ANESIVA, INC. SECURED NOTE PURCHASE AGREEMENT

Exhibit 10.90

ANESIVA, INC.

S ECURED N OTE P URCHASE A GREEMENT

T HIS S ECURED N OTE P URCHASE A GREEMENT (this “ Agreement ”) is made as of the 18th day of May, 2009 (the “ Effective Date ”), by and between Anesiva, Inc., a Delaware corporation (the “ Company ”), and Arcion Therapeutics, Inc. (together with its successors and assignees, “ Investor ”).

WHEREAS:

A. The Company has requested a loan from Investor.

B. Subject to the terms and conditions of this Agreement, Investor has agreed upon the terms of this Agreement to purchase from the Company, and the Company has agreed to sell to Investor, a secured promissory Note in the form set forth in Exhibit A .

C. In connection with the execution of this Agreement, the Company, each of the Company’s Subsidiaries (other than Anesiva Hong Kong Limited) (the “ Subsidiary Guarantors ”), and Investor are also entering into a Pledge, Security and Collateral Agent Agreement (as such may be amended, restated, supplemented or modified from time to time, the “ Security Agreement ”) in the form set forth in Exhibit B . The Security Agreement, among other things, provides that the Note (as defined below) issued hereunder shall be a secured obligation under such Security Agreement.

D. In connection with the execution of this Agreement, each of the Subsidiary Guarantors shall guaranty the obligations of the Company arising under this Agreement and the Related Documents (as defined below) pursuant to a form of Guaranty (as such may be amended, restated, supplemented or modified from time to time, the “ Guaranty ”) in the form set forth in Exhibit C .

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and for other consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows:

 

1.	A MOUNT A ND T ERMS OF THE N OTE

Subject to the terms and conditions of this Agreement, the Company agrees to sell and issue to Investor and Investor agrees to purchase from the Company a secured promissory Note in the form of note attached hereto as Exhibit A (as amended, restated, supplemented or otherwise modified from time to time, the (“ Note ”) in the aggregate principal amount equal to Two Million Dollars ($2,000,000.00) (the “ Aggregate Commitment ”). The Note shall not be issued at a discount.

 

2.	T HE C LOSING

2.1 Closing. The closing (the “ Closing ”) of the purchase and sale of the Note to Investor shall take place at such time and place as the Company and Investor mutually agree upon orally or in writing. At the Closing, the Company agrees to issue and sell to Investor and Investor agrees, subject to the satisfaction or waiver of the conditions set forth in Section 5, to purchase the Note.

2.2 Delivery. At the Closing: (i) Investor will deliver to the Company in immediately available funds an amount equal to the Aggregate Commitment and (ii) the Company shall deliver to Investor a Note dated the date of such Closing in a principal amount equal to the Aggregate Commitment.

 

3.	R EPRESENTATIONS AND W ARRANTIES OF THE C OMPANY

Except as disclosed by the Company in the disclosure schedule delivered to Investor on the date hereof (the “ Disclosure Schedule ”), the Company hereby represents and warrants to Investor that the representations and warranties contained in this Section 3 are true, complete and correct and accurate in all respects. The Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section 3, and the disclosures in any paragraph of the Disclosure Schedule shall qualify only the corresponding paragraph of this Section 3, unless it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.

3.1 Organization, Good Standing and Qualification. The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company and each of the Subsidiary Guarantors has the corporate power and authority to own and operate its properties and assets, to execute and deliver (to the extent that it is a party to such agreement) (i) this Agreement, (ii) the Note to be issued in connection with this Agreement, (iii) the Security Agreement, (iv) any Guaranty, (v) the Subordination Agreement, and (vi) all other agreements related to this Agreement and the Note (the preceding clauses (ii) through (vi), collectively, together with all other agreements, instruments and documents delivered from time to time in connection herewith and therewith, as any or all of the foregoing may be supplemented, restated, extended or amended from time to time, the “ Related Documents ”), to issue and sell the Note and to carry out the provisions of this Agreement and the Related Documents and to carry on its business as presently conducted and as proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so has not, or would not have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, financial condition or prospects of the Company and its Subsidiaries (a “ Material Adverse Effect ”).

3.2 Authorization; Binding Obligations. All corporate action on the part of the Company and each of its Subsidiaries (including the respective officers and directors) necessary for the authorization of this Agreement and the Related Documents, the performance of all obligations of the Company and its Subsidiaries hereunder and under the Related Documents at the Closing and, the authorization, sale, issuance and delivery of the Note has been taken or will be taken prior to the Closing. This Agreement and the Related Documents, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of each of

 

2

the Company and each of its Subsidiaries, enforceable against each such Person in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and general principles of equity that restrict the availability of equitable or legal remedies. The offer, sale and issuance of the Note are not subject to any preemptive rights or rights of first refusal that will not have been properly waived or complied with. No vote of the stockholders of the Company is required in connection with the issuance and sale of the Note or any of the other transactions contemplated by this Agreement and the Related Documents.

3.3 Liabilities. None of the Company nor any Subsidiary has liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other, except for those which (i) have been reflected in the SEC Reports or (ii) have arisen in the ordinary course of business consistent with past practices since March 31, 2009.

3.4 Agreements; Action.

(a) the Company has filed as an exhibit to an SEC Report all agreements and contracts required to be filed by Item 601 of Regulation S-K.

(b) Since December 31, 2008, neither the Company nor any of its Subsidiaries has: (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other liabilities (other than ordinary course obligations) individually in excess of Fifty Thousand Dollars ($50,000.00) or, in the case of indebtedness and/or liabilities individually less than Fifty Thousand Dollars ($50,000.00), in excess of One Hundred Fifty Thousand Dollars ($150,000.00) in the aggregate; (iii) made any loans or advances to any person not in excess, individually or in the aggregate, of One Hundred Thousand Dollars ($100,000.00), other than ordinary course advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

(c) For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same Person (including Persons the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

3.5 Obligations to Related Parties. There are no obligations of the Company or any of its Subsidiaries to officers, directors, stockholders or employees of the Company or any of its Subsidiaries other than (a) for payment of salary for services rendered and for bonus payments; (b) reimbursement for reasonable expenses incurred on behalf of the Company and its Subsidiaries; and (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board).

 

3

3.6 Changes. Since December 31, 2008, there has not been:

(a) any material change, except in the ordinary course of business, in the obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;

(b) any damage, destruction or loss, whether or not covered by insurance, that has had, or could have, individually or in the aggregate, a Material Adverse Effect;

(c) any waiver not in the ordinary course of business by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it;

(d) any material change in any compensation arrangement or agreement with any officer or director of the Company or any of its Subsidiaries;

(e) any labor organization activity related to the Company or any of its Subsidiaries; or

(f) any arrangement or commitment by the Company or any of its Subsidiaries to do any of the acts described in subsection (a) through (e) above.

3.7 Title to Properties and Assets; Liens, Etc. Each of the Company and each of its Subsidiaries has good and marketable title to its respective properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes which have not yet become delinquent; (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company or any of its Subsidiaries; (c) those that have otherwise arisen in the ordinary course of business and (d) the Permitted Liens. All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company and its Subsidiaries are in reasonably good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. The Company and its Subsidiaries are in compliance with all material terms of each lease to which it is a party or is otherwise bound.

3.8 Intellectual Property.

(a) Each of the Company and each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes reasonably necessary for its business as now conducted and to the Company’s knowledge, as presently proposed to be conducted (the “ Intellectual Property ”), without any known infringement of the rights of others.

(b) Neither the Company nor any of its Subsidiaries has received any written communications alleging that the Company or any of its Subsidiaries has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Company or any of its Subsidiaries aware of any basis therefor.

 

4

3.9 Compliance with Other Instruments. Neither the Company nor any of its Subsidiaries is in violation or default of (x) any term of its Certificate of Incorporation, Bylaws or other organizational documents or (y) of any provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to which it is party or by which it is bound or of any judgment, decree, order or writ, which violation or default, in the case of this clause (y), has had, or could have, either individually or in the aggregate, a Material Adverse Effect. The execution, delivery and performance of and compliance with this Agreement and the Related Documents to which it is a party, and the issuance and sale of the Note by the Company will not, with or without the passage of time or giving of notice, result in any such violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its Subsidiaries, their businesses or operations or any of their assets or properties.

