Royalty agreement clause samples

On November 13, 2019, the Company entered into the Amended Pledgor Royalty Agreement. Aside from certain conforming changes, the terms of the Amended Pledgor Royalty Agreement are substantially similar to the terms of the June 2019 Pledgor Royalty Agreement.

In July 2019, we entered into a royalty agreement with Michael F. Cola, Joseph J. Grano, Jr., Kathleen Jane Grano, Joseph C. Grano, The Grano Children’s Trust, Joseph C. Grano, trustee and LeoGroup Private Investment Access, LLC on behalf of Garry A. Neil in exchange for a one-time aggregate payment of $2 million, which we refer to as the Royalty Agreement. Collectively, the investors will be entitled to an aggregate amount equal to a low-single digit percentage of the aggregate net sales of the OSI Products. At any time beginning three years after the date of the first public launch of an OSI Product we may exercise, at our sole discretion, a buyout option that terminates any further obligations under the Royalty Agreement in exchange for a payment to Investors of an aggregate of 75% of the net present value of the royalty payments.

Section 2.3 Buyout. At any time after three years after the Buyout Payment Date, Aevi may exercise an option in its sole discretion (“Buyout Option”) that terminates Aevi’s further obligations under this Royalty Agreement. Such Buyout Option may be exercised upon payment of the Buyout Payment by Aevi to Investor Representative and such Buyout Payment shall be distributed by Investor Representative to each Investor on a pro rata basis based upon each Investor’s Pro Rata Percentage.

Section 8.7 Indemnification. Aevi agrees to indemnify and hold harmless each Investor from and against any and all claims, losses, damages, liabilities and expenses (the “Claims”), to the extent permitted by law, reasonably incurred by any Investor resulting from a third party claim against an Investor in connection with this Royalty Agreement. Promptly after acquiring knowledge of a Claim for which an Investor is entitled to indemnification, such Investor shall give written notice thereof to Aevi; provided, however, that failure to provide a notice of a Claim will not relieve Aevi of any liability it may have to such Investor unless Aevi is materially prejudiced as a result of such failure and in such event Aevi will be relieved of liability only to the extent of such material prejudice. To the extent the Claim consists of a claim, suit or action of a third party, Aevi shall be entitled to participate in the defense of such action and, to the extent that it so elects by written notice to such Investor to participate in the defense of such action and, to assume control of such defense with counsel reasonably satisfactory to such Investor; provided, however, that (i) such Investor shall at its own expense be entitled to participate in such third party action and to employ separate legal counsel with respect thereto, (ii) Aevi shall not consent to the entry of judgement or enter into any settlement (x) that does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Investor a release from all liability in respect of such third party action and (y) that provide for any remedy other than payment of monetary damages. After written notice by Aevi to such Investor of its election to assume control and defense of any third party action, Aevi shall not be liable to such Investor for any legal expenses subsequently incurred by such Investor in connection with the defense thereof, so long as Aevi assumes and diligently conducts such defense in a timely manner.

On October13, 2015, the Borrower entered into the Second Amendment to the Royalty Agreement (the “Amended Royalty Agreement”) with ROS. Pursuant to and subject to the terms of the Second Amendment to the Royalty Agreement, Borrower has agreed to pay ROS 4.52% on the first $50.0million of net sales in each fiscal year, plus 1.75% of net sales in excess of $50.0million and up to and including $100.0million in each fiscal year, plus 0.438% of net sales in excess of $100.0million in each fiscal year, up from 3.875%, 1.50% and 0.375%, respectively. Borrower continues to have the right to buy out the Amended Royalty Agreement at any time on or before March 12, 2018 at a reduced amount; however, under the Amended Royalty Agreement, the buy-out amounts have increased. On March 13, 2017 and on March13, 2018, the buy-out amount increases up to a maximum of approximately $37.2million under the Second Amendment to the Royalty Agreement, as compared to approximately $26.3million under the First Amendment to the Credit Agreement. The buy-out amount varies based on when the buy-out option is exercised and would, in each case, be reduced by amounts previously paid by Borrower to ROS pursuant to the Amended Royalty Agreement. In the event of default under the Amended Credit Agreement, OrbiMed will have a put option that will make the royalty amounts due immediately. The Amended Royalty Agreement has a term commencing on March 12, 2014 and ending on the earlier of (i)March 12, 2024 and (ii)the date of payment of the purchase price pursuant to the exercise of a put option by the Lender or the exercise of a buy-out option by the Borrower. As the Company has elected to value the Amended Royalty Agreement at fair value, the put option feature does not meet the criterion of ASC815-15-25-1b and thus is not separated from the host contract and accounted for as a derivative instrument.

In addition, on the Counterparty Closing Date, we entered into the Sixth Amendment to the Royalty Agreement. Pursuant to and subject to the terms of the Sixth Amendment to the Royalty Agreement, ROS agreed to waive any rights to royalty payments otherwise payable as a result of the license fee and the proceeds of the notes with the Counterparty, and to defer royalty payments payable on revenues received by us from the Counterparty until after the end of the first fiscal quarter in which we sell a commercial quantity of devices developed for Counterparty.

