AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein.

 

2.                                       LOANS AND TERMS OF PAYMENT

 

2.1                                Promise to Pay.

 

Borrower hereby unconditionally promises to pay Lenders the unpaid principal amount of all Credit Extensions hereunder with all interest, fees and finance charges due thereon and all other Obligations as and when due in accordance with this Agreement.

 

2.1.1.                                 Term Loan Facility.

 

(a)                                   Availability .  Subject to the terms and conditions of this Agreement, the Lenders, severally and not jointly, (i) have advanced, on October 31, 2006, the Original Term Loan Advance and agree to convert on the Closing Date all of the remaining principal balance of the Original Term Loan Advance into Term Loan Advances hereunder in accordance with Section 2.6 hereof, (ii) agree to make an additional advance on the Closing Date to Borrower and (iii) an additional advance on or before the Subsequent Funding Termination Date (the advances described in (i), (ii) and (iii), each a “ Term Loan Advance ” and, collectively, the “ Term Loan Advances ”), in each case in an aggregate amount not exceeding the Term Loan Commitment according to each Lender’s pro rata share of the Term Loan Commitment (based upon the respective Commitment Percentage of each Lender).  The Term Loan Advance made on the Closing Date described in clauses (i) and (ii) above (the “ Closing Date Term Loan Advance ”) shall be in the aggregate principal amount of $17,600,000.  In addition, subject to the terms and conditions of this Agreement, Lenders agree, severally and not jointly, to lend to Borrower, not later than Subsequent Funding Termination Date, one additional Term Loan Advance in an aggregate principal amount of $10,000,000 according to each Lender’s pro rata share of the Term Loan Commitment (based upon the respective Commitment Percentage of each Lender) (the “ Post Closing Term Loan Advance ”).  When repaid, the Term Loan Advance may not be re-borrowed.

 

(b)                                  Borrowing Procedure; Funding of Post Closing Date Term Loan Advance .

 

(i)                                      To obtain the Post Closing Term Loan Advance hereunder, Borrower will notify Agent (which notice shall be irrevocable) by facsimile (or by telephone, provided that such telephonic notice shall be promptly confirmed in writing, but in any event on or before the following Business Day) by 3:00 p.m. (New York time) on the date that is 3 Business Days prior to the day the Post Closing Term Loan Advance is to be made (or such shorter period of time as Agent may agree). Agent and Lenders may act without liability upon the basis of such written or telephonic notice believed by Agent to be from any authorized officer of Borrower.  Agent and Lenders shall have no duty to verify the authenticity of the signature appearing on any such written notice.

 

(ii)                                   Promptly after receiving a request for the Post Closing Term Loan Advance, Agent shall notify each Lender of the contents of such request and such Lender’s Commitment Percentage of the requested Post Closing Term Loan Advance.  Upon the terms and subject to the conditions set forth herein, each Lender, severally and not jointly, shall make

 

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available to Agent its Commitment Percentage of the requested Post Closing Term Loan Advance, in lawful money of the United States of America in immediately available funds, to the Collection Account prior to 11:00 a.m. (New York time) on the specified date.  Agent shall, unless it shall have determined that one of the conditions set forth in Section 3.1 or 3.2, as applicable, has not been satisfied, by 4:00 p.m. (New York time) on such day, credit the amounts received by it in like funds to Borrower by wire transfer to, unless otherwise specified in a Disbursement Letter, the following deposit account of Borrower (or such other deposit account as specified in writing by an authorized officer of Borrower and acceptable to Agent):

 

Bank:	Silicon Valley Bank
	Santa Clara, CA USA
FBO:	Poniard
ABA Number: 121140399
Account Number:

 