3.10 Litigation. Except as described in the SEC Reports, (i) there are no legal or governmental actions, suits, proceedings or investigations pending and (ii) to the Company’s knowledge, there are no legal or governmental actions, suits, proceedings or investigations threatened, to which the Company or any of its Subsidiaries is or may be a party or subject or of which property of the Company or any of its Subsidiaries is or may be the subject, or related to applicable environmental or discrimination matters, or instituted by the Securities and Exchange Commission (the “ SEC ”), the Financial Industry Regulatory Authority, any state securities commission or other governmental or regulatory entity; and, to the Company’s knowledge, no labor disturbance by the employees of the Company or any of its Subsidiaries exists, or is imminent which is reasonably expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to or subject to the provisions of any injunction, judgment, decree or order of any court, regulatory body, administrative agency or other governmental body.

3.11 Tax Returns and Payments. Each of the Company and each of its Subsidiaries has timely filed all tax returns required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed and all other taxes due and payable by the Company or any of its Subsidiaries on or before the Closing, have been paid or will be paid prior to the time they become delinquent. Except as set forth on Schedule 3.12 to the Securities Purchase Agreement, neither the Company nor any of its Subsidiaries has been advised (a) that any of its returns have been or are being audited or (b) of any deficiency in assessment or proposed judgment to its taxes.

3.12 Employees. Except as set forth on Schedule 3.13 to the Securities Purchase Agreement, neither the Company nor any of its Subsidiaries has any collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company’s knowledge, threatened with respect to the Company or any of its Subsidiaries. To the knowledge of the Company, no employee of the Company or any of its Subsidiaries has plans to terminate his or her employment relationship with the Company and its Subsidiaries. No director, officer or employee of or consultant to the Company or any of its Subsidiaries is in violation of any terms of any employment contract, non-competition agreement, non-disclosure agreement, patent disclosure or assignment agreement or other contract or agreement containing restrictive covenants relating to the right of any such director, officer, employee or consultant to be employed or engaged by the Company and its Subsidiaries because of the nature of the business conducted or proposed to be conducted by the Company and its Subsidiaries, or relating

 

5

to the use of trade secrets or proprietary information of others. The Company and each of its Subsidiaries is in compliance with all applicable laws, rules and contracts relating to employment, employment practices, wages, overtime, severance pay, bonuses and terms and conditions of employment, including employee compensation matters and required contributions to managers insurance and pension funds.

3.13 Registration Rights and Voting Rights. Except as set forth on Schedule 3.14 to the Securities Purchase Agreement, neither the Company nor any of its Subsidiaries is presently under any obligation, and neither the Company nor any of its Subsidiaries has granted any rights, to register any of the Company’s or its Subsidiaries’ presently outstanding securities or any of its securities that may hereafter be issued. Except as set forth on Schedule 3.14 to the Securities Purchase Agreement, to the Company’s knowledge, no stockholder of the Company or any of its Subsidiaries has entered into any agreement with respect to the voting of equity securities of the Company or any of its Subsidiaries.

3.14 Compliance with Laws; Permits. Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which has had, or would have, either individually or in the aggregate, a Material Adverse Effect. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement or any Related Documents and the issuance of the Note, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner. Each of the Company and its Subsidiaries has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it.

3.15 Environmental and Safety Laws. Neither the Company nor any of its Subsidiaries is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no expenditures are or will be required in order to comply with any such existing statute, law or regulation. No Hazardous Materials (as defined below) are used or have been used, stored or disposed of by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other person or entity on any property owned, leased or used by the Company or any of its Subsidiaries. For the purposes of the preceding sentence, “ Hazardous Materials ” shall mean (a) materials that are listed or otherwise defined as “hazardous” or “toxic” under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes or other activities involving hazardous substances, including building materials, or (b) any petroleum products or nuclear materials.

3.16 Valid Offering. Assuming the accuracy of the representations and warranties of Investor contained in this Agreement, the offer, sale and issuance of the Note will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws.

 

6

3.17 SEC Reports. The Company has filed all proxy statements, reports and other documents required to be filed by it under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), since January 1, 2008. The Company has furnished or made available to Investor copies of: (i) its Annual Report on Form 10-K for its fiscal year ended December 31, 2008; (ii) its Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2009 and (iii) the Form 8-K filings which it has made during the fiscal 2009 to date (collectively, the “ SEC Reports ” and, together with this Agreement and the Disclosure Schedule, the “ Disclosure Materials ”). Each SEC Report was, at the time of its filing, in compliance in all material respects with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the Note thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As of the date hereof, the Company satisfies the registrant requirements set forth in General Instruction I.A. to Form S-3 for the use of a Registration Statement on Form S-3.

3.18 Internal Accounting Controls. The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosures controls and procedures to ensure that material information relating to the Company and its Subsidiaries is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared.

3.19 No Integrated Offering. Neither the Company, nor any of its Subsidiaries or Affiliates, nor any Person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Note pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Note pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will the Company or any of its Affiliates or Subsidiaries take any action or steps that would cause the offering of the Note to be integrated with other offerings.

3.20 Food and Drug Administration.

(a) Neither the Company nor any of its Subsidiaries is debarred under the Generic Drug Enforcement Act of 1992 or otherwise excluded from or restricted in any manner from participation in, any government program related to pharmaceutical products and, to the knowledge of the Company, does not employ or use the services of any individual who is debarred or otherwise excluded or restricted.

 

7

(b) Each of the product candidates of the Company and its Subsidiaries is being, and at all times has been, developed, tested, manufactured and stored, as applicable, in substantial compliance in all material respects with all applicable statutes, laws or regulations.

(c) Neither the Company nor any of its Subsidiaries is subject to any pending or, to the knowledge of the Company, threatened, investigation by: (A) the FDA pursuant to its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” set forth in 56 Fed. Reg. 46191 (September 10, 1991); (B) Department of Health and Human Services Officer of Inspector General or Department of Justice pursuant to the Federal Anti-Kickback Statute (42. U.S.C. Section 1320a-7(b)) or the Civil False Claims Act (31 U.S.C. Section 3729 et seq .); or (C) any equivalent statute of any other country. Neither the Company nor any of its Subsidiaries, nor, to the knowledge of the Company, (1) any officer or employee of the Company or any of its Subsidiaries, (2) any authorized agent of the Company or any of its Subsidiaries or (3) any principal investigator or sub-investigator of any clinical investigation sponsored by the Company or any of its Subsidiaries has, in the case of each of (1) through (3) on account of actions taken for or on behalf of the Company or any of its Subsidiaries, been convicted of any crime under 21 U.S.C. Section 335a(a) or any similar state or foreign statute, law or regulation or under 21 U.S.C. Section 335a(b) or any similar state or foreign statute, law or regulation.

(d) No clinical trial of a product of the Company or any of its Subsidiaries has been suspended, put on hold or terminated prior to completion.

3.21 Accounts Receivable; Accounts Payable.

(a) All of the accounts receivable of the Company and its Subsidiaries are reflected on the Company’s balance sheet (the “ Balance Sheet ”) at December 31, 2008 (the “ Balance Sheet Date ”) in accordance with U.S. generally accepted accounting principles and represent bona fide completed sales made in the ordinary course of business, are valid claims and, to the Company’s best knowledge, are not subject to any set offs or counterclaims and are fully collectible in the normal course of business after deducting the reserve set forth in the Company’s Balance Sheet. Since the Balance Sheet Date, the Company and its Subsidiaries have collected their respective accounts receivable in the ordinary course and in a manner that is consistent with their prior practices. Neither the Company nor any of its Subsidiaries has any accounts receivable or loans receivable from any Person that is an Affiliate of the Company or any of its Subsidiaries or from any director, officer or employee of the Company or any of its Subsidiaries or any Affiliate thereof.

