall mean HCRX Master GP, LLC, a Delaware limited liability company, and shall include any Person who becomes an additional, successor or substitute General Partner of the Partnership pursuant to the provisions of this Agreement, in each case, in such Person's capacity as a general partner of the Partnership.

 

Gross Asset Value” shall mean, with respect to any asset of the Partnership, such asset’s adjusted basis for federal income tax purposes, except as follows:

 

(a)       the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the General Partner;

 

(b)       the Gross Asset Value of all assets of the Partnership shall be adjusted to equal their respective gross fair market values, as determined by the General Partner as of the following times: (i) the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution to the Partnership; (ii) the distribution by the Partnership of more than a de minimis amount of the property of the Partnership as consideration for an interest in the Partnership; (iii) the liquidation of the Partnership within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (iv) at any other time specified in Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(5); provided, however, that adjustments pursuant to Clauses (i), (ii) and (iv) of this sentence shall be made only if the General Partner determines that such adjustments are necessary or appropriate to reflect the relative economic interests in the Partnership of the Partners;

 

(c)       the Gross Asset Value of any asset of the Partnership that is distributed to any Partner shall be the gross fair market value of such asset on the date of distribution, as determined by the General Partner; and

 

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(d)       the Gross Asset Values of assets of the Partnership (including intangible assets, such as goodwill) shall be increased (or decreased) to reflect any adjustments to the adjusted bases of such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Paragraph (f) of the definition of “Profits” and “Losses” below; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Paragraph (iv) to the extent the General Partner determines that an adjustment pursuant to Paragraph (ii) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Paragraph (d).

 

If the Gross Asset Value of an asset has been determined or adjusted pursuant to Paragraph (a), (b) or (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing the Profits and Losses of the Partnership.

 

HCRX” shall mean Healthcare Royalty, Inc., a Delaware corporation.

 

HCRX Board” shall mean the board of directors of HCRX.

 

HCRX EPA” shall mean HCRX EPA Holdings, LLC, a Delaware limited liability company.

 

IPO” shall mean the initial public offering of HCRX.

 

Legacy HCR Partnerships” means Healthcare Royalty Partners III, L.P., Healthcare Royalty Partners III-A, L.P., Healthcare Royalty Partners IV, L.P., Healthcare Royalty Partners IV-A, L.P., HCR Canary Fund, L.P., HCR Molag Fund, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P., HCR H.O.P. Fund, L.P., PPCF Harris Feeder LP, and HCR Potomac Fund, L.P., each a Delaware limited partnership.

 

Limited Partner” shall mean any Person admitted as a limited partner of the Partnership pursuant to this Agreement and named as such on Schedule A attached hereto, including any Person admitted as an additional limited partner of the Partnership pursuant to the provisions of this Agreement, in its capacity as a limited partner of the Partnership, and “Limited Partners” shall mean two (2) or more of such Persons when acting in their capacities as limited partners of the Partnership.

 

Limited Partner Interest” shall mean a Limited Partner’s entire limited partner interest in the Partnership.

 

Majority Class A Limited Partners” shall mean the Limited Partners holding a majority of the Class A Units.

 

Majority Class B Limited Partners” shall mean the Limited Partners holding a majority of the Class B Units; provided that with respect to any matter in which the Feeder Fund is entitled to vote as a Limited Partner, the Percentage Interests of the Feeder Fund shall be voted or abstained on such matter in the same manner and proportions as interests in the Feeder Fund are voted and/or abstained on such matter.

 

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Majority Limited Partners” shall mean the Limited Partners holding, in the aggregate, more than 50% of the Partnership’s Percentage Interests.

 

Management Agreement” shall mean that certain Management Agreement, dated as of July [●], 2021, by and among the Partnership, HCRX Intermediate HoldCo, L.P., HCRX Investments HoldCo, L.P., and the Manager, as amended from time to time.

 

Manager” shall mean HCRX Management, LLC, a Delaware limited liability company.

 

Nonrecourse Liability” has the meaning set forth in Treasury Regulations Section 1.752-1(a)(2).

 

Partner Nonrecourse Debt” shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(4).

 

Partner Nonrecourse Deductions” shall have the meaning set forth in Treasury Regulations Section 1.704-2(i)(2).

 

Partners” shall mean, collectively: (a) the General Partner; and (b) the Limited Partners.

 

Partnership Minimum Gain” shall have the same meaning as the term “partnership minimum gain” set forth in Treasury Regulations Section 1.704-2(b)(2) and 1.704-2(d).

 

Percentage Interest” shall mean, with respect to any Partner, as of any date of determination, such Partner’s interest in the Partnership expressed as a portion of one hundred percent (100%), as shown on Schedule A attached hereto, determined by dividing (a) the total number of Class A Units and Class B Units held by such Limited Partner as of such date by (b) the total number of Class A Units and Class B Units outstanding as of such date. The holder of Class C Units shall at all times have a Percentage Interest equal to zero.

 

Permitted Transfer” shall mean a Transfer that occurs by operation of law, including the laws of descent and distribution; provided, however, a Transfer that occurs by merger is not a Permitted Transfer.

 

Persons” shall mean any individual or Entity.

 

Profits” and “Losses” shall mean, for any Fiscal Year (or other period), an amount equal to the taxable income or loss of the Partnership as determined for federal income tax purposes, with the following adjustments:

 

(a)       such taxable income or loss shall be increased by the amount, if any, of tax-exempt income received or accrued by the Partnership not otherwise taken into account in determining Profit and Loss;

 

(b)       such taxable income or loss shall be reduced by the amount, if any, of all expenditures of the Partnership (not otherwise taken into account in determining Profit and Loss) described in Section 705(a)(2)(B) of the Code, including expenditures

 

treated as described therein under Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations;

 

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(c)       items of income, gain, deductions or losses specially allocated pursuant to Section 8.3(a) in any year shall be excluded from the calculation of such taxable income or loss for such year;

 

(d)       if the Gross Asset Value of any asset is adjusted pursuant to clause (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account, immediately prior to the event giving rise to such adjustment, as gain or loss from the disposition of such asset for purposes of computing Profit or Loss;

 

(e)       gain or loss resulting from any disposition of any asset with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the asset disposed of, notwithstanding that such Gross Asset Value differs from the adjusted tax basis of such asset;

 

(f)       in lieu of the depreciation, amortization, or other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such taxable year; and

 

(g)       to the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profit or Loss.

 

Record Date” shall mean the date established by the General Partner pursuant to Section 4.1 as the record date for purposes of any entitlement hereunder or any other purpose as determined by the General Partner.

 

Reorganization Agreement” shall mean that certain Agreement and Plan of Reorganization, dated as of June [●], 2021, by and among HealthCare Royalty Management, LLC, HCRX, the Partnership, the Feeder Fund and certain other parties, as it may be amended and/or restated from time to time in accordance with its terms.

 

Securities Act” shall mean the Securities Act of 1933, as amended.

 

Subsidiary” shall mean, with respect to any Person, another Person controlled by such Person directly or indirectly through any other Subsidiary of such Person or in which such Person owns directly or indirectly through any other Subsidiary of such Person more than 50% of the outstanding common stock or other outstanding equity securities ordinarily entitled to vote in such Person.

 

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Substitute Limited Partner” shall mean a transferee of all or a portion of a Limited Partner’s Units that becomes a Limited Partner as provided herein and succeeds, to the extent of the Units transferred, to the rights and powers and becomes subject to the restrictions and liabilities of the transferor Limited Partner. For the avoidance of doubt, a transferee of Units pursuant to the Exchange Agreement is a Substitute Limited Partner.

 

Treasury Regulations” shall mean the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of superseding regulations).

 

Unit” shall mean a partnership interest in the Partnership that is designated as a “Unit” and shall include the Class A Units, the Class B Units and the Class C Unit.

 

Section 1.2            Cross References. Each of the following terms shall have the meaning assigned thereto in the Section of this Agreement set forth below opposite such term:

 

Term Section
Act Recitals
Agreement Preamble
Cause Event Section 7.2(c)
Covered Losses 6.2(a)
Cure Section
7.2(d)(iii)
Cure Period Section
7.2(d)(iii)
Deficit Partner 8.3(a)(v)
EPA Advance Section
7.2(e)(i)
EPA Advance Amount Section
7.2(e)(i)
Partnership Preamble
Partnership Representative 8.10(a)
Performance Amount Section 8.14(c)
Regulatory Allocations 8.3(a)(vi)
Side Letter Section 11.2(a)
Side Letter Grantee Section 11.2(a)
Tax Excess 8.6(b)
Tax Liability 8.6(b)
Transfer Section 9.2(a)
Transferable Section 9.2(a)
Transfer Expenses Section 9.2(g)

 

Section 1.3            Construction. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. The definitions in this Article I shall apply equally to both 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. All references herein to Articles, Sections and Schedules shall be deemed to be references to Articles and Sections of, and Schedules to, this Agreement unless the context shall otherwise require. All Schedules attached hereto shall be deemed incorporated herein as if set forth in full herein and, unless otherwise defined therein, all terms used in any Schedule shall have the meaning ascribed to such term in this Agreement. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” A reference to any party to this Agreement or any other agreement or document shall include such party’s predecessors, successors and permitted assigns. All accounting terms not defined in this Agreement shall have the meanings determined by GAAP. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise expressly provided herein, any agreement, instrument, law or statute defined or referred to herein means such agreement, instrument, law or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of laws or statutes) by succession of comparable successor laws or statutes and references to all attachments thereto and instruments incorporated therein. Unless otherwise expressly specified herein, including any allocation to be made among all Partners or a group of Partners “on a pro rata basis” or “ratably” shall be made in proportion to the Percentage Interests of such Partners or group of Partners immediately prior to the transaction with respect to which such allocation is being made.

 

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Article II

CONTINUATION OF PARTNERSHIP

 

Section 2.1            Continuation.

 

(a)               Continuation. The Partnership was formed on April 30, 2021, pursuant to the provisions of the Act, upon the filing of the Certificate of Limited Partnership with the Secretary of State of the State of Delaware. The parties hereto hereby continue the Partnership as a limited partnership under and pursuant to the provisions of the Act and agree that the rights, duties and liabilities of the Partners shall be as provided in the Act, except as otherwise provided herein.

 

(b)               Schedule A attached hereto shall be updated from time to time as is necessary to accurately reflect the information contained therein, including the admission of additional Limited Partners. Any revision to Schedule A attached hereto made in accordance with this Agreement shall not be deemed an amendment to this Agreement. Any reference in this Agreement to Schedule A attached hereto shall be deemed to be a reference to Schedule A attached hereto, as amended and in effect from time to time.

 

Section 2.2            Name. The name of the Partnership heretofore formed and continued hereby is Healthcare Royalty Holdings, L.P. The name of the Partnership may be changed from time to time by the General Partner, and upon such change an appropriate amendment to the Certificate of Limited Partnership shall be filed as required by the Act. Notwithstanding any other provision of this Agreement (including Section 11.3), the General Partner may, without the consent of any other Person, amend this Agreement to reflect a change in the name of the Partnership.

 

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Section 2.3            Principal Place of Business. The principal place of business of the Partnership shall be located at 300 Atlantic St., Suite 600, Stamford, Connecticut 06901. The General Partner may hereafter change the principal place of business of the Partnership to such other place or places as the General Partner may determine from time to time. The Partnership may maintain such other offices at such other places as the General Partner deems advisable.

 

Section 2.4            Registered Office and Registered Agent. The address of the Partnership’s registered office in Delaware shall be Corporation Service Company, 251 Little Falls Drive, City of Wilmington, County of New Castle, State of Delaware 19808. The General Partner of the Partnership generally may at any time and from time to time designate another registered office. The name and address of the registered agent of the Partnership for service of process on the Partnership in the State of Delaware initially is Corporation Service Company, 251 Little Falls Drive, City of Wilmington, County of New Castle, State of Delaware 19808. The General Partner may at any time and from time to time designate another registered agent.

 

Section 2.5            Purposes and Powers.

 

(a)               Subject to Section 2.5(b), the Partnership is formed for the purpose of, directly and indirectly, engaging in the Business and in any and all activities and transactions which are necessary, convenient, desirable or incidental to the foregoing and in any lawful business, act or activity related thereto as the General Partner may determine from time to time and for which a limited partnership may be organized under the Act, and engaging in any and all activities necessary, convenient, desirable or incidental to the foregoing.

 

(b)               The Partnership shall have authority to engage in any lawful business, purpose or activity permitted by the Act, and shall possess and may exercise all of the powers and privileges granted by the Act, together with any powers incidental thereto, including such powers or privileges as are necessary or convenient to the conduct, promotion or attainment of the business purposes or activities of the Partnership, in each case, as the General Partner (or any officer pursuant to delegated authority) may determine.

 

Section 2.6            Term. The Partnership shall have a perpetual existence unless the Partnership is dissolved and terminated in accordance with the provisions of this Agreement.

 

Article III

PARTNERS

 

Section 3.1            Admission of Partners; Withdrawal of Initial Limited Partner; Authorization of Reorganization Transactions.

 

(a)               General Partner. HCRX Master GP, LLC hereby continues as the General Partner of the Partnership and agrees to continue the Partnership without dissolution in accordance with this Agreement and the Act. The mailing address of the General Partner is set forth on Schedule A attached hereto.

 

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(b)               Interests. The Limited Partner Interests shall be adjusted from time to time to reflect a Transfer of all or a portion of a Limited Partner’s Limited Partner Interest to the extent permitted by this Agreement. The names and addresses of each Limited Partner, the number of Units held by each Limited Partner and each Limited Partner’s Percentage Interest shall be listed on Schedule A attached hereto and shall be adjusted and updated from time to time by the General Partner in accordance with this Agreement.

 

(c)               Withdrawal of Initial Limited Partner. The Initial Limited Partner shall be deemed to have withdrawn from the Partnership as a limited partner of the Partnership immediately following the admission of Limited Partners on the date hereof, and the Partnership shall as soon as practicable repay to the Initial Limited Partner the Initial Limited Partner’s Capital Contribution, if any, without any interest thereon or deduction therefrom, and upon the receipt thereof the Initial Limited Partner shall thereafter have no further interest as a Limited Partner in the Partnership.

 

(d)               Acquisition of Units by Feeder Fund, HCRX and HCRX EPA. Notwithstanding anything other provision in this Agreement, without the consent of any Partner or any other Person otherwise bound by this Agreement being required, the Partnership hereby issues to (a) the Feeder Fund, Class B Units, (b) HCRX, Class A Units, and (c) HCRX EPA, the Class C Unit, in each case in such amounts as are reflected on Schedule A hereto and each of the Feeder Fund, HCRX and HCRX EPA is hereby admitted as (or continues as) a limited partner of the Partnership.

 

(e)               Buyback Transaction. Immediately following the IPO Closing (as defined in the Reorganization Agreement), the Partnership, and the General Partner on behalf of the Partnership, is authorized to, without the consent of any other Partner or any other Person required, use all or a portion of the net proceeds of the Debt Financing (as defined in the Reorganization Agreement) to repurchase Class B Units from the Feeder Fund based on the IPO Price (as defined in the Reorganization Agreement), and the Feeder Fund will use the proceeds from such repurchase of Class B Units to repurchase partnership interests of the Feeder Fund from the Feeder Fund’s limited partners.

 

(f)               Specific Authorization. Notwithstanding any duty existing at law, in equity, or otherwise, the Partnership, and the General Partner on behalf of the Partnership (on its own behalf or on behalf of its Subsidiaries), may enter into and perform the Management Agreement, the Exchange Agreement, any other Reorganization Document (as defined in the Reorganization Agreement) to which the Partnership or its Subsidiaries is a party and any documents contemplated by or related to the Reorganization Transactions (as defined in the Reorganization Agreement) or the IPO, without any further act, vote or approval of any Person, including any Partner, notwithstanding any other provision of this Agreement (including Section 5.6). The General Partner is hereby authorized to enter into the documents described in the preceding sentence on behalf of the Partnership, but such authorization shall not be deemed a restriction on the power of the General Partner to enter into other documents on behalf of the Partnership.

 

Section 3.2            Admission of Additional Limited Partners. The General Partner may, without the consent of the Limited Partners, issue additional Limited Partner Interests and admit additional Persons to the Partnership as Limited Partners, and such Persons shall make Capital Contributions, and may participate in the profits, losses, distributions, allocations and Capital Contributions upon such terms as are established by the General Partner. After the date hereof, a Person shall be admitted as a Limited Partner at the time: (a) all conditions to such Person’s admission pursuant to this Agreement have been satisfied, including those set forth in Article IX, as applicable, as determined by the General Partner, and (b) such Person executes this Agreement or a counterpart signature page to this Agreement. Following admission as a Limited Partner, such Person shall be listed by the General Partner as a Limited Partner on Schedule A attached hereto. Notwithstanding the foregoing, after the date hereof, there shall be no additional admissions of Persons to the Partnership as Limited Partners, except in connection with a Transfer or as required pursuant to the Exchange Agreement.

 

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Section 3.3            Voting Rights.

 

Unless otherwise required by a non-waivable provision of the Act or this Agreement, all actions, approvals and consents to be taken or given by the Limited Partners under the Act, this Agreement or otherwise shall solely require the affirmative vote or written consent of the Majority Class A Limited Partners. Each Limited Partner shall be entitled to one vote per Class A Unit and one vote per Class B Unit that it holds with respect to any matters to which the Limited Partner holding such Units are entitled to vote pursuant to this Agreement. Notwithstanding anything to the contrary contained in this Agreement, the General Partner (i) may allow, in its sole discretion, any Limited Partner and (ii) shall allow the Feeder Fund to split its vote on any matter brought before the Limited Partners that requires the vote or consent of the Limited Partners pursuant to this Agreement so that a portion of such Limited Partner’s Percentage Interest is voted for and/or against a matter, or a portion may abstain from voting.

 

Section 3.4            Limitation of Liability of Limited Partners.

 

(a)               Except as otherwise expressly required by the Act, a Limited Partner, in its capacity as such, shall have no liability in excess of (i) the amount of its Capital Contribution, (ii) its share of any undistributed profits and assets of the Partnership, (iii) its obligation to make other payments expressly provided for in this Agreement, and (iv) the amount of any distributions from the Partnership wrongfully distributed to it (to the extent such distributions are required to be returned pursuant to the Act or applicable law). It is the intent of the parties hereto that no distribution to any Limited Partner shall be deemed a return of any money or other property in violation of the Act. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, a Limited Partner is obligated to return such money or property, such obligation shall be the obligation of such Limited Partner and not of the General Partner or any other Limited Partner.

 

(b)               No Limited Partner, in its capacity as such, shall take part in the day-to-day management, operation or control of the business and affairs of the Partnership. No Limited Partner shall have any right, power or authority to transact any business in the name of the Partnership or to act for or on behalf of or to bind the Partnership. A Limited Partner shall have no rights other than those specifically provided herein or the Act.

 

(c)               A Limited Partner or an employee, agent, director or officer of a Limited Partner may also be an employee, agent, director or officer of the Partnership or the General Partner. The existence of these relationships and acting in such capacities will not result in a Limited Partner’s being deemed to be participating in the control of the business of the Partnership or otherwise affect the liability of such Limited Partner or the Person so acting.

 

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Section 3.5             Priority and Return of Capital. Except as may be expressly provided herein, no Limited Partner shall have priority over any other Limited Partner, either as to the return of Capital Contributions or as to the Profits, Losses or distributions with respect to the Partnership.

 

Section 3.6            Representations and Warranties. Each Limited Partner, upon executing this Agreement (or counterpart signature to this Agreement), hereby represents and warrants to the General Partner and the Limited Partners who have also executed this Agreement that: (a) such Limited Partner has knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of an investment in the Partnership and making an informed investment decision with respect thereto; (b) such Limited Partner has received, reviewed and evaluated all information necessary to assess the merits and risks of its investment in the Partnership and has had answered to its satisfaction any questions regarding such information; (c) such Limited Partner is able to bear the economic and financial risk of an investment in the Partnership for an indefinite period of time; (d) such Limited Partner is acquiring such Limited Partner’s interest in the Partnership for its sole benefit and account, for investment only and not with a view to, or for resale in connection with, any distribution to the public or public offering thereof; (e) (i) if such Limited Partner is an entity, the execution, delivery and performance of this Agreement have been duly authorized by such Limited Partner and (ii) if such Limited Partner is a natural Person, such Limited Partner has full legal capacity to enter into and perform his or her obligations under this Agreement; (f) the execution, delivery and performance of this Agreement do not require such Limited Partner to obtain any consent or approval that has not been obtained and do not contravene or result in a default under any provision of any law or regulation applicable to such Limited Partner or other governing documents or any agreement or instrument to which such Limited Partner is a party (if such Limited Partner is an entity) or by which such Limited Partner is bound; (g) the determination of such Limited Partner to acquire such Limited Partner’s interest in the Partnership has been made by such Limited Partner independent of any other Partner and independent of any statements or opinions as to the advisability of such purchase or as to the properties, business, prospects or condition (financial or otherwise) of the Partnership, the General Partner and their respective Subsidiaries which may have been made or given by any other Partner or any agent or employee of any other Partner; (h) this Agreement is valid, binding and enforceable against such Limited Partner in accordance with its terms, except as limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws relating to creditors’ rights generally and (ii) general principles of equity, whether such enforceability is considered in a proceeding in equity or at law; and (i) such Limited Partner is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

Article IV

MEETINGS OF LIMITED PARTNERS

 

Section 4.1            Record Date. For the purpose of determining Limited Partners entitled to notice of or to vote at any meeting of Limited Partners or any adjournment thereof, or Limited Partners entitled to receive payment of any distribution, or in order to make a determination of Limited Partners for any other purpose, the General Partner may set a Record Date for such determination of Limited Partners. When a determination of Limited Partners entitled to vote at any meeting of Limited Partners has been made as provided in this Section 4.1, such determination shall apply to any adjournment thereof (unless such adjournment continues for more than 60 days).

 

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Section 4.2            Action Without a Meeting. Any action required or permitted to be taken at a meeting of Limited Partners may be taken without a meeting and without prior notice if the General Partner receives written consents approving such action by the Majority Class A Limited Partners, or, in the case of actions requiring the consent of the holders of Class B Units or the holder of the Class C Unit, if the General Partner receives written consents approving such action by the Majority Class B Limited Partners or the holder of the Class C Unit, as applicable.

 

Article V

MANAGEMENT

 

Section 5.1            Management and Control of the Partnership. Except as otherwise expressly provided in this Agreement, the Business and affairs of the Partnership shall be exclusively managed, operated and controlled by the General Partner, and the General Partner shall have full, exclusive and complete discretion to manage and control the business and affairs of the Partnership, to make all decisions affecting the business and affairs of the Partnership, and to take all actions as it deems necessary, convenient, desirable, or appropriate to accomplish the purposes of the Partnership as set forth herein. Any action taken by the General Partner, and the signature of the General Partner on any agreement, contract, instrument or other document on behalf of the Partnership, shall be sufficient to bind the Partnership and shall conclusively evidence the authority of the General Partner to act for the Partnership.

 

Section 5.2            Powers of General Partner. Except as otherwise expressly provided herein, the General Partner (acting on behalf of the Partnership), shall have the right, power and authority, in the management of the business and affairs of the Partnership, to do or cause to be done any and all acts, at the expense of the Partnership, deemed by the General Partner to be necessary, convenient, desirable, or appropriate to effectuate the business, purposes and objectives of the Partnership. The Partnership shall be operated in such a manner as the General Partner determines to be reasonable and necessary or appropriate to preserve the limited liability of the Limited Partners.

 

Section 5.3            Management Agreement. The Partnership, shall enter into the Management Agreement with the Manager to assist the General Partner in performing its duties under this Agreement which may include, without limitation, (a) sourcing, identifying and evaluating prospective Royalty Investments, (b) structuring and negotiating the acquisition and disposition of Royalty Investments on behalf of the Partnership, (c) monitoring Royalty Investments and (d) performing the day-to-day investment and administrative operations of the Partnership; provided, however, that such contract shall not relieve the General Partner of any of its duties and obligations hereunder pursuant to applicable law. If for any reason the Management Agreement should terminate prior to the dissolution of the Partnership, the General Partner shall provide, or arrange for a successor service provider to provide, to the Partnership the services previously provided by the Manager.

 

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Section 5.4           Partnership Books. The General Partner shall keep or cause to be kept full and true books of account maintained in accordance with GAAP consistently applied and in which shall be entered fully and accurately each transaction of the Partnership. Such books of account, together with a copy of this Agreement and of the Certificate of Limited Partnership, shall at all times be maintained at the principal place of business of the Partnership.

 

Section 5.5            Fiduciary Obligations; Outside Businesses.

 

(a)               Notwithstanding any other provision of this Agreement or any duty otherwise existing at law or in equity, to the fullest extent permitted by law, including Section 17-1101(d) of the Act, no Partner other than the General Partner, but solely in its capacity as the General Partner, shall, in its capacity as a Partner, have any fiduciary or other duties to the Partnership, to any other Partner or any other Person bound by this Agreement, other than any duties expressly set forth in this Agreement; provided, however, that the foregoing shall not eliminate the implied covenant of good faith and fair dealing. To the extent that any Partner, other than the General Partner in its capacity as such, has any liabilities or duties at law or in equity in its capacity as a Partner, including fiduciary duties or other standards of care, such liabilities and duties are hereby expressly eliminated and disclaimed by the Partnership, the Partners and any other Person bound by this Agreement to the fullest extent permitted by law.

 

(b)               The General Partner, in its capacity as such, shall owe the same fiduciary duties to the Partnership and the Limited Partners as are owed by directors of a Delaware corporation to such corporation and its stockholders. For the avoidance of doubt, the fiduciary duties described in this Section 5.5(b) shall not be limited by the fact that the General Partner shall be permitted to take certain actions in its discretion hereunder.

 

(c)               Any Limited Partner and any Affiliate of any Limited Partner (including, for the avoidance of doubt, HCRX, HCRX Intermediate HoldCo, L.P., their Subsidiaries and HCRX Management LLC) may engage in or possess an interest in other profit-seeking or business ventures of any kind, nature or description, independently or with others, whether or not such ventures are competitive with the Partnership and the doctrine of corporate opportunity, or any analogous doctrine, shall not apply to any Limited Partner. No Limited Partner who acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an opportunity for the Partnership shall have any duty to communicate or offer such opportunity to the Partnership, and such Limited Partner shall not be liable to the Partnership or to the other Partners for breach of any fiduciary or other duty by reason of the fact that such Limited Partner pursues or acquires for, or directs such opportunity to another Person or does not communicate such opportunity or information to the Partnership. Neither the Partnership nor any Partner shall have any rights or obligations by virtue of this Agreement or the partnership relationship created hereby or thereby in or to such independent ventures or the income or profits or losses derived therefrom, and the pursuit of such ventures, even if competitive with the activities of the Partnership, shall not be deemed wrongful or improper.

 

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Section 5.6            Relationships with Affiliates. The General Partner may cause the Partnership to enter into any agreement or contract with the General Partner, any Affiliate of the General Partner, any Limited Partner, any Affiliate of a Limited Partner or any agent of the General Partner or the Partnership without the prior approval of any Partner; provided, that any such agreement or contract shall contain substantially such terms and conditions as would be contained in a similar agreement or contract entered into by the Partnership as the result of arm’s-length negotiations from a comparable unaffiliated and disinterested third party.

 

Section 5.7            Title to Assets. Title to assets of the Partnership, whether real, personal or mixed, tangible or intangible, shall be deemed to be owned by the Partnership, and no Partner, individually or collectively, shall have any ownership interest in such assets or any portion thereof.

 

Section 5.8            Reliance by Third Parties. Any Person may rely upon a certificate signed by the General Partner as to (a) the identity of the General Partner or Limited Partners, (b) any factual matters relevant to the affairs of the Partnership, (c) the Persons who are authorized to execute and deliver any document on behalf of the Partnership or (d) any action taken or omitted by the Partnership, the General Partner or any Limited Partner with respect to the business of the Partnership.

 

Section 5.9            Meetings and Action of the General Partner. Any action that is permitted to be taken by the General Partner on behalf of the Partnership may be taken by written consent of the General Partner or by any other means determined by such General Partner. The General Partner shall not be required to hold a meeting in order to take action on any matter.

 

Section 5.10        Reimbursement of Expenses. The Partnership shall reimburse the General Partner for all ordinary and reasonably necessary out-of-pocket expenses incurred by the General Partner in accordance with this Agreement on behalf of the Partnership.

 

Article VI

INDEMNIFICATION AND EXCULPATION

 

Section 6.1            Exculpatory Provisions.

 

(a)               Notwithstanding any provision of this Agreement to the contrary, whether express or implied, or obligation or duty at law or in equity, no Covered Person shall be liable to the Partnership or any other Covered Person bound by this Agreement for any loss incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the General Partner or the Partnership or any of their respective Subsidiaries and in a manner reasonably believed to be within the scope of the authority conferred upon such Covered Person by this Agreement or the General Partner, except that a Covered Person shall be liable for any such losses incurred by reason of such Covered Person’s gross negligence, fraud or willful misconduct.

 

(b)               A Covered Person shall be, to the fullest extent permitted by law, fully protected in relying in good faith upon the records of the General Partner or the Partnership and upon such information, opinions, reports, statements or other documents presented to the General Partner or the Partnership by any Person as to matters the Covered Person reasonably believes are within such other Person’s professional or expert competence and who has been selected by or on behalf of the General Partner or the Partnership including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to Partners might properly be paid.

 

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Section 6.2            Indemnification of General Partner and Other Covered Persons.

 

(a)               To the fullest extent permitted by applicable law but subject to the limitations set forth in this Section 6.2, the Partnership shall indemnify and hold harmless the General Partner and each other Covered Person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action, suit, claim or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Partnership or the General Partner, as applicable, to procure a judgment in its favor, by reason of (i) the fact that such Covered Person is or was a Limited Partner, General Partner, Affiliate of a Partner or General Partner, or an officer, director, stockholder, partner, member, manager, trustee, employee or agent of the Partnership or the General Partner or any Affiliate thereof, (ii) the fact that such Covered Person is or was serving at the request of the Partnership, the General Partner, or any of the Partnership’s Subsidiaries as an Affiliate, partner, member, director, officer, manager, trustee, stockholder, partner, member, employee or agent of another Person or (iii) any act or omission or alleged act or omission performed or omitted to be performed on behalf of the Partnership or the General Partner or any Subsidiary of the Partnership, as applicable, or otherwise in connection with the Business, or the General Partner, as applicable, against all expenses, including reasonable attorneys’ fees and disbursements, judgments, fines, losses, damages, liabilities, claims and amounts paid in settlement actually and reasonably incurred by such Covered Person (“Covered Losses”) in connection with such action, suit, claim or proceeding. Notwithstanding anything to the contrary set forth herein, (A) the Partnership will not be required to indemnify a Covered Person in connection with an action, suit, claim or proceeding commenced by such Covered Person (including by way of a counterclaim) or commenced against such Covered Person by the Partnership or the General Partner or any of the Partnership’s Subsidiaries unless the commencement of the action, suit, claim or proceeding (or part thereof) by such Covered Person was approved in writing by the General Partner and (B) no indemnification shall be provided to or on behalf of any Covered Person if a judgment or other final adjudication adverse to such Covered Person establishes that his or her acts constituted gross negligence, fraud or willful misconduct, and (C) the rights to indemnification set forth in this Section 6.2 shall not apply to any Covered Losses to the extent incurred as a result of an action, suit or proceeding which is an internal dispute exclusively between the General Partner and its members, managers, officers, directors, employees or Affiliates.

 

(b)               Any indemnification payment shall be payable only out of and to the extent of the Partnership’s assets and no Covered Person shall have any liability therefor.

 

(c)               To the extent permitted by applicable law, the Partnership shall pay expenses incurred in defending any action, suit, claim or proceeding described in subsection (a) above (including reasonable legal fees and expenses of counsel and other experts) in advance of the final disposition of such action, suit, claim or proceeding upon receipt by the Partnership of an undertaking from the Covered Person, in form satisfactory to the General Partner, to repay such amount if it shall be finally determined by a court of competent jurisdiction that the Covered Person is not entitled to be indemnified as authorized by subsections (a) or (b) above.

 

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(d)               The Partnership (i) shall be required to advance the full amount of expenses incurred by a Covered Person, provided, however, that in such instance such Covered Person is not defending an action, suit, claim or proceeding against such Covered Person by Majority Limited Partners, and (ii) shall be liable for the full amount of all Covered Losses to the extent legally permitted and as required by the terms of this Agreement (or any other agreement between the Partnership and such Covered Person), without regard to any rights that the Covered Person may have against any other Person or any of their respective Affiliates.

 

(e)               Any Covered Person who desires to make a claim against the Partnership for indemnification under this Section 6.2 shall notify the Partnership of the action, suit, claim or proceeding which is the basis of such claim as soon as reasonably practicable after becoming aware of such claim. Failure or delay to give such notice, however, shall not affect the obligations of the Partnership, except to the extent of any actual prejudice resulting therefrom.

 

(f)                To the fullest extent permitted by law, the Partnership shall have the right, exercisable subject to the approval of the General Partner, to participate in and control the defense of any such action, suit, claim or proceeding and, in connection therewith, to retain counsel reasonably satisfactory to each Covered Person, at the Partnership’s expense, to represent each Covered Person and any other Person the General Partner may designate in such action, suit, claim or proceeding. The General Partner shall keep the Covered Person advised of the status of such action, suit, claim or proceeding and the defense thereof and shall consider in good faith recommendations made by the Covered Person with respect thereto.

 

(g)               In any such action, suit, claim or proceeding, any Covered Person shall have the right to retain its own counsel at its own expense; provided, however, that the fees and expenses of such Covered Person’s counsel shall be at the expense of the Partnership if (i) the General Partner shall have agreed to the retention of such counsel, (ii) the Partnership shall have failed, within a reasonable time after having been notified of the existence of an indemnified claim, to assume the defense of such indemnified claim or has failed or is failing to defend in good faith such indemnified claim, (iii) the indemnified claim relates to or arises in connection with any criminal action, suit, claim or proceeding against such Covered Person, (iv) the indemnified claim seeks an injunction or equitable relief against such Covered Person, or (v) the named parties to any such action, suit, claim or proceeding (including any impleaded parties) include both the Partnership and such Covered Person and representation of both parties by the same counsel would be inappropriate in the judgment of the Covered Person due to actual or potential differing interests between them and the Partnership shall have failed, within a reasonable time after having been notified of the Covered Person’s objection under this Section 6.2(g) to such joint representation, to retain separate counsel for such Covered Person reasonably satisfactory to such Covered Person. It is understood that the Partnership shall not, in respect of the legal expenses of any Covered Person, in connection with any action, suit, claim or proceeding or related actions, suits, claims or proceedings in the same jurisdiction, be liable for the fees and expense of more than one separate firm (in addition to any local counsel reasonably satisfactory to the General Partner) for all such Covered Persons and that all such fees and expenses shall be reimbursed as they are incurred; provided, however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of a Covered Person for the same counsel to represent such Covered Person and any other Covered Person, then such Covered Person shall be entitled to retain its own counsel, in each jurisdiction for which the Covered Person reasonably determines counsel is required, at the expense of the Partnership.

 

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(h)               The Partnership shall not be liable for any settlement of any action, suit, claim or proceeding effected without the written consent of the General Partner (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final judgment for the plaintiff, the Partnership agrees to indemnify each Covered Person, to the extent provided in Section 6.2(a), from and against all Covered Losses by reason of such settlement or judgment. The General Partner shall not effect any settlement of any pending or threatened claim, demand, action, suit or proceeding in respect of which any Covered Person is seeking indemnification hereunder without the prior written consent of each such Covered Person, unless such settlement does not entail any admission of liability on the part of any Covered Person and includes an unconditional release of each such Covered Person from all liability and claims that are the subject matter of such claim, demand, action, suit or proceeding without the requirement of such Covered Person to make any payment or contribution in connection therewith and all expenses of such Covered Person have been paid (and the Partnership shall have irrevocably waived any right to seek reimbursement of the same).

 

(i)                 As necessary or useful to the defending party in effecting the foregoing procedures, the Covered Persons shall cooperate in the execution and delivery of agreements, instruments and other documents and in the provision of access to witnesses, documents and property (including access to perform interviews, physical investigations or other activities).

 

(j)                The provisions of this Article VI are for the sole benefit of the Covered Persons, and such Covered Persons shall have an independent right of enforcement in respect of Section 6.2 as intended third-party beneficiaries hereunder. The provisions of this Article VI shall not be deemed to create any rights for the benefit of any other Person (except as provided in the immediately preceding sentence).

 

(k)               If the Partnership or any of its respective successors or assignees (i) sells, transfers or otherwise disposes of all or substantially all of its assets or (ii) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then, in each case, proper provision shall be made so that the transferees, successors and assignees of the Partnership assume the obligations of the Partnership with respect to indemnification of any Covered Person as in effect immediately before such transaction, whether such obligations are contained in this Agreement or elsewhere, as the case may be.

 

(l)                The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 6.2 shall, to the extent provided for herein, continue as to a Covered Person who has ceased to be a Limited Partner, the General Partner, or an officer, director, stockholder, partner, member, manager, trustee, employee or agent of the Partnership or the General Partner (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such Person.

 

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(m)             The Covered Persons shall be intended third party beneficiaries of this Section 6.2. No repeal or modification of this Section 6.2 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon such state of facts.

 

Section 6.3             Indemnification of LPAC. All rights to indemnification by the Legacy HCR Partnerships existing in favor of those Persons who were members of the LP Advisory Committees of the applicable Legacy HCR Partnerships (including for the avoidance of doubt, the members of the LP Advisory Committees constituting the LP Transaction Committee formed in connection with the Reorganization Transactions) as well as any Limited Partner who nominated or was represented by such member of the LP Advisory Committee (including for the avoidance of doubt, the members of the LP Advisory Committee constituting the LP Transaction Committee) as of the date of the Reorganization Agreement for their acts and omissions occurring prior to the date of this Agreement shall continue in effect, shall not be amended, repealed or otherwise modified, and shall be observed by the Partnership (on behalf of HCRX Investments HoldCo, L.P.) to the fullest extent available under applicable law.

 

Section 6.4            Non-Exclusivity. The provisions of this Article VI shall not be construed to limit the power of the Partnership (at the direction of the General Partner) to indemnify the General Partner, the Limited Partners, or officers, employees or agents thereof or any other Covered Person to the fullest extent permitted by law or to enter into specific agreements, commitments or arrangements for indemnification permitted by law. The absence of any express provision for indemnification herein shall not limit any right of indemnification existing independently of this Article VI.

 

Article VII

CAPITAL STRUCTURE

 

Section 7.1            Capital Structure.

 

(a)               The Partners’ interests in the Partnership shall be represented by Units, or such other equity securities in the Partnership as the General Partner may establish in accordance with the terms hereof. As of the date hereof, the Units are comprised of three classes of Units: Class A Units, Class B Units, and the Class C Unit.

 

(b)               The Partners and their respective holdings of Units as of the date hereof are set forth on Schedule A attached hereto, which Schedule A may be updated by the General Partner from time to time to reflect the then-current holdings of the Partners.1 The General Partner may from time to time, and only in accordance with the terms of this Agreement and to the extent required by the Exchange Agreement, but without the approval of any Partner or of any  other Person bound by this Agreement, authorize the issuance of additional Class A Units and Class B Units and such preferred units with such rights, preferences, privileges and restrictions as the General Partner shall designate as required by and in accordance with the terms of the Exchange Agreement (which such rights, preferences and privileges may be senior to existing partnership interests or other securities in the Partnership or classes or series thereof, all as shall be fixed by the General Partner in the exercise of its sole and complete discretion); provided, that as long as there are any Limited Partners other than HCRX, then no such new class or series of Units may dilute or reduce the Percentage Interest of such Limited Partners relative to if such new class or series of Units had not been created, except to the extent (and solely to the extent) the Partnership actually receives cash in an aggregate amount, or other property with a fair market value in an aggregate amount, equal to the pro rata share allocated to such new class or series of Units and the number thereof issued by the Partnership. The General Partner may not authorize, and the Partnership shall not issue, additional Class C Units. Subject to the immediately preceding sentence, but notwithstanding any other provision of this Agreement including, without limitation, Section 11.3, the General Partner shall amend this Agreement in order to document such new classes of preferred units and their rights, preferences, privileges and restrictions, and is hereby authorized to execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, in each case, with no further action required by any Partner or any  other Person bound by this Agreement.

 

 

 

1   Note to Draft: Schedule A to reflect ownership after giving effect to Reorganization Buyback and shares sold in the IPO.

 

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(c)               Except as otherwise expressly provided in this Agreement, all Units shall have identical rights and privileges in every respect.

 

(d)               Class A Units shall hold all voting power in the Partnership and the holders of Class A Units shall have the right to appoint and replace the General Partner and shall control the business and affairs of the Partnership.

 

(e)               Class B Units and the Class C Unit shall have no voting rights except as otherwise expressly provided in this Agreement.

 

(f)               Class B Units shall be convertible only into Class A Common Stock on a one-for-one basis as specified in the Exchange Agreement, subject to any adjustment specified in the Exchange Agreement. All issuances of Class A Units, Class B Units and the Class C Unit shall be made in accordance with the terms and provisions of this Agreement, the Reorganization Agreement and the Exchange Agreement.

 

(g)              The Class C Unit shall have the additional rights described in Section 7.2. Notwithstanding anything to the contrary in this Agreement, the Class C Unit is not transferrable.

 

(h)              The issued and outstanding Units shall not be represented by certificates.

 

Section 7.2            Class C Unit.

 

(a)               Without prejudice to the right to receive EPAs pursuant to Section 7.2(b) below or any EPA Advances pursuant to Section 7.2(e) below, the Class C Unit shall have no right to receive any distributions approved from time to time by the General Partner.

 

(b)               The holder of the Class C Unit shall be entitled, subject to applicable law and subject to this Section 7.2, to receive EPAs in the amount and manner determined in accordance with Schedule C.

 

(c)               Notwithstanding Section 7.2(b), if (i) there is (A) a determination of Cause by a court or governmental body of competent jurisdiction in a final judgment, or (B) an admission of Cause by HCRX EPA or the Manager (each of (A) and (B) a “Cause Event”), then HCRX EPA or the Manager shall provide written notice of such Cause Event to each of the Partnership and HCRX as soon as reasonably practicable after its occurrence.

 

(d)               Following the occurrence of a Cause Event, the provisions of Section 7.2(d)(i) to (d)(v) shall apply, as and to the extent applicable with respect to such Cause Event.

 

(i)                 If a Cause Event is due to an act of Cause that was committed by HCRX EPA or the Manager, then the General Partner shall have the right to terminate HCRX EPA from the Partnership by redeeming the Class C Unit for no consideration. The termination of HCRX EPA from the Partnership for Cause will also result in the termination of the Manager for Cause under the Management Agreement. HCRX EPA’s right to receive any EPAs in respect of any Portfolio Investments made after the IPO Date and prior to the termination of HCRX EPA shall continue following termination unless HCRX is terminated for Cause.

 

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(ii)              Subject to the ability to Cure a Cause Event pursuant to Section 7.2(d)(iii) below, in the event that Mr. Futch commits an act constituting Cause (while he is acting as chief executive officer of HCRX), such action shall be imputed to HCRX EPA or the Manager and the General Partner shall be permitted to terminate HCRX EPA as set forth in Section 7.2(d)(i) above.

 

(iii)            In the event that any executive of HCRX EPA or the Manager commits an act constituting Cause (including Mr. Futch if he is no longer acting as chief executive officer of HCRX), then such action shall not be imputed to HCRX EPA or the Manager if the Manager terminates such executive’s engagement with, employment by or relationship with HCRX EPA and the Manager (a “Cure”) within such reasonable period of time as may be agreed to by the General Partner with respect to each such act (a “Cure Period”), provided that if such executive is not terminated within the Cure Period then such Cause Event shall be imputed to HCRX EPA and the Manager and the General Partner shall be permitted to terminate HCRX EPA as set forth in Section 7.2(d)(i) above.

 

(iv)             In the event of a termination for Cause of (i) Mr. Futch or (ii) any other executive pursuant to Sections 7.2(d)(ii) and (iii) above, respectively, then, in addition to the matters set out herein, Mr. Futch or the relevant executive, as applicable, shall no longer be entitled to receive any EPAs in respect of any Portfolio Investments that are made during the two year period prior to the occurrence of the Cause Event. In addition, Mr. Futch or such executive shall be required to reimburse the Partnership for any losses incurred by the Partnership in connection with the Cause Event.

 

(v)              The termination of the Manager for Cause under the Management Agreement will also result in the termination of HCRX EPA.

 

(e)               In addition to the entitlement to EPAs contemplated in Section 7.2(b) and Schedule C, the holder of the Class C Unit shall also, subject to Section 7.2(e)(i) below, receive a quarterly cash prepayment of any future EPAs to which it may be entitled in accordance with the provisions of Schedule C (an “EPA Advance”).

 

(i)                HCRX EPA shall be entitled to an EPA Advance to the extent necessary and to the extent permitted by applicable law to allow HCRX EPA or its beneficial owners to pay when due any income tax imposed on it (or its underlying investors) as a result of holding a direct or indirect interest in the Class C Unit, in an amount calculated by the Partnership in good faith by reference to the Assumed Income Tax Rate, provided that the amount of the EPA Advance shall be restricted to the amount of any such specified tax liability (the “EPA Advance Amount”). In computing the EPA Advance Amount in respect of any Fiscal Quarter (as defined in Schedule C), the General Partner shall, if necessary, estimate in good faith HCRX EPA’s share of the Partnership’s Profits and Losses for such Fiscal Quarter. The Partnership shall notify HCRX EPA in writing of each EPA Advance Amount as soon as practicable after calculating it in accordance with this Section 7.2(e)(i).

 

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(ii)              If an EPA Advance Amount is paid to HCRX EPA with respect to an EPA Portfolio, such payment shall be made to HCRX EPA in cash, and such EPA Advance Amount shall be taken into account and reduce future EPAs in respect of such EPA Portfolio, in the manner contemplated by Schedule C.

 

Section 7.3            Effect of Exchange.

 

(a)               Upon the exchange by any Limited Partner of Class B Units for shares of Class A Common Stock pursuant to the Exchange Agreement, as of the effective date of such exchange, each such Class B Unit automatically shall be cancelled, the Partnership shall automatically issue a Class A Unit to HCRX, and the Class B Units so exchanged shall thereby cease to exist, without any action on the part of any Person, including the General Partner or the Partnership.

 

(b)               Upon the exchange by any Limited Partner of Class B Units for a cash payment pursuant to the Exchange Agreement, as of the effective date of such exchange, each such exchanged Class B Unit automatically shall be deemed cancelled concomitant with such payment, without any action on the part of any Person, including the General Partner or the Partnership.

 

(c)               The Partnership may only issue Class B Units to the Feeder Fund and Substitute Limited Partners.

 

(d)               The Partnership may only issue Class A Units to HCRX.

 

(e)               The Partnership may only issue one Class C Unit to HCRX EPA, which is an Affiliate of the Manager.

 

(f)                Notwithstanding anything to the contrary herein, (i) the Partnership shall, and the General Partner shall cause the Partnership to (A) take all actions as are required under, and otherwise comply with, the Exchange Agreement, (B) not issue Units at any time except as required by the Exchange Agreement, and (C) not issue Units to any Person other than the Feeder Fund, HCRX, HCRX EPA or their respective Substitute Limited Partners and (ii) each Limited Partner shall comply with the Exchange Agreement.

 

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Section 7.4            Capital Accounts.

 

(a)               There shall be established for each Partner on the books of the Partnership a Capital Account, which shall be increased or decreased in the manner set forth in this Agreement.

 

(b)               The Capital Account of each Partner shall be maintained in accordance with the following provisions:

 

(i)                To such Partner’s Capital Account with respect to the Partnership there shall be credited such Partner’s Capital Contributions, such Partner’s distributive share of the Profits of the Partnership, such Partner’s distributive share of gain attributable to Regulatory Allocations, and the amount of any Partnership liabilities of the Partnership that are assumed by such Partner or that are secured by any assets of the Partnership that are distributed to such Partner;

 

(ii)              To such Partner’s Capital Account with respect to the Partnership there shall be debited the amount of cash and the Gross Asset Value of any other assets of the Partnership that are distributed to such Partner pursuant to any provision of this Agreement, such Partner’s distributive share of the Losses of the Partnership, such Partner’s distributive share of loss attributable to Regulatory Allocations, and the amount of any liabilities of such Partner that are assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership.

 

(iii)            In determining the amount of any liability for purposes of this Subsection (b), there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and the Treasury Regulations.

 

Section 7.5            Capital Contributions of Limited Partners. Except as set forth in the Exchange Agreement (including Section 2.3 thereof), no Limited Partner shall be required to make any Capital Contributions to the Partnership.

 

Article VIII

ALLOCATIONS AND DISTRIBUTIONS

 

Section 8.1            Allocations. After giving effect to the Regulatory Allocations set forth in Section 8.3(a), Profits and Losses (and, to the extent necessary, individual items of income, gain, loss, or deduction) for any Fiscal Year shall be allocated among the Partners in a manner such that the Capital Account of each such Partner, immediately after making such allocation, is, as nearly as possible, equal (proportionately) to (a) the distributions that would be made to such Partners pursuant to Section 8.4 if the Partnership were dissolved, its affairs wound up and its assets sold for cash equal to their book values, all Partnership liabilities were satisfied (limited with respect to each nonrecourse liability to such book value of the assets securing such liability), and the net assets of the Partnership were distributed in accordance with Section 8.4(a) to such Partners immediately after making such allocation, minus (b) such Partner’s share of Partnership Minimum Gain and Partner’s nonrecourse debt minimum gain (as determined pursuant to Treasury Regulations Section 1.704-2(b)(4)), computed immediately prior to the hypothetical sale of assets.

 

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Section 8.2            Interim Allocations Due to Partners’ Interest Adjustment. In the event of a change in Partners’ Partnership interests during any year or a Transfer of a Unit, the Partnership’s Profits and Losses shall be allocated among the Partners for the periods before and after the change or Transfer based on an interim closing of the books or any lawful equitable alternative method as reasonably determined by the General Partner. This Section 8.2 shall apply both for purposes of computing Capital Accounts for federal income tax purposes.

 

Section 8.3            Certain Tax Matters.

 

(a)               Special Allocations.

 

(i)                 Notwithstanding any other provision of this Article VIII, if there is a net decrease in Partnership Minimum Gain of the Partnership during any year, each Partner shall be specially allocated items of income and gain for such year (and, if necessary, subsequent years) in an amount equal to the portion of such Partner’s share of the net decrease in Partnership Minimum Gain of the Partnership, determined in accordance with Section 1.704-2(g) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Section 1.704-2(f)(6) of the Treasury Regulations. This Section 8.3(a)(i) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Treasury Regulations and shall be interpreted consistently therewith.

 

(ii)              Notwithstanding any other provisions of this Article VIII except Section 8.3(a)(i), if there is a net decrease in Partnership Minimum Gain of the Partnership attributable to a Partner Nonrecourse Debt during any year, each Partner who has a share of the Partnership Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated items of income and gain for such year (and, if necessary, subsequent years) in an amount equal to the portion of such Partner’s share of the net decrease in Partnership Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations. This Section 8.3(a)(i) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i) of the Treasury Regulations and shall be interpreted consistently therewith.

 

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(iii)            Partner Nonrecourse Deductions of the Partnership for any year shall be allocated as Loss with respect to the Partnership pursuant to Section 8.2.

 

(iv)             Any Partner Nonrecourse Deductions for any year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt of the Partnership to which such Partner Nonrecourse Deductions of such series are attributable in accordance with Section 1.704-2(i)(1) of the Treasury Regulations.

 

(v)               Notwithstanding any other provision of this Article VIII, no Partner shall be allocated in any Fiscal Year of the Partnership any Loss (and no Unit shall be allocated in any Fiscal Year of the Partnership any Loss) to the extent such allocation would cause or increase a deficit balance in such Partner’s Capital Account, taking into account all other allocations to be made for such year pursuant to this Article VIII and the reasonably expected adjustments, allocations and distributions described in Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations. Any such Loss that would be allocated to a Partner (the “Deficit Partner”), or a Unit, shall instead be allocated to the other Partners or Units. Moreover, if a Deficit Partner unexpectedly receives an adjustment, allocation or distribution described in Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations which creates or increases a deficit balance in such Partner’s Capital Account (computed after all other allocations to be made for such year pursuant to this Article VIII have been tentatively made as if this Section 8.3(a)(v) were not in this Agreement), such Deficit Partner shall be allocated items of gross income in an amount equal to such deficit balance (which shall be allocated among the Partner associated with Units as determined by the General Partner). This Section 8.3(a)(v) is intended to comply with the qualified income offset requirement of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted consistently therewith.

 

(vi)             The allocations set forth in Sections 8.3(a)(i) through 8.3(a)(v) (the “Regulatory Allocations”) are intended to comply with Section 704(b) of the Code and the Treasury Regulations thereunder and shall be taken into account in allocating items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred.

 

(b)               Income Tax Matters. The following provisions are relevant only for U.S. federal and applicable state income tax considerations and will not impact the calculation of Profits and Losses or be reflected in the Capital Accounts.

 

(i)                 Except as otherwise provided herein, all items of Partnership income, gain, deduction and loss shall be allocated among the Partners in the same proportion as they share in the Profits and Losses to which such items relate.

 

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(ii)              Income, gain, loss or deductions of the Partnership shall, solely for income tax purposes, be allocated among the Partners in accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, so as to take account of any difference between the adjusted basis of the assets of the Partnership and their respective Gross Asset Values in accordance with the method (or methods) chosen by General Partner. For the avoidance of doubt, the General Partner may use any reasonable method within the meaning of Treasury Regulations Section 1.704-3(a)(1). The General Partner is not required to use the same method for each item or class of property.

 

Section 8.4            Distributions.

 

(a)               Other than as provided for in Article IX, the Partnership shall make distributions of Distributable Cash to the Limited Partners (other than Limited Partners holding Class C Units) at such times and in such amounts as the General Partner may determine from time to time. All amounts (if any) so determined by the General Partner to be available for distribution by the Partnership shall be distributed to the Limited Partners in proportion to their respective Percentage Interests.

 

(b)               All distributions made pursuant to Section 8.4 shall be at such times and in such aggregate amounts as shall be determined by the General Partner, in its sole discretion.

 

Section 8.5            Distributions in Kind. Distributions made pursuant to this Agreement may be made in cash or in property or assets in kind at the discretion of the General Partner; provided, however, that subject to Section 8.4, any distribution in kind shall be made to all Limited Partners (other than Limited Partners holding Class C Units) proportionately in accordance with Section 8.4(a).

 

Section 8.6            Distribution Rules and Tax Withholding.

 

(a)               Each Partner shall deliver to the Partnership any form or other documentation reasonably requested by the Partnership that the Partner is legally able to provide and that is required to demonstrate that the applicable Partner is not subject to withholding tax under the provisions of any applicable Federal, state, local, foreign or other law. If requested by a relevant taxing authority in connection with an audit, inquiry or other proceeding conducted by such taxing authority, each Partner shall if requested by the Partnership deliver a copy of any tax return or similar document of the applicable Partner that the Partnership may reasonably request with respect to any such law.

 

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(b)               To the extent that the Partnership is required by any applicable law to withhold or to make tax payments on behalf of or with respect to distributions to, issuance of Units to, allocations to, or otherwise for, any Partner in such Person’s capacity as a Partner of the Partnership (each a “Tax Liability”), the Partnership may make such payment out of available cash of the Partnership, which shall reduce any Section 8.4 distribution otherwise payable to such Partner; provided, that at least fourteen (14) days, if commercially possible, prior to making a tax payment on behalf of or with respect to a Partner, the Partnership shall first notify such affected Partner and advise such Partner as to whether the Partnership has sufficient cash to pay such Tax Liability and, if it does not, the amount of any deficiency. If the Partnership does not have sufficient Distributable Cash to pay such Tax Liability, such Partner shall pay to the Partnership an amount equal to such deficiency (a “Tax Excess”) three days prior to the date that the Partnership is required to pay the associated Tax Liability. If not paid in accordance with the preceding sentence, such Tax Excess shall be deemed to be a recourse loan to such Partner by the Partnership and shall be due and payable immediately, and if not repaid within two days, the Tax Excess shall bear interest at a rate equal to the lesser of (i) fifteen percent (15%) per annum, or (ii) the maximum rate permitted by law until repaid. Notwithstanding anything to the contrary contained herein or in any other agreement between or among Partners, unless otherwise agreed in writing by the General Partner, each Partner hereby agrees to indemnify, defend, and hold harmless the Partnership and its Affiliates from and against any Tax Liability of or with respect to such Partner, at any time, and this indemnity and hold harmless provision shall survive this Agreement and the termination of the Partnership. In the event of any claimed over-withholding, such Partner shall be limited to an action against the applicable government agencies for refund and hereby waives, to the fullest extent permitted by law, any claim or right of action against the Partnership on account of such withholding. The Partnership may, and is hereby authorized to, withhold from any distributions or payments otherwise due to a Partner from the Partnership under this Agreement the amount of any Tax Excess made on behalf of such Partner that as of such date has neither been repaid to the Partnership nor been previously offset hereunder, any amount withheld under this Section 8.6 shall be deemed for all purposes of this Agreement to have been distributed or paid to such Partner. Any Partner who does not repay a Tax Excess after a written final demand has been given by the General Partner shall pay, in addition to the Tax Excess and applicable interest, all expenses, including reasonable attorney’s fees, incurred by the Partnership or any other Partner in collecting the Tax Excess plus interest or pursuing any other remedy provided in this Section 8.6 and otherwise in this Agreement.

 

Section 8.7            Restrictions on Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on behalf of the Partnership, shall not make a distribution to any Partner with respect to such Partner’s Units if such distribution would violate the Act or other applicable law. In addition, except as specifically determined by the General Partner the Partnership shall not make a distribution to any Partner if such distribution would be prohibited by the terms of, or would cause any obligation of the Partnership or any of its Subsidiaries to become due prior to the final maturity date of, or would cause the net worth or assets of the Partnership or any of its Subsidiaries to be less than the minimum amount (or less in relation to another amount than the minimum ratio of such amounts) required to be maintained by the Partnership or any of its Subsidiaries under, or otherwise would conflict with, any agreement or other instrument to which the Partnership or any of its Subsidiaries is a party or by which any of them is bound which relates to borrowed money.

 

Section 8.8            Interest on and Return of Capital Contributions. No Partner shall be entitled to interest on any of its Capital Contributions or to return of any of its Capital Contributions.

 

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Section 8.9            Taxes.

 

(a)               The Partnership shall prepare, or cause to be prepared, and shall file all tax returns, be they information returns or otherwise, which are required to be filed by the Partnership with the Internal Revenue Service, state and local tax authorities and foreign tax jurisdictions, if any.

 

(b)               The Partnership shall use commercially reasonable efforts to furnish the Partners with all Partnership information required to be reported in the tax returns of the Partners for tax jurisdictions in which the Partnership is considered to be doing business, including a report indicating each Partner’s share for income tax purposes of the Partnership’s income, gain, credits, losses and deductions within 60 days after each of the first three quarters of each Fiscal Year and within 90 days after the end of the Partnership’s Fiscal Year. The Partnership shall furnish the Partners with a good faith estimate of Schedule K-1 to IRS Form 1065 (or any successor form) by no later than 90 days after the end of each year.

 

(c)               All determinations as to tax elections for the Partnership shall be made by the General Partner. Notwithstanding the foregoing sentence, an election under Section 754 of the Code shall be made with respect to the first taxable year of the Partnership ending after the date hereof and the Partnership shall not subsequently revoke such election.

 

Section 8.10        Partnership Representative.

 

(a)               The “partnership representative” (as such term is defined in Section 6223 of the BBA Audit Rules) of the Partnership (the “Partnership Representative”) shall be the General Partner or any successor designated by the General Partner. Each Partner, by its execution of this Agreement, consents to such designation of the Partnership Representative, and agrees to execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. To the extent and in the manner provided by applicable Code sections and Treasury Regulations thereunder, the Partnership Representative (i) shall furnish the name, address and taxpayer identification number of each Partner to the IRS and (ii) shall inform each Partner of administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes. The Partnership Representative shall act reasonably at all times and keep the other Partners reasonably informed about its actions.

 

(b)               Each Partner shall be considered to have retained such rights (and obligations, if any) as are provided for under the Code or any other applicable law with respect to any examination, proposed adjustment or proceeding relating to Partnership tax items. The Partnership Representative shall notify the Partners, within thirty (30) days after the Partnership Representative receives notice from the IRS, of any administrative proceeding with respect to an examination of, or proposed adjustment to, any Partnership tax items, and shall promptly provide the Partners with copies of relevant written materials. The Partnership Representative shall provide the Partners with notice of its intention to extend the statute of limitations or file a tax claim in any court at least ten (10) days before taking such action.

 

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(c)               Unless the Majority Class A Limited Partners direct otherwise, the Partnership Representative shall use reasonable best efforts to make the election described in Section 6226 of the BBA Audit Rules with respect to each final partnership adjustment. If the Partnership is subject to any tax liabilities under the BBA Audit Rules, the General Partner shall use reasonable efforts to allocate such liabilities among the Partners in a fair and equitable manner, taking into account any modifications attributable to such a member pursuant to Section 6225(c) of the BBA Audit Rules (if applicable). Any Tax Liabilities so allocated shall be treated as withholding taxes subject to the provisions of Section 8.6.

 

Section 8.11        Accounting Decisions; Auditors. All determinations as to the accounting principles of the Partnership shall be made by the General Partner.

 

Section 8.12        Tax Classification. It is the intention of the parties hereto that the Partnership be classified as a partnership, and not as an association taxable as a corporation, for federal income tax purposes, and the provisions of this Agreement shall be interpreted in a manner consistent with such intention. No election shall be filed with the Internal Revenue Service (or the tax authorities of any State) to have the Partnership taxable other than as a partnership for income tax purposes without the prior consent of the General Partner. Furthermore, the Partnership will cause each of HCRX Intermediate HoldCo, L.P. and HCRX Investments HoldCo, L.P. not to make an election to be classified as an association taxable as a corporation.

 

Section 8.13        Accounting Method. The Partnership shall keep its accounting records and shall report Profit or Losses on the accrual method of accounting in accordance with the principles used by the Partnership and the Partnership for federal income tax purposes and otherwise in accordance with GAAP consistently applied and, to the extent inconsistent therewith, in accordance with this Agreement.

 

Section 8.14        Tax Treatment of Class C Unit and EPA Shares.

 

(a)               The Partnership and each Partner agree to treat the Class C Unit as a separate “Profits Interest” with respect to the Partnership within the meaning of Rev. Proc. 93-27, 1993-2 C.B. 343. In accordance with Rev. Proc. 2001-43, 2001-2 C.B. 191, the Partnership shall treat HCRX EPA as the owner of such Profits Interest from the date such Profits Interest is granted, and shall file its IRS Form 1065, and issue appropriate Schedule K-1s to HCRX EPA. Except as required pursuant to a “determination” as defined in Code Section 1313(a), none of the Partnership nor any Partner shall claim a deduction (as wages, compensation or otherwise) for the fair market value of such Profits Interest issued to HCRX EPA in respect of the Partnership, either at the time of grant of the Profits Interest, or at the time the Profits Interest becomes substantially vested. This Section 8.14(a) shall be construed in accordance with Section 4 of Rev. Proc. 2001-43. The provisions of this Section 8.14(a) shall apply regardless of whether or not the holder of a Profits Interest files an election pursuant to Section 83(b) of the Code. This Section 8.14(a) shall only apply to the Class C Unit while Rev. Proc. 93-27, 1993-2 C.B. 343 and Rev. Proc. 2001-43, 2001-2 C.B. 191, remain in effect.

 

(b)               The Partners agree that, in the event the “liquidation value” safe harbor provided in Proposed Treasury Regulation § 1.83-3(1) and the Proposed Revenue Procedure set forth in Internal Revenue Service Notice 2005-43 (the “Safe Harbor Election”) is finalized, the Partnership shall be authorized and directed to make the Safe Harbor Election, and the Partnership (to the extent permitted by applicable law) and each Partner agrees to comply with all requirements of the finalized guidance with respect to all interests in the Partnership transferred in connection with the performance of services while the Safe Harbor Election remains effective. The General Partner shall be authorized to (and shall) prepare, execute, and file the Safe Harbor Election. The General Partner shall cause the Partnership to make any allocations of items of income, gain, loss, deduction, or expense (including forfeiture allocations) necessary or appropriate to effectuate and maintain the Safe Harbor Election.

 

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(c)               At each subsequent issuance of Class B Units pursuant to Schedule C, HCRX EPA will be deemed, for U.S. federal income tax purposes, to (i) receive a distribution in an amount equal to the EPA Amount for the relevant EPA Portfolio, net of any EPA Advance Amount also received in respect of that EPA Portfolio (such amount, the “Performance Amount,” which shall, in accordance with Schedule C, be treated as an advance against, and shall reduce, the amount of future distributions that HCRX EPA would otherwise receive pursuant to Schedule C), and (ii) fund to the Partnership an amount equal to the Performance Amount in exchange for the issuance of the Class B Units, so that HCRX EPA will hold a pro rata share (based on HCRX EPA’s Percentage Interest in the Partnership after giving effect to such issuance) of all issued and outstanding Class B Units at such date. For the avoidance of doubt, HCRX EPA shall not be required to make any cash payment under this paragraph.

 

Section 8.15        Accounting Records. The Partnership and each Subsidiary of the Partnership shall: (a) keep complete and accurate business and accounting records reflecting all transactions of the Partnership and each Subsidiary of the Partnership; (b) manage its books and ledgers in a proper and timely manner; (c) maintain proper internal accounting controls sufficient to enable the timely identification or ascertainment of, amongst other things, payments receivables and that the dispositions by it of its assets have, in each case, been performed in an authorized manner; and (d) prevent unauthorized persons from having access to its books and records. Such accounting records shall be kept in accordance with the principles set forth in Section 8.13 and shall be audited annually. The Partnership shall also keep all records required to be kept pursuant to the Act.

 

Article IX

 

ASSIGNMENT; ADMISSION AND WITHDRAWAL OF PARTNERS

 

Section 9.1            Assignment of Interest in the General Partner. Other than with the prior written consent of the Majority Class B Limited Partners or in connection with a Change of Control Exchange (as defined in the Exchange Agreement), as long as any Class B Units remain issued and outstanding, all limited liability company interests of the General Partner shall be owned by HCRX or one or more of its wholly-owned Subsidiaries, and HCRX and the General Partner shall not permit the Transfer of any limited liability company interests of the General Partner, or admit as a member to the General Partner, any Person that is not HCRX or a wholly-owned Subsidiary thereof.

 

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Section 9.2            Transfers by Limited Partners. 

 

(a)               General. Units may be Transferred (as defined herein) pursuant to the Exchange Agreement. Except with respect to Transfers of Units pursuant to the Exchange Agreement, no Limited Partner may directly or indirectly, whether by merger or otherwise (i) sell, offer to sell, contract or agree to sell, transfer, hypothecate, assign, pledge, mortgage, exchange, encumber, grant a security interest in, any option or warrant to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, with respect to, all or any portion of its Units, partnership interest, or rights to income or other attributes with respect to its Units or partnership interest, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Units, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii) (any of the foregoing described in clauses (i), (ii) or (iii), a “Transfer” and the term “Transferable” shall have a correlative meaning), in whole or in part, other than pursuant to this Section 9.2. Notwithstanding anything to the contrary herein, no transfer, sale, assignment, pledge, lease, redemption, hypothecation, mortgage, gift, creation of security interest, lien or trust (voting or otherwise) or other encumbrance, or other disposition of any Class A Common Stock or Class B Common Stock or other capital stock of HCRX shall be deemed to be a “Transfer”. Any attempted Transfer of any Units (including any economic interest therein) without compliance with this Agreement shall be void. Each Transfer (i) shall be subject to all of the terms, conditions, restrictions and obligations set forth in this Agreement and (ii) except for Permitted Transfers, shall be evidenced by a written agreement executed by the transferor, the transferee(s) and the General Partner, in form and substance reasonably satisfactory to the General Partner.

 

(b)               Consent of General Partner. Except as otherwise provided in this
Section 9.2(b), the prior written consent of the General Partner, which may be granted or withheld in its sole discretion, shall be required for any Transfer of any Units. In determining whether to grant its consent to a Transfer, the General Partner shall take into account whether such Transfer would result in the “termination” of the Partnership pursuant to Section 708 of the Code and, if so, whether such termination would result in material adverse income tax consequences or material additional expense to the Partnership or any Partner. Subject to the other terms, conditions, restrictions and obligations set forth in this Section 9.2 and Section 9.3, the General Partner shall not unreasonably withhold its consent with regard to the Transfer of any Units (or any substitution of the transferee as a Limited Partner pursuant to Section 9.3): (i) in the case of any Limited Partner who is a natural person, for bona fide estate planning purposes; (ii) in the case of any Limited Partner that is an entity, to any Affiliate of such assigning Limited Partner; (iii) in the case of any Limited Partner that is a trustee of a trust, to any successor trustee of such trust; (iv) in the case of a Limited Partner that is a trust, to any successor trust; or (v) in the case of a Limited Partner that is a governmental pension plan or agency, to any successor plan or agency; provided, in each case, that (x) the General Partner has reasonably determined that the transferee has the legal, financial and operating power, authority, capacity and assets to satisfy the obligations of the transferor in respect of the transferred Units, and (y) the General Partner has not reasonably determined that a principal purpose or effect of the Transfer is to change the ultimate beneficial ownership of the Units.

 

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(c)               No Recognition of Certain Transfers. No Transfer of any “partnership interest” (as defined in Treasury Regulations Section 1.7704-1(a)(2)) in the Partnership or portion thereof or derivative interest therein shall be permitted or “recognized” (within the meaning of Treasury Regulation Section 1.7704-1(d)) by the Partnership or the General Partner unless either (i) the General Partner determines that either such Transfer or the Partnership (immediately after such Transfer) will qualify for a safe harbor set forth in the Treasury Regulations under Section 7704 of the Code or (ii) the General Partner otherwise determines, after consulting with the Partnership’s tax advisors, that such Transfer will not cause the Partnership to be subject to U.S. federal income tax as a publicly traded partnership treated as a corporation under Section 7704(b) of the Code. Except with respect to Transfers of Units pursuant to the Exchange Agreement, no Transfer of Units shall be given effect unless the transferee delivers to the Partnership the representations set forth in Schedule B.

 

(d)               Required Representations by Parties.

 

(i)                 The transferor and transferee(s) shall provide to the General Partner, in connection with any proposed Transfer (other than a Permitted Transfer), written representations to the effect that:

 

(A)       The proposed Transfer will not be effected on or through (1) a United States national, regional or local securities exchange (including, without limitation, NASDAQ), (2) a foreign securities exchange or (3) an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers; and

 

(B)       Such Person is not, and its proposed Transfer or acquisition (as the case may be) will not be made by, through or on behalf of (1) a Person, such as a broker or a dealer, making a market in Units, or (2) a Person who makes available to the public bid or offer quotes with respect to Units.

 

(ii)              The transferor and transferee(s) shall provide such additional written representations as the General Partner reasonably may request.

 

(iii)            The General Partner and counsel to the Partnership shall be permitted to rely upon any representations made by the transferor and transferee(s), whether pursuant to clauses (A) or (B) of Section 9.2(d)(i) or otherwise, and on written representations from other Partners made prior to or contemporaneously with such proposed Transfer. The General Partner, in its sole discretion, may waive its right to obtain any representations otherwise required by clause (i) of this Section 9.2(d).

 

(e)               Other Prohibited Legal Consequences. No Transfer shall be permitted, and the General Partner shall withhold its consent with respect thereto, if such Transfer or the admission of the transferee to the Partnership as a Substitute Limited Partner, would:

 

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(i)                 Result in the Partnership or the General Partner being subject to regulations under the U.S. Employee Retirement Income Security Act of 1974 as previously or hereafter amended or Section 4975 of the Code;

 

(ii)              Result in a violation of the registration requirements of the Securities Act;

 

(iii)            Require the Partnership to register as an investment company under the U.S. Investment Company Act of 1940, as amended;

 

(iv)             Require the General Partner to register as an investment adviser under the Advisers Act;

 

(v)               Result in the Partnership being classified for U.S. federal income tax purposes as an association taxable as a corporation; or

 

(vi)             Result in the Partnership being subject to U.S. federal income tax at the entity level under Section 7704 of the Code.

 

(f)                Opinion of Counsel. The General Partner may, in its reasonable discretion, condition any Transfer otherwise permitted hereunder to be made only upon receipt by the Partnership of a written opinion of counsel to the transferring Partner, in form and substance satisfactory to the General Partner, as to compliance with Section 9.2(e) and such other legal matters as the General Partner reasonably may request.

 

(g)               Reimbursement of Transfer Expenses. The transferor of any Units in the Partnership hereby agrees to reimburse the Partnership, at the request of the General Partner, for any out-of-pocket expenses reasonably incurred by the Partnership in connection with such Transfer, including the costs of seeking and obtaining any legal opinion required by Section 9.2(f) or Section 9.3(a) and any other reasonable, out-of-pocket legal, accounting and miscellaneous expenses (“Transfer Expenses”), whether or not such Transfer is consummated. At its election, and in any event if the transferor has not reimbursed the Partnership for any Transfer Expenses incurred by the Partnership in preparing for or consummating a proposed or completed Transfer within thirty (30) days after the General Partner has delivered to such Partner written demand for payment, the General Partner may seek reimbursement from the transferee of such interest. If the transferee does not reimburse the Partnership for such Transfer Expenses within ninety (90) days of such Transfer, the General Partner may withhold Transfer Expenses from amounts distributable to such transferee.

 

(h)               Notwithstanding anything to the contrary herein, no Limited Partner may Transfer any Class A Units (including any economic interest therein) other than to HCRX pursuant to the Exchange Agreement. HCRX is the only permitted holder of Class A Units.

 

(i)                 Notwithstanding any provision of this Agreement to the contrary, no Transfer of Units may be made except in compliance with all federal, state and other applicable laws, including federal and state securities laws.

 

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Section 9.3            Admission of Substitute Limited Partners.

 

(a)               General. Any transferee of Units transferred in accordance with the provisions of this Article IX shall be admitted as a Substitute Limited Partner only with the General Partner’s written consent, which consent will not be unreasonably withheld, upon execution of a counterpart to this Agreement. Without the written consent of the General Partner to such substitution and, if requested by the General Partner in its sole discretion, the written opinion of counsel described in Section 9.2(f), no transferee of Units shall be admitted as a Substitute Limited Partner.

 

(b)               Effect of Admission. The transferee of Units transferred pursuant to this Article IX that is admitted to the Partnership as a Substitute Limited Partner shall succeed to the rights and liabilities of the transferor Limited Partner with respect to such Units and, after the effective date of such admission, the Capital Account of the transferor shall become the Capital Account of the transferee, to the extent of the Units transferred. If a transferee is not admitted to the Partnership as a Substitute Limited Partner, (i) such transferee shall have no right to participate with the Limited Partners in any votes taken or consents granted or withheld by the Limited Partners hereunder, and (ii) the transferor or, in the case of a Permitted Transfer, the estate, legal representative or other successor of the original owner, shall remain liable to the Partnership for all amounts payable with respect to the transferred Units to the same extent as if no Transfer had occurred.