(iii)                                Unless Agent shall have received notice from a Lender prior to the date of the Post Closing Term Loan Advance that such Lender will not make available to Agent such Lender’s Commitment Percentage of the Post Closing Term Loan Advance, Agent may assume that such Lender has made such amount available to it on the date of the Post Closing Term Loan Advance in accordance with clause (ii) above, and may (but shall not be obligated to), in reliance upon such assumption, make available a corresponding amount for the account of Borrower on such date.  If and to the extent that such Lender shall not have so made such amount available to Agent, such Lender and Borrower severally agree to repay to Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the day such amount is made available to Borrower until the day such amount is repaid to Agent, at (i) in the case of Borrower, a rate per annum equal to the interest rate applicable thereto pursuant to Section 2.3(b), and (ii) in the case of such Lender, a floating rate per annum equal to, for each day from the day such amount is made available to Borrower until such amount is reimbursed to Agent, the weighted average of the rates on overnight federal funds transactions among members of the Federal Reserve System, as determined by Agent in its sole discretion.  If such Lender shall repay such corresponding amount to Agent, the amount so repaid shall constitute such Lender’s loan included in the Post Closing Term Loan Advance for purposes of this Agreement.

 

2.1.2                                                Notes.  Upon request of any Lender, the Term Loan Advances of such Lender shall be evidenced by a promissory note substantially in the form of Exhibit C hereto (each a “ Note ” and, collectively, the “ Notes ”) executed and delivered by Borrower.  Each Note shall represent the obligation of Borrower to pay to such Lender the lesser of (a) the aggregate unpaid principal amount of the Term Loan Advances made by such Lender to or on behalf of Borrower under this Agreement or (b) the amount of such Lender’s Commitment, in each case together with interest thereon as prescribed in Section 2.3(b).

 

2.2                                Termination of Commitment to Lend.

 

Without limiting Lenders’ other rights hereunder, each Lender’s obligation to lend the undisbursed portion of the Obligations shall terminate if, in Lenders’ good faith business judgment, there has been a material adverse change since July 31, 2008 in the business, results of operation, condition (financial or otherwise) or the prospect of repayment of the Obligations, or

 

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there has been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Agent prior to the execution of this Agreement.

 

2.3                                Repayment of Credit Extensions.

 

(a)                                   Principal and Interest Payments On Payment Dates .

 

(i)                                      With respect to the (A) Closing Date Term Loan Advance, commencing on October 1, 2008 and continuing thereafter on the Payment Date of each calendar month thereafter, Borrower shall make forty one (41) equal monthly payments of principal in the amount of $419,048 and one (1) final payment of principal in the amount of $419,032 on the Applicable Term Loan Maturity Date and (B) Post Closing Date Term Loan Advance, commencing on the first day of the first calendar month following the date of the Post Closing Date Term Loan Advance and continuing thereafter on the Payment Date of each calendar month thereafter, Borrower shall make forty one (41) equal monthly payments of principal in the amount of $238,095 and one (1) final payment of principal in the amount of $238,105 on the Applicable Term Loan Maturity Date (individually, each is a “ Scheduled Payment ”, and collectively, the “ Scheduled Payments ”).  A Term Loan Advance may only be prepaid in accordance with Sections 2.3(c) and 2.3(d).

 

(ii)                                   Payments received after 3:00 p.m. (New York time) are considered received at the opening of business on the next Business Day.

 

(iii)                                Notwithstanding the foregoing, all unpaid principal and accrued interest with respect to a Term Loan Advance is due and payable in full to Agent, for the ratable benefit of Lenders, on the earlier of (A) the first day of the forty second (42 ^nd ) month following the date such Term Loan Advance was made or (B) the date that such Term Loan Advance otherwise becomes due and payable hereunder, whether by acceleration of the Obligations pursuant to Section 9.1 or otherwise (the earlier of (A) or (B), the “ Applicable Term Loan Maturity Date ”). Without limiting the foregoing, all Obligations shall be due and payable on the Applicable Term Loan Maturity Date for the last Term Loan Advance made.

 

(b)                                  Interest Rate .

 

(i)                                      Borrower shall pay interest on each Payment Date on the unpaid principal amount of each Term Loan Advance until the Term Loan Advance has been paid in full, at the per annum rate of interest equal to the Basic Rate determined by Agent as of the Funding Date for each Term Loan Advance in accordance with the definition of the Basic Rate.  Interest is computed on the basis of a 360 day year for the actual number of days elapsed.