(b) All of the accounts payable and notes payable of the Company and each of its Subsidiaries arose in bona fide arms’ length transactions in the ordinary course of business, and no such account payable or note payable is delinquent by more than sixty (60) days in its payment. Since the Balance Sheet Date, the Company and its Subsidiaries have paid their respective accounts payable in the ordinary course and in a manner that is consistent with their respective prior practices. As of the date hereof, neither the Company nor any of its Subsidiaries have any accounts payable to any Person that is an Affiliate of the Company or any of its Subsidiaries or to any director, officer or employee of the Company or any of its Subsidiaries or any Affiliate thereof.

 

8

3.22 Foreign Corrupt Practices Act. Neither the Company nor any of its Subsidiaries has engaged, nor has any officer, director, employee or agent of the Company or any of its Subsidiaries engaged, in any act or practice that would constitute a violation of the Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated thereunder. There is not now, and there never has been, any employment by the Company or any of its Subsidiaries by, any governmental or political official in any country in the world.

3.23 Reserved.

3.24 Change of Control Benefits. Except under the Securities Purchase Agreement or the Indenture, neither the consummation of any Change of Control (either alone or in connection with any other event, including any termination of employment or service), will (i) result in any payment (including any bonus, golden parachute or severance payment) becoming due to any employee or consultant of the Company or any of its Subsidiaries; (ii) result in any forgiveness of indebtedness owing by any employee or consultant of the Company or any of its Subsidiaries to the Company or any of its Subsidiaries or, to the knowledge of the Company, owing by any employee of the Company or any of its Subsidiaries to any third party; (iii) materially increase the benefits payable by the Company or any of its Subsidiaries, or (iv) result in any acceleration of the time of payment or vesting of any such benefits.

3.25 Full Disclosure. Neither this Agreement, the Related Documents or the exhibits and schedules hereto and thereto or any other information provided by the Company or its agents to Investor in connection with the transactions contemplated by this Agreement and the Related Documents contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading.

 

4.	R EPRESENTATIONS AND W ARRANTIES OF I NVESTOR

Investor represents and warrants to the Company, as of the date hereof, as follows:

4.1 Purchase for Own Account. Investor represents that it is acquiring the Note solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Note or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in or otherwise distributing the same. Investor is not a registered broker-dealer under Section 15 of the Exchange Act or an entity engaged in a business that would require it to be so registered as a broker-dealer. Investor further represents that it has full power and authority to enter into this Agreement and the Related Documents to which it is a party and all such agreements, when executed and delivered by Investor, shall constitute valid and legally binding obligations of Investor, enforceable against Investor in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws of general application affecting enforcement of creditor’s rights generally and as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

9

4.2 Information and Sophistication. Investor has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Note. Investor further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment. The foregoing, however, shall not be deemed in any way to limit the scope of the representations and warranties of the Company in Section 3 or the ability of Investor to rely thereupon.

4.3 Ability to Bear Economic Risk. Investor acknowledges that investment in the Note involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Note for an indefinite period of time and to suffer a complete loss of the investment.

4.4 Further Limitations on Disposition. Investor understands that the Note are characterized as “restricted securities” for the purposes of federal securities laws and are being acquired in a transaction not involving a public offering, have not been registered under the Securities Act and that such securities may only be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available and that the Company is not required to register the Note under the Securities Act. Investor acknowledges that it is familiar with Rule 144 promulgated under the Securities Act and understands the resale limitation imposed thereby.

4.5 Experience. Investor is an “accredited investor” as such term is defined in Rule 501 under the Securities Act.

4.6 No Governmental Review. Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Note or the fairness or suitability of the investment in the Note nor have such authorities passed upon or endorsed the merits of the offering of the Note.

4.7 Certain Trading Activities. Other than with respect to the transactions contemplated herein, since the time that Investor was first contacted by the Company or any other Person regarding the transactions contemplated hereby, neither Investor nor any Affiliate of Investor which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares discretion relating to Investor’s investments or trading or information concerning Investor’s investments, including in respect of the Note, and (y) is subject to Investor’s review or input concerning such Affiliate’s investments or trading (collectively, “ Trading Affiliates ”) has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with Investor or Trading Affiliate, effected or agreed to effect any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined below) involving the Company’s securities). Notwithstanding the foregoing, in the case of an Investor and/or Trading Affiliate that is, individually or collectively, a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of Investor’s or Trading Affiliate’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of Investor’s or Trading Affiliate’s assets, the

 

10

representation set forth above shall apply only with respect to the portion of assets managed by the portfolio managers that have knowledge about the financing transaction contemplated by this Agreement. Other than to other Persons party to this Agreement and to advisors, Investor has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). For purposes of this Section 4.7, “ Short Sales ” include, without limitation, (i) all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and (ii) sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

4.8 Regulation M. Investor is aware that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of the Company’s Common Stock and other activities with respect to the Company’s Common Stock by Investor.

4.9 California Securities Laws. Investor acknowledges and agrees that the sale of the Note has not been qualified with the Commissioner of Corporations of the State of California and the issuance of such securities or the payment or receipt of any part of the consideration for such securities prior to such qualification is unlawful, unless the sale of securities is exempt from qualification by Section 25100, 25102 or 25105 of the California Corporations Code. The rights of all parties to this agreement are expressly conditioned upon such qualification being obtained, unless the sale is so exempt.

4.10 Legends. Each Note may bear a form of the following legends:

(a) “THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES LAW. NO SALE, PLEDGE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAW.”

(b) Any legend required by applicable corporations or securities laws of any state.

 

5.	C ONDITIONS TO C LOSING OF I NVESTOR

Investor’s obligation to lend money to the Company at the Closing is subject to the satisfaction or waiver, each at the discretion of Investor, of the following conditions:

5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true and correct on and as of the Closing.

 

11

5.2 Performance. The Company and its Subsidiaries shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement and the Related Documents that are required to be performed or complied with by it on or before the Closing, including the filing of UCC-1 financing statements and appropriate filings with the Patent and Trademark Office.

5.3 Reserved.

5.4 Security Agreement. The Company, the Subsidiary Guarantors and Investor shall have executed and delivered the Security Agreement and such agreement shall be in full force and effect.

5.5 Guaranty and Subordination Agreement. Each of the Subsidiary Guarantors shall have executed and delivered a Guaranty and Subordination Agreement for the benefit of Investor and each such agreement shall be in full force and effect.

5.6 Consents and Approvals. All consents, approvals, waivers, authorizations, licenses or orders of, registrations, qualifications, designations, declarations or filings with, or notice to any governmental entity or any other Person necessary to be obtained, made or given as of the Closing in connection with the transactions contemplated hereby shall have been duly obtained, made or given and shall be in full force and effect, without the imposition upon the Company of any condition, restriction or required undertaking.

5.7 Proceedings. All corporate and other proceedings taken or required to be taken by the Company and the Subsidiary Guarantors and in connection with the transactions contemplated hereby, including the approvals by the Board and the Special Committee, shall be reasonably satisfactory in form and substance to Investor and all documents incident thereto shall have been executed and delivered to Investor or their counsel, and shall be reasonably satisfactory in form and substance to Investor and their counsel. In addition, the Company shall have delivered good standing certificates and tax good standing certificates with respect to the Company and its Subsidiaries from each jurisdiction in which such Person is incorporated.

5.8 Legal Opinion. Investor shall have received from Cooley Godward Kronish LLP, corporate counsel for the Company, an opinion, dated as of the Closing, in substantially the form agreed to as of the date hereof.

5.9 Secretary’s Certificate. The Secretary of the Company shall have delivered to Investor at the Closing a certificate certifying: (a) the Company’s Certificate of Incorporation as in effect as of the Closing; (b) the Bylaws of the Company as in effect as of the Closing; (c) resolutions of the Board approving this Agreement, the Related Documents and the transactions contemplated hereby and thereby; and (d) resolutions of the Special Committee of the Board recommending to the Board this Agreement, the Related Documents and the transactions contemplated hereby and thereby.