 

(c)               Non-Compliant Transfer. If a Transfer has been proposed or attempted but the requirements of this Article IX have not been satisfied, the General Partner shall not admit the purported transferee as a Limited Partner but, to the contrary, shall use its commercially reasonable efforts to ensure that the Partnership (i) continues to treat the transferor as the sole owner of the Units purportedly transferred, (ii) makes no distributions to the purported transferee and (iii) does not furnish to the purported transferee any tax or financial information regarding the Partnership. The General Partner shall also use its commercially reasonable efforts to ensure that the Partnership does not otherwise treat the purported transferee as an owner of any Units (either legal or equitable), unless required by law to do so. The Partnership shall be entitled to seek injunctive relief, at the expense of the purported transferor, to prevent any such purported Transfer.

 

Section 9.4            Multiple Ownership. If any Transfer results in multiple ownership of any Limited Partner’s Units, the General Partner may require one or more trustees or nominees to be designated as representing a portion of or the entire Units transferred for purposes of (a) receiving all notices which may be given, and all payments which may be made, under this Agreement and (b) exercising all rights which the transferor as a Limited Partner has pursuant to the provisions of this Agreement.

 

Section 9.5            Death, Incompetency, Bankruptcy or Dissolution of a Limited Partner. The death, incompetency, Bankruptcy, dissolution or other cessation to exist as a legal entity of a Limited Partner shall not, in and of itself, dissolve the Partnership. In any such event, the personal representative (as defined in the Act) of such Limited Partner may exercise all of the rights of such Limited Partner for the purpose of settling such Limited Partner’s estate or administering its property, subject to the terms and conditions of this Agreement.

 

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Section 9.6            Withdrawal from the Partnership. Except as provided in this Agreement, the General Partner may not withdraw as the general partner of the Partnership. Except as provided in this Agreement, no Limited Partner may withdraw as a limited partner of the Partnership.

 

Section 9.7            Bankruptcy of the General Partner. Notwithstanding any provision of this Agreement to the contrary, to the fullest extent permitted by law, the Bankruptcy of the General Partner shall not cause such General Partner to cease to be the General Partner of the Partnership, and upon the occurrence of such an event, the Partnership shall continue without dissolution.

 

Article X

 

DISSOLUTION AND TERMINATION OF THE PARTNERSHIP

 

Section 10.1        Dissolution of the Partnership.

 

(a)               For so long as the Exchange Agreement is in effect, no Partner shall, to the fullest extent permitted by law, take any action to voluntarily dissolve the Partnership. Following such time, the Partnership shall be dissolved upon any of the following events:

 

(i)                 the written consent of the General Partner of the Partnership and the Majority Class A Limited Partners and Majority Class B Limited Partners;

 

(ii)              the occurrence of an event of withdrawal (as defined in the Act) with respect to the General Partner, other than the Bankruptcy of the General Partner; provided, however, that the Partnership shall not be dissolved and required to be wound up in connection with any of the events specified in this clause if (A) at the time of the occurrence of such event there is at least one remaining General Partner of the Partnership who is hereby authorized to and does carry on the business of the Partnership, or (B) within ninety (90) days after the occurrence of such event, the Majority Class A Limited Partners and the Majority Class B Limited Partners agree in writing or vote to continue the business of the Partnership and to the appointment, effective as of the date of such event, if required, of one or more additional General Partners of the Partnership;

 

(iii)            at any time there are no limited partners of the Partnership unless the Partnership is continued without dissolution in accordance with the Act;

 

(iv)             the entry of a decree of judicial dissolution of the Partnership under the Act; provided, however, that no Limited Partner or its Affiliates or agents shall apply for entry of a decree of judicial dissolution of the Partnership under the Act at any time that the Exchange Agreement is in effect.

 

(b)               Upon the dissolution of the Partnership as provided herein, the Partnership shall be wound up in the manner provided by Section 10.2.

 

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Section 10.2        Winding Up, Liquidation and Distribution of Assets of the Partnership Upon Dissolution of the Partnership.

 

(a)               Upon dissolution of the Partnership, the General Partner shall commence to wind up the Partnership’s affairs; provided, however, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Partnership and the discharge of liabilities of the Partnership to its creditors so as to enable the Partners to minimize the normal losses attendant upon a liquidation. The Partners shall continue to share in the allocation of the Profits and Losses of the Partnership during the liquidation of the Partnership in the same proportions as specified in Section 8.1 as before dissolution of the Partnership. The proceeds of liquidation shall be distributed in the following order and priority:

 

(i)                 first, to creditors of the Partnership, including Partners who are creditors, to the extent otherwise permitted by law, in satisfaction of (A) all debts and liabilities of the Partnership, whether by payment thereof or the making of reasonable provision of payment thereof (including, to the extent permitted by law, any loans or advances that may have been made by any of the members to the Partnership) and (B) the expenses of liquidation not otherwise adequately provided for, whether by payment thereof or the making of reasonable provision of payment thereof, which liabilities set forth in (A) and (B) may be satisfied by the setting up of any reserves that are determined by the General Partner to be reasonably necessary for any contingent, conditional or unmatured liabilities or obligations of the Partnership arising out of, or in connection with, the Partnership; and

 

(ii)              second, to the Partners in accordance with Section 8.4.

 

(b)               Notwithstanding any other provisions of this Section 10.2, in the event the Partnership is “liquidated” within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g), but such liquidation does not constitute a dissolution of the Partnership, the assets of the Partnership shall not be liquidated, the liabilities of the Partnership shall not be paid or discharged and the affairs of the Partnership shall not be wound up. Instead, solely for federal income tax purposes, the Partnership shall be deemed to have distributed all of the assets of the Partnership in kind to a new partnership in exchange for an interest in such new partnership and, immediately thereafter, the Partnership shall be deemed to liquidate by distributing interests in the new partnership to the Partners.

 

(c)               The General Partner and the Limited Partners shall comply with all requirements of applicable law pertaining to the winding up of the affairs of the Partnership and the final distribution of its assets.

 

Section 10.3        Certificate of Cancellation.

 

(a)               If a dissolution of the Partnership occurs and all debts, liabilities and obligations of the Partnership have been satisfied (whether by payment or reasonable provision for payment) and all of the remaining property and assets of the Partnership have been distributed, a certificate of cancellation shall be executed and filed with the Secretary of State of the State of Delaware in accordance with the Act.

 

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(b)               Upon cancellation of the Certificate of Limited Partnership by the filing of a certificate of cancellation, the existence of the Partnership shall cease.

 

Section 10.4        Returns of Contributions Nonrecourse to Partners. Except as otherwise provided by applicable law, upon dissolution of the Partnership, each Partner shall look solely to the assets of the Partnership for the return of its Capital Contributions made to the Partnership, and if the assets of the Partnership remaining after satisfaction (whether by payment or reasonable provision for payment) of the debts, liabilities and obligations of the Partnership are insufficient to return such Capital Contributions, such Partners shall have no recourse against the Partnership, any General Partner or any other Partner, except as otherwise provided by law.

 

Article XI

 

MISCELLANEOUS PROVISIONS

 

Section 11.1        Notices. Wherever provision is made in this Agreement for the giving of any notice, such notice shall be in writing and shall be deemed to have been duly given if mailed by first class United States mail, postage prepaid, addressed to the party entitled to receive the same, or sent by facsimile transmission or sent by overnight courier, if to a Partner, in each case to the addresses or facsimile telephone numbers therefor set forth in Schedule A attached hereto, and if to the Partnership, to:

 

Healthcare Royalty Holdings, L.P.  
300 Atlantic St., Suite 600  
Stamford, Connecticut 06901  
Attention: Clarke B. Futch  
Fax: (203) 487-8300  
   
with a copy to:  
   
Morgan, Lewis & Bockius LLP  
1701 Market Street  
Philadelphia, PA 19103  
Attention: Andrew R. Mariniello, Esq.  
  Jeffrey A. Letalien, Esq.  
Fax:        (215) 963-5000  

 

or to such other address, in any such case, as any party hereto shall have last designated by notice to the other party. Notice shall be deemed to have been given on the day that it is sent by electronic transmission or, if sent by overnight courier, shall be deemed to have been given one Business Day after delivery by the courier company, or if mailed, five Business Days following the date on which such notice was so mailed. Any Partner may change its address for notices by giving written notice of such change to the other Partners and the Partnership.

 

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Section 11.2        Side Letters; Entire Agreement; Non-Waiver.

 

(a)               Notwithstanding all the provisions of this Agreement, including Section 11.3, the Management Agreement or the Exchange Agreement, it is hereby acknowledged and agreed that the General Partner, on its own behalf or on behalf of the Partnership, without the approval of any Limited Partner or any other Person, may enter into certain side letters or other supplemental agreements with one or more Limited Partners (or an investor in a Limited Partner) (each a “Side Letter Grantee”) which have the effect of establishing rights under, or altering or supplementing the terms of, this Agreement, the Management Agreement or the Exchange Agreement, including reducing or eliminating the obligations of a Limited Partner (or an investor in a Limited Partner) to make payments (each such side letter, agreement or contract entered into by the General Partner pursuant to this Section 11.2(a), shall hereinafter be referred to as a “Side Letter”). The parties hereto agree that any terms contained in a Side Letter to or with a Side Letter Grantee shall govern with respect to such Side Letter Grantee notwithstanding the provisions of this Agreement, the Management Agreement or the Exchange Agreement; provided that no other Limited Partner solely by reason of this Section 11.2(a), shall be entitled to participate in such Side Letter and provided, further, that the General Partner shall not enter into any Side Letter that has a material adverse effect on the rights of the limited partners of the Feeder Fund.

 

(b)               This Agreement, including the Schedules hereto, and the Exchange Agreement, and, as to any applicable Side Letter Grantee, any Side Letter between such Side Letter Grantee, the Partnership and/or the General Partner, constitute the entire agreement of the parties hereto and supersedes any prior understandings or written or oral agreements between the parties with respect to the subject matter hereof. To the fullest extent permitted by law, this Agreement is subject in all respects to the provisions of the Exchange Agreement, and nothing in this Agreement shall abridge or alter any rights provided for in the Exchange Agreement. Neither the General Partner nor the Partnership shall take any action (or omit to take any action) that is prohibited by, or inconsistent with, the Exchange Agreement.

 

Section 11.3        Amendments. Except as required by law or as expressly provided by this Agreement, this Agreement may be amended from time to time only upon the approval of the General Partner and the Majority Class A Limited Partners. The date of adoption of an amendment shall be the date on which the Partnership shall have received the requisite approvals or such later date approved by the General Partner. Any amendment to this Agreement that would alter or change the powers, preferences or special rights of Class B Units so as to affect them materially and adversely, shall be approved by a majority of the votes entitled to be cast by the holders of the units affected by such amendment, voting as a single class, or as otherwise required by applicable law. Any amendment to this Agreement that would alter or change the powers, preferences or special rights of the Class C Unit so as to affect them materially and adversely, shall be approved by the holder of the Class C Unit, or as otherwise required by applicable law.

 

Section 11.4        No Waivers. No delay on the part of any party in exercising any right hereunder shall operate as a waiver thereof, nor shall any waiver, express or implied, by any party of any right hereunder or of any failure to perform or breach hereof by any other party constitute or be deemed a waiver of any other right hereunder or of any other failure to perform or breach hereof by the same or any other Partner, whether of a similar or dissimilar nature thereof.

 

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Section 11.5        Applicable Law. This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of laws, rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

 

Section 11.6        SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; SELECTION OF FORUM. Each party hereto irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (unless the Federal courts have exclusive jurisdiction over the matter, in which case the United Stated District for the District of Delaware, OR UNLESS THE COURT OF CHANCERY OF THE STATE OF DELAWARE DOES NOT HAVE JURISDICTION, IN WHICH CASE THE SUPERIOR COURT OF THE STATE OF DELAWARE) for the purposes of any Legal Proceeding arising out of this Agreement or the transactions contemplated hereby, and agrees to commence any such Legal Proceeding only in such courts. Each party hereto further agrees that service of any process, summons, notice or document by United States registered mail to such Party’s respective address set forth herein shall be effective service of process for any such Legal Proceeding; PROVIDED, THE FOREGOING SHALL NOT AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. TO THE FULLEST EXTENT PERMITTED BY LAW, Each Party irrevocably and unconditionally waives any objection to the laying of venue of any Legal Proceeding out of this Agreement or the transactions contemplated hereby in such courts, and hereby irrevocably and unconditionally waives, TO THE FULLEST EXTENT PERMITTED BY LAW, and agrees not to plead or claim in any such court that any such Legal Proceeding brought in any such court has been brought in an inconvenient forum. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING OR COUNTERCLAIM (WHETHER AT LAW, IN EQUITY, BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF OR THEREOF. THE GENERAL PARTNER MAY AGREE IN WRITING WITH ANY LIMITED PARTnER (OR ANY INDIRECT HOLDER OF LIMITED PARTnER INTERESTS) THAT THE PROVISIONS OF THIS SECTION 11.6 SHALL NOT APPLY IN WHOLE OR IN PART TO SUCH PERSON.

 

Section 11.7        Further Assurances. Each of the Partners hereby agrees, at the request of any other Partner, to execute and deliver all such other and additional instruments and documents and to do such other acts and things as may be reasonably necessary or appropriate to carry out the intent and purposes of this Agreement.

 

Section 11.8        Assignment of Contracts and Rights. Except in connection with a Transfer permitted under Article IX, no party to this Agreement may assign any of its rights or remedies or delegate any of its obligations under this Agreement without the prior written consent of the General Partner, the Majority Class A Limited Partners, and, to the extent such assignment would be materially adverse to the holders of the Class B Units, the Majority Class B Limited Partners.

 

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Section 11.9        No Right to Partition. The Partners, on behalf of themselves and their stockholders, partners, members, successors and assigns, if any, hereby specifically renounce, waive and forfeit all rights, whether arising under contract or statute or by operation of law, except as otherwise expressly provided in this Agreement, to seek, bring or maintain any action in any court of law or equity for partition of the Partnership or any asset of the Partnership, or any interest which is considered to be Partnership property, regardless of the manner in which title to such property may be held.

 

Section 11.10    No Third-Party Rights. This Agreement is made solely and specifically between and for the benefit of the parties hereto, and their respective successors and assigns (subject to the express provisions hereof relating to successors and assigns), and is not intended to confer any benefits upon, or create any rights in favor of, any Person other than the parties hereto, except for Covered Persons entitled to indemnification under Section 6.2.

 

Section 11.11    Successors and Assigns. Subject to the restrictions on Transfer set forth herein, and except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective heirs, personal representatives, successors and permitted assignees under this Agreement.

 

Section 11.12    Severability. If any provision of this Agreement shall be declared to be invalid, illegal or unenforceable, such provision shall survive to the extent it is not so declared, and the validity, legality and enforceability of the other provisions hereof shall not in any way be affected or impaired thereby, unless such action would substantially impair the benefits to either party of the remaining provisions of this Agreement.

 

Section 11.13    Remedies Not Exclusive. Except as otherwise provided herein, no remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, and each and every remedy shall be cumulative and shall be in addition to every remedy under this Agreement now or hereafter existing at law or in equity or by statute.

 

Section 11.14    Representation by Counsel. Each of the parties has been represented by and has had an opportunity to consult legal counsel in connection with the negotiation and execution of this Agreement. Therefore, the parties intend that no provision of this Agreement shall be construed against or interpreted to the disadvantage of any party by any court or arbitrator or any governmental authority by reason of such party having drafted or being deemed to have drafted such provision.

 

Section 11.15    Counterparts; Effectiveness. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. This Agreement shall be binding when one or more counterparts, individually or taken together, bear the signatures of each of the parties reflected herein as signatories. For the avoidance of doubt, a Person's execution and delivery of this Agreement by electronic signature and electronic transmission, including via DocuSign or other similar method, shall constitute the execution and delivery of a counterpart of this Agreement by or on behalf of such Person.

 

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Section 11.16    Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of any of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused their signatures, or the signatures of their duly authorized representatives, to be set forth below as of the day and year first above written.

 

  GENERAL PARTNER OF THE PARTNERSHIP:
   
  HCRX MASTER GP, LLC
   
  By:  
    Name:  Clarke B. Futch  
    Title:    Chairman & Chief Executive Officer

 

  INITIAL LIMITED PARTNER OF THE PARTNERSHIP:
   
  Solely for the purpose of agreeing to the provisions and any obligations under Section 3.1
   
  HEALTHCARE ROYALTY, INC.
   
  By:               
    Name:   Clarke B. Futch
    Title: Chairman & Chief Executive Officer

 

[Counterpart Signature Page For Each Limited Partner Follows]

 

[Signature Page to Amended and Restated Limited Partnership Agreement of Healthcare Royalty Holdings, L.P.]

 

 

 

  CLASS A LIMITED PARTNER
   
  HEALTHCARE ROYALTY, INC.
   
  By:  
    Name:  Clarke B. Futch
    Title:    Chairman & Chief Executive Officer

 

  CLASS B LIMITED PARTNER
   
  HCRX Feeder Fund, L.P.
   
  By: HCRX EPA Holdings, LLC, its general partner
   
  By:  
    Name: Clarke B. Futch
    Title:    Chairman & Chief Executive Officer

 

  CLASS C LIMITED PARTNER
   
  HCRX EPA Holdings, LLC
   
  By:  
    Name: Clarke B. Futch
    Title:    Chairman & Chief Executive Officer

 

[Signature Page to Amended and Restated Limited Partnership Agreement of Healthcare Royalty Holdings, L.P.]

 

 

 

SCHEDULE A

 

GENERAL PARTNER

 

HCRX Master GP, LLC
300 Atlantic St., Suite 600
Stamford, Connecticut 06901

 

LIMITED PARTNERS

 

 

Name

 

Address

 

Units

Percentage

Interest

Healthcare Royalty, Inc. 300 Atlantic St., Suite 600
Stamford, Connecticut 06901
[•]
Class A
[__]%
HCRX Feeder Fund, L.P. 300 Atlantic St., Suite 600
Stamford, Connecticut 06901
[•]
Class B
[__]%
HCRX EPA Holdings, LLC 300 Atlantic St., Suite 600
Stamford, Connecticut 06901
1
Class C
0%

 

 

Schedule A-1

 

 

SCHEDULE B

 

TRANSFEREE TAX REPRESENTATIONS

 

Either:

 

(a)               Such transferee (i) is not a flow-through entity within the meaning of Treasury Regulations Section 1.7704-1(h)(3), and (ii) is and will at all times continue to be, the sole beneficial owner of the interest to be registered in its name (which shall be interpreted to mean that the transferee is not and will not be treated as a nominee for, or agent of, another party or as anything other than the real owner of such interest for federal income tax purposes, at any time); or

 

(b)               (i) Such transferee is a flow-through entity within the meaning of Regulations Section 1.7704-1(h)(3) and (ii) there is no person (a “Beneficial Owner”) that owns an interest in such transferee such that (x) substantially all of the value of the Beneficial Owner’s interest in such transferee will be attributable to such transferee’s interest (direct or indirect) in the Partnership; and (y) a principal purpose of the use of the tiered arrangement is to permit the Partnership to satisfy the 100-partner limitation in Treasury Regulations Section 1.7704-1(h)(1)(ii);

 

Such transferee did not purchase, and will not sell, its interest through (a) a national, foreign, regional, local or other securities exchange, (b) PORTAL or (c) over the counter market (including an interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise);

 

Such transferee did not purchase, and will not sell, its interest from, to or through (a) a person, such as a broker or dealer, that makes a market in, or regularly quotes prices for, such interests or (b) a person that regularly makes available to the public (including customers or subscribers) bid or offer quotes with respect to the Interest and stands ready to effect, buy or sell transactions at the quoted prices for itself or on behalf of others; and

 

Such transferee will only sell its interest to a buyer who provides the representations similar to these.

 

The representations set forth above are intended to ensure that the Partnership will not be treated as a corporation for federal income tax purposes as a result of any transfer. The General Partner may waive any or all of the representations set forth above on the advice of counsel that the transfer of an interest to such transferee will not cause the Partnership to be treated as a corporation for federal income tax purposes, and shall endeavor in good faith to do so if so advised by counsel to the Partnership upon request for waiver by a Limited Partner proposing to transfer, or upon receipt of an opinion from legal counsel to the transferee (provided such legal counsel is of national reputation and specializes in the legal matters involved in such determination) that such transfer will not cause the Partnership to be treated as a publicly traded partnership within the meaning of Section 7704 of the Code. These representations may from time to time be revised by the General Partner on the advice of counsel to the extent necessary to ensure that a transfer will not cause the Partnership to be treated as a corporation for federal income tax purposes.

 

Schedule B-1

 

 

SCHEDULE C

 

EPAs

 

Section 1.                EPAs. Subject to the satisfaction of the Conditions, HCRX EPA shall be entitled to EPAs in respect of the Class C Unit in an amount determined in accordance with the terms set forth in this Schedule C.

 

Section 2.                Determination of Amount of EPAs.

 

(a)               The amount of the EPAs payable to HCRX EPA in respect of each EPA Portfolio from time to time shall be determined in accordance with the provisions of this Section 2 of Schedule C.

 

(b)               Subject to the satisfaction of each of the three Conditions and any requirements of applicable law, at the end of each Fiscal Quarter (each, a “Quarterly Determination Date”) HCRX EPA will be entitled to an amount (the “EPA”), which shall be determined for each EPA Portfolio equal to 20% of the Net Economic Profit for such EPA Portfolio for the Measuring Period ending on the Quarterly Determination Date (the “EPA Amount”).

 

(c)               The payment of any EPA to HCRX EPA in accordance with this Schedule C will be subject to each of the following three conditions:

 

Condition One: Cumulative Net Economic Profit for such EPA Portfolio as of the Quarterly Determination Date is positive.

 

Condition Two: The aggregate Projected Cash Receipts for all Portfolio Investments in such EPA Portfolio for all periods commencing after such Quarterly Determination Date are equal to or greater than 130% of the Projected Total Expenses for all Portfolio Investments in such EPA Portfolio through the respective Termination Dates of such Portfolio Investments.

 

Condition Three: The Projected Cash Receipts for all EPA Portfolios for all periods commencing after such Quarterly Determination Date are equal to or greater than 130% of the Projected Total Expenses for all EPA Portfolios through the respective Termination Dates of such EPA Portfolios.

 

(d)               The Partnership shall determine the EPA Amount for each EPA Portfolio (if any) in accordance with clause (c) above as soon as reasonably practicable following the relevant Quarterly Determination Date.

 

(e)               For the avoidance of doubt, HCRX EPA shall not be entitled to an EPA in respect of any Pre-IPO Portfolio Investment.

 

(f)                The calculation of EPAs made during each Fiscal Year shall be verified by an annual audit of the Partnership’s books of account by an accounting firm selected by HCRX EPA who is acceptable, acting reasonably, to the General Partner. To the extent such audit determines that there has been a net over- or under-calculation of EPAs during such Fiscal Year then, subject to applicable law, the Partnership shall (i) in the case of an under-calculation, distribute an additional amount to HCRX EPA equal to such net under-calculation, and (ii) in the case of an over-calculation in respect of a EPA Portfolio, such over-allocation shall be deducted from future entitlements to any EPAs in respect of such EPA Portfolio, and to the extent that such over-allocation is outstanding as of the final determination of an EPA in respect of such EPA Portfolio, then HCRX EPA shall pay to the Partnership any remaining over-allocation amount.

 

Schedule C-1

 

 

(g)               As used herein, the terms Portfolio Investment, New Portfolio Investment, Royalty Investment, and Pre-IPO Portfolio Investment will each include the Partnership’s proportionate interest in investment assets acquired by entities (including trusts) in which a member of the Group has a direct or indirect ownership interest

 

(h)               If HCRX EPA determines in good faith that the terms, calculation and allocation procedures set forth in this Schedule C do not appropriately reflect the intention to provide HCRX EPA with EPAs that reflect 20% of the Net Economic Profit of each EPA Portfolio, HCRX EPA may direct the Company to amend the calculation and allocation procedures set forth herein in order to ensure to the extent possible that EPAs do reflect 20% of the Net Economic Profit of each EPA Portfolio. Any such amendments proposed by HCRX EPA shall be subject to the approval of the HCRX Board acting reasonably.

 

Section 3.                Satisfaction and Distribution of EPAs.

 

(a)               Following the determination of the EPA Amount for each EPA Portfolio in accordance with Section 2 above, the Partnership shall, subject to applicable law, satisfy the payment of the relevant EPA Amount for each EPA Portfolio by way of a bonus issuance of Class B Units and Class B Common Stock (the “EPA B Units”) in the manner contemplated by Section 3(b)-(c) below. Any EPA B Units issued pursuant to this Section 3(a) shall be treated as an advance against the final year end entitlements as verified under Section 2(f) above, and shall reduce the amount of future distributions that HCRX EPA would otherwise receive pursuant to Section 2 above.

 

(b)               Any EPA B Units to be issued in satisfaction of an EPA will be issued to HCRX EPA.

 

(c)               The number of EPA B Units to be issued to HCRX EPA in respect of each EPA Portfolio will be calculated by reference to the following formula:

 

A =

(B-C-D)

E

 

 

Where:

 

“A” is the number of EPA B Units to be issued, provided that any fractions of EPA B Units arising shall be disregarded;

 

“B” is the EPA Amount for the relevant EPA Portfolio;

 

Schedule C-2

 

 

“C” is the amount of any EPA Advance Amounts paid by the Partnership to HCRX EPA in respect of that EPA Portfolio since the last date on which the relevant EPA Portfolio was entitled to be paid an EPA;

 

“D” is the amount of any prior outstanding over-allocation under Section 2(f);

 

“E” is the 10 day trailing VWAP for the Class A Common Stock ending 2 days prior to the proposed date of issuance of the EPA B Units.

 

Section 4.                Definitions. For purposes of this Schedule C, the following terms shall have the meanings set forth below.

 

Acquisition Cost” means, with respect to any Portfolio Investment, the original purchase price and capitalized acquisition costs, such as expenses incurred in sourcing, developing, negotiating, structuring, acquiring and holding of such Portfolio Investment plus any amounts paid in respect of such Portfolio Investment after the Date of Acquisition, such as installment, milestone or other progress or hurdle payments and any other capitalized costs specifically applicable to the Portfolio Investment.

 

Acquisition Cost Percentage” means for each Portfolio Investment, a fraction, the numerator of which is the sum of (i) the Unrecovered Acquisition Cost of such Portfolio Investment as of the Last Completed Quarter, if any, plus (ii) the Cumulative Net Economic Loss for such Portfolio Investment as of the Last Completed Quarter, if any, and the denominator of which is the sum of (i) the Unrecovered Acquisition Cost of all Portfolio Investments as of the Last Completed Quarter, if any, plus (ii) the Cumulative Net Economic Loss for all Portfolio Investments as of the Last Completed Quarter, if any.

 

Agreed-Upon Analyst” means any nationally recognized investment bank selected by HCRX EPA which prepares reports containing royalty revenue estimates in respect of one or more of the Royalty Investments, including Goldman Sachs, JP Morgan Chase & Co., UBS, Credit Suisse, Cowen, Bank of America Merrill Lynch, Morgan Stanley, Citigroup, Royal Bank of Canada, Wells Fargo, Deutsche Bank, Bernstein, Truist Securities, Raymond James, Piper Jaffrey, SVB Leerink, Mizuho, Stifel, Jefferies and Guggenheim.

 

Amortization Completion Date” means, with respect to any Royalty Investment, the Quarterly Determination Date that is at least four full Fiscal Quarters before the first date on which the Royalty Investment is expected to stop or substantially reduce cash flowing, as determined by HCRX EPA, as a result of the expiration of the license or patent relating to such Royalty Investment, or otherwise.

 

Analyst Consensus” means the consensus product sales estimates for Royalty Investments from the most recent research report, if any, of each Agreed-Upon Analyst through the Termination Date. Where three or more Agreed-Upon Analysts publish research reports containing product sales estimates for a Royalty Investment, then the Analyst Consensus shall use the median growth rate of the Agreed-Upon Analysts to forecast product sales. For Royalty Investments where there are less than three Agreed-Upon Analysts who forecast product sales, HCRX EPA shall use its discretion to forecast product sales. HCRX EPA shall have the right to adjust the Analyst Consensus for any Royalty Investment to the extent HCRX EPA determines that, based upon HCRX EPA’s own estimates and its reasonable good faith discretion, such Analyst Consensus over- or under-estimates royalty revenue for such Royalty Investment.

 

Schedule C-3

 

 

Cash Receipts” means with respect to each Portfolio Investment, all cash proceeds received, directly or indirectly, by a member of the Group in respect of such Portfolio Investment during the applicable period.

 

Conditions” means the conditions to the payment of any EPAs as set forth in Section 2(c) of this Schedule C.

 

Cumulative Net Economic Profit (Loss)” means, for each Portfolio Investment, as of any date, an amount (positive or negative) equal to the difference between (a) the aggregate Cash Receipts for such Portfolio Investment for all Measuring Periods from the Date of Acquisition until such date, minus (b) the Total Expenses allocated to such Portfolio Investment for all Measuring Periods from the Date of Acquisition until such date. A Portfolio is deemed to have positive Cumulative Net Economic Profit if, as of any Quarterly Determination Date, the sum of Cumulative Net Economic Profit (Loss) for all New Portfolio Investments in such Portfolio is positive.

 

Date of Acquisition” means, with respect to each New Portfolio Investment, the date such New Portfolio Investment is acquired.

 

EPA” has the meaning provided in Section 2(b) of this Schedule C.

 

EPA 1 Portfolio” means the Portfolio Investments made during the period commencing on the IPO Date and ending on December 31, 2022.

 

EPA Amount” has the meaning provided in Section 2(b) of this Schedule C.

 

EPA Portfolio” means each New Portfolio which is subject to the payment of EPAs as set forth in this Schedule C, including the EPA 1 Portfolio.

 

Fiscal Quarter” means the calendar quarter or, in the case of the first fiscal quarter of the Partnership, the period commencing on the date of commencement of operations of the Partnership and ending on the last day of the next following calendar quarter and in the case of the last Fiscal Quarter of the Partnership ending on the date on which the winding up of the Partnership is completed, as the case may be.

 

Fiscal Year” means the calendar year, or in the case of the last Fiscal Year, the period commencing on the first date of the relevant calendar year and ending on the date on which the Partnership is terminated.

 

Group” means the Partnership and its Subsidiaries.

 

Interest Expense” means with respect to each Portfolio Investment, for any Measuring Period, the portion of the interest expense attributable to the Total Indebtedness that is allocable to such Portfolio Investment. A Portfolio Investment’s allocable portion of interest expense shall be determined by multiplying the aggregate amount of interest expense for all Portfolio Investments during the Last Completed Quarter by such Portfolio Investment’s Acquisition Cost Percentage.

 

Schedule C-4

 

 

IPO Date” means July [__], 2021, which is the closing date of the initial public offering of Class A Common Stock.

 

Last Completed Quarter” means, for any Measuring Period, the last day of the last full calendar quarter completed immediately prior to the end of such Measuring Period.

 

Liquid Investments” means short-term investments consisting of (a) United States government and agency obligations maturing within one (1) year, (b) commercial paper on corporate debt rated not lower than A-1 by Standard & Poor’s Corporation or P-1 by Moody’s Investor Services, Inc. with maturities of not more than one (1) year and one (1) day, (c) interest-bearing deposits in United States banks and United States branches of French, Japanese, English, Swiss, Irish, German, Cayman Islands, Dutch or Canadian banks, or in Investors Bank & Trust, in any case having one of the ratings referred to above, or the equivalent thereof from an internationally recognized financial information and rating service other than Standard & Poors Corporation or Moody’s Investor Services, Inc., maturing within 180 days, and (d) money market mutual funds or prime funds with assets of not less than $250 million ($250,000,000) and all or substantially all of which assets are reasonably believed by HCRX EPA to consist of items described in one or more of the foregoing clauses (a), (b) and (c).

 

Measuring Period” means, for each New Portfolio, the period starting on the latest of (i) the IPO Date; (ii) the Date of Acquisition of the first New Portfolio Investment of such New Portfolio; and (iii) the day following the last preceding Measuring Period in respect of which HCRX EPA received an EPA in respect of such New Portfolio and ending on the current Quarterly Determination Date.

 

Net Economic Profit” means, with respect to each Portfolio, for any Measuring Period, the excess (if any) of: (a) the aggregate Cash Receipts for all New Portfolio Investments in such Portfolio during such Measuring Period minus (b) the Total Expenses for such Portfolio allocable thereto in accordance with this Schedule C during such Measuring Period.

 

New Portfolio” means one or more groupings of New Portfolio Investments that are designated as a separate Portfolio on or after the IPO Date. The initial New Portfolio shall be the EPA 1 Portfolio which shall consist of New Portfolio Investments made until December 31 2022. Each New Portfolio that is established after the EPA 1 Portfolio shall consist of New Portfolio Investments made during each two (2) year period thereafter. HCRX EPA shall assign such naming designations to each New Portfolio as it shall deem convenient, but each such Portfolio, however named, shall be deemed a New Portfolio for the purposes of this Schedule C.

 

Schedule C-5

 

 

New Portfolio Investment” means all Portfolio Investments acquired by a member of the Group, directly or indirectly, after the IPO Date.

 

Operating and Personnel Payments” means the quarterly operating and personnel payments that are paid to the Manager pursuant to the Management Agreement and any other fees that are paid to the Manager by HCRX, the Partnership, and their Subsidiaries.

 

Operating Expense” means, with respect to any Portfolio Investment for any Measuring Period, the sum of (a) any costs which are specifically allocable to such Portfolio Investment, including the Operating and Personnel Payments derived from such Portfolio Investment but excluding any capitalized costs included in Acquisition Cost, plus (b) such Portfolio Investment’s allocable portion of all expenses not allocable pursuant to clause (a) hereof payable by a member of the Group and the Group’s allocable portion of expenses borne by entities in which a member of the Group has a direct or indirect ownership interest, not including (i) Operating and Personnel Payments, (ii) Interest Expense, or (iii) Recovery of Acquisition Cost. A Portfolio Investment’s allocable portion of the expenses specified in clause (b) above shall be equal to the product of (i) such expenses multiplied by (ii) a fraction, the numerator of which is the Operating and Personnel Payment derived from such Portfolio Investment during such Measuring Period and the denominator of which is the sum of Operating and Personnel Payments derived from all Portfolio Investments in such Portfolio during such Measuring Period.

 

Portfolio” means each New Portfolio and the Pre-IPO Portfolio.

 

Portfolio Investment” means all Royalty Investments held, directly or indirectly, by a member of the Group. For the avoidance of doubt, (i) this term will include Portfolio Investments made after the IPO Date, as well as Portfolio Investments transferred to the Partnership by the Legacy HCR Partnerships in connection with the IPO, (ii) this term will include the Group’s proportionate interest in investment assets held through trusts or other entities in which a member of the Group has a direct or indirect ownership interest, and (iii) this term will not include Liquid Investments.

 

Pre-IPO Portfolio” means a portfolio of all Pre-IPO Portfolio Investments.

 

Pre-IPO Portfolio Investment” means each Portfolio Investment held by the Legacy HCR Partnerships immediately prior to the IPO Date.

 

Projected Cash Receipts” means, as of any Quarterly Determination Date, for any Royalty Investment, the aggregate Cash Receipts projected by HCRX EPA to be received by any member of the Group (or the Group’s proportionate share of any such Cash Receipts received by a trust or other entity in which a member of the Group has a direct or indirect ownership interest). Projected Cash Receipts shall be calculated by HCRX EPA based on the Analyst Consensus of product sales forecasts for the period beginning on the day following such Quarterly Determination Date and ending upon the Termination Date for such Portfolio Investment.

 

Projected Total Expenses” means, as of any Quarterly Determination Date for any Portfolio Investment, the aggregate Total Expenses which are projected by HCRX EPA to be allocated to such Portfolio Investment. Projected Total Expenses will be measured over a period beginning on the day following such Quarterly Determination Date and ending upon the Termination Date for such Portfolio Investment.

 

Quarterly Determination Date” has the meaning provided in Section 2(b).

 

Schedule C-6

 

 

Recovery of Acquisition Cost” means, for any Measuring Period, an amount equal to the portion of Acquisition Cost scheduled to be amortized for such Royalty Investment during such Measuring Period, calculated utilizing a quarterly straight line amortization schedule. Amortization shall begin as of the Date of Acquisition of a Royalty Investment (or, if later, the date on which the applicable Royalty Investment first generates Cash Receipts (or in the case of Projected Cash Receipts the date the applicable Royalty Investment is expected to generate Cash Receipts) for the Group) and shall end as of the Amortization Completion Date. HCRX EPA may accelerate the applicable schedule of amortization for a Royalty Investment if it deems it appropriate to do so, including due to a decline in Projected Cash Receipts for such Royalty Investment.

 

Royalties” means intellectual property (including patents) or other contractual rights to income derived from the sales of, or revenues generated by, pharmaceutical, biopharmaceutical, medical and/or healthcare products, processes, devices or enabling and delivery technologies that are protected by patents, trademarks or copyrights, governmental or other regulations or otherwise by contract.

 

Royalty Investment” means any acquisition of (including, without limitation, any secondary purchase of existing assets), or financing or investment in, or any acquisition, financing or investment relating directly or indirectly to Royalties, which may include, without limitation (i) purchases of Royalties, (ii) Royalty notes, (iii) SYNTHETIC ROYALTYTM financings, (iv) ownership interests in any entities, including entities formed for the purpose of holding Royalties or substantially all of the assets of which consist of Royalties; (v) structured debt, (vi) any securities, investments or contracts that may provide a hedge for Royalties; and (vii) other assets and investments considered by the Manager to be related to the foregoing.

 

Termination Date” means for each Royalty Investment, the date on which the Royalty Investment is expected to stop cash-flowing as a result of the expiration of the license or patent relating to the Royalty Investment, or otherwise, as determined by HCRX EPA in its reasonable discretion.

 

Total Expenses” means, with respect to any Portfolio Investment, the sum of (a) Operating Expense, (b) Recovery of Acquisition Cost, plus (c) Interest Expense allocable to such Portfolio Investment in accordance with this Schedule C.

 

Total Indebtedness” means (i) all financial indebtedness incurred by a member of the Group or (ii) allocable to a member of the Group in respect of financial indebtedness incurred by trusts or other entities holding Portfolio Investments.

 

Unrecovered Acquisition Cost” means, for each Portfolio Investment, as of any date, the excess (if any) of (i) the Acquisition Cost of such Portfolio Investment over (ii) an amount equal to the cumulative amount of Recovery of Acquisition Costs for such Portfolio Investment for all periods prior to such date.

 

Schedule C-7

 

EX-10.6 9 tm2113163d7_ex10-6.htm EXHIBIT 10.6

 

Exhibit 10.6

 

EXCHANGE AGREEMENT

 

This EXCHANGE AGREEMENT (this “Agreement”), dated as of [●], 2021, is by and among Healthcare Royalty, Inc., a Delaware corporation (the “Company”), HCRX CH, Inc., a Delaware corporation (the “Conversion Subsidiary”), Healthcare Royalty Holdings, L.P., a Delaware limited partnership (“Holdings”), HCRX Feeder Fund, L.P., a Delaware limited partnership, and such other holders of Class B Units from time to time party hereto.

 

WHEREAS, the Company, Holdings, HealthCare Royalty Management, LLC, HCRX Management, LLC, HCRX Master GP, LLC, Conversion Subsidiary, and certain other parties thereto have entered into that certain Agreement and Plan of Reorganization, dated as of June [●], 2021 (the “Reorganization Agreement”), pursuant to which, among other things, the parties have agreed to enter into this agreement and effect the transactions contemplated herein; and

 

WHEREAS, the parties hereto desire to provide for the exchange from time to time of Class B Units, and the surrender of shares of Class B Common Stock for cancellation, for shares of Class A Common Stock on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I 

 

SECTION 1.1              Definitions.

 

The following definitions shall for all purposes, unless the context otherwise clearly indicates, apply to the capitalized terms used in this Agreement.

 

Acquirer” means the acquirer or surviving entity (which, for the sake of clarity, may be Holdings or the Company) in a Change of Control.

 

Affiliate” means with respect to any specified Person, any Person directly or indirectly Controlling, Controlled by or under common Control with such Person.

 

Agreement” has the meaning set forth in the preamble hereto.

 

Board of Directors” means the Board of Directors of the Company.

 

Business Day” means any day, other than Saturday, Sunday or any other day on which banks located in the State of New York are authorized or required to close.

 

Certificate” means the certificate of incorporation of the Company, as the same may be amended or amended and restated from time to time in accordance with its terms.

 

 

 

 

Change of Control” means a change of control shall be deemed to have occurred if: (i) a sale, lease, exchange or other transfer in one transaction or a series of related transactions of all or substantially all of the Company’s assets or (ii) a merger or consolidation of the Company with or into any other Person or any other transaction or a series of related transactions, the result of which is that a third party (or a group of third parties) that is not an Affiliate of the Company or the Manager immediately prior to such transaction acquires or holds capital stock of the Company representing a majority of the Company’s outstanding voting power immediately following such transaction, in each case, solely to the extent that such transaction or series of related transactions was required by applicable Law or the Certificate to be approved by the Company’s stockholders. Notwithstanding the foregoing, the following events do not constitute a Change of Control: (A) a transaction (other than a sale of all or substantially all of the Company’s assets) in which the holders of the voting securities of the Company immediately prior to such transaction hold, directly or indirectly, at least a majority of the voting securities in the successor corporation or its parent immediately after such transaction; (B) a sale, lease, exchange or other transaction in one transaction or a series of related transactions of all or substantially all of the Company’s assets to an Affiliate of the Company; (C) the Company’s initial public offering and any subsequent registered offerings or secondary sales by the Continuing Investors of any of the Company’s securities; (D) a reincorporation of the Company solely to change its jurisdiction; or (E) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof.

 

Change of Control Exchange” has the meaning set forth in Section 2.1(e).

 

Change of Control Exchange Time” has the meaning set forth in Section 2.1(e).

 

Class A Common Stock” means the Class A common stock, par value $0.01 per share, of the Company.

 

Class A Unit” means (a) a Class A Unit of Holdings, or (b) the common stock or other equity securities for which a Class A Unit has been converted or exchanged of a successor corporation or entity.

 

Class B Common Stock” means the Class B common stock, par value $0.01 per share, of the Company.

 

Class B Unit” means (a) a Class B Unit of Holdings, or (b) the common stock or other equity securities for which a Class B Unit has been converted or exchanged of a successor corporation or entity.

 

Combination” means any combination of stock or units, as the case may be, by reverse split, reclassification, recapitalization, reorganization or otherwise.

 

Company” has the meaning set forth in the preamble hereto.

 

Continuing Investors” means the investors who received limited partnership interests in the Continuing Investor Partnership.

 

Continuing Investor Partnership” means HCRX Feeder Fund, L.P.

 

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Continuing Investor Partnership LPA” means that certain amended and restated limited partnership agreement of the Continuing Investor Partnership.

 

Control” means, with respect to any Person, the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of such Person; provided, however, that customary approval and veto rights granted to minority equity holders of a Person shall not be deemed to constitute “Control” of such Person.

 

Date of Exchange” means with respect to an Exchange pursuant to Section 2.1(a), but subject to Section 2.1(c), the date identified in the respective Exchange Notice (which may be the date on which the Exchange Notice is delivered to Holdings).

 

Exchange” means an exchange of Class B Units (together with the cancellation of shares of Class B Common Stock) for shares of Class A Common Stock.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

Exchange Notice” means a written election of Exchange substantially in the form of Exhibit A, duly executed by the exchanging Holdings Unitholder or such Holdings Unitholder’s duly authorized attorney.

 

Exchange Rate” means the number of shares of Class A Common Stock for which one Class B Unit is entitled to be Exchanged. On the date of this Agreement, the Exchange Rate shall be 1:1, subject to adjustment pursuant to Section 2.4 of this Agreement.

 

Exemption Certificate” means a certification that provides an exception to transferee withholding under Treasury Regulation Section 1.1446(f)-2(b). Such certification may either be provided by the Holdings Unitholder or by Holdings as applicable.

 

General Partner” means HCRX Master GP, LLC or any Person who becomes an additional, successor or substitute general partner of Holdings pursuant to the LP Agreement.

 

Governmental Entity” means any court, tribunal, arbitrator, authority, agency, commission, legislative body or official of the United States or any state, or similar governing entity, in the United States or in a foreign jurisdiction.

 

Holdings” has the meaning set forth in the preamble hereto.

 

Holdings Unitholder” means the Continuing Investor Partnership and any Person that executes a joinder as set forth in Section 3.5 of this Agreement.

 

Legal Proceeding” means any action, suit, hearing, claim, lawsuit, litigation, investigation, arbitration or proceeding (in each case, whether civil, criminal or administrative or at law or in equity) by or before a Governmental Entity.

 

Lien” means with respect to any property or asset, any lien, mortgage, pledge, charge, security interest or other encumbrance in respect of such property or asset.

 

LP Agreement” means the Amended and Restated Limited Partnership Agreement of Holdings, by and among the Company, Holdings, each of the Holdings Unitholders and certain other parties thereto, dated the date hereof, as such agreement may be amended from time to time in accordance with its terms.

 

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LP Units” means the Class A Units and the Class B Units.

 

Manager” means HCRX Management, LLC, a Delaware limited liability company.

 

Permitted Transferee” has the meaning set forth in Section 3.5.

 

Person” means an individual, a partnership (including a limited partnership), a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, association or other entity.

 

Registration Rights Agreement” means the Registration Rights Agreement, by and among the Company, the Continuing Investor Partnership and certain other parties thereto, dated as of the date hereof, as such agreement may be amended from time to time in accordance with its terms.

 

Subdivision” means any subdivision of stock or units, as the case may be, by any split, dividend, distribution, reclassification, recapitalization, reorganization or otherwise.

 

SECTION 1.2              Other Definitional and Interpretative Provisions. The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles and Sections are to Articles and Sections of this Agreement unless otherwise specified. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to “law”, “laws” or to a particular statute or law shall be deemed also to include any applicable law. Except to the extent otherwise expressly provided herein, all references to any Holdings Unitholder shall be deemed to refer solely to such Person in its capacity as such Holdings Unitholder and not in any other capacity.

 

SECTION 1.3              Construction. The parties have participated jointly in negotiating and drafting this Agreement. If an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

 

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ARTICLE II 

 

SECTION 2.1              Exchange of Class B Units.

 

(a)               Upon the terms and subject to the conditions of this Agreement, each Holdings Unitholder shall be entitled at any time and from time to time to effect an Exchange. In the event a Holdings Unitholder wishes to effect an Exchange, such Holdings Unitholder shall (i) deliver to Holdings and the Company an Exchange Notice and (ii) surrender or, in the absence of such surrender, be deemed to have surrendered, Class B Units to Holdings (and surrender for cancellation one or more stock certificates (if certificated) or instructions and stock powers (if uncertificated)) representing a corresponding number of shares of Class B Common Stock) (in each case, free and clear of all Liens), in each case, to Holdings’ and the Company’s addresses set forth in Section 3.6(b). In consideration for such surrender, the exchanging Holdings Unitholder shall be entitled to the issuance by the Company to such Holdings Unitholder of a number of shares of Class A Common Stock equal to (I) the number of Class B Units exchanged multiplied by (II) the Exchange Rate, and concurrently with any such issuance, any exchanged Class B Common Stock automatically shall be deemed cancelled, without any action on the part of any Person, including the Company or Holdings). Each such Exchange shall to the extent permitted by law be treated for U.S. income tax reporting purposes as a taxable exchange of the Holdings Unitholder’s Class B Units for Class A Common Stock. For the avoidance of doubt, the number of Class B Units exchanged by such Holdings Unitholder shall include all amounts that may be allocated to the Applicable GP (as defined in the Continuing Investor Partnership LPA) as carried interest in respect of the Class B Units so exchanged by the Holdings Unitholder following conversion.

 

(b)               Following the delivery of the Exchange Notice, the Company shall deliver or cause to be delivered the number of shares of Class A Common Stock deliverable upon such Exchange as promptly as practicable after the Exchange Date (but not later than the close of business on the Business Day immediately following the Exchange Date), at the offices of the then-acting registrar and transfer agent of the Class A Common Stock (or, if there is no then-acting registrar and transfer agent of the Class A Common Stock, at the principal executive offices of the Company), registered in the name of the relevant exchanging Holdings Unitholder (or in such other name as is requested in writing by the Holdings Unitholder), in certificated or uncertificated form, as may be requested by the exchanging Holdings Unitholder; provided, that to the extent the Class A Common Stock is settled through the facilities of The Depository Trust Company, upon the written instruction of the exchanging Holdings Unitholder set forth in the Exchange Notice, the Company shall use its reasonable best efforts to deliver the shares of Class A Common Stock deliverable to such exchanging Holdings Unitholder in the Exchange through the facilities of The Depository Trust Company, to the account of the participant of The Depository Trust Company designated by such exchanging Holdings Unitholder by no later than the close of business on the Business Day immediately following the Exchange Date. An Exchange pursuant to this Section 2.1 of Class B Units, and the cancellation of shares of Class B Common Stock, for Class A Common Stock will be deemed to have been effected immediately prior to the close of business on the Date of Exchange whether or not the shares of Class A Common Stock have been delivered to the exchanging Holdings Unitholder at such time, the Holdings Unitholder will be treated as a holder of record of Class A Common Stock as of the close of business on such Date of Exchange.

 

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(c)               An Exchange Notice from a Holdings Unitholder may specify that the Exchange is to be (i) contingent (including as to the timing) upon the consummation of a purchase by another Person of shares of Class A Common Stock into which the Class B Units are exchangeable and/or (ii) effective upon a specified future date. In such case, a Holdings Unitholder may withdraw or amend an Exchange Notice, in whole or in part, at any time prior to the effectiveness of the Exchange by delivery of a written notice of withdrawal to the Company and Holdings specifying (A) the number of withdrawn Class B Units, (B) the number of Class B Units as to which the Exchange Notice remains in effect, if any, and (C) if the Holdings Unitholder so determines, revised timing of the Exchange or any other new or revised information permitted in the Exchange Notice.

 

(d)               In connection with a Change of Control, and subject to the receipt of any approval of the Change of Control by the holders of Class A Common Stock and Class B Common Stock required under the Certificate or applicable Law (which approval has been granted by a vote or consent of the stockholders of the Company), the Company shall have the right to require each Holdings Unitholder to Exchange some or all Class B Units beneficially owned by such Holdings Unitholder (and a corresponding number of shares of Class B Common Stock) (in each case, free and clear of all Liens), in consideration for the issuance by the Company to such Holdings Unitholder of a number of shares of Class A Common Stock equal to the number of Class B Units surrendered multiplied by the Exchange Rate (a “Change of Control Exchange”), such Change of Control Exchange to be effected by the surrender of such Class B Units to the Company (and surrender for cancellation one or more stock certificates (if certificated) or instructions and stock powers (if uncertificated)), any exchanged Class B Common Stock automatically shall be deemed cancelled without any action on the part of any Person, including the Company or Holdings); provided, that if the Company requires the Holdings Unitholders to Exchange less than all of their outstanding Class B Units (and to surrender a corresponding number of shares of Class B Common Stock for cancellation), each Holdings Unitholder’s participation in the Change of Control Exchange shall be reduced pro rata. Any Change of Control Exchange shall be effective immediately prior to the consummation of the Change of Control (and, for the avoidance of doubt, shall not be effective if such Change of Control is not consummated) (the “Change of Control Exchange Time”) and the Holdings Unitholder will be treated as a holder of record of Class A Common Stock as of the Change of Control Exchange Time. For the avoidance of doubt, any Class B Units and a corresponding number of shares of Class B Common Stock held by a Holdings Unitholder that are not Exchanged or cancelled, as applicable, pursuant to a Change of Control Exchange may be Exchanged by such Holdings Unitholder pursuant to Section 2.1(a) subject to, and in accordance with, the terms thereof.

 

(e)               To effect the delivery of such shares of Class A Common Stock, the Company shall: (i) deliver or cause to be delivered at the offices of the then-acting registrar and transfer agent of the Class A Common Stock (or, if there is no then-acting registrar and transfer agent of the Class A Common Stock, at the principal executive offices of the Company) such number of shares of Class A Common Stock, registered in the name of the relevant Holdings Unitholder (or in such other name as is requested in writing by such Holdings Unitholder), in certificated or uncertificated form, as may be requested by such Holdings Unitholder, or (ii) if the Class A Common Stock is settled through the facilities of The Depository Trust Company, upon the written instruction of such Holdings Unitholder, use its reasonable best efforts to deliver the shares of Class A Common Stock through the facilities of The Depository Trust Company, to the account of the participant of The Depository Trust Company designated by such Holdings Unitholder.

 

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(f)                The Company shall provide written notice of an expected Change of Control to all Holdings Unitholders within the earlier of (i) five (5) days following the execution of the agreement with respect to such Change of Control and (ii) ten (10) days before the proposed date upon which the contemplated Change of Control is to be effected, indicating in such notice such information as may reasonably describe the Change of Control transaction, subject to applicable law, including the date of execution of such agreement or such proposed effective date, as applicable, the amount and types of consideration to be paid for LP Units or shares of Class A Common Stock, as applicable, in the Change of Control (which consideration shall be identical whether paid for LP Units or shares of Class A Common Stock), any election with respect to types of consideration that a holder of LP Units or shares of Class A Common Stock, as applicable, shall be entitled to make in connection with the Change of Control, the percentage of total Class B Units or shares of Class A Common Stock, as applicable, to be transferred to the Acquirer by all stockholders in the Change of Control, and the number of Class B Units held by each Holdings Unitholder that the Company intends to require be Exchanged for shares of Class A Common Stock in connection with the Change of Control. The Company shall update such notice from time to time to reflect any material changes to such notice. The Company may satisfy any such notice and update requirements described in the preceding two sentences by providing such information on Form 8-K, Schedule TO, Schedule 14D-9 or similar form filed with the SEC.

 

(g)               Immediately upon the Exchange of any Class B Unit pursuant to this Section 2.1, an equal number of outstanding shares of Class B Common Stock beneficially owned by the exchanging Holdings Unitholder automatically shall be deemed cancelled without any action on the part of any Person, including the Company. Any such cancelled shares of Class B Common Stock shall no longer be outstanding, and all rights with respect to such shares shall automatically cease and terminate.

 

(h)               The Company, Holdings and each Holdings Unitholder shall bear its own expenses in connection with the consummation of any Exchange, whether or not any such Exchange is ultimately consummated, except that Holdings shall bear any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, any Exchange; provided, however, that if any shares of Class A Common Stock are to be delivered in a name other than that of the Holdings Unitholder that requested the Exchange (or The Depository Trust Company or its nominee for the account of a participant of The Depository Trust Company that will hold the shares for the account of such Holdings Unitholder), then such Holdings Unitholder or the Person in whose name such shares are to be delivered shall pay to the Company the amount of any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, such Exchange or shall establish to the reasonable satisfaction of the Company that such tax has been paid or is not payable. For the avoidance of doubt, each exchanging Holdings Unitholder shall bear any and all income or gains taxes imposed on gain realized by such exchanging Holdings Unitholder as a result of any such Exchange.

 

(i)                 Company will have the right to hold back ten percent (10%) of the Class A Common Stock otherwise due to a Holdings Unitholder in an exchange if the Holdings Unitholder is unable to provide an Exemption Certificate in conjunction with its Exchange Notice. For the three (3) years beginning with the effective date of this Agreement, each of Holdings and the Continuing Investor Partnership shall provide an Exemption Certificate to each such Holdings Unitholder in conjunction with its Exchange Notice. The parties acknowledge that Holdings and the Continuing Investor Partnership can only guarantee its ability to provide an Exemption Certificate for a period of three (3) years beginning with the effective date of this Agreement. Any shares held back by the Company under this Section 2.1(i) may be sold, transferred, loaned, or otherwise disposed of by the Company as necessary in order for the Company to satisfy any withholding obligations under Code section 1446(f).

 

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(j)                 Notwithstanding the foregoing, in the event a Holdings Unitholder wishes to effect an Exchange in conjunction with the Company’s initial public offering, or within six months of Company’s initial public offering, such Holdings Unitholder will not enter into an Exchange with Company. Instead, such Holdings Unitholder shall deliver an Exchange Notice to Holdings, the Company and the Conversion Subsidiary, Company will contribute and deliver Class A Common Stock to Conversion Subsidiary, and Conversion Subsidiary will exchange such Class A Common Stock for the Class B Units held by the Holdings Unitholder, in each case in accordance with the terms and conditions of this Section 2.1, provided, however, that the Company, Conversion Subsidiary and Holdings shall be permitted to make adjustments to the exchange mechanics contained in this Section 2.1 in order to ensure that the exchange between Holdings Unitholder and Conversion Subsidiary under this Section 2.1(j) will be considered a taxable exchange for purposes of Section 1001 of the Code.

 

SECTION 2.2              Common Stock to be Issued.

 

(a)               In connection with any Exchange, the Company reserves the right to provide shares of Class A Common Stock that are registered pursuant to the Securities Act, unregistered shares of Class A Common Stock or any combination thereof, as it may determine in its sole discretion, it being understood that all such unregistered shares of Class A Common Stock shall be entitled to the registration rights set forth in the Registration Rights Agreement; provided, such holders thereof shall have agreed to join the Registration Rights Agreement as parties thereto.

 

(b)               The Company shall at all times reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuances upon any Exchange, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the Exchange of all Class B Units of Holdings that may be outstanding from time to time. The Company shall at all times reserve and keep available out of its authorized but unissued Class B Common Stock, such number of shares of Class B Common Stock as shall from time to time be sufficient for purposes of satisfying the Exchange Agreement. The Company shall take any and all actions necessary or desirable to give effect to the foregoing.

 

(c)               Prior to the effective Date of any Exchange effected pursuant to this Agreement, the Company shall take all such steps as may be required to cause to qualify for exemption under Rule 16b-3(d) or (e), as applicable, under the Exchange Act, and to be exempt for purposes of Section 16(b) under the Exchange Act, any acquisitions from, or dispositions to, the Company of equity securities of the Company (including derivative securities with respect thereto) and any securities that may be deemed to be equity securities or derivative securities of the Company for such purposes that result from the transactions contemplated by this Agreement, by each officer or director of the Company, including any director by deputization. The authorizing resolutions shall be approved by either the Company’s board of directors or a committee composed solely of two or more Non-Employee Directors (as defined in Rule 16b-3) of the Company (with the authorizing resolutions specifying the name of each such director whose acquisition or disposition of securities is to be exempted and the number of securities that may be acquired and disposed of by each such Person pursuant to this Agreement.

 

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(d)               Any Class A Common Stock or Class B Common Stock to be issued by the Company in accordance with this Agreement shall be validly issued, fully paid and non-assessable.

 

SECTION 2.3              Capital Structure of the Company and Holdings.

 

(a)               The Company shall, and shall cause the General Partner to cause Holdings to, take all actions necessary so that, at all times for as long as this Agreement is in effect one Class B Unit is exchangeable for one share of Class A Common Stock pursuant to this Agreement.

 

(b)               Upon the issuance by the Company of any shares of Class A Common Stock other than pursuant to an Exchange (including any issuance in connection with a business acquisition by the Company or its direct or indirect subsidiaries, an equity incentive program or upon the conversion, exercise (including cashless exercise) or exchange of any security or other instrument convertible into or exercisable or exchangeable for shares of Class A Common Stock), the Company shall contribute the proceeds of such issuance (net of any selling or underwriting discounts or commissions or other expenses) to Holdings in exchange for a number of newly issued Class A Units equal to the number of shares of Class A Common Stock issued.

 

(c)               At any time that Holdings issues a Class B Unit, the Company shall issue a share of Class B Common Stock to the recipient of such Class B Unit. Upon the conversion or cancellation of any Class B Unit pursuant to this Agreement or the LP Agreement, the corresponding share of Class B Common Stock automatically shall be cancelled without any action on the part of any Person, including the Company. The Company may only issue shares of Class B Common Stock to the Continuing Investor Partnership, its Permitted Transferees and, subject to the terms of the LP Agreement, HCRX EPA Holdings LLC. Holdings may only issue Class B Units to the Continuing Investor Partnership, its Permitted Transferees and, subject to the terms of the LP Agreement, HCRX EPA Holdings LLC. A Holdings Unitholder may only transfer shares of Class B Common Stock to a Person if (i) such Person is a Permitted Transferee of such Holdings Unitholder and (ii) an equal number of Class B Units are simultaneously transferred to the transferee. A Holdings Unitholder may only transfer Class B Units to a Person if (A) such Person is a Permitted Transferee of such Holdings Unitholder and (B) an equal number of shares of Class B Common Stock are simultaneously transferred to the transferee.

 

(d)               If the Company redeems, repurchases or otherwise acquires any shares of its Class A Common Stock for cash (including a redemption, repurchase or acquisition of restricted shares of Class A Common Stock for nominal or no value), Holdings shall (and the Company shall cause Holdings to), coincident with such redemption, repurchase or acquisition, redeem or repurchase an identical number of Class A Units held by the Company upon the same terms, including the same price, as the terms of the redemption, repurchase or acquisition of the Class A Common Stock.

 

(e)             The Company shall not in any manner effect any Subdivision or Combination of Class A Common Stock unless Holdings simultaneously effects a Subdivision or Combination, as the case may be, of LP Units with an identical ratio as the Subdivision or Combination of Class A Common Stock. Holdings shall not in any manner effect any Subdivision or Combination of LP Units unless the Company simultaneously effects a Subdivision or Combination, as the case may be, of Class A Common Stock and Class B Common Stock with an identical ratio as the Subdivision or Combination of LP Units.

 

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(f)                The Company shall not issue, and shall not agree to issue (including pursuant to any security or other instrument convertible into or exercisable or exchangeable for) any class of equity securities other than its Class A Common Stock, Class B Common Stock or one or more series of Preferred Stock that the Company may determine to issue from time to time in accordance with, and subject to the limitations contained in, the Certificate and this Section 2.3(f). The Company shall not issue any shares of Preferred Stock unless (i) Holdings issues or agrees to issue, as the case may be, to the Company a number of units, with designations, preferences and other rights and terms that are substantially the same as such shares of Preferred Stock, equal to the number of such shares of Preferred Stock issued by the Company, and (ii) the Company transfers to Holdings the proceeds (net of any selling or underwriting discounts or commissions and other expenses) of the issuance of such Preferred Stock (and agrees to transfer to Holdings any amounts paid by the holders of securities or instruments exercisable or exchangeable therefor upon their exercise or exchange, if applicable, net of expenses).

 

(g)               For as long as this Agreement is in effect: (i) Holdings shall not, and the Company shall cause the General Partner to cause Holdings not to, at any time, issue LP Units except as required by this Agreement or the LP Agreement; and (ii) Holdings shall not, and the Company shall cause the General Partner to cause Holdings not to, at any time, issue LP Units to any Person other than the Company, the Continuing Investor Partnership, their respective Permitted Transferees, and, subject to the LP Agreement, HCRX EPA Holdings LLC.

 

(h)               If the Company makes a dividend or other distribution of Company stock on its Class A Common Stock, Holdings shall make a dividend or other distribution to the Holdings Unitholders holding Class B Units of an equivalent number of units of Holdings with designations, preferences and other rights and terms that are substantially the same as such distributed stock.

 

(i)                 If the Company makes a cash dividend on the Class A Common Stock not funded by a matching pro rata distribution by Holdings on the LP Units, then each Holdings Unitholder holding Class B Units shall be entitled to receive from Holdings a pro rata cash amount equal to what such Holdings Unitholders would have received in connection with such dividend assuming that such Holdings Unitholder held shares of Class A Common Stock on an fully as-converted basis (regardless, for these purposes, of any limitations on Exchanges otherwise set forth herein); provided, that no cash shall be paid to such Holdings Unitholders under this Section 2.3(i) to the extent that such cash dividend is funded with excess cash held by the Company that was accumulated because tax distributions made by Holdings to the Company exceed the Company’s actual tax liabilities.

 

(j)                 If the Company makes a distribution of property other than cash or Company stock on the Class A Common Stock that the Company has not received through a matching pro rata distribution of such property on LP Units by Holdings, then each Holdings Unitholder holding Class B Units shall be issued that number of Class B Units equal to its pro rata share of the aggregate value of such property as if such property had been paid to all holders of LP Units.

 

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(k)               For the avoidance of doubt, no Exchange will impair the right of an exchanging Holdings Unitholder to receive any distribution for periods ending on or prior to the Date of Exchange for such Exchange (but for which payment had not yet been made with respect to the Class B Units in question at the time the Exchange is consummated); provided that, for purposes of this Section 2.3(k), the exchanging Holdings Unitholder’s right to receive its pro rata portion of any distribution by Holdings in respect of such periods shall not be deemed impaired to the extent that Holdings has not paid the Company its pro rata portion of such distribution prior to the consummation of the applicable Exchange.

 

SECTION 2.4              Adjustment. Without limiting anything set forth in Section 2.3:

 

(a)               In the event there is any (i) Subdivision or Combination of the shares of Class B Common Stock or Class B Units that is not accompanied by an equivalent subdivision or combination of the Class A Common Stock; or (ii) Subdivision or Combination of the Class A Common Stock that is not accompanied by an equivalent subdivision or combination of the shares of Class B Common Stock and Class B Units, the Exchange Rate shall be adjusted accordingly.

 

(b)               If there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock is converted or changed into another security, securities or other property, then upon any subsequent Exchange, an exchanging Holdings Unitholder shall be entitled to receive the amount of such security, securities or other property that such exchanging Holdings Unitholder would have received if such Exchange had occurred immediately prior to the effective date of such reclassification, reorganization, recapitalization or other similar transaction, taking into account any adjustment as a result of any Subdivision or Combination of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction. For the avoidance of doubt, if there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock is converted or changed into another security, securities or other property, this Section 2.4(b) shall continue to be applicable, mutatis mutandis, with respect to such security or other property.

 

(c)               This Agreement shall apply to the Class B Units and shares of Class B Common Stock held by the Holdings Unitholder and their Permitted Transferees as of the date hereof, as well as any Class B Units and shares of Class B Common Stock hereafter acquired by a Holdings Unitholder, its Permitted Transferees, or HCRX EPA Holdings LLC and its Permitted Transferees. This Agreement shall apply to, mutatis mutandis, and all references to “Class B Units” or “Class B Common Stock” shall be deemed to include, any security, securities or other property of the Company or Holdings which may be issued in respect of, in exchange for or in substitution of shares of Class B Common Stock or Class B Units, as applicable, by reason of any distribution or dividend, split, reverse split, combination, reclassification, reorganization, recapitalization, merger, exchange (other than an Exchange) or other transaction.

 

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ARTICLE III 

 

SECTION 3.1              Representations and Warranties of the Company. The Company represents and warrants that (a) it is a corporation duly incorporated and is validly existing under the laws of the State of Delaware, (b) it has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby, including the issuance of Class A Common Stock in accordance with the terms hereof, (c) the execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby (including the issuance of the Class A Common Stock) have been duly authorized by all necessary corporate action on the part of the Company, (d) this Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally, and (e) the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate or the Bylaws of the Company, (ii) conflict with, result in a breach or violation of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any rights of termination, suspension, amendment, acceleration or cancellation, under any agreement, contract, commitment, instrument, undertaking, lease, note, mortgage, indenture, license or arrangement, whether written or oral, to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Company or by which any property or asset of the Company is bound or affected.

 

SECTION 3.2               Representations and Warranties of Conversion Subsidiary. The Conversion Subsidiary represents and warrants that (a) it is a corporation duly incorporated and is validly existing under the laws of the State of Delaware, (b) it has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby, (c) the execution and delivery of this Agreement by the Conversion Subsidiary and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Conversion Subsidiary, (d) this Agreement constitutes a legal, valid and binding obligation of the Conversion Subsidiary enforceable against the Conversion Subsidiary in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally, and (e) the execution, delivery and performance of this Agreement by the Conversion Subsidiary and the consummation by the Conversion Subsidiary of the transactions contemplated hereby will not (i) result in a violation of the Certificate or the Bylaws of the Conversion Subsidiary, (ii) conflict with, result in a breach or violation of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any rights of termination, suspension, amendment, acceleration or cancellation, under any agreement, contract, commitment, instrument, undertaking, lease, note, mortgage, indenture, license or arrangement, whether written or oral, to which the Conversion Subsidiary is a party or by which any property or asset of the Conversion Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to the Conversion Subsidiary or by which any property or asset of the Conversion Subsidiary is bound or affected.

 

SECTION 3.3              Representations and Warranties of Holdings. Holdings represents and warrants that (a) it is a limited partnership duly formed and is validly existing under the laws of the State of Delaware, (b) it has all requisite power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof, (c) the execution and delivery of this Agreement by Holdings and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary partnership action on the part of Holdings, (d) this Agreement constitutes a legal, valid and binding obligation of Holdings enforceable against Holdings in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally and (e) the execution, delivery and performance of this Agreement by Holdings and the consummation by Holdings of the transactions contemplated hereby will not (i) result in a violation of the LP Agreement, (ii) conflict with, result in a breach or violation of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any rights of termination, suspension, amendment, acceleration or cancellation, under any agreement, contract, commitment, instrument, undertaking, lease, note, mortgage, indenture, license or arrangement, whether written or oral, to which Holdings is a party or by which any property or asset of Holdings is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to Holdings or by which any property or asset of Holdings is bound or affected.

 

SECTION 3.4              Representations and Warranties of the Holdings Unitholders. Each Holdings Unitholder, severally and not jointly, represents and warrants that (a) if such Holdings Unitholder is not a natural person, it is duly formed and validly existing under the laws of the state of its formation, (b) it has all requisite power and authority (or, in the case of any Holdings Unitholder that is a natural person, the legal capacity) to enter into and perform this Agreement and to consummate the transactions contemplated hereby, (c) the execution and delivery of this Agreement by it and consummation of the transactions contemplated hereby have been duly authorized by all necessary entity or other action on the part of such Holdings Unitholder, (d) this Agreement constitutes a legal, valid and binding obligation of such Holdings Unitholder enforceable against it in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally, and (e) the execution, delivery and performance of this Agreement by such Holdings Unitholder and the consummation by such Holdings Unitholder of the transactions contemplated hereby will not (i) if such Holdings Unitholder is not a natural person, result in a violation of the certificate of incorporation and bylaws or other organizational documents of such Holdings Unitholder, (ii) conflict with, result in a breach or violation of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give rise to any rights of termination, suspension, amendment, acceleration or cancellation, under any agreement, contract, commitment, instrument, undertaking, lease, note, mortgage, indenture, license or arrangement, whether written or oral, to which such Holdings Unitholder is a party or by which any property or asset of such Holdings Unitholder is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree applicable to such Holdings Unitholder or by which any property or asset of such Holdings Unitholder is bound or affected.

 

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SECTION 3.5              Additional Holdings Unitholders. To the extent a Holdings Unitholder validly transfers any or all of such Class B Units (together with the corresponding number of shares of Class B Common Stock) to another Person in a transaction in accordance with, and not in contravention of, the LP Agreement, the partnership agreement of the Continuing Investor Partnership, or the Registration Rights Agreement, then such transferee (each, a “Permitted Transferee”) shall execute and deliver a joinder to this Agreement, substantially in the form of Exhibit B hereto, whereupon such Permitted Transferee shall become a Holdings Unitholder hereunder. To the extent Holdings issues Class B Units in the future (other than to the Company), then the holder of such Class B Units shall have the right to execute and deliver a joinder to this Agreement, substantially in the form of Exhibit B hereto, whereupon such holder shall become a Holdings Unitholder hereunder.

 

SECTION 3.6              Addresses and Notices. Any notice, request, demand, waiver, consent, approval or other communication that is required or permitted hereunder shall be in writing and shall be deemed given: (a) on the date established by the sender as having been delivered personally, (b) on the date delivered by a private courier as established by the sender by evidence obtained from the courier, (c) on the date sent by facsimile or e-mail, with confirmation of transmission, or (d) on the third Business Day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications, to be valid, must be addressed as follows:

 

(a)           If to the Company, to:

 

Healthcare Royalty, Inc.

300 Atlantic St., Suite 600

Stamford, Connecticut 06901

Attention:

Telephone:

Email:

 

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with a copy to:

 

Morgan, Lewis & Bockius LLP

1701 Market St.

Philadelphia, Pennsylvania 19103

Telephone: (215) 963-4947

Attention: Andrew R. Mariniello

Email: andrew.mariniello@morganlewis.com

 

If to Holdings, to:

 

Healthcare Royalty Holdings, L.P.

300 Atlantic St., Suite 600

Stamford, Connecticut 06901

Attention:

Telephone:

Email:

 

with a copy to:

 

Morgan, Lewis & Bockius LLP

1701 Market St.

Philadelphia, Pennsylvania 19103

Telephone: (215) 963-4947

Attention: Andrew R. Mariniello

Email: andrew.mariniello@morganlewis.com

 

(b)               If to any Holdings Unitholder, to the address and other contact information set forth in the records of Holdings from time to time.

 

The Company, the Conversion Subsidiary or Holdings may designate, by notice to all of the Holdings Unitholders, substitute addresses or addressees for notices; thereafter, notices are to be directed to those substitute addresses or addressees. Holdings Unitholders may designate, by notice to the Company, the Conversion Subsidiary and Holdings, substitute addresses or addressees for notices; thereafter, notices are to be directed to those substitute addresses or addressees.

 

SECTION 3.7              Further Assurances. The parties shall execute, deliver, acknowledge and file such further agreements and instruments and take such other actions as may be reasonably necessary from time to time to make effective this Agreement and the transactions contemplated herein.

 

SECTION 3.8              Termination. This Agreement shall terminate and be of no further force or effect when no Class B Units remain outstanding.

 

SECTION 3.9              No Third Party Beneficiaries. Except as set forth in Section 3.11, this Agreement will not confer any rights or remedies upon any Person other than the parties hereto and their respective successors and permitted assigns (including any Permitted Transferees that have executed a joinder to this Agreement).

 

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SECTION 3.10             Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms of such illegal, invalid or unenforceable provision as may be possible.

 

SECTION 3.11          Amendment; Waivers. This Agreement may not be amended, supplemented or modified except by an instrument in writing signed on behalf of the Company, the Conversion Subsidiary Holdings, the holders of a majority of the then outstanding Class B Units, and for so long as any of them holds any Class B Units, the Continuing Investor Partnership, and, in the case of the second sentence of Section 2.1(i), all of the Continuing Investors. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective, unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.

 

SECTION 3.12          Consent to Jurisdiction: Waiver of Jury Trial. Each party hereto irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (unless the Federal courts have exclusive jurisdiction over the matter, in which case the United Stated District for the District of Delaware) for the purposes of any Legal Proceeding arising out of this Agreement, the or the transactions contemplated hereby, and agrees to commence any such Legal Proceeding only in such courts. Each party hereto further agrees that service of any process, summons, notice or document by United States registered mail to such party’s respective address set forth herein shall be effective service of process for any such Legal Proceeding. Each party hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit, hearing, claim, lawsuit, litigation, investigation, arbitration or proceeding out of this Agreement or the transactions contemplated hereby in such courts, and hereby irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Legal Proceeding brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING OR COUNTERCLAIM (WHETHER AT LAW, IN EQUITY, BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF OR THEREOF.

 

SECTION 3.13          Tax Treatment. For purposes of the Code and the Treasury Regulations promulgated thereunder, this Agreement shall be treated as part of the LP Agreement as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations promulgated thereunder. An Exchange under this Agreement is intended to constitute a taxable sale pursuant to Section 1001 of the Code.

 

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SECTION 3.14          Specific Performance. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond or furnishing other security, and in addition to all other remedies that may be available, shall be entitled to equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available and no party shall oppose the granting of such relief on the basis that money damages would be sufficient.