(ix) The Royalty Payments are payable to Sellers on a semi-annual basis pursuant to the Royalty Agreement. Sellers’ account(s) under the Royalty Agreement are fully recouped. No advances or other costs (e.g., recording costs, video production costs, marketing and promotion expense) are currently recoupable or chargeable against the Royalty Payments, and no advances or other costs shall be recoupable or chargeable against the Acquired Interest in the Royalty Payments after the Closing, if any.

(a) Such Seller will give Royalty Exchange and its representatives full reasonable access during normal business hours to all of the properties, books and records related to the Royalty Agreement and Royalty Payments available to such Seller, and furnish Royalty Exchange and its representatives with such information concerning the Royalty Agreement and Royalty Payments as Royalty Exchange may reasonably request, to the extent that such access and any related disclosure of information shall not violate any confidentiality obligations to which Sellers are subject under the Royalty Agreement. All reasonable fees and expenses incurred by the Sellers in connection with the foregoing shall be at the sole expense of Royalty Exchange, or at its option, the sole expense of Buyer.

(a) From time to time after the date of Effective Date of the Agreement, each party hereto shall make, execute and deliver to each other such additional deeds, assignments, bills of sale and other instruments of conveyance, transfer, or consent as may be necessary or proper and reasonably requested by the other party, to the extent that any such delivery shall not result in a breach or violation by Sellers of their respective confidentiality obligations under the Royalty Agreement. For avoidance of doubt, under this Section 18(a), each Seller, Royalty Exchange and Buyer, may be required to use its reasonable best efforts to seek such additional documentation.

B. Reference is made to that certain Option Agreement, dated April 27, 2017 (“Option Agreement”), by and between Buyer and the Sellers, as amended and restated from time to time (including for the avoidance of doubt the amendment and restatement thereto with an effective date of November 13, 2017, which amendment and restatement superseded the original agreement). A true, current, complete and accurate copy of the Option Agreement is annexed hereto as Exhibit 1 and made a part hereof. Pursuant to the terms and conditions of the Option Agreement, Buyer was granted an option to purchase a twenty five percent (25%) Passive Income Interest in the Royalty Payments (the “Option”). For the avoidance of doubt, as defined in the Option Agreement, “Passive Income Interest” means a passive right to receive income from the Royalty Payments otherwise payable to Sellers under the Royalty Agreement. For the avoidance ouf doubt, except as expressly modified in this Agreement, the terms and provisions of the Option Agreement remain in full force and effect and are hereby confirmed and ratified by Sellers and Buyer.

(b) As such, Buyer’s acquired rights to receive income pursuant to this Agreement is a passive and indirect right, secondary to and contingent on Sellers’ right to receive, and receipt of, income under the Royalty Agreement. Sellers do not assign to Buyer a direct right to receive income under the Royalty Agreement; however, after the Purchase Price is paid in full, Sellers shall make reasonable good faith efforts to request Aftermath and/or UMG to directly pay to Buyer the Acquired Interest or Buyer’s acquired portion of the Royalty Payments otherwise payable to Sellers after the Closing in accordance with the terms hereunder, it being noted that (i) Aftermath and/or UMG have and shall have no obligation to comply with such request, and Sellers cannot and do not make any assurances to Buyer in connection therewith, and (ii) any compliance with such request by Aftermath and/or UMG shall be made as an accommodation to Sellers only and shall not be construed to create any obligation for Aftermath and/or UMG to continue to do so.

(c) Buyer is not intended to be and shall not be deemed a third party beneficiary of the Royalty Agreement, for any reason, whether resulting from this Agreement, the Acquired Interest or otherwise. Nothing in this Agreement or in the Option Agreement, express or implied, is intended to or shall be deemed to confer on Buyer, its predecessors and successors-in-interests, its Affiliates and/or any other third party, any rights, title, interests, benefits or other privileges pursuant to the Royalty Agreement. Buyer has no privity of contract with respect to the Royalty Agreement. Buyer does not and shall not have any right to assert, exercise or enforce any rights, remedies or other claims under the Royalty Agreement. Buyer has no right to sue or audit under the Royalty Agreement and shall have no standing and is not authorized to pursue any action, proceeding or any other claim on behalf of itself or Sellers in connection with the Royalty Agreement.