5.10 Due Diligence. Investor shall be satisfied in its sole discretion at the Closing with the diligence review of the business, legal, accounting and other investigations undertaken by Investor and their advisors and agents with respect to the Company.

 

12

5.11 Financing Statements. The Company shall have authorized Investor (as defined in the Security Agreement), for the benefit of Investor, to prepare and file such financing statements and other instruments, including, without limitation, the filing of UCC-1 financing statements and appropriate filings with the Patent and Trademark Office (collectively, “ Financing Statements ”), as Investor shall require in order to perfect and maintain the continued perfection of the first priority security interest created by the Security Agreement and the other applicable Related Documents and the Company hereby authorizes Investor to prepare and file such Financing Statements.

5.12 No Event of Default. No event shall have occurred and be continuing or would result from the consummation of the Closing that would constitute an Event of Default.

5.13 Letter Agreement. The Company and Investor shall have executed and delivered a letter agreement dated as of the date of the Closing.

 

6.	R EGISTRATION , T RANSFER AND E XCHANGE OF N OTE

6.1 [ Intentionally Omitted ].

6.2 Transfer. Subject to Section 4, Investor shall be entitled to transfer its Note in any manner permitted by applicable law and to the registration of such transfer by the Company in the name of such transferee or transferees as shall be specified by Investor. In the event of a proposed transfer, the transferring Investor shall give written notice to the Company of Investor’s intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company so requests, be accompanied by either: (i) a written opinion of legal counsel, who shall be reasonably satisfactory to the Company, addressed to the Company and reasonably satisfactory in form and substance to the Company’s counsel, to the effect that the proposed transfer of the Note may be effected without registration under the Securities Act or (ii) a “no action” letter from the SEC to the effect that the transfer of such Note without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto, whereupon the holder of such restricted securities shall be entitled to transfer such restricted securities in accordance with the terms of the notice delivered by such holder to the Company; provided , however , that no opinion or “no action” letter need be obtained with respect to a transfer to: (a) an affiliate (as such term is defined in the Securities Act) of Investor; (b) a partner, active or retired, of Investor; (c) the estate of any such partner; or (d) the spouse, children, grandchildren or spouse of such children or grandchildren of any holder or to trusts for the benefit of Investor or such Persons. In connection with any transfer in accordance with this Section 6.2 and at all other times hereunder, Investor shall be entitled to surrender its Note to the Company together with a written request for the issuance of one or more new Note, specifying the denomination or denominations thereof and, in the case of a transfer of a Note, the name and address of the new transferee or transferees. As soon as reasonably practicable, the Company shall issue a new Note bearing the same interest rate and in the same form, in the same aggregate principal amount as the Note being surrendered in the name of Investor. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. Each Note presented or surrendered for reissuance and registration of a new Note shall be endorsed, or, in the case of a transfer of a Note, shall be accompanied by a duly executed written instrument of transfer in an appropriate form. The applicable Investor shall be responsible for any transfer taxes associated with the

 

13

transfer of any Note. Any transferee, by its acceptance of a Note in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Section 4. Notwithstanding the foregoing, any such transferee shall execute and deliver a counterpart of this Agreement, the Security Agreement and the Guaranty to the Company and Investor, in form and substance satisfactory to Investor, and, by delivering such counterpart, such transferee shall be deemed to agree to be bound by the provisions of this Agreement, the Security Agreement, the Guaranty and the other Related Documents.

6.3 Issuance of Notes. The Company and Investor may treat the Person in whose name any Note is issued as the absolute owner of such Note for all purposes, and all payments in respect of a Note made to any such Person or upon such Person’s order shall satisfy and discharge the liability of the Company or Investor (as the case may be) on such Note to the extent of the sum or sums so paid.

6.4 Mutilated, Destroyed, Lost or Stolen Note. In case the Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new Note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, Investor shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, Investor shall furnish to the Company: (i) evidence to the Company’s satisfaction of the destruction, loss or theft of such Note and (ii) such security or indemnity as may be reasonably required by the Company.

 

7.	A FFIRMATIVE C OVENANTS

The Company hereby covenants that so long as any portion of the Note remains outstanding:

7.1 Notices. The Company shall notify Investor within five (5) Business Days after the Board of Directors or senior officers of the Company has knowledge or becomes aware of the occurrence of: (i) any action, suit or proceeding before any arbitrator, court or governmental department, domestic or foreign, pending, or to the Company’s knowledge, threatened against or affecting the Company or any Subsidiary of the Company, which if adversely determined could have a Material Adverse Effect, (ii) any material dispute or default by the Company, any of its Subsidiaries or any other party under any joint venture, partnering, distribution, cross-licensing, strategic alliance, collaborative research or manufacturing, license or similar agreement which would reasonably be expected to have a Material Adverse Effect, or (iii) any default or Event of Default hereunder or under any Related Document.

7.2 Existence. The Company shall maintain and preserve the existence, present form of business and all rights and privileges necessary or desirable in the normal course of business of the Company and its Subsidiaries; and keep all of the property of the Company and its Subsidiaries in good working order and condition, ordinary wear and tear excepted.

7.3 Insurance. The Company shall (and shall cause its Subsidiaries to) obtain and keep in force insurance in such amounts and types as is usual in the type of business conducted by the Company or such Subsidiary, as applicable, with insurance carriers having a policyholder

 

14

rating of not less than “A” and financial category rating of Class VII in “Best’s Insurance Guide,” unless otherwise approved by Investor. Such insurance policies must be in form and substance reasonably satisfactory to Investor, and shall list Investor as an additional insured or loss payee, as applicable, on endorsement(s) in form reasonably acceptable to Investor. The Company shall furnish to Investor such endorsements, and upon Investor’s request, copies of any or all such policies. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at the Company’s option, be payable to the Company to replace the property subject to the claim, provided that such replacement property shall be deemed part of the Collateral (as defined in the Security Agreement). If an Event of Default has occurred and is continuing, then, at Investor’s option, the proceeds payable under any casualty policy will be payable to Investor and applied toward satisfaction of the Obligations.

7.4 Accounting Records. On and after the date of this Agreement, the Company shall (and shall cause its Subsidiaries to) maintain adequate books, accounts and records, and prepare all financial statements in accordance with U.S. generally accepted accounting principles, and in compliance with the regulations of any governmental or regulatory authority having jurisdiction over the Company, such Subsidiary or the business of the Company or such Subsidiary.

7.5 Compliance with Laws. The Company shall (and shall cause its Subsidiaries to) comply with all laws, rules, regulations applicable to, and all orders and directives of any governmental or regulatory authority having jurisdiction over, the Company, such Subsidiary or the business of the Company or such Subsidiary, and with all material agreements to which the Company or such Subsidiary is a party, except where the failure to so comply would not have a Material Adverse Effect.

7.6 Taxes and Other Liabilities. The Company shall (and shall cause its Subsidiaries to) pay all of Indebtedness (as defined below) of the Company or such Subsidiary when due; pay all taxes and other governmental or regulatory assessments before delinquency or before any penalty attaches thereto, except as may be contested in good faith by the appropriate procedures and for which the Company shall maintain appropriate reserves; and timely file all required tax returns.

7.7 Special Collateral Covenants. The Company shall (and shall cause its Subsidiaries to):

(a) do all things reasonably necessary to maintain, preserve, protect and keep all Collateral in good working order and saleable condition, ordinary wear and tear excepted, deal with the Collateral in all ways as are considered good practice by owners of like property and use the Collateral lawfully and, to the extent applicable, only as permitted by the insurance policies of the Company and its Subsidiaries;

(b) maintain, or cause to be maintained, complete and accurate Records (as defined below) relating to the Collateral;

 

15

(c) upon reasonable prior notice at reasonable times during normal business hours with reasonable prior notice, permit Investor’s officers, employees, representatives and agents to inspect the Collateral and to discuss the Collateral and the Records relating thereto with the officers and employees of the Company and its Subsidiaries, and, in the case of any Rights to Payment (as defined below), with any Person which is or may be obligated thereon;

(d) at the request of Investor, firmly affix a decal, stencil or other marking to designated items of Equipment (as defined below), indicating thereon the security interest of Investor; and

(e) obtain and maintain such acknowledgments, consents, waivers and agreements from the owner, lienholder, mortgagee and landlord with respect to any real property on which Collateral is located as Investor may reasonably require, all in form and substance satisfactory to Investor.