 

SECTION 3.15          Governing Law. This Agreement and all legal actions (whether based on contract, tort, or statute) arising out of, relating to, or in connection with this Agreement or the actions of any of the parties hereto in the negotiation, administration, performance, or enforcement hereof, shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

 

SECTION 3.16          Counterparts. This Agreement may be executed in any number of counterparts, all of which will be one and the same agreement. For the avoidance of doubt, a Person’s execution and delivery of this Agreement by electronic signature and electronic transmission, including via DocuSign or other similar method, shall constitute the execution and delivery of a counterpart of this Agreement by or on behalf of such Person. This Agreement will become effective when each party to this Agreement will have received counterparts signed by all of the other parties.

 

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above.

 

  COMPANY:
   
  HEALTHCARE ROYALTY, INC.
   
  By:
    Name: Clarke B. Futch
    Title: Chairman & Chief Executive Officer

 

  CONVERSION SUBSIDIARY:
   
  HCRX CH, INC.
   
  By:
    Name: Clarke B. Futch
    Title: Chairman & Chief Executive Officer

 

  HOLDINGS:
   
  HEALTHCARE ROYALTY HOLDINGS, L.P.
   
  By: HCRX MASTER GP, LLC, its general partner
   
  By:
    Name: Clarke B. Futch
    Title: Chairman & Chief Executive Officer

 

  CONTINUING INVESTOR PARTNERSHIP:
   
  HCRX FEEDER FUND, L.P.
   
  By:
    Name:
    Title:

 

A-1 

 

 

EXHIBIT A

 

FORM OF
ELECTION OF EXCHANGE

 

Healthcare Royalty Holdings, L.P.

[Address 1]

[Address 2]

Attention:         [●]

 

Reference is hereby made to the Exchange Agreement, dated as of [●], 2021 (as amended from time to time in accordance with its terms, the “Exchange Agreement”), by and among Healthcare Royalty, Inc., a Delaware corporation (the “Company”), HCRX CH, Inc., a Delaware corporation (“HCRX CH”), Healthcare Royalty Holdings, L.P., a Delaware limited partnership (“Holdings”), HCRX Feeder Fund, L.P., a Delaware limited partnership and such other holders of Class B Units from time to time party thereto. Capitalized terms used but not defined herein shall have the meanings given to them in the Exchange Agreement.

 

Effective as of the Date of Exchange set forth below, the undersigned Holdings Unitholder hereby transfers to Holdings the number of Class B Units set forth below in Exchange for shares of Class A Common Stock to be issued in its name (or its designee’s name) as set forth below in accordance with the Exchange Agreement. The undersigned hereby acknowledges that the Exchange of Class B Units shall include the automatic cancellation of an equal number of outstanding shares of Class B Common Stock beneficially owned by the undersigned.

 

Legal Name of Holdings Unitholder:   

 

Address:  

 

Number of Class B Units to be Exchanged:   

 

Date of Exchange:  

 

Legal Name of Designee (if any):   

 

If the Holdings Unitholder (or its designee) desires the shares of Class A Common Stock be settled through the facilities of The Depositary Trust Company (“DTC”), please indicate the account of the DTC participant below.

 

 

 

If the Holdings Unitholder desires the shares of Class A Common Stock be settled through the delivery of certificates to the Holdings Unitholder or its designee, please indicate the following:

 

Legal Name for Certificates:  

 

Address for Delivery of Certificates:   

 

A-2 

 

 

The undersigned hereby represents and warrants that (i) the undersigned has all requisite power and authority (or, in case the undersigned is a natural person, the legal capacity) to execute and deliver this Election of Exchange and to perform the undersigned’s obligations hereunder; (ii) this Election of Exchange has been duly executed and delivered by the undersigned and is the legal, valid and binding obligation of the undersigned enforceable against it in accordance with the terms thereof or hereof, as the case may be, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and the availability of equitable remedies; (iii) assuming the valid issuance of the applicable Class B Units and shares of Class B Common Stock by Holdings and the Company, the undersigned has valid title to its Class B Units and shares of Class B Common Stock that are subject to this Election of Exchange, and such Class B Units and shares of Class B Common Stock are being transferred to Holdings free and clear of any Lien other than transfer restrictions by or under applicable securities laws, the Exchange Agreement, the Lock-Up Agreements (as defined in the Continuing Investor Partnership LPA), the Registration Rights Agreement (as defined in the Continuing Investor Partnership LPA), and if applicable, the Escrow Agreement (as defined in the Continuing Investor Partnership LPA); and (iv) no consent, approval, authorization, order, registration or qualification of, or any notice to or filing with, any third party or any court or governmental agency or body having jurisdiction over the undersigned or the Class B Units or shares of Class B Common Stock subject to this Election of Exchange is required to be obtained or made by the undersigned for the transfer of such Class B Units or shares of Class B Common Stock.

 

The undersigned hereby irrevocably constitutes and appoints any officer of the Company or Holdings, as applicable, as the attorney of the undersigned, with full power of substitution and resubstitution in the premises, solely to do any and all things and to take any and all actions necessary to effect the Exchange elected hereby, including to transfer to Holdings or the Company the Class B Units and the shares of Class B Common Stock subject to this Election of Exchange and to deliver to the undersigned the shares of Class A Common Stock to be delivered in Exchange therefor.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Election of Exchange to be executed and delivered by the undersigned or by its duly authorized attorney.

 

  By:  
    Name:
    Title:

 

A-3 

 

 

EXHIBIT B

 

[FORM OF]
JOINDER AGREEMENT

 

This Joinder Agreement (“Joinder Agreement”) is a joinder to the Exchange Agreement, dated as of [●], 2021 (the “Agreement”), by and among Healthcare Royalty, Inc., a Delaware corporation (the “Company”), HCRX CH, Inc., a Delaware corporation (“HCRX CH”), Healthcare Royalty Holdings, L.P., a Delaware limited partnership (“Holdings”), HCRX Feeder Fund, L.P., a Delaware limited partnership, and such other holders of Class B Units from time to time party thereto. Capitalized terms used but not defined in this Joinder Agreement shall have the meanings given to them in the Agreement. This Joinder Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. In the event of any conflict between this Joinder Agreement and the Agreement, the terms of this Joinder Agreement shall control.

 

The undersigned hereby joins and enters into the Agreement having acquired Class B Units. By signing and returning this Joinder Agreement to the Company and Holdings, the undersigned (i) accepts and agrees to be bound by and subject to all of the terms and conditions of and agreements of a Holdings Unitholder in the Agreement, with all attendant rights, duties and obligations of a Holdings Unitholder thereunder and (ii) makes, as of the date hereof, each of the representations and warranties of a Holdings Unitholder in Section 3.4 of the Agreement as fully as if such representations and warranties were set forth herein. The parties to the Agreement shall treat the execution and delivery hereof by the undersigned as the execution and delivery of the Agreement by the undersigned and, upon receipt of this Joinder Agreement by the Company and Holdings, the signature of the undersigned set forth below shall constitute a counterpart signature to the signature page of the Agreement.

 

Name:   

 

Address for Notices:   With copies to:
     
     
     
     
     
     
     
Attention:       

 

B-1 

 

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Joinder Agreement to be executed and delivered by the undersigned or by its duly authorized attorney.

 

  By:  
    Name:
    Title:

 

Acknowledged as of,                 ,20 :

 

HEALTHCARE ROYALTY, INC.  
   
   
By:    
  Name:  
  Title:  

 

[HOLDINGS UNITHOLDER]  
   
By:    
  Name:  
  Title:  

 

B-1 

 

EX-10.7 10 tm2113163d7_ex10-7.htm EXHIBIT 10.7

 

Exhibit 10.7

 

FORM OF LEGACY MANAGEMENT AGREEMENT1

 

THIS MANAGEMENT AGREEMENT (the “Agreement”) is made as of [DATE] by and among [LEGACY HCR PARTNERSHIP]., a limited partnership organized under the laws of the State of Delaware (the “Partnership”), [LEGACY GENERAL PARTNER], a limited liability company organized under the laws of the State of Delaware (the “General Partner”), and HealthCare Royalty Management, LLC, a limited liability company organized under the laws of the State of Delaware (the “Management Company”).

 

The parties hereto hereby agree as follows:

 

1.            Definitions. Terms defined in the Amended and Restated Limited Partnership Agreement of the Partnership (as amended from time to time, the “Partnership Agreement”) and not otherwise defined herein are used herein with the meanings so defined in the Partnership Agreement.

 

2.            Appointment of the Management Company; Services. The General Partner, pursuant to Section 5.2(a) of the Partnership Agreement, hereby appoints the Management Company to assist the General Partner in the performance of the investment advisory duties and responsibilities of the General Partner as the general partner of the Partnership in accordance with the Partnership Agreement, which may include, without limitation, (a) sourcing, identifying and evaluating prospective Portfolio Investments, (b) structuring and negotiating the acquisition and disposition of Portfolio Investments on behalf of the Partnership, (c) monitoring Portfolio Investments and (d) performing the day-to-day investment and administrative operations of the Partnership. Pursuant to Section 17-403 of the Delaware Act, such delegation of authority to the Management Company shall not cause the Management Company to be a general partner of the Partnership and shall not cause the General Partner to cease to be a general partner of the Partnership.

 

The Management Company shall perform its obligations under this Agreement in a diligent and timely manner that complies with the terms and conditions set forth in the Partnership Agreement. The Management Company may, in its reasonable discretion, subject to the Partnership Agreement, retain other professionals, including, but not limited to, accountants, lawyers, consultants and other service providers to assist it in rendering services to the Partnership pursuant to this Agreement.

 

3.            Status of the Management Company. The Management Company shall for all purposes be an independent contractor and not an agent or employee of the Partnership. The Management Company shall have no authority to act for, represent, bind or obligate the Partnership except as specifically permitted by this Agreement and the Partnership Agreement.

 

4.            Expenses. The Management Company shall not be required to pay (and if paid by the Management Company, the Management Company shall be reimbursed by the Partnership for payments of) any fees and expenses related to the business of the Partnership that are described as expenses to be borne by the Partnerships in Sections 5.3(b) and 5.3(c) of the Partnership Agreement. The Management Company shall not be entitled to reimbursement from the Partnership for any expenses that are specified as expenses to be borne by the General Partner or the Management Company pursuant to Section 5.3(a) of the Partnership Agreement and the Management Company shall pay, or, if such expenses are borne by the General Partner, reimburse the General Partner for, any such expenses.

 

 

1 Each Legacy HCR Partnership and the general partner thereof is party to an individual management agreement with the Legacy Manager on this form with substantially the same terms.

 

 

 

5.            Payments to be Made by the Partnership. As full compensation for the services rendered by the Management Company pursuant to the terms of this Agreement, the Management Company shall receive the Management Fee as set forth in Section 5.2(b) of the Partnership Agreement (either directly from the Partnership or from the General Partner, as determined by the General Partner in its sole discretion), all such fees to be payable in accordance with the terms of the Partnership Agreement.

 

6.            Liability and Indemnification.

 

(a)            The Management Company, each partner, member, stockholder, officer, director, manager, trustee, employee and agent of the Management Company, and each Affiliate of any of the foregoing shall each be a Covered Person for purposes of the Partnership Agreement. The Partnership agrees to hold harmless and indemnify each such Covered Person as set forth in the Partnership Agreement.

 

(b)            The provisions of this Section 6 shall survive the expiration or earlier termination of this Agreement.

 

7.            Effective Period. This Agreement shall become effective upon its execution, and shall remain in effect until the Partnership is dissolved pursuant to the terms of the Partnership Agreement; provided, however, that this Agreement shall terminate immediately in the event that the General Partner is no longer [NAME OF GENERAL PARTNER] or any other Affiliate of Cowen Group or the Principal (and Cowen Group and the Principal no longer have any direct or indirect ownership interest in, or control rights over, the General Partner). In the event of such immediate termination, all accrued and unpaid Management Fees and expenses to which the Management Company is entitled pursuant to the Partnership Agreement shall be paid to the Management Company either directly from the Partnership or from the General Partner, if the Partnership has already paid such Management Fees and expenses to the General Partner. Upon termination of this Agreement, the Management Company shall pay over to the Partnership all moneys collected and held for their account, net of any amounts owed to the Management Company. The right of the Management Company to payment of said amounts shall be subject to the right of offset with respect to any claim for damages (as determined by a court of competent jurisdiction) which the Partnership or any Partner has against the Management Company.

 

8.            Amendments; Waivers. This Agreement may be altered or amended, and any

 

provisions hereof may be waived, only upon the written approval of the Management Company and the Partnership; provided, however, that the Partnership shall not grant any such approval if it would cause this Agreement to be in violation of the Partnership Agreement.

 

2

 

 

9.            Notices. All notices, requests, consents, approvals, statements and other communications hereunder shall be in writing and, if properly addressed to the recipient, shall be deemed given if: (a) delivered personally to the recipient; (b) sent by electronic facsimile transmission or other electronic means; (c) delivered by a reputable overnight courier service; or (d) mailed by first class mail (or if sent from outside the United States, by airmail), postage prepaid, addressed as provided below, or to such other address as such party may designate from time to time by written notice. Notices shall be deemed received and effective: (i) on the same day given, if delivered personally or sent by facsimile or other electronic means before 5:00 PM New York time on any Business Day, otherwise on the next Business Day; (ii) on the next Business Day after being sent by overnight courier service; and (iii) three (3) Business Days after being sent by mail. The provisions of this Section 9 shall not prohibit the giving of written notice in any other manner; provided that any such written notice shall be deemed given only when actually received.

 

If to the Management Company, to it at:

 

HealthCare Royalty Management, LLC
300 Atlantic Street, Suite 600 

Stamford, CT 06901 

Attention: Clarke B. Futch

 

If to the Partnership or the General Partner, to it at:

 

[NAME OF GENERAL PARTNER]
300 Atlantic Street, Suite 600
Stamford, CT 06901 

Attention: Clarke B. Futch

 

10.            Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. This Agreement may be assigned (as that term is defined in the Investment Advisers Act of 1940, as amended) with the consent of (a) the General Partner and (b) the LP Advisory Committee or a Majority of the [INVESTORS IN LEGACY HCR PARTNERSHIP].

 

11.            Headings. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of this Agreement or control or affect the meaning hereof.

 

12.            Counterparts. This Agreement may be executed in more than one counterpart with the same effect as if the parties executing the several counterparts had all executed one counterpart.

 

13.            Entire Agreement. This Agreement supersedes any and all oral or written agreements heretofore made relating to the subject matter hereof and constitutes the entire agreement of the parties relating to the subject matter hereof.

 

14.            Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any conflict or choice of law provisions that would make applicable the domestic substantive law of any other jurisdiction.

 

3

 

  

15.            Severability. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be held contrary to express law or against public policy, or shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remainder of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement.

 

16.            No Waiver. Notwithstanding any provision of this Agreement to the contrary, the provisions of this Agreement shall not be construed so as to constitute a waiver of any legal right under applicable U.S. federal securities laws or any other laws whose applicability is not permitted to be contractually waived (including without limitation the right to choose the forum, whether by arbitration or adjudication, in which to seek resolution of disputes).

 

17.            Assignment. Notwithstanding any provision of this Agreement to the contrary, no assignment, as that term is defined in the Investment Advisers Act of 1940, as amended, of this Agreement shall be made by the Management Company without the written consent of the Partnership.

 

[Signature Page Follows]

 

 

 

IN WITNESS WHEREOF, the undersigned parties hereto, by their duly authorized representatives, have executed this Agreement as of the date first above written.

 

  [LEGACY HCR PARTNERSHIP]
   
  By: [GENERAL PARTNER], its general partner
   
   
  Name:
  Title:
   
  [GENERAL PARTNER]
   
   
  Name:
  Title:
   
  HEALTHCARE ROYALTY MANAGEMENT, LLC
   
   
  Name:
  Title:

 

 

EX-10.8 11 tm2113163d7_ex10-8.htm EXHIBIT 10.8

 

EXHIBIT 10.8 

 

EXECUTION VERSION

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

ASSET PURCHASE AGREEMENT

 

between

 

HARRIS FRC ACQUISITION, LP

 

(as Purchaser)

 

and

 

HARRIS FRC CORPORATION

 

(as Seller)

 

Dated as of July 7, 2020

 

 

 

 

TABLE OF CONTENTS

 
  Page
   
ARTICLE I PURCHASE AND SALE OF ASSETS; TRANSACTION TAXES 1
     
  1.1 Transfer of Purchased Assets 1
     
  1.2 Excluded Assets 2
     
  1.3 Further Assurances 3
     
  1.4 Transaction Taxes 3
     
  1.5 Defined Terms 3
     
ARTICLE II LIABILITIES 3
     
  2.1 Liabilities Being Assumed 3
     
  2.2 Liabilities Not Being Assumed 4
     
ARTICLE III PURCHASE PRICE 5
     
  3.1 Purchase Price 5
     
  3.2 Allocation of Purchase Price 5
     
  3.3 Escrow 6
     
ARTICLE IV CLOSING 7
     
  4.1 Closing 7
     
ARTICLE V REPRESENTATIONS AND WARRANTIES OF HARRIS FRC 7
     
  5.1 Organization; Good Standing; Qualification and Power 7
     
  5.2 Authority; Noncontravention; Consents; Capitalization 8
     
  5.3 Title to Purchased Assets; Sufficiency of Assets 9
     
  5.4 Transferred Intellectual Property 9
     
  5.5 Agreements, No Defaults, Etc 10
     
  5.6 Litigation, Etc 11
     
  5.7 Compliance 11
     
  5.8 Taxes 12
     
  5.9 Brokers 12
     
  5.10 Bankruptcy, Etc 12
     
  5.11 . Absence of Changes 12
     
  5.12 Foreign Corrupt Practices Act 13
     
  5.13 OFAC and September 24, 2001 Executive Order 14
     
  5.14 Employees 14
       
  5.15 No Other Representations and Warranties 15
       
  5.16 Solvency 15

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

-i-

 

 

ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER 15
     
  6.1 Organization; Good Standing 15
     
  6.2 Authority; Noncontravention; Consents 15
     
  6.3 Brokers 16
     
  6.4 Litigation, Etc 16
     
  6.5 Solvency 16
     
  6.6 Sufficiency of Funds 17
     
  6.7 Independent Investigation 17
     
ARTICLE VII CONDUCT AND TRANSACTIONS BEFORE AND AT CLOSING 17
     
  7.1 Conduct of Business Prior to Closing 17
     
  7.2 Access to Information 18
     
  7.3 Efforts to Complete 18
     
  7.4 Supplement to Schedules 18
     
  7.5 Exclusivity 18
     
  7.6 Government Approvals and Consents 19
     
  7.7 Shareholder Meeting 19
     
ARTICLE VIII CLOSING CONDITIONS 19
     
  8.1 Conditions to the Obligations of Both Parties 19
     
  8.2 Conditions to the Obligations of Purchaser 20
     
  8.3 Conditions to the Obligations of Harris FRC 21
     
ARTICLE IX INDEMNIFICATION 22
     
  9.1 Indemnification Generally; Etc 22
     
  9.2 Assertion of Claims 23
     
  9.3 Notice and Defense of Third Person Claims 23
     
  9.4 Survival of Representations and Warranties and Covenants 25
     
  9.5 Limitations on Indemnification 26
     
  9.6 [*] 27
     
ARTICLE X POST-CLOSING COVENANTS 27
     
  10.1 Transfer of Purchased Assets 27
     
  10.2 Publicity 27
     
  10.3 Confidentiality 28
     
  10.4 Consulting Agreement 28

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

ii

 

 

ARTICLE XI TERMINATION 28
     
  11.1 Termination 28
     
  11.2 Termination Procedures 29
     
  11.3 Effect of Termination 29
     
ARTICLE XII MISCELLANEOUS PROVISIONS 29
     
  12.1 No Third Party Beneficiaries 29
     
  12.2 Entire Agreement 29
     
  12.3 Successors and Assigns 29
     
  12.4 Amendment; Waiver 30
     
  12.5 Fees and Expenses 30
     
  12.6 Notices 30
     
  12.7 Governing Law; Jurisdiction and Venue; Waiver of Jury Trial 31
     
  12.8 Specific Performance 33
     
  12.9 Interpretation; Construction 33
     
  12.10 Incorporation of Exhibits, Schedules and Annexes 34
     
  12.11 Independence of Covenants and Representations and Warranties 34
     
  12.12 Severability 34
     
  12.13 Counterparts; Electronic Signatures 34
     
  12.14 Conflict Waiver 35

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

iii

 

 

ANNEX, EXHIBITS AND SCHEDULES

 

ANNEX  
   
Annex I Certain Definitions
   
EXHIBITS  
   
Exhibit A Bill of Sale, Assignment and Assumption Agreement
Exhibit B Intellectual Property Assignments
Exhibit C Consulting Agreement
Exhibit D FIRPTA Certificate
   
SCHEDULES  
   
Schedule 1.1(f)* Litigation Agreements
Schedule 1.1(g)* Assigned Trademarks
Schedule 3.2* Revenue by Country
Schedule 5.1 Foreign Qualifications
Schedule 5.2(c) Harris FRC Authority; Noncontravention; Consents
Schedule 5.2(d)* Capitalization
Schedule 5.4(a)* Intellectual Property Matters
Schedule 5.4(b) Intellectual Property Protections
Schedule 5.5(a) Agreements
Schedule 5.5(b)* No Defaults
Schedule 5.5(c)* Royalties
Schedule 5.5(d)* Correspondence, Reports, Notices, Etc.
Schedule 5.5(e)* Royalties, Etc., Received and Paid
Schedule 5.6* Litigation, Etc.
Schedule 5.8 Taxes
Schedule 5.9 Brokers
Schedule 5.11 Absence of Changes
Schedule 5.14(a)* Business Employees
Schedule 5.14(b) Employee Benefit Plans
Schedule 6.2 Purchaser Authority; Noncontravention; Consents
*Schedules have been omitted in reliance upon Item 601(a)(5) of Regulation S-K.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

iv

 

 

Index of Defined Terms

 

The following capitalized terms, which may be used in more than one Section or other location of this Agreement, are defined in the following Sections or other locations:

 

TERM LOCATION
   
Affiliate Annex I
Agreement 12.9(a)
Allocation 3.2(a)
Amendment Agreement 1.1(e)
Another Transaction Annex I
Assigned Contracts 1.1(f)
Assigned Trademarks 1.1(g)
Assumed Liabilities 2.1
Back Royalties 1.1(j)
Base Purchase Price 3.1(a)
Business Annex I
Business Day Annex I
Business Employees 5.14(a)
Cap 9.5(a)(ii)
Cash Payment 3.1(a)
CLM 12.14
Closing 4.1
Closing Date 4.1
Code Annex I
Confidentiality Agreement 10.3
Confidential Information 10.3
Contemplated Transactions Annex I
Contract Annex I
Control Annex I
Development Agreement 1.1(b)
Employee Benefit Plan Annex I
Encumbrances Annex I
Environmental, Health and Safety Laws Annex I
ERISA Annex I
ERISA Affiliate Annex I
Escrow Amount Annex I
Escrow Agent Annex I
Escrow Agreement Annex I
Escrow Income 3.3(b)
Excluded Assets 1.2
Excluded Liabilities 2.2
Expense Reimbursement Amount Annex I
FDA Annex I
Fraud Annex I

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

v

 

 

Final Allocation 3.2(a)
Fundamental Documents Annex I
Fundamental Representations Annex I
GAAP Annex I
Governmental Entity Annex I
Harris FRC Caption
Harris FRC Indemnified Persons Annex I
Harris FRC Indemnifying Persons Annex I
Harris FRC Losses Annex I
Harris-Paid Q1 RCT Royalties 2.2(b)
Harris-Received Q1 UCB Royalties 1.2
Hazardous Materials Annex I
HSR Act Annex I
Indemnification Claim 3.3(b)(i)
Indemnified Persons Annex I
Indemnifying Persons Annex I
Independent Accounting Firm 3.2(a)
Intellectual Property Rights Annex I
Know-How Annex I
Knowledge Annex I
Law Annex I
Liability Annex I
Litigation Agreements 1.1(f)
Litigation Expense Annex I
Long-Stop Date 11.1(b)
Losses Annex I
Material Adverse Change Annex I
Orders Annex I
OFAC 5.13
Parties Caption
Patents Annex I
Permits Annex I
Permitted Encumbrances Annex I
Person Annex I
Pre-Closing Period 7.1
Proceedings Annex I
Product Preamble
Purchase Price 3.1(a)
Purchased Assets 1.1
Purchased Claims 1.1(j)
Purchaser Caption
Purchaser Indemnified Persons Annex I
Purchaser Indemnifying Persons Annex I
Purchaser Losses Annex I
Qualifying Unilateral Settlement 9.3(f)
Q1 Royalty Adjustment 3.1(b)

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

-vi-

 

 

RCT 1.1(a)
RCT License Agreement 1.1(a)
Related Documents 8.2(d)
Release Date 3.3(b)(iii)
Representatives Annex I
Requisite Shareholder Approval Annex I
Schedule Supplement 7.4
Shareholder Claims Annex I
Shareholder/Purchaser Claim 9.3(b)
Survival Date 9.4(c)
Tax or Taxes Annex I
Tax Return Annex I
Taxing Authority Annex I
Third Person Claim 9.3
Threshold 9.5(a)(i)
Trademark Agreement 1.1(d)
Trademarks Annex I
Trade Names Annex I
Transaction Taxes 1.4
Transferred Intellectual Property 1.1(g)
UCB 1.1(b)
UCB License Agreement 1.1(c)
UCBSA 1.1(b)

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

-vii-

 

 

 

ASSET PURCHASE AGREEMENT, dated as of July 7, 2020, between Harris FRC Acquisition, LP, a Delaware limited partnership (“Purchaser”), and HARRIS FRC CORPORATION, a New Jersey corporation (“Harris FRC,” and, together with Purchaser, the “Parties”).

 

PREAMBLE

 

Harris FRC possesses intellectual property and other rights relating to the chemical compound called lacosamide, which is commercially available under the trade name Vimpat (the “Product”), and is engaged in the business of collecting and paying royalties related to those rights and maintaining and enforcing related Contracts.

 

Purchaser wants to acquire from Harris FRC, and Harris FRC wants to sell to Purchaser, those intellectual property rights to the Product and certain related Contracts and assets on the terms and conditions set out in this Agreement.

 

Two shareholders of Harris FRC, Mary Ellen Harris and the Marital Trust under the Robert H. Harris Living Trust, have entered into a Support Agreement with Purchaser, dated as of the date of this Agreement, in which each of them agreed to, among other things, vote all of their shares of Harris FRC in favor of the transactions contemplated by this Agreement.

 

ACCORDINGLY, Harris FRC and Purchaser hereby agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE OF ASSETS; TRANSACTION TAXES

 

1.1          Transfer of Purchased Assets.

 

On the terms and subject to the conditions contained in this Agreement, at the Closing, Harris FRC shall sell, transfer, convey and assign to Purchaser, free and clear of all Encumbrances, and Purchaser shall purchase and acquire from Harris FRC, all of Harris FRC’s right, title and interest in, to and under all of the following Contracts, assets, properties, interests in properties and rights, whether tangible or intangible and whether real, personal or mixed, as the same exist immediately before the Closing, but excluding the Excluded Assets (collectively, the “Purchased Assets”):

 

(a)       the Second Amended and Restated License Agreement, dated December 17, 2010 (as amended, the “RCT License Agreement”), between Harris FRC and Research Corporation Technologies, Inc. (“RCT”);

 

(b)       the Development Agreement, dated December 20, 1999 (as amended, the “Development Agreement”), between Harris FRC, UCB Pharma GmbH (“UCB”) and UCB, S.A. (“UCBSA”);

 

(c)       the License Agreement, dated December 20, 1999 (as amended, the “UCB License Agreement”), between Harris FRC, UCB and UCBSA, including the right to receive royalty payments from UCB under the UCB License Agreement in respect of sales of the Product for the period beginning on April 1, 2020;

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(d)       the Trademark License Agreement, dated December 20, 1999 (as amended, the “Trademark Agreement”), between Harris FRC, UCB and UCBSA, including the right to receive royalty payments from UCB under the Trademark License Agreement in respect of sales of the Product for the period beginning on April 1, 2020;

 

(e)       the Amendment Agreement to the Trademark License Agreement, dated July 15, 2019 (as amended, the “Amendment Agreement”), between Harris FRC, UCBSA and UCB Biopharma SPRL, including the right to receive royalty payments from UCB under the Amendment Agreement in respect of sales of the Product for the period beginning on April 1, 2020;

 

(f)        all Contracts set out on Schedule 1.1(f) (the “Litigation Agreements” and, together with the RCT License Agreement, the Development Agreement, the UCB License Agreement, the Trademark License Agreement and the Amendment Agreement, the “Assigned Contracts”);

 

(g)       all rights in and to the Trademarks described in Schedule 1.1(g) (the “Assigned Trademarks”) and all Know-How related to the Product or the Business (collectively, the “Transferred Intellectual Property”);

 

(h)       all books, records and files related primarily to the Product or the Assigned Contracts, or portion thereof, in the control of Harris FRC, including (i) all data in all databases for all clinical and pre-clinical studies for all drug trials undertaken in connection with the Product, (ii) all Transferred Intellectual Property files, file histories and other technical documents and correspondence, and (iii) all business information, tangible or intangible, to the extent relating to the Product or the Business;

 

(i)        all goodwill of Harris FRC related to the Assigned Trademarks or other Purchased Assets; and

 

(j)        all of Harris FRC’s rights, claims, counterclaims, credits, causes of action or rights of set-off against third Persons that relate primarily to the Purchased Assets (“Purchased Claims”), liquidated or unliquidated, including (i) claims for past infringement or misappropriation of the Transferred Intellectual Property and (ii) claims against UCB related to the calculation of royalty payments for any period, including past royalty payments, under the UCB License Agreement (“Back Royalties”).

 

1.2          Excluded Assets.

  

Purchaser shall not purchase or acquire from Harris FRC, and Harris FRC shall not sell, transfer, convey or assign to Purchaser, any right, title or interest in, to and under any Contracts, assets, properties, interests in properties or rights (whether real, personal or mixed, tangible or intangible) other than the Purchased Assets, including any royalties or other amounts actually received by Harris FRC before the Closing under any Assigned Contract in respect of sales of the Product for the period ending March 31, 2020 (“Harris-Received Q1 UCB Royalties”), but excluding Back Royalties (collectively, the “Excluded Assets”).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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1.3       Further Assurances.

 

Harris FRC shall, from time to time after the Closing, upon the request of Purchaser, do, execute, acknowledge and deliver, and cause to be done, executed, acknowledged or delivered, all such further acts, documents, instruments, deeds, assignments, transfers, conveyances or assurances as Purchaser may reasonably request to carry out the provisions of this Agreement and to complete the Contemplated Transactions, including to transfer, assign, convey and grant to, and confirm ownership in, Purchaser, or to aid and assist in the reducing to possession by Purchaser of the Purchased Assets, or to vest in Purchaser good and marketable title to the Purchased Assets. If any of the Purchased Assets are not by their respective terms assignable, Harris FRC shall use its reasonable best efforts to obtain, or cause to be obtained, prior to the Closing, any written consents necessary to convey to Purchaser the benefit thereof. To the extent that any such consents cannot be obtained prior to the Closing, the assignment of the affected Purchased Assets shall not occur at Closing but shall be deferred until Harris FRC and Purchaser have obtained the required consent. Harris FRC will continue to use its reasonable best efforts after the Closing to take such actions as may be possible without violation or breach of any such non-assignable Purchased Assets to effectively provide Purchaser with the economic benefits of those non-assignable Purchased Assets. Once any such consent has been obtained, Harris FRC shall assign the Purchased Asset(s) to which that consent relates for no additional consideration.

 

1.4       Transaction Taxes.

 

Purchaser shall pay any sales, use, transfer, value added, license, documentary, recording, stamp or similar Taxes imposed (other than income or similar Taxes) on the sale, transfer or conveyance of the Purchased Assets to Purchaser (the “Transaction Taxes”). Harris FRC and Purchaser shall coordinate with each other on the filing of any forms required in connection with any Transaction Taxes. Harris FRC shall cooperate with Purchaser to minimize the amount of any Transaction Taxes imposed in connection with the sale of the Purchased Assets to Purchaser.

 

1.5       Defined Terms.

 

Certain capitalized terms used in this Agreement are defined in Annex I attached hereto.

 

ARTICLE II

 

LIABILITIES

 

2.1       Liabilities Being Assumed.

 

On the terms and subject to the conditions contained in this Agreement, effective as of the Closing, and from and after the Closing, except as otherwise set out in this Section 2.1, Purchaser shall pay or assume, perform and discharge when due, the following Liabilities of Harris FRC (collectively, the “Assumed Liabilities”).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(a)       all Liabilities relating to or arising out of the ownership of the Transferred Intellectual Property accruing after the Closing Date;

 

(b)       all Liabilities accruing after the Closing Date under each Assigned Contract in accordance with the provisions of that Assigned Contract, and all Liabilities (regardless of when accruing) to pay royalties to RCT under the RCT License Agreement in accordance with the provisions of the RCT License Agreement in respect of sales of the Product for any period beginning on or after April 1, 2020;

 

(c)       any Liabilities, including royalty payments that may become due to RCT under the RCT License Agreement, arising in respect of any Purchased Claims;

 

(d)       any Liabilities accruing after the Closing Date arising out of any claim, irrespective of the legal theory asserted, related to (i) the Assigned Contracts or (ii) the ownership, licensing, possession or use by or on behalf of Purchaser of the Purchased Assets from and after the Closing, including claims for infringement of Intellectual Property Rights; and

 

(e)       any Liabilities accruing after the Closing Date related to Taxes payable in connection with the ownership, licensing, possession, enjoyment or use of the Purchased Assets by Purchaser after the Closing.

 

2.2       Liabilities Not Being Assumed.

 

Purchaser is not assuming and shall not be obligated to pay, perform and discharge when due or satisfy, and Harris FRC shall retain and remain responsible for, any Liabilities of Harris FRC other than the Assumed Liabilities (collectively, the “Excluded Liabilities”), including the following:

 

(a)       any Liabilities relating to or arising out of the ownership of the Transferred Intellectual Property accruing on or before the Closing Date;

 

(b)       any Liabilities accruing under any Assigned Contract on or before the Closing Date, including all royalties and other amounts actually paid by Harris FRC to RCT before the Closing under the RCT License Agreement in respect of sales of the Product for the period beginning on January 1, 2020 and ending on March 31, 2020 (“Harris-Paid Q1 RCT Royalties”) but excluding all Liabilities to pay royalties to RCT under the RCT License Agreement in respect of sales of the Product for any period beginning on or after April 1, 2020 or in respect of Back Royalties;

 

(c)       any Liabilities arising out of any claim, irrespective of the legal theory asserted, related to (i) the Assigned Contracts or (ii) the ownership, licensing, possession or use of the Purchased Assets by or on behalf of Harris FRC, including claims for infringement of Intellectual Property Rights, in each case, on or before the Closing Date, but excluding all Liabilities to pay royalties to RCT under the RCT License Agreement in respect of sales of the Product for any period beginning on or after April 1, 2020 with respect of Back Royalties;

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(d)       (i) all Taxes of Harris FRC and (ii) all Taxes of any other Person for which Harris FRC may be liable (A) as a result of being a member of any affiliated, consolidated, combined, unitary or similar Tax group at any time prior to the Closing or (B) as a transferee or successor, by operation of Law or otherwise, as a result of a merger, reorganization or other transaction occurring prior to the Closing or any Contract entered into prior to the Closing. For the avoidance of doubt, Excluded Liabilities shall include any Tax for which Purchaser may become liable as a result of the Parties’ failure to comply with any bulk sales, successor or transferee liability or similar provisions relating to Taxes in connection with the purchase of the Purchased Assets;

 

(e)       any Liabilities with respect to any Employee Benefit Plan that Harris FRC or any Affiliate of Harris FRC maintains, contributes to, has an obligation to contribute to or otherwise has any Liability with respect thereto;

 

(f)       any Liabilities relating to or arising out of the employment or service with Harris FRC, or termination of employment or service with Harris FRC, of any employee, former employee, director, officer, consultant or advisor of the Harris FRC;

 

(g)any Liabilities relating to Excluded Assets; and

 

(h)any Liabilities arising out of, related to or in connection with any Shareholder Claims.

 

ARTICLE III

 

PURCHASE PRICE

 

3.1           Purchase Price.

 

(a)      The purchase price for the Purchased Assets is [*], less the Q1 Royalty Adjustment (the “Base Purchase Price”), plus the assumption by Purchaser of the Assumed Liabilities (collectively, the “Purchase Price”). At the Closing, Purchaser shall pay to Harris FRC an amount (the “Cash Payment”) equal to (i) the Base Purchase Price, less (ii) the Escrow Amount, less (iii) the Expense Reimbursement Amount, by wire transfer of immediately available United States dollars to an account designated by Harris FRC.

 

(b)      The “Q1 Royalty Adjustment” means an amount equal to the Harris-Received Q1 UCB Royalties less the Harris-Paid Q1 RCT Royalties.

 

3.2          Allocation of Purchase Price.

 

(a)      The Purchase Price (and other items treated as consideration for the Purchased Assets for U.S. federal income Tax purposes) shall be allocated in accordance with the requirements of Section 1060 of the Code and the Treasury Regulations promulgated thereunder (the “Allocation”). Purchaser shall prepare and deliver a draft purchase price allocation to Harris FRC within 180 days after the Closing Date, which shall be subject to the consent of Harris FRC and which shall, to the extent relevant and consistent with applicable Law, be consistent with the revenue by country information attached hereto as Schedule 3.2. The Parties shall cooperate to resolve any disagreements regarding the Allocation within 60 days after delivery of that draft. Any disagreement the Parties are unable to resolve within such 60-day period, shall be resolved by PricewaterhouseCoopers (the “Independent Accounting Firm”). The Allocation, as finalized by agreement of the Parties or by the Independent Accounting Firm, is called the “Final Allocation.” Unless otherwise required by Law, none of the Parties or any of their Affiliates shall take any position inconsistent with the Final Allocation on any Tax Return (including IRS Form 8594) or for any other U.S. federal, state, local or non-U.S. income Tax purpose.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)      All indemnification payments made under Article IX shall be treated by the Parties and their respective Affiliates as an adjustment to the Purchase Price for all applicable income tax purposes, unless otherwise required by applicable Law.

 

(c)      Purchaser shall be entitled to deduct and withhold from the Purchase Price or any other amounts payable to Harris FRC hereunder, any amounts required to be deducted and withheld under the Code or any provisions of applicable U.S. state, local or non-U.S. Tax Law. Any amounts so deducted and withheld shall be treated for all purposes of this Agreement as having been paid to Harris FRC.

 

3.3          Escrow.

 

(a)      At the Closing, Purchaser shall deposit the Escrow Amount with the Escrow Agent to be held in accordance with the terms of this Agreement and the Escrow Agreement. The Escrow Amount shall be available to satisfy Harris FRC’s indemnification obligations pursuant to and in accordance with the provisions of Article IX and this Section 3.3.

 

(b)      The interest and proceeds earned on the Escrow Amount are called the “Escrow Income,” and shall accrue to and become part of the Escrow Amount. The Escrow Agent shall pay the Escrow Amount as follows:

 

(i)      from time to time, to the Purchaser upon joint instructions of the Purchaser and Harris FRC, for indemnification under Article IX (each claim by a Purchaser Indemnified Person for indemnification, an “Indemnification Claim”);

 

(ii)      annually, within 60 days after the end of each calendar year, to Harris FRC, an amount equal to 40% of the Escrow Income that constitutes taxable income for United States Federal income Tax purposes for that calendar year;

 

(iii)      on the date that is 12 months after the Closing Date (the “Release Date”), to Harris FRC, an amount, if greater than zero, equal to any remaining balance of the Escrow Amount minus the amount of any Indemnification Claim that has been asserted by the Purchaser but not satisfied; and

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(iv)      from time to time after the Release Date, to the Purchaser or Harris FRC as any Indemnification Claims that were unsatisfied on the Release Date are resolved.

 

(c)      The Escrow Income that constitutes taxable income for United States federal income and applicable state, local and non-U.S. income Tax purposes and any losses on the Escrow Amount shall be allocated to Harris FRC.

 

(d)      Harris FRC and the Purchaser shall provide instructions to the Escrow Agent to implement the provisions of this Section 3.3, including instructions (i) to pay to a Purchaser Indemnified Person the amount of any Indemnification Claim within 5 days after the claim is accepted, no longer disputed, settled or resolved and (ii) to pay to Harris FRC within 5 days after the Release Date the remaining balance of the Escrow Amount minus the amount of any Indemnification Claim that has been asserted by the Purchaser but not satisfied.

 

(e)      Any payments from the Escrow Amount to the Purchaser under this Section 3.3 shall be treated by the Parties and their respective Affiliates as an adjustment to the Purchase Price for all applicable income Tax purposes, unless otherwise required by applicable Law.

 

ARTICLE IV

 

CLOSING

 

4.1       Closing.

 

The closing of the sale of the Purchased Assets to Purchaser, and the Contemplated Transactions (the “Closing”), shall take place remotely on a date to be specified by the Parties, which date shall be no later than four Business Days after the date on which all closing conditions set out in Article VIII have been satisfied or waived (other than those conditions that by their nature will be satisfied at the Closing, but subject to their satisfaction), or on such other date to which Harris FRC and Purchaser mutually agree (the “Closing Date”). The Closing will be deemed to occur as of midnight at the end of the Closing Date.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF HARRIS FRC

 

Harris FRC hereby represents and warrants to Purchaser as of the date of this Agreement and as of the Closing Date as follows:

 

5.1       Organization; Good Standing; Qualification and Power.

 

Harris FRC is a corporation duly organized, validly existing and in good standing under the Laws of the State of New Jersey and has all requisite corporate power and authority to own the Purchased Assets and to carry on the Business as now being conducted. Harris FRC is duly licensed or qualified to transact business and in good standing to do business in each jurisdiction in which the nature of its operations related to the Purchased Assets, including its ownership of any of the Purchased Assets, makes that licensing or qualification necessary, except to the extent that its failure to be so licensed or qualified would not reasonably be expected to result in a Material Adverse Change. Each jurisdiction in which Harris FRC is licensed or qualified to transact business is set out on Schedule 5.1.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.2          Authority; Noncontravention; Consents; Capitalization.

 

(a)      Harris FRC has all requisite corporate power and authority to enter into this Agreement and each Related Document to which it is a party, to perform its obligations hereunder and thereunder and to complete the Contemplated Transactions. Subject to receipt of the Requisite Shareholder Approval, Harris FRC has complied with and has fully satisfied all requirements under applicable Law, including the New Jersey Business Corporation Act, with respect to the approval of and authorization to enter into this Agreement and the Related Documents and to complete the Contemplated Transactions. The execution and delivery by Harris FRC of this Agreement and each Related Document to which Harris FRC is a party, and, subject to receipt of the Requisite Shareholder Approval, the performance by Harris FRC of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary action on the part of Harris FRC. This Agreement and each Related Document to which Harris FRC is a party have been duly and validly executed and delivered by Harris FRC and, assuming due authorization, execution and delivery by Purchaser, are the valid and binding obligations of Harris FRC, enforceable against Harris FRC in accordance with their terms.

 

(b)      Neither the execution and delivery by Harris FRC of this Agreement and each Related Document to which Harris FRC is a party, nor the performance by Harris FRC of any of its obligations hereunder and thereunder, nor the completion of the Contemplated Transactions, with or without the giving of notice or lapse of time or both, (i) conflicts with, violates, constitutes a breach or default under, gives rise to a right of termination, amendment, cancellation, acceleration of any material obligation contained in or imposition of additional obligations or the loss of any material benefit under, or results in the creation of any Encumbrance upon any of the Purchased Assets under, any term, condition or provision of (A) Harris FRC’s Fundamental Documents or (B) any Assigned Contract, or (ii) violates in any material respect any Laws applicable to Harris FRC or any of the Purchased Assets.

 

(c)      Except as set out on Schedule 5.2(c), no (i) consent, (ii) approval, (iii) Order or authorization of, (iv) registration, declaration or filing with, or (v) notification to any Governmental Entity or any other Person is required in connection with the execution and delivery by Harris FRC of this Agreement or the Related Documents to which Harris FRC is a party, the performance by it of its obligations hereunder or thereunder or the completion of the Contemplated Transactions. The approval of Harris FRC’s board of directors, which has already been obtained, and the affirmative vote of a majority of the shares of Harris FRC is all that is required under the New Jersey Business Corporation Act to approve the Contemplated Transaction.

 

(d)      Schedule 5.2(d) sets out the capitalization of Harris FRC, and the Persons listed on that schedule are the record owners of those shares, and all of those shares were duly authorized and are validly issued, fully-paid and non-assessable. Other than the equity interests set out on Schedule 5.2(d), there are no equity interests of Harris FRC issued or outstanding. There are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the capitalization of Harris FRC.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.3           Title to Purchased Assets; Sufficiency of Assets.

 

(a)      Harris FRC has good, valid and marketable title to all Purchased Assets free and clear of any Encumbrances, other than Permitted Encumbrances. There are no assets, properties, interests in assets or properties or rights owned or held by any Person other than Harris FRC, including any Affiliate of Harris FRC, that would be Purchased Assets if owned or held by Harris FRC, and no Person other than Harris FRC has any right, title or interest in or to any of the Purchased Assets.

 

(b)      The Purchased Assets are sufficient, and constitute all of the assets necessary to operate the Business and receive all of the royalty payments and similar economic benefits of the Business, following the Closing in the same manner and to the same extent as Harris FRC received them before Closing, except that the administrative, office and support functions of Harris FRC, including those required to review, determine, administer and enforce the rights and obligations of the Business, are excluded from the scope of the Contemplated Transactions, and, accordingly, Purchaser would have to provide or obtain its own substitutes for those functions in order to operate the Business after the Closing in substantially the same manner as Harris FRC operated the Business before the Closing.

 

5.4Transferred Intellectual Property.

 

(a)Except in each case as set out on Schedule 5.4(a):

 

(i)      Harris FRC owns, has the exclusive right to use, sell, license and dispose of, and has the exclusive right to bring actions for the infringement of, the Transferred Intellectual Property;

 

(ii)      there are no royalties, honoraria, fees or other amounts payable to any Person or claimed by any Person by reason of the ownership, use, license, sale or disposition of the Transferred Intellectual Property;

 

(iii)      nothing has been done or omitted to be done by Harris FRC or, to the Knowledge of Harris FRC, done by any other Person, that would adversely affect the validity, enforceability or subsistence of any item included in the Transferred Intellectual Property. Harris FRC has enforced a policy requiring each and every employee and contractor to execute proprietary information and confidentiality agreements, and each current and former employee and contractor of Harris FRC that has been involved in the development of the Transferred Intellectual Property has executed such an agreement. To the extent that any employee or third Person has developed any Transferred Intellectual Property for Harris FRC, Harris FRC has a written agreement with that employee or third Person with respect thereto and thereby has obtained ownership of, and is the exclusive owner of, all rights in that Transferred Intellectual Property;

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(iv)      to the Knowledge of Harris FRC, no Transferred Intellectual Property infringes any Intellectual Property Rights of any Person;

 

(v)      Harris FRC has not received from any Person in the past 5 years any written notice, charge, complaint, claim or assertion that the Transferred Intellectual Property or its activities or contemplated activities with respect to the Transferred Intellectual Property infringe or would infringe any Intellectual Property Rights of any Person, and no such claim is impliedly threatened by an offer to license from another Person under a claim of use;

 

(vi)      Harris FRC has not sent to any Person in the past 5 years, or otherwise communicated to any Person, any written notice, charge, complaint, claim or other assertion of any present, impending or threatened infringement by or misappropriation of, or other conflict with, any Transferred Intellectual Property by that other Person;

 

(vii)      Harris FRC has not licensed any of the Transferred Intellectual Property to any third Person;

 

(viii)      other than the Transferred Intellectual Property, Harris FRC does not own or license any Intellectual Property Rights related to the Product; and

 

(ix)      the Transferred Intellectual Property constitutes all of the Intellectual Property Rights necessary to receive all of the royalty payments and other economic benefits to which Harris FRC is entitled under the Assigned Contracts.

 

(b)      Schedule 5.4(b) contains a true and complete list of all pending applications, maintenance and renewal filings and other formal actions made or taken by or on behalf of Harris FRC pursuant to any Laws to perfect or protect its interest in the Transferred Intellectual Property, including all trademarks, service marks, copyrights and applications for each of the foregoing.

 

5.5          Agreements, No Defaults, Etc.

 

(a)      Except as set out on Schedule 5.5 and other than the Assigned Contracts, Harris FRC is not a party to any material Contract related to the Product or the Purchased Assets, including any Contract related to the Transferred Intellectual Property and any Contract concerning royalties or other economic benefits or obligations related to the Product.

 

(b)      Except as set out on Schedule 5.5, all Assigned Contracts are in full force and effect, constitute legal, valid and binding obligations of Harris FRC and, to the Knowledge of Harris FRC, the other parties thereto, and are enforceable in accordance with their respective terms against Harris FRC, and to the Knowledge of Harris FRC, each other party thereto. Except as set out on Schedule 5.5, Harris FRC has in all material respects performed all of the obligations required to be performed by it under each such Assigned Contract, and there exists no violation, breach or default by Harris FRC or, to the Knowledge of Harris FRC, any other party, or any event that upon the giving of notice or the passage of time, or both, would give rise to a claim of a violation, breach or default by Harris FRC or, to the Knowledge of Harris FRC, any other party, under any of their respective obligations thereunder, in any material respect. Harris FRC has made available to Purchaser correct and complete copies of all Assigned Contracts.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(c)      To the Knowledge of Harris FRC, except for the Back Royalties and amounts payable to RCT in connection with the Back Royalties, there are no unpaid royalties or other amounts, in excess of [*], due under any of the Assigned Contracts, nor, with respect to RCT, are there any open discussions or amounts in dispute with respect to amounts payable to RCT, except as set out on Schedule 5.5(c). The Assigned Contracts constitute the only Contracts necessary for Harris FRC (or following the Closing, Purchaser) to realize the full and complete benefit, economic or otherwise, of the Business as currently conducted (excluding, for the avoidance of doubt, any contracts that relate to administrative, office and support functions of Harris FRC that are excluded from the scope of the Contemplated Transactions). Harris FRC is entitled to receive all royalty and other payments pursuant to the explicit terms and conditions set forth in the Assigned Contracts. Except as set out on Schedule 5.5(c), neither Harris FRC nor any of its Affiliates have, in each case, excluding amounts of [*] or less: (i) forgiven, released, delayed, postponed or compromised any payment under any Assigned Contract; (ii) waived, amended, cancelled or terminated any material rights under any Assigned Contract; (iii) exercised any right of rescission, offset, counterclaim or defense under any Assigned Contract; (iv) sold, leased, pledged, licensed, transferred or assigned all or any portion of any Assigned Contract or any benefits, economic or otherwise, thereunder; or (iii) received any advance payments under any Assigned Contract.

 

(d)      Except as set out on Schedule 5.5(d), Harris FRC has provided Purchaser with copies of all material correspondence, reports (including royalty reports) notices or other material information related to the Purchased Assets and the Business, in each case dated on or after January 1, 2016, including any correspondence sent to Harris FRC from any Governmental Entity or any counterparty to an Assigned Contract relating to compliance matters.

 

(e)      Schedule 5.5(e) sets forth a true and complete list of (i) royalties and/or other payments received by Harris FRC from UCB by payment date since January 1, 2018 and (ii) each payment made by Harris FRC to RCT since January 1, 2018.

 

5.6         Litigation, Etc.

 

Except as set out on Schedule 5.6, there are no (a) Proceedings pending or, to the Knowledge of Harris FRC, threatened against Harris FRC or the Purchased Assets, whether at law or in equity, or before or by any Governmental Entity or arbitrator or (b) Orders of any Governmental Entity or arbitrator naming Harris FRC or the Purchased Assets, including any Proceeding challenging, enjoining or seeking to prevent the performance of this Agreement or the completion of the Contemplated Transactions.

 

5.7       Compliance.

 

The Business of Harris FRC is not being, and in the last three years has not been, conducted in violation in any material respect of any Law or Order applicable in any jurisdiction in which Harris FRC operates, including Environmental, Health and Safety Laws. To the Knowledge of Harris FRC, no investigation or review by any Governmental Entity with respect to the Business or the Purchased Assets is pending or threatened, nor has any Governmental Entity notified Harris FRC of its intention to conduct the same.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.8       Taxes.

 

Except as set out on Schedule 5.8, (a) all material Tax Returns required to have been filed by or on behalf of Harris FRC have been timely (taking into account applicable extensions) filed with the applicable Taxing Authorities, and each of those Tax Returns is true, correct and complete in all material respects, (b) all Taxes due and payable by Harris FRC (including in its capacity as a withholding agent), regardless of whether or not those Taxes are shown as due on those Tax Returns, have been paid and (c) no Tax Return filed by Harris FRC with respect to the Purchased Assets is currently being examined (or subject to any pending or threatened examination) by any Taxing Authority, and there are no outstanding agreements or waivers extending the statute of limitations applicable to any such Tax Return. Harris FRC is a “United States person” within the meaning of Section 7701(a)(30) of the Code. There are no liens for Taxes on the Purchased Assets other than Permitted Encumbrances. Except as set out on Schedule 5.8, none of the amounts payable to Harris FRC pursuant to any Assigned Contract has been subject to any withholding Tax or has been paid net of any withholding Tax, and no such Tax has been asserted to be due by any Taxing Authority. Harris FRC has not been subject to Tax in any non-U.S. jurisdiction as a result of owning or licensing any of the Purchased Assets, and no non-U.S. jurisdiction has asserted otherwise.

 

5.9       Brokers.

 

Except as set out on Schedule 5.9, neither Harris FRC nor any of its officers, directors, equity owners or employees nor any other Person acting on its or their behalf has employed or engaged any broker or finder, or incurred any Liability for any brokerage fees, commissions, finders’ fees or similar fees, in connection with the Contemplated Transactions. To the extent that Harris FRC has incurred any Liability for any brokerage fees, commissions, finder’s fees or similar fees in connection with Contemplated Transactions, Harris FRC will be solely responsible for the payment of those commissions or fees.

 

5.10       Bankruptcy, Etc.

 

Harris FRC is not involved in any Proceeding by or against it as a debtor before any Governmental Entity under Title 11 of the United States Code or any other insolvency or debtors’ relief Law, whether state, federal or foreign, or for the appointment of a trustee, receiver, liquidator, assignee, sequestrator or other similar official for any part of Harris FRC’s property.

 

5.11       Absence of Changes.

 

Since January 1, 2020, there has not been any change, event or development which, individually or together with other such events, could reasonably be expected to have a Material Adverse Change on Harris FRC, the Purchased Assets or the Business. Without limiting the foregoing, except as set out on Schedule 5.11, since January 1, 2020, Harris FRC has operated the Business and maintained the Purchased Assets in the ordinary course of business consistent with past practice, and there has not occurred:

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(a)        any write-off or write-down, or any determination to write off or write down, any of the Purchased Assets;

 

(b)        any incurrence of an Encumbrance (other than a Permitted Encumbrance) on any Purchased Asset;

 

(c)        any (i) amendment of the certificate of incorporation or bylaws of Harris FRC or (ii) recapitalization, reorganization, liquidation or dissolution of Harris FRC;

 

(d)        any material amendment, modification, termination (partial or complete) or granting of a waiver under or giving any consent with respect to any Assigned Contract;

 

(e)        any transaction, relating to the Product or the Purchased Assets, between Harris FRC, on the one hand, and any officer, director, shareholder or Affiliate of Harris FRC, on the other hand;

 

(f)        to Harris FRC’s Knowledge, except as set forth in UCB’s report of sales activities and resulting royalty obligations for Q1 2020 regarding Vimpat, dated May 11, 2020, any transaction involving or development affecting the Purchased Assets outside of the ordinary course of business consistent with past practice; or

 

(g)       any entering into a Contract or committing to do or engage in any of the foregoing.

 

5.12       Foreign Corrupt Practices Act.

 

Harris FRC has not (nor has any officer, director, employee, consultant or other Person associated with or acting on behalf of Harris FRC), directly or indirectly, (a) made, offered to make or promised to make any payment or transfer of anything of value, directly or indirectly, to (i) anyone working in an official capacity for any governmental authority, including any employee of any government-owned or controlled entity or public international organization or (ii) any political party, official of a political party or candidate for political office, in order to obtain or retain business, or secure any improper business advantage, except for the payment of fees required by Law to be paid to Governmental Entities, (b) made any unreported political contribution, (c) made or received any payment that was not legal to make or receive, (d) engaged in any transaction or made or received any payment that was not properly recorded on its books, (e) created or used any “off-book” bank or cash account or “slush fund,” or (f) engaged in any conduct constituting a violation of the United States Foreign Corrupt Practices Act of 1977, as amended, the United Kingdom Bribery Act 2010, as amended, or any Law of similar effect in any jurisdiction, if any, to which that Person is subject.

  

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.13       OFAC and September 24, 2001 Executive Order.

 

The designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) or any similar list maintained by OFAC is not applicable to Harris FRC or any shareholder or other equity owner of Harris FRC. The September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism is not applicable to Harris FRC or any member or other equity owner of Harris FRC.

 

5.14       Employees.

 

(a)       Schedule 5.14(a) sets out a true, correct and complete list of the names and titles/positions of the employees of Harris FRC or any Affiliates of Harris FRC (the employees set out on Schedule 5.14(a), collectively, the “Business Employees”).

 

(b)        Schedule 5.14(b) sets out a true, correct and complete list of each Employee Benefit Plan that covers any Business Employee.

 

(c)        For purposes of this Section 5.14(c), the term “Harris FRC” shall include any ERISA Affiliate.

 

(i)        Harris FRC does not sponsor, maintain or contribute to, and has never sponsored, maintained, or contributed to, or had any liability with respect to, any employee benefit plan which (i) is subject to the minimum funding standards of Section 302 of ERISA or Section 412 of the Code or Title IV of ERISA; or (ii) is a “multiemployer plan” as defined in Section 3(37) of ERISA. Harris FRC has not: (A) withdrawn from any pension plan under circumstances resulting (or expected to result) in liability or (B) engaged in any transaction which would give rise to a liability under Section 4069 or Section 4212(c) of ERISA.

 

(ii)        Other than as required under Section 4980B of the Code or other applicable Law, no Employee Benefit Plan listed on Schedule 5.14(b) provides benefits or coverage of the nature of health, life or disability insurance following retirement or other termination of employment (other than death benefits when termination occurs upon death).

 

(iii)        As of the Closing Date, Purchaser does not, and shall not, either directly or indirectly, have any obligation or Liability, as a matter of Law or otherwise, with respect to any Employee Benefit Plan that was, or is, sponsored or maintained by Harris FRC or to which Harris FRC contributes or which Harris FRC had, or may have, any Liability, contingent or otherwise, either directly or indirectly through an ERISA Affiliate.

 

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.15       No Other Representations and Warranties.

 

Except for the representations and warranties contained in this Article V (including the related portions of the Schedules), neither Harris FRC nor any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of Harris FRC, including any representation or warranty as to the accuracy or completeness of any information, documents or material regarding the Product and the Purchased Assets furnished or made available to Purchaser and its Representatives in any form (including the Confidential Project Gray Bee Acquisition Opportunity – Small Molecule Drug Royalty System prepared by Imperial Capital, any information, documents, or material made available to Purchaser in any virtual data room maintained by or on behalf of Harris FRC related to the Contemplated Transactions or any management presentations made in expectation of the Contemplated Transactions), or as to the future revenue, profitability, or success of the Product or the Purchased Assets, or any representation or warranty arising from statute or otherwise in Law. All other representations or warranties, including any warranty with respect to merchantability or fitness for any particular purpose, are hereby expressly disclaimed and shall not be deemed to be or to include representations or warranties of Harris FRC and have not been relied upon by Purchaser or any of its Affiliates in executing, delivering and performing this Agreement and the Contemplated Transactions. Except as is otherwise provided in this Agreement, all of the assets and liabilities to be sold, conveyed, assigned, transferred or assumed, as applicable, in accordance with this Agreement, shall be sold, conveyed, assigned, transferred or assumed on an “as is, where is” basis.

 

5.16       Solvency.

 

After giving effect to the Contemplated Transactions, Harris FRC will (a) be able to pay its debts as they become due, (b) own property having a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities) and (c) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement with the intent of Harris FRC or its Affiliates to hinder, delay or defraud either present or future creditors of Harris FRC.

 

ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby represents and warrants to Harris FRC as of the date hereof and as of the Closing Date as follows:

 

6.1       Organization; Good Standing.

 

Purchaser is a limited partnership duly organized, validly existing and in good standing under the Laws of the State of Delaware.

 

6.2       Authority; Noncontravention; Consents.

 

(a)        Purchaser has all requisite partnership power and authority to enter into this Agreement and each Related Document to which it is a party, to perform its obligations hereunder and thereunder and to complete the Contemplated Transactions. The execution and delivery by Purchaser of this Agreement and each Related Document to which Purchaser is a party, and the performance by Purchaser of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary partnership action on the part of Purchaser. This Agreement and each Related Document to which Purchaser is a party have been duly and validly executed and delivered by Purchaser and are the valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their terms.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)       Neither the execution and delivery by Purchaser of this Agreement and each Related Document to which Purchaser is a party, nor the performance by Purchaser of any of its obligations hereunder and thereunder, nor the completion of the Contemplated Transactions, (i) conflicts with, or results in a violation of, or causes a breach or default (with or without notice or lapse of time, or both) under, or gives rise to a right of termination, amendment, cancellation or acceleration of any obligation contained in or the loss of any material benefit under, any term, condition or provision of (y) Purchaser’s Fundamental Documents or (z) any Contract to which Purchaser is a party or by which its assets are bound, or (ii) violates any Laws applicable to Purchaser or any of its assets.

 

(c)        Except as set out on Schedule 6.2, no (i) consent, (ii) approval, (iii) Order or authorization of, (iv) registration, declaration or filing with, or (v) notification to any Governmental Entity or any other third Person is required in connection with the execution and delivery by Purchaser of this Agreement or the Related Documents to which Purchaser is a party or the completion of the Contemplated Transactions.

 

(d)        Purchaser is its own ultimate parent entity (as defined under the HSR Act and regulations), does not have any regularly prepared balance sheet and does not satisfy any of the “size of person” jurisdictional thresholds applicable to Purchaser under the HSR Act.

 

6.3       Brokers.

 

Neither Purchaser nor any of its officers, directors, equity owners or employees nor any other Person acting on its or their behalf has employed or engaged any broker or finder, or incurred any Liability for any brokerage fees, commissions, finders’ fees or similar fees, in connection with the Contemplated Transactions. To the extent that Purchaser has incurred any Liability for any brokerage fees, commissions, finder’s fees or similar fees in connection with the Contemplated

Transactions, Purchaser will be solely responsible for the payment of those commissions or fees.

 

6.4       Litigation, Etc.

 

There are no (i) Proceedings pending or, to the Knowledge of Purchaser, threatened against Purchaser, whether at law or in equity, or before or by any Governmental Entity or arbitrator or (ii) Orders of any Governmental Entity or arbitrator naming Purchaser, in each case challenging, enjoining or seeking to prevent the performance of this Agreement or the completion of the Contemplated Transactions.

 

6.5       Solvency.

 

Immediately after giving effect to the Contemplated Transactions, Purchaser shall be solvent and shall: (a) be able to pay its debts as they become due; (b) own property that has a fair saleable value greater than the amounts required to pay its debts (including a reasonable estimate of the amount of all contingent liabilities); and (c) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the Contemplated Transactions with the intent of Purchaser or its Affiliates to hinder, delay or defraud either present or future creditors of Purchaser. In connection with the Contemplated Transactions, Purchaser has not incurred, nor plans to incur, debts beyond its ability to pay as they become absolute and matured.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

  

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6.6       Sufficiency of Funds.

 

Purchaser has or will have at the Closing sufficient cash on hand or other sources of immediately available funds to enable it to make payment of the Cash Payment and complete the Contemplated Transactions.

 

6.7       Independent Investigation.

 

Purchaser has conducted its own independent investigation, review and analysis of Harris FRC and the Purchased Assets, and acknowledges that it has been provided adequate access to the personnel, properties, assets, books and records, and other documents and data of Harris FRC for that purpose. In making its decision to enter into this Agreement and to complete the Contemplated Transactions, Purchaser has relied solely upon its own investigation and the express representations and warranties of Harris FRC set out in Article V of this Agreement (including related portions of the Schedules to this Agreement).

 

ARTICLE VII

 

CONDUCT AND TRANSACTIONS BEFORE AND AT CLOSING

 

7.1       Conduct of Business Prior to Closing.

 

From the date of this Agreement until the earlier of the termination of this Agreement and the Closing Date (the “Pre-Closing Period”), except as otherwise provided in this Agreement or consented to in writing by Purchaser (which consent shall not be unreasonably withheld or delayed), Harris FRC shall (a) conduct the Business and maintain the Purchased Assets in the ordinary course of business, (b) maintain its corporate existence and (c) pay or perform its Liabilities when due. Without limiting the generality of the foregoing, except with the prior written consent of Purchaser, during the Pre-Closing Period, Harris FRC shall not: (i) adopt or amend any of its organizational or governance documents in any way that would reasonably be expected to delay the completion of the Contemplated Transactions; (ii) enter into any contract, agreement or arrangement materially impacting any of the Purchased Assets; (iii) amend, modify, cancel or waive any material rights under any Assigned Contract; (iv) take any action or enter into any agreement or arrangement that could alter the amount, duration or determination of any royalties or other payments due to or owed by Harris FRC in any manner that would reasonably be expected to affect the rights or obligations of Purchaser after the Closing under any Assigned Contract; (v) authorize for issuance, issue, sell or deliver any capital stock of, or other equity or voting interest in, Harris FRC, or any securities convertible into, exchangeable for, or evidencing the right to subscribe for or acquire any shares of capital stock of, or other equity or voting interest in, Harris FRC; or (vi) agree, whether in writing or otherwise, to do any of the foregoing.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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7.2       Access to Information.

 

During the Pre-Closing Period, Harris FRC shall afford, and shall cause its Representatives to afford, as applicable, to Purchaser, its Affiliates and their respective Representatives, as may be reasonably requested, access, during normal business hours or at such other times as may be agreed upon by Harris FRC and Purchaser and subject to reasonable precautions related to the COVID-19 epidemic, to (a) the personnel of Harris FRC and (b) to the extent they relate to the Purchased Assets, all of the properties, books and records, Tax Returns, work papers and other documents and information of Harris FRC, including any correspondence, communication with any Governmental Entity or regulatory or quasi regulatory authority, and to the audit work papers and other records of the independent public accountants of Harris FRC. Harris FRC shall, at Purchaser’s request, provide to Purchaser copies of all such work papers, documents and other written information.

 

7.3       Efforts to Complete.

 

Subject to the terms and conditions of this Agreement, each Party shall use commercially reasonable efforts to take or cause to be taken all actions and do or cause to be done all things required under all applicable Laws or this Agreement in order to timely complete the Contemplated Transactions. Without limiting the preceding sentence, each Party shall, effective as of and subject to the occurrence of the Closing, execute and deliver each agreement, certificate or other document to be executed or delivered by that Party under this Agreement at or before the Closing and cooperate in the transferring of the Transferred Intellectual Property.

 

7.4       Supplement to Schedules.

 

From time to time prior to the Closing, Harris FRC shall have the right (but not the obligation) to supplement or amend the Schedules to this Agreement with respect to any matter arising after the date of this Agreement (each a “Schedule Supplement”). Any disclosure in any such Schedule Supplement shall not be deemed to have cured any inaccuracy in or breach of any representation or warranty contained in this Agreement, including for purposes of the indemnification or termination rights contained in this Agreement or of determining whether or not the conditions set out in Section 8.2 have been satisfied; provided, however, that if Purchaser has the right to, but does not elect to, terminate this Agreement within ten Business Days of its receipt of that Schedule Supplement, then Purchaser shall be deemed to have irrevocably waived any right to terminate this Agreement with respect to that matter and, further, shall have irrevocably waived its right to indemnification under Section 9.1 with respect to that matter; provided, further, however, that notwithstanding the foregoing, no Schedule Supplement shall affect or limit Purchaser’s rights to indemnification under Sections 9.1(a)(ii), 9.1(a)(iii) or 9.1(a)(iv).

 

7.5       Exclusivity.

 

During the Pre-Closing Period, Harris FRC shall not, and shall direct and cause its Representatives not to, directly or indirectly: (i) solicit, encourage, initiate or otherwise facilitate any inquiries or the making of any proposal or offer with respect to or related to Another Transaction, (ii) conduct any discussions, enter into any negotiations or provide any information to any Person with respect to or related to Another Transaction, or (iii) enter into Another Transaction or any agreement, arrangement or understanding related to Another Transaction with any Person. Upon completion of the Closing, Purchaser’s rights under this Section 7.5 shall terminate and Purchaser shall be deemed to have waived any potential claims for breaches of this Section 7.5.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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7.6       Government Approvals and Consents.

 

Each Party shall, as promptly as possible, use its best efforts to obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all Governmental Entities that may be or become necessary for its execution and delivery of this Agreement and the performance of its obligations under to this Agreement and the Related Documents. Each Party shall cooperate fully with the other Party and its Affiliates in promptly seeking to obtain all such consents, authorizations, orders and approvals. The Parties shall not willfully take any action that will have the effect of delaying, impairing or impeding the receipt of any required consents, authorizations, orders and approvals.

 

7.7       Shareholder Meeting.

 

As soon as practicable following the date of this Agreement (but in any event no later than 30 days following the date hereof), Harris FRC shall hold a shareholders’ meeting, duly called and convened in accordance with applicable Law and the Fundamental Documents of Harris FRC, for the purpose of approving this Agreement and the Contemplated Transactions including complying with all notice requirements to shareholders as required under applicable Law. Included in the notice to shareholders, Harris FRC shall submit to the shareholders all materials and information as is required pursuant to applicable Law. Promptly following the shareholders’ meeting, Harris FRC shall deliver a copy of the minutes of the shareholders’ meeting evidencing the Requisite

Shareholder Approval certified by the Secretary of Harris FRC.

 

ARTICLE VIII

 

CLOSING CONDITIONS

 

8.1       Conditions to the Obligations of Both Parties.

 

The obligations of each Party to complete the Contemplated Transactions are subject to the satisfaction, at or before the Closing, of the following condition, unless waived (to the extent those conditions can be waived) by the other Party:

 

(a)        No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any Order which is in effect and has the effect of making the Contemplated Transactions illegal or otherwise materially restraining or prohibiting completion of those transactions.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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8.2       Conditions to the Obligations of Purchaser.

 

The obligations of Purchaser to complete the Contemplated Transactions are subject to the satisfaction, at or before the Closing, of the following conditions, unless waived (to the extent those conditions can be waived) by Purchaser:

 

(a)        Accuracy of Representations and Warranties. All representations and warranties made by Harris FRC in this Agreement and the Related Documents shall be true and correct in all material respects, except to the extent that those representations and warranties are qualified by any of the terms “material,” and “in all material respects,” “Material Adverse Change” or similar terms, in which case those representations and warranties shall be true and correct in all respects as so written, on and as of the Closing Date with the same effect as if those representations and warranties had been made at and as of the Closing Date, except for those representations and warranties that address matters only as of a particular date (which shall be true and correct in all material respects as of that date).

 

(b)        Performance of Covenants. Harris FRC shall have in all material respects performed and complied with all agreements, obligations and covenants required to be performed or complied with by it under this Agreement and the Related Documents on, prior to or as of the Closing Date.

 

(c)        Requisite Shareholder Approval. The Requisite Shareholder Approval shall have been obtained, and the Requisite Shareholder Approval shall not have been revoked, withdrawn or amended in any way prior to the Closing.

 

(d)        Related Documents. At the Closing, Harris FRC shall execute and deliver (or cause such other Person to execute and deliver, as applicable) to Purchaser each of the documents listed below (collectively, the “Related Documents”):

 

(i)       a Bill of Sale, Assignment and Assumption Agreement substantially in the form contained in Exhibit A;

 

(ii)       separate assignments of Trademarks, copyrights, Know-How and regulatory approvals, substantially in the forms contained in Exhibit B;

 

(iii)       one or more Consulting Agreements substantially in the form contained in Exhibit C;

 

(iv)        a non-foreign affidavit dated as of the Closing Date, sworn under penalty of perjury and in the form and substance required under the Treasury Regulations issued under Code §1445 stating that Harris FRC is not a “foreign person” as defined in

Code §1445, in the form contained in Exhibit D, and an IRS Form W-9; and

 

(v)       the Escrow Agreement.

 

(e)       Related Certificates. At the Closing, Harris FRC shall deliver the certificates set out below to Purchaser, executed by the Person set out below:

  

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(i)             a certificate of an officer of Harris FRC dated as of the Closing Date, certifying: (A) as to the incumbency and genuineness of the signatures of the officer of Harris FRC executing this Agreement or any of the Related Documents on behalf of Harris FRC; (B) the genuineness of the resolutions (attached thereto) of Harris FRC’s Board of Directors and the majority of Harris FRC’s shareholders, duly adopted and in effect, authorizing the execution, delivery and performance of this Agreement and the Related Documents to which Harris FRC is a party and the completion of the Contemplated Transactions; and (C) the genuineness and full force and effect of the Fundamental Documents of Harris FRC (attached thereto);

 

(ii)            a certificate of Harris FRC dated as of the Closing Date certifying that the conditions set out in Sections 8.2(a), 8.2(b), 8.2(c) and 8.2(f) have been satisfied.

 

(iii)          a certificate, dated within 15 Business Days of the Closing Date, of the Treasurer of the State of New Jersey certifying as to the good standing of Harris FRC.

 

(f)         No Material Adverse Change. There shall not have occurred a Material Adverse Change since the date of this Agreement.

 

8.3       Conditions to the Obligations of Harris FRC.

 

The obligations of Harris FRC to complete the Contemplated Transactions are subject to the satisfaction, at or before the Closing, of the following conditions, unless waived (to the extent those conditions can be waived) by Harris FRC.

 

(a)         Accuracy of Representations and Warranties. The representations and warranties made by Purchaser in this Agreement and the Related Documents shall be true and correct in all material respects, except to the extent that those representations and warranties are qualified by any of the terms “material,” and “in all material respects,” “Material Adverse Change” or similar terms, in which case those representations and warranties shall be true and correct in all respects as so written, on and as of the Closing Date with the same effect as if those representations and warranties had been made at and as of the Closing Date, except for those representations and warranties that address matters only as of a particular date (which shall be true and correct in all material respects as of that date).

 

(b)         Performance of Covenants. Purchaser shall have in all material respects performed and complied with all agreements, obligations and covenants required to be performed or complied with by it under this Agreement and the Related Documents on, prior to or as of the Closing Date.

 

(c)         Related Documents. At the Closing, Purchaser shall execute and deliver to Harris FRC each Related Document to which Purchaser is a party.

 

(d)         Related Certificates. At the Closing, Purchaser shall deliver the certificates set out below to Harris FRC, executed by the Person set out below:

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(i) a certificate of an officer, general partner or similar governing person of Purchaser dated as of the Closing Date, certifying (A) as to the incumbency and genuineness of the signatures of each officer, general partner or similar governing person of Purchaser executing this Agreement or any of the Related Documents on behalf of Purchaser; and (B) the genuineness of the resolutions (attached thereto) of Purchaser’s Board of Directors or similar governing body authorizing the execution, delivery and performance of this Agreement and the Related Documents to which Purchaser is a party and the completion of the transactions contemplated hereby and thereby; and

 

(ii) a certificate of the Delaware Secretary of State certifying as to the good standing of Purchaser.

 

(iii) a certificate of Purchaser dated as of the Closing Date certifying that the conditions set out in Sections 8.3(a) and 8.3(b) have been satisfied.