 

(ii)                                   Any amounts outstanding during the continuance of an Event of Default shall bear interest at a per annum rate equal to 5.0% above the highest interest rate otherwise applicable thereto (the “ Default Rate ”).

 

(iii)                                In no event shall the interest charged hereunder, with respect to the notes (if any) or any other obligations of Borrower under any other Loan Document exceed the maximum amount permitted under the laws of the State of New York or of any other applicable jurisdiction.  Notwithstanding anything to the contrary herein or elsewhere, if at any time the rate

 

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of interest payable hereunder or under any note or other Loan Document (the “ Stated Rate ”) would exceed the highest rate of interest permitted under any applicable law to be charged (the “ Maximum Lawful Rate ”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however , that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable.  Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply.  In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of the Loans or to other amounts (other than interest) payable hereunder, and if no such principal or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower.  In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.

 

(c)                                   Mandatory Prepayment Upon an Acceleration .  If the Term Loan is accelerated following the occurrence of an Event of Default or otherwise, Borrower shall immediately pay to Lenders an amount equal to the sum of:  (i) all payments of principal plus accrued interest due and owing on such date and not yet paid, plus (ii) all remaining payments of principal and all interest due to be paid on such principal payments in the future, plus (iii) the Final Payment, plus (iv) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(d)                                  Permitted Prepayment of Loans .   Borrower shall have the option to prepay all, but not less than all, of the Term Loan advanced by Lenders under this Agreement, provided Borrower (i) provides written notice to Agent of its election to prepay the Term Loan at least 30 days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all payments of principal plus accrued interest due and owing on such date and not yet paid, plus (B) all remaining payments of principal and all interest due to be paid on such principal payments in the future, plus (C) the Final Payment, plus (D) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

(e)                                   Debit of Accounts .   All principal and interest payments or other amounts Borrower owes Lenders under this Agreement and the other Loan Documents due to Agent and Lenders shall be effected by automatic debit of the appropriate funds from Borrower’s operating account specified on the EPS Setup Form. Agent will promptly notify Borrower when it debits Borrower’s accounts.  These debits shall not constitute a set-off.

 

(f)                                     Payments .  All payments to be made by Borrower hereunder or under any other Loan Document, including payments of principal and interest made hereunder and pursuant to any other Loan Document, and all fees, expenses, indemnities and reimbursements, shall be

 

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made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds.  All payments required under this Agreement are to be made to Agent to the Collection Account (defined below) for the account of Lenders.  As used herein, the term “ Collection Account ” means the following account of Agent (or such other account as Agent shall identify to Borrower in writing):

 

Bank Name:	Deutsche Bank
ABA Number:	021001033
Account Number:
Ref:	Poniard Pharmaceuticals,
	Inc./ CFN# HFS2787

 

(g)                                  Withholdings and Increased Costs .  All payments shall be made free and clear of any taxes, withholdings, duties, impositions or other charges (other than taxes on the overall net income of any Lender and comparable taxes), such that Agent and Lenders will receive the entire amount of any Obligations, regardless of source of payment.  If Agent or any Lender shall have determined that the introduction of or any change in, after the date hereof, any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order reduces the rate of return on Agent or such Lender’s capital as a consequence of its obligations hereunder or increases the cost to Agent or such Lender of agreeing to make or making, funding or maintaining any Term Loan Advance, then Borrower shall from time to time upon demand by Agent or such Lender (with a copy of such demand to Agent) promptly pay to Agent for its own account or for the account of such Lender, as the case may be, additional amounts sufficient to compensate Agent or such Lender for such reduction or for such increased cost.  A certificate as to the amount of such reduction or such increased cost submitted by Agent or such Lender (with a copy to Agent) to Borrower shall be conclusive and binding on Borrower, absent manifest error, provided that, neither Agent nor any Lender shall be entitled to payment of any amounts under this Section 2.3(g) unless it has delivered such certificate to Borrower within 180 days after the occurrence of the changes or events giving rise to the increased costs to, or reduction in the amounts received by, Agent or such Lender.  Each Lender agrees that it shall allocate any increased costs among its customers similarly affected in good faith and in a manner consistent with such Lender’s customary practice.  This provision shall survive the termination of this Agreement.