7.8 Financing Statements and Other Actions. The Company shall execute and deliver to Investor all financing statements, notices and other documents (including, without limitation, any filings with the Patent and Trademark Office) from time to time as may be reasonably requested by Investor to maintain a first priority perfected security interest in the Collateral in favor of Investor; and perform such other acts, and execute and deliver to Investor such additional conveyances, assignments, agreements and instruments, as Investor may at any time reasonably request in connection with the administration and enforcement of this Agreement or Investor’s rights, powers and remedies hereunder.

7.9 Reserved.

7.10 Reserved.

7.11 Further Assurances. The Company shall, and shall cause any of its Subsidiaries to, take such actions as are necessary or as Investor may reasonably request from time to time (including the execution and delivery of joinders and/or guaranties to this Agreement and any other applicable Related Documents, termination statements, deposit account control agreements, securities account control agreement and other documents, the filing or recording of any of the foregoing, and the delivery of stock certificates and other collateral with respect to which perfection is obtained by possession) to ensure that the obligations of the Company and its Subsidiaries hereunder and under the other Related Documents are secured by substantially all of the assets, equity securities and personal property of the Company and its Subsidiaries (whether now existing or promptly upon the acquisition or creation thereof after the date hereof).

7.12 Additional Subsidiaries. If any additional Subsidiary of the Company is formed or acquired after the Effective Date, the Company shall, within three Business Days after such Subsidiary is formed or acquired, (i) notify Investor and the Lenders thereof, (ii) cause such Subsidiary to execute and become a party to a guaranty of the obligations hereunder, the Security Agreement or any other security agreement, and such other Related Documents in favor of Investor as Investor may request and (iii) pledge one hundred percent (100%) of the Capital Stock of such Subsidiary (except that the Company or any of its Subsidiaries shall not be required to pledge more than 65% of the outstanding voting Capital Stock of any Subsidiary organized under the laws of any jurisdiction outside the United States of America) to Investor pursuant to the Security Agreement or any other security agreement. The Company agrees to

 

16

provide such evidence as Investor shall request as to the perfection and priority status of each security interest and Lien created by such security documents. The Company shall dispose of the notes outstanding pursuant to the Securities Purchase Agreement at a price equal to one (1) times the price per share of the Company’s Common Stock as quoted on Nasdaq at the close of trading on the date of the Closing.

 

8.	N EGATIVE C OVENANTS

The Company hereby covenants that so long as any portion of the Note remains outstanding:

8.1 Restrictions on Fundamental Changes. Except with the prior written approval of Investor or pursuant to the terms of the letter agreement, dated as of the date of the Closing, between the Company and Investor, as the same may be amended, restated or otherwise modified in writing from time to time, neither the Company nor any of its Subsidiaries will merge with or consolidate into, or acquire all or substantially all of the assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all or any material amount of its assets or commence any Insolvency Proceeding with respect to itself; or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official shall be appointed to take possession, custody or control of the properties of the Company or any Subsidiary, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced to by the Company or such Subsidiary as applicable or is not dismissed within sixty (60) days; or dissolve or terminate of the business of the Company or any Subsidiary.

8.2 Change of Control. The Company will not permit a Change of Control to occur.

8.3 Distributions. Except with the prior approval of Investor, neither the Company nor any of its Subsidiaries will declare or pay any dividends in respect of their Capital Stock, or purchase, redeem, retire or otherwise acquire for value any of their Capital Stock now or hereafter outstanding, return any capital to their stockholders as such, or make any distribution of assets to their stockholders as such, or permit any of its Subsidiaries to purchase, redeem, retire or otherwise acquire for value any stock of the Company, except that the Company may: (i) declare and deliver dividends and distributions payable solely in Common Stock of the Company and (ii) purchase shares or options of employees, consultants and other service providers in accordance with stock option, stock issuance or other stock purchase plans and employment contracts of the Company.

8.4 Indebtedness. Except with the prior approval of Investor, neither the Company nor any Subsidiary will create, incur, assume or otherwise become liable for or suffer to exist any Indebtedness (including under existing indentures, loan agreements and other facilities), other than the following (“ Permitted Indebtedness ”): (i) Indebtedness for borrowed money to Investor hereunder; (ii) Guaranty and any other guarantees by any Subsidiaries of the Company of Indebtedness of the Company incurred hereunder; (iii) Indebtedness consisting of guarantees resulting from endorsement of negotiable instruments for collection by the Company in the ordinary course of business; (iv) Indebtedness incurred for the purpose of financing the acquisition of equipment provided that the principal amount therefore does not exceed the purchase price of such equipment; and (v) Indebtedness consisting of accounts payable to trade creditors for goods and services and expenses (other than for borrowed money), in each case incurred in the ordinary course of business as presently conducted.

 

17

8.5 Liens. Except with the prior written approval of Investor, neither the Company nor any Subsidiary will create, incur, assume or suffer to exist any Lien upon or with respect to any of its properties, revenues or assets, whether now owned or hereafter acquired except for any of the following (“ Permitted Liens ”): (i) Liens in favor of Investor in respect of the indebtedness hereunder and under the Security Agreement and second priority Liens in connection with the Securities Purchase Agreement; (ii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with U.S. generally accepted accounting principles; (iii) Liens of materialmen, mechanics, warehousemen, carriers or employees or other like Liens arising in the ordinary course of business and securing obligations either not delinquent or being contested in good faith by appropriate proceedings; (iv) Liens consisting of deposits or pledges to secure the payment of worker’s compensation, unemployment insurance or other social security benefits or obligations, or to secure the performance of bids, trade contracts, leases, public or statutory obligations, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business; (v) easements, rights of way, servitudes or zoning or building restrictions and other minor encumbrances on real property and irregularities in the title to such property which do not in the aggregate materially impair the use or value of such property or risk the loss or forfeiture of title thereto; (vi) non-exclusive licenses granted in the ordinary course of business and consistent with past practices; and (vii) Liens upon or in any equipment acquired or held by the Company or any Subsidiary to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, provided that the Lien is confined solely to the equipment so acquired and accessions thereon.

8.6 Capital Expenditures. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall make any Capital Expenditures in excess of One Hundred Thousand Dollars ($100,000.00) in any one instance or series of related instances.

8.7 Use of Proceeds. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall use any proceeds from the Note hereunder, directly or indirectly, for the purposes of repaying any pre-existing debt of the Company or any of its Subsidiaries outside the ordinary course of business. Notwithstanding the foregoing, the Company shall use $609,000 of the proceeds of the issuance of the Note within one (1) Business Day of the date of the Closing to pay amounts due to Hospira.

8.8 Affiliate Transactions. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall enter into any transaction, including the purchase, sale or exchange of property or the rendering of any services or debt financing, with any Affiliate or enter into, assume or suffer to exist any employment or consulting contract with any Affiliate, except a transaction or contract which is in the ordinary course of the business of the Company or such Subsidiary, as applicable, and which is upon fair and reasonable terms not less favorable to the Company or such Subsidiary, as applicable, than it would obtain in a comparable arm’s length transaction with a Person not an Affiliate.

 

18

8.9 Investments. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall make loans to, investments in or purchase securities of any Person or Subsidiary, or otherwise extend credit to any Person or Subsidiary (other than extensions of trade credit arising from the sale of goods or services in the ordinary course of business) or loans or advances to employees for travel expenses as approved by the Board, in amounts in excess of Ten Thousand Dollars ($10,000.00) individually or Twenty-Five Thousand Dollars ($25,000.00) in the aggregate.