 

ARTICLE IX

 

INDEMNIFICATION

 

9.1       Indemnification Generally; Etc.

 

(a)           Subject to the further terms of this Article IX, the Harris FRC Indemnifying Persons shall indemnify and reimburse the Purchaser Indemnified Persons for, and hold each of them harmless from and against, any and all Purchaser Losses arising from, relating to or in connection with any of the following:

 

(i)        the inaccuracy or breach of any representation or warranty of Harris FRC contained in this Agreement or in any Related Document to which Harris FRC is a party;

 

(ii)         the breach of any agreement or covenant of Harris FRC contained in this Agreement or in any Related Document to which Harris FRC is a party;

 

(iii)       the Excluded Liabilities; and

 

(iv)the Shareholder Claims.

 

(b)           Subject to the further terms of this Article IX, the Purchaser Indemnifying Persons shall indemnify and reimburse the Harris FRC Indemnified Persons for, and hold each of them harmless from and against, any and all Harris FRC Losses arising from, relating to or in connection with any of the following:

  

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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  (i) the inaccuracy or breach of any representation or warranty of Purchaser contained in this Agreement or in any Related Document to which Purchaser is a party;

 

  (ii) the breach of any agreement or covenant of Purchaser contained in this Agreement or in any Related Document to which Purchaser is a party; and

 

(iii)the Assumed Liabilities.

 

9.2Assertion of Claims.

 

No claim shall be brought under Section 9.1 unless the Indemnified Persons, or any of them, at any time before the applicable Survival Date, give the Indemnifying Persons (i) written notice of the existence of that claim, specifying the nature and basis of that claim and the amount of Losses relating thereto, to the extent known, or (ii) written notice under Section 9.3 of any third Person claim, the existence of which might give rise to such a claim. No delay in or failure to give such notice or the giving of an incomplete or inaccurate notice shall adversely affect any of the other rights or remedies which the Indemnified Person has under this Agreement, or alter or relieve any Indemnifying Person of its obligation to indemnify the Indemnified Person, except and only to the extent that such delay or failure results in actual and material prejudice to the Indemnifying Person; provided; however, that the foregoing shall in no way serve to extend or otherwise lengthen the survival of representations and warranties in accordance with Section 9.4 or the applicable time limits on making an indemnification claim under this Article IX. Upon the giving of written notice of an indemnification claim in accordance with the preceding provisions of this Section 9.2 or Section 9.3, the Indemnified Persons’ rights under Section 9.1 with respect to that indemnification claim shall survive the Survival Date until that indemnification claim is finally determined, and the Indemnified Persons, or any of them, shall have the right to commence legal proceedings subsequent to the Survival Date for the enforcement of their rights under Section 9.1.

 

  9.3 Notice and Defense of Third Person Claims.

 

The obligations and liabilities of an Indemnifying Person with respect to Losses resulting from the assertion of liability by third Persons (each, a “Third Person Claim”) shall be subject to the following terms and conditions:

 

(a)     An Indemnified Person shall promptly give written notice to the Indemnifying Persons of any Third Person Claim that might give rise to any Losses by the Indemnified Persons, stating the nature and basis of that Third Person Claim, and the amount of Losses related thereto to the extent known; provided, however, that no delay on the part of the Indemnified Persons in notifying any Indemnifying Persons shall relieve the Indemnifying Persons from any liability or obligation hereunder unless (and then solely to the extent that) the Indemnifying Person is prejudiced by the delay. That notice shall be accompanied by copies of all relevant documentation with respect to the Third Person Claim, including any summons, complaint or other pleading which may have been served, any written demand or any other related document or instrument.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)     If the Indemnifying Persons acknowledge in a writing (in form and substance reasonably satisfactory to the Indemnified Persons) delivered to the Indemnified Persons that the Indemnifying Persons shall be obligated under the terms of their indemnification obligations hereunder in connection with a Third Person Claim that is not a Shareholder/Purchaser Claim, then the Indemnifying Persons shall have the right to assume the defense of that Third Person Claim at their own expense and by their own counsel, which counsel shall be reasonably satisfactory to the Indemnified Persons; provided, that, the Indemnifying Person may only assume the defense of a Third Person Claim if (i) the defense of that Third Person Claim by the Indemnifying Person does not, and would not reasonably be likely to, result in a Material Adverse Change on the business of the Indemnified Person (including the Business) and (ii) the Indemnifying Person has sufficient financial resources to satisfy the amount of any adverse monetary judgment that is reasonably likely to result. “Shareholder/Purchaser Claim” means a Shareholder Claim asserted against any Purchaser Indemnified Person. This Section 9.3(b) and Sections 9.3(c)–(d) shall not apply to Shareholder/Purchaser Claims, which shall instead be covered by Sections 9.3(a) and (e)–(g).

 

(c)     If the Indemnifying Persons assume the defense of a Third Person Claim, the Indemnifying Persons shall not be responsible for any legal or other defense costs subsequently incurred by the Indemnified Persons in connection with the defense thereof, but the Indemnified Persons shall nevertheless be entitled to participate in that defense with their own counsel and at their own expense. If the Indemnifying Persons do not exercise their right to assume the defense of a Third Person Claim by giving the written acknowledgement referred to in Section 9.3(b), the Indemnified Persons may defend the Third Person Claim and seek indemnity from the Indemnifying Persons for Litigation Expenses incurred in connection with that defense.

 

(d)     If the Indemnifying Persons exercise their right to assume the defense of a Third Person Claim, they shall not make any settlement of any claims without the prior written consent of the Indemnified Persons, which consent shall not be unreasonably withheld; provided, however, that if the Indemnifying Persons (i) propose the settlement of any Third Person Claim on terms that require the payment of money only and include a full and unconditional release of the Indemnified Persons in connection with that Third Person Claim and (ii) demonstrate to the reasonable satisfaction of the Indemnified Persons that the Indemnifying Persons are able to pay the required amount of money, and the Indemnified Persons do not consent thereto within 20 days after the receipt of written notice thereof, any Losses incurred by the Indemnified Persons in excess of that proposed settlement shall be at the sole expense of the Indemnified Persons.

 

(e)     The Purchaser Indemnified Persons shall diligently and reasonably defend each Shareholder/Purchaser Claim with reasonable, qualified counsel selected by the Purchaser Indemnified Persons, and the reasonable fees and expenses of that counsel and any other Litigation Expenses incurred by the Purchaser Indemnified Persons (including pursuant to Section 9.3(g)) in connection with a Shareholder/Purchaser Claim, whether during the defense of a Shareholder/Purchaser Claim or thereafter, shall be indemnifiable Losses under Section 9.1(a)(iv).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(f)     The Purchaser Indemnified Persons shall not settle any Shareholder/Purchaser Claim without the prior written consent of Harris FRC, which shall not be unreasonably withheld (it being understood that withholding consent on any settlement that does not (i) involve the release of money from the Escrow Account or (ii) require any obligations on Harris FRC shall be deemed unreasonable), except that the Purchaser Indemnified Persons may enter into a Qualifying Unilateral Settlement in their sole discretion, without the consent of Harris FRC, in which case the Purchaser Indemnifying Persons shall not be entitled to, and shall be deemed to have irrevocably waived and released, any and all right to indemnification under this Article IX and any and all other remedies that the Purchaser Indemnifying Persons, or any of them, may have against the Harris FRC Indemnifying Persons, or any of them, solely in connection with (i) that Qualifying Unilateral Settlement, including the amount paid in that Qualifying Unilateral Settlement, or (ii) any subsequent Losses solely in connection with that Shareholder/Purchaser Claim. A “Qualifying Unilateral Settlement” means a settlement of a Shareholder/Purchaser Claim that finally resolves that Shareholder/Purchaser Claim by a payment of money only, at the sole expense of the Purchaser Indemnified Persons, in exchange for a full and unconditional release of the Purchaser Indemnified Persons in that Shareholder/Purchaser Claim. For the avoidance of doubt, entry into a Qualifying Unilateral Settlement shall not otherwise release the Harris FRC Indemnifying Persons, or any of them, from their obligation to indemnify the Purchaser Indemnified Parties under this Article IX.

 

(g)     The Purchaser Indemnified Persons and Harris FRC shall consult and cooperate reasonably with one another in connection with the defense of any Shareholder/Purchaser Claim, including considering in good faith the views of one another concerning strategy in that defense and material submissions (including memoranda, briefs and arguments), negotiations (including settlement negotiations) and other material actions in connection with that defense, and reasonably exchanging information in connection with that defense, subject to appropriate confidentiality protections. However, (i) nothing in this Section 9.3(g) shall be deemed to be a waiver of any legal privilege of any Person or require any Person to take any action that would result in any such waiver, and (ii) the Purchaser Indemnified Persons shall remain in ultimate control of the defense of any Shareholder/Purchaser Claim, subject to the limitations set out in Sections 9.3(e) and (f).

 

  9.4 Survival of Representations and Warranties and Covenants.

 

(a)     The representations and warranties (other than Fundamental Representations) of Harris FRC contained in this Agreement or in any certificate delivered in connection with this Agreement shall survive the Closing until 12 months after the Closing Date, at which time they shall terminate, provided that the Fundamental Representations shall survive the Closing until 60 days after the expiration of the applicable statute of limitations, at which time they shall terminate. The covenants and other agreements of Harris FRC in this Agreement shall survive the Closing Date until fully performed or satisfied or until they terminate in accordance with their own terms.

 

(b)     The representations and warranties of Purchaser contained in this Agreement or in any certificate delivered in connection with this Agreement shall survive the Closing Date and shall terminate 12 months after the Closing Date, provided that the representations and warranties of Purchaser contained in Sections 6.1, 6.2 and 6.3 shall survive the Closing until 60 days after the expiration of the applicable statute of limitations. The covenants and other agreements of Purchaser contained in this Agreement shall survive the Closing Date until fully performed or satisfied or until they terminate in accordance with their own terms.

 

(c)     For convenience of reference, the date upon which any representation, warranty, covenant or agreement contained herein shall terminate, if any, is referred to herein as the “Survival Date.”

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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  9.5 Limitations on Indemnification.

 

(a)       Indemnity Limitations for Harris FRC Indemnifying Persons. Except in the

case of Fraud:

 

(i)     the Purchaser Indemnified Persons shall not have the right to be indemnified under Section 9.1(a)(i), except for any inaccuracy or breach of Fundamental Representations, unless and until the Purchaser Indemnified Persons (or any of them) incur on a cumulative basis aggregate Purchaser Losses in an amount exceeding [*]  (the “Threshold”), in which case the Purchaser Indemnified Persons’ right to be" indemnified shall apply from the first dollar of those Purchaser Losses; and

 

(ii)     the sum of all Purchaser Losses for which indemnification is payable by the Harris FRC Indemnifying Persons under Section 9.1(a) shall not exceed [*] (the “Cap”), except for Shareholder Claims, Excluded Liabilities and claims for inaccuracy or breach of Fundamental Representations, for which the sum of all Purchaser Losses for which indemnification is payable by the Harris FRC Indemnifying Persons under Section 9.1(a) shall not exceed the amount of the Cash Payment.

 

(b)        Indemnity Limitations for the Purchaser Indemnifying Persons. Except in the case of Fraud:

 

(i)      the Harris FRC Indemnified Persons shall not have the right to be indemnified under Section 9.1(b)(i) unless and until the Harris FRC Indemnified Persons (or any of them) incur on a cumulative basis aggregate Harris FRC Losses in an amount exceeding the Threshold, in which case the Harris FRC Indemnified Persons’ right to be indemnified shall apply from the first dollar of those Harris FRC Losses; and

 

(ii)      the sum of all Harris FRC Losses for which indemnification is payable by the Purchaser Indemnifying Persons under Section 9.1(b) shall not exceed the Cap.

 

(c)       DAMAGES LIMITATION. IN NO EVENT SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO THE OTHER PARTY TO THIS AGREEMENT, UNDER THIS AGREEMENT OR OTHERWISE IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT, FOR PUNITIVE, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, INCLUDING LOSS OF FUTURE REVENUE OR INCOME, LOSS OF BUSINESS REPUTATION OR OPPORTUNITY, OR DIMINUTION OF VALUE OR ANY DAMAGES BASED ON ANY TYPE OF MULTIPLE, EXCEPT, IN EACH CASE, (i) IN THE EVENT OF FRAUD, (ii) TO THE EXTENT THAT AN INDEMNIFIED PERSON IS REQUIRED TO PAY THOSE DAMAGES OR OTHER ITEMS TO A THIRD PERSON IN CONNECTION WITH A MATTER FOR WHICH THAT INDEMNIFIED PERSON IS ENTITLED TO INDEMNIFICATION UNDER THIS ARTICLE IX; OR (III) THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT THE PURCHASER’S RIGHT TO RECOVER FOR THE LOSS OF FUTURE ROYALTY PAYMENTS DUE UNDER ASSIGNED CONTRACTS THAT ARE REASONABLY FORSEEABLE AND DETERMINABLE.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(d)     Duty to Mitigate. Each Indemnified Person shall take, and cause its Affiliates to take, all reasonable steps to mitigate any Loss upon becoming aware of any event or circumstance that would be reasonably expected to, or does, give rise thereto, including incurring costs only to the minimum extent reasonably necessary to remedy the breach that gives rise to that Loss.

 

(e)     Exclusive Remedy. Except in the case of Fraud and to remedies to which a Party is entitled under Section 12.8, the rights and remedies provided for in this Article IX shall be the sole and exclusive remedies of the Indemnified Persons with respect to any matter arising under or related to this Agreement or the Contemplated Transactions.

 

9.6      [*]

 

[*]

 

ARTICLE X

 

POST-CLOSING COVENANTS

 

  10.1 Transfer of Purchased Assets.

 

Harris FRC shall cooperate with Purchaser to facilitate the efficient and expeditious transfer to Purchaser of the Purchased Assets.

 

10.2       Publicity.

 

Purchaser and its Affiliates may in their discretion issue press releases and otherwise make public announcements related to this Agreement and the Contemplated Transaction. Harris FRC shall not, and shall cause its Affiliates not to, issue any press release or make any other public announcement, written or oral, related to this Agreement or the Contemplated Transactions without Purchaser’s prior written consent.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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10.3       Confidentiality.

 

The Confidentiality Agreement dated as of January 3, 2020 (the “Confidentiality Agreement”), between Purchaser and Harris FRC, shall remain in full force and effect in accordance with its terms. All information disclosed or made available by a Party to the other Party before or after the Closing Date shall be subject to the terms of the Confidentiality Agreement, provided, however, that from and after the Closing, all confidential information (which is defined as “Confidential Information” under the Confidentiality Agreement) included in the Purchased Assets shall be treated as Confidential Information of Purchaser.

 

10.4       Consulting Agreement.

 

From and after the Closing, Harris FRC shall, or, if Harris FRC is not a party to the Consulting Agreement(s), shall cause the parties to the Consulting Agreements (other than Purchaser or its Affiliates) to, comply with the terms and conditions of the Consulting Agreement(s), including by providing the Services (as defined therein) in accordance with the terms thereof during the Consulting Period (as defined therein); provided, that, Harris FRC shall have no Liability to Purchaser or its Affiliates for a Person’s failure to so comply in the event that such failure is a result of such Person’s death or disability.

 

ARTICLE XI

 

TERMINATION

 

11.1       Termination.

 

This Agreement may be terminated at any time prior to the Closing:

 

(a)by the mutual consent of Harris FRC and Purchaser;

 

(b)          by Purchaser, if a breach of any representation or warranty or failure to perform any covenant or agreement, in each case on the part of Harris FRC, set out in this Agreement, occurs that would cause the condition set out in Sections 8.2(a) or 8.2(b) not to be satisfied, and that breach is incapable of being cured or is not cured by September 1, 2020 (the “Long-Stop Date”);

 

(c)           by Harris FRC, if a breach of any representation or warranty or failure to perform any covenant or agreement, in each case on the part of Purchaser, set out in this Agreement, occurs that would cause the condition set out in Sections 8.3(a) or 8.3(b) not to be satisfied, and that breach is incapable of being cured or is not cured by the Long-Stop Date;

 

(d)           by either Purchaser or Harris FRC if:

 

(i)        any permanent injunction or other Order of a Governmental Entity preventing the Closing becomes final and non-appealable; or

 

(ii)       the Closing is not completed on or before the Long-Stop Date;

 

provided, however, that (A) Purchaser shall not be entitled to terminate this Agreement under Section 11.1(b) or 11.1(d)(ii) if its breach of this Agreement has been the cause of or resulted in the failure of the condition to be satisfied, and (B) Harris FRC shall not be entitled to terminate this Agreement under Section 11.1(c) or 11.1(d)(ii) if its breach of this Agreement has been the cause of or resulted in the failure of the condition to be satisfied.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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11.2       Termination Procedures.

 

Any termination under Section 11.1(a) shall be effected by a written instrument signed by Purchaser and Harris FRC, and any other termination under Section 11.1 shall be effected by written notice from the Party so terminating to the other Party, which notice shall specify the Section of this Agreement under which this Agreement is being terminated.

 

11.3       Effect of Termination.

 

If this Agreement is terminated as provided in Section 11.1, this Agreement shall immediately become null and void and of no further force or effect, except (a) for this Section 11.3 and Article XII, each of which shall survive the termination of this Agreement; provided, however, the Confidentiality Agreement shall survive, and (b) that nothing herein shall relieve any Party from liability for Fraud or intentional breach of any provision of this Agreement.

 

ARTICLE XII

 

MISCELLANEOUS PROVISIONS

 

12.1       No Third Party Beneficiaries.

 

This Agreement and the Contemplated Transactions shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

 

12.2       Entire Agreement.

 

This Agreement and the Related Documents (including the schedules and the exhibits attached hereto) contain all of the agreements between the Parties or their Affiliates with respect to the Contemplated Transactions and supersede all prior agreements or understandings, whether written or oral, between the Parties or their Affiliates with respect thereto, including the Summary of Terms and Conditions, dated March 17, 2020, between Healthcare Royalty Management, LLC and Harris FRC.

 

12.3       Successors and Assigns.

 

All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither Party may assign any of its rights or obligations hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed, except that prior to the Closing, Purchaser may assign this Agreement to an Affiliate of Purchaser or to RCT (or an Affiliate of RCT), and from and after the Closing, Purchaser may assign any of its rights and obligations under this Agreement or any Related Document without restriction.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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12.4       Amendment; Waiver.

 

This Agreement shall not be altered or otherwise amended except pursuant to an instrument in writing signed by each Party. No obligation of Harris FRC to Purchaser shall be waived except by means of a writing signed by Purchaser, and no obligation of Purchaser to Harris FRC shall be waived except by means of a writing signed by Harris FRC. No waiver by either Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

 

12.5       Fees and Expenses.

 

Subject to Article IX and except as otherwise set out in this Agreement, each Party shall bear its own fees and expenses incurred in connection with this Agreement and the Related Documents and the completion of the Contemplated Transactions, including the legal, accounting and due diligence fees, costs and expenses incurred by that Party. The Escrow Agent’s fees shall be paid one-half by Harris FRC and one-half by Purchaser. The Expense Reimbursement Amount shall be paid by Harris FRC to Purchaser (a) if the Closing occurs, as a reduction to the Purchase Price in accordance with Section 3.1, or (b) if this Agreement is terminated (other than under Section 11.1(c)), by wire transfer of immediately available United States dollars to an account designated by Purchaser within five Business Days after that termination.

 

12.6       Notices.

 

All notices, amendments, waivers, or other communications pursuant to this Agreement shall be in writing and shall be deemed to be sufficient if delivered personally, sent by e-mail, sent by nationally-recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

(a)if to Purchaser, to:

 

c/o HealthCare Royalty Partners IV, LP

300 Atlantic Street, Suite 600

Stamford, CT 06901

Attention:     Clarke B. Futch

Telephone:   (203) 487-8301

E-mail:         clarke.futch@hcroyalty.com

 

with a copy to:

 

Morgan, Lewis & Bockius LLP

1701 Market Street

Philadelphia, PA 19103-2921

Attention:     Andrew R. Mariniello

Telephone:   (215) 963-4947

E-mail:          andrew.mariniello@morganlewis.com

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)if to Harris FRC to:

 

Harris FRC Corporation

1715 Route 35, Suite 304

Middletown, New Jersey 07748

Attention:     Paul M. Petigrow, Vice President

Telephone:   (732) 739-2018

E-mail:           ppetigrow@harrisfrc.com

 

with a copy to:

 

Carter Ledyard & Milburn LLP

2 Wall Street

New York, New York 10005-2072

Attention:     Keith Nowak, Esq.

John M. Griem, Esq.

Bryan J. Hall, Esq.

  Telephone:    (212) 732-3200

  E-mail:          nowak@clm.com

greim@clm.com

hall@clm.com

 

All notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery or delivery by e-mail, on the date of delivery if delivered during business hours on a Business Day or, if not delivered during business hours on a Business Day, the first Business Day thereafter, (ii) in the case of delivery by nationally-recognized overnight courier, on the Business Day delivered, and (iii) in the case of mailing, on the 5th Business Day following mailing.

 

12.7       Governing Law; Jurisdiction and Venue; Waiver of Jury Trial.

 

(a)           All questions concerning the construction, interpretation and validity of this Agreement and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement shall be governed by and construed and enforced in accordance with the domestic Laws of the State of New York, without giving effect to any choice or conflict of Law provision or rule, whether in the State of New York or any other jurisdiction, that would cause the Laws of any jurisdiction other than the State of New York to apply. In furtherance of the foregoing, the internal Law of the State of New York shall control the interpretation and construction of this Agreement, even if under the State of New York’s choice of Law or conflict of Law analysis, the substantive Law of some other jurisdiction would ordinarily or necessarily apply.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)             THE NEW YORK STATE AND UNITED STATES FEDERAL COURTS SITTING IN NEW YORK COUNTY, NEW YORK, AND ANY OTHER COURT IN ANY OTHER JURISDICTION IN WHICH AN ACTION IS BROUGHT AGAINST A PARTY TO THIS AGREEMENT BY A THIRD PERSON ASSERTING A CLAIM AGAINST WHICH THE DEFENDANT IS ENTITLED UNDER THIS AGREEMENT TO BE INDEMNIFIED, SHALL HAVE EXCLUSIVE JURISDICTION OVER ALL ACTIONS, SUITS AND PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE DOCUMENTS RELATED HERETO, AND EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION OR PROCEEDING OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE OR UNITED STATES FEDERAL COURT OR SUCH OTHER COURT AS IS PROVIDED FOR IN THE PRECEDING SENTENCE AND 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. SERVICE OF ANY PROCESS OR OTHER DOCUMENT BY REGISTERED MAIL OR NATIONALLY RECOGNIZED OVERNIGHT DELIVERY SERVICE TO THE ADDRESS FOR THE PARTY RECEIVING THAT SERVICE SET OUT IN THIS AGREEMENT, OR SUCH OTHER ADDRESS AS THAT PARTY MAY SPECIFY IN WRITING TO THE OTHER PARTY FROM TIME TO TIME, SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUCH ACTION, SUIT OR PROCEEDING IN ANY SUCH COURT.

 

(c)            EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE DOCUMENTS RELATED HERETO IN ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY, NEW YORK OR SUCH OTHER COURT AS IS PROVIDED FOR IN THE IMMEDIATELY PRECEDING PARAGRAPH. EACH PARTY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

(d)           BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX BUSINESS TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WANT APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING THOSE APPLICABLE LAWS. ACCORDINGLY, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM, EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED DOCUMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH THAT LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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12.8       Specific Performance.

 

Irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, without bond or other security being required, this being in addition to any other remedy to which they are entitled at law or in equity.

 

12.9       Interpretation; Construction.

 

(a)           “Agreement” means this agreement together with all schedules and exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The use in this Agreement of the term “including” or “include” means “including, without limitation” or “include, without limitation.” The words “herein,” “hereof,” “hereunder,” “hereby,” “hereto,” “hereinafter,” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular article, section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to articles, sections, subsections, clauses, paragraphs, schedules and exhibits mean those provisions of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the article, section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require.

 

(b)            Where specific language is used to clarify by example a general statement contained herein, that specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement has been chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Accounting terms used but not otherwise defined herein shall have the meanings given to them under GAAP. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

-33-

 

 

12.10      Incorporation of Exhibits, Schedules and Annexes.

 

The Exhibits, Schedules and Annexes identified in this Agreement are incorporated herein by reference and made a part hereof.

 

12.11     Independence of Covenants and Representations and Warranties.

 

All covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain covenant, the fact that that action or condition is permitted by another covenant shall not affect the occurrence of that default, unless expressly permitted under an exception to that initial covenant. In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached shall not affect the incorrectness of or a breach of a representation and warranty hereunder.

 

12.12     Severability.

 

The Parties want the provisions of this Agreement be enforced to the fullest extent permissible under the Law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, that provision, as to that jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of that provision in any other jurisdiction. Notwithstanding the foregoing, if that provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in that jurisdiction, it shall, as to that jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of that provision in any other jurisdiction.

 

12.13     Counterparts; Electronic Signatures.

 

This Agreement may be executed in 2 or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Electronic counterpart signatures to this Agreement shall be deemed to be original and shall be acceptable and binding.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

-34-

 

 

12.14     Conflict Waiver.

 

Following consummation of the Contemplated Transactions, Carter Ledyard & Milburn LLP (including John M. Griem, Jr.) (“CLM”) may serve as counsel to Purchaser or its Affiliates, notwithstanding CLM’s representation of Harris FRC in connection with matters relating to the Contemplated Transactions or any continued representation by CLM of Harris FRC following the Closing, including in the event of a dispute between the Parties following the Closing. Each of the Parties consents to such representation by CLM of Purchaser or its Affiliates and waives any conflict of interest arising therefrom.

 

*       *        *

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

-35-

 

 

IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as of the date first written above.

 

  PURCHASER:
     
  HARRIS FRC ACQUISITION, LP
  By: Harris FRC Acquisition GP, LLC, its General Partner
     
  By: /s/ Clarke B. Futch
  Name: Clarke B. Futch
  Title: Managing Partner
     
  HARRIS FRC:
     
  HARRIS FRC CORPORATION
     
  By:  
  Name:  
  Title:  

 

[Signature Page to Asset Purchase Agreement]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as of the date first written above.

 

  PURCHASER:
     
  HARRIS FRC ACQUISITION, LP
  By: Harris FRC Acquisition GP, LLC, its General Partner
     
  By:
  Name:
  Title:
     
  HARRIS FRC:
     
  HARRIS FRC CORPORATION
     
  By: /s/ Mary Ellen Harris
  Name: Mary Ellen Harris
  Title: President

 

[Signature Page to Asset Purchase Agreement]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

ANNEX I

 

CERTAIN DEFINITIONS

 

Affiliate” means, with respect to any Person (i) a director, officer or 5% or greater shareholder of that Person, (ii) a spouse, parent, sibling or descendant of that Person (or spouse, parent, sibling or descendant of any director or executive officer of that Person), and (iii) any other Person that, directly or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, that Person.

 

Another Transaction” means the sale of any Purchased Assets or other material assets of Harris FRC or the sale or issuance, directly or indirectly by merger, consolidation or otherwise, of the majority of the outstanding common stock of Harris FRC.

 

Business” business of maintaining and protecting the Transferred Intellectual Property and other rights relating to the Product, collecting distributions and royalties relating to sales of the Product and complying with and enforcing its rights under the Assigned Contracts.

 

Business Day” means any day that is not a Saturday, Sunday or a day on which banking institutions in New York, New York are not required to be open.

 

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

 

Contemplated Transactions” means the transactions contemplated by this Agreement and the Related Documents.

 

Contract” means any agreement, contract, license, lease, commitment, arrangement or understanding, whether written or oral.

 

Control” means, with respect to any Person, 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 ownership of voting securities, by contract or otherwise.

 

Employee Benefit Plan” means (i) any tax qualified or non-qualified Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA), including any Multiemployer Plan or Multiple Employer Plan, (ii) any Employee Welfare Benefit Plan (as defined in Section 3(1) of ERISA), or (iii) any employee benefit, welfare benefit, fringe benefit, compensation, deferred compensation, incentive, profit sharing, bonus, disability, medical, hospitalization, dental, life or other insurance, tuition, company car, club dues, sick leave, maternity, paternity or family leave, severance, change of control, parachute, stock option, stock purchase or other plan, program or arrangement, whether oral or written, whether or not subject to ERISA and whether or not funded.

 

Encumbrances” means any security interests, mortgages, deeds of trust, liens, pledges, charges, claims, easements, reservations, restrictions, clouds, equities, rights of way, options, rights of first refusal, grants of power to confess judgment, conditional sales and title retention agreements (including any lease in the nature thereof) and all other encumbrances, whether or not relating to the extension of credit or the borrowing of money.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Annex I-1

 

 

 

Environmental, Health and Safety Laws” means all Laws, Permits and Contracts with Governmental Entities relating to or addressing pollution or protection of the environment or natural resources, releases of Hazardous Materials, public health and safety or employee health and safety, including the Solid Waste Disposal Act, as amended, 42 U.S.C. §6901, et seq., the Clean Air Act, as amended, 42 U.S.C. §7401 et seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C. §1251 et seq., the Emergency Planning and Community Right-to-Know Act, as amended, 42 U.S.C. §11001 et seq., the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. §9601 et seq., the Hazardous Materials Transportation Uniform Safety Act, as amended, 49 U.S.C. §1804 et seq., the Occupational Safety and Health Act of 1970, as amended, the regulations promulgated thereunder, and any similar Laws and other requirements having the force or effect of Law, and all Orders issued or promulgated thereunder, and all related common law theories, provided, however, that Environmental, Health and Safety Laws shall not include the Food, Drug and Cosmetic Act, 21 U.S.C. §321 et. seq. or any Laws, rules and regulations administered or issued by the FDA.

 

ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

ERISA Affiliate” means any Person that, together with Harris FRC, is or was at any time treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which the Harris FRC is or has been a general partner.

 

Escrow Amount” means [*].

 

Escrow Agent” means Citizens Bank, National Association.

 

Escrow Agreement” means the Escrow Agreement by and among Harris FRC, Purchaser and Escrow Agent.

 

Expense Reimbursement Amount” means an amount equal to Purchaser’s documented out-of-pocket legal, accounting and due diligence fees, costs and expenses payable to third parties in connection with this Agreement and the Contemplated Transactions up to a maximum amount of [*].

 

FDA” means the U.S. Food and Drug Administration.

 

Fraud” means a claim for common law fraud with a specific intent to deceive based on a representation contained in this Agreement that meets the following criteria: (a) at the time that representation was made, (i) that representation was materially inaccurate, (ii) the party making that representation had actual knowledge of the material inaccuracy of that representation, (iii) the party making that representation had the specific intent to deceive the other party, and (b) the other party acted in reliance on that inaccurate representation and suffered financial injury or Loss as a result of that material inaccuracy.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Annex I-2

 

 

Fundamental Documents” means the documents by which any Person (other than an individual) establishes its legal existence or which govern its internal affairs. For example, the “Fundamental Documents” of a corporation are its certificate of incorporation and by-laws.

 

Fundamental Representations” means the representations and warranties of Harris FRC set out in Sections 5.1, 5.2, 5.3, 5.8 and 5.9.

 

GAAP” means United States generally accepted accounting principles as consistently applied by Purchaser.

 

Governmental Entity” means any federal, state, local or foreign government or quasi-governmental or regulatory body thereof, or any political subdivision, court, tribunal, arbitral body (or any department, bureau or division thereof), administrative agency, commission or department or other governmental authority or instrumentality.

 

Harris FRC Indemnified Persons” means Harris FRC and its Affiliates, successors and assigns and the officers, directors and employees of each of the foregoing.

 

Harris FRC Indemnifying Persons” means Harris FRC and its successors and assigns.

 

Harris FRC Losses” means any and all Losses sustained, suffered or incurred by any Harris FRC Indemnified Person.

 

Hazardous Materials” means any hazardous or toxic chemicals, materials or substances, pollutants, contaminants or crude oil or any fraction thereof (including as those terms are defined under any Environmental, Health and Safety Law).

 

HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

Indemnified Persons” means and includes the Harris FRC Indemnified Persons or the Purchaser Indemnified Persons, as the case may be.

 

Indemnifying Persons” means and includes the Harris FRC Indemnifying Persons or the Purchaser Indemnifying Persons, as the case may be.

 

Intellectual Property Rights” means all intellectual property rights including all Patents, Trademarks, Trade Names, domain names, websites, internet addresses and applications for any of the foregoing, copyrights, copyright rights, Know-How, computer software, confidential information, franchises, licenses, inventions, marketing materials and other intellectual property, and all documentation and media constituting, describing or relating to the foregoing, including software, manuals, memoranda and records of a Person.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Annex I-3

 

 

Know-How” means all know-how, technology, techniques, processes, methods and other trade secrets and confidential information, including invention records, research records and reports, development reports, experimental and other engineering reports, formulae, business methods, product designs, specifications, quality control procedures, gauging and measuring procedures, and manufacturing, engineering and other drawings, photographs, data and documentation.

 

Knowledge” of any Person means the actual knowledge of that Person after due inquiry. When used in the case of Harris FRC, the term “Knowledge” means the Knowledge of Mary Ellen Harris, Paul M. Petigrow and Charles Grinnell. When used in the case of Purchaser, the term “Knowledge” means the actual knowledge of Clarke B. Futch and Anthony G. Rapsomanikis.

 

Law” means any law (including common law), statute, constitution, treaty, ordinance, code, rule, official administrative pronouncement, directive, regulation, guideline or Order of any Governmental Entity.

 

Liability” means any liability, commitment or obligation of any nature whatsoever, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted.

 

Litigation Expense” means any expenses incurred in connection with investigating, defending or asserting any claim, legal or administrative action, suit or Proceeding incident to any matter indemnified against under Article IX, including court filing fees, court costs, arbitration fees or costs, witness fees and fees and disbursements of legal counsel, investigators, expert witnesses, accountants and other professionals.

 

Losses” means any and all losses, claims, shortages, damages, liabilities, expenses (including reasonable attorneys’ and accountants’ and other professionals’ fees and Litigation Expenses), assessments, and Taxes arising from or in connection with any matter that is the subject of indemnification under Article IX net of any amounts recovered by the Indemnified Persons under insurance policies with respect to that Loss.

  

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Annex I-4

 

 

Material Adverse Change” means any event, occurrence, fact, condition or change that is, individually or in the aggregate with all other events, occurrences, facts, conditions or changes, materially adverse to the Business, results of operations, financial condition or assets of Harris FRC (or other Person, as applicable), taken as a whole, except that none of the following events, occurrences, facts, conditions or changes shall be deemed to constitute, or contribute to, a “Material Adverse Change”: (a) any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries related to the Purchased Assets; (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted to be taken by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request of Purchaser; (vi) any matter of which Purchaser has Knowledge on the date of this Agreement; (vii) any changes in applicable Laws or accounting rules (including GAAP) or the enforcement, implementation or interpretation thereof; (viii) the announcement, pendency or completion of the transactions contemplated by this Agreement; (ix) any natural or man-made disaster or acts of God; or (b) any failure by the Harris FRC to meet any internal or published projections, forecasts or revenue or earnings predictions (but the underlying causes of those failures (subject to the other provisions of this definition) shall not be excluded).

 

Orders” means judgments, writs, decrees, compliance agreements, injunctions or orders of any Governmental Entity or arbitrator.

 

Patents” means all pending, abandoned, expired, completed and issued U.S. and foreign patents and applications therefor, including all reissues, re-examinations, divisions, continuations, continuations-in-part and extensions thereof, foreign equivalents thereto and provisional and non-provisional applications, including Patent Cooperation Treaty (PCT) and regional patent applications, and all patents issued on those applications.

 

Permits” means all permits, licenses, authorizations, licenses, registrations, franchises, approvals, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Entities.

 

Permitted Encumbrances” means (i) Encumbrances for Taxes not yet due and payable and (ii) mechanic’s, materialman’s, supplier’s, vendor’s or similar liens arising in the ordinary course of business securing amounts that are not delinquent.

 

Person” shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or another entity including a Governmental Entity.

 

Proceedings” means actions, suits, claims, litigations, hearings, complaints, grievances, inquiries, audits, examinations, investigations or legal or administrative or arbitration proceedings.

 

Purchaser Indemnified Persons” means Purchaser, its Affiliates, successors and assigns, and the Representatives of each of the foregoing.

 

Purchaser Indemnifying Persons” means Purchaser and its successors and assigns.

 

Purchaser Losses” means any and all Losses sustained, suffered or incurred by any Purchaser Indemnified Person.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Annex I-5

 

 

 

Representatives” means officers, directors, employees, agents, attorneys, accountants and financial advisors of Purchaser or Harris FRC, as the case may be.

 

Requisite Shareholder Approval” means the approval and authorization of this Agreement and the Contemplated Transactions by the requisite shareholders of Harris FRC in accordance with the Fundamental Documents of Harris FRC and applicable Law.

 

Shareholder Claims” means any and all Proceedings brought against Harris FRC or its Affiliates (or the Purchaser or its Affiliates) by any of its current or former equity holders (whether actual or purported) or any of their Affiliates, or any other Person seeking to assert, or based upon, ownership or rights to ownership of, or to compensation with respect to, or arising under, any equity securities of Harris FRC, the Business or the Purchased Assets, whether prior to or following the date of this Agreement or the Closing.

 

Tax” or “Taxes” means (i) all income taxes (including any tax on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings or profits) and all gross receipts, escheat, unclaimed property, estimated, consumption, value added, documentary, transfer, capital, goods and services, business, sales, use, ad valorem, transfer, franchise, license, withholding (including backup withholding), payroll, employment, excise, environmental (including taxes under Code Section 59A), social security, severance, stamp, occupation, premium, property or windfall profits taxes, alternative or add-on minimum taxes, customs duties and other taxes, fees, assessments or charges of any kind whatsoever, together with all interest and penalties, additions to tax and other additional amounts imposed by any Taxing Authority (domestic or foreign) and (ii) any liability for the payment of any amount of the type described in clause (i) above as a result of (A) being a “transferee” (within the meaning of Section 6901 of the Code or any other applicable Law) or successor of another Person, (B) being a member of an affiliated, combined, consolidated unitary or similar group or (C) a contractual arrangement or otherwise.

 

Tax Return” means any return, declaration, report, claim for refund, or information return or other document or statement filed or required to be filed with any Taxing Authority relating to Taxes, including any schedule, annex, supplement or attachment thereto, and including any amendment of any of the foregoing.

 

Taxing Authority” means any Governmental Entity that has the authority to determine the amount of or collect any Taxes.

 

Trademarks” means all pending, expired, abandoned, registered, unregistered, and common law U.S. and foreign trademark applications and trademarks, service mark applications and service marks, designs, logos, and trade dress, including the goodwill related to the foregoing, and all federal and state registrations thereof, and all trademarks and service marks issued on those applications.

 

Trade Names” means (i) names, (ii) brand names, (iii) business names and (iv) logos and all other names and slogans.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Annex I-6 

 

 

SCHEDULE 1.1(F)

 

LITIGATION AGREEMENTS

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 1.1(G)

 

ASSIGNED TRADEMARKS

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 3.2

 

REVENUE BY COUNTRY

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.1

Foreign Qualification

 

New Jersey, state of incorporation.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.2(c)

Harris FRC Authority; Noncontravention; Consents

 

The Contemplated Transactions must be approved by the board of directors and a majority of the shareholders of Harris FRC.

 

Second Amended and Restated License Agreement, dated December 17, 2010, between Harris FRC and Research Corporation Technologies, Inc.

 

      Written notice must be given to RCT prior to assignment (Section 7.18).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.2(D)

 

CAPITALIZATION

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.4(A)

 

INTELLECTUAL PROPERTY MATTERS

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.4(b)

Intellectual Property Protections

 

See Schedule 1.1(g).

 

Harris FRC is periodically notified by UCB of necessary renewal filings related to the Transferred Intellectual Property and executes necessary documentation as requested. UCB is responsible for the registration, maintenance and renewal of the Assigned Trademarks.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.5(a)

Agreements

 

None.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.5(B)

 

NO DEFAULTS

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.5(C)

 

ROYALTIES

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.5(D)

 

CORRESPONDENCE, REPORTS, NOTICES, ETC.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.5(E)

 

ROYALTIES, ETC., RECEIVED AND PAID

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.6

 

LITIGATION, ETC.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.8

Taxes.

 

None.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Section 5.9

Brokers.

 

Harris FRC has engaged Imperial Capital, LLC as the exclusive financial adviser to Harris FRC in connection with the Contemplated Transactions.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.11

Absence of Changes.

 

See Schedule 5.9. At Harris FRC’s request, Imperial Capital, LLC conducted an auction process for the Business, which has culminated in the Contemplated Transactions.

 

In response to the COVID-19 pandemic, New Jersey Governor Philip D. Murphy has enacted executive orders directing residents to stay at home and limiting the operation of nonessential business. To comply with the executive orders and help ensure the health and safety of its employees, beginning in March 2020, Harris FRC has caused its employees to work from home. Remote working is a departure from Harris FRC’s past practice and has mainly affected administrative work requiring a physical presence in the Harris FRC office.

 

The COVID-19 pandemic appears to have affected prescribing and dispensing patterns for VIMPAT, including an acceleration of VIMPAT prescribing and dispensing around the end of Q1 2020 and a slowdown in VIMPAT prescribing and dispensing around the beginning of Q2 2020. Disruptions to the health care system as a result of government restrictions and an overload of COVID-19 patients appear to have caused a slowdown in new patients starting on VIMPAT, perhaps as a result of difficulties in completing the required diagnostic work. Increased unemployment as a result of COVID-19-related economic disruptions, which can result in loss of health insurance and economic constraints for current and prospective VIMPAT patients, may adversely affect VIMPAT sales.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

SCHEDULE 5.14(A)

 

BUSINESS EMPLOYEES

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 5.14(b)

Employee Benefit Plans.

  

      Health Insurance: Horizon Direct Access Platinum Plan

 

      Dental and Vision Insurance: Guardian DentalGuard/Vision

 

      Harris FRC Corporation 401K Plan

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Schedule 6.2

Purchaser Authority; Noncontravention; Consents.

 

None.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

EX-10.9 12 tm2113163d7_ex10-9.htm EXHIBIT 10.9

 

Exhibit 10.9

 

EXECUTION COPY

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

PURCHASE AND SALE AGREEMENT

 

DATED AS OF FEBRUARY 2, 2017

 

BETWEEN

 

PORTOLA PHARMACEUTICALS, INC.,

 

AS SELLER,

 

AND

 

THE ENTITIES MANAGED BY

HEALTHCARE ROYALTY MANAGEMENT, LLC IDENTIFIED HEREIN,

 

COLLECTIVELY AS PURCHASER

 

 

 

 

 

Table of Contents

 

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ARTICLE I DEFINED TERMS AND RULES OF CONSTRUCTION 1
  Section 1.1 Defined Terms 1
  Section 1.2 Rules of Construction 14
ARTICLE II PURCHASE AND SALE OF THE PURCHASED RECEIVABLES 15
  Section 2.1 Purchase and Sale 15
  Section 2.2 Purchase Amount 16
  Section 2.3 No Assumed Obligations 16
  Section 2.4 Excluded Assets 16
ARTICLE III PAYMENTS FOR PURCHASED RECEIVABLES 16
  Section 3.1 Payments on Account of the Purchased Receivables 16
  Section 3.2 Payment Accounts 17
  Section 3.3 Payment Mechanics and Disbursement Account Management 18
  Section 3.4 Mode of Payment/Currency Exchange 20
  Section 3.5 Included Product Payment Reports and Records Retention 20
  Section 3.6 Audits 20
  Section 3.7 Transaction Expenses 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER 21
  Section 4.1 Organization 21
  Section 4.2 No Conflicts 22
  Section 4.3 Authorization 22
  Section 4.4 Ownership 22
  Section 4.5 Governmental and Third Party Authorizations 23
  Section 4.6 No Litigation 23
  Section 4.7 Solvency 23
  Section 4.8 Tax Matters 24
  Section 4.9 No Brokers’ Fees 24

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

 

Table of Contents
(cont’d)

 

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  Section 4.10 Compliance with Laws 24
  Section 4.11 Intellectual Property Matters 24
  Section 4.12 Margin Stock 25
  Section 4.13 Regulatory Compliance 25
  Section 4.14 Material Contracts 26
  Section 4.15 Bankruptcy 26
  Section 4.16 Office Locations; Names 27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 27
  Section 5.1 Organization 27
  Section 5.2 No Conflicts 27
  Section 5.3 Authorization 27
  Section 5.4 Governmental and Third Party Authorizations 28
  Section 5.5 No Litigation 28
  Section 5.6 Access to Information 28
  Section 5.7 No Brokers’ Fees 28
  Section 5.8 Funds Available 28
ARTICLE VI COVENANTS   29
  Section 6.1 True Sale 29
  Section 6.2 Precautionary Security Interest in Purchased Receivables 29
  Section 6.3 Update Meetings 30
  Section 6.4 Notices 31
  Section 6.5 Public Announcement 32
  Section 6.6 Further Assurances 32
  Section 6.7 Patent Rights 34
  Section 6.8 Tax Matters 34
  Section 6.9 Existence 35

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Table of Contents
(cont’d)

 

      Page
  Section 6.10 Commercialization of the Included Product 35
  Section 6.11 Material Contracts 35
  Section 6.12 Adverse Effect 36
ARTICLE VII THE CLOSING   36
  Section 7.1 Closing 36
  Section 7.2 Conditions to Subsequent Closing 36
  Section 7.3 Closing Deliverables of the Seller 37
  Section 7.4 Closing Deliverables of the Purchaser 38
ARTICLE VIII CONFIDENTIALITY 38
  Section 8.1 Confidentiality; Permitted Use 38
  Section 8.2 Exceptions 39
  Section 8.3 Permitted Disclosures 39
  Section 8.4 Return of Confidential Information 39
ARTICLE IX INDEMNIFICATION 40
  Section 9.1 Indemnification by the Seller 40
  Section 9.2 Indemnification by the Purchaser 40
  Section 9.3 Procedures 41
  Section 9.4 Other Claims 42
  Section 9.5 Exclusive Remedy 42
  Section 9.6 Limitations 43
ARTICLE X MISCELLANEOUS   43
  Section 10.1 Survival 43
  Section 10.2 Specific Performance 43
  Section 10.3 Notices 44
  Section 10.4 Successors and Assigns 45
  Section 10.5 Independent Nature of Relationship 46

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Table of Contents
(cont’d)

 

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  Section 10.6 Entire Agreement 46
       
  Section 10.7 Governing Law 46
       
  Section 10.8 Waiver of Jury Trial 47
       
  Section 10.9 Severability 47
       
  Section 10.10 Counterparts 47
       
  Section 10.11 Amendments; No Waivers 47
       
  Section 10.12 No Third Party Rights 48
       
  Section 10.13 Table of Contents and Headings 48

 

Schedule 1.1 Knowledge Persons
Schedule 4.11 Patent Rights
Schedule 4.14(a) Material Contracts
Exhibit A Form of Bill of Sale
Exhibit B Form of Press Release
Exhibit C Basic Intercreditor Terms
Exhibit D Second Closing Condition

Annex I Purchaser Entities

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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PURCHASE AND SALE AGREEMENT

 

This PURCHASE AND SALE AGREEMENT (this “Agreement”) dated as of February 2, 2017 is between PORTOLA PHARMACEUTICALS, INC., a Delaware corporation (the “Seller”), and the entities managed by HealthCare Royalty Management, LLC set forth on Annex I (collectively, the “Purchaser”). Each of Seller and Purchaser are referred to in this Agreement as a “Party” and collectively as the “Parties”.

 

W I T N E S S E T H:

 

WHEREAS, the Seller is developing the product andexanet alfa for the purposes of sale in the Territory (including in the United States under the trademark AndexXaTM) for use in reversing anticoagulation caused by Factor Xa inhibitors; and

 

WHEREAS, the Seller desires to sell, assign, transfer, convey and grant to the Purchaser, and the Purchaser desires to purchase, acquire and accept from the Seller, the Purchased Receivables described herein, upon and subject to the terms and conditions set forth in this Agreement;

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements, representations and warranties set forth herein and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto covenant and agree as follows:

 

Article I

DEFINED TERMS AND RULES OF CONSTRUCTION

 

Section 1.1           Defined Terms. The following terms, as used herein, shall have the following respective meanings:

 

Additional Collateral” means all of Seller’s right, title and interest in, to and under, the following property, whether now owned or hereafter acquired:

 

(a)            the Collection Account and the Disbursement Account;

 

(b)            all rights (contractual and otherwise and whether constituting accounts, contract rights, financial assets, cash, investment property or general intangibles) arising under, connected with or in any way related to the Collection Account and the Disbursement Account; and

 

(c)            all proceeds resulting from the assets described in the foregoing clauses (a) and (b).

 

Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, “control” of a Person means the possession, directly or indirectly, of the power

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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to direct or cause the direction of the management and policies of such Person, whether through the ownership of securities entitled to elect the board of directors or management board, by contract or otherwise, and the terms “controlled” and “controlling” have meanings correlative to the foregoing.

 

Annual Net Sales” means, with respect to any Calendar Year, the aggregate amount of worldwide Net Sales in the Territory for that Calendar Year.

 

Applicable Law” means, with respect to any Person, all laws, rules, regulations and orders of Governmental Authorities applicable to such Person or any of its properties or assets.

 

Applicable Tiered Percentage” means the percentage based on the applicable portion of Annual Net Sales and the Purchase Amount, as set forth in the chart below, and calculated as follows: (a) with respect to a Purchase Amount pursuant to Section 2.2(a) only, the percentage set forth in the applicable row of column 1, or (b) with respect to a Purchase Amount pursuant to both Section 2.2(a) and Section 2.2(b), the sum of (i) the percentage set forth in the applicable row of column 1, plus (ii) the percentage set forth in the applicable row of column 2:

 

Royalty Tiers based on Annual Net Sales 1. If the Purchase Amount is Pursuant to
Section 2.2(a) Only
2. If the Purchase Amount is Pursuant to Section 2.2
(b), Add to Column 1:
     
A.     Portion of Annual Net Sales less than or equal to $150,000,000 2.0% 5.85%
B.     Portion of Annual Net Sales exceeding $150,000,000 and less than or equal to $[*] 2.0% [*]%
C.     Portion of Annual Net Sales in excess of $[*] 2.0% 1.58%

 

provided that as illustrated in the financial analysis separately provided and agreed to by the Parties, (a) if the Approval Condition has not been satisfied before [*] then each of the percentages set forth in the applicable rows of column 1 shall be increased by [*]% for each Calendar Quarter, starting with [*], until [*] and, in addition, (b) if the Manufacturing Approval Condition has not been satisfied before October 1, 2018, then each of the percentages set forth in the applicable row of column 1 shall be increased by [*]% for each Calendar Quarter starting with [*], until [*].

 

Approval Conditions” means either (a) the satisfaction of the condition set forth on Exhibit D, or (b) the receipt from the EMA of Marketing Authorization for the Included Product.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Bankruptcy Event” means the occurrence of any of the following in respect of a Person: (a) such Person shall generally not, shall be unable to, or an admission in writing by such Person of its inability to, pay its debts as they come due or a general assignment by such Person for the benefit of creditors; (b) the filing of any petition or answer by such Person seeking to adjudicate itself as bankrupt or insolvent, or seeking for itself any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of such Person or its debts under any Applicable Law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar Applicable Law now or hereafter in effect, or seeking, consenting to or acquiescing in the entry of an order for relief in any case under any such Applicable Law, or the appointment of or taking possession by a receiver, trustee, custodian, liquidator, examiner, assignee, sequestrator or other similar official for such Person or for any substantial part of its property; (c) corporate or other entity action taken by such Person to authorize any of the actions set forth in clause (a) or clause (b) above; or (d) without the consent or acquiescence of such Person, the commencement of an action seeking entry of an order for relief or approval of a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar Applicable Law, or the filing of any such petition against such Person, or, without the consent or acquiescence of such Person, the commencement of an action seeking entry of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person, in each case where such petition or order shall remain unstayed or shall not have been stayed or dismissed within 90 days from entry thereof.

 

Bill of Sale” means that certain bill of sale dated as of the Closing Date executed by the Seller and the Purchaser substantially in the form of Exhibit A.

 

Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by Applicable Law to remain closed.

 

Calendar Quarter” means, for the first calendar quarter, the period beginning on the Closing Date and ending on the last day of the calendar quarter in which the Closing Date falls, and thereafter each successive period of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31.

 

Calendar Year” means (a) for the first such Calendar Year the period beginning on First Commercial Sale of the Included Product and ending on December 31 of the year in which such First Commercial Sale occurs, (b) for each year of the Term thereafter, each successive period beginning on January 1 and ending twelve (12) consecutive calendar months later on December 31, and (c) for the last year of the Term, the period beginning on January 1 of the year in which this Agreement expires or terminates and ending on the effective date of expiration or termination of this Agreement.

 

Capital Securities” means, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital, whether now outstanding or issued after the Closing Date, including common shares, ordinary shares, preferred shares, membership interests or share capital in a limited liability company or other Person, limited or general partnership interests in a partnership, beneficial interests in trusts or any other equivalent of such ownership interest or any options, warrants and other rights to acquire such shares or interests, including rights to allocations and distributions, dividends, redemption payments and liquidation payments.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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CDA” means the Confidentiality Agreement dated as of [*] by and between HealthCare Royalty Management, LLC and the Seller.

 

Closing” has the meaning set forth in Section 7.1.

 

Closing Date” means the Initial Closing Date or Subsequent Closing Date, as applicable.

 

Code” means the U.S. Internal Revenue Code of 1986, as amended, and the regulations thereunder.

 

Collateral” means the Additional Collateral and, in the event of a Recharacterization, the Purchased Receivables and the proceeds thereof.

 

Collection Account” means the deposit account established and maintained at any Depositary Bank solely for the purpose of receiving remittance of proceeds of accounts and royalty receivables of the Seller arising from sales of the Included Product and disbursement thereof as provided herein, and any successor Collection Account entered into in accordance with Section 3.2(c).

 

Combination Product” means an Included Product that is comprised of or contains the Compound in addition to one or more additional active ingredients (whether co-formulated or co-packaged) that are neither the Compound nor generic or other non-proprietary compositions of matter. Pharmaceutical dosage form vehicles, adjuvants and excipients shall be deemed not to be “active ingredients”.

 

Commercialization” means, on a country-by-country basis, any and all activities with respect to the manufacture, distribution, marketing, detailing, promotion, selling and securing of reimbursement of the Included Product in a country after Marketing Authorization for the Included Product in that country has been obtained, which shall include, as applicable, post-marketing approval studies, post-launch marketing, promoting, detailing, marketing research, distributing, customer service, selling the Included Product, importing, exporting or transporting the Included Product for sale, and regulatory compliance with respect to the foregoing. When used as a verb, “Commercialize” means to engage in Commercialization.

 

Commercially Reasonable and Diligent Efforts” means, with respect to the efforts to be expended with respect to any Included Product in any country or regulatory jurisdiction, such efforts and resources normally used by a reasonably prudent company of a size and product portfolio comparable to Seller and its Subsidiaries in the biopharmaceutical industry, taken as a whole, in such applicable country or jurisdiction, with respect to a pharmaceutical product for which the same regulatory approval is held as that of the Included Product, which pharmaceutical product is owned or licensed in the same manner as such Included Product, which pharmaceutical product is at a similar stage in its product life and of similar market and profit potential as such Included Product, taking into account efficacy, safety, approved labeling, the competitiveness of alternative products in such country or jurisdiction, pricing/reimbursement for the pharmaceutical product in such country or jurisdiction relative to other countries and jurisdictions, the intellectual property and regulatory protection of the pharmaceutical product in such country or jurisdiction, the regulatory structure in such country or jurisdiction and the profitability of the pharmaceutical product in such country or jurisdiction, all as measured by the facts and circumstances in existence at the time such efforts are due.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

4

 

 

Competitor” means any person engaged in the development, sale or marketing of a product that is [*]. “Compound” means andexanet alfa, a modified human fXa protein [*].

 

Confidential Information” means any and all technical and non-technical non-public information provided by either Party to the other (including, without limitation, the reports provided pursuant to Section 3.5 and any notices or other information provided pursuant to Section 6.4), either directly or indirectly, whether in graphic, written, electronic or oral form, and marked or identified at the time of disclosure as confidential, or which by its context would reasonably be deemed to be confidential, including without limitation information relating to a Party’s technology, products and services, and any business, financial or customer information relating to a Party. The existence and terms of this Agreement shall be deemed the Confidential Information of both Parties. For clarity, this Agreement shall supersede the CDA and the CDA shall cease to be of any force and effect following the execution of this Agreement; provided, however, that all information falling within the definition of “Confidential Information” set forth in the CDA shall also be deemed Confidential Information disclosed pursuant to this Agreement, and the use and disclosure of such Confidential Information following the date of this Agreement shall be subject to the provisions of Article VIII.

 

Deposit Agreement” means the deposit account control agreement entered into by the Depositary Bank, the Purchaser Representative and the Seller (and any Permitted Debt Creditors, if applicable), which shall be in form and substance reasonably acceptable to the Purchaser Representative and the Seller, as amended, supplemented or otherwise modified from time to time and any replacements thereof.

 

Depositary Bank” means [*] or such other bank or financial institution approved by each of the Purchaser and Seller, including any successor Depositary Bank appointed pursuant to Section 3.2(c).

 

Disbursement Account” means the deposit account established and maintained at any Depositary Bank into which funds from the Collection Account are swept in accordance with instructions provided by the Seller and approved by the Purchaser, and any successor Disbursement Account entered into in accordance with Section 3.2(c).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

5

 

 

Disputes” has the meaning set forth in Section 4.11(e).

 

Dollar” or the sign “$” means United States dollars.

 

EMA” means the European Medicines Agency or any successor agency or authority thereto.

 

Excluded Liabilities and Obligations” has the meaning set forth in Section 2.3.

 

Exploit” shall mean, with respect to any Included Product, the development, process of seeking regulatory approval, manufacture, use, sale, offer for sale (including marketing and promotion), importation, distribution or other Commercialization; and “Exploitation” shall have the correlative meaning.

 

FDA” means the U.S. Food and Drug Administration or any successor agency or authority thereto.

 

First Commercial Sale” means, with respect to the Included Product in the Territory, the first arm’s-length sale, transfer or disposition for value to a Third Party of the Included Product in any country in the Territory after Marketing Authorization for the Included Product has been obtained in such country; provided, that, the following shall not constitute a First Commercial Sale: (a) any sale to an Affiliate or Licensee unless the Affiliate or Licensee is the ultimate end user of the Included Product or (b) any use of the Included Product in clinical trials, pre-clinical studies or other research or development activities, or disposal or transfer of the Included Product for a bona fide charitable purpose.

 

GAAP” means generally accepted accounting principles in effect as the standard financial accounting guidelines in the United States from time to time (consistently applied and on a basis consistent with the accounting policies, practices, procedures, valuation methods and principles used in preparing the Seller’s financial statements), and any successor thereto. For clarity, to the extent a transition in generally accepted accounting principles would substantively change the recognition of revenue with respect to Net Sales (as currently defined) and its calculation as set forth this Agreement, then the Parties shall meet and discuss in good faith an adjustment payment and amendment to the definitions hereunder to address the changes in accounting principles affecting the calculation of the Purchased Receivables.

 

Governmental Authority” means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority (including supranational authority), commission, instrumentality, regulatory body, court, central bank or other Person exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including each Patent Office, the FDA and any other government authority in any jurisdiction.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

6 

 

Government Receivable” means Medicare, Medicaid and other accounts receivables under which any Governmental Authority of or within the United States is the account debtor and Applicable Law requires title to such accounts receivables to remain with the Seller.

 

Included Product” means any pharmaceutical or biological composition containing the Compound, including the product currently trademarked in the United States as AndexXaTM. For clarity, references in this Agreement to “an” Included Product or to “the” Included Product refer to any Included Product.

 

Included Product Payment Amount” means, for each Calendar Quarter, an amount equal to the Applicable Tiered Percentage multiplied by the Quarterly Net Sales for such Calendar Quarter. [*] Notwithstanding the foregoing, on a country-by-country basis, if, in any given Calendar Quarter, (a) there is no Valid Claim in such country (a “Non-Patent Right Country”) where Net Sales are being made by a Licensee (and not by Portola or any Affiliate), and (b) the Licensee Net Sales Percentage applicable to the Quarterly Net Sales of the Included Product in such Non-Patent Right Country is less than the Applicable Tiered Percentage on Quarterly Net Sales in countries in which a Valid Claim exists, then the Included Product Payment Amount payable on Quarterly Net Sales for such Non-Patent Right Country shall be an amount equal to the Licensee Net Sales Percentage multiplied by the Quarterly Net Sales in such Non-Patent Right Country, solely during such Calendar Quarters in which the foregoing subsection (b) applies. [*]

 

Indebtedness” of any Person means (a) any obligation of such Person for borrowed money, (b) any obligation of such Person evidenced by a bond, debenture, note or other similar instrument, (c) any obligation of such Person to pay the deferred purchase price of property or services (except (i) trade accounts payable that arise in the ordinary course of business, (ii) payroll liabilities and deferred compensation, and (iii) any purchase price adjustment, royalty, earnout, milestone payments, contingent payment or deferred payment of a similar nature incurred in connection with any license, lease, contract research and clinic trial arrangements or acquisition), (d) any obligation of such Person as lessee under a capital lease (under GAAP as in effect on the date hereof), (e) any obligation of such Person to purchase securities or other property that arises out of or in connection with the sale of the same or substantially similar securities or property, (f) any non-contingent obligation of such Person to reimburse any other Person in respect of amounts paid under a letter of credit or other guaranty issued by such other Person, (g) any Indebtedness of others secured by a Lien on any asset of such Person and (i) any Indebtedness of others guaranteed by such Person; provided that intercompany loans among the Seller and its Affiliates shall not constitute Indebtedness.

 

Initial Closing Date” has the meaning set forth in Section 7.1.

 

Instruction to Payors” means the written instruction delivered in accordance with Section 3.2(a) to Licensees and other account debtors in respect of sales and other dispositions of the Included Product.

 

Key Commercial Contract” has the meaning set forth in Section 6.11.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

7 

 

Key Commercial Contract Counterparty” shall mean a counterparty to any Key Commercial Contract.

 

Knowledge” means, with respect to the Seller, (a) for purposes of Article IV, the knowledge, after due inquiry, as of the date of this Agreement, of any of the officers of the Seller identified on Schedule 1.1, and (b) for all other purposes of this Agreement, the knowledge, after due inquiry, as of a specified time, of any of the officers of the Seller identified on Schedule 1.1 or any successor to any such officer holding the same or substantially similar officer position at such time.

 

Licensee” means, with respect to the Included Product, a Third Party to whom the Seller or any Affiliate of the Seller has granted a license or sublicense (or any Third Party to whom any such Third Party has granted a license or sublicense) to develop, have developed, make, have made, seek Regulatory Approvals for, distribute, use, have used, import, sell, offer to sell, have sold or otherwise Commercialize such Included Product. As used in this Agreement “Licensee” includes any Third Party to whom the Seller or any Affiliate of the Seller has granted the right (or any Third Party to whom any such Third Party has granted the right) to distribute the Included Product provided that the applicable Third Party that has been granted such right has the right to conduct, or the responsibility for, active sales force promotion of such Included Product anywhere within its distribution territory.

 

Licensee Net Sales Percentage” means, with respect to a given Licensee, the portion (expressed as a percentage) of Net Sales of Included Product by such Licensee (or its Affiliates or sublicensees) payable to Seller or its Affiliates by Licensee by way of royalty payments under the terms of the license or sublicense granting rights in the Included Product to such Licensee.

 

Lien” means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property or other priority or preferential arrangement of any kind or nature whatsoever, in each case to secure payment of a debt or performance of an obligation, including any conditional sale or any sale with recourse.

 

Loss” means any loss, assessment, award, cause of action, claim, charge, cost, expense (including reasonable expenses of investigation and reasonable attorneys’ fees), fine, judgment, liability, obligation or penalty; provided, however that Loss shall not include any lost profits or revenue or consequential, punitive, special or incidental damages except (a) the amount of any Purchased Receivables that are not received by Purchaser due to failure by any Third Party to make payment thereof (other than resulting from any matter described in Section 9.1 (a), (b), (c) or (d)) and (b) any lost profits or revenue or consequential, punitive, special or incidental damages awarded or payable by Purchaser to a Third Party in connection with a claim or action for which Seller is required to indemnify Purchaser pursuant to Section 9.1.

 

Manufacturing Approval Condition” means FDA approval of the Included Product developed pursuant to the agreement identified as number 2 on Schedule 4.14(a).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

8 

 

Marketing Authorization” means, with respect to the Included Product, the Regulatory Approval required by Applicable Law to sell the Included Product in a country or region, including, to the extent required by Applicable Law for the sale of the Included Product, all pricing approvals and government reimbursement approvals.

 

Material Adverse Effect” means any event, circumstance or change that would result, individually or in the aggregate, in a material adverse effect, in any respect, on [*].

 

Material Contract” has the meaning set forth in Section 4.14(a).

 

Material Contract Counterparty” shall mean a counterparty to any Material Contract.

 

Net Sales” means, with respect to the Included Product the gross amount billed or invoiced or otherwise recognized as revenue by the Seller in accordance with GAAP in respect of sales or other dispositions of the Included Product in the Territory by the Seller, its Affiliates or Licensees (or any permitted assignee or transferee hereunder) (but not including sales to an Affiliate or Licensee unless the Affiliate or Licensee is the ultimate end user of the Included Product), less the following deductions to the extent included in the gross amount billed or invoiced in respect of sales or other dispositions of the Included Product or otherwise recognized as revenue by the Seller in accordance with GAAP: (a) credits or allowances actually granted for damaged products, returns or rejections of Included Products, or for retroactive price reductions and billing errors; (b) normal and customary trade and quantity discounts, allowances and credits (including chargebacks); (c) excise taxes, sales taxes, duties, VAT taxes and other taxes to the extent imposed upon and paid directly with respect to the sales price, and a pro rata portion of pharmaceutical excise taxes imposed on sales of pharmaceutical products as a whole and not specific to Included Products (such as those imposed by the U.S. Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, as amended) (and excluding in each case national or local taxes based on income); (d) freight, postage, shipping and shipping insurance expense and other transportation charges directly related to the distribution of the Included Product; (e) distribution services agreement fees and other similar amounts allowed or paid to Third Party distributors, including specialty distributors of the Included Product; (f) rebates made with respect to sales paid for by any Governmental Authority, their agencies and purchasers and reimbursers, managed health care organizations, or to trade customers; (g) the portion of administrative fees paid during the relevant time period to group purchasing organizations or pharmaceutical benefit managers relating to the Included Product; (h) any invoiced amounts that are not collected by the Seller, its Affiliates or Licensees, including bad debts; and (i) any customary or similar payments to the foregoing (a) – (h) that apply to the sale or disposition of pharmaceutical products.

 

In the event that the Included Product is sold as part of a Combination Product, then Net Sales for such Combination Product, for the purposes of determining the applicable Included Product Payment Amounts and Purchased Receivables, respectively, to be paid, shall be calculated by multiplying the Net Sales of the Combination Product by the fraction: A divided by (A+B), in which A is the average selling price of the Included Product sold in substantial quantities comprising the Compound as the sole therapeutically active ingredient in the applicable country, and B is the average selling price of any product that is sold separately in substantial quantities comprising the other therapeutically active ingredients in such country, in each case during the accounting period in which the sales of the Combination Product were made, or if no sales of such Included Product or product comprising the other therapeutically active ingredients occurred during such period, then such average selling prices as sold during the most recent accounting period in which such sales did occur in such country.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

9 

 

If the Included Product contained in such Combination Product is not sold separately in finished form in such country, the Seller and the Purchaser shall determine Net Sales for such Included Product by mutual agreement based on the relative contribution of such Included Product and each such other active ingredient in such Combination Product in accordance with the above formula, and shall take into account in good faith any applicable allocations and calculations that may have been made for the same period in other countries.

 

Patent” means any pending (including pursuant to a patent application) or issued patent or continuation, continuation in part, division, extension or reissue thereof, in any country in the world.

 

Patent Office” means the applicable patent office, including the United States Patent and Trademark Office and any comparable foreign patent office, for any Patents.

 

Patent Rights” means any Patents that are owned or controlled by the Seller that claim or cover the Included Product.

 

Payment Term” means the time period commencing on the date of the First Commercial Sale of the Included Product anywhere in any country in the Territory and expiring on the date upon which the Purchaser has received cash payments in respect of the Purchased Receivables totaling, in the aggregate, one hundred ninety-five percent (195%) of the Purchase Amount, or to the extent that Purchaser’s rights with respect to the Subsequent Closing are terminated pursuant to Section 7.2(b), [*].

 

Permitted Debt” means all Indebtedness and other obligations in respect of: (a) any Permitted Debt Facility, (b) any interest rate, foreign exchange or other commodity swap or hedge instruments, (c) any agreement relating to, treasury, depositary and cash management services (including, for the avoidance of doubt, credit cards, merchant cards, purchase cards and debit cards) or automated clearinghouse transfer of funds, (d) any letters of credit, banker’s acceptances or similar credit transaction and (e) all obligations of other Persons of the type referred to in clauses (a), (b), (c) or (d) for the payment of which the Seller or any of its Subsidiaries is responsible or liable as a guarantor or surety.

 

Permitted Debt Facility” means one or more indentures, debt facilities or commercial paper facilities, providing for the issuance of notes, revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables), letters of credit, banker’s acceptances and/or similar instruments, in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

10 

 

Permitted Debt Creditors” means the lenders, and any administrative agent, collateral agent, security agent or similar agent under any Permitted Debt Facility.

 

Permitted Liens” means:

 

(a)           Liens created in favor of the Purchaser pursuant to this Agreement;

 

(b)           Liens incurred by the Purchaser;

 

(c)           inchoate Liens for taxes not yet delinquent or Liens for taxes which are being contested in good faith and by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP;

 

(d)           Liens in respect of property of the Seller imposed by Applicable Law which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers’, warehousemen’s, distributors’, wholesalers’, materialmen’s and mechanics’ liens and other similar Liens arising in the ordinary course of business and secure payment obligations not yet delinquent and which are not in the aggregate in an amount materially in relation to the value of the Purchased Receivables;

 

(e)           banker’s liens for collection or rights of set off or similar rights and remedies as to deposit accounts or other funds maintained with depositary institutions; provided that such deposit accounts or funds are not established or deposited for the purpose of providing collateral for any Indebtedness and are not subject to restrictions on access by the Seller in excess of those required by applicable banking regulations; and

 

(f)            Liens to secure Permitted Debt.

 

Person” means any natural person, firm, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other legal entity, including public bodies, whether acting in an individual, fiduciary or other capacity.

 

Purchase Amount” has the meaning set forth in Section 2.2.

 

Purchased Receivables” means all of the Seller’s rights, title and interest in and to, free and clear of any and all Liens, that portion of account and royalty receivables arising out of sales of the Included Product in the United States in an amount equal to the Included Product Payment Amount for each Calendar Quarter during the Payment Term.

 

Purchaser” has the meaning set forth in the preamble.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

11 

 

Purchaser Representative” means HealthCare Royalty Management, LLC, as collateral agent for the Purchasers.

 

Purchaser Account” means such account or accounts as designated by the Purchaser to the Seller in writing from time to time into which the funds held in the Disbursement Account that are owned by the Purchaser pursuant to this Agreement are transferred in accordance with the terms of this Agreement.

 

Purchaser Indemnified Party” has the meaning set forth in Section 9.1.
Purpose” has the meaning set forth in Section 8.1.

 

Quarterly Net Sales” means, with respect to any Calendar Quarter, the aggregate amount of Net Sales in the Territory for that Calendar Quarter.

 

Quarterly Payment Date” means each [*] following the end of the first Calendar Quarter after First Commercial Sale (provided if any such date is not a Business Day, the Quarterly Payment Date shall be the next succeeding Business Day).

 

Regulatory Agency” means a Governmental Authority with responsibility for the approval of the marketing and sale of pharmaceuticals or other regulation of pharmaceuticals in any jurisdiction.

 

Regulatory Approvals” means, collectively, all regulatory approvals, registrations, certificates, authorizations, permits and supplements thereto, as well as associated materials (including the product dossier) pursuant to which the Included Product may be marketed, sold and distributed in a jurisdiction, issued by the appropriate Regulatory Agency.

 

Recharacterization” has the meaning set forth in Section 6.2.

 

Recipient” has the meaning set forth in Section 8.1.

 

ROW” means all the countries in the world outside of the United States.

 

ROW First Sale Date” has the meaning set forth in Section 3.3(c).

 

ROW Fraction” has the meaning set forth in Section 3.3(c).

 

ROW Net Sales” has the meaning set forth in Section 3.3(c).

 

SEC” means the Securities and Exchange Commission or any successor agency or authority thereto.

 

Seller” has the meaning set forth in the preamble.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

12 

 

Seller Account” means such account as designated by the Seller to the Purchaser in writing from time to time into which the funds held in the Disbursement Account that are owned by the Seller (which shall not include Purchased Receivables) pursuant to this Agreement are transferred in accordance with the terms of this Agreement.

 

Seller Indemnified Party” has the meaning set forth in Section 9.2.

 

Servicer” means Integrated Commercialization Solutions, Inc. or such other supply chain logistical and financial services provider engaged by the Seller and reasonably acceptable to the Purchaser.

 

Set-off” means any set-off, off-set, reduction or similar deduction.


Shortfall Amount” has the meaning set forth in Section 3.3(e)(ii).


Subsequent Closing Date” has the meaning set forth in Section 7.1.

 

Subsidiary” means with respect to any Person (a) any entity as to which such Person directly or indirectly owns, controls or holds with power to vote fifty percent (50%) or more of the outstanding voting securities of such entity or (b) any entity as to which fifty percent (50%) or more of its outstanding voting securities are directly or indirectly owned, controlled or held by such Person with power to vote such securities. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities entitled to elect the board of directors or management board, by contract or otherwise. [*]

 

Sweep Period” has the meaning set forth in Section 3.3(b).

 

Sweep Percentage” has the meaning set forth in Section 3.3(b) or 3.3(c), as applicable.

 

Territory” means worldwide.

 

Third Party” means any Person other than (a) the Seller, (b) the Purchaser or (c) an Affiliate of either the Seller or the Purchaser (as applicable).

 

Third Party Claim” means any claim, action, suit or proceeding by a Third Party, excluding any lender, officer, directors, employee or agent or other representative of a Party, including any investigation by any Government Authority.

 

Transaction Documents” means this Agreement, the Deposit Agreement, the Bill of Sale and each Instruction to Payors.

 

UCC” means the Uniform Commercial Code as in effect from time to time in New York; provided, that, if, with respect to any financing statement or by reason of any provisions of Applicable Law, the perfection or the effect of perfection or non-perfection of the backup security interest or any portion thereof granted pursuant to Section 6.2 is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than New York, then “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of this Agreement and any financing statement relating to such perfection or effect of perfection or non-perfection.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

13 

 

U.S.” or “United States” means the United States of America, its 50 states, each territory and possession thereof and the District of Columbia.

 

U.S. Net Sales Revenue” has the meaning set forth in Section 3.3(a).

 

Valid Claim” means, solely with respect to Patents that claim or cover the manufacture, use, sale, offer for sale or import of the Included Product: (a) an issued claim of any issued Patent owned or controlled by the Seller that has not expired, or been revoked, cancelled, become abandoned or disclaimed, been declared invalid and/or unenforceable by a Patent Office or a decision or judgment of a court or other appropriate body of competent jurisdiction; and (b) a claim included in a pending Patent application that is being prosecuted in good faith and that has not been cancelled, withdrawn from consideration, finally determined to be unallowable by the Patent Office or applicable Governmental Authority (from which no appeal is or can be taken), or abandoned or disclaimed; provided, however, that, if a claim of a Patent application has been pending for more than [*] years, such claim will not constitute a Valid Claim for the purposes of this Agreement unless and until a Patent issues with such claim; provided, further, that, for purposes of the foregoing proviso, any newly filed claim which claims essentially the same subject matter as any earlier filed claim shall be considered pending for the same period of time as such earlier filed claim has been pending.