 

2.4                                Fees.

 

Borrower will pay to Agent:

 

(a)                                   Agency Fee .  On the Closing Date, a non-refundable agency fee in an amount equal to $200,000 for the account of Agent, which fee shall be fully earned when paid;

 

(b)                                  Unused Line Fee .  On the Subsequent Funding Termination Date, a non-refundable unused line fee in an amount equal to 2.0% of the undrawn amount, if any, of the Term Loan Commitment for the benefit of Lenders in accordance with their Commitment Percentage (the “ Unused Line Fee ”), which Unused Line Fee shall be fully earned by and for the ratable account of the Lenders as of the Subsequent Funding Termination Date;

 

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(c)                                   Original Loan Agreement Amendment Letter .  The amounts payable under the Original Loan Agreement Amendment Letter to the Lenders when due and payable in accordance with the terms thereof (the “ Original Loan Agreement Fees ”);

 

(d)                                  Final Payment .  Upon the earlier of the Applicable Term Loan Maturity Date, the repayment in full of all outstanding principal amounts with respect to any Term Loan Advance or the date that the Term Loan otherwise becomes due and payable hereunder, whether by acceleration of the Obligations pursuant to Section 9.1 or otherwise, Borrower shall pay to Agent, for the ratable accounts of Lenders in accordance with their Commitment Percentage, the Final Payment; and

 

(e)                                   Agent Expenses and Lenders’ Expenses . All Agent Expenses and Lenders’ Expenses (including reasonable attorneys’ fees and reasonable expenses) incurred through and after the Closing Date, when due.

 

2.5                                Authorization and Issuance of the Warrants.

 

Borrower has duly authorized (a) the issuance to SVB (or its affiliate or designee) of a Warrant to Purchase Common Stock evidencing SVB’s (or such affiliate’s or designee’s) right to acquire Common Stock of Borrower, (b) the issuance to GEBFS (or its affiliate or designee) of a Warrant to Purchase Common Stock evidencing GEBFS’s (or such affiliate’s or designee’s) right to acquire Common Stock of Borrower, and (c) the reissuance to GEBFS (or its affiliate or designee) of the Warrant to Purchase Common Stock dated as of the Original Closing Date that was originally issued to GEBFS/Merrill, evidencing GEBFS’s (or its affiliate’s or designee’s) right to acquire Common Stock of Borrower (collectively, the “ Warrants to Purchase Stock ”).  The exercise period of the Warrants in clause (a) and (b) above shall expire ten (10) years from the date each such Warrant referenced above is originally issued.  The exercise period of the Warrant in clause (c) above shall expire October 25, 2011.

 

2.6                                Amendment and Restatement; No Novation; Continuance of Security Interests .

 

This Agreement constitutes an amendment and restatement of the Original Loan Agreement (other than the Original Loan Agreement Amendment Letter) effective from and after the Closing Date.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby are not intended by the parties to be, and shall not constitute, a novation or an accord and satisfaction of the Obligations under the Original Loan Agreement or the loan documents executed in connection therewith.  On the Closing Date, the credit facilities and the terms and conditions thereof described in the Original Loan Agreement (other than the Original Loan Agreement Amendment Letter) shall be amended and converted into the credit facilities and the terms and conditions thereof described in this Agreement, and all Term Loan Advances, other Credit Extensions and other Obligations of Borrower outstanding as of such date under the Original Loan Agreement (other than the obligations evidenced by the Original Loan Agreement Amendment Letter) shall be deemed to be Term Loan Advances, other Credit Extensions and other Obligations of Borrower outstanding under the corresponding facilities described herein (such that all Original Term Loan Advances outstanding on the Closing Date shall become Term Loan Advances under this Agreement), without further action by any Person.