(xi) The Royalty Payments are payable to Sellers on a semi-annual basis pursuant to the Royalty Agreement. Sellers’ account(s) under the Royalty Agreement are fully recouped. No advances or other costs (e.g., recording costs, video production costs, marketing and promotion expense) are currently recoupable or chargeable against the Royalty Payments, and no advances or other costs shall be recoupable or chargeable against the Acquired Interest after the Closing. Subject to the rights of Aftermath and/or UMG under the Royalty Agreement and the terms and provisions of this Agreement, Sellers shall not recoup or charge any deductions, offsets, netting or reductions against the Acquired Interest after Closing, and the Acquired Interest shall be calculated on gross Royalty Payments payable to Sellers and/or actually received by Sellers; provided, however, that if Buyer is entitled to the Acquired Interest of any recoveries or payments resulting from any claims (including, without limitation, settlements and audits) for which Seller incurred collection costs out-of-pocket (e.g., audit fees and/or attorneys’ fees), Sellers shall be entitled to deduct and/or request that Buyer reimburse Sellers with a pro rata portion of any such costs of collection corresponding to Buyer’s Acquired Interest in such recoveries or payments. Except as may be set forth in the Royalty Agreement (as provided in writing to Buyer), there is no other agreement (including but not limited to any settlement agreement or other agreement or order that affects or pertains to the rights and obligations of the Royalty Agreement) which provide for step-downs, sunsets, or other negative adjustments to the rates applicable to the Royalty Payments.

The Sellers have historically entered into litigation to assert claims of copyright infringement to protect their rights to receive the full amount of royalties they are entitled to under the Royalty Agreement.A significant litigation settlement was receivedin 2012 and reflected in the year ended September 30, 2013,and the Sellers continue to assert claims through litigation through June 2017. However, no assurance can be provided that the Sellers will continue to receive net proceeds from future litigation settlements.

The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in the SWK Credit Agreement and Residual Royalty Agreement. See Note 7 for additional information. There is no current observable market for these types of derivatives. The Company determined the fair value of the embedded derivatives using a Monte Carlo simulation model to value the financial liabilities at inception and on subsequent valuation dates. This valuation model incorporates transaction details such as the contractual terms, expected cash outflows, expected repayment dates, probability of a change of control, expected volatility, and risk-free interest rates. A significant acceleration of the estimated repayment date or a significant decrease in the probability of a change of control event prior to repayment of the SWK Credit Agreement, in isolation, would result in a significantly lower fair value measurement of the liabilities associated with the embedded derivatives.

In connection with the Credit Agreement, the Company and the Agent also entered into a Residual Royalty Agreement, dated as of March5, 2018 (the “Residual Royalty Agreement”), which provides for an ongoing royalty payment of 5% of product revenue from net sales of FC2 commencing upon the payment in full by the Company of the required amount pursuant to the Credit Agreement. The Residual Royalty Agreement will terminate upon (i)a change of control or sale of the FC2 business and the payment by the Company of the amount due in connection therewith pursuant to the Credit Agreement, or (ii)mutual agreement of the parties. If a change of control occurs prior to payment in full of the Credit Agreement, there will be no payment due with respect to the Residual Royalty Agreement.If a change of control occurs after the payment in full of the Credit Agreement, the Agent will receive a payment that isthe greater of (A)$2.0million or (B)the product of (x)5% of the product revenue from net sales of FC2 for the most recently completed 12-month period multiplied by (y)five.

Expense associated with the change in fair value of the embedded derivatives was $0.6 million for the three months ended March 31, 2019 compared to expense of $21,000 for the three months ended March 31, 2018. The liabilities associated with embedded derivatives represent the fair value of the change of control provisions in the SWK Credit Agreement and Residual Royalty Agreement. See Note 3 and Note 7 to the financial statements included in this report for additional information.

Our operating activities used cash of $4.2 million in the six months ended March 31, 2018. Cash used in operating activities included a net loss of $8.1 million, adjustments for non-cash items totaling $0.3 million and cash from changes in operating assets and liabilities of $3.6 million. Adjustments for non-cash items primarily consisted of a $3.8 million loss on the settlement of net accounts receivable, $0.6 million of share-based compensation, and $0.4 million of interest expense related to the SWK Credit Agreementand the SWK Residual Royalty Agreement. These amounts were mostly offset by a $4.7 million change in deferred income taxes. The increase in cash from changes in operating assets and liabilities included a decrease in net accounts receivable and long-term other receivables of $3.3 million and increases in accounts payable and accrued expenses of $1.2 million.

12.2Confirmation re Underlying Royalty Agreement. The Golden Entities shall within three months of the Effective Date, (a) confirm the identity of the legally approved holder of the Underlying Royalty, (b) obtain and provide to Barrick, all documents required pursuant to Sections 13.1 and 13.2 of the Underlying Royalty Agreement in respect of any assignment(s) of the Underlying Royalty, including the assumption by the assignee of the assignor’s obligations under the Underlying Royalty Agreement and update the registration status about the royalty holder with the mining authority in Salta, and (c) obtain the written approval of such royalty holder of the assignment by Silex of both: (i) Underlying Royalty Concessions and (ii) the Underling Royalty Agreement, to OPCO, on terms and conditions that are acceptable to Barrick acting reasonably.