 

Section 1.2              Rules of Construction. Unless the context otherwise requires, in this Agreement:

 

(a)            An accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.

 

(b)            Words of the masculine, feminine or neuter gender shall mean and include the correlative words of other genders.

 

(c)            The definitions of terms shall apply equally to the singular and plural forms of the terms defined.

 

(d)            The terms “include”, “including” and similar terms shall be construed as if followed by the phrase “without limitation”.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

14 

 

(e)            Unless otherwise specified, references to an agreement or other document include references to such agreement or document as from time to time amended, restated, reformed, supplemented or otherwise modified in accordance with the terms thereof (subject to any restrictions on such amendments, restatements, reformations, supplements or modifications set forth herein or in any of the other Transaction Documents) and include any annexes, exhibits and schedules attached thereto.

 

(f)             References to any Applicable Law shall include such Applicable Law as from time to time in effect, including any amendment, modification, codification, replacement or reenactment thereof or any substitution therefor.

 

(g)            References to any Person shall be construed to include such Person’s successors and permitted assigns (subject to any restrictions on assignment, transfer or delegation set forth herein or in any of the other Transaction Documents), and any reference to a Person in a particular capacity excludes such Person in other capacities.

 

(h)            The word “will” shall be construed to have the same meaning and effect as the word “shall”.

 

(i)             The words “hereof”, “herein”, “hereunder” and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision hereof, and Article, Section and Exhibit references herein are references to Articles and Sections of, and Exhibits to, this Agreement unless otherwise specified.

 

(j)             In the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and each of the words “to” and “until” means “to but excluding”.

 

(k)            Where any payment is to be made, any funds are to be applied or any calculation is to be made under this Agreement on a day that is not a Business Day, unless this Agreement otherwise provides, such payment shall be made, such funds shall be applied and such calculation shall be made on the succeeding Business Day, and payments shall be adjusted accordingly.

 

Article II

PURCHASE AND SALE OF THE PURCHASED RECEIVABLES

 

Section 2.1              Purchase and Sale. Subject to the terms and conditions of this Agreement, on the Initial Closing Date, the Seller hereby sells, assigns, transfers, conveys and grants to the Purchaser, and the Purchaser hereby purchases, acquires and accepts from the Seller, all of the Seller’s rights, title and interest in and to the Purchased Receivables, free and clear of any and all Liens (other than Liens of type described in clauses (a) and (b) of the definition of Permitted Liens).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

15 

 

Section 2.2              Purchase Amount. In full consideration for the sale, contribution, assignment, transfer, conveyance and granting of the Purchased Receivables, and subject to the terms and conditions set forth herein, the Purchaser shall pay (or cause to be paid) to the Seller, or the Seller’s designee, the following:

 

(a)            on the Initial Closing Date, the sum of fifty million dollars ($50,000,000), in immediately available funds by wire transfer to an account designated in writing by the Seller to the Purchaser prior to the Initial Closing (the “Purchase Amount”); and

 

(b)            on the Subsequent Closing Date, the sum of one hundred million dollars ($100,000,000), and the term “Purchase Amount” shall thereafter be deemed amended to include the funds paid on the Subsequent Closing Date (i.e., an aggregate of one hundred fifty million dollars ($150,000,000)), less the amount owed by the Seller pursuant to Section 3.7, in immediately available funds by wire transfer to an account designated in writing by the Seller to the Purchaser prior to the Subsequent Closing Date, except to the extent the Purchaser has delivered notice of termination of its obligations pursuant to Section 7.2(a) or the events set forth in Section 7.2(b) have occurred.

 

Section 2.3              No Assumed Obligations. Notwithstanding any provision in this Agreement or any other writing to the contrary, the Purchaser is purchasing, acquiring and accepting only the Purchased Receivables and is not assuming any liability or obligation of the Seller or any of the Seller’s Affiliates of whatever nature, whether presently in existence or arising or asserted hereafter. All such liabilities and obligations shall be retained by and remain liabilities and obligations of the Seller or the Seller’s Affiliates, as the case may be (the “Excluded Liabilities and Obligations”).

 

Section 2.4              Excluded Assets. The Purchaser does not, by purchase, acquisition or acceptance of the rights, title or interest granted hereunder or otherwise pursuant to any of the Transaction Documents, purchase, acquire or accept any assets or contract rights of the Seller, or any other assets of the Seller, other than the Purchased Receivables and, to the extent provided in the Transaction Documents, the Seller’s interest in all amounts held in the Collection Account or the Disbursement Account. Subject to Section 6.10, the Seller has sole authority and responsibility for the research, development, Commercialization and Exploitation of Included Product.

 

Article III

PAYMENTS FOR PURCHASED RECEIVABLES

 

Section 3.1              Payments on Account of the Purchased Receivables.

 

(a)            In consideration of the Purchaser paying the Purchase Amounts hereunder, and subject to, and as provided in, Sections 3.1(b), 3.2 and 3.3, the Purchaser shall be entitled to the Purchased Receivables.

 

(b)            [*].

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

16 

 

(c)            Upon the expiration or termination of the Payment Term, (i) the Seller shall have no further obligations to the Purchaser with respect to the Purchased Receivables that include Included Product in the Territory, and Purchaser will not be entitled to any additional payments in respect of Purchased Receivables and (ii) the Transaction Documents shall terminate. Immediately upon termination of this Agreement pursuant to this Section 3.1(c), (A) all Liens on the Collateral granted to the Purchaser Representative pursuant to this Agreement and the other Transaction Documents shall automatically be released, without the delivery of any instrument or performance of any act by any Person, (B) the Seller shall be permitted, and is hereby authorized to terminate any financing statement which has been filed pursuant to the Transaction Documents, and (C) the Purchaser and the Purchaser Representative shall execute and deliver to, or at the direction of, the Seller, at the Seller’s sole cost and expense, all releases and other documents as the Seller shall reasonably request to evidence any such release.

 

Section 3.2             Payment Accounts.

 

(a)            Within [*] days following the Initial Closing Date, the Seller shall establish with the Depositary Bank the Collection Account and the Disbursement Account. Seller shall deliver instructions to all Licensees and account debtors (the “Instruction to Payors”) with respect to proceeds arising from sales of Included Product by Seller in the United States (which instruction shall be in form and substance reasonably satisfactory to the Purchaser and identify each Purchaser as having a right to a receive a portion of such amounts, and a copy of which shall be delivered to the Purchaser promptly following delivery to such Licensee or account debtor) to remit all proceeds payable to Seller in respect of accounts and royalty receivables arising out of sales of Included Product in the United States to the Collection Account; provided that the proceeds of Governmental Receivables arising out of sales of Included Products in the United States may instead be remitted to one or more other U.S.-based accounts, not subject to any liens (other than any banker’s lien under Applicable Law) accounts so long as such accounts are subject to daily sweeps to the Collection Account. To the extent any such proceeds are paid directly to the Seller, Seller shall remit to the Collection Account all such amounts within [*] Business Days of receipt of any such funds. All proceeds and other funds deposited into the Collection Account shall be verified and reconciled by the Servicer and any verified and reconciled funds shall be swept to the Disbursement Account. Funds in the Disbursement Account shall be disbursed in accordance with Section 3.3.

 

(b)            All fees, expenses and charges owing to the Depositary Bank pursuant to the terms of the Deposit Agreement shall be [*], and shall be paid to the Depositary Bank from the Disbursement Account prior to transfer of any amounts from the Disbursement Account to either the Purchaser Account or the Seller Account, by debiting such fee, expense or charge from the Disbursement Account.

 

(c)            Notwithstanding anything to the contrary herein, Seller shall have the right from time to time to select a replacement Depositary Bank and establish a replacement Collection Account and a replacement Disbursement Account provided that such replacement Depositary Bank entered into a Deposit Agreement with respect to such replacement accounts and Seller instructs as required pursuant to Section 3.2(a) to Licensees and account debtors to make payments to such new accounts. For purposes of this Agreement, any reference to the “Deposit Agreement,” “Collection Account” or “Disbursement Account” shall refer to such replacement Deposit Agreement, Collection Account, Disbursement Account or Depositary Bank, as the context requires.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

17 

 

Section 3.3              Payment Mechanics and Disbursement Account Management.

 

(a)            Amounts in the Disbursement Account may be disbursed to the Seller Account [*] (or such other longer period as the Parties may mutually agree in writing) (such period, the “Sweep Period”) in an amount for any day equal to the amounts deposited on such day multiplied by the Sweep Percentage (as defined below). The Seller shall provide the Depositary Bank notice no more frequently than [*] of such amount to be disbursed to the Seller Account pursuant to this Section 3.3. On or prior to each Quarterly Payment Date, the Seller shall deliver to the Purchaser a written reconciliation of the amount deposited in the Disbursement Account on each day of the applicable Calendar Quarter and its calculation of the Sweep Percentage.

 

(b)            Prior to the ROW First Sale Date, the “Sweep Percentage” shall be equal to the following:

 

[*]

 

No later than [*] prior to the expected date of the First Commercial Sale of the Included Product outside the United States (the “ROW First Sale Date”), the Parties shall mutually agree upon a good faith estimate of the ratio of Net Sales of Included Product outside the United States (the “ROW Net Sales”) to Net Sales of Included Product within the United States (the “ROW Fraction”). If the Parties are unable to agree upon an estimate of such ROW Fraction, then for the [*] following the ROW First Sale Date, the applicable ROW Fraction shall be deemed to be the average of the ROW Fractions proposed in good faith by each Party, which proposal shall reflect such Party’s commercially reasonable performance expectations for the Included Product during such period. For each Calendar Quarter thereafter, the ROW Fraction shall be revised and shall equal the ratio of ROW Net Sales to Net Sales of Included Product within the United States for the most recently preceding Calendar Quarter for which Net Sales have been reported. In addition, the ROW Fraction may be revised annually pursuant to Section 3.3 (c). Following the ROW First Sale Date, during each Sweep Period, the “Sweep Percentage” shall be calculated as follows:

 

[*]

 

(c)            It is the intent of the Parties that the ROW Fraction should reasonably represent the actual distribution of Net Sales in the U.S and the ROW. Accordingly, at least annually, the Parties agree to discuss in good faith whether adjustments should be made to the ROW Fraction and the Sweep Percentage on the basis of actual Net Sales in the Territory during the [*].

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

18 

 

(d)               During the Payment Term, no later than each Quarterly Payment Date, the Seller shall provide to Purchaser the reports relating to Net Sales of Included Product and calculation of the Purchased Receivables required under Section 3.5.

 

(e)               During the Payment Term, on each Quarterly Payment Date, and in the following order:

 

(i)            The Seller shall instruct the Depositary Bank to disburse to the Purchaser Account an amount equal to the lesser of (A) the funds on deposit in the Disbursement Account, and (B) the Purchased Receivables for the immediately preceding Calendar Quarter; and

 

(ii)           If the amount disbursed to the Purchaser Account pursuant to Section 3.3(e)(i) above is less than the Purchased Receivables to which Purchaser is entitled for the relevant Calendar Quarter, the Seller shall cause the Depositary Bank to disburse such amount pursuant to Section 3.3(e)(i) until such disbursements equal the amount of such shortfall.

 

(iii)          The Seller shall thereafter be entitled to instruct the Depositary Bank to disburse to the Seller Account an amount equal to the lesser of (A) the funds on deposit in the Disbursement Account as of the end of the immediately preceding Calendar Quarter, and (B) an amount equal to the amount deposited in the Disbursement Account during the immediately preceding Calendar Quarter, minus the amounts disbursed for such Calendar Quarter pursuant to Section 3.3 (e)(i) and (ii) above, minus any amounts disbursed to the Seller Account during such Calendar Quarter.

 

(f)                Upon any disbursement of any funds from the Disbursement Account to the Seller Account, any security interest hereunder or under the other Transaction Documents granted in the Seller’s’ right, title and interest in, to and under such funds shall be automatically released and terminated.

 

(g)               All Purchased Receivables required to be paid and not paid to the Purchaser within the time period set forth in Section 3.3(e), shall bear interest at a rate of [*] from the due date until paid in full or, if less, the maximum interest rate permitted by Applicable Law. Any such overdue payment shall, when made, be accompanied by, and credited first to, all interest so accrued.

 

(h)               If Applicable Law requires withholding of income or other taxes imposed upon any payments made by the Seller to the Purchaser under this Agreement, the Seller shall (i) make such withholding payments as may be required, (ii) subtract, or instruct the Depositary Bank to subtract, such withholding payments from such payments, (iii) submit appropriate proof of payment of the withholding taxes to the Purchaser within a reasonable period of time, and (iv) promptly provide the Purchaser with all official receipts with respect thereto. Such withheld and remitted amounts shall be treated for all purposes of this Agreement as having been paid to the Purchaser (including, for the avoidance of doubt, for the purpose of calculating the amounts payable pursuant to Section 3.3(e)(ii)). Any amounts subtracted from payments pursuant to this Section 3.3(h) shall be disbursed to the Seller for the purpose of making the applicable withholding payments. The Seller shall render the Purchaser reasonable assistance in order to allow the Purchaser to obtain the benefit of any present or future treaty against double taxation, which may apply to such payments.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 3.4            Mode of Payment/Currency Exchange. All payments made by a Party hereunder shall be made by deposit of U.S. Dollars by wire transfer in immediately available funds into the applicable account. With respect to sales outside the U.S., for the purpose of calculating Net Sales for the purposes of determining the Purchased Receivables payable under Section 3.1, Net Sales shall be calculated in the currency of sale, and then such amounts shall be converted into U.S. Dollars at the monthly rate of exchange utilized by the Seller, in accordance with GAAP, fairly applied and as employed on a consistent basis throughout the Seller’s operations. Should the Seller change its foreign currency translation methodology, the new methodology will be disclosed in writing to the Purchaser prior to its implementation. For clarity, to the extent that the Seller receives a payment from a Third Party in U.S. Dollars on which Purchased Receivables are payable to Purchaser under Section 3.1, the foregoing currency exchange rates shall not apply to such amount, and in particular the Seller will have no obligation to re-calculate any currency conversion that was employed in connection with such Third Party payment.

 

Section 3.5            Included Product Payment Reports and Records Retention. On or prior to each Quarterly Payment Date, the Seller shall deliver to the Purchaser a written report of the amount of gross sales of the Included Product in each country in which Net Sales occurred during the applicable Calendar Quarter, an itemized calculation of Net Sales on a country-by-country basis, including for any Non-Patent Right Country, and a calculation of the amount of the Purchased Receivables due under Section 3.1(a) in respect of the applicable Calendar Quarter, showing the Applicable Tiered Percentage (or if applicable, the Licensee Net Sales Percentage) applied thereto. For [*] after each sale of the Included Product made by the Seller or any of its Affiliates, the Seller shall keep (and shall ensure that its Affiliates shall keep) complete and accurate records of such sale in sufficient detail to confirm the accuracy of the applicable Purchased Receivables paid pursuant to Section 3.1(a). Seller shall include in each contract of Seller related to the Commercialization of an Included Product entered into on or after the Closing Date, an acknowledgement and consent to the obligations of Seller pursuant to this Section 3.5 and provide that the counterparty to such contract shall furnish to the Seller all information necessary for the Seller to comply with this Section 3.5 and calculate the Purchased Receivables that are payable as set forth in this Agreement.

 

Section 3.6            Audits.

 

(a)           Upon the written request of the Purchaser, and not more than [*], the Seller shall permit an independent certified public accounting firm of national prominence selected by the Purchaser, and reasonably acceptable to the Seller, to have access to and to review, during normal business hours and upon not less than [*] prior written notice, the relevant documents and records of the Seller and its Affiliates (to the extent in the possession of the Seller) as may reasonably be necessary to verify the accuracy and timeliness of the reports and payments (including calculation and payment of any Purchased Receivables) made by the Seller under this Agreement. Such review may cover the records for sales of the Included Product and payments of Purchased Receivables and any payments into the Collection Account in any Calendar Year ending no earlier than [*]. The accounting firm shall be permitted to prepare and disclose to the Purchaser a written report stating only [*].

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)           If such accounting firm reasonably concludes that any Purchased Receivables were owed and were not paid when due during such period pursuant to the provisions of this Agreement, the Seller shall pay any late or unpaid Purchased Receivables within [*] after the date the Purchaser delivers to the Seller a notice including the accounting firm's written report and requesting such payment. If the amount of the underpayment is greater than the lesser of (i) [*] of the total amount actually owed for the period audited or (ii) [*], then the Seller shall in addition reimburse the Purchaser for all reasonable costs and fees of the accounting firm related to such audit; otherwise, the Purchaser shall pay all costs of the audit. In the event of overpayment, any amount of such overpayment shall be fully creditable against Purchased Receivables payable for the immediately succeeding Calendar Quarter(s). The Purchaser shall (i) treat all information that it receives under this Section 3.6 or under any license agreement of the Seller in accordance with the provisions of Article VIII and (ii) cause its accounting firm to enter into a reasonably acceptable confidentiality agreement with the Seller obligating such firm to retain all such information in confidence pursuant to such confidentiality agreement, in each case except to the extent necessary for the Purchaser to enforce its rights under this Agreement.

 

Section 3.7             Transaction Expenses. Within [*] following the execution date of this Agreement, and whether or not the Closing occurs, Purchaser shall invoice the Seller for its reasonable, documented out-of-pocket fees and expenses incurred in connection with the transactions contemplated by this Agreement (including legal fees and expenses, and out-of-pocket expenses incurred in connection with Purchaser’s conduct of its due diligence with respect to such transactions). [*]

 

Article IV

REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

The Seller hereby represents and warrants to the Purchaser as of the date of each Closing as follows:

 

Section 4.1            Organization. The Seller is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all powers and authority, and all licenses, permits, franchises, authorizations, consents and approvals of all Governmental Authorities, required to own its property and conduct its business as now conducted. The Seller is duly qualified to transact business and is in good standing in every jurisdiction in which such qualification or good standing is required by Applicable Law (except where the failure to be so qualified or in good standing would not result in (a) a Material Adverse Effect, or (b) an adverse effect, in any respect, on the timing, amount or duration of the Purchased Receivables or the right of the Purchaser to receive the Purchased Receivables).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 4.2            No Conflicts.

 

(a)           None of the execution and delivery by the Seller of any of the Transaction Documents to which the Seller is party, the performance by the Seller of the obligations contemplated hereby or thereby or the consummation of the transactions contemplated hereby or thereby will: (i) contravene, conflict with, result in a breach, violation, cancellation or termination of, constitute a default (with or without notice or lapse of time, or both) under, require prepayment under, give any Person the right to exercise any remedy (including termination, cancellation or acceleration) or obtain any additional rights under, or accelerate the maturity or performance of or payment under, in any respect, (A) any Applicable Law or any judgment, order, writ, decree, permit or license of any Governmental Authority to which the Seller or any of its Subsidiaries or any of their respective assets or properties may be subject or bound, (B) any term or provision of any contract, agreement, indenture, lease, license, deed, commitment, obligation or instrument to which the Seller or any of its Subsidiaries is a party or by which the Seller or any of its Subsidiaries or any of their respective assets or properties is bound or committed or (C) any term or provision of any of the organizational documents of the Seller or any of its Subsidiaries, except in the case of clause (A) or (B) where any such event would not result in (1) a Material Adverse Effect, or (2) an adverse effect, in any respect, on the timing, amount or duration of the Purchased Receivables or the right of the Purchaser to receive the Purchased Receivables; or (ii) except as provided in any of the Transaction Documents to which it is party, result in or require the creation or imposition of any Lien on the Patent Rights, the Included Product or the Purchased Receivables.

 

(b)           [*].

 

Section 4.3             Authorization. The Seller has all powers and authority to execute and deliver, and perform its obligations under, the Transaction Documents to which it is party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of each of the Transaction Documents to which the Seller is party and the performance by the Seller of its obligations hereunder and thereunder have been duly authorized by the Seller. Each of the Transaction Documents to which the Seller is party has been duly executed and delivered by the Seller. Each of the Transaction Documents to which the Seller is party constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar Applicable Laws affecting creditors’ rights generally, general equitable principles and principles of public policy.

 

Section 4.4            Ownership. The Seller is the exclusive owner of the entire right, title (legal and equitable) and interest in, to and under (i) the Purchased Receivables, free and clear of all Liens, other than Permitted Liens described in clauses (a) and (b) of such definition, and (ii) the Patent Rights, free and clear of all Liens, other than Permitted Liens. The Seller has duly and legally filed or applied for registration for its ownership interest in the Patent Rights in the appropriate agencies and in the jurisdictions set forth on Schedule 4.11, and the Seller is the exclusive “owner of record” of such Patents in each such jurisdiction. The Purchased Receivables sold, assigned, transferred, conveyed and granted to the Purchaser on the Closing Date have not been pledged, sold, assigned, transferred, conveyed or granted by the Seller to any other Person. The Seller has full right to sell, assign, transfer, convey and grant the Purchased Receivables to the Purchaser. Upon the sale, assignment, transfer, conveyance and granting by the Seller of the Purchased Receivables to the Purchaser, the Purchaser shall acquire good and marketable title to the Purchased Receivables free and clear of all Liens, other than Permitted Liens described in clauses (a) and (b) of such definition, and shall be the exclusive owner of the Purchased Receivables. Seller has not caused, and to the Knowledge of Seller no other Person has caused, the claims and rights of Purchaser created by any Transaction Document in and to the Purchased Receivables and any Additional Collateral, in each case, to be subordinated to any creditor or any other Person.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

22 

 

Section 4.5            Governmental and Third Party Authorizations. The execution and delivery by the Seller of the Transaction Documents to which the Seller is party, the performance by the Seller of its obligations hereunder and thereunder and the consummation of any of the transactions contemplated hereunder and thereunder (including the sale, assignment, transfer, conveyance and granting of the Purchased Receivables to the Purchaser) do not require any consent, approval, license, order, authorization or declaration from, notice to, action or registration by or filing with any Governmental Authority or any other Person, except for the filing of a Current Report on Form 8-K with the SEC, the filing of UCC financing statements and those previously obtained.

 

Section 4.6            No Litigation. There is no action, suit, arbitration proceeding, claim, citation, summons, subpoena, investigation or other proceeding (whether civil, criminal, administrative, regulatory, investigative or informal, and including by or before a Governmental Authority) pending or, to the Knowledge of the Seller, threatened by or against the Seller or any of its Subsidiaries, at law or in equity, that (i) if adversely determined, would result in (A) a Material Adverse Effect, or (B) an adverse effect, in any respect, on the timing, amount or duration of the Purchased Receivables or the right of the Purchaser to receive the Purchased Receivables, or (ii) challenges or seeks to prevent or delay the consummation of any of the transactions contemplated by any of the Transaction Documents to which the Seller is party.

 

Section 4.7            Solvency. The Seller has determined that, and by virtue of its entering into the transactions contemplated by the Transaction Documents to which the Seller is party and its authorization, execution and delivery of the Transaction Documents to which the Seller is party, the Seller’s incurrence of any liability hereunder or thereunder or contemplated hereby or thereby is in its own best interests. Upon consummation of the transactions contemplated by the Transaction Documents and the application of the proceeds therefrom, (a) the fair saleable value of the Seller’s assets will be greater than the sum of its debts, liabilities and other obligations, including contingent liabilities, (b) the present fair saleable value of the Seller’s assets will be greater than the amount that would be required to pay its probable liabilities on its existing debts, liabilities and other obligations, including contingent liabilities, as they become absolute and matured, (c) the Seller will be able to realize upon its assets and pay its debts, liabilities and other obligations, including contingent obligations, as they mature, (d) the Seller will not have unreasonably small capital with which to engage in its business and will not be unable to pay its debts as they mature, (e) the Seller has not incurred, will not incur and does not have any present plans or intentions to incur debts or other obligations or liabilities beyond its ability to pay such debts or other obligations or liabilities as they become absolute and matured, (f) the Seller will not have become subject to any Bankruptcy Event and (g) the Seller will not have been rendered insolvent within the meaning of any Applicable Law. No step has been taken or is intended by the Seller or, to its Knowledge, any other Person to make the Seller subject to a Bankruptcy Event.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 4.8            Tax Matters. The Seller has never filed any tax return or report under any name other than its exact legal name. The Seller has filed (or caused to be filed) all tax returns and reports required by Applicable Law to have been filed by it and has paid all taxes required to be paid by it, except any such taxes that are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books and except where any such failure to file or pay would not result in (a) a Material Adverse Effect, or (b) an adverse effect, in any respect, on the timing, amount or duration of the Purchased Receivables or the right of the Purchaser to receive the Purchased Receivables.

 

Section 4.9            No Brokers’ Fees. The Seller has not taken any action that would entitle any person or entity to any commission or broker’s fee in connection with the transactions contemplated by this Agreement.

 

Section 4.10          Compliance with Laws. None of the Seller or any of its Subsidiaries (a) has violated or is in violation of, or, to the Knowledge of the Seller, is under investigation with respect to or has been threatened to be charged with or been given notice of any violation of, any Applicable Law or any judgment, order, writ, decree, injunction, stipulation, consent order, permit or license granted, issued or entered by any Governmental Authority or (b) is subject to any judgment, order, writ, decree, injunction, stipulation, consent order, permit or license granted, issued or entered by any Governmental Authority, in each case, that would result in (i) a Material Adverse Effect, or (ii) an adverse effect, in any respect, on the timing, amount or duration of the Purchased Receivables or the right of the Purchaser to receive the Purchased Receivables. Each of the Seller and any Subsidiary of the Seller is in compliance with the requirements of all Applicable Laws, a breach of any of which would result in a Material Adverse Effect, or an adverse effect, in any respect, on the timing, amount or duration of the Purchased Receivables or the right of the Purchaser to receive the Purchased Receivables.

 

Section 4.11          Intellectual Property Matters.

 

(a)           [*].

 

(b)           [*]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

24 

 

(c)           There are no unpaid maintenance or renewal fees payable by the Seller to any Third Party that currently are overdue for any of the Patent Rights. To the Knowledge of the Seller, each individual associated with the filing and prosecution of the Patent Rights, including the named inventors of the Patent Rights, has complied in all material respects with all applicable duties of candor and good faith in dealing with any Patent Office, including any duty to disclose to any Patent Office all information known by such inventors to be material to the patentability of each of the Patent Rights (including any relevant prior art), in each case, in those jurisdictions where such duties exist.

 

(d)           Subsequent to the issuance of the Patent Rights, the Seller has not filed any disclaimer or made or permitted any other voluntary reduction in the scope of the Patent Rights. No allowable or allowed subject matter of the Patent Rights is subject to any competing conception claims of allowable or allowed subject matter of any Patents of any Third Party and have not been the subject of any interference, re-examination or opposition proceedings.

 

(e)           There is no pending or, to the Knowledge of the Seller, threatened opposition, interference, reexamination, injunction, claim, suit, action, citation, summons, subpoena, hearing, inquiry, investigation (by the International Trade Commission or otherwise), complaint, arbitration, mediation, demand, decree or other dispute, disagreement, proceeding, claim or inter partes review (other than standard patent prosecution before a Patent Office) (collectively, “Disputes”) challenging the legality, validity, enforceability or ownership of any of the Patent Rights or that would reasonably be expected to give rise to any Set-off against the payments due to the Purchaser under this Agreement. To the Knowledge of the Seller, there are no Disputes by or with any Third Party against the Seller involving the Included Product. The Patent Rights are not subject to any outstanding injunction, judgment, order, decree, ruling, change, settlement or other disposition of a Dispute.

 

(f)            [*]

 

(g)           To the Knowledge of the Seller, there is no Third Party infringing any Patent Rights.

 

(h)           [*].

 

Section 4.12           Margin Stock. The Seller is not engaged in the business of extending credit for the purpose of buying or carrying margin stock, and no portion of the Purchase Amount shall be used by the Seller for a purpose that violates Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time.

 

Section 4.13           Regulatory Compliance. To the Seller’s Knowledge, the Seller, its Subsidiaries and their agents are in material compliance with all statutes, rules and regulations of the FDA and any regulatory authority with respect to the evaluation, testing, manufacturing and distributing of the Included Product, including those related to investigational use or premarket clearance, current “Good Manufacturing Practices”, current “Good Laboratory Practices”, current “Good Clinical Practices”, labeling, advertising, record keeping, reporting of adverse events, filing of reports and security in those countries in which the Seller or any of its Subsidiaries is conducting clinical trials for the Included Product. Neither the Seller nor any of its Subsidiaries has received from any Governmental Authority any Forms 483, notices of adverse findings or warning letters or other correspondence in which such Governmental Authority asserted that the operations of the Seller or any of its Subsidiaries may not be in material compliance with Applicable Laws, orders, judgments or decrees in connection with their respective activities relating to the Included Product.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

25 

 

Section 4.14          Material Contracts.

 

(a)           Schedule 4.14(a) hereto contains a list of each contract or other agreement that is material to [*] the Included Product (including, without limitation, all waivers, amendments, supplements and other modifications thereto) (each, a “Material Contract”). As of the Closing Date, the Seller has provided a true and complete copy of each of the Material Contracts to the Purchaser in the electronic data room.

 

(b)           Except as separately disclosed in writing to Purchaser referencing this Section 4.14(b), neither Seller nor any Material Contract Counterparty is in breach or default of any Material Contract and no circumstances or grounds exist that would, upon the giving of notice, the passage of time or both, give rise (i) to a claim by Seller or any Material Contract Counterparty of a breach or default of any Material Contract, or (ii) to a right of rescission, termination, revision, setoff, or any other rights, by any Person, in, to or under any Material Contract. Seller has not received from, or delivered to, any Material Contract Counterparty, any notice alleging a breach or default under any Material Contract, which breach or default has not been cured as of the date hereof.

 

(c)           Each Material Contract is a valid and binding obligation of Seller and, to the Knowledge of Seller, of the applicable Material Contract Counterparty, enforceable against each of Seller and, to the Knowledge of Seller, each applicable Material Contract Counterparty in accordance with its terms, except as may be limited by general principles of equity (regardless of whether considered in a proceeding at law or in equity) and by applicable bankruptcy, insolvency, moratorium and other similar laws of general application relating to or affecting creditors’ rights generally. Seller has not received any notice from any Material Contract Counterparty or any other Person challenging the validity or enforceability of any Material Contract. Neither Seller, nor to the Knowledge of Seller, any other Person, has delivered or intends to deliver any written notice to Seller or a Material Contract Counterparty challenging the validity or enforceability of any Material Contract.

 

Section 4.15          Bankruptcy. Neither Seller nor to the Knowledge of Seller, any Material Contract Counterparty is contemplating nor planning to commence any case, proceeding or other action relating to Material Contract Counterparty’s bankruptcy, insolvency, liquidation or dissolution or reorganization by any of the foregoing means.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 4.16           Office Locations; Names.

 

(a)           The chief place of business, the chief executive office and each office where Seller keeps its records regarding the Purchased Receivables are, as of the date hereof, each located at 270 East Grand Avenue, South San Francisco, CA 94080.

 

(b)           Seller (or any predecessor by merger or otherwise) has not, within the five (5) year period preceding the date hereof, had a name that differs from its name as of the date hereof.

 

Article V

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The entities constituting collectively the Purchaser hereby represent and warrant, separately (and not jointly), to the Seller as of the date of each Closing (except to the extent otherwise set forth in Section 5.8) as follows:

 

Section 5.1             Organization. Such entity is an entity of the type set forth on Annex I duly organized, validly existing and in good standing under the laws of its state of formation and has all powers and authority, and all licenses, permits, franchises, authorizations, consents and approvals of all Governmental Authorities, required to own its property and conduct its business as now conducted.

 

Section 5.2             No Conflicts. None of the execution and delivery by such entity of any of the Transaction Documents to which it is party, the performance by it of the obligations contemplated hereby or thereby or the consummation of the transactions contemplated hereby or thereby will contravene, conflict with, result in a breach, violation, cancellation or termination of, constitute a default (with or without notice or lapse of time, or both) under, require prepayment under, give any Person the right to exercise any remedy (including termination, cancellation or acceleration) or obtain any additional rights under, or accelerate the maturity or performance of or payment under, in any respect, (i) any Applicable Law or any judgment, order, writ, decree, permit or license of any Governmental Authority to which such entity or any of its assets or properties may be subject or bound, (ii) any term or provision of any contract, agreement, indenture, lease, license, deed, commitment, obligation or instrument to which such entity is a party or by which such entity or any of its assets or properties is bound or committed or (iii) any term or provision of any of the organizational documents of such entity, except in the case of clause (i) where any such event would not result in a material adverse effect on the ability of such entity to consummate the transactions contemplated by the Transaction Documents.

 

Section 5.3             Authorization. Such entity has all powers and authority to execute and deliver, and perform its obligations under, the Transaction Documents to which it is party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of each of the Transaction Documents to which such entity is party, and the performance by it of its obligations hereunder and thereunder, have been duly authorized by it. Each of the Transaction Documents to which such entity is party has been duly executed and delivered by it. Each of the Transaction Documents to which such entity is party constitutes the legal, valid and binding obligation of it, enforceable against it in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar Applicable Laws affecting creditors’ rights generally, general equitable principles and principles of public policy.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

27

 

 

Section 5.4             Governmental and Third Party Authorizations. The execution and delivery by such entity of the Transaction Documents to which it is party, the performance by it of its obligations hereunder and thereunder and the consummation of any of the transactions contemplated hereunder and thereunder do not require any consent, approval, license, order, authorization or declaration from, notice to, action or registration by or filing with any Governmental Authority or any other Person, except as described in Section 5.5.

 

Section 5.5             No Litigation. There is no action, suit, arbitration proceeding, claim, citation, summons, subpoena, investigation or other proceeding (whether civil, criminal, administrative, regulatory, investigative or informal and including by or before a Governmental Authority) pending or, to the knowledge of such entity, threatened by or against such entity, at law or in equity, that challenges or seeks to prevent or delay the consummation of any of the transactions contemplated by any of the Transaction Documents to which it is party.

 

Section 5.6             Access to Information. Such entity acknowledges that it has (a) reviewed such documents and information relating to the Patent Rights and the Included Product and (b) had the opportunity to ask such questions of, and to receive answers from, representatives of the Seller concerning the Patent Rights and the Included Product, in each case, as it deemed necessary to make an informed decision to purchase, acquire and accept the Purchased Receivables in accordance with the terms of this Agreement. Such entity has such knowledge, sophistication and experience in financial and business matters that it is capable of evaluating the risks and merits of purchasing, acquiring and accepting the Purchased Receivables in accordance with the terms of this Agreement.

 

Section 5.7             No Brokers’ Fees. Such entity has not taken any action that would entitle any person or entity to any commission or broker’s fee in connection with the transactions contemplated by this Agreement.

 

Section 5.8             Funds Available. As of the date hereof, such entity has sufficient funds on hand to satisfy its obligations to pay the Purchase Amount due and payable on the Initial Closing Date and has sufficient funds under commitment to it to satisfy its obligations to pay the Purchase Amount due and payable on the Subsequent Closing Date. Such entity acknowledges and agrees that its obligations under this Agreement are not contingent on obtaining financing.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Article VI

COVENANTS

 

The Parties hereto covenant and agree as follows:

 

Section 6.1             True Sale. The Purchaser and the Seller intend and agree that the sale, conveyance, assignment and transfer of the Purchased Receivables shall constitute a true sale by the Seller to the Purchaser of the Purchased Receivables that is absolute and irrevocable and that provides the Purchaser with the full benefits and detriments of beneficial ownership of the Purchased Receivables, and neither the Purchaser nor the Seller intends the transactions contemplated hereunder to be a financing transaction, borrowing or a loan from the Purchaser to the Seller. The Seller disclaims any beneficial ownership interest in the Purchased Receivables upon execution of this Agreement and each of the Seller and the Purchaser waives any right to contest or otherwise assert that this Agreement is other than a true, absolute and irrevocable sale and assignment by the Seller to the Purchaser of the Purchased Receivables under Applicable Law, which waiver will be enforceable against the applicable Party in any bankruptcy, insolvency or similar proceeding relating to such Party. The Seller authorizes and consents to the Purchaser filing, including with the Secretary of State of the State of Delaware, one or more UCC financing statements (and continuation statements with respect to such financing statements when applicable) or other instruments and notices, in such manner and in such jurisdictions as in the Purchaser’s determination may be necessary or appropriate to evidence the purchase, acquisition and acceptance by the Purchaser of the Purchased Receivables hereunder and to perfect and maintain the perfection of the Purchaser’s ownership in the Purchased Receivables and the security interest in the Purchased Receivables granted by the Seller to the Purchaser pursuant to Section 6.2; provided that the Purchaser will provide the Seller with a reasonable opportunity to review any such financing statements (or similar documents) prior to filing and the collateral identified in any such financing shall be limited to a legally sufficient description of the “Collateral” as defined herein and proceeds and products thereof. For greater certainty, the Purchaser will not file this Agreement in connection with the filing of any such financing statements (or similar documents) but may file a summary or memorandum of this Agreement if required under Applicable Laws providing for such filing. For sake of clarification, the foregoing statements in this Section 6.1 shall not bind either Party regarding the reporting of the transactions contemplated hereby for GAAP or SEC reporting purposes.

 

Section 6.2             Collateral Matters.

 

(a)           Precautionary Security Interest in Purchased Receivables. Without limiting the provisions of Section 6.1, in an abundance of caution to address the possibility that, notwithstanding that the Seller and the Purchaser expressly intend and expect for the sale, conveyance, assignment and transfer of the Purchased Receivables hereunder to be a true and absolute sale and assignment for all purposes, to protect the interests of the Purchaser in the event that such sale and assignment is recharacterized as something other than a true sale or such sale will for any reason be ineffective or unenforceable as such, as determined in a judicial, administrative or other proceeding (any of the foregoing being a “Recharacterization”), the Seller does hereby grant to the Purchaser, a continuing security interest of first priority in all of the Seller’s right, title and interest in, to and under the Purchased Receivables, whether now or hereafter existing, and any and all “proceeds” thereof (as such term is defined in the UCC), in each case, for the benefit of the Purchaser as security for the prompt and complete payment of a loan deemed to have been made in an amount equal to Purchase Amount together with the performance when due of all of the Seller’s obligations now or hereafter existing under this Agreement and the other Transaction Documents, which security interest will, upon the filing of a duly prepared financing statement in the appropriate filing office and to the extent the Purchased Receivables constitute an asset and not an obligation of the Seller, be perfected and prior to all other Liens thereon, other than Permitted Liens, to the extent that such security interest in the Collateral can be perfected under the UCC by the filing of financing statement in such filing office. In the event of a Recharacterization, the Purchaser will have, in addition to the rights and remedies which it may have under this Agreement, all other rights and remedies provided to a secured creditor after default under the UCC and other Applicable Law, which rights and remedies will be cumulative. The Parties intend that this Agreement shall constitute a security agreement in respect of such security interest. For the avoidance of doubt, a Recharacterization in any one jurisdiction shall not constitute a Recharacterization, or otherwise impact the characterization of the Purchased Receivables in any other jurisdiction.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)           Security Interest in Additional Collateral. Seller hereby grants to the Purchaser Representative a security interest in all of Seller’s right, title and interest in, to and under the Additional Collateral, for the benefit of the Purchaser as security for the prompt and complete payment and performance when due of the obligations of Seller hereunder in respect of the Purchased Receivables owing to the Purchaser, which security interest will, upon execution of the Deposit Agreement, be perfected and prior to all other Liens thereon (other than Permitted Liens). The Purchaser Representative agrees that it shall not send an “activation notice” (as defined in the Deposit Agreement) or otherwise assert exclusive control over the Collection Account or the Disbursement Account until after the occurrence of a Bankruptcy Event or the breach by Seller of the Transaction Documents, which (if curable) shall remain uncured for a period in excess of 2 days after notice thereof is provided by the Purchaser.

 

Section 6.3             Update Meetings. During the Payment Term, but subject to Section 9.4, until the date upon which Seller has paid to the Purchaser an amount in Purchased Receivables equal to the Purchase Amount, the Purchaser shall be entitled to a [*] update call or meeting, as follows: at the Purchaser’s request, members of the senior management team of each Party shall meet up to (a) until each of the Approval Conditions and the Manufacturing Approval Condition have been satisfied, [*] in each Calendar Year and (b) after each of the Approval Conditions and the Manufacturing Approval Condition have been satisfied, [*] in each Calendar Year (in each case, which may be in-person at the Seller’s headquarters, or via teleconference or videoconference) in order for the Seller to review with the Purchaser the [*] Net Sales for the preceding [*] and the related reports delivered by the Seller pursuant to Section 3.5 and to discuss the status and the historical and potential performance of the Included Product and any regulatory developments. Seller shall also provide to Purchaser no later than [*] days prior to such update meetings, a list of the Key Commercial Contracts entered into, amended, modified, restated, supplemented, cancelled, terminated or waived during the preceding [*], or any Key Commercial Contracts then in progress or under negotiation, including the identity of the Key Commercial Contract Counterparty, and shall provide Purchaser with reasonably requested information relating to the purpose and content of such Key Commercial Contracts and reasons for any of the foregoing events relating thereto. Any information disclosed by either Party during such update meetings or calls or provided to the Purchaser pursuant to its request shall be considered “Confidential Information” of the disclosing Party subject to the terms of Article VIII.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 6.4             Notices.

 

(a)           To the extent permitted by Applicable Law, promptly after receipt by the Seller of notice of any action, suit, claim, demand, dispute, investigation, arbitration or other proceeding (commenced or threatened) relating to the Included Product, the transactions contemplated by any Transaction Document, or to the Purchased Receivables, the Seller shall (i) inform the Purchaser in writing of the receipt of such notice and the substance thereof and (ii) if such notice is in writing, furnish the Purchaser with a copy of such notice and any related materials with respect thereto, and if such notice is not in writing, furnish to the Purchaser a written summary describing in reasonable detail the contents thereof.

 

(b)           To the extent permitted by Applicable Law, promptly following receipt by the Seller of any written notice, claim or demand challenging the legality, validity, enforceability or ownership of any of the Patent Rights or pursuant to which any Third Party commences or threatens any action, suit or other proceeding against the Seller and relating to the Included Product, the Seller shall (i) inform the Purchaser in writing of such receipt and (ii) furnish the Purchaser with a copy of such notice, claim or demand, or if such notice is not in writing, furnish to the Purchaser a written summary describing in reasonable detail the contents thereof.

 

(c)           Seller shall promptly (and in any event within three (3) Business Days) provide Purchaser with copies of any material information, reports and notices if the contents of such information, report or notice could reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect.

 

(d)           The Seller shall provide the Purchaser with prompt written notice after the Seller has Knowledge of any of the following: (i) the occurrence of a Bankruptcy Event in respect of the Seller or any Material Contract Counterparty; (ii) any material breach or default by the Seller of or under any covenant, agreement or other provision of any Transaction Document; (iii) any representation or warranty made by the Seller in any of the Transaction Documents or in any certificate delivered to the Purchaser pursuant to this Agreement shall prove to be untrue, inaccurate or incomplete in any material respect on the date as of which made; or (iv) any change, effect, event, occurrence, state of facts, development or condition that would result in a Material Adverse Effect.

 

(e)           The Seller shall notify the Purchaser in writing not less than 10 days prior to any change in, or amendment or alteration of, the Seller’s (i) legal name, (ii) form of legal entity or (iii) jurisdiction of organization.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 6.5             Public Announcement.

 

(a)            As soon as reasonably practicable following the Closing Date, one or both of the Parties shall issue a mutually agreed to press release substantially in the applicable form attached hereto as Exhibit B. Except as required by Applicable Law (including disclosure requirements of the SEC, the NASDAQ Global Market or any other stock exchange on which securities issued by a Party or its Affiliates are traded), neither Party shall make any other public announcement concerning this Agreement or the subject matter hereof without the prior written consent of the other, which shall not be unreasonably withheld or delayed. In the event of a required public announcement, to the extent practicable under the circumstances, the Party making such announcement shall provide the other Party with a copy of the proposed text of such announcement sufficiently in advance of the scheduled release to afford such other Party a reasonable opportunity to review and comment upon the proposed text.

 

(b)            The Parties shall coordinate in advance with each other in connection with the filing of this Agreement (including proposed redaction of certain provisions of this Agreement) with the SEC, the NASDAQ Global Market or any other stock exchange or Governmental Authority on which securities issued by a Party or its Affiliate are traded, and each Party shall use reasonable efforts to seek confidential treatment for the terms of this Agreement proposed to be redacted, if any; provided that each Party shall ultimately retain control over what information to disclose to the SEC, the NASDAQ Global Market or any other stock exchange or Governmental Authority, as the case may be, and provided further that the Parties shall use their reasonable efforts to file redacted versions with any Governmental Authorities which are consistent with redacted versions previously filed with any other Governmental Authorities. Other than such obligation, neither Party (nor its Affiliates) shall be obligated to consult with or obtain approval from the other Party with respect to any filings to the SEC, the NASDAQ Global Market or any other stock exchange or Governmental Authority. For clarity, once a public announcement or other disclosure is made by a Party in accordance with this Section 6.5, then no further consent or compliance with this Section 6.5 shall be required for any substantially similar disclosure thereafter.

 

Section 6.6             Further Assurances.

 

(a)           Subject to the terms and conditions of this Agreement, each Party hereto will use its commercially reasonable efforts to take, or cause to be taken, as may be reasonably requested by the other Party, all actions and to do, or cause to be done, all things necessary under Applicable Laws to consummate the transactions contemplated by the Transaction Documents, including to (i) perfect the sale, assignment, transfer, conveyance and granting of the Purchased Receivables to the Purchaser pursuant to this Agreement, (ii) perfect, protect, more fully evidence, vest and maintain in the Purchaser good, valid and marketable rights and interests in and to the Purchased Receivables free and clear of all Liens (other than Permitted Liens and other Liens permitted by the Transaction Documents), (iii) create, evidence and perfect the back-up security interest granted to the Purchaser Representative pursuant to Section 6.2 and (iv) enable the Purchaser to exercise or enforce any of the Purchaser’s rights under any Transaction Document, including following the Closing Date.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)           The Seller and the Purchaser shall cooperate and provide assistance as reasonably requested by the other Party hereto, at the expense of such other Party hereto (except as otherwise set forth herein), in connection with any litigation, arbitration, investigation or other proceeding (whether threatened, existing, initiated or contemplated prior to, on or after the date hereof) to which the other Party hereto, any of its Affiliates or controlling persons or any of their respective officers, directors, equityholders, controlling persons, managers, agents or employees is or may become a party or is or may become otherwise directly or indirectly affected or as to which any such Persons have a direct or indirect interest, in each case relating to any Transaction Document, the transactions contemplated herein or therein or the Purchased Receivables but in all cases excluding any litigation brought by the Seller (for itself or on behalf of any Seller Indemnified Party) against the Purchaser or brought by the Purchaser (for itself or on behalf of any Purchaser Indemnified Party) against the Seller.

 

(c)           The Seller shall comply with all Applicable Laws with respect to the Transaction Documents and the Purchased Receivables except where any non-compliance would not result in a Material Adverse Effect.

 

(d)           The Seller shall not enter into any contract, agreement or other legally binding arrangement (whether written or oral), or grant any right to any other Person, in any case that would reasonably be expected to conflict with the Transaction Documents or serve or operate to limit or circumscribe any of the Purchaser’s rights under the Transaction Documents (or the Purchaser’s ability to exercise any such rights) or create, incur, assume or suffer to exist any Lien, upon or with respect to the Purchased Receivables or the Additional Collateral (other than Permitted Liens), or agree to do or suffer to exist any of the foregoing; provided that Seller shall be permitted to incur Indebtedness, including Permitted Debt, in connection with which Seller may grant to the Permitted Debt Creditors a first priority security lien in Seller’s right, title and interest in, to and under, the Collateral and the proceeds thereof, in each case, other than to the extent of the Purchased Receivables (provided that any proceeds released to Purchaser from the Disbursement Account shall be free and clear of any such security interest) and Purchaser and the Purchaser Representative shall enter into a reasonably acceptable intercreditor agreement or similar agreement with any Permitted Debt Creditor, so long as the terms of such Indebtedness and any intercreditor agreement do not prohibit, or purport to subordinate, any payments under the Transaction Documents in respect of the Purchased Receivables (it being agreed that an intercreditor agreement incorporating the terms set forth on Exhibit C shall be deemed reasonably acceptable) and, if requested by Seller or any Permitted Debt Creditor (or agent or representative thereof), Purchaser Representative shall enter into an amended or replacement Deposit Agreement that extends perfection in the Collection Account and the Disbursement Account to the Permitted Debt Creditor, which may be through “control” by the Purchaser Representative over the Additional Collateral for purposes of Section 9-104 of the UCC or other method of control for such purposes reasonably acceptable to the Purchaser Representative. Seller shall obtain and maintain any required consents, approvals, acknowledgements, certificates or waivers so that the transactions contemplated by this Agreement or any other Transaction Document may be consummated and shall not result in any default or breach or termination of any agreement to which it is party.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(e)           Without the prior written consent of Purchaser, neither Seller nor any Subsidiary of Seller shall take any act or fail to take any act that would reasonably be expected to result in a Material Adverse Effect with respect to an Included Product, the Purchased Receivables or Purchaser’s rights under the Transaction Documents.

 

Section 6.7             Patent Rights. The Seller shall (a) take any and all actions, and prepare, execute, deliver and file any and all agreements, documents and instruments, that are reasonably necessary or desirable to preserve diligently and maintain the Patent Rights, including payment of maintenance fees or annuities, at the sole expense of the Seller and (b) diligently defend (and enforce) the Patent Rights against infringement or interference by any other Person, and against any claims of invalidity or unenforceability, in any jurisdiction (including by bringing any legal action for infringement or defending any counterclaim of invalidity or action of a Third Party for declaratory judgment of non-infringement or non-interference) , (c) diligently defend against any claim or action by any other Person that the manufacture, use, marketing, sale, offer for sale, importation or distribution of the Included Product as currently contemplated infringes on any patent or other intellectual property rights of any other Person or constitutes misappropriation of any other Person’s trade secrets or other intellectual property rights, and (d) when available in respect of the Included Product and where applicable obtain patent listing in the FDA Electronic Orange Book or apply for similar data exclusivity where available in other countries in which Net Sales of Included Product occur, in each case of (a) through (d), except where failure to do so would not reasonably be expected to have a Material Adverse Effect. The Seller shall not exercise and enforce its applicable rights in any manner that would result in a breach of this Agreement.

 

Section 6.8             Tax Matters.

 

(a)           Notwithstanding anything in this Agreement to the contrary, the Parties intend the transactions contemplated under this Agreement to be characterized as and treated as a sale of the Purchased Receivables for all U.S. tax purposes and each Party shall prepare and file all tax returns and reports in a manner consistent with that characterization. The Parties agree that this Agreement does not, and they do not intend this Agreement to, create a contractual partnership for U.S. federal income tax purposes. [*] The Purchaser understands that, consistent with the qualified cost sharing arrangement, the Seller and the foreign affiliate intend to enter into an agreement, contemporaneously with the Seller entering into this Purchase and Sale Agreement, that will obligate the foreign affiliate to make payments to the Seller equal to the amount of the Included Product Payment Amount resulting from Net Sales that occur outside the United States.

 

(b)           The Parties hereto agree not to take any position that is inconsistent with the provisions of this Section 6.8 on any tax return or in any audit or other administrative or judicial proceeding unless (i) the other Party hereto has consented to such actions or (ii) the Party hereto that contemplates taking such an inconsistent position has been advised by nationally recognized tax counsel in writing that there is no “reasonable basis” (within the meaning of Treasury Regulation Section 1.6662-3(b)(3)) for the position specified in this Section 6.8. If there is an inquiry by any Governmental Authority of the Seller or the Purchaser related to this Section 6.8, the Parties hereto shall cooperate with each other in responding to such inquiry in a reasonable manner consistent with this Section 6.8.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 6.9             Existence. The Seller shall (a) preserve and maintain its existence, (b) preserve and maintain its rights, franchises and privileges unless failure to do any of the foregoing would not result in a Material Adverse Effect, (c) qualify and remain qualified in good standing in each jurisdiction where the failure to preserve and maintain such qualifications would result in a Material Adverse Effect, including appointing and employing such agents or attorneys in each jurisdiction where it shall be necessary to take action under this Agreement, and (d) comply with its organizational documents (provided, however, that nothing in this Section 6.9 shall prohibit the Seller from entering into any merger, consolidation or amalgamation with, or selling or otherwise transferring all or substantially all of its assets or all or substantially of its assets related to the Included Product to, any other Person in a transaction that complies with Section 10.4).

 

Section 6.10           Commercialization of the Included Product. Seller shall use Commercially Reasonable and Diligent Efforts to prepare, execute, deliver and file any and all agreements, documents or instruments that are necessary or desirable to secure and maintain, Marketing Authorization in the United States for the Included Product. Seller shall not withdraw or abandon, or fail to take any action necessary to prevent the withdrawal or abandonment of, Marketing Authorization in the United States once obtained. Following the receipt of a Marketing Authorization in any country, the Seller agrees to use Commercially Reasonable and Diligent Efforts, itself or through one or more Subsidiaries or Licensees, to Commercialize the Included Product in each such country.

 

Section 6.11           Material Contracts.

 

(a)           [*]

 

(b)           Seller shall use Commercially Reasonable and Diligent Efforts in selecting the applicable Material Contract Counterparty to a Material Contract and negotiating and agreeing to the terms of such Material Contract (or any amendment, modification, restatement, cancellation, supplement, termination or waiver thereof).

 

(c)           The Seller shall, and shall cause its Subsidiaries to, comply with all material terms and conditions of and fulfill all material obligations under each Material Contract or Key Commercial Contract to which any of them is party. Upon the occurrence of a breach of any such Material Contract or Key Commercial Contract by any other party thereto, which would reasonably be expected to result in a Material Adverse Effect, the Seller shall use Commercially Reasonable and Diligent Efforts to seek to enforce all of its (or its Subsidiary’s) rights and remedies thereunder.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(d)           To the extent (i) Seller sells or otherwise disposes of its right, title and/or interest in and to the Included Product to a Third Party, either on a worldwide or jurisdiction by jurisdiction basis, and the terms of such sale or disposition does not include the payment of royalties to Seller in respect of Net Sales in an amount equal to or greater than the Applicable Tiered Percentage or (ii) otherwise enters into any agreement, arrangement or understanding pursuant to which a Third Party is entitled to the Exploitation or Commercialization of the Included Product, but such agreement, arrangement or understanding does not include the payment of royalties in respect of Net Sales to Seller in an amount equal to or greater than the Applicable Tiered Percentage, then Seller shall cause such Third Party to (A) instruct all Licensees of such Third Party and account debtors (which instruction shall be in form and substance reasonably satisfactory to the Purchaser and identify Purchaser as having a right to a receive a portion of such amounts, and a copy of which shall be delivered to the Purchaser promptly following delivery to such Licensee or account debtor) to remit all proceeds payable to such Third Party in respect of accounts and royalty receivables arising out of sales of Included Product in the United States to the Collection Account to be disbursed in accordance with Section 3.2 and 3.3 (as if such Third Party were the Seller for purposes thereof), in each case, in a manner that preserves Purchaser’s right to receive the Applicable Tiered Percentage of Net Sales and (B) be bound by the terms of this Section 6.11(d); provided that this Section 6.11(d) shall not apply to any sale, disposal, agreement arrangement or understanding pursuant to which no proceeds are payable.

 

Section 6.12           Adverse Effect. Notwithstanding anything to the contrary in this Agreement, Seller shall not take any action or abstain from taking any action, directly or indirectly, which action or abstinence could have the effect of altering the terms and conditions of this Agreement or the other Transaction Documents (or any ancillary documents thereto) in a manner adverse to the Purchaser.

 

Article VII

THE CLOSINGS

 

Section 7.1             Closing. Subject to the terms of this Agreement, the closings of the transactions contemplated hereby (each, a “Closing”) shall take place on

 

(a)           for the initial Closing (the “Initial Closing” and the date hereof, the “Initial Closing Date”) at the offices of Cooley LLP at 3175 Hanover Street, Palo Alto, CA 94304, or such other place as the parties hereto mutually agree; and

 

(b)           for the subsequent Closing (the “Subsequent Closing”), on the fifth (5th) Business Day (the “Subsequent Closing Date”) following the written notification from Seller of satisfaction of the condition set forth on Exhibit D at the offices of Cooley LLP at 3175 Hanover Street, Palo Alto, CA 94304, or such other place as the parties hereto mutually agree.

 

Section 7.2             Conditions to Subsequent Closing.

 

(a)           The obligations of the Purchaser relating to the Subsequent Closing shall be subject to (i) the receipt of the items identified in Section 7.3(b), (ii) no Bankruptcy Event with respect to the Seller shall have occurred and be continuing and (iii) the satisfaction of the condition set forth on Exhibit D; provided that (A) if the condition set forth on Exhibit D is not satisfied on or before September 1, 2018, Purchaser shall have the right, but not the obligation to terminate Purchaser’s rights and Seller’s obligations relating to the Subsequent Closing by delivering notice of such termination to Seller, and (B) if the condition set forth on Exhibit D is not satisfied on or before October 1, 2018, Seller’s obligations with respect to Section 2.2(b) shall not apply, and Purchaser’s rights with respect to the Subsequent Closing shall automatically terminate.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(b)           Notwithstanding Section 7.2(a), if Seller is acquired by a Third Party at any time after the Effective Date and prior to the occurrence of the condition set forth on Exhibit D, Seller’s obligations with respect to Section 2.2(b) shall not apply, and Purchaser’s rights with respect to the Subsequent Closing shall automatically terminate.

 

Section 7.3             Closing Deliverables of the Seller.

 

(a)           At the Initial Closing, the Seller shall deliver or cause to be delivered to the Purchaser the following:

 

(i)            the Bill of Sale executed by the Seller; and

 

(ii)           a certificate of an executive officer of the Seller (the statements made in which shall be true and correct on and as of the applicable Closing Date): (i) attaching copies, certified by such officer as true and complete, of (x) the organizational documents of the Seller and (y) resolutions of the governing body of the Seller authorizing and approving the execution, delivery and performance by the Seller of the Transaction Documents and the transactions contemplated herein and therein; (ii) setting forth the incumbency of the officer or officers of the Seller who have executed and delivered the Transaction Documents, including therein a signature specimen of each such officer or officers; and (iii) attaching a copy, certified by such officer as true and complete, of a good standing certificate of the appropriate Governmental Authority of the Seller’s jurisdiction of organization, stating that the Seller is in good standing under the Applicable Laws of such jurisdiction,

 

(b)           At the Subsequent Closing, the Seller shall deliver or cause to be delivered to the Purchaser the following:

 

(i)            a certificate of an executive officer of the Seller (the statements made in which shall be true and correct on and as of the applicable Closing Date): (A) attaching copies, certified by such officer as true and complete, of (x) the organizational documents of the Seller and (y) confirming that resolutions of the governing body of the Seller authorizing and approving the execution, delivery and performance by the Seller of the Transaction Documents and the transactions contemplated herein and therein remain in full force and effect; and (B) attaching a copy, certified by such officer as true and complete, of a good standing certificate of the appropriate Governmental Authority of the Seller’s jurisdiction of organization, stating that the Seller is in good standing under the Applicable Laws of such jurisdiction;

 

(ii)           a certificate of an executive officer of the Seller certifying the satisfaction of the condition set forth on Exhibit D; and

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(iii)          a certificate of an executive officer of the Seller certifying that the representations and warranties set forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.10, 4.11, 4.13, 4.15 and 4.16 are true and correct on and as of the applicable Closing Date;

 

Section 7.4             Closing Deliverables of the Purchaser.

 

(a)           At the Initial Closing, the Purchaser shall deliver or cause to be delivered to the Seller the following:

 

(i)            the Bill of Sale executed by the Purchaser; and

 

(ii)           payment of the Purchase Amount in accordance with Section 2.2(a).

 

(b)           At the Subsequent Closing, the Purchaser shall deliver or cause to be delivered to the Seller the following:

 

(i)            the Bill of Sale executed by the Purchaser; and

 

and

 

(ii)           payment of the second portion of the Purchase Amount in accordance with Section 2.2(b).

 

Article VIII

CONFIDENTIALITY

 

Section 8.1             Confidentiality; Permitted Use. During the Payment Term and for a period of [*] years thereafter, each Party shall maintain in strict confidence all Confidential Information and materials disclosed or provided to it by the other Party, except as approved in writing in advance by the disclosing Party, and shall not use or reproduce the disclosing Party’s Confidential Information for any purpose other than as required to carry out its obligations and exercise its rights pursuant to this Agreement (the “Purpose”). The Party receiving such Confidential Information (the “Recipient”) agrees to institute measures to protect the Confidential Information in a manner consistent with the measures it uses to protect its own most sensitive proprietary and confidential information, which must not be less than a reasonable standard of care. Notwithstanding the foregoing, the Recipient may permit access to the disclosing Party’s Confidential Information to those of its employees or authorized representatives having a need to know such information for the Purpose and who have signed confidentiality agreements or are otherwise bound by confidentiality obligations at least as restrictive as those contained herein. Each Party shall be responsible for the breach of this Agreement by its employees or authorized representatives. Each Party shall immediately notify the other Party upon discovery of any loss or unauthorized disclosure of the other Party’s Confidential Information.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 8.2             Exceptions. The obligations of confidentiality and non-use set forth in Section 8.1 shall not apply to any portion of Confidential Information that the Recipient or its Affiliates can demonstrate was: (a) known to the general public at the time of its disclosure to the Recipient or its Affiliates, or thereafter became generally known to the general public, other than as a result of actions or omissions of the Recipient, its Affiliates, or anyone to whom the Recipient or its Affiliates disclosed such portion; (b) known by the Recipient or its Affiliates prior to the date of disclosure by the disclosing Party; (c) disclosed to the Recipient or its Affiliates on an unrestricted basis from a source unrelated to the disclosing Party and not known by the Recipient or its Affiliates to be under a duty of confidentiality to the disclosing Party; or (d) independently developed by the Recipient or its Affiliates by personnel that did not use the Confidential Information of the disclosing Party in connection with such development.

 

Section 8.3             Permitted Disclosures. The obligations of confidentiality and non-use set forth in Section 8.1 shall not apply to the extent that the receiving Party or its Affiliates: (a) is required to disclose Confidential Information pursuant to: (i) an order of a court of competent jurisdiction; (ii) Applicable Laws; (iii) regulations or rules of a securities exchange; (iv) requirement of a Governmental Authority for purposes related to development or commercialization of an Included Product, or (v) the exercise by each Party of its rights granted to it under this Agreement or its retained rights or as required to perfect Purchaser’s rights under the Transaction Documents; or (b) discloses such Confidential Information solely on a “need to know basis” to Affiliates, potential or actual: acquirers, merger partners, licensees, permitted assignees, collaborators (including Licensees), subcontractors, investment bankers, investors, limited partners, partners, lenders, or other financial partners, and their respective directors, employees, contractors and agents, or (c) provides a copy of this Agreement or any of the other Transaction Documents to the extent requested by an authorized representative of a U.S. or foreign tax authority, (d) discloses Confidential Information in response to a routine audit or examination by, or a blanket document request from, a Governmental Entity; provided that (A) such Third Party or person or entity in subsection (b) agrees to confidentiality and non-use obligations with respect thereto at least as stringent as those specified for in this Article VIII; and (B) in the case of (a)(i) through (iv), to the extent permitted by Applicable Law, the Recipient shall provide prior written notice thereof to the disclosing Party and provide the opportunity for the disclosing Party to review and comment on such required disclosure and request confidential treatment thereof or a protective order therefor.

 

Section 8.4             Return of Confidential Information. Each Party shall return or destroy, at the other Party’s instruction, all Confidential Information of the other Party in its possession upon termination or expiration of this Agreement, or destroy such Confidential Information; provided, however, that each Party shall be entitled to retain one (1) copy of such Confidential Information of the other Party for legal archival purposes and/or as may be required by Applicable Law and neither Party shall be required to return, delete or destroy Confidential Information or any electronic files or any information prepared by such Party that have been backed-up or archived in the ordinary course of business consistent with past practice.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Article IX

INDEMNIFICATION

 

Section 9.1             Indemnification by the Seller. The Seller agrees to indemnify and hold each of the Purchaser and its Affiliates and any and all of their respective partners, directors, managers, members, officers, employees, agents and controlling persons (each, a “Purchaser Indemnified Party”) harmless from and against, and will pay to each Purchaser Indemnified Party the amount of, any and all Losses awarded against or incurred or suffered by such Purchaser Indemnified Party arising out of (a) any breach of any representation, warranty or certification made by the Seller in any of the Transaction Documents or certificates given by the Seller to the Purchaser in writing pursuant to this Agreement or any other Transaction Document, (b) any breach of or default under any covenant or agreement by the Seller to the Purchaser pursuant to any Transaction Document, (c) any Excluded Liabilities and Obligations and (d) any fees, expenses, costs, liabilities or other amounts incurred or owed by the Seller to any brokers, financial advisors or comparable other Persons retained or employed by it in connection with the transactions contemplated by this Agreement; provided, however, that the foregoing shall exclude any indemnification to any Purchaser Indemnified Party (i) that results from the bad faith or willful misconduct of such Purchaser Indemnified Party, or (ii) to the extent resulting from acts or omissions of the Seller based upon the written instructions from any Purchaser Indemnified Party. With respect to indemnification by the Seller pursuant to this Section 9.1, (A) the Seller’s maximum liability shall not exceed an amount equal to (1) one hundred and ninety five percent (195%) of the Purchase Amount, minus (2) the aggregate amount collected or received by the Purchaser (and any direct or indirect transferee of the Purchaser to whom any interest in the Purchased Receivables is transferred) in respect of the Purchased Receivables, minus (3) the aggregate amount collected or received by the Purchaser (and any direct or indirect transferee of the Purchaser to whom any interest in the Purchased Receivables is transferred) pursuant to the exercise of its rights under this Section 9.1 (without duplication of any amounts received pursuant to clause (2)); provided, however, that such limitations on recovery shall not be applicable if the Seller’s indemnification obligations results from or arises out of the fraud, willful misconduct or gross negligence of Seller.

 

Section 9.2             Indemnification by the Purchaser. The Purchaser agrees to indemnify and hold each of the Seller and its Affiliates and any and all of their respective partners, directors, managers, members, officers, employees, agents and controlling Persons (each, a “Seller Indemnified Party”) harmless from and against, and will pay to each Seller Indemnified Party the amount of, any and all Losses awarded against or incurred or suffered by such Seller Indemnified Party arising out of (a) any breach of any representation, warranty or certification made by the Purchaser in any of the Transaction Documents or certificates given by the Purchaser in writing pursuant hereto or thereto, (b) any breach of or default under any covenant or agreement by the Purchaser pursuant to any Transaction Document and (c) any fees, expenses, costs, liabilities or other amounts incurred or owed by the Purchaser to any brokers, financial advisors or comparable other Persons retained or employed by it in connection with the transactions contemplated by this Agreement; provided, however, that the foregoing shall exclude any indemnification to any Seller Indemnified Party (i) that results from the bad faith or willful misconduct of such Seller Indemnified Party, (ii) to the extent resulting from acts or omissions of the Purchaser based upon the written instructions from any Seller Indemnified Party or (iii) for any matter in respect of which any Purchaser Indemnified Party would be entitled to indemnification under Section 9.1.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 9.3             Procedures. If any Third Party Claim shall be brought or alleged against an indemnified party in respect of which indemnity is to be sought against an indemnifying party pursuant to Section 9.1 or Section 9.2, the indemnified party shall, promptly after receipt of notice of the commencement of any such Third Party Claim, notify the indemnifying party in writing of the commencement thereof, enclosing a copy of all papers served, if any; provided, that the omission to so notify such indemnifying party will not relieve the indemnifying party from any liability that it may have to any indemnified party under Section 9.1 or Section 9.2 unless, and only to the extent that, the indemnifying party is actually prejudiced by such omission. In the event that any Third Party Claim is brought against an indemnified party and it notifies the indemnifying party of the commencement thereof in accordance with this Section 9.3, the indemnifying party will be entitled, at the indemnifying party’s sole cost and expense, to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not, subject to the immediately succeeding sentence, be liable to such indemnified party under this Article IX for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such Third Party Claim, an indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the sole cost and expense of such indemnified party unless (a) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (b) the indemnifying party has assumed the defense of such proceeding and has failed within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or (c) the named parties to any such Third Party Claim (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interests between them based on the advice of counsel to the indemnifying party. It is agreed that the indemnifying party shall not, in connection with any Third Party Claim or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm (in addition to local counsel where necessary) for all such indemnified parties. The indemnifying party shall not be liable for any settlement of any Third Party Claim effected without its written consent, but, if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any Loss by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or discharge of any pending or threatened Third Party Claim in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement, compromise or discharge, as the case may be, (i) includes an unconditional written release of such indemnified party, in form and substance reasonably satisfactory to the indemnified party, from all liability on claims that are the subject matter of such claim or proceeding, (ii) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any indemnified party and (iii) does not impose any continuing material obligation or restrictions on such indemnified party.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 9.4             Other Claims. A claim by an indemnified party under this Article IX for any matter not involving a Third Party Claim and in respect of which such indemnified party seeks indemnification hereunder may be made by delivering, in good faith, a written notice of demand to the indemnifying party, which notice shall contain (a) a description and the amount of any Losses incurred or suffered or reasonably expected to be incurred or suffered by the indemnified party, (b) a statement that the indemnified party is entitled to indemnification under this Article IX for such Losses and a reasonable explanation of the basis therefor, and (c) a demand for payment in the amount of such Losses. For all purposes of this Section 9.4, the Seller shall be entitled to deliver such notice of demand to the Purchaser on behalf of the Seller Indemnified Parties, and the Purchaser shall be entitled to deliver such notice of demand to the Seller on behalf of the Purchaser Indemnified Parties. Within thirty (30) days after receipt by the indemnifying party of any such notice, the indemnifying party may deliver to the indemnified party that delivered the notice a written response in which the indemnifying party (a) agrees that the indemnified party is entitled to the full amount of the Losses claimed in the notice from the indemnified party; (b) agrees that the indemnified party is entitled to part, but not all, of the amount of the Losses claimed in the notice from the indemnified party; or (c) indicates that the indemnifying party disputes the entire amount of the Losses claimed in the notice from the indemnified party. If the indemnified party does not receive such a response from the indemnifying party within such thirty (30)-day period, then the indemnifying party shall be conclusively deemed to have agreed that the indemnified party is entitled to the full amount. If the indemnifying party and the indemnified party are unable to resolve any dispute relating to any amount of the Losses claimed in the notice from the indemnified party within thirty (30) days after the delivery of the response to such notice from the indemnifying party, then the parties shall be entitled to resort to any legal remedy available to such party to resolve such dispute that is provided for in this Agreement, subject to all the terms, conditions and limitations of this Agreement.

 

Section 9.5             Exclusive Remedy. Except for any claims for specific performance pursuant to Section 10.2, the indemnification afforded by this Article IX shall be the sole and exclusive remedy for any and all Losses awarded against or incurred or suffered by the Purchaser Indemnified Parties against the Seller, and the Seller Indemnified Parties against the Purchaser, as the case may be, in connection with the transactions contemplated by the Transaction Documents, including with respect to any breach of any representation, warranty or certification made by a party hereto in any of the Transaction Documents or certificates given by a party hereto in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by a party hereto pursuant to any Transaction Document, in each case other than any breach or default resulting from the fraud or willful misconduct of such party, provided that any action, suit or proceeding brought with respect to any such claim shall be subject to the monetary limitation on recovery by indemnification pursuant to Section 9.1 (in the aggregate with any other amounts that are subtracted from the Purchase Amount in determining the monetary limitation on recovery by indemnification pursuant to Section 9.1).

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 9.6             Limitations. The Purchaser acknowledges and agrees that, other than the representations and warranties of the Seller specifically contained in Article IV, there are no representations or warranties of the Seller or any other Person either expressed or implied with respect to the Included Product Payment Amounts, Net Sales, the Patent Rights, the Purchased Receivables, the Included Product, this Agreement or the transactions contemplated hereby or in any of the other Transaction Documents or otherwise, and that it does not rely on, and shall have no remedies in respect of, any representation or warranty not specifically set forth in Article IV. Without limiting the foregoing, the Purchaser acknowledges and agrees that (i) the Purchaser, together with its Affiliates and their respective representatives, have made their own investigation of the Included Product Payment Amounts, Net Sales, the Patent Rights, the Purchased Receivables, the Included Product, the creditworthiness of the Seller and its Affiliates, this Agreement and the transactions contemplated hereby and in the other Transaction Documents and are not relying on, and shall have no remedies in respect of, any implied warranties or upon any representation or warranty whatsoever (other than any representation or warranty specifically set forth in Article IV), and (ii) except as expressly set forth in any representation or warranty in Article IV, the Purchaser shall have no claim or right regarding Losses pursuant to this Article IX (or otherwise) with respect to any information, documents or materials furnished or made available to the Purchaser or any of its Affiliates or its or its Affiliates’ representatives in any data room, presentation, interview or in any other form or manner relating to the transactions contemplated hereby or by any of the other Transaction Documents.

 

Article X

MISCELLANEOUS

 

Section 10.1           Survival. All representations, warranties and covenants made herein and in any other Transaction Document or any certificate delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. The rights hereunder to indemnification and payment of Losses under Article IX or to seek specific performance under Section 10.2 based on such representations, warranties and covenants shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time (whether before or after the execution and delivery of this Agreement or the Closing) in respect of the accuracy or inaccuracy of or compliance with, any such representation, warranty or covenant.

 

Section 10.2           Specific Performance. Each of the Parties hereto acknowledges that the other Party hereto will have no adequate remedy at law if the other Party fails to perform any of its obligations under any of the Transaction Documents. In such event, each of the Parties hereto agrees that the other Party hereto shall have the right, in addition to any other rights it may have (whether at law or in equity), to specific performance of this Agreement without the necessity of posting a bond or proving the inadequacy of monetary damages as a remedy and to obtain injunctive relief against any breach or threatened breach of the Transaction Documents. The Parties further agree not to assert that a remedy of specific performance is unenforceable, invalid, contrary to applicable law or inequitable for any reason.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 10.3           Notices. All notices, consents, waivers and other communications hereunder shall be in writing and shall be effective (a) upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, (b) upon receipt when sent by an overnight courier (costs prepaid and receipt requested), (c) on the date personally delivered to an authorized officer of the party to which sent or (d) on the date transmitted by electronic transmission (other than facsimile transmission) with a confirmation of receipt, in all cases, with a copy emailed to the recipient at the applicable address, addressed to the recipient as follows:

 

if to the Seller, to:

 

Portola Pharmaceuticals, Inc.

270 E. Grand Avenue

South San Francisco, CA 94080

 

Attention: [*]
Telephone: [*]
Email: [*]

 

with a copy to (which shall not constitute notice):

 

Cooley LLP

3175 Hanover St.

Palo Alto, CA 94304

 

Attention: Robert Jones

Telephone: [*]

Email: [*]

 

if to the Purchaser, to:

 

HealthCare Royalty Management, LLC

on behalf of each entity constituting the Purchaser

300 Atlantic Street, Suite 600

Stamford, CT 06901

Attention: [*]

[*]

 

Email: [*]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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With a copy (which shall not constitute notice) to:

 

HealthCare Royalty Management, LLC

on behalf of each entity constituting the Purchaser

300 Atlantic Street, Suite 600

Stamford, CT 06901

Attention: Chief Legal Officer

Email: [*]

 

with a copy (which shall not constitute notice) to:

 

Cadwalader, Wickersham & Taft LLP

200 Liberty Street

New York, New York 10281

Attn: Ira J. Schacter

E-mail: [*]

 

Each Party hereto may, by notice given in accordance herewith to the other Party hereto, designate any further or different address to which subsequent notices, consents, waivers and other communications shall be sent.