 

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All Liens and security interests previously granted to Original Agent in its capacity as agent for Original Lenders, pursuant to the Original Loan Agreement are acknowledged and reconfirmed and remain in full force and effect, secure the Obligations hereunder and are not intended to be released, replaced or impaired.  Notwithstanding the foregoing, this Agreement amends, restates and replaces the Original Loan Agreement in its entirety other than the Original Loan Agreement Amendment Letter.  The parties hereto expressly agree and acknowledge that the terms and conditions of the Original Loan Agreement Amendment Letter survive the execution, delivery and effectiveness of this Agreement.

 

3.                                       CONDITIONS OF LOANS

 

3.1                                Conditions Precedent to Initial Credit Extension.

 

The Lenders’ agreement to make its pro rata portion of the Closing Date Term Loan Advance is subject to the condition precedent that Agent shall have received, in form and substance satisfactory to the Lenders, such documents and completion of such other matters, as the Lenders may reasonably deem necessary or appropriate, including, without limitation, subject to the condition precedent that Agent shall have received in form and substance satisfactory to the Lenders the following:

 

(a)                                   this Agreement;

 

(b)                                  a certificate of the Secretary of Borrower with respect to articles, by-laws, incumbency, specimen signature and corporate resolutions authorizing the execution, delivery and performance of this Agreement;

 

(c)                                   a certificate of the Secretary of Guarantor with respect to articles, by-laws, incumbency, specimen signature and corporate resolutions authorizing the execution, delivery and performance of the Guaranty Agreement;

 

(d)                                  Perfection Certificate by Borrower;

 

(e)                                   Note in favor of GEBFS;

 

(f)                                     Guaranty Agreement;

 

(g)                                  Intercreditor Agreement between the Lenders;

 

(h)                                  Warrants to Purchase Stock;

 

(i)                                      Financing statement (Forms UCC-1);

 

(j)                                      Control Agreements (SVB and other financial institutions);

 

(k)                                   Disbursement Letter;

 

(l)                                      Original Loan Agreement Amendment Letter;

 

(m)                                EPS Setup Form;

 

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(n)                                  Certificates evidencing Borrower’s equity ownership of NeoRx together with an assignment executed in blank;

 

(o)                                  Evidence of insurance;

 

(p)                                  UCC financing statement, tax lien and judgments searches in such jurisdictions required by the Lenders;

 

(q)                                  payment of the fees and Agent Expenses and Lenders’ Expenses then due specified in Section 2.4 hereof;

 

(r)                                     Certificate of Good Standing/Legal Existence from the jurisdiction of incorporation for Borrower and Guarantor;

 

(s)                                   Certificate of Foreign Qualification from the State of California and in each other jurisdiction where Borrower’s failure to be so qualified could reasonably be expected to have a material adverse effect on any of (i) the operations, business, assets, properties, or condition (financial or otherwise) of Borrower, (ii) the ability of Borrower to perform any of its obligations under this Agreement or under any other Loan Document, (iii) the legality, validity or enforceability of this Agreement or any other Loan Document, (iv) the rights and remedies of Agent or Lenders under this Agreement or under any other Loan Document or (v) the validity, perfection or priority of any lien in favor of Agent, on behalf of itself and Lenders, on any of the Collateral, in each case as of a recent date acceptable to the Lenders;

 

(t)                                     A legal opinion issued to Agent and Lenders by counsel to Borrower and Guarantor dated as of the Closing Date, in form and substance satisfactory to the Lenders; and

 

(u)                                  Such other documents, and completion of such other matters, as the Lenders may reasonably deem necessary or appropriate.