8.10 Sales of Assets. Except with the prior written approval of Investor or pursuant to the terms of the letter agreement, dated as of the date of the Closing, between the Company and Investor, as the same may be amended, restated or otherwise modified in writing from time to time, neither the Company nor any Subsidiary shall sell, transfer, lease, license or otherwise dispose of (a “ Transfer ”) any of its assets except: (i) non-exclusive licenses of Intellectual Property in the ordinary course of business consistent with industry practice; (ii) Transfers of worn-out, obsolete or surplus property (each as determined by the Company in its reasonable judgment); (iii) Transfers of Inventory (as defined below); (iv) Transfers constituting Permitted Liens; and (v) Transfers of assets (other than Intellectual Property) for fair consideration and in the ordinary course of its business consistent with past practices.

8.11 Other Business. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall engage in any material line of business other than the business that the Company or such Subsidiary conducts or intends to conduct as of the Effective Date.

8.12 Deposit Accounts and Securities Accounts. Except with the prior written approval of Investor, neither the Company nor its Subsidiaries shall maintain any Deposit Accounts or accounts holding securities owned by the Company or any Subsidiary except for Deposit Accounts and securities/investment accounts, in each case, with respect to which the Company or the Subsidiary, as applicable, and Investor shall have taken such action as Investor reasonably deem necessary to obtain a perfected first security interest therein, including the execution and delivery of control agreements in favor of Investor.

8.13 Documents of Title. Except with the prior written approval of Investor or with respect to Permitted Liens, neither the Company nor any Subsidiary shall sign or authorize the signing of any financing statement or other document naming the Company or such Subsidiary, as applicable, as debtor or obligor, or acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt or other document or instrument of title with respect to any Collateral, except those negotiated to Investor, or those naming Investor as secured party.

8.14 Debt or Equity Offering. Except with the prior written approval of Investor, neither the Company nor any of its Subsidiaries shall issue, deliver, sell, authorize, grant, pledge or otherwise encumber any shares of Capital Stock or any securities convertible into shares of Capital Stock, or any debt or convertible debt securities, or subscriptions, rights, warrants or options to acquire any shares of Capital Stock or any securities convertible into shares of Capital Stock, or enter into other agreements or commitments of any character obligating it to issue any such shares, debt or convertible securities, other than (i) the issuance, delivery and/or sale of shares of the Company’s Common Stock pursuant to the exercise of stock options therefor outstanding as of the date of this Agreement; and (ii) the issuance or delivery of shares of the Company’s Common Stock pursuant to the exercise of warrants outstanding on the date of this Agreement.

 

19

8.15 Certain Agreements on Rights to Payment. Except with the prior written approval of Investor or as done in the ordinary course of business, neither the Company nor any Subsidiary shall make any material discount, credit, rebate or other reduction in the original amount owing on a Rights to Payment or accept in satisfaction of a Rights to Payment less than the original amount thereof.

8.16 Modifications Organizational Documents. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall amend, modify or change its articles of incorporation (or corporate charter or other similar organizational documents) or its bylaws (or other similar documents) in any manner adverse in any respect to the rights or interests of Investor.

8.17 Modification or Prepayment of Indebtedness. Except with the prior written approval of Investor, neither the Company nor any Subsidiary shall (i) cancel, forgive, repay, prepay, redeem, purchase, defease or otherwise satisfy in any manner, or make any payment in violation of any subordination terms of, any Indebtedness incurred pursuant to any indenture or the Securities Purchase Agreement, or any other Indebtedness that is contractually subordinated in right of payment to the Note, or (ii) amend, modify or change in any manner any term or condition of any such Indebtedness, provided, however, that the Securities Purchase Agreement and the other Subordinated Debt Documents (as defined in the Subordination Agreement) may be amended from time to time to the extent explicitly permitted by the Subordination Agreement.

 

9.	E VENTS OF D EFAULT ; A CCELERATION

9.1 Events of Default. The occurrence of any of the following, upon written notice by Investor to the Company (which notice shall be waived if the Company fails to deliver notice of such Event of Default pursuant to Section 7.1), shall constitute an “ Event of Default .” Upon the occurrence and during the continuation of an Event of Default that has not been cured within the applicable period of time or waived by Investor in accordance with the terms hereof, (1) all sums of unpaid principal and interest on the Note and any Obligations and other amounts due and owing under this Agreement or any Related Document immediately shall become due and payable (including, in the case where the underling Event of Default would trigger the Company’s obligations set forth in Section 8.2 hereof, the sums due pursuant to Section 8.2) and (2) Investor shall have the right to exercise any other right or remedy provided by contract or applicable law:

(a) the Company shall fail to pay any principal or interest due under the Note, or fail to pay any fees or other charges when due under this Agreement or any of the Related Documents, and such failure continues for three (3) Business Days or more after the same first becomes due;

(b) any representation or warranty made, or financial statement, certificate or other document provided, by the Company or any Subsidiary under this Agreement or any Related Document shall prove to have been false or misleading in any material respect when made or deemed made herein;

 

20

(c) any registration statement, proxy statement, report or other document filed by the Company under the Securities Act or the Exchange Act shall 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 therein, in light of the circumstances under which they were made, not misleading;

(d) the Company or any Subsidiary shall admit its inability to pay its debts generally as they become due or shall commence any Insolvency Proceeding with respect to itself; an involuntary Insolvency Proceeding shall be filed against the Company or any Subsidiary, or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official shall be appointed to take possession, custody or control of the properties of the Company or any Subsidiary, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced to by the Company or such Subsidiary as applicable or is not dismissed within sixty (60) days; or the dissolution or termination of the business of the Company or any Subsidiary;

(e) the Company or any Subsidiary shall be in default beyond any applicable period of grace or cure under any other agreement involving the borrowing of money, the issuance of debt securities, the purchase of property, the advance of credit or any other monetary liability of any kind to any Investor or to any other Person that results in the acceleration of payment of such obligation in an amount in excess of One Hundred Thousand Dollars ($100,000.00);

(f) any governmental or regulatory authority shall take any judicial or administrative action, or any defined benefit pension plan maintained by the Company or any Subsidiary shall have any unfunded liabilities, any of which, in the reasonable judgment of Investor, would reasonably be expected to have a Company Material Adverse Effect;

(g) any sale, transfer or other disposition of all or a substantial or material part of the assets of the Company or any Subsidiary (other than any sale, transfer or other disposition of all or a substantial or material part of any products or assets of the Company pursuant to the terms of the letter agreement, dated as of the date of the Closing, between the Company and Investor, as the same may be amended, restated or otherwise modified in writing from time to time), including, without limitation, to any trust or similar entity, shall occur, except where such transaction is consented to by Investor;

(h) any judgment(s) singly or in the aggregate in excess of One Hundred Thousand Dollars ($100,000.00) shall be entered against the Company or any Subsidiary that remain unsatisfied, unvacated or unstayed pending appeal for forty-five (45) or more days after entry thereof;

(i) the Company or any Subsidiary shall fail to perform or observe any covenant contained in this Agreement;

(j) reserved;

 

21

(k) there shall be a Material Adverse Effect on the Company and its Subsidiaries after the Closing (for the avoidance of doubt, the departure of key members of the Company’s management shall constitute a Material Adverse Effect) or the Collateral shall be impaired;

(l) the Company or any Subsidiary shall fail to perform or observe any covenant or agreement contained in this Agreement or any Related Document (other than a covenant that is dealt with specifically elsewhere in this Article 9) and, if capable of being cured, the breach of such covenant is not cured within thirty (30) days after the sooner to occur of the Company’s receipt of notice of such breach from Investor or the date on which such breach first becomes known to any officer of the Company; provided , however , that if such breach is not capable of being cured within such thirty (30)-day period and the Company timely notifies Investor of such fact and the Company diligently pursues such cure, then the cure period shall be extended to the date requested in the Company’s notice but in no event more than ninety (90) days from the initial breach; provided , further , that such additional sixty (60)-day opportunity to cure shall not apply in the case of any failure to perform or observe any covenant which has been the subject of a prior failure within the preceding one hundred eighty (180) days or which is a willful and knowing breach by the Company or any Subsidiary;

(m) an “Event of Default” shall have occurred under the Securities Purchase Agreement or any indenture to which the Company or any Subsidiary is party; and

(n) The Company shall fail to perform or observe any of its obligations in the letter agreement, dated as of the date of the Closing, between the Company and Investor, as the same may be amended, restated or otherwise modified in writing from time to time.