(a) Assumption of Royalty Agreement. Until the Lease termination date set forth in Section2(b) or the date on which Lessor otherwise terminates this Lease, Lessee assumes all obligations of Lessor under that certain Royalty Agreement between Lessor and John Goodlett dated February25, 2015, as amended by the Amendment of Royalty Agreement dated August27, 2015, true and correct copies of which are attached to this Lease as Exhibit “B” and incorporated herein by reference (hereinafter the “Goodlett Royalty Agreement”); provided, however, that Lessee shall not terminate this Lease as set forth in (2)(b) above so long as sand can be mined under the Goodlett Royalty Agreement at a commercially reasonable cost to the point of sale.

2. Goodlett waives the prohibition contained in Section E of the Royalty Agreement entitled “Priority in Operations” which prohibits mining for sand by Prop 50 and/or its successors, lessees and assigns, within one (1)mile of the exterior boundaries of the land that is subject to the Royalty Agreement and the sale of such sand, and releases Prop 50 and Vista Sand, as well as their successors, assigns, affiliates from the restrictions imposed by that section of the Royalty Agreement. Section E of the Royalty Agreement is therefore deleted in its entirety.

In November 2018, the Company entered into an Amended and Restated Purchase and Sale Agreement (the Royalty Agreement), with Clarus IV Galera Royalty AIV, L.P., Clarus IV-A, L.P., Clarus IV-B, L.P., ClarusIV-C, L.P. and Clarus IV-D, L.P. (collectively, Blackstone or Blackstone Life Sciences). Pursuant to the Royalty Agreement, Blackstone agreed to pay up to $80.0million (the Royalty Purchase Price) in four tranches of $20.0million each upon the achievement of specific Phase 3 clinical trial patient enrollment milestones. The Company received the first tranche of the Royalty Purchase Price in November 2018. In April 2019, the Company received $20.0million in connection with the achievement of the second milestone under the Royalty Agreement. In February 2020, the Company received a $20.0 million payment in connection with the achievement of the third milestone under the Royalty Agreement.

4.Royalty Agreement. Effective and conditioned upon Closing (i) the U.S. Energy Asset Purchase Agreement is hereby amended by deleting from such agreement any reference to the “Royalty Agreement”, and (ii) the Production Payment Royalty Agreement dated April 30, 2007, by and between Seller and USE (defined in the U.S. Energy Asset Purchase Agreement and herein as the “Royalty Agreement”) is hereby terminated and the Parties agree to perform such further acts and to execute such documents as may be reasonably required to effect the termination of the Royalty Agreement. For purposes of clarification between the Parties, if the Closing does not occur, the U.S. Energy Asset Purchase Agreement is not amended, the Royalty Agreement is not terminated and all obligations of the Seller and Uranium One under the Royalty Agreement remain unchanged and enforceable by the USE Parties.

In April 2019, the Company received $6,000,000 in funds related to subscription and royalty agreement. See Note 11.

In connection with the Credit Agreement, the Borrower entered into a royalty agreement (the “Royalty Agreement”, as amended the “Amended Royalty Agreement) with Royalty Opportunities S.A.R.L. (“ROS”) which entitles ROS to receive royalty payments. Concurrent with the Third Amendment to the Credit Agreement, the Borrower entered into a Second Amendment to the Royalty Agreement. Pursuant to and subject to the terms of the Amended Royalty Agreement, Borrower has agreed to pay ROS 4.52% on the first $50.0million of net sales (on a cash receipts basis as defined in the Amended Credit Agreement) in each fiscal year, plus 1.75% of net sales in excess of $50.0million and up to and including $100.0million in each fiscal year, plus 0.438% of net sales in excess of $100.0million in each fiscal year. Borrower has the right to buy out the Amended Royalty Agreement at any time on or before March12, 2018 at a reduced amount. The buy-out amount ranges from approximately $21.9million up to a maximum of approximately $37.2million. The buy-out amount varies based on when the buy-out option is exercised in each case and would be reduced by amounts previously paid by Borrower to ROS pursuant to the Amended Royalty Agreement. In connection with the Third Amendment to the Credit Agreement and the Second Amendment to the Royalty Agreement, the Borrower also issued an amended and restated promissory note to the Lender (the “Amended and Restated Promissory Note”). The Amended and Restated Promissory Note reflects the Borrower’s commitment to repay to the Lender all amounts owed under the Amended Credit Agreement, including the additional amounts contemplated by the Third Amendment to the Credit Agreement.

On October13, 2015, the Company entered into the Third Amendment to the Credit Agreement, pursuant to which the Lender agreed to provide Borrower under the Amended Credit Agreement, up to an aggregate additional principal amount of $10.0million, less fees and expenses incurred in connection with the Third Amendment to the Credit Agreement and the Second Amendment to the Royalty Agreement. Through December31, 2015, the Company received the full amount of additional proceeds under the Amended Credit Agreement in the amount of $10.0million. The Third Amendment to the Credit Agreement also modified the Borrower’s liquidity covenant whereby, under the Amended Credit Agreement, the Borrower is now required to maintain a cash balance of $3.0million as of October13, 2015, rather than $5.0million.