 

3.2                                Conditions Precedent to all Credit Extensions.

 

The obligations of Lenders to make its pro rata portion of the each Credit Extension, including the Closing Date Term Loan Advance, is subject to the following:

 

(a)                                   timely receipt of a Disbursement Letter;

 

(b)                                  (i) the representations and warranties in Section 5 shall be true, correct and complete in all material respects on the effective date of each Credit Extension; provided, that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all respects as of that date, and (ii) no Event of Default or Default shall have occurred and be continuing, or result from the Credit Extension;

 

(c)                                   Agent shall have received such other documents, agreements, instruments or information as the Lenders shall reasonably request;

 

(d)                                  with respect to the Post Closing Date Term Loan Advance, Agent shall have received evidence satisfactory to the Lenders that Borrower has, at the time of and after

 

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giving effect to such Term Loan Advance, unrestricted cash and Cash Equivalents maintained in deposit accounts subject to a Control Agreement in an amount equal to or greater than the product of (A) twelve times (B) the Cash Burn Amount (as defined below).  As used herein, the term “ Cash Burn Amount ” means, with respect to Borrower, as of any date of determination and based on the financial statements most recently delivered to Agent and Lenders in accordance with this Agreement:

 

(a)                                   (i) the sum of, without duplication, (A) net income (loss), plus (B) depreciation and amortization, minus (C) non-financed capital expenditures, in each case of clauses (A), (B) and (C), for the immediately preceding six month period on a trailing basis, divided by (ii) six,

 

minus

 

(b)                                  (i) the current portion of interest bearing liabilities (including, without limitation, capital leases) due and payable in the immediately succeeding six months divided by (ii) six.

 

If sub-clause (A) in clause (a) above is a net loss, the sum of (A) + (B) + (C) in clause (a) above should be expressed as a positive number.

 

4.                                       CREATION OF SECURITY INTEREST

 

4.1                                Grant of Security Interest.

 

Borrower hereby grants Agent, for the benefit of itself and Lenders, to secure the payment and performance in full of all of the Obligations and the performance of each of Borrower’s duties under this Agreement and the other Loan Documents, a continuing Lien on and security interest in, and pledges and assigns to the Agent, for the benefit of itself and Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof, it being expressly agreed and acknowledged that all Liens and security interests previously granted to Original Agent in its capacity as agent for Original Lenders, pursuant to the Original Loan Agreement are acknowledged and reconfirmed and remain in full force and effect, secure the Obligations hereunder pursuant to the terms hereof and are not intended to be released, replaced or impaired.  Borrower warrants and represents that the security interest granted herein shall be a first priority security interest in the Collateral, subject to only Permitted Liens.

 

Except as noted on Schedule 4.1 , Borrower is not a party to, nor is bound by, any material license or other similar agreement with respect to which the Borrower is the licensee that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property.  Borrower shall provide written notice to Agent within 10 days of entering into or becoming bound by, any such license or agreement which is reasonably likely to have a material impact on Borrower’s business or financial condition.  If such licenses or other agreements meet the definition of Collateral set forth in Section 13 of this Agreement, Borrower shall take such steps as Agent reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for such licenses or other agreements to be deemed “Collateral” and for Agent to have a security

 

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interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Collateral, whether now existing or entered into in the future.

 

Borrower agrees that any disposition of the Collateral in violation of this Agreement, by either the Borrower or any other Person, shall be deemed to violate the rights of the Lenders under the Code.  If the Agreement is terminated, Lenders’ and Agent’s lien and security interest in the Collateral shall continue until Borrower fully satisfies its Obligations, Lenders’ obligation to make Credit Extensions has terminated and Agent and Borrower have each executed a payoff letter in form and substance acceptable to Agent.  If Borrower shall at any time, acquire a commercial tort claim (as defined in the Code) or Letter-of-Credit Right, Borrower shall promptly notify Agent in a writing signed by Borrower of the brief details thereof and grant to Agent and Lenders in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Agent.

 

4.2                                Authorization to File Financing Statements.

 

Borrower hereby authorizes Agent to file financing statements, without notice to Borrower, with all appropriate jurisdictions, in order to perfect or protect Agent’s and the Lenders’ interest or rights hereunder.