 

Section 10.4           Successors and Assigns.

 

(a)           The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. The Seller shall not be entitled to assign any of its obligations and rights under this Agreement without the prior written consent of the Purchaser; provided that the Seller may, without the consent of the Purchaser, assign any of its obligations or rights under this Agreement to any (a) Affiliate receiving an assignment of the right to Exploit or Commercialize the Included Product and receive underlying Net Sales generating Purchased Receivables; provided that the Seller continues to be liable for all of its obligations under this Agreement or (b) any other Person with which it may merge or consolidate or to which it may sell all or substantially all of its assets or all or substantially of its assets related to the Included Product, provided that with respect to clause (a) or (b), the assignee under any such assignment agrees to be bound by the terms of the Transaction Documents and furnishes a written agreement to such effect to the Purchaser. The Purchaser may assign any of its obligations and rights hereunder without restriction to any entity or entities other than a Competitor; provided that the obligations of Seller pursuant to Articles III and VI shall remain solely obligations to Purchaser unless Purchaser has assigned the entirety to its obligations and rights hereunder to a single Person. The Purchaser shall give notice of any such assignment to the Seller promptly after the occurrence thereof. The Seller shall be under no obligation to reaffirm any representations, warranties or covenants made in this Agreement or any of the other Transaction Documents. Any purported assignment of rights or obligations in violation of this Section 10.4 will be void.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 10.5                    Independent Nature of Relationship. The relationship between the Seller and the Purchaser is solely that of seller and purchaser, and neither the Seller nor the Purchaser has any fiduciary or other special relationship with the other Party hereto or any of its Affiliates. Nothing contained herein or in any other Transaction Document shall be deemed to constitute the Seller and the Purchaser as a partnership, an association, a joint venture or any other kind of entity or legal form. The Parties agree that they shall not take any inconsistent position with respect to such treatment in a filing with any Governmental Authority.

 

Section 10.6                    Entire Agreement. This Agreement, together with the Exhibits hereto (which are incorporated herein by reference) and the other Transaction Documents, constitute the entire agreement between the Parties hereto with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties hereto with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein (or in the Exhibits hereto or the other Transaction Documents) has been made or relied upon by either Party hereto.

 

Section 10.7                    Governing Law.

 

(a)            THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW OR CHOICE OF FORUM OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

(a)            Each of the Parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the 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 Applicable Law.

 

(b)            Each of the Parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in Section 10.7(b). 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.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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(c)            Each of the Parties hereto irrevocably consents to service of process in the manner provided for notices in Section 10.3. Nothing in this Agreement will affect the right of any Party hereto to serve process in any other manner permitted by Applicable Law. Each of the Parties hereto waives personal service of any summons, complaint or other process, which may be made by any other means permitted by New York law.

 

Section 10.8                   Waiver of Jury Trial. EACH PARTY HERETO HEREBY 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 THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY HERETO WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.8.

 

Section 10.9                    Severability. If one or more provisions of this Agreement are held to be invalid, illegal or unenforceable by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, which shall remain in full force and effect, and the Parties hereto shall replace such invalid, illegal or unenforceable provision with a new provision permitted by Applicable Law and having an economic effect as close as possible to the invalid, illegal or unenforceable provision. Any provision of this Agreement held invalid, illegal or unenforceable only in part or degree by a court of competent jurisdiction shall remain in full force and effect to the extent not held invalid, illegal or unenforceable.

 

Section 10.10                  Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto. Any counterpart may be executed by facsimile or other electronic transmission, and such facsimile or other electronic transmission shall be deemed an original.

 

Section 10.11                  Amendments; No Waivers. Neither this Agreement nor any term or provision hereof may be amended, supplemented, restated, waived, changed or modified except with the written consent of the Parties hereto. No failure or delay by either Party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No notice to or demand on either Party hereto in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval hereunder shall, except as may otherwise be stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Section 10.12                  No Third Party Rights. Other than the Parties, no Person will have any legal or equitable right, remedy or claim under or with respect to this Agreement. This Agreement may be amended or terminated, and any provision of this Agreement may be waived, without the consent of any Person who is not a Party. The Seller shall enforce any legal or equitable right, remedy or claim under or with respect to this Agreement for the benefit of the Seller Indemnified Parties and the Purchaser shall enforce any legal or equitable right, remedy or claim under or with respect to this Agreement for the benefit of the Purchaser Indemnified Parties.

 

Section 10.13                  Table of Contents and Headings. The Table of Contents and headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

 

{SIGNATURE PAGE FOLLOWS}

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above.

 

  PORTOLA PHARMACEUTICALS, INC.
   
  By: /s/ William Lis
    Name: William Lis
    Title: Chief Executive Officer
   
  HEALTHCARE ROYALTY PARTNERS III, L.P.
   
  By: HealthCare Royalty GP III, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative
   
  HEALTHCARE ROYALTY PARTNERS II, L.P.
   
  By: HealthCare Royalty GP II, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative HCRP OVERFLOW FUND, L.P.
   
  By: HCRP Overflow Fund GP, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative
   
  MOLAG HEALTHCARE ROYALTY, LLC
   
  By: HCRP MGS Account Management, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

SCHEDULE 1.1

 

KNOWLEDGE PERSONS

 

[*]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

SCHEDULE 4.11
PATENT RIGHTS

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Portola Ref.
No.
Country Status Application No. Filing Date Patent No. Patent Issue
Date
Status Projected
Term
Owner
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

SCHEDULE 4.14(A)

 

MATERIAL CONTRACTS

 

[*]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

EXHIBIT A

 

FORM OF BILL OF SALE

 

This BILL OF SALE is dated as of February 2, 2017 (the “Closing Date”) by Portola Pharmaceuticals, Inc., a Delaware corporation (the “Seller”), in favor of HealthCare Royalty Partners III, L.P., a Delaware limited partnership; HealthCare Royalty Partners II, L.P., a Delaware limited partnership; HCRP Overflow Fund, L.P., a Delaware limited partnership; and MOLAG Healthcare Royalty, LLC, a Delaware limited liability company (collectively, the “Purchaser”).

 

RECITALS

 

WHEREAS, the Seller and the Purchaser are parties to that certain Purchase and Sale Agreement, dated as of the Closing Date (the “Agreement”), pursuant to which, among other things, the Seller agrees to sell, assign, transfer, convey and grant to the Purchaser, and the Purchaser agrees to purchase, acquire and accept from the Seller, all of the Seller’s right, title and interest in, to and under the Purchased Receivables, for the consideration described in the Agreement; and

 

WHEREAS, the parties hereto now desire to carry out the purposes of the Agreement by the execution and delivery of this instrument evidencing the Purchaser’s purchase, acquisition and acceptance of the Purchased Receivables;

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth in the Agreement and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

1.The Seller, by this Bill of Sale, does hereby sell, assign, transfer, convey and grant to the Purchaser, and the Purchaser does hereby purchase, acquire and accept, the Purchased Receivables.

 

2.The parties hereto acknowledge that the Purchaser is not assuming any of the Excluded Liabilities and Obligations.

 

3.This Bill of Sale (i) is made pursuant to, and is subject to the terms of, the Agreement and (ii) shall be binding upon and inure to the benefit of the Seller, the Purchaser and their respective successors and permitted assigns, for the uses and purposes set forth and referred to above, effective immediately upon its delivery to the Purchaser.

 

4.THIS BILL OF SALE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW OR CHOICE OF FORUM OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

5.This Bill of Sale may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

 

6.The following terms as used herein shall have the following respective meanings:

 

Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of securities entitled to elect the board of directors or management board, by contract or otherwise, and the terms “controlled” and “controlling” have meanings correlative to the foregoing.

 

Annual Net Sales” means, with respect to any Calendar Year, the aggregate amount of worldwide Net Sales in the Territory for that Calendar Year.

 

Applicable Law” means, with respect to any Person, all laws, rules, regulations and orders of Governmental Authorities applicable to such Person or any of its properties or assets.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Applicable Tiered Percentage” means the percentage based on the applicable portion of Annual Net Sales and the Purchase Amount, as set forth in the chart below, and calculated as follows: (a) with respect to a Purchase Amount pursuant to Section 2.2(a) only, the percentage set forth in the applicable row of column 1, or (b) with respect to a Purchase Amount pursuant to both Section 2.2(a) and Section 2.2(b) of the Agreement, the sum of (i) the percentage set forth in the applicable row of column 1, plus (ii) the percentage set forth in the applicable row of column 2:

 

Royalty Tiers based on Annual Net Sales 1. If the Purchase Amount is Pursuant to
Section 2.2(a) of the Agreement Only
2. If the Purchase Amount is Pursuant to Section 2.2 (b) of the Agreement, Add to Column 1:
     
A. Portion of Annual Net Sales less than or equal to $150,000,000 2.0% 5.85%
B. Portion of Annual Net Sales exceeding $150,000,000 and less than or equal to $[*] 2.0% [*]%
C. Portion of Annual Net Sales in excess of $[*] 2.0% 1.58%

 

 

provided that as illustrated in the financial analysis separately provided and agreed to by the Parties, (a) if the Approval Condition has not been satisfied before [*] then each of the percentages set forth in the applicable rows of column 1 shall be increased by [*]% for each Calendar Quarter, starting with [*], until the Approval Condition has been satisfied and, in addition, (b) if the Manufacturing Approval Condition has not been satisfied before October 1, 2018, then each of the percentages set forth in the applicable row of column 1 shall be increased by [*] for each Calendar Quarter starting with [*], until [*].

 

Approval Conditions” means either (a) the satisfaction of the condition set forth on Exhibit D of the Agreement, or (b) the receipt from the EMA of Marketing Authorization for the Included Product.

 

Calendar Quarter” means, for the first calendar quarter, the period beginning on the Closing Date and ending on the last day of the calendar quarter in which the Closing Date falls, and thereafter each successive period of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31.

 

Calendar Year” means (a) for the first such Calendar Year the period beginning on First Commercial Sale of the Included Product and ending on December 31 of the year in which such First Commercial Sale occurs, (b) for each year of the Term thereafter, each successive period beginning on January 1 and ending twelve (12) consecutive calendar months later on December 31, and (c) for the last year of the Term, the period beginning on January 1 of the year in which the Agreement expires or terminates and ending on the effective date of expiration or termination of the Agreement.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Combination Product” means an Included Product that is comprised of or contains the Compound in addition to one or more additional active ingredients (whether co-formulated or co-packaged) that are neither the Compound nor generic or other non-proprietary compositions of matter. Pharmaceutical dosage form vehicles, adjuvants and excipients shall be deemed not to be “active ingredients”.

 

Compound” means andexanet alfa, a modified human fXa protein [*].

 

Dollar” or the sign “$” means United States dollars.

 

EMA” means the European Medicines Agency or any successor agency or authority thereto.

 

Excluded Liabilities and Obligations” has the meaning set forth in Section 2.3 of the Agreement.

 

FDA” means the U.S. Food and Drug Administration or any successor agency or authority thereto.

 

First Commercial Sale” means, with respect to the Included Product in the Territory, the first arm’s-length sale, transfer or disposition for value to a Third Party of the Included Product in any country in the Territory after Marketing Authorization for the Included Product has been obtained in such country; provided, that, the following shall not constitute a First Commercial Sale: (a) any sale to an Affiliate or Licensee unless the Affiliate or Licensee is the ultimate end user of the Included Product or (b) any use of the Included Product in clinical trials, pre-clinical studies or other research or development activities, or disposal or transfer of the Included Product for a bona fide charitable purpose.

 

GAAP” means generally accepted accounting principles in effect as the standard financial accounting guidelines in the United States from time to time (consistently applied and on a basis consistent with the accounting policies, practices, procedures, valuation methods and principles used in preparing the Seller’s financial statements), and any successor thereto. For clarity, to the extent a transition in generally accepted accounting principles would substantively change the recognition of revenue with respect to Net Sales (as currently defined) and its calculation as set forth in the Agreement, then the Parties shall meet and discuss in good faith an adjustment payment and amendment to the definitions hereunder to address the changes in accounting principles affecting the calculation of the Purchased Receivables.

 

Governmental Authority” means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority (including supranational authority), commission, instrumentality, regulatory body, court, central bank or other Person exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including each Patent Office, the FDA and any other government authority in any jurisdiction.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Included Product” means any pharmaceutical or biological composition containing the Compound, including the product currently trademarked in the United States as AndexXaTM. For clarity, references in this Bill of Sale to “an” Included Product or to “the” Included Product refer to any Included Product.

 

Included Product Payment Amount” means, for each Calendar Quarter, an amount equal to the Applicable Tiered Percentage multiplied by the Quarterly Net Sales for such Calendar Quarter. For clarity, the Applicable Tiered Percentage used to calculate the Included Product Payment Amount for a given Calendar Quarter will be based on the aggregate Net Sales in the Territory billed or invoiced in such Calendar Quarter and all prior Calendar Quarters in the applicable Calendar Year. Notwithstanding the foregoing, on a country-by-country basis, if, in any given Calendar Quarter, (a) there is no Valid Claim in such country (a “Non-Patent Right Country”) where Net Sales are being made by a Licensee (and not by Portola or any Affiliate), and (b) the Licensee Net Sales Percentage applicable to the Quarterly Net Sales of the Included Product in such Non-Patent Right Country is less than the Applicable Tiered Percentage on Quarterly Net Sales in countries in which a Valid Claim exists, then the Included Product Payment Amount payable on Quarterly Net Sales for such Non-Patent Right Country shall be an amount equal to the Licensee Net Sales Percentage multiplied by the Quarterly Net Sales in such Non-Patent Right Country, solely during such Calendar Quarters in which the foregoing subsection (b) applies. Illustrative calculations for the Included Product Payment Amount have been separately provided and agreed to by the Parties.

 

Indebtedness” of any Person means (a) any obligation of such Person for borrowed money, (b) any obligation of such Person evidenced by a bond, debenture, note or other similar instrument, (c) any obligation of such Person to pay the deferred purchase price of property or services (except (i) trade accounts payable that arise in the ordinary course of business, (ii) payroll liabilities and deferred compensation, and (iii) any purchase price adjustment, royalty, earnout, milestone payments, contingent payment or deferred payment of a similar nature incurred in connection with any license, lease, contract research and clinic trial arrangements or acquisition), (d) any obligation of such Person as lessee under a capital lease (under GAAP as in effect on the date hereof), (e) any obligation of such Person to purchase securities or other property that arises out of or in connection with the sale of the same or substantially similar securities or property, (f) any non-contingent obligation of such Person to reimburse any other Person in respect of amounts paid under a letter of credit or other guaranty issued by such other Person, (g) any Indebtedness of others secured by a Lien on any asset of such Person and (i) any Indebtedness of others guaranteed by such Person; provided that intercompany loans among the Seller and its Affiliates shall not constitute Indebtedness.

 

Licensee” means, with respect to the Included Product, a Third Party to whom the Seller or any Affiliate of the Seller has granted a license or sublicense (or any Third Party to whom any such Third Party has granted a license or sublicense) to develop, have developed, make, have made, seek Regulatory Approvals for, distribute, use, have used, import, sell, offer to sell, have sold or otherwise Commercialize such Included Product. As used in this Bill of Sale, “Licensee” includes any Third Party to whom the Seller or any Affiliate of the Seller has granted the right (or any Third Party to whom any such Third Party has granted the right) to distribute the Included Product provided that the applicable Third Party that has been granted such right has the right to conduct, or the responsibility for, active sales force promotion of such Included Product anywhere within its distribution territory.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Licensee Net Sales Percentage” means, with respect to a given Licensee, the portion (expressed as a percentage) of Net Sales of Included Product by such Licensee (or its Affiliates or sublicensees) payable to Seller or its Affiliates by Licensee by way of royalty payments under the terms of the license or sublicense granting rights in the Included Product to such Licensee.

 

Lien” means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property or other priority or preferential arrangement of any kind or nature whatsoever, in each case to secure payment of a debt or performance of an obligation, including any conditional sale or any sale with recourse.

 

Manufacturing Approval Condition” means FDA approval of the Included Product developed pursuant to the agreement identified as number 2 on Schedule 4.14(a) of the Agreement.

 

Marketing Authorization” means, with respect to the Included Product, the Regulatory Approval required by Applicable Law to sell the Included Product in a country or region, including, to the extent required by Applicable Law for the sale of the Included Product, all pricing approvals and government reimbursement approvals.

 

Net Sales” means, with respect to the Included Product the gross amount billed or invoiced or otherwise recognized as revenue by the Seller in accordance with GAAP in respect of sales or other dispositions of the Included Product in the Territory by the Seller, its Affiliates or Licensees (or any permitted assignee or transferee hereunder) (but not including sales to an Affiliate or Licensee unless the Affiliate or Licensee is the ultimate end user of the Included Product), less the following deductions to the extent included in the gross amount billed or invoiced in respect of sales or other dispositions of the Included Product or otherwise recognized as revenue by the Seller in accordance with GAAP: (a) credits or allowances actually granted for damaged products, returns or rejections of Included Products, or for retroactive price reductions and billing errors; (b) normal and customary trade and quantity discounts, allowances and credits (including chargebacks); (c) excise taxes, sales taxes, duties, VAT taxes and other taxes to the extent imposed upon and paid directly with respect to the sales price, and a pro rata portion of pharmaceutical excise taxes imposed on sales of pharmaceutical products as a whole and not specific to Included Products (such as those imposed by the U.S. Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, as amended) (and excluding in each case national or local taxes based on income); (d) freight, postage, shipping and shipping insurance expense and other transportation charges directly related to the distribution of the Included Product; (e) distribution services agreement fees and other similar amounts allowed or paid to Third Party distributors, including specialty distributors of the Included Product; (f) rebates made with respect to sales paid for by any Governmental Authority, their agencies and purchasers and reimbursers, managed health care organizations, or to trade customers; (g) the portion of administrative fees paid during the relevant time period to group purchasing organizations or pharmaceutical benefit managers relating to the Included Product; (h) any invoiced amounts that are not collected by the Seller, its Affiliates or Licensees, including bad debts; and (i) any customary or similar payments to the foregoing (a) – (h) that apply to the sale or disposition of pharmaceutical products.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

In the event that the Included Product is sold as part of a Combination Product, then Net Sales for such Combination Product, for the purposes of determining the applicable Included Product Payment Amounts and Purchased Receivables, respectively, to be paid, shall be calculated by multiplying the Net Sales of the Combination Product by the fraction: A divided by (A+B), in which A is the average selling price of the Included Product sold in substantial quantities comprising the Compound as the sole therapeutically active ingredient in the applicable country, and B is the average selling price of any product that is sold separately in substantial quantities comprising the other therapeutically active ingredients in such country, in each case during the accounting period in which the sales of the Combination Product were made, or if no sales of such Included Product or product comprising the other therapeutically active ingredients occurred during such period, then such average selling prices as sold during the most recent accounting period in which such sales did occur in such country.

 

If the Included Product contained in such Combination Product is not sold separately in finished form in such country, the Seller and the Purchaser shall determine Net Sales for such Included Product by mutual agreement based on the relative contribution of such Included Product and each such other active ingredient in such Combination Product in accordance with the above formula, and shall take into account in good faith any applicable allocations and calculations that may have been made for the same period in other countries.

 

Patent” means any pending (including pursuant to a patent application) or issued patent or continuation, continuation in part, division, extension or reissue thereof, in any country in the world.

 

Patent Office” means the applicable patent office, including the United States Patent and Trademark Office and any comparable foreign patent office, for any Patents.

 

Patent Rights” means any Patents that are owned or controlled by the Seller that claim or cover the Included Product.

 

Payment Term” means the time period commencing on the date of the First Commercial Sale of the Included Product anywhere in any country in the Territory and expiring on the date upon which the Purchaser has received cash payments in respect of the Purchased Receivables totaling, in the aggregate, one hundred ninety-five percent (195%) of the Purchase Amount, or to the extent that Purchaser’s rights with respect to the Subsequent Closing are terminated pursuant to Section 7.2(b) of the Agreement, [*].

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Person” means any natural person, firm, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other legal entity, including public bodies, whether acting in an individual, fiduciary or other capacity.

 

Purchase Amount” has the meaning set forth in Section 2.2 of the Agreement.

 

Purchased Receivables” means all of the Seller’s rights, title and interest in and to, free and clear of any and all Liens, that portion of account and royalty receivables arising out of sales of the Included Product in the United States in an amount equal to the Included Product Payment Amount for each Calendar Quarter during the Payment Term.

 

Quarterly Net Sales” means, with respect to any Calendar Quarter, the aggregate amount of Net Sales in the Territory for that Calendar Quarter.

 

Regulatory Agency” means a Governmental Authority with responsibility for the approval of the marketing and sale of pharmaceuticals or other regulation of pharmaceuticals in any jurisdiction.

 

Regulatory Approvals” means, collectively, all regulatory approvals, registrations, certificates, authorizations, permits and supplements thereto, as well as associated materials (including the product dossier) pursuant to which the Included Product may be marketed, sold and distributed in a jurisdiction, issued by the appropriate Regulatory Agency.

 

Territory” means worldwide.

 

U.S.” or “United States” means the United States of America, its 50 states, each territory and possession thereof and the District of Columbia.

 

Valid Claim” means, solely with respect to Patents that claim or cover the manufacture, use, sale, offer for sale or import of the Included Product: (a) an issued claim of any issued Patent owned or controlled by the Seller that has not expired, or been revoked, cancelled, become abandoned or disclaimed, been declared invalid and/or unenforceable by a Patent Office or a decision or judgment of a court or other appropriate body of competent jurisdiction; and (b) a claim included in a pending Patent application that is being prosecuted in good faith and that has not been cancelled, withdrawn from consideration, finally determined to be unallowable by the Patent Office or applicable Governmental Authority (from which no appeal is or can be taken), or abandoned or disclaimed; provided, however, that, if a claim of a Patent application has been pending for more than five (5) years, such claim will not constitute a Valid Claim for the purposes of the Agreement unless and until a Patent issues with such claim; provided, further, that, for purposes of the foregoing proviso, any newly filed claim which claims essentially the same subject matter as any earlier filed claim shall be considered pending for the same period of time as such earlier filed claim has been pending.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Bill of Sale as of the day and year first written above.

 

  PORTOLA PHARMACEUTICALS, INC.
   
  By: /s/ William Lis
    Name: William Lis
    Title: Chief Executive Officer
   
  HEALTHCARE ROYALTY PARTNERS III, L.P.
   
  By: HealthCare Royalty GP III, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative
   
  HEALTHCARE ROYALTY PARTNERS II, L.P.
   
  By: HealthCare Royalty GP II, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative HCRP OVERFLOW FUND, L.P.
   
  By: HCRP Overflow Fund GP, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative
   
  MOLAG HEALTHCARE ROYALTY, LLC
   
  By: HCRP MGS Account Management, LLC,
  its general partner
   
  By: /s/ Clark B. Futch
    Name: Clark B. Futch
    Title: Authorized Representative

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

EXHIBIT B

 

FORM OF PRESS RELEASE

 

Portola Pharmaceuticals Signs $150 Million Royalty Agreement with HealthCare Royalty Partners for Development and
Commercialization of Andexanet Alfa

 

SOUTH SAN FRANCISCO, Calif., Feb. 03, 2017 (GLOBE NEWSWIRE) -- Portola Pharmaceuticals, Inc.®(Nasdaq:PTLA) today announced that it has signed a $150 million royalty agreement with HealthCare Royalty Partners (HCR). Under the terms of the agreement, Portola received $50 million at closing and may receive an additional $100 million upon U.S. Food and Drug Administration (FDA) approval of AndexXaTM (andexanet alfa) in exchange for a tiered, mid-single-digit royalty based on worldwide sales of the agent. The agreement is subject to a maximum total royalty payment of 195 percent of the $150 million funded by HCR, at which time the agreement would expire.

 

“We are looking forward to partnering with HCR on this financing, which will provide us with capital to fund our operations in a non-dilutive manner and successfully launch this potentially life-saving agent for the benefit of tens of thousands of patients,” said Bill Lis, chief executive officer of Portola.

 

“We are very pleased to partner with Portola to help fund the development and commercialization of andexanet alfa. Once approved, it will be the first antidote available for the increasing number of patients admitted to the hospital with a major bleeding episode who currently have no options to reverse the effect of anticoagulation,” said Dr. Warren Cooper, chief medical officer and managing director at HCR.

 

Clarke Futch, managing partner and chairman of HCR’s Investment Committee added, “This transaction provides capital to Portola to further the development and commercialization of andexanet alfa, which we believe will have a significant impact on the lives of affected patients.”

 

Portola will use the proceeds for continued clinical and regulatory activities and for planned development and commercialization of andexanet alfa, an FDA-designated Breakthrough Therapy. Andexanet alfa is in development as a potential antidote for Factor Xa inhibitors. Portola received a Complete Response Letter from the FDA regarding its Biologics License Application for andexanet alfa in August 2016, and expects to resubmit the application in the first half of 2017. In the EU, the European Medicines Agency is reviewing the Marketing Authorization Application for andexanet alfa.

 

About HealthCare Royalty Partners

 

HCR is a private investment firm that purchases royalties and uses debt-like structures to invest in commercial or near-commercial stage life science assets. HCR has $3.4 billion in cumulative capital commitments with offices in Stamford (CT), San Francisco and Boston. Over the past decade, HCR's senior professionals have completed more than 60 healthcare investments. For more information, visit www.healthcareroyalty.com.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

About Portola Pharmaceuticals, Inc.

 

Portola Pharmaceuticals is a biopharmaceutical company developing product candidates that could significantly advance the fields of thrombosis and other hematologic diseases. The Company is advancing three programs, including betrixaban, an oral, once-daily Factor Xa inhibitor; AndexXaTM (andexanet alfa), a recombinant protein designed to reverse the anticoagulant effect in patients treated with an oral or injectable Factor Xa inhibitor; and cerdulatinib, a Syk/JAK inhibitor in development to treat hematologic cancers. Portola's partnered program is focused on developing selective Syk inhibitors for inflammatory conditions. For more information, visit www.portola.com and follow the Company on Twitter @Portola_Pharma.

 

Forward-looking Statements

 

Statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such statements include, but are not limited to, statements regarding development of our product candidates, our regulatory applications and estimated timelines associated therewith. Risks that contribute to the uncertain nature of the forward-looking statements include: failure to obtain regulatory approval for one or more of our product candidates, failure to achieve U.S. FDA approval in a timely and sufficient manner to receive the additional $100 million in funding from HCR, whether or not there will be sales of or royalties on andexanet alfa, our belief that the funds will be sufficient to fund our operations, our expectation that we will incur losses for the foreseeable future and needs for additional funds to commercialize one or more of our product candidates; the results of our clinical trials related to the efficacy and safety of our product candidates; our potential inability to manufacture our product candidates on a commercial scale in a timely or cost-efficient manner; the accuracy of our estimates regarding expenses and capital requirements; regulatory developments in the United States and foreign countries; our ability to obtain and maintain intellectual property protection for our product candidates; and our ability to retain key scientific or management personnel. These and other risks and uncertainties are described more fully in our most recent filings with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q, which was filed on November 7, 2016. All forward-looking statements contained in this press release speak only as of the date on which they were made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

EXHIBIT C

 

BASIC INTERCREDITOR TERMS

 

[*]

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

EXHIBIT D

 

SECOND CLOSING CONDITION

 

1.            First Regulatory Approval of a Biologics License Application by the FDA for the Included Product.

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

ANNEX I

 

PURCHASER ENTITIES

 

1.     HealthCare Royalty Partners III, L.P., a Delaware limited partnership

 

2.     HealthCare Royalty Partners II, L.P., a Delaware limited partnership

 

3.     HCRP Overflow Fund, L.P., a Delaware limited partnership

 

4.     MOLAG Healthcare Royalty, LLC, a Delaware limited liability company

 

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

EX-10.10 13 tm2113163d7_ex10-10.htm EXHIBIT 10.10

 

Exhibit 10.10

 

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
DOUBLE ASTERISKS DENOTE SUCH OMISSIONS.

 

ROYALTY INTEREST ACQUISITION AGREEMENT

 

 

 

Dated as of April 22, 2016

 

 

between

 

 

Aviragen Therapeutics, Inc.,

Biota Scientific Management Pty. Ltd. and

Biota Holdings Pty Ltd

 

 

and

 

 

HealthCare Royalty Partners III, L.P.

 

 

 

 

TABLE OF CONTENTS

 

Page

 

Article I.
     
DEFINITIONS
     
Section 1.01 Definitions. 1
Section 1.02 Currency. 11
     
Article II.
     
SALE AND ASSIGNMENT
     
Section 2.01 Sale and Assignment. 11
Section 2.02 Royalty Interest Payments. 11
Section 2.03 Closing Payment. 11
Section 2.04 No Assumption. 12
     
Article III.
     
REPRESENTATIONS AND WARRANTIES OF SELLERS
     
Section 3.01 Organization. 12
Section 3.02 Authorizations; Enforceability. 12
Section 3.03 Litigation. 12
Section 3.04 Compliance with Laws. 13
Section 3.05 Conflicts. 13
Section 3.06 Ownership. 13
Section 3.07 Subordination. 14
Section 3.08 License Agreements. 14
Section 3.09 Net Sales. 15
Section 3.10 Broker’s Fees. 15
Section 3.11 Information. 16
Section 3.12 Insolvency Event; Material Adverse Effect. 16
Section 3.13 Patent Rights. 16
Section 3.14 Exploitation; Material Information. 17
Section 3.15 Taxes. 17
     
Article IV.
     
REPRESENTATIONS AND WARRANTIES OF BUYER
     
Section 4.01 Organization. 17
Section 4.02 Authorization. 17
Section 4.03 Broker’s Fees. 18
Section 4.04 Conflicts. 18

 

 

 

 

Article V.
     
COVENANTS
     
Section 5.01 Consents and Waivers. 18
Section 5.02 Compliance. 18
Section 5.03 Confidentiality; Public Announcement. 19
Section 5.04 Protective Rights Agreement. 20
Section 5.05 Further Assurances. 20
Section 5.06 Notice by Sellers; Enforcement of License Agreements. 21
Section 5.07 Patent Rights. 22
Section 5.08 Negative Covenants. 23
Section 5.09 Future Agreements. 23
Section 5.10 Records; Access. 23
Section 5.11 Remittance to Deposit Account; Set-Offs. 24
Section 5.12 Certain Covenants of Buyer. 25
     
Article VI.
     
THE CLOSING; CONDITIONS TO CLOSING
     
Section 6.01 Closing. 25
Section 6.02 Conditions Applicable to Buyer. 25
Section 6.03 Conditions Applicable to Sellers. 26
     
Article VII.
 
TERMINATION
     
Section 7.01 Termination. 26
Section 7.02 Effects of Expiration or Termination. 26
     
Article VIII.
     
MISCELLANEOUS
     
Section 8.01 Survival. 27
Section 8.02 Notices. 27
Section 8.03 Successors and Assigns. 28
Section 8.04 Indemnification. 29
Section 8.05 Independent Nature of Relationship; Taxes. 30
Section 8.06 Entire Agreement. 31
Section 8.07 Amendments; No Waivers. 31
Section 8.08 Interpretation. 32
Section 8.09 Headings and Captions. 32
Section 8.10 Counterparts; Effectiveness. 32
Section 8.11 Severability. 32
Section 8.12 Expenses. 32
Section 8.13 Governing Law; Jurisdiction. 32
Section 8.14 Waiver of Jury Trial. 33

 

 

 

 

EXHIBITS
 
Exhibit A-1 –  Collaboration Agreement
   
Exhibit A-2 –  Commercialization Agreement
 
Exhibit B –  Assignment
 
Exhibit C –  Daiichi Consent/Amendment
 
Exhibit D –  Protective Rights Agreement
 
Exhibit E-1 –  Opinion of Counsel (Transaction Opinion)
   
Exhibit E-2 –  Opinion of Counsel (Australian Counsel)
 
Exhibit E-3 –  Opinion of Counsel (Buyer Counsel)
 
SCHEDULES
 
Schedule 3.03 –  Litigation
 
Schedule 3.09 –  Net Sales for the Fiscal Quarter ending December 31, 2015
 
Schedule 3.10 –  Broker’s Fees
 
Schedule 3.13 –  Patent Rights

 

 

 

 

This ROYALTY INTEREST ACQUISITION AGREEMENT is made and entered into as of April 22, 2016 by and between Aviragen Therapeutics, Inc. (formerly known as Biota Pharmaceuticals, Inc.), a Delaware corporation (“Aviragen”), Biota Holdings Pty Ltd (formerly known as Biota Holdings Limited), a corporation organized and existing under the laws of Victoria, Australia (“BHPL”), Biota Scientific Management Pty. Ltd., a corporation organized and existing under the laws of Victoria, Australia (“BSM”), and HealthCare Royalty Partners III, L.P., a limited partnership organized under the laws of the State of Delaware (the “Agreement”).

 

RECITALS

 

WHEREAS, BHPL, BSM and Daiichi Sankyo Company, Limited, a joint stock company organized and existing under the laws of Japan (“Daiichi”) have entered into (a) that certain Collaboration and License Agreement, effective as of September 29, 2003, with respect to, among other things, the development of the Product (this and other capitalized terms used and not defined in these Recitals shall have the meanings provided in ARTICLE I below), a true, correct and complete copy of which, together with all amendments, modifications and supplements thereto, is attached hereto as Exhibit A-1 (the “Collaboration Agreement”), and (ii) that certain Commercialization Agreement, effective as of March 27, 2009, with respect to the commercialization of the Product in Japan, a true, correct and complete copy of which, together with all amendments, modifications and supplements thereto, is attached hereto as Exhibit A-2 (the “Commercialization Agreement” and, together with the Collaboration Agreement, the “License Agreements” and each, individually, a “License Agreement”);

 

WHEREAS, pursuant to the License Agreements, subject to the terms and conditions set forth therein, Sellers have been and remain entitled to receive, during the Term (as defined in the Commercialization Agreement), Royalties; and

 

WHEREAS, Sellers wish to sell, assign, convey and transfer to Buyer, and Buyer wishes to accept the sale, assignment, conveyance, and transfer from Sellers of, the Assigned Rights held by Sellers pursuant to the License Agreements;

 

NOW, THEREFORE, in consideration of the mutual covenants, agreements representations and warranties set forth herein, the Parties agree as follows:

 

Article I.

 

DEFINITIONS

 

Section 1.01     Definitions.

 

The following terms, as used herein, shall have the following meanings:

 

Affiliate” shall mean, with respect to any Person, any other Person that controls, is controlled by, or is under common control with such Person. For purposes of this definition, “control” shall mean (i) in the case of corporate entities, direct or indirect ownership of at least twenty percent (20%) of the stock or shares having the right to vote for the election of directors, and (ii) in the case of non-corporate entities, direct or indirect ownership of at least twenty percent (20%) of the equity interest with the power to direct the management and policies of such non-corporate entities.

 

Agreement” has the meaning given in the preamble hereto.

 

Assigned Rights” shall mean (i) the Royalty Interest and the absolute right to payment and receipt thereof under or pursuant to the License Agreements, (ii) any right under the License Agreements to receive royalty reports, worksheets, notices and other associated information to the extent related to the Royalty Interest or Net Sales of the Product in the Territory, and (iii) any right under the License Agreement to request inspection of records and accounts available in accordance with the License Agreements, to the extent related to the Royalty Interest or Net Sales of the Product in the Territory.

 

 

 

 

Assignment” shall mean the Assignment pursuant to which Sellers shall assign, convey and transfer to Buyer Sellers’ rights and interests in and to the Assigned Rights, which Assignment shall be substantially in the form of Exhibit B.

 

Australia-Japan Income Tax Treaty” shall mean the Convention between Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, and all amendments, renewals and successors thereof in effect from time to time from and after the Economic Commencement Date through and including the License Termination.

 

Australian Seller” shall mean either or each of BHPL and/or BSM, as the context indicates, and “Australian Sellers” shall mean both of entities together.

 

Aviragen” has the meaning given in the preamble hereto.

 

Bankruptcy Law” shall mean Title 11 of the United States Code entitled “Bankruptcy” 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 (domestic or foreign) from time to time in effect and affecting the rights of creditors generally.

 

Base Amount” shall mean the amount on any date by which the Closing Amount exceeds [**]; provided that in no event shall the Base Amount be less than [**].

 

BHPL” has the meaning given in the preamble hereto. “BSM” has the meaning given in the preamble hereto.

 

Business Day” shall mean any day other than a Saturday, a Sunday, any day which is a legal holiday under the laws of Australia or the State of New York, or any day on which banking institutions located in Australia or the State of New York are required by law or other governmental action to close.

 

Buyer” shall mean HealthCare Royalty Partners III, L.P., a limited partnership organized under the laws of the State of Delaware.

 

Buyer Deposit Account” shall mean an account established, controlled and maintained by Buyer as the account into which Royalty Interest shall be deposited by Sellers. As of the Closing Date, the “Buyer Deposit Account” shall be:

 

[**]

 

Buyer Indemnified Party” shall mean each of Buyer and its Affiliates and any of their respective partners, directors, managers, members, officers, employees and agents.

 

Buyer Transaction Expenses” shall mean the amount of reasonable fees and expenses incurred by Buyer in connection with the consummation of the transactions contemplated by this Agreement, including reasonable, documented, out-of-pocket fees and expenses incurred in connection with Buyer’s confirmatory due diligence and the Transaction Documents.

 

2

 

 

Capital Stock” of any Person shall mean any and all shares, interests, ownership interest units, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any preferred stock, but excluding any debt securities convertible into such equity.

 

Claim” shall mean any claim, demand, action or proceeding (including any investigation by any Governmental Authority). “Closing” shall mean the closing of the transactions contemplated under this Agreement in accordance with Section 6.01. “Closing Amount” shall mean $20,000,000.

 

Closing Date” shall mean the date all of the conditions set forth in ARTICLE VI are fulfilled or waived in writing by the applicable Party, as set forth in such ARTICLE VI.

 

Collaboration Agreement” has the meaning given in the Recitals hereto.

 

Collateral” shall have the meaning provided therefor in the Protective Rights Agreement.

 

Commercialization Agreement” has the meaning given in the Recitals hereto.

 

Confidential Information” means any and all information, whether communicated orally, by email or in any physical form, including without limitation, financial and all other information which Disclosing Party or its authorized Representatives provide to the Recipient, together with such portions of analyses, compilations, studies, or other documents, prepared by or for the Recipient and its Representatives, which contain or are derived from information provided by Disclosing Party. Without limiting the foregoing, information shall be deemed to be provided by Disclosing Party to the extent it is learned or derived by Recipient or Recipient’s Representatives (a) from any inspection, examination or other review of books, records, contracts, other documentation or operations of Disclosing Party, (b) from communications with authorized Representatives of Disclosing Party or (c) created, developed, gathered, prepared or otherwise derived by Recipient while in discussions with Disclosing Party. However, Confidential Information does not include any information which Recipient can demonstrate (i) is or becomes part of the public domain through no fault of Recipient or its Representatives, (ii) was known by Recipient on a non-confidential basis prior to disclosure, or (iii) was independently developed by Persons who were not given access to the Confidential Information disclosed to Recipient by Disclosing Party.

 

Confidentiality Agreement” means that certain Confidentiality Agreement by and between Aviragen and HealthCare Royalty Management, LLC dated as of January 25, 2016.

 

Contract” shall mean any agreement, contract, obligation, or undertaking.

 

CS-8958” means the less than once per day dosage neuraminidase inhibitor compound listed under the heading “Sankyo Compounds” in Appendix D to the Collaboration Agreement.

 

Cumulative Remaining Shortfall Amount” shall mean, for any Measurement Period, the excess of (a) the aggregate amount of any and all Shortfall Amounts with respect to all prior Measurement Periods over (b) the aggregate amount of Royalty Interest Payments that Buyer has been paid with respect to such Shortfall Amounts, which for the avoidance of doubt shall be calculated on a cumulative basis with respect to all prior Measurement Periods.

 

3

 

 

Daiichi” has the meaning given in the Recitals hereto.

 

“Daiichi Consent/Amendment” shall mean the written amendments to each of the License Agreements providing for the consent from Daiichi with respect to the Assignment and this Agreement and the amendments to the License Agreements and the other matters set forth therein, in substantially the form set forth in Exhibit C.

 

Disclosing Party” shall mean, with respect to any Confidential Information, the Party disclosing the Confidential Information to the other Party.

 

Dispute” shall mean any opposition, interference proceeding, reexamination proceeding, cancellation proceeding, re-issue proceeding, invalidation proceeding, inter parties review proceeding, injunction, claim, lawsuit, proceeding, hearing, investigation, complaint, arbitration, mediation, demand, investigation, decree, or any other dispute, disagreement, or claim.

 

Economic Commencement Date” shall mean January 1, 2016.

 

Excluded Liabilities and Obligations” shall mean each liability or obligation of Sellers or any of their respective Affiliates of whatever nature, whether presently in existence or arising or asserted hereafter, whether known or unknown, and whether under either License Agreement or any other Transaction Document or otherwise.

 

Expense Reimbursement Amount” shall mean the lesser of (i) [**] and (ii) [**]% of the Buyer Transaction Expenses.

 

Exploit” shall mean, with respect to a product such as the Product, the manufacture, use, sale, offer for sale (including marketing and promotion), importation, distribution or other commercialization; and “Exploitation” shall have the correlative meaning.

 

First Quarter 2016 Royalty Interest Payment” shall mean the Royalty Interest Payment in the amount payable pursuant to clause (i) of the definition of Royalty Interest.

 

Fiscal Quarter” shall mean a calendar quarter.

 

Governmental Authority” shall mean any government, court, regulatory or administrative agency or commission, or other governmental authority, agency or instrumentality, whether foreign, federal, state or local, including any applicable Japanese patent office, the Ministry of Health of Japan or any other government authority in any country.

 

Indemnified Expenses” shall mean collectively, all Losses with respect to which any Seller is obligated to indemnify any party pursuant to Section 8.04(a).

 

Initial Royalty Interest Period” shall mean the period beginning on April 1, 2016 through and including March 31, 2025.

 

Initial Royalty Interest Period Cap Amount” shall mean, for any Measurement Period, the sum of (x) [**] earned in such Measurement Period, regardless whether royalties were received in such Measurement Period or thereafter and (y) any Cumulative Remaining Shortfall Amount. For purposes of clarification, the Initial Royalty Interest Period Cap Amount shall be net of all Japanese Withholding Taxes.

 

4

 

 

Initial Royalty Interest Period Threshold Amount” shall mean, for any Measurement Period, the sum of (x) [**] earned in such Measurement Period, regardless whether royalties were received in such Measurement Period or thereafter and (y) any Cumulative Remaining Shortfall Amount. For purposes of clarification, the Initial Royalty Interest Period Threshold Amount shall be net of all Japanese Withholding Taxes.

 

Insolvency Event” shall mean the occurrence of any of the following with respect to each Seller:

 

(i)       (A) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (x) relief in respect of such Seller or any Subsidiary, or of a substantial part of the property of such Seller or any Subsidiary, under any Bankruptcy Law now or hereafter in effect, (y) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Seller or any Subsidiary or for a substantial part of the property of such Seller or any Subsidiary or (z) the winding-up or liquidation of such Seller or any Subsidiary, which proceeding or petition shall continue undismissed for 60 calendar days or (B) an order of a court of competent jurisdiction approving or ordering any of the foregoing shall be entered;

 

(ii)      such Seller or any Subsidiary shall (A) voluntarily commence any proceeding or file any petition seeking relief under any Bankruptcy Law now or hereafter in effect, (B) apply for the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Seller or any Subsidiary or for a substantial part of the property of such Seller or any Subsidiary, (C) fail to contest in a timely and appropriate manner any proceeding or the filing of any petition described in clause (i) of this definition, (D) file an answer admitting the material allegations of a petition filed against it in any proceeding described in clause (i) of this definition, (E) make a general assignment for the benefit of creditors or (F) wind up or liquidate (except as permitted under this Agreement);

 

(iii)     such Seller or any Subsidiary shall take any action in furtherance of or for the purpose of effecting, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i) or (ii) of this definition;

 

(iv)     such Seller or any Subsidiary shall become unable, admit in writing its inability, or fail generally, to pay its debts as they become due; or

 

(v)      such Seller shall be in a financial condition such that the sum of its debts, as they become due and mature, is greater than the fair value of its property on a going concern basis, when taken together on a consolidated basis with its Subsidiaries which are party to the Transaction Documents.

 

Japanese Withholding Tax” shall mean all Japanese withholding taxes on payment of Royalties pursuant to the Australia-Japan Income Tax Treaty.

 

Knowledge of the Sellers” shall mean, with respect to each Seller, as applicable, the knowledge of the officers of such Seller and/or any of its Subsidiaries, as applicable, relating to a particular matter without any obligation to inquire or otherwise investigate relating to a particular matter; provided, however, that a person charged with responsibility for the aspect of the business relevant or related to the matter at issue shall be deemed to have knowledge of a particular matter to the extent that such person’s failure to have knowledge of such matter would constitute negligence in the context of his or her duties and responsibilities in the ordinary course of business.

 

5

 

 

Licensee” shall mean Daiichi and/or any permitted collaborator or permitted sublicensee under the Commercialization Agreement.

 

License Agreement” and “License Agreements” have the respective meanings given in the Recitals hereto.

 

License Termination” means the date of termination of the Commercialization Agreement under Section 8.1 thereof.

 

Liens” shall mean any lien, hypothecation, charge, security agreement, security interest, mortgage, pledge or any other encumbrance, right or claim of any Person of any kind whatsoever whether choate or inchoate, filed or unfiled, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, known or unknown.

 

Losses” shall mean collectively, direct damages and the actual, documented out-of-pocket costs, fees and expenses (including reasonable expenses of investigation and reasonable legal fees and expenses of a single law firm), in any such case arising out of or relating to any claim, action, suit or proceeding commenced or threatened by any Person or entity (including a Governmental Authority), other than any Seller or Buyer or any of Buyer’s Affiliates, officers, directors, agents or other representatives, and relating to the activities or matters contemplated by this Agreement, but specifically excluding all Lost Profits and punitive damages.

 

Lost Profits” shall mean collectively, any and all claims, damages and losses in respect of loss of profits and other consequential damages, including without limitation indirect damages, special damages, incidental damages and exemplary damages.

 

Material Adverse Effect” shall mean (i) an Insolvency Event, (ii) a material adverse effect on the ability of any Seller to perform any of its obligations hereunder, under the other Transaction Documents or under the Daiichi Consent/Amendment, (iii) a material adverse effect on the right or ability of Buyer to receive the Royalty Interest or any payment due to Buyer hereunder as contemplated by this Agreement immediately following the Closing, (iv) a material adverse effect on the Royalty Interest or other Assigned Rights, including, without limitation, any material adverse effect on the Product or the ability of Licensee to distribute, market and/or sell the Product, or (v) a material breach by any Seller of any obligation owing by such Seller to Licensee pursuant to which Licensee may reduce or eliminate the amount of the Royalties (whether directly or indirectly, including, without limitation, by counterclaim or setoff), or the basis for calculation thereof, or to terminate Commercialization Agreement prior to the License Termination.

 

Measurement Period” shall mean each period of twelve (12) consecutive calendar months beginning on April 1 of a calendar year and ending on March 31 of the succeeding calendar year; provided that the last Measurement Period of the Second Royalty Interest Period shall begin on April 1, 2029 and end on December 24, 2029. For the avoidance of doubt, the initial Measurement Period shall begin on April 1, 2016 and end on March 31, 2017.

 

Net Sales” shall mean the gross amount invoiced by Daiichi, its Affiliates and any third party collaboration as set forth in Section 1.2.1 of the Commercialization Agreement (“Collaborator”) to third parties that are not Affiliates or Collaborator (unless such Affiliate or Collaborator is the end user of such Product in the Territory, in which case the amount billed therefore shall be deemed to be the amount that would be billed to a third party in an arm's length transaction) for sales or other dispositions of the Product in the Territory to third parties, less the following items, as allocable to such Product (if not previously deducted from the amount invoiced): (i) trade discounts, credits or allowances commissions, rebates, chargebacks; (ii) credits or allowances additionally granted upon returns, rejections or recalls (except where any such recall arises out of a Party's, its Affiliate's or Collaborator's gross negligence, willful misconduct or fraud); (iii) freight, shipping and insurance charges; (iv) taxes, duties or other governmental tariffs (other than income taxes); and (v) government mandated rebates. For the avoidance of doubt, the Parties agree that Net Sales includes sales of the Product not sold under the Pricing and Reimbursement Approval (as defined in the Commercialization Agreement), which includes but is not limited to sales to a governmental agency as inventory for a pandemic. Furthermore, Net Sales for a calendar quarter will be less any Product returned in that calendar quarter but sold in the preceding calendar quarter in Japan.

 

6

 

 

Other Payments” shall mean any payments in lieu of or in respect of the Royalties or in satisfaction of the obligation to pay the Royalties (including without limitation any indemnity payments, recoveries, damages, settlement or other amounts to which Sellers are or may become entitled to pursuant to or in connection with either License Agreement, whether based on actual or alleged infringement, breach, re-licensing or otherwise), together with the rights to Indemnified Expenses pursuant to and in accordance with the terms and conditions of this Agreement.

 

Party” shall mean Sellers or Buyer as the context indicates and “Parties” shall mean Sellers and Buyer. “Patent Rights” shall mean the patents set forth on Schedule 3.13.

 

Person” shall mean an individual, corporation, partnership, limited liability company, limited partnership, association, trust or other entity or organization, but not including any Governmental Authority.

 

Product” shall mean a finished pharmaceutical product that contains CS-8958.

 

Protective Rights Agreement” shall mean the Protective Rights Agreement by and between Sellers and Buyer of even date herewith, which Protective Rights Agreement shall be substantially in the form of Exhibit D. For the avoidance of doubt, the Protective Rights Agreement is not intended to derogate from the validity of the absolute assignment of the Assigned Rights, as contemplated by this Agreement and as evidenced by the Assignment, but is being executed and delivered solely to protect Buyer’s interests to the extent such assignment becomes subject to a Recharacterization despite the Parties’ intentions.

 

Receiving Party” shall mean, with respect to any Confidential Information, the Party receiving the Confidential Information from the other Party.

 

Recharacterization” shall mean a judgment or order by a court of competent jurisdiction that Sellers’ right, title and interest in, to and under the License Agreements and the Assigned Rights were not fully sold, assigned and transferred to Buyer pursuant to, as contemplated by, and subject to the provisions of this Agreement and the Assignment, but instead that such transaction(s) constituted a loan and security device.

 

Recipient” means, with respect to any Confidential Information disclosed by a Party hereto, the other Party which is receiving such Confidential Information.

 

7

 

 

Representative” shall mean, with respect to any Person, directors, officers, employees, agents, co-investors, advisors, potential investors, underwriters, rating agencies, permitted assignees, sources of financing and trustees of such Person (other than competitors of Buyer and its Affiliates).

 

Royalties” shall mean all amounts paid or payable to Sellers under the Commercialization Agreement in respect of or based on Net Sales of the Product in the Territory from and after the Economic Commencement Date through and including the License Termination.

 

Royalty Interest” shall mean, as separately calculated for each Measurement Period:

 

(i)      with respect to the Fiscal Quarter ending March 31, 2016, [**]% of the sum of (a) Royalties earned and payable in respect of Net Sales for the Fiscal Quarter ending March 31, 2016, plus (b) Other Payments earned and payable in respect of the Fiscal Quarter ending March 31, 2016, up to an aggregate amount equal to [**];

 

(ii)     with respect to each Measurement Period to occur during the Initial Royalty Interest Period:

 

(A)            [**]% of the sum of (x) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (y) Other Payments earned and payable in respect of such Measurement Period, up to the Initial Royalty Interest Period Threshold Amount;

 

(B)             [**]% of the sum of (x) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (y) Other Payments earned and payable in respect of such Measurement Period, in excess of the Initial Royalty Interest Period Threshold Amount but not to exceed the Initial Royalty Interest Period Cap Amount; and

 

(C)             [**]% of the sum of (x) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (y) Other Payments earned and payable in respect of such Measurement Period, in excess of the Initial Royalty Interest Period Cap Amount; and

 

(iii) with respect to each Measurement Period to occur during the Second Royalty Interest Period:

 

(A)            [**]% of the sum of (x) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (y) Other Payments earned and payable in respect of such Measurement Period, up to the Second Royalty Interest Period Threshold Amount;

 

(B)             [**]% of the sum of (x) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (y) Other Payments earned and payable in respect of such Measurement Period, in excess of the Second Royalty Interest Period Threshold Amount but not to exceed the Second Royalty Interest Period Cap Amount; and

 

(C)             [**]% of the sum of (x) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (y) Other Payments earned and payable in respect of such Measurement Period, in excess of the Second Royalty Interest Period Cap Amount.

 

For the avoidance of doubt, for purposes of calculating Royalty Interest, Royalties shall be applied to the Measurement Period in which the Net Sales giving rise to the royalty payment occurred notwithstanding that such royalty is actually paid by Licensee during a subsequent Measurement Period. For example, Royalties with respect to Net Sales that occurred in the Measurement Period ending March 31, 2017 shall be applied to the Measurement Period ending March 31, 2017 even if the royalty is paid during the Measurement Period ending March 31, 2018. Other Payments shall be applied to the Measurement Period with respect to which such breach of either License Agreement or infringement resulting in Other Payments occurred, regardless of when such Other Payments are received. If the Measurement Period in which the breach or default giving rise to Other Payments cannot be determined, then such Measurement Period shall be determined either (a) by a court or (b) by a settlement agreement or other writing signed by Sellers and Licensee (and consented to by Buyer, which consent shall not be unreasonably withheld), as applicable.

 

8

 

 

In the event there shall remain any Cumulative Remaining Shortfall Amount as of December 24, 2029, then for so long Sellers continue to receive payments in respect of Royalties and/or Other Payments, “Royalty Interest” shall mean [**]% of the sum of such Royalties and Other Payments until any and all Cumulative Remaining Shortfall Amount has been paid to Buyer in full.

 

For the avoidance of doubt, notwithstanding that Royalty Interest is earned and payable to Buyer, Seller shall not be obligated to pay Buyer such Royalty Interest until Seller is paid the corresponding royalties by the Licensee.

 

Royalty Interest Payment” shall mean the payment of the Royalty Interest (including, for the avoidance of doubt, the First Quarter 2016 Royalty Interest Payment).

 

Second Royalty Interest Period” shall mean the period beginning on April 1, 2025 and ending on December 24, 2029.

 

Second Royalty Interest Period Cap Amount” shall mean, for any Measurement Period, the sum of (x) $[**] earned in such Measurement Period, regardless whether royalties were received in such Measurement Period or thereafter and (y) any Cumulative Remaining Shortfall Amount. For purposes of clarification, the Second Royalty Interest Period Cap Amount shall be net of all Japanese Withholding Taxes.

 

Second Royalty Interest Period Threshold Amount” shall mean, for any Measurement Period, the sum of (x) $[**] earned in such Measurement Period, regardless whether royalties were received in such Measurement Period or thereafter and (y) any Cumulative Remaining Shortfall Amount. For purposes of clarification, the Second Royalty Interest Period Threshold Amount shall be net of all Japanese Withholding Taxes.

 

Seller” shall mean any or each of Aviragen, BHPL and/or BSM, as the context indicates, and “Sellers” shall mean all of entities collectively.

 

Seller Deposit Account” shall mean an account established and maintained by either or both of Australian Sellers as the account into which all amounts that are or become payable to Australian Sellers under the Commercialization Agreement shall be deposited by Licensee. As of the Closing Date, the “Seller Deposit Account” shall be:

 

[**]

 

Seller Indemnified Party” shall mean each of Sellers, their respective Affiliates and any of their respective partners, directors, managers, officers, employees and agents.

 

Shortfall Amount” shall mean, with respect to any Measurement Period (other than the last Measurement Period of the Second Royalty Interest Period) in which the sum of (a) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (b) Other Payments earned and payable in respect of such Measurement Period does not equal or exceed the Initial Royalty Interest Period Threshold Amount or the Second Royalty Interest Period Threshold Amount, as applicable, the amount equal to the difference of (i) the Initial Royalty Interest Period Threshold Amount or the Second Royalty Interest Period Threshold Amount, as applicable, minus (ii) the sum of (A) Royalties earned and payable in respect of Net Sales in such Measurement Period plus (B) Other Payments earned and payable in respect of such Measurement Period.

 

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Subsidiary” shall mean, with respect to any Person, at any time, any entity of which more than fifty percent (50%) of the outstanding Voting Stock or other equity interest entitled ordinarily to vote in the election of the directors or other governing body (however designated) is at the time beneficially owned or controlled directly or indirectly by such Person, by one or more such entities or by such Person and one or more such entities. Unless otherwise indicated herein, “Subsidiary” shall refer a “Subsidiary” of a Seller.

 

Territory” shall mean Japan.

 

Third Party” shall mean any Person other than a Seller or Buyer or their respective Affiliates.

 

Third Party Patent Rights” shall mean, with respect to any Third Party, any and all issued patents and pending patent applications as of the date of this Agreement, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all patents-of-addition, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms (including regulatory extensions), and all supplementary protection certificates of such Third Party in the Territory.

 

Transaction Documents” shall mean, collectively, this Agreement, the Assignment, the Protective Rights Agreement and the Daiichi Consent/Amendment.

 

UCC” shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. “Use” shall include the use, manufacture, marketing, sale, offer for sale, importation, distribution or commercialization.

 

Valid Claim” shall mean a claim of an issued and unexpired patent, or a claim of a pending patent application, within the Product Related Patent Rights, which claim has not been held invalid, unpatentable or unenforceable by a court of competent jurisdiction from which no further appeal can be further taken, and has not been admitted to be invalid, unpatentable or unenforceable, which claim, but for a right to use such claim, would be infringed by the Product and/or its Exploitation; provided, however, that if a claim of a pending patent application shall not have issued as acclaim of an issued patent within five (5) years after the earliest filing date from which such claim claims priority, then such claim shall not be a “Valid Claim” for purposes of this Agreement unless and until such claim issues as a claim of an issued patent.

 

Voting Stock” shall mean Capital Stock issued by a company, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such contingency.

 

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Section 1.02 Currency. Unless otherwise specified, all references to monetary amounts in this Agreement are references to the lawful currency of the United States.

 

Article II.

 

SALE AND ASSIGNMENT

 

Section 2.01 Sale and Assignment.

 

(a)Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Australian Sellers shall sell, assign, transfer and convey to Buyer, free and clear of all Liens (other than any Liens in favor of Buyer) and subject to the conditions set forth in ARTICLE VI and the other provisions of this Agreement, the Assigned Rights, and Buyer shall accept such sale, assignment, transfer and conveyance from Sellers. Such sale, assignment, transfer and conveyance shall be evidenced by the execution and delivery of the Assignment by Sellers in accordance with Section 6.02.

 

(b)Notwithstanding anything to the contrary contained in this Agreement, (i) the sale, assignment, transfer and conveyance to Buyer of the Assigned Rights pursuant to this Agreement shall not subject Buyer to, or transfer, affect or modify, any obligation or liability of Sellers under the License Agreements and (ii) Buyer expressly does not assume or agree to become responsible for any obligation or liability of Sellers whatsoever.

 

(c)Sellers and Buyer intend and agree that the sale, assignment, transfer and conveyance of the Assigned Rights under this Agreement shall be, and is, a true sale by Australian Sellers to Buyer that is absolute and irrevocable and that provides Buyer with the full benefits of ownership of the Assigned Rights, and neither Sellers nor Buyer intends the transactions contemplated hereunder to be, or for any purpose characterized as, a loan from Buyer to Sellers or entitle Buyer to any other rights or interests except as expressly set forth in this Agreement. The Parties waive any right to contest or otherwise assert that this Agreement is anything other than a true sale by Australian Sellers to Buyer under applicable law, which waiver shall be enforceable against a Party in any bankruptcy or insolvency proceeding relating to such Party.

 

Section 2.02 Royalty Interest Payments.

 

(a)Effective as of the execution and delivery of the Assignment at the Closing and subject to the terms of Section 2.04, Sellers and Buyer agree that Buyer shall have all of Sellers’ right, title, interest in and to the Assigned Rights, and is entitled to receive all Royalty Interest Payments (including, for the avoidance of doubt, the First Quarter 2016 Royalty Interest Payment).

 

(b)Australian Sellers shall irrevocably instruct Licensee to remit all Royalty Interest amounts payable to Sellers pursuant to the Commercialization Agreement into the Seller Deposit Account, and Australian Sellers shall irrevocably instruct the bank holding the Seller Deposit Account to transfer such Royalty Interest amounts from the Seller Deposit Account into the Buyer Deposit Account, in each case pursuant and subject to Section 5.11.

 

Section 2.03 Closing Payment.

 

Subject to the terms and conditions set forth herein, at the Closing, Buyer shall pay Sellers the difference of (i) the Closing Amount minus (ii) the Expense Reimbursement Amount by wire transfer of immediately available funds as directed by Sellers.

 

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Section 2.04 No Assumption.

 

Notwithstanding any provision in this Agreement or any other Transaction Document or writing to the contrary, Buyer is accepting the purchase and assignment of only the Assigned Rights and is not assuming any Excluded Liabilities and Obligations. All Excluded Liabilities and Obligations shall be retained by and remain obligations and liabilities solely of Sellers or their respective Affiliates.

 

Article III.

 

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Sellers hereby represent and warrant to Buyer that the following representations are true and complete as of the date of this Agreement, except as otherwise indicated:

 

Section 3.01 Organization.

 

Aviragen is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. Each of BHPL and BSM is a corporation duly incorporated, validly existing and in good standing under the laws of Victoria, Australia. Each Seller has all corporate powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted in connection with the transactions contemplated by the Transaction Documents and the License Agreements.

 

Section 3.02 Authorizations; Enforceability.

 

(a)Each Seller has all necessary corporate power and authority to enter into, execute and deliver this Agreement and the other Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. None of the execution and delivery by any Seller of the Transaction Documents, the performance by any Seller of any of the obligations to be performed by it hereunder or thereunder, or the consummation by any Seller of any of the transactions contemplated hereby or thereby, will require any notice to, action, approval or consent by, or in respect of, or filing or registration with, any Governmental Authority or other Person, except filings necessary to perfect Liens created by the Transaction Documents.

 

(b)Once signed, the Transaction Documents will have been duly authorized, executed and delivered by each Seller and each Transaction Document will then constitute the valid and binding obligation of each Seller, enforceable against each Seller in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

 

Section 3.03 Litigation.

 

Schedule 3.03 sets forth each (i) Dispute pending or threatened against any Seller, or to the Knowledge of the Sellers, pending or threatened against Daiichi, and (ii) inquiry of any Governmental Authority pending or threatened against any Seller, or to the Knowledge of the Sellers, pending or threatened against Daiichi, which, in each instance of clauses (i) and (ii), if adversely determined, could reasonably be expected to have a Material Adverse Effect.

 

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Section 3.04 Compliance with Laws.

 

No Seller nor any Subsidiary (i) is in violation of, has violated, or is under investigation with respect to, or (ii) has been threatened to be, charged with or been given written notice of any violation of any law, rule, ordinance or regulation of, or any judgment, order, writ, decree, permit or license entered by, any Governmental Authority which, in the case of either clause (i) or clause (ii), could reasonably be expected to have a Material Adverse Effect.

 

Section 3.05 Conflicts.

 

(a)Neither the execution and delivery by Sellers of any of the Transaction Documents nor the performance or consummation of the transactions contemplated thereby (including, without limitation, the assignment to Buyer of the Royalty Interest) to be performed or consummated by Sellers will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects any provisions of: (A) any law, rule, ordinance or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, in any case, applicable to the Royalty Interest or the Collateral; or (B) any material contract, agreement, commitment or instrument to which any Seller is a party or by which any of the Collateral is bound or committed; (ii) except for the filing of the UCC-1 financing statements required hereunder (or under the Protective Rights Agreement), require any notification to, filing with, or consent of, any Person or Governmental Authority; (iii) give rise to any right of termination, cancellation or acceleration of any right or obligation of any Seller or any other Person as such right or obligation relates to the Royalty Interest, the Royalty Interest Payments or any of the other Collateral or to a loss of any benefit relating to the Royalty Interest, the Royalty Interest Payments or any of the other Collateral; or (iv) result in the creation or imposition of any Lien on any the Royalty Interest, the Royalty Interest Payments or any of the other Collateral, other than in favor of Buyer pursuant to the Protective Rights Agreement.

 

(b)No Seller has granted or agreed to grant to any Person other than Buyer, nor does there exist, any Lien granted by any Seller on the Royalty Interest or any other Collateral other than pursuant to the Protective Rights Agreement. No Subsidiary has granted or agreed to grant to any Person other than Buyer, nor does there exist, any Lien on such Subsidiary’s rights to receive Royalty Interest Payments.

 

(c)No Seller, Subsidiary or any of their respective property is subject (i) to any judgment, order, writ or decree of any Governmental Authority or (ii) to any contract, agreement, commitment or instrument, which, in either case of clause (i) or clause (ii), the violation or breach of which by such Seller could reasonably be expected to result in a Material Adverse Effect.

 

Section 3.06 Ownership.

 

Sellers, until the Assignment is delivered, own, and collectively are the sole holders of all of the Assigned Rights, free and clear of any and all Liens (other than any Liens in favor of Buyer). Each Seller has full right and power to assign and convey the Assigned Rights as contemplated by this Agreement. No Seller has transferred, sold, conveyed, assigned, or otherwise disposed of, or agreed to transfer, sell, convey, assign, or otherwise dispose of any portion of the License Agreements and/or the Assigned Rights other than as contemplated by this Agreement. Upon delivery to Buyer of the executed Assignment, no Person other than Buyer shall have any right to receive the Royalty Interest. Upon delivery to Buyer of the executed Assignment, Sellers shall have sold, transferred, conveyed and assigned to Buyer, and Sellers shall have done everything which is required to be done by Sellers to cause Buyer to acquire all of Sellers’ rights, interests and obligations arising on or after the Economic Commencement Date under the License Agreements and the Assigned Rights, free and clear of any Liens (other than any Liens in favor of Buyer), but subject to the further provisions of this Agreement. Each Seller is legally competent to execute this Agreement and the other Transaction Documents and upon such execution by such Seller, the obligations of such Seller hereunder and thereunder shall constitute the legally binding and enforceable obligations of such Seller, subject to bankruptcy, insolvency, reorganization, moratorium, ad hoc representative appointment, conciliation, safeguard proceedings, judicial receivership, or other laws affecting creditors’ rights generally or general equitable principles.

 

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Section 3.07 Subordination.

 

No Seller has caused, by any means, Sellers’ Royalties to be subordinated to the rights of any creditor of Daiichi or any other Person. In addition, no Seller has caused, and to the Knowledge of the Sellers no other Person has caused, the claims and rights of Buyer created by any Transaction Document (i) out of or in connection with the License Agreements and/or (ii) in and to the Assigned Rights and any Collateral, in each case, to be subordinated to any creditor of Daiichi or any other Person; provided, however, that no Seller makes any representation as to whether Buyer (or any Person acting on behalf of Buyer) has caused any such subordination.

 

Section 3.08 License Agreements.

 

(a)Exhibit A-1 hereto contains a true and complete copy of the Collaboration Agreement (including, without limitation, all amendments, supplements and other modifications thereto). Exhibit A-2 hereto contains a true and complete copy of the Commercialization Agreement (including, without limitation, all amendments, supplements and other modifications thereto). The Collaboration Agreement and Commercialization Agreement, together with the agreements described therein, constitute the only applicable agreements (other than this Agreement and the Transaction Documents) (i) to which Sellers are a party regarding the Royalties, (ii) which relate to Sellers’ entitlement to the Assigned Rights and (iii) which relate to the Product. To the Knowledge of the Sellers, there are no unpaid Royalties that have become due, and none are expected to become overdue, as of the Closing Date. Pursuant to the Commercialization Agreement, Sellers are entitled to Royalties at the rates set forth in Section 2.1 thereof, subject to the express terms and conditions set forth in the Commercialization Agreement.

 

(b)No Seller is in breach of either License Agreement and no circumstances or grounds exist that would give rise (i) to a claim by Daiichi of a breach of either License Agreement and/or any such other agreement which could have a Material Adverse Effect, or (ii) to a right of rescission, termination, revision, setoff, or any other rights, in, to or under the Assigned Rights. No Seller has unfulfilled obligations in respect of either License Agreement or the Assigned Rights that were required to be fulfilled on or prior to the date of this Agreement.

 

(c)To the Knowledge of the Sellers, Daiichi is not in breach of or in default under either License Agreement.

 

(d)Sellers have the full right, power and authority to grant all rights and interests granted to Buyer in this Agreement.

 

(e)No circumstance or grounds exist, that would invalidate, reduce or eliminate, in whole or in part, the enforceability or scope the Assigned Rights, including, without limitation, Sellers’ right to payments made in respect of Royalties.

 

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(f)Neither of the Australian Sellers is in breach of either License Agreement and nothing has occurred and no condition exists that would permit any other party thereto to terminate either License Agreement. To the Knowledge of the Sellers, both License Agreement are valid and binding on each other party thereto in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium, ad hoc representative appointment, conciliation, safeguard proceedings, judicial receivership, or other laws affecting creditors’ rights generally or general equitable principles, and is in full force and effect.

 

(g)No Seller has:

 

(i)forgiven, released, delayed, postponed or compromised any payment in respect the Royalties;

 

(ii)waived, amended, cancelled or terminated, exercised or to the Knowledge of the Sellers failed to exercise, any material rights constituting or relating to the Assigned Rights or under any agreement (including the License Agreements);

 

(iii)except as set forth on Exhibits A-1 and A-2, amended, modified, restated, cancelled, supplemented, terminated or waived any provision of either License Agreement, or granted any consent thereunder, or agreed to do any of the foregoing;

 

(iv)exercised any right of rescission, offset, counterclaim or defense, upon or with respect to the Assigned Rights or the Collateral, or agreed to do or suffer to exist any of the foregoing;

 

(v)sold, leased, pledged, licensed, transferred or assigned (or attempted to do any of the foregoing) all or any portion of the Assigned Rights and/or the License Agreements, except in favor of Buyer pursuant to the Transaction Documents; or

 

(vi)received any advance payments on the Royalties.

 

(h)No Seller has been released from any of its obligations under the License Agreements.

 

(i)No Seller has received any written notice from Daiichi that Daiichi has granted any sublicense of Sellers or Daiichi’s rights under the License Agreements.

 

Section 3.09 Net Sales.

 

Schedule 3.09 annexed hereto sets forth a true and complete list of all Net Sales of the Product provided by Daiichi and payments in respect of the Royalties paid and, to the Knowledge of the Sellers, payable by Daiichi to Sellers, for the Fiscal Quarter ending December 31, 2015. Buyer is aware that payments may differ in the future and that past payments made are no guarantee for future payments to be made.

 

Section 3.10 Broker’s Fees.

 

Except as set forth on Schedule 3.10, no Seller has taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

 

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Section 3.11 Information.

 

All written information heretofore or herein supplied by or on behalf of Sellers or any of their respective Subsidiaries to Buyer is accurate and complete in all material respects, and none of such information, when taken together with all other information furnished, contains any untrue statement of a material fact or omits to state any material fact necessary to make such information not materially misleading in light of the circumstances under which made. To the Knowledge of the Sellers, there is no fact or circumstance that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed in this Agreement, in the other Transaction Documents or in any other documents, certificates and statements furnished to Buyer for use in connection with the transactions contemplated hereby. All representations and warranties made by Sellers in any of the other Transaction Documents to which it is party are true and correct in all material respects.

 

Section 3.12 Insolvency Event; Material Adverse Effect.

 

No Insolvency Event has occurred regarding any Seller. To the Knowledge of the Sellers, no event has occurred and no condition exists that could reasonably be expected to result in a Material Adverse Effect.

 

Section 3.13 Patent Rights.

 

(a)Schedule 3.13 sets forth the Patent Rights including the following for each Patent Right: (i) the application number; (ii) the patent or registration number, if any; (iii) the country or other jurisdiction where the Patent Right was issued, registered, or filed; (iv) the scheduled expiration date of any issued Patent Right, including a notation if such scheduled expiration date includes a term extension or supplementary protection certificate; and (v) the registered owner thereof.

 

(b)To the Knowledge of the Sellers, each of the Patent Rights is valid, enforceable and subsisting, and there is at least one Valid Claim in each of the Patent Rights that covers Daiichi’s Exploitation of the Product. Sellers have not received, and to the Knowledge of Sellers, Daiichi has not received, (i) any opinion of counsel that any of the Patent Rights is invalid or unenforceable or (ii) any notice of any claim by any Third Party challenging the validity or enforceability of any of the Patent Rights.

 

(c)To the Knowledge of the Sellers, there is no pending, decided, settled or threatened Dispute (i) challenging the legality, validity, enforceability, scope and/or ownership of any Patent Rights, (ii) that could impact the validity and/or enforceability of any of the claims of the Patent Rights, or otherwise impact whether any claim within the Patent Rights is a Valid Claim, and/or (iii) adjudicating whether any Third Party Patent Right is or would be infringed by Daiichi’s Exploitation of the Product.

 

(d)To the Knowledge of the Sellers, (i) no Third Party Patent Right has been or is infringed by Daiichi’s Exploitation of the Product; and (ii) Daiichi has not received any notice of any claim by any Third Party asserting that Daiichi’s Exploitation of the Product does or would infringe such Third Party’s Patent Rights. Seller has not received any opinion of counsel, and to the Knowledge of Seller, Daiichi has not received any opinion of counsel, regarding infringement or non-infringement of any Third Party Patent Right by Daiichi’s Exploitation of the Product.

 

(e)Each of the Patent Rights is a Patent as defined in the Collaboration Agreement. To the Knowledge of the Sellers, Daiichi is the exclusive owner of the entire right, title and interest in and to the Patent Rights.

 

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(f)The term for which consideration is to be paid pursuant to Section 2.1 of the Commercialization Agreement shall expire no earlier than December 24, 2029.

 

(g)To the Knowledge of the Sellers, the Product currently being Exploited has the formulation as described in the documents entitled “Laninamivir Octanoate Hydrate Inavir Powder for Inhalation 20mg 3.2.P Quality Drug Product” and “Laninamivir Octanoate Hydrate Inavir Powder for Inhalation 20mg 3.2.S Quality Drug Substance”, each published by Daiichi.

 

(h)Daiichi has not requested any of the Sellers to assume responsibility for the maintenance of any of the Patent Rights.

 

Section 3.14 Exploitation; Material Information.

 

To the Knowledge of the Sellers, Daiichi is not considering terminating the Exploitation of the Product.

 

Section 3.15 Taxes.

 

(a)No deduction or withholding for or on account of any tax (other than the Japanese Withholding Tax at a rate of 5%) has been made, or was required to be made, from any payment by Daiichi to Sellers with respect to Royalties payable under the Commercialization Agreement.

 

(b)Since the current Australia-Japan Income Tax Treaty became effective, each Seller has been subject to Japanese Withholding Tax at a rate of 5% with respect to Royalties payable under the Commercialization Agreement.

 

Article IV.

 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Sellers that the following representations are true and complete as of the date of this Agreement, except as otherwise indicated:

 

Section 4.01 Organization.

 

Buyer is a limited partnership formed and validly existing under the laws of the State of Delaware, and has all limited partnership powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted in connection with the transactions contemplated by the Transaction Documents.