In connection with the Credit Agreement, the Borrower entered into a royalty agreement (the “Royalty Agreement”, as amended the “Amended Royalty Agreement) with Royalty Opportunities S.A.R.L. (“ROS”) which entitles ROS to receive royalty payments. Concurrent with the Third Amendment to the Credit Agreement, the Borrower entered into a Second Amendment to the Royalty Agreement. Pursuant to and subject to the terms of the Amended Royalty Agreement, Borrower has agreed to pay ROS 4.52% on the first $50.0 million of net sales (on a cash receipts basis as defined in the Amended Credit Agreement) in each fiscal year, plus 1.75% of net sales in excess of $50.0 million and up to and including $100.0 million in each fiscal year, plus 0.438% of net sales in excess of $100.0 million in each fiscal year. Borrower has the right to buy out the Amended Royalty Agreement at any time on or before March 12, 2018 at a reduced amount. The buy-out amount ranges from approximately $21.9 million up to a maximum of approximately $37.2 million. The buy-out amount varies based on when the buy-out option is exercised in each case and would be reduced by amounts previously paid by Borrower to ROS pursuant to the Amended Royalty Agreement. In connection with the Third Amendment to the Credit Agreement and the Second Amendment to the Royalty Agreement, the Borrower also issued an amended and restated promissory note to the Lender (the “Amended and Restated Promissory Note”). The Amended and Restated Promissory Note reflects the Borrower’s commitment to repay to the Lender all amounts owed under the Amended Credit Agreement, including the additional amounts contemplated by the Third Amendment to the Credit Agreement.

On October 13, 2015, the Company entered into the Third Amendment to the Credit Agreement, pursuant to which the Lender agreed to provide Borrower under the Amended Credit Agreement, up to an aggregate additional principal amount of $10.0 million, less fees and expenses incurred in connection with the Third Amendment to the Credit Agreement and the Second Amendment to the Royalty Agreement. Through December 31, 2015, the Company received the full amount of additional proceeds under the Amended Credit Agreement in the amount of $10.0 million. The Third Amendment to the Credit Agreement also modified the Borrower’s liquidity covenant whereby, under the Amended Credit Agreement, the Borrower is now required to maintain a cash balance of $3.0 million as of October 13, 2015, rather than $5.0 million.

Our operating activities used cash of $2.5million in the three months ended December31, 2019. Cash used in operating activities included a net loss of $3.3million, adjustments for noncash items totaling $2.3million and changes in operating assets and liabilities of $1.5million. Adjustments for noncash items primarily consisted of $1.1million of noncash interestexpense, $0.6million of share-based compensation, and $0.4million for the increase in the fair value of the derivate liabilitiesrelated to the Credit Agreement and Residual Royalty Agreement. The decrease in cash from changes in operating assets andliabilities included an increase in accounts receivable of $0.6million and an increase in inventories of $1.1million. Thesewere partially offset by an increase in accounts payable of $0.7million.

15.Continuing Interest and Relinquishment of Claim. The Royalty shall attach to any amendments, relocations or conversions of any mineral claim, mining lease or other tenure comprising the Claim, or to any renewals or extensions thereof. If the Payor or any affiliate or successor or assign of Payor surrenders, allows to lapse or otherwise relinquishes or terminates its interest in any of the Claim in accordance with Section 18 of this Royalty Agreement, then such surrendered, lapsed, relinquished or abandoned portion of the Claim will no longer form part of the Claim for purposes of this Royalty Agreement. If within a period of two (2) years after the effective date of relinquishment or abandonment the Payor or any of its affiliates reacquires a direct or indirect interest in mineral rights in the land covered by the portion of the Claim so surrendered, lapsed, relinquished or abandoned, then from and after the date of such reacquisition such reacquired mineral rights shall be included in the Claim and the Royalty shall apply to such interest so acquired. The Payor shall give written notice to Recipient within ten (10) days of any acquisition or reacquisition of mineral rights in the land covered by the portion of the Claim surrendered, lapsed, relinquished or abandoned.

(ii) Strathmore Resources (US) Ltd. has an option to purchase the Roca Honda Royalty pursuant to the Roca Honda Royalty Agreement. Westwater has not received any notice from Strathmore Resources (US) Ltd., directly or indirectly, of the proposed or intended exercise of such option.