 

5.                                       REPRESENTATIONS AND WARRANTIES

 

Except as set forth in the Loan Documents, the Perfection Certificate or any Schedule, Borrower represents and warrants to Agent and each Lender as follows:

 

5.1                                Due Organization and Authorization.

 

Each of Borrower and its Subsidiaries is duly organized, validly existing and in good standing in its state of incorporation and duly qualified to do business in, and in good standing in, each jurisdiction in which the nature of the business conducted by it or its ownership of property requires that it be qualified, except where the failure to be or do so could not reasonably be expected to cause a Material Adverse Change.  In connection with this Agreement, the Borrower delivered to the Agent a certificate signed by the Borrower and entitled “Perfection Certificate”.  The Borrower represents and warrants to the Agent and each Lender that: (a) the Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) the Borrower is an organization of the type, and is organized in the jurisdiction, set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth the Borrower’s organizational identification number or accurately states that the Borrower has none; (d) the Perfection Certificate accurately sets forth the Borrower’s place of business, or, if more than one, its chief executive office as well as the Borrower’s mailing address if different; and (e) all other information set forth on the Perfection Certificate pertaining to the Borrower is accurate and complete in all material respects.  If the Borrower does not now have an organizational identification number, but later obtains one, Borrower shall forthwith notify the Agent of such organizational identification number.

 

The execution, delivery and performance of this Agreement and the other Loan Documents have been duly authorized, and do not conflict with Borrower’s organizational

 

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documents, nor constitute an event of default under any Material Agreement by which Borrower is bound.  Borrower is not in default under any agreement to which or by which it is bound in which the default could reasonably be expected to cause a Material Adverse Change.

 

5.2                                Collateral.

 

Borrower has good title to the Collateral, free of Liens except Permitted Liens.  Borrower has no deposit account, other than the deposit accounts with Lenders and deposit accounts described in the Perfection Certificate delivered to Agent in connection herewith.  The Accounts are bona fide, existing obligations of the account debtors.  The Collateral is not in the possession of any third party bailee (such as a warehouse).  Except as hereafter disclosed to the Lenders in writing by Borrower, none of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate.  In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first receive the written consent of Lenders and such bailee must acknowledge in writing that the bailee is holding such Collateral for Agent, for the benefit of itself and Lenders.  All Inventory is in all material respects of good and marketable quality, free from material defects.

 

5.3                                Intellectual Property.

 

Borrower and its Subsidiaries solely own, or have sufficient rights to use and otherwise exercise and exploit and license all Intellectual Property necessary or material for use in connection with their respective businesses as currently being conducted.  Neither Borrower nor any of its Subsidiaries has received any notice that any current activities of any of them may violate or infringe upon the patent rights of any Person.  To the knowledge of Borrower, each Patent owned or licensed by Borrower or its Subsidiaries that is necessary or material for use in its business as currently conducted is enforceable and there is no existing or expected infringement (or challenge) by another Person of (or to) any of the Intellectual Property of Borrower or its Subsidiaries that could reasonably be expected to cause a Material Adverse Change.  Schedule 5.3(ii)  sets forth, as of August 26, 2008, (i) all domestic and foreign registered patents and patent applications of Borrower; and (ii) all domestic and foreign registered and applied for trademarks, trade names and service marks of Borrower.  Borrower has no domestic or foreign copyrights or copyright registrations, nor does Borrower use any material unregistered copyrights in the ordinary course of its business.

 

5.4                                Litigation.

 

Except as shown in the Perfection Certificate, there are no actions or proceedings pending or, to the knowledge of Borrower, threatened by or against Borrower or any Subsidiary in which an adverse decision could reasonably be expected to cause a Material Adverse Change.