Notwithstanding the foregoing, or anything to the contrary contained in this Agreement, the Company may repay the Obligations in full (but not in part) with the proceeds of a Change of Control, debt financing or equity financing and, provided the Obligations are repaid in full concurrently (and in any event on the same Business Day) with the closing or funding of such Change of Control, debt financing or equity financing, no Event of Default shall occur solely as a result of such Change of Control, debt financing or equity financing. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, will impair any such right, power or remedy of such non-breaching or non-defaulting party nor will it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor will any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and will be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, will be cumulative and not alternative.

9.2 Remedies Upon Default. (a) Upon the occurrence and during the continuance of an Event of Default described in Section 9.1(c), each of (i) the unpaid principal amount of and accrued interest on the Note and (ii) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of

 

22

which are hereby expressly waived by the Company, and (b) upon the occurrence and during the continuance of any other Event of Default, Investor shall be entitled to, at its option, exercise any or all of the rights and remedies available to a secured party under the UCC or any other applicable law, and exercise any or all of their rights and remedies provided for in this Agreement and in any Related Document. The obligations of the Company under this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Obligations is rescinded or must otherwise be returned by a Investor upon, on account of or in connection with, the insolvency, bankruptcy or reorganization of the Company, any Subsidiary or otherwise, all as though such payment had not been made.

9.3 Sale of Collateral. In addition to any other rights set forth in this Agreement or any of the Related Documents, upon the occurrence and during the continuance of an Event of Default, Investor may sell all or any part of the Collateral, at public or private sales, to themselves, a wholesaler, retailer or investor, for cash, upon credit or for future delivery, and at such price or prices as Investor may deem commercially reasonable. To the extent permitted by law, the Company hereby specifically waives all rights of redemption and any rights of stay or appraisal that it has or may have under any applicable law in effect from time to time. Any such public or private sales shall be held at such times and at such place(s) as Investor may determine. In case of the sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by Investor until the selling price is paid by the purchaser, but Investor shall not incur any liability in case of the failure of such purchaser to pay for the Collateral and, in case of any such failure, such Collateral may be resold. Investor may, instead of exercising their power of sale, proceed to enforce their security interest in the Collateral by seeking a judgment or decree of a court of competent jurisdiction. Without limiting the generality of the foregoing, if an Event of Default is in effect:

(a) Subject to the rights of any third parties, Investor may, in compliance with applicable law, license, or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Copyrights, Patents, Trademarks or other Intellectual Property included in the Collateral throughout the world for such term or terms, on such conditions and in such manner as Investor shall in their sole discretion determine;

(b) Investor may (without assuming any obligations or liability thereunder), at any time and from time to time, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of the Company in, to and under any Copyright Licenses, Patent Licenses, Trademark Licenses or other Intellectual Property and take or refrain from taking any action under any thereof, and the Company hereby releases Investor from, and agrees to hold Investor free and harmless from and against any claims arising out of, any lawful action so taken or omitted to be taken with respect thereto other than claims arising out of an Investor’s gross negligence or willful misconduct; and

(c) Upon request by Investor, the Company will execute and deliver to Investor a power of attorney, in form and substance reasonably satisfactory to Investor, for the implementation of any lease, assignment, license, sublicense, grant of option, sale or other disposition of a Copyright, Patent, Trademark or other Intellectual Property. In the event of any such disposition pursuant to this clause (c), the Company shall supply its know-how and expertise

 

23

relating to the products or services made or rendered in connection with Patents, the manufacture and sale of the products bearing Trademarks and its customer lists and other records relating to such Copyrights, Patents, Trademarks or other Intellectual Property and to the distribution of said products, to Investor.

9.4 Company’s Obligations Upon Default. Upon the request of Investor after the occurrence and during the continuance of an Event of Default, the Company will:

(a) Assemble and make available to Investor the Collateral at such place(s) as Investor shall reasonably designate, segregating all Collateral so that each item is capable of identification; and

(b) Subject to the rights of any lessor, permit Investor, by Investor’s officers, employees, agents and representatives, to enter any premises where any Collateral is located, to take possession of the Collateral, to complete the processing, manufacture or repair of any Collateral, and to remove the Collateral, or to conduct any public or private sale of the Collateral, all without any liability of Investor for rent or other compensation for the use of the Company’s premises.

 

10.	R ESERVED .

 

11.	I NDEMNIFICATION

The Company hereby agrees to indemnify Investor and its directors, officers, employees, agents, counsel, Affiliates and other advisors (each an “ Indemnified Person ”) against, and hold each of them harmless from, any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel to an Indemnified Person (including allocated costs of internal counsel), that may be imposed on, incurred by or asserted against any Indemnified Person (i) in any way relating to or arising out of this Agreement or any of the Related Documents, the use or intended use of the proceeds of the Note, or the transactions contemplated hereby or thereby; (ii) the breach or default by the Company or any of its Subsidiaries of any representation, warranty, covenant or agreement of the Company or any of its Subsidiaries contained in this Agreement or any of the Related Documents and (iii) with respect to any investigation, litigation or other proceeding relating to any of the foregoing, irrespective of whether the Indemnified Person shall be designated a party thereto (the “ Indemnified Liabilities ”); provided , however , that the Company shall not be liable to any Indemnified Person for any portion of such Indemnified Liabilities to the extent that they are found by a final decision of a court of competent jurisdiction to have resulted from such Indemnified Person’s gross negligence or willful misconduct. If and to the extent that the foregoing indemnification is for any reason held unenforceable, the Company agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.

 

24

12.	M ISCELLANEOUS

12.1 Binding Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be enforceable by the Company and Investor and its respective successors and assigns. The Company may not assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Investor. Any such purported assignment, transfer, hypothecation or other conveyance by the Company without the prior express written consent of Investor shall be void. Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

12.2 Governing Law; Venue; Arbitration; Dispute Resolution.

(a) This Agreement shall be governed by and construed according to the laws of the State of California, without regard to conflict of law principles thereof. The Company hereby (i) submits to the exclusive jurisdiction of the courts of the County of San Francisco, State of California and the Federal courts of the United States sitting in the Northern District of the State of California for the purpose of any action or proceeding arising out of or relating to this Agreement and the Related Documents; (ii) agrees that all claims in respect of any such action or proceeding may be heard and determined in such courts; (iii) irrevocably waives (to the extent permitted by applicable law) any objection that it now or hereafter may have to the laying of venue of any such action or proceeding brought in any of the foregoing courts, and any objection on the ground that any such action or proceeding in any such court has been brought in an inconvenient forum; and (iv) 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 permitted by law.

(b) The parties agree that any dispute, controversy or claim (including any counterclaim) (each, a “ Dispute ”) arising out of or relating to this Agreement or any Related Documents shall be finally resolved by confidential binding arbitration in San Francisco County, California as the sole and exclusive method of resolving such dispute, controversy or claim. Any Dispute shall be settled by arbitration under the rules then in effect of JAMS/Endispute conducted by a single arbitrator reasonably acceptable to the parties. The arbitrator shall have no power to amend this Agreement or any Related Documents. The arbitrator shall issue an award in writing (including an explanation of the grounds for such award) as promptly as practicable that shall be final and binding on the parties. Judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. No action at law or in equity based upon any claim arising out of or related to this Agreement or any Related Documents shall be instituted in any court by any party except (a) an action to compel arbitration pursuant to this Section 12.2(b); or (b) an action to enforce an award obtained in an arbitration proceeding in accordance with this Section 12.2(b). Pending the submission to arbitration and thereafter until the arbitrator publishes its award, each party shall, except in the event of termination, continue to perform all its obligations under this Agreement and the Related Documents without prejudice to a final adjustment in accordance with the award.