On October 13, 2015, the Borrower entered into the Second Amendment to the Royalty Agreement (the “Amended Royalty Agreement”) with ROS, which will entitle ROS to receive royalty payments. Pursuant to and subject to the terms of the Second Amendment to the Royalty Agreement, Borrower has agreed to pay ROS 4.52% on the first $50.0 million of net sales in each fiscal year, plus 1.75% of net sales in excess of $50.0 million and up to and including $100.0 million in each fiscal year, plus 0.438% of net sales in excess of $100.0 million in each fiscal year, up from 3.875%, 1.50% and 0.375%, respectively. Borrower continues to have the right to buy out the Amended Royalty Agreement at any time; however, under the Amended Royalty Agreement, the buy-out amounts have increased. To buy-out the Amended Royalty Agreement on or before March 12, 2016, the Borrower would pay approximately $21.9 million under the Second Amendment to the Royalty Agreement rather than approximately $13.1 million under the First Amendment to the Royalty Agreement. Thereafter, the buy-out amount increases on March 13 of each year up to a maximum of approximately $37.2 million under the Second Amendment to the Royalty Agreement, as compared to approximately $26.3 million under the First Amendment to the Credit Agreement. The buy-out amount varies based on when the buy-out option is exercised and the amounts disclosed assume that the full $10.0 million under the Amended Credit Agreement contemplated by the Third Amendment to the Credit Agreement is funded and would, in each case, be reduced by amounts previously paid by Borrower to ROS pursuant to the Amended Royalty Agreement. In the event of default under the Amended Credit Agreement, OrbiMed will have a put option that will make the royalty amounts due immediately. The Amended Royalty Agreement has a term commencing on the Closing Date and ending on the earlier of (i) the tenth anniversary of the Closing Date and (ii) the date of payment of the purchase price pursuant to the exercise of a put option by the Lender or the exercise of a buy-out option by the Borrower. As the Company has elected to value the Amended Royalty Agreement at fair value, the put option feature does not meet the criterion of ASC 815-15-25-1b and thus is not separated from the host contract and accounted for as a derivative instrument.

Under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million(depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets. The Company concluded that certain of these contract provisions that could result in an acceleration of amounts due under the Royalty Agreement are embedded derivatives that require bifurcation from the deferred royalty obligation and fair value recognition. The Company determined the fair value of each derivative by assessing the probability of each event occurring, as well as the potential repayment amounts and timing of such repayments that would result under various scenarios. As a result of this assessment, the Company determined that the fair value of the embedded derivatives is immaterial as ofSeptember30, 2020 and December31, 2019. Each reporting period, the Company estimates the fair value of the embedded derivatives until the features lapse and/or the termination of the Royalty Agreement. Any change in the fair value of the embedded derivatives will be recorded as either a gain or loss on the consolidated statements of operations.

(5) The amount shown for Mr.Blain includes 401(k) matching contributions made by us ($11,200) and royalties paid pursuant to the Royalty Agreement ($264,735). Mr.Blain’s Royalty Agreement is described in more detail above under “Business—Royalty Agreement.” The amounts shown for Messrs. McGowan and Graveline reflect 401(k) matching contributions made by us ($10,154 and $11,200, respectively).

On April13, 2017, we entered into the Royalty Agreement with Jason Blain, our President and Chief Executive Officer, under which he would receive royalty payments with respect to certain products under the Lucent Lateral Interbody Implant System, the Lucent XP Expandable Interbody Device System, the Clutch ISP Posterior Fixation System, the Karma Fixation System, the Vertu Anterior Stand-Alone System and Mosaic devices. See “Business—Royalty Agreement” for additional details with respect to the Royalty Agreement. Royalties of $0.2 million for the six months ended June30, 2020 and $0.3million, $0.1million and $0.1million for the years ended December31, 2019, 2018 and 2017, respectively, were paid to Mr. Blain.

As part of a December 2013 debt financing transaction, Broadfin Master made an initial loan of $5.0 million to the Issuer’s U.S. subsidiaries and entered into a Royalty Agreement dated as of December 3, 2013 (the “Broadfin Royalty Agreement”). Pursuant to the Broadfin Royalty Agreement, the Issuer is required to pay a royalty of 0.834% on the net sales of certain products sold by the Issuer and any of its affiliates until December 31, 2024, with royalty payments paid in arrears for each calendar quarter during the term of the Broadfin Royalty Agreement. The Issuer also entered into a Security Agreement dated December 3, 2013 with Broadfin Master, whereby Broadfin Master was granted a security interest in the various tangible and intangible assets related to the products to secure the obligations of Éclat and Avadel US Holdings, Inc., including the full and prompt payment of royalties to Broadfin Master under the Broadfin Royalty Agreement.

Section4.7Litigation. No Claim is pending or, to the Knowledge of Seller, threatened, which seeks to delay or prevent the consummation of, or which would reasonably be expected to materially adversely affect Seller’s ability to consummate, the transactions contemplated by this Agreement and the Restated Royalty Agreement. None of Seller or any of its assets are subject to any Governmental Order, nor, to the Knowledge of Seller, are there any Governmental Orders threatened to be imposed by any Governmental Authority that would reasonably be expected to have a material adverse effect on the ability of Seller to perform its obligations under this Agreement and the Restated Royalty Agreement and the consummation of the transactions contemplated hereby or thereby.

2.Termination of Royalty Agreement. In consideration of the Company’s obligations under Section 1 above, the parties hereby agree that Section 3 of the Agreement is hereby deleted in its entirety. For the purposes of clarity, the parties acknowledge and agree that the Royalty Agreement is hereby terminated and of no further force and effect, and in the event the Company defaults in its obligations under this Amendment, Pacific Leaf’s remedies shall be limited to the enforcement of its rights hereunder.