 

Section 4.02 Authorization.

 

Buyer has all necessary limited partnership power and authority to enter into, execute and deliver this Agreement and the other Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. Once signed, the Transaction Documents will have been duly authorized, executed and delivered by Buyer and each Transaction Document will then constitute the valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

 

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Section 4.03 Broker’s Fees.

 

None of Buyer or its Affiliates has taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

 

Section 4.04 Conflicts.

 

Neither the execution and delivery of this Agreement or any other Transaction Document nor the performance or consummation of the transactions contemplated hereby or thereby will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects, any provisions of: (A) any law, rule or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which Buyer or any of its assets or properties may be subject or bound; or (B) any contract, agreement, commitment or instrument to which Buyer is a party or by which Buyer or any of its assets or properties is bound or committed; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the organizational or constitutional documents of Buyer; or (iii) require any notification to, filing with, or consent of, any Person or Governmental Authority.

 

Article V.

 

COVENANTS

 

During the term of this Agreement, the following covenants shall apply:

 

Section 5.01 Consents and Waivers.

 

Sellers and Buyer shall use commercially reasonable efforts to obtain and maintain any required consents, acknowledgements, certificates or waivers so that the transactions contemplated by this Agreement or any other Transaction Document may be consummated and shall not result in any default or breach or termination of either License Agreement.

 

Section 5.02 Compliance.

 

(a)Each Seller shall comply with and fulfill, in all material respects, all of its respective obligations under the License Agreements.

 

(b)In the event either License Agreement is terminated for any reason whatsoever, each of Buyer and each Seller shall use commercially reasonable efforts, at each Party’s respective cost and expense, to locate and secure a replacement licensee to develop, make, have made, use, and sell the Product; provided that Buyer shall have the right to approve (which approval shall not be unreasonably withheld or delayed) in writing such replacement licensee, and each Seller agrees to undertake in connection with such additional License Agreement such obligations and liabilities as it currently has under the terminated License Agreement (such replacement arrangement shall, for purposes of the assignment of the Assigned Rights hereunder, be deemed to constitute a “License Agreement” hereunder and shall be subject to the terms and conditions hereof and of the other Transaction Documents).

 

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Section 5.03 Confidentiality; Public Announcement.

 

(a)Except as expressly authorized in this Agreement or the other Transaction Documents or except with the prior written consent of the Disclosing Party, the Receiving Party hereby agrees that (i) it will use the Confidential Information of the Disclosing Party solely for the purpose of the transactions contemplated by this Agreement and the other Transaction Documents and exercising its rights and remedies and performing its obligations hereunder and thereunder; (ii) it will keep confidential the Confidential Information of the Disclosing Party; and (iii) it will not furnish or disclose to any Person any Confidential Information of the Disclosing Party.

 

(b)Notwithstanding anything to the contrary set forth in this Agreement or any other Transaction Document, the Receiving Party may, without the consent of the Disclosing Party, but with prior written notice when permissible to the Disclosing Party, furnish or disclose Confidential Information of the Disclosing Party to (i) the Receiving Party’s Affiliates and their respective Representatives, actual or potential financing sources, investors or co-investors and permitted assignees, Buyers, transferees or successors-in-interest under Section 8.03, in each such case, who need to know such information in order to provide or evaluate the provision of financing to the Receiving Party or any of its Affiliates or to assist the Receiving Party in evaluating the transactions contemplated by this Agreement and the other Transaction Documents or in exercising its rights and remedies and performing its obligations hereunder and thereunder and who are, prior to such furnishing or disclosure, informed of the confidentiality and non-use obligations contained in this Section 5.03 and who are bound by written or professional confidentiality and non-use obligations no less stringent than those contained in this Section 5.03; and (ii) permitted assignees, Buyers, transferees or successors-in-interest under Section 8.03, in each such case, who need to know such information in connection with such actual or potential assignment, sale or transfer, including, following any such assignment, sale or transfer, in order to exercise their rights and remedies and perform their obligations under this Agreement and the other Transaction Documents and who are, prior to such furnishing or disclosure, informed of the confidentiality and non-use obligations contained in this Section 5.03 and who are bound by written or professional confidentiality and non-use obligations no less stringent than those contained in this Section 5.03.

 

(c)In the event that the Receiving Party, its Affiliates or any of their respective Representatives is required by applicable law, applicable stock exchange requirements or legal or judicial process (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to furnish or disclose any portion of the Confidential Information of the Disclosing Party, the Receiving Party shall, to the extent legally permitted, provide the Disclosing Party, as promptly as practicable, with written notice of the existence of, and terms and circumstances relating to, such requirement, so that the Disclosing Party may seek, at its expense, a protective order or other appropriate remedy (and, if the Disclosing Party seeks such an order, the Receiving Party, such Affiliates or such Representatives, as the case may be, shall provide, at their expense, such cooperation as such Disclosing Party shall reasonably require). Subject to the foregoing, the Receiving Party, such Affiliates or such Representatives, as the case may be, may disclose that portion (and only that portion) of the Confidential Information of the Disclosing Party that is legally required to be disclosed; provided, however, that the Receiving Party, such Affiliates or such Representatives, as the case may be, shall exercise reasonable efforts (at their expense) to preserve the confidentiality of the Confidential Information of the Disclosing Party, including by obtaining reliable assurance that confidential treatment will be accorded any such Confidential Information disclosed. Notwithstanding anything to the contrary contained in this Agreement or any of the other Transaction Documents, in the event that the Receiving Party or any of its Affiliates receives a request from an authorized representative of a U.S. or foreign tax authority for a copy of this Agreement or any of the other Transaction Documents, the Receiving Party or such Affiliate, as the case may be, may provide a copy hereof or thereof to such tax authority representative without advance notice to, or the consent of, the Disclosing Party; provided, however, that the Receiving Party shall, to the extent legally permitted, provide the Disclosing Party with written notice of such disclosure as soon as practicable.

 

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(d)Notwithstanding anything to the contrary contained in this Agreement or any of the other Transaction Documents, the Receiving Party may disclose the Confidential Information of the Disclosing Party, including this Agreement, the other Transaction Documents and the terms and conditions hereof and thereof, to the extent necessary in connection with the enforcement of its rights and remedies hereunder or thereunder or as required to perfect the Receiving Party’s rights hereunder or thereunder.

 

(e)Neither Party shall, and each Party shall cause its Affiliates not to, without the prior written consent of the other Party (which consent shall not be unreasonably withheld or delayed), issue any press release or make any other public disclosure with respect to the transactions contemplated by this Agreement or any other Transaction Document, except if and to the extent that any such release or disclosure is required by applicable law, by the rules and regulations of any applicable stock exchange or by any Governmental Authority of competent jurisdiction, in which case, the Party proposing (or whose Affiliate proposes) to issue such press release or make such public disclosure shall use commercially reasonable efforts to consult in good faith with the other Party regarding the form and content thereof before issuing such press release or making such public announcement.

 

(f)Except with respect to Buyer’s internal communications or private communications with its Representatives, Buyer shall not, and shall cause its Representatives, its Affiliates and its Affiliates’ Representatives not to make use of the name, nickname, trademark, logo, service mark, trade dress or other name, term, mark or symbol identifying or associated with any Seller without such Sellers’ prior written consent to the specific use in question; provided that the consent of such Seller shall not be required with respect to publication of such Seller’s name and logos in Buyer’s promotional materials, including without limitation the websites for Buyer and its Affiliates consistent with its use of other similarly situated Third Parties’ names and logos.

 

(g)Buyer and each Seller hereby (i) agree that, notwithstanding the terms thereof, the Confidentiality Agreement is hereby terminated and (ii) acknowledge that this Agreement shall supersede such Confidentiality Agreement with respect to the treatment of Confidential Information by the Parties (including, without limitation, with regard to Confidential Information previously provided pursuant to such Confidentiality Agreement).

 

Section 5.04 Protective Rights Agreement.

 

For protective purposes only and to secure each Seller’s performance of its obligations hereunder to the extent the assignment hereunder, as evidenced by the Assignment, becomes subject to a Recharacterization despite the Parties’ intentions, each Seller shall execute and deliver the Protective Rights Agreement at the Closing as contemplated by Section 6.02(d).

 

Section 5.05 Further Assurances.

 

(a)Subject to the terms and conditions of this Agreement, each of Buyer and Sellers will use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate the transactions contemplated by this Agreement and any other Transaction Document. Buyer and Sellers agree to execute and deliver such other documents, certificates, agreements and other writings (including any financing statement filings, other documents, certificates or agreements requested by Buyer) and to take such other actions as may be reasonably necessary to carry out and effectuate all of the provisions of this Agreement and any other Transaction Document, to consummate the transactions contemplated by this Agreement and any other Transaction Document and to vest in Buyer all of Sellers’ rights (whether joint, several or joint and several) under the License Agreements, including, without limitation, the Assigned Rights, free and clear of all Liens, except those Liens created in favor of Buyer pursuant to the Protective Rights Agreement and subject to the further provisions of this Agreement.

 

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(b)Except for disputes between the Parties, each of Buyer and Sellers shall cooperate and provide assistance as reasonably requested by the other Party (and at no expense to the requesting Party unless the requesting Party is obligated to indemnify the other Party pursuant to the requesting Party’s indemnification obligations provided for in this Agreement) in connection with any litigation, arbitration or other proceeding (whether threatened, existing, initiated, or contemplated prior to, on or after the date hereof) to which any Party or any of its officers, directors, shareholders, agents or employees is or may become a party or is or may become otherwise directly or indirectly affected or as to which any such Persons have a direct or indirect interests, in each case relating to this Agreement or any other Transaction Document, and the Assigned Rights, the License Agreements, the Collateral, or the transactions described herein or therein, and, without limiting the generality of the preceding provision, shall provide promptly to the other Party copies of all correspondence, reports (including royalty reports and worksheets), notices or other information sent by or on behalf of such Party to, or received by or on behalf of such Party from, Licensee, in any case relating to the Assigned Rights, the Commercialization Agreement, or, solely to the extent related to sales of the Product in the Territory, the Collaboration Agreement; it being understood that a Party’s failure to provide such information shall not limit any otherwise applicable indemnification obligations under this Agreement of the other Party other than to the extent of any final non-appealable order of a court of competent jurisdiction finding that a Loss was incurred by such other Party as a result of such failure to provide such information. In particular, without limitation, Sellers shall, upon request of Buyer, be available and fully cooperate with and support Buyer free of charge in connection with each License Agreement and its performance.

 

Section 5.06 Notice by Sellers; Enforcement of License Agreements.

 

(a)Sellers shall provide Buyer with written notice as promptly as practicable (and in any event within five (5) Business Days) after becoming aware of any of the following:

 

(i)any breach or default by any Seller of any covenant, agreement or other provision of this Agreement or any other Transaction Document;

 

(ii)any representation or warranty made or deemed made by any Seller in any of the Transaction Documents or in any certificate delivered to Buyer pursuant to any Transaction Documents shall prove to be untrue, inaccurate or incomplete in any material respect on the date as of which made or deemed made;

 

(iii)the occurrence of an Insolvency Event with respect to any Seller or the occurrence of any equivalent event with respect to Licensee;

 

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(iv)any material breach or default by Licensee under either License Agreement; and

 

(v)any written notice (including without limitation with respect to the addition of either licensee under the Collaboration Agreement or any collaborator or sub-licensee under the Commercialization Agreement), report (including without limitation royalty reports and worksheets) or other communication, together with copies of the same, received from or on behalf of Licensee with respect to the Royalty Interest, any of the other Assigned Rights, the Commercialization Agreement, or, solely to the extent related to sales of the Product in the Territory, the Collaboration Agreement.

 

(b)In the event any oral communication is received by any Seller from Licensee the substance of which is reasonably likely to materially adversely impact the Assigned Rights, the Product, any Patent Rights or the ability of Licensee to distribute, market and/or sell the Product, Sellers shall use their reasonable efforts to promptly inform Buyer of such oral communication and provide a reasonable description of such oral communication.

 

(c)In the event Licensee is in breach or default of an obligation under either License Agreement in a manner that is reasonably likely to adversely affect the Royalties, the Royalty Interest or the Assigned Rights, Sellers or Buyer, as applicable, shall inform the other Party of such breach or default and shall provide reasonable detail regarding the nature of such breach or default. Sellers and Buyer shall consult with each other regarding such breaches and defaults and as to the timing, manner and conduct of any enforcement of Licensee’s obligations under the License Agreement relating thereto. If after ten (10) Business Days the Parties cannot agree on the timing, manner and conduct of such enforcement, then Sellers shall take such actions as Buyer shall request to enforce Licensee’s obligations under the License Agreements.

 

(d)Buyer shall have the sole right to determine the timing, manner and conduct of any enforcement of Licensees’ obligations under the License Agreements as described in Section 5.06(c) above, including, without limitation, the selection of any counsel to assist in such enforcement, and upon Buyer’s request, Sellers shall enforce compliance by such Licensee with the relevant provisions of the License Agreements and exercise such rights and remedies relating to such breach or default or alleged breach or default as shall be available to Sellers and as directed by Buyer, whether under the License Agreements or by operation of applicable law, including bringing any legal action or suit requested by Buyer. No Seller shall consent to the entry of any judgment or enter into any compromise or settlement with respect to such enforcement of the License Agreements against a Licensee without the prior written consent of Buyer.

 

(e)All out-of-pocket costs and expenses (including counsels’ fees and expenses) incurred in connection with any enforcement pursuant to this Section 5.06 shall be borne by Buyer, provided that any amounts recovered as a result of any judgment or other monetary award or settlement in respect of an action brought pursuant to this Section 5.06 shall be first applied to reimburse Buyer for its costs incurred in connection therewith and the remainder, if any, shall then be treated as Royalty Interest.

 

Section 5.07 Patent Rights.

 

In the event that Daiichi elects to abandon any pending application for or granted Patent Right material to the Assigned Rights, Sellers shall prosecute, file or maintain such application or Patent Right to the fullest extent permitted under the License Agreements.

 

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Section 5.08 Negative Covenants.

 

No Seller shall, or shall any Seller permit any of its Subsidiaries to, without the prior written consent of Buyer:

 

(a)forgive, release or reduce any amount, or delay or postpone (other than on a commercially reasonable basis) any amount, owed to any Seller or its Subsidiaries relating to the Royalties;

 

(b)create, incur, assume or suffer to exist any Lien, upon or with respect to the Assigned Rights, the other Collateral or the right to receive Royalty Interest Payments, or agree to do or suffer to exist any of the foregoing, except for any permitted Liens and any Lien or agreements in favor of Buyer granted under or pursuant to this Agreement and the other Transaction Documents;

 

(c)waive, amend, cancel or terminate, exercise or fail to exercise, any material rights constituting or relating to the Royalties, the Royalty Interest or any other Assigned Rights;

 

(d)amend, modify, restate, cancel, supplement, terminate or waive any provision of either License Agreement in the Territory, or grant any consent thereunder, or agree to do any of the foregoing, including, without limitation, entering into any agreement with any Licensee under the provisions of either License Agreement in the Territory; or

 

(e)sell, lease, license, transfer or assign (or attempt to do any of the foregoing) all or any portion of the Patent Rights. Sellers recognize that they have no right to do any of the actions in Section 5.08(e).

 

Section 5.09 Future Agreements.

 

No Seller shall enter into, or permit any of its Subsidiaries to enter into, any agreement that would or could reasonably be expected to result in a Material Adverse Effect without Buyer’s prior written consent, which consent may be withheld, delayed or conditioned in Buyer’s sole and absolute discretion.

 

Section 5.10 Records; Access.

 

(a)During the term of this Agreement and for a period of two (2) years thereafter, Sellers shall keep and maintain proper books of record and account in which full, true and correct entries in conformity with U.S. generally accepted accounting principles and all requirements of applicable law are made of all dealings and transactions as are adequate to correctly calculate and verify the accuracy of all reports and all Royalty Interest Payments.

 

(b)During the term of this Agreement:

 

(i)Buyer and its representatives shall have the right, from time to time during normal business hours and upon at least fifteen (15) Business Days’ prior written notice to Sellers, but no more frequently than one (1) time per calendar year without cause, as determined by Buyer in its reasonable discretion, to visit the offices and properties of Sellers and their respective Subsidiaries where books and records relating or pertaining to the Royalty Interest Payments, the Royalties, the Royalty Interest, the Assigned Rights and the other Collateral are kept and maintained, to inspect and make extracts from and copies of such books and records, to discuss, with officers of Sellers and their respective Subsidiaries, the business, operations, properties and financial and other condition of Sellers and their respective Subsidiaries and to verify the accuracy of the reports, the Royalty Interest Payments and the Royalties. In the event any inspection of such books and records reveals any underpayment of any Royalty Interest Payment in respect of any Fiscal Quarter, Sellers shall pay promptly (but in any event within five (5) Business Days thereafter) to Buyer (i) the amount of such underpayment; and

 

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(ii)if such underpayment exceeds five percent (5%) of the Royalty Interest Payment that was required to be made in respect of such Fiscal Quarter, the reasonable out-of-pocket fees and expenses incurred by Buyer and its Affiliates in connection with such inspection will be borne by Sellers (in all other cases, such fees and expenses will be borne by Buyer and its Affiliates). All information furnished or disclosed to Buyer or any of its representatives in connection with any inspection shall constitute Confidential Information of Sellers and shall be subject to the provisions of Section 5.03.

 

(c)Sellers shall deliver to Buyer such information and data relating or pertaining to the Royalty Interest Payments, the Royalties, the Royalty Interest, the Assigned Rights and the other Collateral as Buyer shall reasonably request, promptly upon such request.

 

(d)Sellers shall on, on at least a quarterly basis, or more frequently if requested in writing by Buyer (such notice to be given at least ten (10) Business Days’ in advance), cause such of the executive officers and employees of Sellers as shall be reasonably identified by Buyer in such notice to meet, or, at Buyer’s option, to participate in a conference call with, Buyer for the purpose of discussing the Product and the Assigned Rights.

 

Section 5.11 Remittance to Deposit Account; Set-Offs.

 

(a)           Pursuant to the Daiichi Consent/Amendment, Australian Sellers shall instruct Licensee to remit all amounts payable to Australian Sellers pursuant to the Commercialization Agreement directly to the Seller Deposit Account and may not change or otherwise amend such instruction without the prior written consent of Buyer. All payments made to Australian Sellers on account of the Royalty Interest shall be held by Australian Sellers in trust for the benefit of Buyer until remitted to Buyer pursuant to Section 5.11(b) of this Agreement. Sellers shall have no right, title or interest whatsoever in such amounts and shall not create any Lien thereon. Amounts deposited into the Seller Deposit Account shall be in United States dollars.

 

(b)           Upon receipt by Australian Sellers from Licensee of amounts in respect of the Royalty Interest, Australian Sellers shall instruct the bank holding the Seller Deposit Account to transfer such amounts from the Seller Deposit Account into the Buyer Deposit Account on the second Business Day after such amounts are received in the Seller Deposit Account. Amounts deposited into the Buyer Deposit Account shall be in United States dollars.

 

(c)           If any Seller fails to pay any amount that it is contractually obligated to pay to Licensee, and, as a consequence of such failure to pay, Licensee exercises a right of set-off and reduces amounts payable in respect of the Royalty Interest, then Sellers shall promptly, and in any event no later than five (5) Business Days, following the date on which any Seller becomes aware of such setoff pay to Buyer a sum equal to the amount of such reduction and in the currency in which the amount offset is denominated.

 

(d)           No Seller shall close, change or otherwise modify the Seller Deposit Account or open a new deposit account for remittance of the amounts payable pursuant to the License Agreements without the prior written consent of Buyer.

 

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Section 5.12 Certain Covenants of Buyer.

 

Subject in all events to the provisions of Section 5.06,

 

(a)            Buyer will not communicate directly with Daiichi concerning the License Agreements, including the payment of royalties from Net Sales and commercialization of the Product in the Territory.

 

(b)            Buyer will not seek to enforce any of its rights under this Agreement directly against Daiichi.

 

Article VI.

 

THE CLOSING; CONDITIONS TO CLOSING

 

Section 6.01 Closing.

 

Subject to the closing conditions set forth in Sections 6.02 and 6.03, and unless otherwise mutually agreed by the Parties, the closing of the transactions contemplated under this Agreement shall take place remotely via electronic delivery of the executed Transaction Documents and other deliverables at 9:00 a.m., Eastern Time, on the Closing Date.

 

Section 6.02 Conditions Applicable to Buyer.

 

The obligations of Buyer to effect the Closing and pay the Closing Amount pursuant to Section 2.03 hereof, shall be subject to the satisfaction of the following conditions, as of the Closing Date, any of which may be waived in writing by Buyer in its sole discretion:

 

(a)At Closing, the representations and warranties set forth in the Transaction Documents shall be true, correct and complete in all material respects; provided, however, that if any of the foregoing representations and warranties are qualified as to “materiality” or “Material Adverse Effect”, then, subject to such qualifications, such representations and warranties shall be true, correct and complete in all respects; and Sellers shall have confirmed this in writing at the Closing.

 

(b)All notices to, consents (including the Daiichi Consent/Amendment), approvals, authorizations and waivers from Third Parties and Governmental Authorities that are required for the consummation of the transactions contemplated by this Agreement or any of the Transaction Documents shall have been obtained or provided for and shall remain in effect.

 

(c)All of the Transaction Documents (including without limitation, the Assignment) shall have been executed and delivered by Sellers to Buyer, and Buyer shall have received the same.

 

(d)The Protective Rights Agreement shall have been duly executed and delivered by all the parties thereto, together with UCC-1 financing statements for filing under the UCC in Delaware, Georgia and the District of Columbia, and such agreement shall be in full force and effect, and such filings and the related registrations shall have been filed or made, as appropriate, and all requisite fees paid in connection with such filings and registrations.

 

(e)Buyer shall have received opinions of counsel to (i) Sellers, substantially in the forms set forth in Exhibits E-1 (for transactional counsel to Sellers) and E-2 (for Australian counsel to Sellers) and (ii) Buyer, substantially in the form set forth in Exhibit E-3.

 

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(f)Sellers shall have complied in all material respects with its obligations hereunder and under the other Transaction Documents.

 

(g)There shall not have occurred any event or circumstance (including any development with respect to the efficacy or safety of the Product) that could reasonably be expected to have a Material Adverse Effect.

 

Section 6.03 Conditions Applicable to Sellers.

 

The obligations of Sellers to effect the Closing shall be subject to the satisfaction of the following conditions, as of the Closing Date, any of which may be waived in writing by Sellers in their sole discretion:

 

(a)The representations and warranties of Buyer set forth in the Transaction Documents shall be true, correct and complete in all material respects.

 

(b)Buyer shall have complied in all material respects with its covenants set forth in the Transaction Documents.

 

Article VII.

 

TERMINATION

 

Section 7.01 Termination.

 

(a)This Agreement may be terminated, effective upon the delivery of written notice prior to or at the Closing:

 

(i)by Buyer if any of the conditions set forth in Section 6.02 shall not have been satisfied as of the Closing Date (other than through or as a result of the failure by Buyer to comply with its obligations under this Agreement), and Buyer has not waived such condition on or before the Closing Date; or

 

(ii)by Sellers if any of the conditions set forth in Section 6.03 shall not have been satisfied as of the Closing Date (other than through or as a result of the failure by any Seller to comply with its obligations under this Agreement), and Sellers have not waived such condition on or before the Closing Date.

 

(b)This Agreement shall terminate on the earlier of (x) the date on which this Agreement is terminated by either Party pursuant to and in accordance with Section 7.01(a) and (y) the License Termination.

 

Section 7.02 Effects of Expiration or Termination.

 

(a)The expiration or termination of this Agreement for any reason shall not release either Party any obligation or liability which, at the time of such expiration or termination, has already accrued to the other Party or which is attributable to a period prior to such expiration or termination. Accordingly, if any obligations remain unpaid or any amounts are owed or any payments are required to be made by either Party to the other Party on or after the date on which this Agreement expires or is terminated, this Agreement shall remain in full force and effect until any and all such obligations, amounts or payments have been indefeasibly paid or made in accordance with the terms of this Agreement, and solely for that purpose.

 

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(b)Notwithstanding anything herein to the contrary, the termination of this Agreement by a Party shall be without prejudice to other remedies such Party may have at law or in equity (including any enforcement of its rights under any of the Transaction Documents) the exercise of a right of termination shall not be an election of remedies.

 

(c)ARTICLE 1 and Sections 2.01(b), 2.01(c), 2.04, 5.02(b), 5.03, 5.05(b), 5.06(c) and 5.10(a) (but, in the case of Sections 5.02(b), 5.06(c), and 5.10(a), only if closing occurs), this Section 7.02 and ARTICLE VIII shall survive the termination of this Agreement for any reason. Except as otherwise provided in this Section 7.02, all rights and obligations of the Parties under this Agreement shall terminate upon expiration or termination of this Agreement for any reason.

 

Article VIII.

 

MISCELLANEOUS

 

Section 8.01 Survival.

 

Each representation and warranty of the Parties contained herein and any certificate related to such representations and warranties will survive the Closing and continue in full force and effect until the License Termination. Notwithstanding anything in this Agreement or implied by law to the contrary, each covenant and obligation in this Agreement and any certificate or document delivered pursuant to this Agreement will survive the Closing. Unless expressly waived pursuant to this Agreement, no representation, warranty, covenant, right or remedy available to any Person out of or in connection with this Agreement will be deemed waived by any action or inaction of that Person (including consummation of the Closing, any inspection or investigation, or the awareness of any fact or matter) at any time, whether before, on or after the Closing.

 

Section 8.02 Notices.

 

All notices, consents, waivers and communications hereunder given by any Party to the other shall be in writing (including electronic mail) and delivered personally, by electronic mail, by a recognized overnight courier, or by dispatching the same by certified or registered mail, return receipt requested, with postage prepaid, in each case addressed:

 

If to Buyer to:

 

HealthCare Royalty Partners III, L.P.

300 Atlantic Street, 6th Floor

Stamford, CT 06901

Attention: Todd Davis

Email: Todd.Davis@hcroyalty.com

 

with courtesy copies (which shall not constitute notice) to:

 

HealthCare Royalty Partners III, L.P.
300 Atlantic Street, 6th Floor

Stamford, CT 06901

Attention: Chief Legal Officer

Email: royalty-legal@hcroyalty.com

 

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and:

 

Cahill Gordon & Reindel LLP

80 Pine Street

New York, NY 10005

Attention: Geoffrey E. Liebmann

Email: gliebmann@cahill.com

 

If to any Seller to:

 

Aviragen Therapeutics, Inc.

2500 Northwinds Parkway

Suite 100

Alpharetta, GA 30009

Attention: Chief Executive Officer

Email: legal@biotapharma.com

 

with a courtesy copy to (which shall not constitute notice):

 

Dechert LLP

1095 Avenue of the Americas

New York, NY 10036

Attention: David Rosenthal

Email: david.rosenthal@dechert.com

 

or to such other address or addresses as Buyer or Sellers may from time to time designate by notice as provided herein, except that notices of changes of address shall be effective only upon receipt. All such notices, consents, waivers and communications shall: (a) when posted by certified or registered mail, postage prepaid, return receipt requested, be effective five Business Days after dispatch, (b) when sent by electronic mail, be effective upon receipt by the transmitting party of confirmation of complete transmission or return email or “read” receipt from the recipient, or (c) when delivered by an internationally recognized overnight courier or in person, be effective upon receipt when hand delivered.

 

Section 8.03 Successors and Assigns.

 

The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. No Seller shall be entitled to assign any of its obligations and rights under the Transaction Documents without the prior written consent of Buyer; provided, however, such consent shall not be required in connection with the merger or other consolidation of such Seller or the assignment of such Seller’s obligations and rights by operation of law, so long as, the Person into which such Seller has been merged or consolidated or which has acquired such assets of such Seller has delivered evidence, in form and substance reasonably satisfactory to Buyer, to Buyer that such Person has assumed all of such Seller’s obligations under the Transaction Documents. Buyer may assign without consent of Sellers any of its rights and obligations under the Transaction Documents without restriction. Any purported assignment in violation of this Section 8.03 shall be null and void.

 

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Section 8.04 Indemnification.

 

(a)Each Seller hereby indemnifies and holds each Buyer Indemnified Party harmless from and against any and all Losses incurred or suffered by any Buyer Indemnified Party arising out of (i) any breach of any representation, warranty or certification made by any Seller in any of the Transaction Documents, (ii) any breach of or default under any covenant or agreement by any Seller pursuant to any Transaction Document or either License Agreement, including any failure by any Seller to satisfy any of the Excluded Liabilities and Obligations, or (iii) any claims asserted by any Third Party to the extent based on action taken by Buyer at the direction of any Seller pursuant to the terms of this Agreement or otherwise at the direction of any Seller other than actions which Buyer would have been obligated to take even if Buyer had not been so directed by Seller.

 

(b)Buyer hereby indemnifies and holds each Seller Indemnified Party harmless from and against any and all Losses incurred or suffered by a Seller Indemnified Party arising out of (i) any breach of any representation, warranty or certification made by Buyer in any of the Transaction Documents, (ii) any breach of or default under any covenant or agreement by Buyer pursuant to any Transaction Document or (iii) any claims asserted by any Third Party to the extent based on action taken by any Seller at the direction of Buyer pursuant to the terms of this Agreement or otherwise at the direction of Buyer other than actions which such Seller would have been obligated to take even if such Seller had not been so directed by Buyer.

 

(c)If any Claim shall be brought or alleged against an indemnified party in respect of which indemnity is to be sought against an indemnifying party pursuant to the preceding paragraphs, the indemnified party shall, promptly after receipt of notice of the commencement of any such Claim, notify the indemnifying party in writing of the commencement of such Claim, enclosing a copy of all papers served, if any; provided that the omission to so notify such indemnifying party will not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 8.04 unless, and only to the extent that, such omission results in the forfeiture of, or has a material adverse effect on the exercise or prosecution of, substantive rights or defenses by the indemnifying party. In case any such Claim is brought against an indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8.04 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such proceeding, an indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has assumed the defense of such proceeding and has failed within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interests between them based on the advice of such counsel. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

 

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(d)Buyer or any Buyer Indemnified Party may take any action against Sellers to enforce or recover Losses pursuant to the indemnification obligations of Sellers under this Section 8.04 without any requirement to take any action or exhaust any right or remedy against any other Person; provided that Buyer agrees that Sellers shall then be subrogated to any and all other rights of Buyer to recovery to the extent of such indemnification paid by Sellers (but excluding interest amounts and withholding tax gross-up payments). If any proceeds, benefits or recoveries are received by or on behalf of a Buyer Indemnified Party with respect to Losses after Sellers have made an indemnification payment to a Buyer Indemnified Party with respect thereto and receipt of such proceeds, benefits or recoveries prior to such payment would have reduced the amount of such indemnification payment if received prior to such payment, then such Buyer Indemnified Party shall hold such amounts in trust for the benefit of Sellers and, within three (3) Business Days after receipt thereof, deliver such amounts (net of any applicable withholding tax) to Sellers by wire transfer of immediately available funds as directed by Sellers.

 

(e)Sellers shall not be liable to indemnify Buyer for any Losses arising from a breach of a representation or warranty unless and until the aggregate amount of those Losses exceeds [**] at which point Sellers shall be liable to indemnify Buyer for all Losses arising from a breach of a representation or warranty.

 

(f)The maximum aggregate indemnification obligation of the Sellers under this Agreement shall be [**] of the Base Amount. Notwithstanding the foregoing, no maximum indemnification threshold shall apply (i) for breaches of this Agreement in the event such breach is a result of actual fraud, gross negligence or willful misconduct by a Seller in connection with this Agreement or (ii) to any indemnification for any failure by any Seller to satisfy any of the Excluded Liabilities and Obligations or for any breach of or default under any covenant or agreement by any Seller set forth in Section 5.06, Section 5.07 or Section 5.11.

 

Section 8.05 Independent Nature of Relationship; Taxes.

 

(a)The relationship between Sellers, on the one hand, and Buyer, on the other hand, is solely that of assignor and assignee, and neither Buyer, on the one hand, nor any Seller, on the other hand, has any fiduciary or other special relationship with the other or any of their respective Affiliates. For the avoidance of doubt, nothing in this Agreement shall be read to create any agency, partnership, association or joint venture of any Seller (or any of its Affiliates) and Buyer (or any of its Affiliates) and each Party agrees not to refer to the other as a “partner” or the relationship as a “partnership” or “joint venture” or other kind of entity or legal form.

 

(b)Except as otherwise contemplated herein, no Party shall at any time obligate the other Party, or impose on such other Party any obligation, in any manner or respect to any Third Party.

 

(c)For United States federal, state and local tax purposes, each Seller and Buyer shall treat the transactions contemplated by the Transaction Documents as a sale.

 

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(d)The Parties hereto agree not to take any position that is inconsistent with the provisions of this Section 8.05 on any tax return or in any audit or other administrative or judicial proceeding unless (i) the other Party to this Agreement has consented to such actions, or (ii) the Party that contemplates taking such an inconsistent position has been advised by nationally recognized tax counsel in writing that it is more likely than not that (x) there is no “reasonable basis” (within the meaning of Treasury Regulation Section 1.6662-3(b)(3)) for the position specified in this Section 8.05 or (y) taking such a position would otherwise subject the Party to penalties under the Internal Revenue Code of 1986, as amended. If a Governmental Authority conducts an inquiry of any Seller or Buyer related to this Section 8.05, the Parties hereto shall cooperate with each other in responding to such inquiry in a reasonable manner consistent with this Section 8.05.

 

(e)All payments to Buyer under this Agreement shall be made without any deduction or withholding for or on account of any tax; provided that if deduction or withholding is required from any payment under this Agreement, the sum payable shall be increased and paid by Sellers or any of their respective Affiliates as necessary so that after all required deductions and withholdings have been made, Buyer receives an amount equal to the amount it would have received had no such deductions or withholding been made: provided further, Sellers shall not be required to indemnify Buyer under this Section 8.05(e) for any Japanese Withholding Tax deducted or withheld by Daiichi on the payments of Royalties under the Commercialization Agreement to the extent such Japanese Withholding Tax does not exceed 5% of the Royalties payable by Daiichi under the Commercialization Agreement. Sellers shall promptly notify Buyer in writing in the event that any deduction or withholding is effected or proposed by Sellers or any Governmental Authority, with respect to any such payments hereunder.

 

Section 8.06 Entire Agreement.

 

This Agreement, together with the Exhibits and Schedules hereto (which are incorporated herein by reference), and the other Transaction Documents constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements (including the Confidentiality Agreement), understandings and negotiations, both written and oral, between the Parties with respect to the subject matter of this Agreement. Neither this Agreement nor any provision hereof (other than Section 8.03), is intended to confer upon any Person other than the Parties any rights or remedies hereunder.

 

Section 8.07 Amendments; No Waivers.

 

(a)This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of both Parties. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the Party against whom such waiver is sought to be enforced.

 

(b)No failure or delay by either Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

(c)No waiver or approval hereunder shall, except as may otherwise be stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law.

 

31

 

Section 8.08 Interpretation.

 

When a reference is made in this Agreement to Articles, Sections, Schedules or Exhibits, such reference shall be to an Article, Section, Schedule or Exhibit to this Agreement unless otherwise indicated. The words “include”, “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”. Neither Party shall be or be deemed to be the drafter of this Agreement for the purposes of construing this Agreement against one Party or the other.

 

Section 8.09 Headings and Captions.

 

The headings and captions in this Agreement are for convenience and reference purposes only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

 

Section 8.10 Counterparts; Effectiveness.

 

This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each Party shall have received a counterpart hereof signed by the other Party. Any counterpart may be executed by facsimile or .pdf signature and such facsimile or .pdf signature shall be deemed an original.

 

Section 8.11 Severability.

 

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nevertheless be given full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree by a court of competent jurisdiction shall remain in full force and effect to the extent not held invalid or unenforceable.

 

Section 8.12 Expenses.

 

Sellers will pay all of their fees and expenses in connection with entering into and consummating the transactions contemplated by this Agreement as well as the Expense Reimbursement Amount.

 

Section 8.13 Governing Law; Jurisdiction.

 

(a)This Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the State of New York, USA without giving effect to the principles of conflicts of law thereof (other than Section 5-1401 of the General Obligations Law of the State of New York). Each Party unconditionally and irrevocably consents to the exclusive jurisdiction of the courts of the State of New York, USA located in the County of New York and the Federal district court for the Southern District of New York located in the County of New York with respect to any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party hereby further irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of any Transaction Document.

 

(b)Each Party hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (a) above of this Section 8.13 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in this Agreement. Each Party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a Party to serve process on the other Party in any other manner permitted by law.

 

32

 

Section 8.14 Waiver of Jury Trial.

 

EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED UNDER ANY TRANSACTION DOCUMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO ANY TRANSACTION DOCUMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY HERETO WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.14.

 

[SIGNATURE PAGE FOLLOWS]

 

33

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

 

SELLERS: Aviragen Therapeutics, Inc.
     
  By:                                 
  Name:
  Title:
     
     
  Biota Scientific Management Pty. Ltd.
     
  By:      
  Name:
  Title:
     
  By:      
  Name:
  Title:
     
     
  Biota Holdings Pty Ltd
     
  By:      
  Name:
  Title:
     
  By:      
  Name:
  Title:
     
     
BUYER: HealthCare Royalty Partners III, L.P.
  By: HealthCare Royalty GP III, LLC, its general partner
     
     
  By:  
  Name:
  Title:

 

[Signature Page to Royalty Interest Acquisition Agreement]

 

 

Exhibit A-1

 

Collaboration Agreement

 

[See attached]

 

 

Exhibit A-2

 

Commercialization Agreement

 

[See attached]

 

 

Exhibit B

 

Form of Assignment

 

[See attached]

 

 

Exhibit C

 

Form of Daiichi Consent/Amendment

 

[See attached]

 

 

Exhibit D

 

Form of Protective Rights Agreement

 

[See attached]

 

 

Exhibit E-1

 

Form of Opinion of Counsel (Transaction Opinion)

 

[See attached]

 

Exhibit E-2

 

Form of Opinion of Counsel (Australian Counsel)

 

[See attached]Exhibit E-3

 

 

Form of Opinion of Counsel (Buyer Counsel)

 

[See attached]

 

 

Schedule 3.03

 

Litigation

 

None.

 

 

Schedule 3.09

 

Net Sales for the Fiscal Quarter ending December 31, 2015

 

[See attached]

 

 

 

 

Schedule 3.10

 

Broker’s Fees

 

Pursuant to the terms of the letter agreement dated December 8, 2015 between Aviragen and FBR Capital Markets & Co., Aviragen has agreed to pay FBR Capital Markets & Co. certain fees and commissions in connection with the transactions contemplated by the Transaction Agreements.

 

 

 

 

Schedule 3.13

 

Patent Rights

 

[See attached]

 

 

 

 

10.2

 

PROTECTIVE RIGHTS AGREEMENT

 

THIS PROTECTIVE RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of April 22, 2016 by and between Aviragen Therapeutics, Inc. (formerly known as Biota Pharmaceuticals, Inc.), a Delaware corporation (“Aviragen”), Biota Holdings Pty Ltd (formerly known as Biota Holdings Limited), a corporation organized and existing under the laws of Victoria, Australia (“BHPL”), Biota Scientific Management Pty. Ltd., a corporation organized and existing under the laws of Victoria, Australia (“BSM” and, together with Aviragen and BHPL, “Grantors”), and HealthCare Royalty Partners III, L.P., a Delaware limited partnership (“HC Royalty”).

 

RECITALS:

 

A.            Grantors and HC Royalty are parties to that certain Royalty Interest Acquisition Agreement of even date herewith.

 

B.            The Royalty Interest Acquisition Agreement provides that Grantors have agreed to assign to HC Royalty, and HC Royalty has agreed to acquire from Grantors, the Assigned Rights (as defined in the Royalty Interest Acquisition Agreement).

 

C.            Grantors have agreed pursuant to the terms of the Royalty Interest Acquisition Agreement to enter into this Agreement, under which Grantors grant to HC Royalty a security interest in and to the Collateral as security for the due performance and payment of all of Grantors’ obligations to HC Royalty under the Royalty Interest Acquisition Agreement.

 

AGREEMENT:

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantors and HC Royalty, with intent to be legally bound hereby, covenant and agree as follows:

 

SECTION 1.      Definitions.

 

For purposes of this Agreement, capitalized terms used herein shall have the meanings set forth below. Capitalized terms used herein and not otherwise defined shall have the meaning given such terms in the UCC or the Royalty Interest Acquisition Agreement, as applicable.

 

“Agreement” has the meaning set forth in the preamble to this Agreement.

 

“Aviragen” has the meaning set forth in the preamble to this Agreement.

 

“BHPL” has the meaning set forth in the preamble to this Agreement.

 

“BSM” has the meaning set forth in the preamble to this Agreement.

 

“Collateral” has the meaning set forth in Section 2 of this Agreement.

 

 

 

 

“HC Royalty” has the meaning set forth in the preamble to this Agreement.

 

“Party” means any of the Grantors or HC Royalty as the context indicates and “Parties” shall mean all of the Grantors and HC Royalty.

 

“Royalty Interest Acquisition Agreement” means the Royalty Interest Acquisition Agreement entered into as of the date hereof by and between Aviragen, BHPL, BSM and HC Royalty, as the same may be amended, modified or supplemented in accordance with the terms thereof.

 

“Secured Obligations” means all obligations and liabilities of every nature of Grantors now or hereafter existing under or arising out of or in connection with the Royalty Interest Acquisition Agreement and each other Transaction Document to which it is a party, whether for damages, principal, interest, reimbursement of fees, expenses, indemnities or otherwise (including without limitation interest, fees and other amounts that, but for the filing of a petition in bankruptcy with respect to a Grantor, would accrue on such obligations, whether or not a claim is allowed against such Grantor for such interest, fees and other amounts in the related bankruptcy proceeding), whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from HC Royalty as a preference, fraudulent transfer or otherwise.

 

“Transfer” means any sale, conveyance, assignment, disposition, pledge, hypothecation or transfer.

 

“UCC” means the Uniform Commercial Code, as in effect on the date of this Agreement in the State of New York.

 

SECTION 2.      Grant of Security.

 

Grantors hereby grant HC Royalty a security interest in all of its right, title, and interest in, to and under the following property, whether now or hereinafter existing or acquired, whether tangible or intangible and wherever the same may be located (collectively, the “Collateral”):

 

(a)            the Assigned Rights, including, without limitation, the Royalty Interest, whether it constitutes an account or a payment intangible under the UCC, and whether or not evidenced by an instrument or a general intangible, and the absolute right to payment and receipt of the Royalty Interest under or pursuant to the License Agreements;

 

(b)            the Seller Deposit Account;

 

(c)            all books, records and databases of Grantors relating to any of the foregoing Collateral; and

 

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(d)            all Proceeds of or from any and all of the foregoing Collateral, including all payments under any indemnity, warranty or guaranty, and all money now or at any time in the possession or under the control of, or in transit to, HC Royalty, relating to any of the foregoing Collateral.

 

Each item of Collateral listed in this Section 2 that is defined in Article 9 of the UCC shall have the meaning set forth in the UCC, it being the intention of Grantors that the description of the Collateral set forth above be construed to include the broadest possible range of assets described herein.

 

The Assigned Rights have been sold, assigned, transferred and conveyed to HC Royalty pursuant to the Royalty Interest Acquisition Agreement and it is the intention of the Parties that such transaction be treated as a true and absolute sale. The security interest granted in this Section 2 is granted as a precaution against the possibility, contrary to the Parties’ intentions, that the transaction be characterized as other than a true and absolute sale.

 

SECTION 3.      Security for Obligations.

 

This Agreement secures, and the Collateral is collateral security for, the due and punctual payment or performance in full (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Subsection 362(a) of the United States Bankruptcy Code) of all Secured Obligations.

 

SECTION 4.      Grantors to Remain Liable.

 

Anything contained herein to the contrary notwithstanding, (a) Grantors shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of their respective duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by HC Royalty of any of its rights hereunder shall not release Grantors from any of their duties or obligations under the contracts and agreements included in the Collateral, and (c) HC Royalty shall not have any obligation or liability under any contracts, licenses, and agreements included in the Collateral by reason of this Agreement, nor shall HC Royalty be obligated (i) to perform any of the obligations or duties of Grantors thereunder, (ii) to take any action to collect or enforce any claim for payment assigned hereunder, or (iii) to make any inquiry as to the nature or sufficiency of any payment Grantors may be entitled to receive thereunder.

 

SECTION 5.      Representations and Warranties.

 

Grantors represent and warrant as follows:

 

(a)            Validity. This Agreement creates a valid security interest in the Collateral securing the payment and performance in full of the Secured Obligations. Upon the filing of appropriate UCC financing statements in the filing offices listed on Schedule 5(b), all filings, registrations, recordings and other actions necessary or appropriate to create, preserve, protect and perfect a first priority security interest will have been accomplished and such security interest will be prior to the rights of all other Persons therein and free and clear of any and all Liens, except any Liens created in favor of HC Royalty pursuant to this Agreement and any other Transaction Document to which HC Royalty is a party.

 

- 3 -

 

 

(b)            Authorization, Approval. No authorization, approval, or other action by, and no notice to or filing with, any government or agency of any government or other Person is required either (i) for the grant by Grantors of the security interest granted hereby or for the execution, delivery and performance of this Agreement by Grantors; or (ii) for the perfection of, and the first priority of, the grant of the security interest created hereby or the exercise by HC Royalty of its rights and remedies hereunder, other than in the case of clause (i), the consent of Daiichi Sankyo Company, Limited pursuant to clause 16.1 of the Commercialization Agreement, and in the case of clause (ii), the filing of financing statements in the offices listed on Schedule 5(b).

 

(c)            Enforceability. This Agreement is the legally valid and binding obligation of Grantors, enforceable against Grantors in accordance with its terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

 

(d)            Office Locations; Type and Jurisdiction of Organization. The sole place of business, the chief executive office and each office where each Grantor keeps its records regarding the Collateral are, as of the date hereof, located at the locations set forth on Schedule 5(d); each Grantor’s type of organization (e.g., corporation) and jurisdiction of organization are listed on Schedule 5(d).

 

(e)            Names. Except as set forth on Schedule 5(e), no Grantor (or any predecessor by merger or otherwise) has, within the five (5) year period preceding the date hereof, had a different name from the name listed for such Grantor on the signature pages hereof.

 

(f)            Ownership of Collateral; No Other Filings. Except for the security interest created by this Agreement, Grantors own the Collateral free and clear of any Lien, except those Liens created in favor of HC Royalty pursuant to any other Transaction Document to which HC Royalty is a party. Each Grantor has the power to transfer and grant a lien and security interest in each item of Collateral upon which it purports to grant a lien or security interest hereunder. Except as such as may have been filed in favor of HC Royalty relating to this Agreement, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. No recordation of Licensee’s licensed rights in the subject patents has been made with the United States Patent and Trademark Office.

 

SECTION 6.       Further Assurances.

 

Grantors agree that from time to time, at their expense, Grantors will promptly execute and deliver and will cause to be executed and delivered all further instruments and documents, and will take all further action, that may be necessary, or that HC Royalty may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable HC Royalty to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Grantors will: (i) deliver such other instruments or notices, in each case, as may be necessary, or as HC Royalty may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby or to enable HC Royalty to exercise and enforce its rights and remedies hereunder with respect to any Collateral, (ii) furnish to HC Royalty reports in connection with the Collateral as HC Royalty may reasonably request, all in reasonable detail, (iii) appear in and defend any action or proceeding that may affect Grantors’ title to or HC Royalty’s security interest in all or any part of the Collateral, and (iv) use commercially reasonable efforts to obtain any necessary consents of third parties to the assignment and perfection of a security interest to HC Royalty with respect to any Collateral. Grantors hereby authorize HC Royalty to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral.

 

- 4 -

 

 

Grantors agree to furnish HC Royalty promptly upon reasonable request by HC Royalty, with any information that is requested by HC Royalty in order to complete such financing statements, continuation statements, or amendments thereto.

 

SECTION 7.     Certain Covenants of Grantors.

 

Grantors shall:

 

(a)            not use or permit any Collateral to be used unlawfully or in violation of any provision of the Transaction Documents or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral;

 

(b)            give HC Royalty twenty (20) Business Days’ prior written notice of any change in any Grantor’s name, identity or corporate structure or reincorporation, reorganization, or taking of any other action that results in a change of the jurisdiction of organization of any Grantor;

 

(c)            give HC Royalty twenty (20) Business Days’ prior written notice of any change in any Grantor’s sole place of business, chief executive office or the office where any Grantor keeps its records regarding the Collateral or a reincorporation, reorganization or other action that results in a change of the jurisdiction of organization of any Grantor; and

 

(d)            pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Collateral, except to the extent the validity thereof is being diligently contested in good faith and the applicable Grantor maintains reserves appropriate therefor under the generally accepted accounting principles used by such Grantor in the preparation of its financial statements; provided that Grantors shall in any event pay such taxes, assessments, charges, levies or claims not later than three (3) Business Days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against Grantors or any of the Collateral as a result of the failure to make such payment.

 

- 5 -

 

 

SECTION 8.       Special Covenants With Respect to the Collateral.

 

(a)            Each Grantor shall:

 

(i)            diligently keep reasonable records respecting the Collateral and at all times keep at least one (1) complete set of its records concerning such Collateral at its chief executive office or principal place of business;

 

(ii)            not create, incur, assume or cause to exist any Lien on any property included within the definition of Collateral except any Liens created in favor of HC Royalty pursuant to this Agreement and any other Transaction Document to which HC Royalty is a party; and

 

(iii)            not Transfer, or agree to Transfer, any Collateral.

 

(b)            Grantors shall, concurrently with the execution and delivery of this Agreement, execute and deliver to HC Royalty five (5) originals of a Special Power of Attorney in the form of Exhibit I annexed hereto for execution of an assignment of the Collateral to HC Royalty, or the implementation of the sale or other disposition of the Collateral pursuant to HC Royalty’s good faith exercise of the rights and remedies granted hereunder; provided, however, HC Royalty agrees that it will not exercise its rights under such Special Power of Attorney unless a default under one or more of the Transaction Documents has occurred and is continuing.

 

(c)            Grantors further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to HC Royalty, that HC Royalty has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 8 shall be specifically enforceable against Grantors, and Grantors hereby waive and agree not to assert any defenses against an action for specific performance of such covenants (other than any such defense based on the assertion that Grantors had performed and is performing such covenant(s)).

 

SECTION 9.      Deposit Account Control Agreement.

 

HC Royalty, Grantors and the account bank shall on the Closing Date enter into a deposit account control agreement in a form and substance reasonably acceptable to HC Royalty providing that upon any default under the Transaction Documents HC Royalty shall have a right to instruct the account bank with respect to the disposition of funds in the Seller Deposit Account in order to receive the Royalty Interest and to perfect HC Royalty’s interest in the Seller Deposit Account by “control” within the meaning of the UCC.

 

SECTION 10.    Standard of Care.

 

The powers conferred on HC Royalty hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of good faith and of reasonable care in the accounting for moneys actually received by HC Royalty hereunder, HC Royalty shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. HC Royalty shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which HC Royalty accords its own property.

 

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SECTION 11.     Remedies Upon Default.

 

(a)            If, and only if, any default under one or more of the Transaction Documents shall have occurred and be continuing, HC Royalty may, in good faith, exercise in respect of the Collateral (I) all rights and remedies provided for herein, under the Royalty Interest Acquisition Agreement or otherwise available to it, and (II) all the rights and remedies of a secured party on default under the Uniform Commercial Code, in all relevant jurisdictions.

 

(b)            Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of a default under one or more of the Transaction Documents, HC Royalty shall have the right (but not the obligation) to bring suit, in the name of Grantors, HC Royalty or otherwise, to enforce any Collateral, in which event Grantors shall, at the request of HC Royalty, do any and all lawful acts and execute any and all documents required by HC Royalty in aid of such enforcement. Grantors shall promptly, upon demand, reimburse and indemnify HC Royalty as provided in Section 13 hereof in connection with the exercise of its rights under this Section 11.

 

SECTION 12.     Application of Proceeds.

 

Except as expressly provided elsewhere in this Agreement, all proceeds received by HC Royalty in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied in good faith to satisfy (to the extent of the net proceeds received by HC Royalty) such item or part of the Secured Obligations as HC Royalty may designate.

 

SECTION 13.     Expenses.

 

(a)            Grantors agree to pay to HC Royalty upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that HC Royalty may reasonably and actually incur in connection with (i) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (ii) the exercise or enforcement of any of the rights of HC Royalty hereunder, or (iii) the failure by Grantors to perform or observe any of the provisions hereof.

 

(b)            The obligations of Grantors in this Section 13 shall survive the termination of this Agreement and the discharge of Grantors’ other obligations under this Agreement and the Royalty Interest Acquisition Agreement.

 

SECTION 14.    Continuing Security Interest; Termination.

 

This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until termination of the Royalty Interest Acquisition Agreement in accordance with Section 7.01(b) thereof, (ii) be binding upon each Grantor and its respective successors and assigns, and (iii) inure, together with the rights and remedies of HC Royalty hereunder, to the benefit of HC Royalty and its successors, transferees and assigns. Upon termination of the Royalty Interest Acquisition Agreement in accordance with Section 7.01(b)  thereof, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantors and HC Royalty shall, at the expense of the Grantors, execute such instruments of release and otherwise take such actions, or permit the Grantors to take such actions, as the Grantors may reasonably request to release the Collateral from the security interest granted hereby.

 

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SECTION 15.    Amendments.

 

(a)            This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of all Parties and the approval of such amendment, change or modification by Australian counsel to HC Royalty. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the Party against whom such waiver is sought to be enforced.

 

(b)            No failure or delay by either Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

(c)            No waiver or approval hereunder shall, except as may otherwise be stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by applicable law.

 

SECTION 16.    Notices.

 

All notices, consents, waivers and other communications hereunder shall be in writing and shall be delivered in accordance with Section 8.02 of the Royalty Interest Acquisition Agreement.

 

SECTION 17.     Severability.

 

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nevertheless be given full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree by a court of competent jurisdiction shall remain in full force and effect to the extent not held invalid or unenforceable.

 

SECTION 18.     Headings and Captions.

 

The headings and captions in this Agreement are for convenience and reference purposes only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

 

SECTION 19.     Governing Law; Jurisdiction.

 

(a)            This Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the State of New York, USA without giving effect to the principles of conflicts of law thereof (other than Section 5-1401 of the General Obligations Law of the State of New York). Each Party unconditionally and irrevocably consents to the exclusive jurisdiction of the courts of the State of New York, USA located in the County of New York and the Federal district court for the Southern District of New York located in the County of New York with respect to any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party hereby further irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of any Transaction Document.

 

- 8 -

 

 

(b)            Each Party hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (a) above of this Section 19 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in this Agreement. Each Party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a Party to serve process on the other Party in any other manner permitted by law.

 

SECTION 20.       Waiver of Jury Trial.

 

EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY HERETO WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.

 

SECTION 21.        Counterparts; Effectiveness.

 

This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each Party shall have received a counterpart hereof signed by the other Party. Any counterpart may be executed by .pdf signature and such .pdf signature shall be deemed an original.

 

[SIGNATURE PAGE FOLLOWS]

 

- 9 -

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

 

  AVIRAGEN THERAPEUTICS, INC.
     
  By:  
  Name:
  Title:
   
   
  BIOTA SCIENTIFIC MANAGEMENT PTY. LTD.
     
  By:  
  Name:
  Title:
                           
  By:  
  Name:
  Title:
   
   
  BIOTA HOLDINGS PTY LTD
     
  By:  
  Name:
  Title:
     
  By:  
  Name:
  Title:

 

[Signature Page to Protective Rights Agreement]

 

 

 

  HEALTHCARE ROYALTY PARTNERS III, L.P.
   
  By: HealthCare Royalty GP III, LLC, its general partner
   
     
  By:  
    Name:
Title:

 

- 2 -

 

 

SCHEDULE 5(b) 

TO 

PROTECTIVE RIGHTS AGREEMENT

 

Filing Offices

 

UCC:

 

Secretary of State of the State of Delaware

 

Fulton County, Georgia

 

Recorder of Deeds of the District of Columbia

 

PPSR:

 

The Personal Property Securities Register ("PPSR"), maintained by:

 

Australian Financial Security Authority

 

GPO Box 1550

 

Adelaide SA 5001

 

Australia

 

 

 

SCHEDULE 5(d) 
TO
PROTECTIVE RIGHTS AGREEMENT
Office Locations, Type and Jurisdiction of Organization

 

A.            AVIRAGEN THERAPEUTICS, INC.

 

Sole Place of Business and Chief Executive Office of Grantor:

 

Aviragen Therapeutics, Inc.
2500 Northwinds Parkway
Suite 100 

Alpharetta, GA 30009

 

Addresses of the Properties at which Grantor Maintains Records Relating to the Collateral:

 

Aviragen Therapeutics, Inc.
2500 Northwinds Parkway
Suite 100 

Alpharetta, GA 30009

 

Jurisdiction of Organization:
Delaware

 

Type of Organization:
Corporation

 

B.            BIOTA HOLDINGS PTY LTD

 

Sole Place of Business and Chief Executive Office of Grantor:

 

Unit 10 

585 Blackburn Road
Notting Hill, VIC 3168
Australia

 

 

 

Addresses of the Properties at which Grantor Maintains Records Relating to the Collateral:

 

2500 Northwinds Parkway 

Suite 100 

Alpharetta, GA 30009

 

Jurisdiction of Organization:

 

Victoria, Australia
Type of Organization:

 

A registered Australian proprietary company limited by shares.

 

C. BIOTA SCIENTIFIC MANAGEMENT PTY. LTD.

 

Sole Place of Business and Chief Executive Office of Grantor:

 

Unit 10 

585 Blackburn Road
Notting Hill, VIC 3168
Australia

 

Addresses of the Properties at which Grantor Maintains Records Relating to the Collateral:

 

2500 Northwinds Parkway 

Suite 100 

Alpharetta, GA 30009

 

Jurisdiction of Organization:

 

Victoria, Australia
Type of Organization:

 

A registered Australian proprietary company limited by shares.

 

 

 

SCHEDULE 5(e) 

TO 

PROTECTIVE RIGHTS AGREEMENT

 

Name Changes

 

1)      On November 7, 2012, “Nabi Biopharmaceuticals” changed its name to “Biota Pharmaceuticals, Inc.”

 

2)      On February 13, 2015, “Biota Holdings Limited” changed its name to “Biota Holdings Pty Ltd”

 

3)      On April 11, 2016, “Biota Pharmaceuticals, Inc.” changed its name to “Aviragen Therapeutics, Inc.”

 

 

 

EXHIBIT I TO

PROTECTIVE RIGHTS AGREEMENT

 

SPECIAL POWER OF ATTORNEY

 

STATE OF )
   
  )             ss.:
COUNTY OF )
   

 

KNOW ALL MEN BY THESE PRESENTS, that each of AVIRAGEN THERAPEUTICS, INC. (formerly known as Biota Pharmaceuticals, Inc.) (“Aviragen”), BIOTA HOLDINGS PTY LTD (formerly known as Biota Holdings Limited) (“BHPL”), BIOTA SCIENTIFIC MANAGEMENT PTY. LTD. (“BSM” and, together with Aviragen and BHPL, “Grantors”), hereby appoints and constitutes HEALTHCARE ROYALTY PARTNERS III, L.P. (“HC Royalty”) and each of its successors and assignees, its true and lawful attorney, with full power of substitution and with full power and authority to perform the following acts on behalf of Grantor upon any default under the Transaction Documents that is continuing (a) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (b) to receive, endorse and collect any drafts or other instruments, documents and chattel paper constituting Collateral in connection with clause (a) above, (c) to file any claims or take any action or institute any proceedings that HC Royalty may in its good faith sole discretion deem necessary or desirable for the collection of any of the Collateral, (d) to pay or discharge taxes or liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by HC Royalty in its reasonable commercial judgment, any such payments made by HC Royalty to become obligations of Grantors to HC Royalty, due and payable immediately without demand, and (e) to sign and endorse any invoices, drafts against debtors, verifications, notices and other documents relating to the Collateral.

 

This Power of Attorney is made pursuant to a Protective Rights Agreement, dated as of April 22, 2016 between Grantors and HC Royalty (the “Protective Rights Agreement”) and is subject to the terms and provisions thereof. Terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Protective Rights Agreement. This Power of Attorney, being coupled with an interest, is irrevocable until the termination of the Protective Rights Agreement in accordance with Section 14 thereof.

 

Date:    
   

 

 

 

  AVIRAGEN THERAPEUTICS, INC.
     
  By:  
  Name:
  Title:
   
  BIOTA SCIENTIFIC MANAGEMENT PTY. LTD.
     
  By:  
  Name:
  Title:
     
  By:  
  Name:
  Title:
   
  BIOTA HOLDINGS PTY LTD
     
  By:  
  Name:
  Title:
     
  By:                     
  Name:
  Title:

 

[Signature Page to Special Power of Attorney]

 

 

 

PRESS RELEASE

FOR IMMEDIATE RELEASE

 

 

AVIRAGEN THERAPEUTICS COMPLETES ROYALTY DEAL WITH HEALTHCARE ROYALTY PARTNERS FOR PROCEEDS OF $20 

MILLION

 

Non-Dilutive Financing Provides for Company’s Continued Participation in Future Royalties

 

ATLANTA, GA -- April 25, 2016 – Aviragen Therapeutics, Inc. (NASDAQ: AVIR; formerly Biota Pharmaceuticals, Inc.) a pharmaceutical company that is developing the next generation of antivirals, today announced that it has signed a definitive agreement to receive a cash payment of $20 million from HealthCare Royalty Partners in exchange for an undisclosed portion of the Company’s royalty rights related to Inavir® , an inhaled neuraminidase inhibitor that is approved in Japan for the treatment and prevention of influenza. Aviragen plans to use the non-dilutive proceeds to advance its pipeline of direct-acting antivirals in development to treat infections that have limited therapeutic options.

 

“This transaction allows us to partially monetize our royalty stream from Inavir® for significant cash consideration, while also retaining the opportunity to benefit from future upside potential of the product”, said Mark P. Colonnese, Executive Vice President and Chief Financial Officer of Aviragen. “These proceeds further enhance our balance sheet as we continue to execute our strategic plan that will deliver multiple Phase 2 data readouts in the second half of 2016.”

 

“We have been following Inavir® for an extended period and have seen consistently robust sales growth year-over-year as it has established a leading market position among flu medications in Japan,” commented Todd C. Davis, co-founder and Managing Partner of HealthCare Royalty Partners. “This investment is consistent with our strategy to invest in market-leading pharmaceutical products marketed by strong commercial organizations with attractive risk-reward profiles.”

 

FBR Capital Markets & Co. acted as exclusive financial advisor to Aviragen Therapeutics, Inc. in connection with this transaction.

 

About Aviragen Therapeutics, Inc.

Aviragen Therapeutics is focused on the discovery and development of the next generation of direct-acting antivirals to treat infections that have limited therapeutic options and affect a significant number of patients globally. The Company has three product candidates in active clinical development: These include vapendavir, an oral treatment for human rhinovirus upper (HRV) respiratory infections in moderate-to-severe asthmatics currently being evaluated in the Phase 2b SPIRITUS trial; BTA585, an oral fusion protein inhibitor that has received Fast Track designation by the U.S. FDA, in Phase 2 development for the treatment and prevention of respiratory syncytial virus (RSV) infections; and BTA074, a topical antiviral treatment in Phase 2 development for condyloma caused by human papillomavirus types 6 & 11. For additional information about the Company, please visit www.aviragentherapeutics.com.

 

About Inavir®

Since its launch in 2010, Inavir® (laninamivir octanoate) has become the leading treatment for influenza in Japan. The product is taken via a single inhaled dose, which can be more convenient than other flu medications that require several days of dosing. Inavir® is sold in Japan by Daiichi Sankyo and has been approved for both treatment and prevention of the influenza A and influenza B viruses.

 

 

 

About HealthCare Royalty Partners 

HealthCare Royalty Partners (HCRP) is a global healthcare investment firm focused on investing primarily in commercial stage healthcare product assets. HCRP has raised over $3 billion in committed capital and is headquartered in Stamford, CT. Over the past decade, HCRP's senior professionals have completed more than 60 healthcare investments totaling more than $2.6 billion of capital. For more information, visit www.healthcareroyalty.com.

 

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve known and unknown risks and uncertainties concerning Aviragen Therapeutics’ business, operations and financial performance. Any statements that are not of historical facts may be deemed to be forward-looking statements, including the timing of multiple Phase 2 data readouts. Various important factors could cause actual results, performance, events or achievements to materially differ from those expressed or implied by forward-looking statements, including: the U.S. Food and Drug Administration (FDA) or a similar regulatory body in another country, a data safety monitoring board, or an institutional review board delaying, limiting, suspending or terminating the clinical development of any of the Company's product candidates at any time for a lack of safety, tolerability, regulatory or manufacturing issues, or any other reason whatsoever; the Company's ability to secure, manage and retain qualified third-party clinical research data management and contract manufacturing organizations upon which it relies to assist in the design, development, implementation and execution of the clinical development of all its product candidates and those organizations’ ability to successfully execute their contracted responsibilities; the Company’s ability to comply with applicable government regulations in various countries and regions in which we are conducting, or expect to conduct, clinical trials; and other cautionary statements contained elsewhere in this press release and in our Annual Report on Form 10-K, Quarterly Report on Form 10-Q and our other reports filed with the Securities and Exchange Commission. There may be events in the future that the Company is unable to predict, or over which it has no control, and the Company’s business, financial condition, results of operations and prospects may change in the future. The Company may not update these forward-looking statements more frequently than quarterly unless it has an obligation under U.S. Federal securities laws to do so.

 

Contacts: 

Mark Colonnese 

Executive Vice President and Chief Financial Officer 

Aviragen Therapeutics, Inc. 

(678) 221-3381 

mcolonnese@aviragentherapeutics.com

 

Beth DelGiacco 

Stern Investor Relations, Inc. 

(212) 362-1200 

beth@sternir.com 

John McKenna 

ICR for Healthcare Royalty Partners 

203-682-8252 

HCRPartners@icrinc.com

 

 

Aviragen Therapeutics, Inc. ● 2500 Northwinds Parkway, Suite 100 ● Alpharetta, GA 30009 ● Tel: (678) 221-3343

 

EX-10.11 14 tm2113163d7_ex10-11.htm EXHIBIT 10.11

EXHIBIT 10.11

 

ROYALTY PURCHASE AGREEMENT

 

dated as of January 6, 2018

 

between ANTIGENICS LLC, as Seller

 

and

 

HEALTHCARE ROYALTY PARTNERS III, L.P., AND CERTAIN AFFILIATED 

FUNDS IDENTIFIED HEREIN, 

collectively as Purchaser

 

 

 

TABLE OF CONTENTS

 

Page

 

ARTICLE I DEFINITIONS 1
   
Section 1.01 Definitions. 1
   
ARTICLE II  
PURCHASE AND SALE OF THE PURCHASED ROYALTY INTEREST 9
   
Section 2.01 Purchase and Sale. 9
Section 2.02 Transfers and Payments in Respect of the Purchased Royalty Interests. 10
Section 2.03 Purchase Price. 12
Section 2.04 No Assumed Obligations. 12
Section 2.05 Excluded Assets. 12
   
ARTICLE III  
REPRESENTATIONS AND WARRANTIES OF SELLER 12
   
Section 3.01 Organization; Operations of Seller. 12
Section 3.02 Corporate Authorization. 13
Section 3.03 Governmental Authorization. 13
Section 3.04 Ownership. 13
Section 3.05 Solvency. 14
Section 3.06 Litigation. 14
Section 3.07 Compliance with Laws. 14
Section 3.08 Conflicts. 15
Section 3.09 No Withholding. 15
Section 3.10 Applicable Agreements. 15
Section 3.11 Products; Royalties. 15
Section 3.12 No Other Representations or Warranties. 17
   
ARTICLE IV  
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 17
   
Section 4.01 Organization. 17
Section 4.02 Authorization. 17
Section 4.03 Broker’s Fees. 18
Section 4.04 Conflicts. 18
Section 4.05 Access to Information. 18
   
ARTICLE V  
COVENANTS 19
   
Section 5.01 Books and Records. 19

 

 

 

Section 5.02 Confidentiality; Public Announcement. 19
Section 5.03 Commercially Reasonable Efforts; Further Assurance. 21
Section 5.04 Remittance to Joint Escrow Account. 21
Section 5.05 Applicable Agreements. 22
Section 5.06 Audits. 23
Section 5.07 Notice. 24
Section 5.08 Seller Operations. 24
Section 5.09 Special Purpose Vehicle Covenants. 24
   
ARTICLE VI  
THE CLOSING; CONDITIONS TO CLOSING 26
   
Section 6.01 Closing. 26
Section 6.02 Conditions Applicable to Purchaser in Closing. 26
Section 6.03 Conditions Applicable to Seller in Closing. 27
   
ARTICLE VII  
EXPIRATION 28
   
Section 7.01 Expiration Date. 28
Section 7.02 Effect of Expiration. 28
   
ARTICLE VIII  
   
MISCELLANEOUS 28
   
Section 8.01 Survival. 28
Section 8.02 Specific Performance. 29
Section 8.03 Notices. 29
Section 8.04 Successors and Assigns. 30
Section 8.05 Indemnification. 30
Section 8.06 Independent Nature of Relationship. 33
Section 8.07 Tax. 33
Section 8.08 Entire Agreement. 34
Section 8.09 Governing Law. 34
Section 8.10 Severability. 34
Section 8.11 Counterparts; Effectiveness. 34
Section 8.12 Amendments; No Waivers. 34

 

- ii -

 

 

ROYALTY PURCHASE AGREEMENT

 

ROYALTY PURCHASE AGREEMENT (as amended, supplemented or otherwise modified from time to time, this “Agreement”) is made and entered into as of January 6, 2018, by and between ANTIGENICS LLC, a Delaware limited liability company (the “Seller”) and the entities set forth on Schedule 1 in the proportions set forth thereon (collectively, the “Purchaser”).

 

WHEREAS, Seller wishes to sell, assign, convey and transfer to Purchaser, and Purchaser wishes to purchase from Seller, the Purchased Royalty Interests, upon and subject to the terms and conditions hereinafter set forth; and

 

NOW, THEREFORE, in consideration of the mutual covenants, agreements representations and warranties set forth herein, the parties hereto agree as follows:

 

ARTICLE I DEFINITIONS

 

Section 1.01      Definitions.

 

The following terms, as used herein, shall have the following meanings:

 

“Affiliate” shall mean any Person that controls, is controlled by, or is under common control with another Person. For purposes of this definition, “control” shall mean (i) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares having the right to vote for the election of directors, and (ii) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interests with the power, or the power by contract or otherwise, to direct the management and policies of such non- corporate entities.

 

“Agreement” shall have the meaning set forth in the first paragraph hereof.

 

“Applicable Agreements” shall mean, collectively, the License Agreement, Manufacturing Agreement and Negotiation Agreement.

 

“Bankruptcy Event” shall mean the occurrence of any of the following:

 

(i)      Seller shall commence any case, proceeding or other action (a) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, relief of debtors or the like, seeking to have an order for relief entered with respect to such party, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its respective debts, or (b) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any portion of its assets, or Seller shall make a general assignment for the benefit of its creditors; or

 

 

 

(ii)         there shall be commenced against Seller any case, proceeding or other action of a nature referred to in clause (i) above which remains undismissed, undischarged or unbonded for a period of ninety (90) calendar days; or

 

(iii)        there shall be commenced against Seller any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against (a) all or any substantial portion of its assets and/or (b) the Royalties, which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within forty-five (45) calendar days from the entry thereof; or

 

(iv)          Seller shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above; or

 

(v)         Seller shall become unable, admit in writing its inability, or fail generally, to pay its debts as they become due; or

 

(vi)        Seller shall be in a financial condition such that the sum of its debts, as they become due and mature, is greater than the fair value of its property on a going concern basis.

 

“Bill of Sale” shall mean the Bill of Sale pursuant to which Seller shall assign to Purchaser all of its right, title and interest in and to the Purchased Royalty Interests purchased hereunder, which Bill of Sale shall be substantially in the form of Exhibit A.

 

“Business Day” shall mean any day other than a Saturday, a Sunday, any day which is a legal holiday under the laws of New York, or any day on which banking institutions located in New York or in the state in which the Depositary Bank is located are authorized or required by law or other governmental action to close.

 

“Closing” shall have the meaning set forth in Section 6.01.

 

“Closing Date” shall have the meaning set forth in Section 6.01.

 

“Combination Vaccine” has the meaning set forth in the License Agreement.

 

“Confidential Information” shall mean, as it relates to Seller Parent, Seller and their respective Affiliates, the Applicable Agreements, the Royalty Rights, the Products, the Patent Rights, know-how, trade secrets, confidential business information, financial data and other like information (including but not limited to ideas, research and development, know-how, formulas, schematics, compositions, technical data and results, techniques, inventions (whether patentable or not), practices, methods, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), client lists, tangible or intangible proprietary information or material, and any other technical or scientific information, in each case, regardless of whether such information is specifically designated as confidential and regardless of whether such information is in written, oral, electronic, or other form. For the avoidance of doubt, any notices or reports delivered by Seller pursuant to this Agreement shall be deemed to be Confidential Information.

 

- 2 -

 

 

“Depositary Bank” shall mean Bank of New York Mellon or such other bank or financial institution designated by Purchaser.

 

“EMA” shall mean the European Medicines Agency.

 

“Excluded Collateral” shall mean (i) any rights or property owned or controlled by AgenTus Therapeutics, Inc. and any securities of AgenTus Therapeutics, Inc. owned directly or indirectly by Seller Parent, (ii) any other rights or property, including intellectual priority, Fixtures (as defined in the UCC), Equipment (as defined in the UCC), securities of Subsidiaries, governmental permit or franchise, in all cases whether owned directly or acquired under a lease, contract, property rights agreement or license, that is owned or controlled by the Seller Parent or any of its Affiliates other than the Seller and is necessary or used or identified at any time for use in the conduct of the cell therapy business of AgenTus Therapeutics, Inc., including T Cell Receptor (TCR) and Chimeric Antigen Receptor (CAR) technologies, (iii) any security or other equity interest representing more than 65% of the outstanding equity of any Subsidiary of the Seller Parent or any of its Affiliates other than the Seller organized under any jurisdiction outside of the United States and (iv) any assets of any Subsidiary organized under any jurisdiction outside of the United States that is a controlled foreign corporation for U.S. federal income tax purposes.

 

“Excluded Liabilities and Obligations” shall have the meaning set forth in Section 2.04.

 

“Exploitation” shall mean, with respect to a Product, the manufacture, use, sale, offer for sale (including marketing and promotion), importation, distribution or other commercialization.

 

“FDA” shall mean the United States Food and Drug Administration and any successor agency thereto. “First Commercial Sale” has the meaning set forth in the Manufacturing Agreement.

 

“Governmental Authority” shall mean any government, court, regulatory or administrative agency or commission, or other governmental authority, agency or instrumentality, whether foreign, federal, state or local (domestic or foreign), including each Patent Office, the FDA, the EMA, or any other government authority in any country.

 

“Gross Sales” has the meaning set forth in the Applicable Agreements.

 

“GSK” shall mean GlaxoSmithKline Biologicals SA, a Belgian company, its Affiliates and any successors-in-interest and assigns under the Applicable Agreements.

 

“GSK Direction Letter” shall have the meaning set forth in Section 5.04(c).

 

“Joint Escrow Account” shall mean the deposit account established and maintained at the Depositary Bank into which payments of the Royalties are to be remitted in accordance with Section 2.02(a) (and the terms of an escrow agreement to be agreed upon by the parties) and the account from which the Depositary Bank transfers funds into the Purchaser Account and Seller Account.