12.3 Counterparts. This Agreement may be executed in two or more counterparts, including counterparts transmitted by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

12.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

25

12.5 Notices. Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery, overnight courier, facsimile or upon deposit with the United States Post Office, postage prepaid, addressed to the Company, or to Investor at its address shown on the signature pages hereto, or at such other address as such party may designate by ten (10) days advance written notice to the other party.

12.6 Entire Agreement. This Agreement, the Related Documents and the exhibits and schedules hereto and thereto constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof, and supersede any prior agreements among the parties regarding the subject matter hereof. No party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein.

12.7 Amendments and Waivers. Any term of this Agreement, the Security Agreement, the Guaranty, the Note and the other Related Documents may be amended and the observance of any term of this Agreement, the Security Agreement, the Guaranty, the Note and the other Related Documents (other than the Subordination Agreement) may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and Investor. Any amendment or waiver effected in accordance with this Section 12.7 shall be binding upon Investor and each other holder of any Note purchased under this Agreement at the time outstanding, each future holder of all such Notes and the Company.

12.8 Maximum Interest. Notwithstanding anything to the contrary in this Agreement or any Related Documents, in no event whatsoever shall the aggregate of all amounts deemed interest hereunder, under the Note or under any other Related Documents and charged or collected pursuant to the terms of this Agreement, the Note or such Related Document exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto or thereto. If any provisions of this Agreement, the Note or any other Related Documents are in contravention of any such law, such provisions shall be deemed amended to conform thereto (the “ Maximum Rate ”). If at any time, the amount of interest paid hereunder, under the Note or any other Related documents is limited by the Maximum Rate, and the amount at which interest accrues hereunder or thereunder shall remain at the Maximum Rate, until such time as the aggregate interest paid hereunder or thereunder equals the amount of interest that would have been paid had the Maximum Rate not applied.

12.9 Severability. Whenever possible, each provision of this Agreement and the Related Documents shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or any of the Related Documents is held to be prohibited by or invalid under applicable law in any jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating any other provision of this Agreement or the Related Documents. To the extent that any Obligations otherwise paid or payable by the Company to any Investor hereunder or under any of the Related Documents shall have been finally adjudicated to exceed the maximum amount permitted by applicable law, Investor shall be entitled to the maximum amount allowable under applicable law.

 

26

12.10 Expenses. The Company shall pay all costs and expenses, including attorneys’ fees (including allocated costs of internal counsel), fees, costs and expenses of accountants, advisors and consultants and costs of settlement, incurred by the Collateral Agent and Investor in connection with (i) the preparation, negotiation, execution, delivery and administration of this Agreement and the Related Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) creating, maintaining and perfecting Liens in favor of the Collateral Agent, for the benefit of Investor, including filing and recording fees and expenses; (iii) in connection with the enforcement or protection of its rights and remedies in connection with this Agreement and the Related Documents, and (iv) in enforcing any Obligations of or in collecting any payments due from the Company or any of its Subsidiaries hereunder or under the Related Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of this Agreement and the Related Documents) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or pursuant to any insolvency or bankruptcy proceedings.

 

13.	D EFINITIONS

The definitions appearing in this Agreement shall be applicable to both the singular and plural forms of the defined terms:

“Account” means any “account,” as such term is defined in the UCC, now owned or hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to the Company or any Subsidiary (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by the Company or any Subsidiary or from any other transaction, whether or not the same involves the sale of goods or services by the Company or any Subsidiary (including, without limitation, any such obligation that may be characterized as an account or contract right under the UCC) and all of the rights of the Company or any of its Subsidiaries in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of the rights of the Company or any of its Subsidiaries to any goods represented by any of the foregoing (including, without limitation, unpaid seller’s rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to the Company or any Subsidiary under all purchase orders and contracts for the sale of goods or the performance of services or both by the Company or any Subsidiary or in connection with any other transaction (whether or not yet earned by performance on the part of the Company or any Subsidiary), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.

 

27

“Affiliate” means any Person which directly or indirectly controls, is controlled by or is under common control with such Person. “Control,” “controlled by” and “under common control with” mean direct or indirect possession of the power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided, that control shall be conclusively presumed when any Person or affiliated group directly or indirectly owns five percent (5%) or more of the securities having ordinary voting power for the election of directors of a corporation.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in San Francisco, California or New York City, New York are authorized or required by law to close.

“Capital Expenditures” shall mean capital expenditures of the Company and its Subsidiaries determined and consolidated in accordance with U.S. generally accepted accounting principles, excluding expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed with insurance proceeds, cash awards arising from a taking by eminent domain or condemnation or cash proceeds of asset dispositions reinvested in replacement assets.

“Capital Stock” means (a) with respect to any Person that is a corporation, any and all shares, interests or equivalents in capital stock (whether voting or nonvoting, and whether common or preferred) of such corporation and (b) with respect to any Person that is not a corporation, any and all partnership, membership, limited liability company or other equity interests of such Person (including all economic, voting and other rights related thereto); and in each case, any and all warrants, rights or options to purchase any of the foregoing.

“Cash and Cash Equivalents” means, as at any date of determination: (i) cash; (ii) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (iii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, investment grade rating from either Standard & Poor’s (“ S&P ”) or Moody’s Investor Service, Inc. (“ Moody’s ”); (iv) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (v) certificates of deposit or bankers’ acceptances maturing within one year after such date and issued or accepted by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least “adequately capitalized” (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than U.S. $100,000,000; and (vi) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (ii) and (iii) above, (b) has net assets of not less than U.S. $500,000,000, and (c) has an investment grade rating from either S&P or Moody’s.

 

28

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

(a) any transaction or series of related transactions resulting in the sale or issuance of securities or any rights to securities of the Company representing in the aggregate more than fifty percent (50%) of the Company’s issued and outstanding voting securities, on a fully diluted basis, or any transaction or series of related transactions resulting in the sale, transfer, assignment or other conveyance or disposition of any securities or any rights to securities of the Company by any holder or holders thereof representing in the aggregate more than fifty percent (50%) of the issued and outstanding voting securities of the Company;

(b) a merger, consolidation, reorganization, recapitalization or share exchange (whether or not the Company is the surviving and continuing entity) in which the stockholders or equityholders of the Company immediately prior to such transaction receive, in exchange for securities of the Company owned by them (whether alone or together with cash, property or other securities), cash, property or securities of the resulting or surviving entity and as a result thereof Persons who were holders of voting securities of the Company immediately prior to such transaction hold less than fifty percent (50%) of the issued and outstanding Capital Stock of the resulting or surviving entity entitled to vote in the election of directors, managers or similar governing body or otherwise;

(c) a sale, transfer, exclusive license, exclusive partnering arrangement or other disposition in a single transaction or series of related transactions of fifty percent (50%) or more of the assets of the Company and its Subsidiaries, on a consolidated basis, other than sales of inventory in good faith to customers for fair value in the ordinary course of business and dispositions of obsolete equipment not used or useful in the business of the Company and its Subsidiaries;

(d) a sale, transfer, exclusive license, exclusive partnering arrangement or other disposition in a single transaction or series of related transactions of the Company’s Adlea assets;

(e) the Company or any Subsidiary shall fail to pay or admit its inability to pay its debts generally as they become due or shall commence any Insolvency Proceeding with respect to itself; an involuntary Insolvency Proceeding shall be filed against the Company or any Subsidiary, or a custodian, receiver, trustee, assignee for the benefit of creditors, or other similar official shall be appointed to take possession, custody or control of the properties of the Company or any Subsidiary, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced to by the Company or such Subsidiary as applicable or is not dismissed within sixty (60) days; or the dissolution or termination of the business of the Company or any Subsidiary; and

(f) the failure of the Company to own and control, directly or indirectly, through one or more wholly-owned Subsidiaries, one hundred percent (100%) of the issued and outstanding Capital Stock of its Subsidiaries.

“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or hereafter acquires any interest.

 

29

“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or hereafter acquires any interest.

“Copyrights” means all of the following now owned or hereafter acquired by the Company or any Subsidiary or in which the Company or any Subsidiary now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof or of any other country; (ii) all registrations, applications and recordings in the United States Copyright Office or in an