(e) On December 7, 2015, in exchange for prior advances, the Company received a $15,060 (Cdn$20,000) promissory note from Enigma, a company controlled by a director of the Company and with whom the Company has entered into a Share Exchange and Royalty Agreement. Effective that date the note started to accrue interest from day to day at a rate of 5% per annum. The note is unsecured, however all amounts owing are guaranteed by a director of the Company. The principal sum and accrued interest are due one year after the note was received. At February 28, 2017, the loan was in default and the Company wrote-off accrued interest of $933 (Cdn$1,239) and the principal amount of $15,060 (Cdn$20,000).

(e) On December 7, 2015, in exchange for prior advances, the Company received a $15,060 (Cdn$20,000) promissory note from Enigma, a company controlled by a director of the Company and with whom the Company has entered into a Share Exchange and Royalty Agreement. Effective that date the note started to accrue interest from day to day at a rate of 5% per annum. The note is unsecured, however all amounts owing are guaranteed by a director of the Company. The principal sum and accrued interest are due one year after the note was received. At February 28, 2017, the loan was in default and the Company wrote-off accrued interest of $933 (Cdn$1,239) and the principal amount of $15,060 (Cdn$20,000).

(h) On December 7, 2015, in exchange for prior advances, the Company received a $15,256 (Cdn$20,000) promissory note from Enigma, a company controlled by a director of the Company and with whom the Company has entered into a Share Exchange and Royalty Agreement. Effective that date the note started to accrue interest from day to day at a rate of 5% per annum. The note is unsecured, however all amounts owing are guaranteed by a director of the Company. The principal sum and accrued interest are due one year after the note was received. At August 31, 2016, the Company has accrued interest of $560 (Cdn$734) (May 31, 2016 - $368 (Cdn$482)).

(h) On December 7, 2015, in exchange for prior advances, the Company received a $15,256 (Cdn$20,000) promissory note from Enigma, a company controlled by a director of the Company and with whom the Company has entered into a Share Exchange and Royalty Agreement. Effective that date the note started to accrue interest from day to day at a rate of 5% per annum. The note is unsecured, however all amounts owing are guaranteed by a director of the Company. The principal sum and accrued interest are due one year after the note was received. At August 31, 2016, the Company has accrued interest of $560 (Cdn$734) (May 31, 2016 - $368 (Cdn$482)).

The fair value of the Residual Royalty Agreement at inception of $346,000 was calculated using a Monte Carlo simulation model utilizing significant unobservable inputs including future revenue projections to determine when payments would commence under the Residual Royalty Agreement, the probability of a change of control event as defined in the Residual Royalty Agreement and an estimated discount rate commensurate with the risks of the expected cash flows attributable to the Residual Royalty Agreement.The payment commencement dates varied between the simulated Credit Agreement payoff dates (which the earliest date was September 30, 2019 per the simulation) and the Credit Agreement termination date of March 5, 2025.The change of control probabilities ranged from 50% to 95%.The discount rates ranged from approximately 10% to approximately 12%.Material changes in any of these inputs would have resulted in a significantly higher or lower fair value measurement and commensurate changes to this liability.

As of March31, 2018, the Company’s financial liabilities measured at fair value on a recurring basis, which consisted of embedded derivatives, represent the fair value of the change of control provisions in the SWK Credit Agreement and Residual Royalty Agreement. See Note 7 for additional information.

● November 2017 Royalty Agreement – The Company entered into a royalty agreement with a related party on November 1, 2017 in relation to a note payable of $900,000. This note replaced the September and November 2016 Royalty Agreements. Under the royalty agreement, the Company is required to pay a royalty fee of from $1.50 to $3.00 per month for every ignition interlock devise that the Company has on the road in customers’ vehicles, the amount depending on how many devices are installed. ● August 2018 Royalty Agreement – the Company entered into a royalty agreement with a related party on August 1, 2018 in relation to a note payable of $1,365,000. This note replaced the November 2017 Royalty Agreement as well as other, non-royalty notes payable. Under the royalty agreement, the Company is required to pay $1.50 and accrue an additional $3.50 for every ignition interlock devise for the first nine months of the note payable. After the first nine months, the Company is required to pay $1.50 per devise and the amount accrued during the first nine months will be paid monthly through the next twelve months. After the note payable is paid in full, the Company is required to pay $3.00 per devise in perpetuity. ● December 2018 royalty Agreement – the Company entered into a royalty agreement with a related party on December 1, 2018 in relation to a note payable of $2,020,000. This note replaced the August 2018 Royalty Agreement. Under the royalty agreement, the Company is required to pay a royalty fee of $5.00 per month for every ignition interlock device that the Company has on the road in customers’ vehicles.