 

- 3 -

 

 

“Knowledge” shall mean, with respect to Seller, the knowledge of (i) Garo Armen, Chief Executive Officer of the Seller Parent, (ii) Christine Klaskin, VP of Finance of the Seller Parent, (iii) Karen Valentine, Chief Legal Officer/General Counsel of the Seller Parent and (iv) Michael Plater, Chief Business Officer of the Seller Parent, or their respective successors in such positions, or, in each case, to the extent any such person or position does not exist at any time, the knowledge of another person with similar responsibility, regardless of title; provided, however, that any such Person shall be deemed to have knowledge of a particular matter if, in the prudent exercise of his or her duties and responsibilities in the ordinary course of business, such person should have known of such matter.

 

“Law” shall mean any law, rule, ordinance or regulation, or any judgment, order, writ, decree, permit or license of any Governmental Authority.

 

“License Agreement” shall mean that certain License Agreement, effective as of July 6, 2006, by and between the Seller and GSK, as amended by the Negotiation Agreement and as such agreement may be further amended.

 

“License Party Audit” shall have the meaning set forth in Section 5.06.

 

“Lien” shall mean lien, hypothecation, charge, instrument, preference, priority, security agreement, security interest, interest, mortgage, option, privilege, pledge, liability, covenant, order, tax, right of recovery, trust or deemed trust (whether contractual, statutory or otherwise arising) or any encumbrance, right or claim of any other person of any kind whatsoever whether choate or inchoate, filed or unfiled, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, known or unknown.

 

“Losses” shall mean collectively, any and all damages, losses, assessments, awards, cause of actions, claims, charges, costs and expense (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses), fines, judgments, liabilities, obligations or penalties; provided, however that Losses shall not include any lost profits or revenue or consequential, punitive, special or incidental damages except (a) in the case of the Purchaser’s Losses, the amount of the Purchaser’s anticipated return on investment, at the assumed rate of return and over the assumed time period for realization of such return, on the basis of which the Purchaser determined the Purchase Price it was willing to pay for the Purchased Royalty Interests, as certified by the Purchaser to the Seller and (b) any lost profits or revenue or consequential, punitive, special or incidental damages awarded or payable by a Purchaser Indemnified Party to a Third Party in connection with a claim or action for which the Seller is required to indemnify the Purchaser pursuant to Section 8.05.

 

“Major Market Country” shall have the meaning set forth in the Manufacturing Agreement.

 

“Malaria Products” means (a) the vaccine, currently designated as Mosquirix (RTS,S), that is currently being developed by GSK for malaria, including such vaccine as it may be modified or improved and any Combination Vaccine that includes such vaccine (including as it may be modified or improved) and (b) any other QS-21 Vaccine for malaria, including as any such other QS-21 Vaccine may be modified or improved and any Combination Vaccine that includes such other QS-21 Vaccine (including as such other QS-21 Vaccine may be modified or improved).

 

- 4 -

 

 

“Manufacturing Agreement” shall mean that certain Amended and Restated Manufacturing Technology Transfer and Supply Agreement, effective as of January 16, 2009, by and between the Seller and GSK, as amended by the Negotiation Agreement and as such agreement may be further amended.

 

“Material Adverse Effect” shall mean (i) a material adverse effect on the validity or enforceability of any of the Transaction Documents or the Applicable Agreements, (ii) a material adverse effect on the ability of Seller to perform any of its material obligations under any of the Transaction Documents or the Applicable Agreements, (iii) a material adverse effect on the rights or remedies of Purchaser under any of the Transaction Documents or the Applicable Agreements, (iv) an adverse effect (other than any de minimis effect) on the timing, amount or duration of the Royalties or the right of the Purchaser to receive payments in respect of the Royalties in accordance with the Transaction Documents and Applicable Agreements.

 

“Negotiation Agreement” shall mean that certain First Right to Negotiate and Amendment Agreement, effective as of March 2, 2012, by and among Seller Parent, Seller and GSK, as such agreement may be further amended.

 

“Net Sales” shall mean “Net Sales” as such term is defined in the License Agreement and the Manufacturing Agreement, as applicable.

 

“Patent Rights” shall mean “Licensed Patent Rights” as such term is defined in the License Agreement, but only to the extent such Licensed Patent Rights are exclusively owned or controlled by Seller or its Affiliates.

 

“Payoff Letter” shall have the meaning set forth in Section 6.02(m).

 

“Permitted Liens” shall mean any: (a) Liens in favor of Purchaser or its Affiliates; (b) Liens created, permitted or required by the Transaction Documents in favor of Purchaser Representative, (c) Liens incurred by Purchaser after the Closing Date; and (d) Liens permitted under the Seller Parent Security Agreement or under the Seller Security Agreement.

 

“Person” shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, but not including a government or political subdivision or any agency or instrumentality of such government or political subdivision.

 

“Product” shall mean any Shingles Product, Malaria Product, or other QS-21 Vaccine, whether now or hereafter in development and whenever marketed, individually, and “Products” means the Shingles Products, the Malaria Products and such other QS-21 Vaccines, collectively.

 

“Purchase Price” shall be the amount set forth in Section 2.03 which shall be payable in United States Dollars.

 

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“Purchased Royalty Interests” shall mean an undivided one hundred percent (100%) interest in the Royalties, including without limitation, all “accounts” (as such term is defined in the UCC) of Seller with respect to the Royalties.

 

“Purchaser” shall have the meaning set forth in the first paragraph hereof.

 

“Purchaser Account” shall mean a segregated account established for the benefit of Purchaser and maintained at the Depositary Bank.

 

“Purchaser Indemnified Party” shall have the meaning set forth in Section 8.05(a).

 

“Purchaser Representative” shall mean HealthCare Royalty Partners III, L.P., as collateral agent for the Purchaser.

 

“Purchaser-Requested Audit” shall have the meaning set forth in Section 5.06.

 

“QS-21” shall have the meaning set forth in the Manufacturing Agreement.

 

“QS-21 Vaccine” shall have the meaning set forth in the Manufacturing Agreement.

 

“Representatives” shall have the meaning set forth in Section 5.02(b).

 

“Royalty” or “Royalties” shall mean without duplication, one hundred percent (100%) of

 

(a)         all royalties paid, owed, accrued or otherwise payable by GSK under Section 3.2 of the License Agreement with respect to Net Sales of any Product, (b) all royalties paid, owed, accrued or otherwise payable by GSK under Section 5.3 of the Manufacturing Agreement with respect to Net Sales of any Product, (c) all amounts paid, owed, accrued or otherwise payable by GSK under Section 4.3 of the License Agreement with respect to the royalties referenced in clause (a) above, (d) all amounts paid, owed, accrued or otherwise payable by GSK under Section 6.3 of the Manufacturing Agreement with respect to the royalties referenced in clause (b) above, (e) all amounts paid, owed, accrued or otherwise payable by GSK under Section 4.5 of the License Agreement with respect to the royalties referenced in clause (a) above, (f) all amounts paid, owed, accrued or otherwise payable by GSK under Section 6.5 of the Manufacturing Agreement with respect to the royalties referenced in clause (b) above, (g) all amounts equal to the royalty that would otherwise be payable pursuant to Section 3.2 of the License Agreement on all proceeds (including any damages, monetary awards or other amounts recovered, whether by judgment or settlement and treating such proceeds as Net Sales of a Product (provided, that, with respect to any Combination Vaccine, the portion of such proceeds treated as Net Sales shall be calculated on the same basis as Net Sales for such Combination Vaccine would be calculated under the License Agreement) for purposes of calculating such royalty) paid, owed, accrued or otherwise payable to the Seller of any suit, proceeding or other legal action taken pursuant to Section 11.3 of the License Agreement in accordance with Section 11.5 of the License Agreement and arising from or related to infringement that results in reduced sales of any Product (other than amounts awarded to or recovered by the Seller in connection with any judgment or settlement for reimbursement of the costs and expenses (including attorneys’ fees) of bringing such suit or proceeding or taking such other legal action or for other reimbursement of the costs and expenses (including attorneys’ fees), if any, of the Seller related to the prosecution of any such suit, proceeding or other legal action), (h) all royalties paid, owed, accrued or otherwise payable by GSK under the last sentence of Section 8.4(c) of the Manufacturing Agreement with respect to Net Sales of any Product, (i) all interest paid, owed, accrued or otherwise payable by GSK under Section 4.6 of the License Agreement with respect to any of the foregoing amounts, (j) all interest paid, owed, accrued or otherwise payable by GSK under Section 6.6 of the Manufacturing Agreement with respect to any of the foregoing amounts and (k) all proceeds (including any damages, monetary awards or other amounts recovered, whether by judgment or settlement) paid, owed, accrued or otherwise payable with respect to any of the foregoing of any suit, proceeding or other legal action taken to enforce the right to receive any of the foregoing (other than amounts awarded or recovered in connection with any judgment or settlement for reimbursement of the costs and expenses (including attorneys’ fees) of the party bringing such suit or proceeding or taking such other legal action).

 

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“Royalty Rights” shall mean, collectively, any and all rights of Seller under or in respect of the Applicable Agreements arising out of, in connection with, or with respect to the Royalties, including without limitation, (a) any right to receive royalty or audit reports, summaries or other information from GSK; (b) any right to audit, inspect or otherwise review any of the records of GSK or the right to receive any related audit reports; (c) any right to enforce the Patent Rights against a breaching licensee; (d) the right to enforce the Applicable Agreements in the event of a default by any party thereunder; and (e) any right to disapprove or consent to an assignment or transfer (by operation of law or otherwise) pursuant to the Applicable Agreements.

 

“Sales Milestone Payments” shall have the meaning set forth in Section 2.02(b).

 

“Sales Rebate Amount” shall mean $25,855,035.75.

 

“Sales Rebate Date” shall mean the date thirty (30) Business Days after the date of delivery of a report as contemplated under Section 5.05(b) specifying the worldwide Net Sales of the Products for the year ending December 31, 2020.

 

“Sales Rebate Payment” shall have the meaning set forth in Section 2.02(a).

 

“Secured Lender” shall have the meaning set forth in Section 6.02(m).

 

“Seller” has the meaning set forth in the preamble.

 

“Seller Account” shall mean a segregated account established for the benefit of Seller.

 

“Seller Disclosure Schedules” means the schedules attached hereto as Exhibit J.

 

“Seller Indemnified Party” has the meaning set forth in Section 8.05(b).

 

“Seller Organizational Documents” means the certificate of formation of Seller dated as of September 2, 2015 and the limited liability company agreement of Seller dated as of September 2, 2015.

 

“Seller Parent” means Agenus, Inc., a Delaware corporation.

 

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“Seller Parent Guaranty” means the Guaranty pursuant to which Seller Parent shall guaranty to Purchaser payment of the Sales Rebate Payment hereunder and in which Seller Parent will make substantially the same representations and warranties as Seller, which Guaranty shall be substantially in the form of Exhibit B.

 

“Seller Parent Security Agreement” means the security agreement pursuant to which Seller Parent shall grant Purchaser Representative a first priority perfected security interest in all of Seller Parent’s assets other than the Excluded Collateral as security for its obligations under the Seller Parent Guaranty, which Security Agreement shall be substantially in the form of Exhibit C.

 

“Seller Security Agreement” means the security agreement pursuant to which Seller shall grant Purchaser Representative a first priority perfected security interest in all of Seller’s assets, substantially in the form of Exhibit D.

 

“Shingles Products” shall mean (a) the vaccine, currently designated as Shingrix (HZ/su), that is currently being developed or commercialized by GSK for shingles (herpes zoster), including such vaccine as it may be modified or improved and any Combination Vaccine that includes such vaccine (including as it may be modified or improved) and (b) any other QS-21 Vaccine for shingles (herpes zoster), including as any such other QS-21 Vaccine may be modified or improved and any Combination Vaccine that includes such other QS-21 Vaccine (including as such other QS-21 Vaccine may be modified or improved).

 

“Specified Persons” shall mean (i) Garo Armen, Chief Executive Officer of the Seller Parent, (ii) Christine Klaskin, VP of Finance of the Seller Parent, (iii) Karen Valentine, Chief Legal Officer/General Counsel of the Seller Parent and (iv) Michael Plater, Chief Business Officer of the Seller Parent, or their respective successors in such positions, or, in each case, to the extent any such person or position does not exist at any time, another person with similar responsibility, regardless of title.

 

“Subsidiary” or “Subsidiaries” shall mean with respect to any Person (i) any corporation of which the outstanding capital stock having at least a majority of votes entitled to be cast in the election of directors under the ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority voting interest under ordinary circumstances is at the time owned, directly or indirectly, by such Person.

 

“Third Party” shall mean any Person other than Seller or Purchaser or their respective Affiliates.

 

“Third Party Patents” shall mean, with respect to any Third Party, any and all issued patents and pending patent applications as of the date of this Agreement, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all patents-of-addition, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms (including regulatory extensions), and all supplementary protection certificates, together with any foreign counterparts thereof anywhere in the world, of such Third Party.

 

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“Transaction Documents” shall mean, collectively, this Agreement, the Bill of Sale, the Seller Parent Guaranty, the Seller Parent Security Agreement and the Seller Security Agreement.

 

“Transaction Expense Amount” shall mean an amount equal to any actual, documented, out-of-pocket fees and expenses of Purchaser (including, without limitation, external legal fees and expenses and out-of-pocket expenses incurred in connection with Purchaser’s due diligence investigation) incurred in connection with the consummation of the transactions contemplated by this Agreement, which amount shall not exceed $100,000.

 

“UCC” shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.

 

“Valid Claim” shall mean a claim of an issued and unexpired patent, or a claim of a pending patent application, which claim has not been held invalid, unpatentable or unenforceable in an unappealed or unappealable decision by a court of competent jurisdiction, and has not been admitted to be invalid, unpatentable or unenforceable through disclaimer or otherwise, which claim, but for a right to use such claim, would be infringed by the Product and/or its

Exploitation; provided, however that if a claim of a pending patent application shall not have issued as a claim of an issued patent within five (5) years after the earliest filing date from which such claim claims priority, then such claim shall not be a “Valid Claim” for purposes of this Agreement unless and until such claim issues as a claim of an issued patent.

 

ARTICLE II

PURCHASE AND SALE OF THE PURCHASED ROYALTY INTEREST

 

Section 2.01       Purchase and Sale.

 

(a)Subject to the terms and conditions of this Agreement, on the Closing Date, Seller hereby sells, assigns, transfers, conveys and grants to Purchaser, and Purchaser hereby purchases, acquires and accepts from Seller, all of Seller’s rights, title and interest in and to the Purchased Royalty Interests, free and clear of any and all Liens, other than Permitted Liens.

 

(b)Each of Seller and Purchaser intends and agrees that the sale, assignment and transfer of the Purchased Royalty Interests under this Agreement shall be, and is, a true sale by Seller to Purchaser that is absolute and irrevocable and that provides Purchaser with the full benefits of ownership of the Purchased Royalty Interests, and each of Seller and Purchaser do not intend the transactions contemplated hereunder to be, or for any purpose characterized as, a loan from Purchaser to Seller, or a pledge or security agreement. Seller waives any right to contest or otherwise assert that this Agreement is other than a true sale by Seller to Purchaser under applicable law, which waiver shall be enforceable against Seller in any bankruptcy or insolvency proceeding relating to Seller.

 

(c)Seller hereby consents to Purchaser Representative recording and filing, at Purchaser’s sole cost and expense, financing statements (and continuation statements with respect to such financing statements when applicable) meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary or appropriate to (i) evidence or perfect the sale, assignment, transfer, conveyance and grant by Seller to Purchaser, and the purchase, acquisition and acceptance by Purchaser from Seller, of the Purchased Royalty Interests and (ii) perfect the security interest in the Purchased Royalty Interests granted by Seller to Purchaser Representative pursuant to Section 2.01(d).

 

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(d)Notwithstanding that Seller and Purchaser expressly intend for the sale, contribution, assignment, transfer, conveyance and granting of the Purchased Royalty Interests to be a true, complete, absolute and irrevocable sale and assignment, in the event that any transfer contemplated by this Agreement is held not to be a sale, Seller hereby assigns, conveys, grants and pledges to Purchaser Representative, as security for its obligations created hereunder, a security interest in and to all of Seller’s right, title and interest in, to and under the Purchased Royalty Interests, whether now owned or hereafter acquired, and any “proceeds” (as such term is defined in the UCC) thereof and, solely in such event, this Agreement shall constitute a security agreement.

 

Section 2.02      Transfers and Payments in Respect of the Purchased Royalty Interests.

 

(a)Payments of the Royalties. Purchaser shall be entitled to receive the following transfers and payments in respect of the Purchased Royalty Interests:

 

i.             Effective upon the Closing, and subject to Section 2.02(b), Purchaser shall be entitled to receive any and all Royalties. Any and all such Royalties shall be paid by GSK or other payor into the Joint Escrow Account by wire transfer of immediately available funds in accordance with the GSK Direction Letter or other instruction letter provided to such other payor in compliance with Section 5.04(c), and distributed from the Joint Escrow Account to the Purchaser Account. In the event Seller or its Affiliates receives any payment on account of any Royalties directly from the payor of such Royalties, Seller or any of its Affiliates, as the case may be, shall hold such amounts in trust for the benefit of Purchaser and, within five (5) Business Days after receipt thereof, transfer all such funds into the Joint Escrow Account by wire transfer of immediately available funds.

 

ii.             On the Sales Rebate Date, Purchaser shall be entitled to receive from Seller, and Seller shall pay to Purchaser, a cash amount equal to the Sales Rebate Amount (any such payment, a “Sales Rebate Payment”); provided that no such Sales Rebate Payment shall be due if either:

 

(A)worldwide Net Sales of Products for the fiscal year ending December 31, 2019 exceed $1,000,000,000 unless ninety percent (90%) of the worldwide Gross Sales of Products for the fiscal year ending December 31, 2019 is greater than worldwide Net Sales of Products for the fiscal year ending December 31, 2019, in which case no Sales Rebate Payment shall be due if ninety percent (90%) of the worldwide Gross Sales of Products for the fiscal year ending December 31, 2019 exceed $1,000,000,000; or

 

(B)worldwide Net Sales of Products for the fiscal year ending December 31, 2020 exceed $1,750,000,000 unless ninety percent (90%) of the worldwide Gross Sales of Products for the fiscal year ending December 31, 2020 is greater than worldwide Net Sales of Products for the fiscal year ending December 31, 2020, in which case no Sales Rebate Payment shall be due if ninety percent (90%) of the worldwide Gross Sales of Products for the fiscal year ending December 31, 2020 exceed $1,750,000,000.

 

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iii.            Notwithstanding any claim or set-off which Seller may have against Purchaser or which GSK may have against Seller, Seller shall use its reasonable best efforts to ensure that GSK remits all payments GSK is required to pay under the Applicable Agreements with respect to the Purchased Royalty Interests directly to the Joint Escrow Account, pursuant to the GSK Direction Letter.

 

iv.            For the avoidance of doubt, the parties understand and agree that if GSK fails to pay any Royalties when Seller or Purchaser reasonably believes they are due under the Applicable Agreements (each such unpaid amount, a “Discrepancy”) because of a disagreement with GSK as to when, whether or the amount of any Royalties that are owed, then Seller shall not be obligated to pay to Purchaser or otherwise compensate or make Purchaser whole with respect to any such Discrepancy, but instead the parties shall attempt to recover such Discrepancy from GSK; provided, however, that nothing in this Section 2.02(a) shall limit or affect in any respect the rights of any Purchaser Indemnified Party under Section 8.05.

 

v.             For the avoidance of doubt, the parties understand and agree that if GSK fails to pay any Royalties when Seller or Purchaser reasonably believes they are due under the Applicable Agreements because of any set-off under any of the agreements effectuated by GSK, then Seller shall pay to Purchaser the amount required to make Purchaser whole with respect to any such deficiency, by depositing the amount thereof in the Purchaser Account; provided, however, that the $2,500,000 that GSK is entitled to credit against the Purchased Royalty Interests pursuant to Section 4 of the Negotiation Agreement shall not be deemed a set-off by GSK for purposes of this Agreement.

 

(b)Sales Milestone Payments. Notwithstanding anything to the contrary in this Section 2.02, upon and after the occurrence of either (or both) of the following sales milestones, all subsequent Royalties shall thereafter in each case be paid from the Joint Escrow Account (net of any amounts due to Purchaser hereunder from Seller) to the Seller, by distribution to the Seller Account (such payments of Royalties, “Sales Milestone Payments”) until the aggregate amount of Sales Milestone Payments equals the applicable amount set forth below, after which payment of all Royalties from the Joint Escrow Account shall revert to the Purchaser in accordance with the terms of Section 2.02(a):

 

i.              if Net Sales of Products equal or exceed an aggregate of $2,000,000,000 during any period of twelve consecutive months prior to January 1, 2024, Seller shall be entitled to receive a Sales Milestone Payment in an amount equal to $15,100,000; and

 

ii.             if Net Sales of Products equal or exceed an aggregate of $2,750,000,000 during any period of twelve consecutive months prior to January 1, 2026, Seller shall be entitled to receive a Sales Milestone Payment in an amount equal to $25,250,000.

 

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For the avoidance of doubt, the sales milestones set forth above can be achieved during concurrent time periods (e.g., if Net Sales of the Products for any twelve consecutive months ending prior to January 1, 2024 exceed $2,750,000,000, then Purchaser shall owe Seller Sales Milestone Payments in an amount equal to $40,350,000).

 

Section 2.03       Purchase Price.

 

          In consideration for the sale of the Purchased Royalty Interests, and subject to the terms and conditions set forth herein, Purchaser shall pay to Seller, or its designee, on the Closing Date, the sum of $190,000,000 less the Transaction Expense Amount (such net amount, the “Purchase Price”) by wire transfer to account(s) designated in writing by Seller prior to the Closing.

 

Section 2.04      No Assumed Obligations.

 

          Notwithstanding any provision in this Agreement or any other writing to the contrary, Purchaser is acquiring only the Purchased Royalty Interests and is not assuming any liability or obligation of Seller or any of its Affiliates of whatever nature, whether presently in existence or arising or asserted hereafter, whether under the Applicable Agreements or any Transaction Document or otherwise. All such liabilities and obligations shall be retained by and remain obligations and liabilities of Seller or its Affiliates (the “Excluded Liabilities and Obligations”).

 

Section 2.05       Excluded Assets.

 

          Purchaser does not, by purchase of the rights granted hereunder or otherwise pursuant to any of the Transaction Documents, acquire any assets or contract rights of Seller or any of its Affiliates under the Applicable Agreements, the Patent Rights or any other assets of Seller, other than the Purchased Royalty Interests; provided that the foregoing is without prejudice to Purchaser’s and Purchaser Representative’s rights under the Seller Parent Security Agreement and the Seller Security Agreement.

 

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER

 

 Seller hereby represents and warrants to Purchaser as of the date first written above the following:

 

Section 3.01       Organization; Operations of Seller.

 

(a)Seller is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware, and has all powers and all licenses, authorizations, consents and approvals required to conduct its business as now conducted and as proposed to be conducted in connection with the transactions contemplated by the Transaction Documents to which Seller is a party and the Applicable Agreements. Seller is duly qualified to do business as a foreign corporation and is in good standing in every jurisdiction in which the failure to do so could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect.

 

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(b)Since September 4, 2015, Seller (i) has had no business activities other than the incurring indebtedness and pledging assets in connection with the financing facility provided by the Secured Lender (the “Existing Secured Financing”), selling the Purchased Royalty Interests to Purchaser as contemplated hereby and otherwise performing its obligations under the Existing Secured Financing, the Transaction Documents and the Applicable Agreements and (ii) has not been, is not, and will not be engaged, in any business unrelated to effecting the transactions contemplated by the Existing Secured Financing, the Transaction Documents and the Applicable Agreements. Except as set forth in Section 3.01(b) of the Seller Disclosure Schedules, since September 4, 2015, the sole assets of Seller that it has owned consist exclusively of the Purchased Royalty Interests and any rights arising under the Applicable Agreements. Since September 4, 2015, Seller has not incurred any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person, except in connection with the Existing Secured Financing and as required to execute and deliver Applicable Agreements and the Transaction Documents and to consummate the transactions contemplated thereby. Except as set forth in Section 3.01(b) of the Seller Disclosure Schedules, immediately prior to Closing and after giving effect to the releases contained in and contemplated by the Payoff Letter, Seller shall have no obligations or liabilities, except those incurred in connection with, and pursuant to the Applicable Agreements, the Transaction Documents and the transactions contemplated thereby.

 

Section 3.02      Corporate Authorization.

 

Seller has all necessary limited liability company power and authority to enter into, execute and deliver the Transaction Documents to which it is a party and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. The Transaction Documents to which it is a party have been duly authorized, executed and delivered by Seller and each Transaction Document to which it is a party constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

 

Section 3.03       Governmental Authorization.

 

Except for filings with the Securities and Exchange Commission, its successor or foreign equivalent, the execution and delivery by Seller of the Transaction Documents to which it is a party, and the performance by Seller of its obligations hereunder and thereunder and under the Applicable Agreements, do not require any notice to, action or consent by, or in respect of, or filing with, any Governmental Authority.

 

Section 3.04       Ownership.

 

Immediately prior to the Closing, Seller will be the exclusive owner of the entire right, title (legal and equitable) and interest in, to and under the Purchased Royalty Interests and have good and valid title thereto, free and clear of all Liens (other than Permitted Liens). Except as set forth in Section 3.04 of the Seller Disclosure Schedules, the Purchased Royalty Interests sold, assigned, transferred, conveyed and granted to Purchaser on the Closing Date have not been pledged, sold, contributed, assigned, transferred, conveyed or granted by Seller to any Person, other than the Secured Lender, nor has Seller consented to any such action. Immediately prior to the Closing, Seller will have full right to sell, contribute, assign, transfer, convey and grant the Purchased Royalty Interests to Purchaser. Upon the sale, assignment, transfer, conveyance and granting by Seller of the Purchased Royalty Interests to Purchaser, Purchaser shall acquire good and valid title to the Purchased Royalty Interests free and clear of all Liens, other than Permitted Liens, and shall be the exclusive owner of the Purchased Royalty Interests.

 

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Section 3.05      Solvency.

 

Assuming consummation of the transactions contemplated by the Transaction Documents to which Seller is a party (i)  the present fair saleable value of Seller’s assets is greater than the amount required to pay its debts as they become due, (ii) Seller does not have unreasonably small capital with which to engage in its business, (iii) Seller will be able to realize upon its assets and pay its debts and other obligations as they mature, and (iv) Seller has not incurred, will not incur, nor does it have present plans or intentions to incur, debts or liabilities beyond its ability to pay such debts or liabilities as they become absolute and matured.

 

Section 3.06       Litigation.

 

(a)There is no (i) action, suit, arbitration proceeding, claim, investigation or other proceeding pending or, to the Knowledge of Seller, threatened against Seller or any of its Affiliates or (ii) any inquiry of any Governmental Authority pending or, to the Knowledge of Seller, threatened against Seller or any of its Affiliates, in each case with respect to clauses (i) and (ii) above, which, if adversely determined, could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect.

 

(b)To the actual knowledge of any Specified Person there is no (i) action, suit, arbitration proceeding, claim, investigation or other legal proceeding pending or threatened against GSK or any of its Affiliates (x) involving the Products or (y) involving Seller or any of its Affiliates or (ii) any inquiry of any Governmental Authority pending or threatened against GSK or any of its Affiliates involving the Products, in each case with respect to clauses (i) and

 

(ii)          above, which, if adversely determined, could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect.

 

Section 3.07       Compliance with Laws.

 

None of Seller or any of its Affiliates (A) (i) are in violation of, or have violated, or (ii) to the Knowledge of Seller, are under investigation with respect to, or have been threatened to be charged with or been given notice of any violation of, in any material respect, any law, rule, ordinance or regulation of, or any judgment, order, writ decree, permit or license granted, issued or entered by, any Governmental Authority or (B) are subject to any judgment, order, writ  decree, permit or license granted, issued or entered by, any Governmental Authority, which in the case of (A) or (B), could reasonably be expected to result in a Material Adverse Effect.

 

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Section 3.08       Conflicts.

 

(a)Neither the execution and delivery of any of the Transaction Documents to which Seller is a party nor the performance or consummation of the transactions contemplated hereby and thereby will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the certificate of incorporation or by-laws (or other organizational or constitutional documents) of Seller or any of its Affiliates; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by or give rise to any right of termination, cancellation or acceleration of any right or obligation of any provision of the Applicable Agreements; (iii) require any consent of any Person or Governmental Authority; (iv) result in the creation or imposition of any Lien on the Purchased Royalty Interests, other than Permitted Liens; or (v) except as would not reasonably be expected to result in a Material Adverse Effect, contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects any provisions of any Law, contract or agreement of the Seller (other than the Applicable Agreements) to which Seller or any of its Affiliates or any of their respective assets or properties are subject or bound.

 

(b)Seller has not granted, nor does there exist, any Lien (other than a Permitted Lien) on the Applicable Agreements or the Purchased Royalty Interests.

 

Section 3.09       No Withholding

 

          No deduction or withholding for or on account of any tax has been made or, to the Knowledge of Seller, was required to be made under applicable Law from any payment to Seller under any Applicable Agreement. As of the Closing Date, to the Knowledge of Seller, no deduction or withholding for or on account of any tax is required to be made under applicable Law from any payment by Seller to Purchaser under this Agreement.

 

Section 3.10       Applicable Agreements.

 

          The License Agreement attached hereto as Exhibit G, the Manufacturing Agreement attached hereto as Exhibit H and the Negotiation Agreement attached hereto as Exhibit I are true, correct and complete copies of each such agreement, as in effect on the date hereof, and there have been no amendments or modifications to such Applicable Agreements which are not reflected in such exhibits.

 

Section 3.11       Products; Royalties.

 

(a)GSK has been responsible for the clinical development of each of the Products and seeking all applicable regulatory approvals from applicable Governmental Authorities for each of the Products and, except as contemplated in Section 2.4(a) of the Manufacturing Agreement and Section 5.7 and 5.8 of the License Agreement, the Seller has no responsibility for the development of any of the Products or seeking any regulatory approvals from any Governmental Authorities for any of the Products.

 

(b)To the Knowledge of Seller, GSK has complied with its obligations to develop the Products and seek and obtain regulatory approvals from applicable Governmental Authorities for the Products under the License Agreement. The Seller has not provided any notice at any time in accordance with Section 12.12 of the License Agreement to GSK under Section 5.3 of the License Agreement relating to any of the Products.

 

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(c)  GSK has been, and continues to be, responsible for the manufacturing of the Products and the Seller has no further responsibility for manufacturing the Products.

 

(d)Seller received the notice of the “First Commercial Sale” (as defined in the License Agreement) on December 20, 2017, stating that the First Commercial Sale was achieved on November 27, 2017.

 

(e)Each Shingles Product and Malaria Product is a prophylactic QS-21 Vaccine under the Manufacturing Agreement under clause (ii) of the definition of “QS-21 Vaccine” as set forth in the Negotiation Agreement (which amended the definition thereof in the Manufacturing Agreement). Each Product is a Non-exclusive Vaccine (as defined in the License Agreement) under the License Agreement.

 

(f)The technology transfer under the Applicable Agreements is complete, and no other obligations of Seller or Seller Parent remain to be performed thereunder.

 

(g)Neither (i) the termination or expiration of the License Agreement, nor (ii) the fact that the manufacture, use, sale, offer for sale or importation of any Product by GSK, in the absence of the license rights granted to GSK under the License Agreement, does not currently or may not in the future infringe one or more Valid Claims of the Patent Rights, shall result in any Product not being a QS-21 Vaccine.

 

(h)Other than the Applicable Agreements and the Transaction Documents, as of the Closing, neither the Seller nor any of its Affiliates shall have entered into, are a party to, or are otherwise subject to any agreement, contract, instrument or other binding obligation that in any way relates to or involves the Royalties or the Products (which, for purposes of clarity, the parties acknowledge and agree shall not include any agreement, contract, instrument or other binding obligation that relates to QS-21 but does not otherwise relate to or involve the Royalties or the Products and shall not include any expired material transfer, research or similar agreement or contract manufacturing or similar agreement relating to or involving the Royalties or the Products where the assignment or sublicense of all Patent Rights thereunder relating to the Products has expired or been terminated and no amounts are payable to the applicable counterparty based on sales of any Product).

 

(i)Royalties under Section 5.3 of the Manufacturing Agreement equal to 2% of Net Sales of the Products are, subject to Section 4 of the Negotiation Agreement and Section 6.4 and Section 6.6 of the Manufacturing Agreement, payable by GSK. Such Royalties under Section 5.3 of the Manufacturing Agreement are payable by GSK for ten years after the First Commercial Sale of the first QS-21 Vaccine that achieves First Commercial Sale in a Major Market Country regardless of any termination or expiration of the License Agreement or Manufacturing Agreement or any Patent Rights prior to the end of such ten-year period.

 

(j)To the Knowledge of Seller, as of the Closing Date, neither GSK nor any of its Affiliates is developing or commercializing (i) any product candidates or products for shingles (herpes zoster) or malaria other than the Products or (ii) any other product candidates or products that would qualify as Combination Vaccines.

 

 

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(k)Since January 6, 2015, to the Knowledge of Seller, neither Seller Parent nor Seller has received any information from GSK, any Governmental Authority or any other Person, whether directly or indirectly and through any form of written, oral or digital communication and whether or not under any of the express provisions of any Applicable Agreement (including pursuant to any joint steering committee meeting or the meeting of any other organized body provided for under any Applicable Agreement) relating to any of the Products (including any of the clinical trials for any of the Products or any of the studies related to those clinical trials) or any marketing authorization for any of the Products or, with respect to any Malaria Product, the process for approval, endorsement or recommendation of such Product by the World Health Organization or any similar or related Person, that would reasonably be expected to result in a Material Adverse Effect.

 

(l)To the actual knowledge of the Specified Persons, no Third Party Patent that GSK does not have the right to use, has been, or is, or will be, infringed by GSK’s Exploitation of a Product.

 

Section 3.12       No Other Representations or Warranties.

 

          Except for the representations and warranties contained in this Article III and as set forth in the Seller Parent Guaranty, neither Seller nor any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of Seller, including any representation or warranty as to the accuracy or completeness of any information regarding the Purchased Royalty Interests, the Products or the Royalties furnished or made available to Purchaser or its Representatives (including any information, documents, management presentations or material delivered to Purchaser, or in any other form in expectation of the transactions contemplated hereby) or as to the future revenue, profitability or success of the Products, or any representation or warranty arising from statute or otherwise in Law.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

Purchaser represents and warrants to Seller as of the date first written above, the following:

 

Section 4.01       Organization.

 

          Each entity constituting the collective Purchaser is a limited partnership duly formed, validly existing and in good standing under the laws of Delaware, and such entity has all limited partnership powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted.

 

Section 4.02       Authorization.

 

         Purchaser has all necessary power and authority to enter into, execute and deliver the Transaction Documents and to perform all of the obligations to be performed by it hereunder andthereunder and to consummate the transactions contemplated hereunder and thereunder. The Transaction Documents have been duly authorized, executed and delivered by Purchaser and each Transaction Document constitutes the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and general equitable principles.

 

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Section 4.03      Broker’s Fees.

 

          Purchaser has not taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

 

Section 4.04       Conflicts.

 

          Neither the execution and delivery of this Agreement or any other Transaction Document nor the performance or consummation of the transactions contemplated hereby or thereby will:

 

(i)            contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects, any provisions of (A) any law, rule or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which Purchaser or any of its assets or properties may be subject or bound; or (B) any contract, agreement, commitment or instrument to which Purchaser is a party or by which Purchaser or any of its assets or properties is bound or committed; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of any organizational or constitutional documents of Purchaser; or (iii) require any notification to, filing with, or consent of, any Person or Governmental Authority.

 

Section 4.05      Access to Information.

 

Purchaser acknowledges that it has (i) reviewed the Applicable Agreements and such other documents and information relating to the Products and (ii) has had the opportunity to ask such questions of, and to receive answers from, representatives of Seller concerning the Applicable Agreements and the Products, in each case as it deemed necessary to make an informed decision to purchase the Purchased Royalty Interests in accordance with the terms of this 

Agreement. Purchaser has such knowledge, sophistication and experience in financial and business matters that it is capable of evaluating the risks and merits of purchasing the Purchased Royalty Interests in accordance with the terms of this Agreement.

 

Section 4.06      Financing.

 

Purchaser has sufficient funds available to consummate all of the transactions contemplated by any of the Transaction Documents and to pay the Purchase Price and all other cash amounts required to be paid in connection with the transactions contemplated by the Transaction Documents, and, when so required to pay or otherwise perform, as applicable, Purchaser will be able to pay or otherwise perform the obligations of Purchaser or any of its Affiliates under the Transaction Documents (including the Purchase Price payment at Closing and all other cash amounts required to be paid at or in connection with the Closing). Purchaser acknowledges and agrees that its obligations under this Agreement are not contingent on obtaining financing.

 

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ARTICLE V
COVENANTS

 

The parties covenant and agree as follows:

 

Section 5.01       Books and Records.

 

(a)As promptly as practicable (but in no event more than two (2) Business Days) after receipt by Seller or any of its Affiliates of notice of any action, claim, investigation or proceeding (commenced or threatened) relating to the transactions contemplated by any Transaction Document, the Applicable Agreements, the Purchased Royalty Interests or the Royalty Rights, Seller shall inform Purchaser of the receipt of such notice and the substance of such action, claim, investigation or proceeding and, if in writing, shall furnish Purchaser with a copy of such notice and any related materials with respect to such action, claim, investigation or proceeding.

 

(b)Seller shall keep and maintain, or cause to be kept and maintained, full and accurate books of accounts and records adequate to reflect accurately all Royalties paid and/or payable with respect to the Applicable Agreements and all deposits made into the Purchaser Account.

 

(c)Purchaser shall have the right, from time to time, not more than twice per calendar year, during normal business hours and upon at least ten (10) Business Days' prior written notice to Seller, to visit the offices and properties of Seller where books and records relating or pertaining to the Royalties and the Products are kept and maintained, to inspect and make extracts from and copies of such books and records, to discuss, with officers of Seller, the Applicable Agreements and to verify compliance with the provisions of the Transaction Documents, including, without limitation, provisions relating to the receipt and application of the Royalties.

 

(d)As promptly as practicable (but in no event more than five (5) Business Days) after receipt by Seller of any written notice, certificate, offer, proposal, correspondence, report or other written communication from GSK, any other payor of any Royalties or any Governmental Authority relating to the Applicable Agreements, the Royalties or the Products, Seller shall inform Purchaser of such receipt and the substance contained therein and, if requested by Purchaser, shall furnish Purchaser with a copy of such notice, certificate, offer, proposal, correspondence, report or other written communication.

 

Section 5.02      Confidentiality; Public Announcement.

 

(a)Except as expressly authorized in this Agreement or the other Transaction Documents or except with the prior written consent of Seller, Purchaser hereby agrees that (i) it will use the Confidential Information of Seller solely for the purpose of the transactions contemplated by this Agreement and the other Transaction Documents and exercising its rights and remedies and performing its obligations hereunder and thereunder; (ii) it will keep confidential the Confidential Information of Seller; and (iii) it will not furnish or disclose to any Person any Confidential Information of Seller.

 

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(b)Notwithstanding anything to the contrary set forth in this Agreement or any other Transaction Document, Purchaser may, without the consent of Seller, furnish or disclose Confidential Information of Seller to Purchaser’s Affiliates and its and their actual and potential partners, directors, officers, employees, managers, officers, investors, co-investors, partners, financing parties, bankers, agents, consultants, advisors, insurers, rating agencies, self-regulatory organizations, trustees and representatives (“Representatives”) on a need-to-know basis provided that such Persons shall be informed of the confidential nature of such information and shall be obligated to keep such information confidential pursuant to the terms of this Section 5.02. Each party hereby acknowledges that the United States federal and state securities laws prohibit any Person that has material, nonpublic information about a company from purchasing or selling securities of such a company or from communicating such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities.

 

(c)In the event that Purchaser, its Affiliates or their respective Representatives are required by applicable law or legal or judicial process (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to furnish or disclose any portion of the Confidential Information of Seller, Purchaser shall, to the extent practicable and legally permitted, provide Seller, as promptly as practicable, with written notice of the existence of, and terms and circumstances relating to, such requirement, so that Seller may seek a protective order or other appropriate remedy, at Seller’s expense (and, if Seller seeks such an order, Purchaser, such Affiliates or such Representatives, as the case may be, shall provide, at Seller’s expense, such cooperation as Seller shall reasonably require). Subject to the foregoing, Purchaser, such Affiliates or such Representatives, as the case may be, may disclose that portion (and only that portion) of the Confidential Information of Seller that is legally required to be disclosed; provided, however, that Purchaser, such Affiliates or such Representatives, as the case may be, shall exercise reasonable efforts (at Seller’s expense) to preserve the confidentiality of the Confidential Information of Seller, including by obtaining reliable assurance that confidential treatment will be accorded any such Confidential Information disclosed.

 

(d)Notwithstanding anything to the contrary contained in this Agreement or any of the other Transaction Documents, Purchaser may disclose the Confidential Information of Seller, as the case may be, including this Agreement, the other Transaction Documents and the terms and conditions hereof and thereof, to the extent necessary in connection with the enforcement of its rights and remedies hereunder or thereunder or as required to perfect Purchaser’s rights hereunder or thereunder; provided that, Purchaser shall only disclose that portion of the Confidential Information that its counsel advises that it is legally required to disclose and will exercise commercially reasonable efforts to ensure that confidential treatment will be accorded to that portion of the Confidential Information that is being disclosed, including requesting confidential treatment of information in the Transaction Documents. In any event, Purchaser will not oppose action by Seller to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information in the event that confidential treat cannot be obtained by Purchaser.

 

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(e)Subject to Section 5.02(d), each of Seller and Purchaser shall not, and shall cause their respective Affiliates not to, without the prior written consent of the other party, issue any press release or make any other public disclosure with respect to the transactions contemplated by this Agreement or any other Transaction Document, except if and to the extent that any such release or disclosure is required by applicable law or by any Governmental Authority of competent jurisdiction, including in connection with such party’s filings with the Securities and Exchange Commission, its successor or foreign equivalent, in which case, Seller Parent, Seller, Purchaser or their respective Affiliates, as the case may be, shall use commercially reasonable efforts to consult in good faith with the other party regarding the form and content thereof before issuing such press release or making such public announcement; provided however, that once a party consults with the other parties regarding a release or disclosure, such party may continue to make substantially similar releases or discloses in the future without the need to consult the other parties.

 

Section 5.03       Commercially Reasonable Efforts; Further Assurance.

 

(a)Subject to the terms and conditions of this Agreement, each party hereto will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate the transactions contemplated by any Transaction Document. Purchaser, Purchaser Representative and Seller agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary in order to consummate or implement expeditiously the transactions contemplated by any Transaction Document and to vest in Purchaser good, valid and marketable rights and interests in and to the Purchased Royalty Interests free and clear of all Liens, other than Permitted Liens.

 

(b)Seller and Purchaser shall cooperate and provide assistance as reasonably requested by the other party in connection with any litigation, arbitration or other proceeding (whether threatened, existing, initiated, or contemplated prior to, on or after the date hereof) to which the other party hereto or any of its officers, directors, shareholders, members, managers, agents or employees is or may become a party or is or may become otherwise directly or indirectly affected or as to which any such persons have a direct or indirect interest, in each case, relating to the Royalty Rights, the Purchased Royalty Interests or the transactions contemplated hereunder or under the Transaction Documents, but in all cases excluding any litigation brought by Seller against Purchaser or brought by Purchaser against Seller.

 

Section 5.04       Remittance to Joint Escrow Account.

 

(a)Not later than ten (10) Business Days following the Closing Date, Seller shall establish the Joint Escrow Account and Seller and Purchaser, each acting reasonably, shall execute and deliver a customary Account Control Agreement reasonably satisfactory to Seller and Purchaser Representative, and all other documents, certificates and agreements as are reasonably required to establish the Joint Escrow Account and to establish the Purchaser’s control over the Joint Escrow Account.

 

(b)The Joint Escrow Account shall be maintained by Seller and Purchaser throughout the term of this Agreement.

 

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(c)Seller shall instruct and use commercially reasonable efforts to cause the payor of any Royalties (including GSK) to pay such Royalties directly into the Joint Escrow Account, and in furtherance thereof, concurrently with the Closing, Seller shall send a letter executed by a duly authorized officer of Seller in the form attached hereto as Exhibit E to GSK (the “GSK Direction Letter”), with instructions to pay all amounts payable under the Applicable Agreements to the Joint Escrow Account. Without in any way limiting the foregoing, commencing on the Closing Date and at any time thereafter, any and all Royalties received by Seller or any of its Affiliates shall be held in trust for the benefit of Purchaser and transferred to the Joint Escrow Account within five (5) Business Days of Seller’s or its Affiliate’s receipt thereof.

 

Section 5.05       Applicable Agreements.

 

(a)Neither Seller nor its Affiliates shall, without the written consent of Purchaser, (i) forgive, release or compromise, or agree to any delay or postponement of the payment of, any Royalty owed under the Applicable Agreements, (ii) waive, amend, cancel or terminate, exercise or fail to exercise any of their rights constituting or involving the right to receive the Royalties or the Royalty Rights, (iii) amend, modify, restate, cancel, supplement, terminate or waive any provision of the Applicable Agreements, or grant any consent thereunder, or agree to do any of the foregoing, including entering into any agreement with GSK under the provisions of any of the Applicable Agreements, (iv) create, incur, assume or suffer to exist any Lien, upon or with respect to the Royalties or the Royalty Rights, or agree to do or suffer to exist any of the foregoing, except for any Permitted Liens or (v) sell, lease, license, transfer or assign (or attempt to do any of the foregoing) all or any portion of the Patent Rights.

 

(b)Seller shall, as promptly as practicable, provide to Purchaser copies of any material reports or other information prepared by GSK it has received pursuant to the Applicable Agreements that has not been previously provided to Purchaser by Seller or any other Person.

 

 (c)As promptly as practicable after receiving written or oral notice from GSK, (A) (i) terminating any of the Applicable Agreements, (ii) alleging any breach of or default under any of the Applicable Agreements by Seller, or (iii) asserting the existence of any facts, circumstances or events which alone or together with other facts, circumstances or events could reasonably be expected (with or without the giving of notice or passage of time or both) to give rise to a breach of or default under any of the Applicable Agreements by Seller or the right to terminate any of the Applicable Agreements by GSK or (B) Seller obtains Knowledge of any fact, circumstance or event which alone or together with other facts, circumstances or events could reasonably be expected (with or without the giving of notice or passage of time or both) to give rise to a breach of or default under any of the Applicable Agreements by Seller or the right to terminate any of the Applicable Agreements by GSK, in each case, Seller shall promptly give a written notice to Purchaser describing in reasonable detail the relevant breach or default, including a copy of any written notice received from GSK and, in the case of any breach or default or alleged breach or default by Seller, describing in reasonable detail any action Seller proposes to take to dispute or correct such alleged breach or default and (i) dispute such breach or default, or (ii) cure as promptly as practicable such breach or default in accordance with applicable Law and in a manner consistent in all material respects with the standard with which Seller would dispute or cure a breach in the administration of its own business (assuming, for these purposes, that the Applicable Agreements were the only business of Seller); provided, however, that, if Purchaser, in its good faith judgment, determines that Seller has not used efforts to dispute or cure such breach or default consistent with the foregoing standard, Purchaser shall be entitled (but not obligated) to, to the extent permitted by applicable Law, take any and all actions on behalf of Seller that Purchaser deems reasonably necessary or advisable to dispute or cure such breach or default promptly (including by directly performing any obligation of Seller on behalf of Seller or providing funds to Seller so that Seller may perform its obligations under the Applicable Agreements), and Seller shall act in accordance with any reasonable instructions provided by Purchaser with respect to such breach or default, provide all reasonable cooperation requested by Purchaser in connection therewith and promptly reimburse Purchaser for all costs and expenses incurred in connection therewith.

 

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(d)Seller shall not take any actions that could reasonably be expected to result in a Material Adverse Effect without the prior written consent of Purchaser.

 

(e)Seller shall (i) ensure that all licenses, covenants, releases and other rights granted under the Applicable Agreements by or on behalf of Seller and each of its Affiliates are, and shall at all such times remain, valid, enforceable and in full force and effect to the extent required by such Applicable Agreements and (ii) comply in all material respects with each of its covenants, agreements and other obligations under the Applicable Agreements.

 

Section 5.06       Audits.

 

To the extent Seller has the right to perform or cause to be performed inspections or audits under any Applicable Agreement regarding payments payable and/or paid thereunder (each, a “License Party Audit”), Seller shall, at the reasonable request of Purchaser (such request not to be made more frequently than once every calendar year), cause a License Party Audit to be performed as promptly as practicable following Purchaser’s request in accordance with the terms of such Applicable Agreement (a “Purchaser-Requested Audit”). In conducting a Purchaser- Requested Audit, Seller shall, to the extent permitted by the Applicable Agreements, select such public accounting firm to conduct the Purchaser-Requested Audit as Purchaser shall recommend for such purpose. Seller shall not, without the prior written consent of Purchaser, request or cause an inspection or audit of GSK’s books and records to be conducted pursuant to, and in accordance with Section 4.5 of the License Agreement or Section 6.5 of the Manufacturing Agreement, as applicable; provided, however, that if Purchaser has not requested an inspection or audit pursuant to this Section 5.06 prior to June 30 of any applicable calendar year, Seller may request an audit or inspection pursuant to Section 4.5 of the License Agreement or Section 6.5 of the Manufacturing Agreement, as applicable, during such calendar year without the consent of Purchaser. As promptly as practicable after completion of any License Party Audit (whether or not requested by Purchaser), Seller shall deliver to Purchaser an audit report summarizing the results of such License Party Audit. In the event that an inspection or audit constitutes a Purchaser-Requested Audit, all of the expenses of any such Purchaser-Requested Audit (including, without limitation, the fees and expenses of the independent public accounting firm) that would otherwise be borne by Seller pursuant to the Applicable Agreements, shall instead be borne (as such expenses are incurred, upon the provision to Purchaser of written documentation evidencing such expenses) by Purchaser, provided that any reimbursement by GSK of the expenses of the Purchaser-Requested Audit shall belong to Purchaser. Any deficiency in payments made by GSK demonstrated in a License Party Audit shall be paid promptly, in accordance with the Applicable Agreements, to Purchaser or Seller, as the case may be, by deposit in the Joint Escrow Account for further distribution to Purchaser or (in respect of Sales Milestone Payments) to Seller.

 

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Section 5.07       Notice.

 

         Seller shall provide Purchaser with written notice as promptly as practicable (and in any event within five (5) Business Days) after becoming aware of any of the following:

 

i.            any Bankruptcy Event;

 

ii.           any material breach or default by Seller of any covenant, agreement or other provision of this Agreement, the Applicable Agreements or any other Transaction Document to which Seller is a party; or

 

iii.           any representation or warranty made by Seller in any of the Transaction Documents or in any certificate delivered to Purchaser pursuant hereto shall prove to be untrue, inaccurate or incomplete in any material respect on the date as of which made.

 

with, in the case of clause (i) above, a copy to the Depositary Bank. In the event Purchaser has actual notice of any Bankruptcy Event, it shall be entitled to give written notice thereof to the Depositary Bank, provided it concurrently delivers a copy thereof to Seller.

 

Section 5.08      Seller Operations.

 

         Except as permitted under Section 8.04, all of the equity interests in Seller are, and shall always be, owned, directly or indirectly, by Seller Parent. Following the Closing and except as set forth on Section 5.08 of the Seller Disclosure Schedule, Seller will not acquire or otherwise possess any assets or incur any liabilities, Liens (other than Permitted Liens) or other obligations (contractual or otherwise) except in connection with the performance of its obligations under the Transaction Documents or resulting out of the ownership of assets that are not the Purchased Royalty Interests. Except as set forth on Section 5.08 of the Seller Disclosure Schedule, Seller will not undertake any actions other than to enter into and perform its obligations under the Applicable Agreements, the Transaction Documents and all documents, instruments, or agreements directly related thereto. Neither Seller nor Seller Parent or any manager of Seller shall amend or alter the Seller Organizational Documents, agree to dissolve Seller or otherwise windup its affairs or allow or take any action for Seller to become subject to any Bankruptcy Event.

 

Section 5.09      Special Purpose Vehicle Covenants.

 

(a)Seller will at all times remain in existence as a limited liability company separate and distinct from Seller Parent or any other Person and will not consent to or enter into any agreement or contract with respect to any reorganization, merger, recapitalization or consolidation of Seller with or into any other Person. Seller shall maintain its accounts, books and records separate from any other Person (including Seller Parent) and will not commingle any funds with any other Person (including Seller Parent).

 

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(b)           Seller shall not:

 

(i)             fail to hold itself out to the public and all other Persons as a legal entity separate from the owners of its capital stock and from any other Person;

 

(ii)            commingle its assets with assets of any other Person except in connection with, and for the limited purposes of, operation of the Joint Escrow Account;

 

(iii)           fail to conduct its business only in its own name, nor fail to comply with all organizational formalities necessary to maintain its separate existence;

 

(iv)           fail to maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person nor have its assets listed on any financial statement of any other Person; provided, however, that Seller’s assets may be included in a consolidated financial statement of its Affiliates in conformity with applicable provisions of GAAP (provided that such assets shall also be listed on Seller’s own separate balance sheet);

 

(v)            fail to pay its own liabilities and expenses only out of its own funds, except in respect of short term advances to be repaid;

 

(vi)           enter into any transaction with an Affiliate except transactions that are at prices and on terms and conditions that could be obtained on an arm’s-length basis from unrelated Third Parties;

 

(vii)          fail to correct any known misunderstanding regarding its separate identity and not identify itself as a department or division of any other Person;

 

(viii)         fail to maintain adequate capital in light of its contemplated business purpose, transactions and liabilities; provided, however, that the foregoing shall not require the holders of its capital stock to make additional capital contributions to Seller;

 

(ix) fail to cause the representatives of Seller to act at all times with respect to Seller consistently and in furtherance of the foregoing and in the best interests of Seller;

 

(x)             make any payment or distribution of assets with respect to any obligation of any other person other than as required under trade or commercial agreements entered into in the ordinary course of business; or

 

(xi)           engage in any business activity other than as contemplated hereunder or under the other Transaction Documents or the Applicable Agreements and any activities ancillary or related thereto.

 

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ARTICLE VI

THE CLOSING; CONDITIONS TO CLOSING

 

Section 6.01      Closing.

 

Subject to the closing conditions set forth in Sections 6.02 and 6.03, the closing of the transactions contemplated under this Agreement (the “Closing”) shall take place on a mutually agreed date no later than January 19, 2018 or such later date as may be agreed upon by Purchaser and Seller(such date, the “Closing Date”).

 

Section 6.02      Conditions Applicable to Purchaser in Closing.

 

The obligations of Purchaser to effect the Closing, including the requirement to pay the Purchase Price pursuant to Section 2.03, shall be subject to the satisfaction of each of the following conditions, as of the Closing Date, any of which may be waived by Purchaser in its sole discretion:

 

(a)            Accuracy of Representations and Warranties. The representations and warranties of the Seller set forth in the Transaction Documents shall be true, correct and complete in all material respects, as of the Closing Date.

 

(b)           No Adverse Circumstances. There shall not have occurred or be continuing any event or circumstance described in the definition of a Material Adverse Effect.

 

(c)            Litigation. No action, suit, litigation, proceeding or investigation shall have been instituted, be pending or, to the Knowledge of Seller, threatened (i) challenging or seeking to make illegal, to delay or otherwise directly or indirectly to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain damages in connection with the transactions contemplated by this Agreement, or (ii) seeking to restrain or prohibit Purchaser’s acquisition or future receipt of the Purchased Royalty Interests.

 

(d)           Officer’s Certificate. Purchaser shall have received a certificate of the President of Seller pursuant to which such officer certifies that the conditions set forth in Sections 6.02(a), (b) and (c) shall have been satisfied in all material respects.

 

(e)           Bill of Sale. A Bill of Sale substantially in the form set forth in Exhibit A shall have been executed and delivered by Seller to Purchaser, and Purchaser shall have received the same.

 

(f)            Seller Parent Guaranty. The Seller Parent Guaranty, substantially in the form of Exhibit B, shall have been duly executed and delivered by Seller Parent to Purchaser.

 

(g)           Security Agreements. The Seller Parent Security Agreement, substantially in the form of Exhibit C, and the Seller Security Agreement, substantially in the form of Exhibit D, shall have been duly executed and delivered to Purchaser.

 

(h)           Legal Opinion. Purchaser shall have received the opinions of Goodwin Procter LLP, counsel to Seller, in the form set forth in Exhibit F.

 

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(i)             Corporate Documents of Seller and Seller Parent. Purchaser shall have received certificates of an executive officer of each of Seller and Seller Parent (the statements made in which shall be true and correct on and as of the Closing Date): (i) attaching copies, certified by such officer as true and complete, of the certificate of formation or incorporation and the operating agreement or by-laws, as applicable, of Seller or Seller Parent (as applicable);

 

(ii)attaching copies, certified by such officer as true and complete, of resolutions of the board of directors or Sole Manager, as applicable, of Seller or Seller Parent (as applicable) authorizing and approving the execution, delivery and performance by Seller or Seller Parent (as applicable) of the Transaction Documents and the transactions contemplated herein and therein; (iii) setting forth the incumbency of the officer or officers of Seller or Seller Parent (as applicable) who have executed and delivered the Transaction Documents including therein a signature specimen of each officer or officers; and (iv) attaching copies, certified by such officer as true and complete, of a certificate of the appropriate Governmental Authority of Seller’s or Seller Parent’s (as applicable) jurisdiction of incorporation, stating that such party is in good standing under the laws of such jurisdiction.

 

(j)            GSK Direction. The GSK Direction Letter shall have been signed and sent by Seller to GSK pursuant to the notice provision of the Applicable Agreements, and a copy of the GSK Direction Letter shall have been delivered to Purchaser.

 

(k)           Covenants. (i) Seller shall have complied in all material respects with the covenants set forth in the Transaction Documents and (ii) Seller Parent shall have complied in all material respects with the covenants set forth in the Transaction Documents to which it is a party.

 

(l)            Financing Statements. Purchaser shall have received such other certificates, documents and financing statements as Purchaser may reasonably request, including one or more financing statements satisfactory to Purchaser to create, evidence and perfect the sale of the Purchased Royalty Interests pursuant to Section 2.01(c) and the back-up security interest granted pursuant to Section 2.01(d).

 

(m)           Release of Liens. Seller shall have received an executed and delivered payoff letter from Oberland Capital SA Zermatt LLC (the “Secured Lender”) releasing any and all Liens of the Secured Lender on the Purchased Royalty Interests upon payment to the Secured Lender of the amount set forth therein (the “Payoff Letter”).

 

Section 6.03      Conditions Applicable to Seller in Closing.

 

The obligations of Seller to effect the Closing shall be subject to the satisfaction of each of the following conditions, any of which may be waived by Seller in its sole discretion:

 

(a)           Accuracy of Representations and Warranties. The representations and warranties of Purchaser set forth in this Agreement shall be true, correct and complete as of the Closing Date in all material respects.

 

(b)           Litigation. No action, suit, litigation, proceeding or investigation shall have been instituted, be pending or, to the Knowledge of Purchaser, threatened (i) challenging or seeking to make illegal, to delay or otherwise directly or indirectly to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain damages in connection with the transactions contemplated by this Agreement, or (ii) seeking to restrain or prohibit Purchaser’s acquisition of the Purchased Royalty Interests.

 

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(c)           Officer’s Certificate. Seller shall have received at the Closing a certificate of an authorized representative of Purchaser certifying that the conditions set forth in Sections 6.03(a), (b) and (d) have been satisfied in all respects as of the Closing Date.

 

(d)           Covenants. Purchaser shall have complied in all material respects with the covenants set forth in the Transaction Documents.

 

(e)           Purchase Price. Seller shall have received payment of the Purchase Price in accordance with Section 2.03.

 

(f)           Release of Liens. Seller shall have received an executed and delivered Payoff Letter from the Secured Lender.

 

ARTICLE VII
EXPIRATION

 

Section 7.01      Expiration Date.

 

This Agreement shall terminate on the later of six (6) months following receipt by Purchaser of all Royalties to which it is entitled hereunder and any other payment due from Seller hereunder.

 

Section 7.02      Effect of Expiration.

 

In the event of the expiration of this Agreement pursuant to Section 7.01, this Agreement shall forthwith become void and have no effect without any liability on the part of any party hereto or its Affiliates, directors, officers, stockholders, managers or members other than the provisions of this Section 7.02 and Sections 5.02, 8.01 and 8.05 hereof, which shall survive any termination as set forth in Section 8.01. Nothing contained in this Section 7.02 shall relieve any party from liability for any breach of this Agreement.

 

ARTICLE VIII

MISCELLANEOUS

 

Section 8.01      Survival.

 

All representations and warranties made herein and in any other Transaction Document or any closing certificates delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall continue to survive until the receipt by Purchaser of the last payment due pursuant to the terms of the Applicable Agreements. Notwithstanding anything in this Agreement or implied by law to the contrary, all of the agreements contained in Sections 5.02, 8.01 and 8.05 shall survive indefinitely following the execution and delivery of this Agreement and the Closing and the expiration of this Agreement.

 

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Section 8.02      Specific Performance.

 

Each of the parties hereto acknowledges that the other parties will have no adequate remedy at law if it fails to perform any of its obligations under any of the Transaction Documents. In such event, each of the parties agrees that the other parties shall have the right, in addition to any other rights they may have (whether at law or in equity), to specific performance of this Agreement.

 

Section 8.03      Notices.

 

All notices, consents, waivers and communications hereunder given by any party to the other shall be in writing and delivered personally, by hand, by a recognized overnight courier, or by dispatching the same by certified or registered mail, return receipt requested, with postage prepaid, or by email (provided any notice given by email shall also be given by another method of delivery permitted by this Section 8.03), in each case addressed:

 

If to Purchaser to:

 

Healthcare Royalty Partners III, L.P. 300

Atlantic Street, Suite 600

Stamford, CT 06901 Attention: John

A. Urquhart

Email: john.urquhart@hcroyalty.com

with a copy (which shall not constitute notice) to: Healthcare Royalty Partners

III, L.P.

300 Atlantic Street, 6th Floor Stamford, CT

06901

Attention: Chief Legal Officer Email: royalty-

legal@hcroyalty.com

 

and

 

Cadwalader, Wickersham & Taft LLP One World
Financial Center

New York, New York 10281 Attention: Ira J. Schacter

Email:ira.schacter@cwt.com

 

If to Seller:

 

Antigenics LLC 3

Forbes Road

Lexington, MA 02421 Attention: Legal

Department

Email: karen.valentine@agenusbio.com

 

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with a copy (which shall not constitute notice) to:

 

Goodwin Procter LLP 100

Northern Ave

Boston, MA 02210

Attention: Arthur R. McGivern, Esq.

Email: AMcGivern@goodwinlaw.com

 

or to such other address or addresses as Purchaser or Seller may from time to time designate by notice as provided herein, except that notices of changes of address shall be effective only upon receipt. All such notices, consents, waivers and communications shall: (a) when posted by certified or registered mail, postage prepaid, return receipt requested, be effective three (3) Business Days after dispatch, unless such communication is sent trans-Atlantic, in which case they shall be deemed effective five (5) Business Days after dispatch, (b) when delivered by a recognized overnight courier or in person, be effective upon receipt when hand delivered or (c) on the date sent by e-mail of a PDF document if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, and followed by a transmission pursuant to another method of delivery permitted by this Section 8.03.

 

Section 8.04      Successors and Assigns.

 

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Seller shall not be entitled to assign any of their obligations and rights under the Transaction Documents to which Seller is a party without the prior written consent of Purchaser. Purchaser may assign any of its obligations and rights under the Transaction Documents, without restriction and without the consent of Seller; provided that, notwithstanding any assignment pursuant to this Section 8.04, Purchaser shall remain obligated with respect to the payment of the Purchase Price in connection with the Closing.

 

Section 8.05      Indemnification.

 

(a)            Seller hereby agrees to indemnify and hold Purchaser and its Affiliates and any of their respective partners, directors, managers, members, officers, employees and agents (each a “Purchaser Indemnified Party”) harmless from and against any and all Losses incurred or suffered by any Purchaser Indemnified Party arising out of (i) any breach of any representation, warranty or certification made by a Seller in any of the Transaction Documents to which Seller is a party or certificates given by Seller in writing pursuant hereto or thereto, (ii) any breach of or default under any covenant or agreement by Seller pursuant to any Transaction Document to which Seller is a party; (iii) any Excluded Liabilities and Obligations, (iv) any breach of any representation, warranty or certification made by Seller in any of the Transaction Documents to which Seller is party or certificates given by Seller to Purchaser in writing pursuant to any Transaction Document to which Seller is a party, to the extent directly or indirectly related to the Purchased Royalty Interests or the Purchaser’s interest therein or (v) any breach of or default under any covenant or agreement by Seller pursuant to any Transaction Document to which Seller is party, to the extent directly or indirectly related to the Purchased Royalty Interests or Purchaser’s interest therein; provided that the foregoing shall exclude any indemnification to any Purchaser Indemnified Party (i) that results from the gross negligence or willful misconduct of such Purchaser Indemnified Party, or (ii) to the extent resulting from acts or omissions of Seller or any of its Affiliates based upon the written instructions from any Purchaser Indemnified Party.

 

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(b)           Purchaser hereby agrees to indemnify and hold Seller, its Affiliates and any of their respective partners, directors, managers, officers, employees and agents (each a “Seller Indemnified Party”) harmless from and against any and all Losses incurred or suffered by a Seller Indemnified Party arising out of any breach of any representation, warranty or certification made by Purchaser in any of the Transaction Documents or certificates given by Purchaser in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by Purchaser pursuant to any Transaction Document, to the extent any such Losses are not subject to indemnification by Seller hereunder; provided, however, that the foregoing shall exclude any indemnification to any Seller Indemnified Party (i) that results from the gross negligence or willful misconduct of such Seller Indemnified Party, or (ii) to the extent resulting from acts or omissions of Purchaser or any of its Affiliates based upon the written instructions from any Seller Indemnified Party.

 

(c)            If any claim, demand, action or proceeding (including any investigation by any Governmental Authority) shall be brought or alleged against an indemnified party in respect of which indemnity is to be sought against an indemnifying party pursuant to the preceding paragraphs, the indemnified party shall, promptly after receipt of notice of the commencement of any such claim, demand, action or proceeding, notify the indemnifying party in writing of the commencement of such claim, demand, action or proceeding, enclosing a copy of all papers served, if any, provided that, the omission to so notify such indemnifying party will not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 8.05 unless, and only to the extent that, such omission results in the forfeiture of, or have a material adverse effect on the exercise or prosecution of, substantive rights or defenses by the indemnifying party. In case any such action is brought against an indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish and provided that the indemnifying party acknowledges in writing to the indemnified party that it would have an indemnity obligation pursuant to this Section 8.05 with respect to such action, to assume and control the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8.05 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such proceeding, an indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party; provided that the indemnifying party shall be responsible for the indemnified party’s reasonable fees and expenses of such counsel if (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has assumed the defense of such proceeding and has failed within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interests between them based on the advice of counsel to the indemnified party. It is agreed that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm (in addition to local counsel where necessary) for all such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any indemnifiable Loss under this Agreement by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (i) includes an unconditional written release of such indemnified party, in form and substance reasonably satisfactory to the indemnified party, from all liability on claims that are the subject matter of such claim or proceeding, (ii) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any indemnified party and (iii) does not impose any continuing material obligation or restrictions on any indemnified party.

 

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(d)           No claim for indemnification hereunder for breach of any representations or warranties contained in any Transaction Document may be made after the expiration of the survival period applicable to such representation or warranty; provided that any written claim for breach thereof made prior to such expiration date and delivered to the party against whom such indemnification is sought shall survive thereafter with respect to such claim.

 

(e)           Following the date first written above, except in the case of fraud or intentional breach, the indemnification afforded by this Section 8.05 shall be the sole and exclusive remedy for any and all Losses sustained or incurred by a party hereto in connection with the transactions contemplated by the Transaction Documents, including with respect to any breach of any representation, warranty or certification made by a party hereto in any of the Transaction Documents or certificates given by a party in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by a party pursuant to any Transaction Document. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR PROVIDED FOR UNDER APPLICABLE LAW, EXCEPT AS PROVIDED FOR IN THIS SECTION 8.05 AND FOR INSTANCES OF ACTUAL FRAUD OR WILLFUL MISCONDUCT, NONE OF THE PARTIES HERETO SHALL BE LIABLE TO ANY OTHER PARTY HERETO OR ANY PERSON, WHETHER IN CONTRACT, TORT OR OTHERWISE, FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR MULTIPLE DAMAGES OR LOST PROFITS RELATING TO THE BREACH OR ALLEGED BREACH HEREOF, WHETHER OR NOT THE POSSIBILITY OF SUCH DAMAGES HAVE BEEN DISCLOSED TO ANY PARTY HERETO IN ADVANCE OR COULD HAVE BEEN REASONABLY FORESEEN. Notwithstanding the foregoing, in the event of any breach or failure in performance of any covenant or agreement contained in any Transaction Document, the non-breaching party shall be entitled to seek specific performance, injunctive or other equitable relief. For clarity, neither party shall have any right to terminate this Agreement or any other Transaction Document as a result of any breach by the other party hereof or thereof, but instead shall have the right to seek indemnification under this Section 8.05 and such specific performance.

 

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Section 8.06      Independent Nature of Relationship.

 

(a)            The relationship between Seller, on the one hand, and Purchaser is solely that of sellers and purchaser, and neither Purchaser nor Seller has any fiduciary or other special relationship with the other or any of their respective Affiliates. Nothing contained herein or in any other Transaction Document shall be deemed to constitute Seller and Purchaser as a partnership, an association, a joint venture or other kind of entity or legal form. Any party shall not refer other party as a “partner” or the relationship as a “partnership” or “joint venture.

 

(b)           No officer or employee of Purchaser will be located at the premises of Seller or any of its Affiliates. No officer, manager or employee of Purchaser shall engage in any commercial activity with Seller or any of its Affiliates other than as contemplated herein and in the other Transaction Documents.

 

(c)           Seller and/or any of its Affiliates shall not at any time obligate Purchaser, or impose on Purchaser any obligation, in any manner or respect to any Person not a party hereto.

 

Section 8.07      Tax.

 

(a)            For U. S, federal, state and local income tax purposes, Seller and Purchaser shall treat the transactions contemplated by the Transaction Documents as a sale of the Purchased Royalty Interests. In this regard, any Sales Milestone Payment and Sales Rebate Payment shall be treated as adjustments to purchase price. The parties hereto agree not to take any position that is inconsistent with the provisions of this Section 8.07(a) on any tax return or in any audit or other administrative or judicial proceeding unless otherwise required by law (including a good faith resolute of any tax audit). If there is an inquiry by any Governmental Authority of Purchaser or Seller related to this Section 8.07(a), Seller and Purchaser shall cooperate in responding to such inquiry in a reasonable manner consistent with this Section 8.07(a).

 

(b)           To the extent any amount is withheld at source from a payment made pursuant to the Applicable Agreements, such withheld amount shall for all purposes of this Agreement be treated as paid to Seller and Purchaser on a pro rata basis in accordance with each of the party’s underlying ownership interest in each such payment (taking into account any amounts withheld); e.g., with respect to Purchaser, amounts so withheld shall be attributed to Purchaser, and deemed paid to Purchaser, in accordance with the Purchased Royalty Interests. Any amounts withheld pursuant to this Section 8.07(b) attributable to Purchaser shall be credited for the account of Purchaser. If there is an inquiry by any Governmental Authority of Purchaser related to this Section 8.07, Seller shall cooperate with Purchaser in responding to such inquiry in a reasonable manner consistent with this Section 8.07. Neither party shall have any obligation to gross-up or otherwise pay the other party any amounts with respect to source withholding. All amounts withheld at source as described herein shall for all purposes of this Agreement be deemed to have been received by the party to which they are attributed as provided above or to which the payment subject to such withholding was made.

 

(c)           Any and all payments from Seller to Purchaser under this Agreement shall be made without any deduction or withholding of any tax except as required by applicable law, provided that Seller shall not make any deduction or withholding of any U.S. tax as long as Purchaser has delivered to Seller a properly executed IRS Form W-9 or any other applicable or successor forms prior to the payment and that as a result withholding is not required by applicable law. If any withholding or deduction is required at source from a payment made pursuant to the Applicable Agreements or this Agreement, Seller and Purchaser shall take commercially reasonable measures and cooperate with GSK to obtain any available reduction or exemption from such tax.

 

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Section 8.08      Entire Agreement.

 

This Agreement, together with the Exhibits and Schedule hereto (which are incorporated herein by reference), and the other Transaction Documents, constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein (or in the Exhibits, Schedule or other Transaction Documents) has been made or relied upon by either party hereto. None of this Agreement, nor any provision hereof, is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

 

Section 8.09      Governing Law.

 

This Agreement shall be construed in accordance with and governed by the laws of the State of New York without giving effect to the principles of conflicts of law thereof.

 

Section 8.10      Severability.

 

If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

Section 8.11      Counterparts; Effectiveness.

 

This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Any counterpart may be executed by electronic signature and such electronic signature shall be deemed an original.

 

Section 8.12      Amendments; No Waivers.

 

(a)           This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of the parties hereto. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the party against whom such waiver is sought to be enforced.

 

(b)           No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

 

[Signature page follows]

 

- 34 -

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written.

 

  ANTIGENICS LLC
   
  By: /s/ Garo H. Armen
  Name: Garo H. Armen
  Title: President
   
  HEALTHCARE ROYALTY PARTNERS III, L.P.
   
  By: HealthCare Royalty GP III, LLC, its general partner
   
  By: /s/ Clarke B. Futch
  Name: Clarke B. Futch
  Title: Managing Partner

 

 

 

  HCRP OVERFLOW FUND, L.P.
   
  By: HCRP Overflow Fund GP, LLC, its general partner
   
  By: /s/ Clarke B. Futch
  Name: Clarke B. Futch
  Title: Managing Partner
   
  HCR MOLAG FUND, L.P.
   
  By: HCR MOLAG Fund GP, LLC, its general partner
   
  By: /s/ Clarke B. Futch
  Name: Clarke B. Futch
  Title: Managing Partner
   
  HCR STAFFORD FUND, L.P.
   
  By: HCR Stafford Fund GP, LLC, its general partner
   
  By: /s/ Clarke B. Futch
  Name: Clarke B. Futch
  Title: Managing Partner

 

[Signature Page to Royalty Purchase Agreement]

 

 

EX-23.1 15 tm2113163d7_ex23-1.htm EXHIBIT 23.1

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the use in this Registration Statement on Form S-1 of Healthcare Royalty, Inc. of our report dated May 5, 2021 relating to the combined financial statements of HealthCare Royalty Partners III, L.P., HealthCare Royalty Partners IV, L.P., HCRP Overflow Fund, L.P., HCR Stafford Fund, L.P., HCR Molag Fund, L.P., HCR H.O.P. Fund, L.P., HCR Potomac Fund, L.P., HCR Canary Fund, L.P., PPCF Harris Feeder, L.P., HealthCare Royalty Partners III-A, L.P., and HealthCare Royalty Partners IV-A, L.P., which appears in this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

/s/ PricewaterhouseCoopers LLP

 

New York, New York
June 30, 2021

 

 

 

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