● November 2017 Royalty Agreement – The Company entered into a royalty agreement with a related party on November 1, 2017 in relation to a note payable of $900,000. This note replaced the September and November 2016 Royalty Agreements. Under the royalty agreement, the Company is required to pay a royalty fee of from $1.50 to $3.00 per month for every ignition interlock devise that the Company has on the road in customers’ vehicles, the amount depending on how many devices are installed. ● August 2018 Royalty Agreement – the Company entered into a royalty agreement with a related party on August 1, 2018 in relation to a note payable of $1,365,000. This note replaced the November 2017 Royalty Agreement as well as other, non-royalty notes payable. Under the royalty agreement, the Company is required to pay $1.50 and accrue an additional $3.50 for every ignition interlock devise for the first nine months of the note payable. After the first nine months, the Company is required to pay $1.50 per devise and the amount accrued during the first nine months will be paid monthly through the next twelve months. After the note payable is paid in full, the Company is required to pay $3.00 per devise in perpetuity. ● December 2018 royalty Agreement – the Company entered into a royalty agreement with a related party on December 1, 2018 in relation to a note payable of $2,020,000. This note replaced the August 2018 Royalty Agreement. Under the royalty agreement, the Company is required to pay a royalty fee of $5.00 per month for every ignition interlock device that the Company has on the road in customers’ vehicles.

XML 64 R53.htm IDEA: XBRL DOCUMENT /* Do Not Remove This Comment */ function toggleNextSibling (e) { if (e.nextSibling.style.display=='none') { e.nextSibling.style.display='block'; } else { e.nextSibling.style.display='none'; } } v3.19.2 Accrued Royalty Payable (Details Narrative) - USD ($) 3 Months Ended Dec. 01, 2018 Aug. 01, 2018 Nov. 01, 2017 Mar. 31, 2019 Mar. 31, 2018 Dec. 31, 2018 Notes payable - related party $ 29,000 $ 29,000 Royalty fee and expense $ 15,300 $ 42,529 November 2017 Royalty Agreement [Member] Notes payable - related party $ 900,000 Royalty fee description Under the royalty agreement, the Company is required to pay a royalty fee of from $1.50 to $3.00 per month for every ignition interlock devise that the Company has on the road in customers' vehicles, the amount depending on how many devices are installed. August 2018, Royalty Agreement [Member] Notes payable - related party $ 1,365,000 Royalty fee description This note replaced the November 2017 Royalty Agreement as well as other, non-royalty notes payable. Under the royalty agreement, the Company is required to pay $1.50 and accrue an additional $3.50 for every ignition interlock devise for the first nine months of the note payable. After the first nine months, the Company is required to pay $1.50 per devise and the amount accrued during the first nine months will be paid monthly through the next twelve months. After the note payable is paid in full, the Company is required to pay $3.00 per devise in perpetuity. December 2018 Royalty Agreement [Member] Notes payable - related party $ 2,020,000 Royalty fee description This note replaced the August 2018 Royalty Agreement. Under the royalty agreement, the Company is required to pay a royalty fee of $5.00 per month for every ignition interlock device that the Company has on the road in customers' vehicles. X - DefinitionRoyalty fee description.

(e) On December 7, 2015, in exchange for prior advances, the Company received a $14,894 (Cdn$20,000) promissory note from Enigma, a company controlled by a director of the Company and with whom the Company has entered into a Share Exchange and Royalty Agreement. Effective that date the note started to accrue interest from day to day at a rate of 5% per annum. The note is unsecured, however all amounts owing are guaranteed by a director of the Company. The principal sum and accrued interest are due one year after the note was received. At November 30, 2016, the Company has accrued interest of $732 (Cdn$983) (May 31, 2016 - $368 (Cdn$482)).

(e) On December 7, 2015, in exchange for prior advances, the Company received a $14,894 (Cdn$20,000) promissory note from Enigma, a company controlled by a director of the Company and with whom the Company has entered into a Share Exchange and Royalty Agreement. Effective that date the note started to accrue interest from day to day at a rate of 5% per annum. The note is unsecured, however all amounts owing are guaranteed by a director of the Company. The principal sum and accrued interest are due one year after the note was received. At November 30, 2016, the Company has accrued interest of $732 (Cdn$983) (May 31, 2016 - $368 (Cdn$482)).

Our operating activities used cash of $8.7 million in the nine months ended June 30, 2018. Cash used in operating activities included a net loss of $16.0 million, adjustments for noncash items totaling $4.1 million and cash from changes in operating assets and liabilities of $3.2 million. Adjustments for noncash items primarily consisted of a $4.0 million loss on the settlement of net accounts receivable, $3.4 million related to deferred income taxes, $1.7 million of noncash interest expense related to the Credit Agreement and Residual Royalty Agreement, $1.1 million of share-based compensation and $0.4 million for the increase in the fair value of derivative liabilities related to the Credit Agreement and Residual Royalty Agreement. The increase in cash from changes in operating assets and liabilities included a decrease in net accounts receivable and long-term other receivables of $2.3 million and an increase in trade accounts payable of $0.8 million.