 

5.5                                No Material Deterioration in Financial Statements.

 

All consolidated financial statements for Borrower and its Subsidiaries, delivered to Agent were prepared in accordance with GAAP consistently applied during the periods involved (except in the case of unaudited interim statements, to the extent that they may not include footnotes, may be condensed or summary statements or may conform to the SEC’s rules and

 

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instructions for Reports on Form 10-Q) and fairly present in all material respects Borrower’s consolidated financial condition as of the dates thereof and Borrower’s consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments).  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Agent.

 

5.6                                Solvency.

 

Based on the financial condition of Borrower as of the Closing Date, the fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; the Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

 

5.7                                Regulatory Compliance.

 

Borrower is not an “investment company” or a company “controlled”  by an “investment company”, or a “subsidiary” of an “investment company” under the Investment Company Act of 1940.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations T and U of the Federal Reserve Board of Governors).  Borrower has complied in all material respects with the Federal Fair Labor Standards Act.  Borrower has not violated any Laws, the violation of which could reasonably be expected to cause a Material Adverse Change.  None of Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being contested in good faith with adequate reserves under GAAP.  Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue its business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Change.

 

Neither Borrower, nor to the knowledge of Borrower, any of its Affiliates or agents acting on behalf of Borrower in any capacity in connection with the transactions contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person.  Neither Borrower nor, to the knowledge of Borrower, any of its Affiliates or agents acting on behalf of Borrower in any capacity in connection with the transactions contemplated by this Agreement, (x) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to, any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law.

 

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5.8                                Subsidiaries.

 

Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.  NeoRx does not own any assets or property or conduct any business except as described on Schedule 5.8 attached hereto.

 

5.9                                Taxes; Pension.

 

All tax returns, reports and statements, including information returns, required by any governmental authority to be filed by Borrower and its Subsidiaries have been filed with the appropriate governmental authority and all taxes, levies, assessments and similar charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid).  Proper and accurate amounts have been withheld by Borrower and its Subsidiaries from its respective employees for all periods in compliance with applicable laws and such withholdings have been timely paid to the respective governmental authorities.  Borrower and its Subsidiaries has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and neither Borrower nor any of its Subsidiaries has withdrawn from participation in, or has permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower or a Subsidiary, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental authority.

 

5.10                         Full Disclosure.

 

No written representation, warranty or other statement of Borrower in any certificate or written statement given to Agent or any Lender (taken together with all such written certificates and written statements given to Agent or any Lender) contains any untrue statement of a material fact or omits to state a material fact necessary to make any representation, warranty or other statement contained in the certificates or written statements, in light of the circumstances under which they were made, not misleading as of the date such written representation, warranty or other statement was made, it being recognized by Agent and Lenders that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results.

 

6.                                       AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following for so long as Agent or any Lender has an obligation to make any Credit Extension, or there are outstanding Obligations:

 

6.1                                Government Compliance.

 

Borrower shall maintain its and all Subsidiaries’ legal existence and good standing as a Registered Organization and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations.  Borrower shall comply, and have each Subsidiary comply, with all Laws to which

 

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it is subject, noncompliance with which could have a material adverse effect on Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change.

 

6.2                                Financial Statements, Reports, Certificates.

 

(a)                                   Borrower shall deliver to Agent:  (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared unaudited consolidated financial statements, consisting of a balance sheet and income statement covering Borrower’s consolidated operations for the monthly period ending the last day of such month, together with a Compliance Certificate signed by a Responsible Officer in the form of Exhibit B and in a form reasonably acceptable to Agent; (ii) as soon as available, but no later than 180 days after the last day of Borrower’s fiscal year, or within 5 days of filing with the SEC, if earlier, audited consolidated financial statements prepared under GAAP, consistently applied, together with the report of an independent registered accounting firm issued in connection therewith; (iii) within 5 days of earlier of filing or the required date for filing, copies of all reports on Form 10-K, Form 10-Q and Form 8-K filed with the SEC; (iv) financial projections and operating plans approved by the Borrower’s board of directors for each fiscal year not less than 30 days prior to each such fiscal year; (v) as soon as available, but no later than within 3 Business Days after a material default or termination of any Material Real Property Lease, written notice of such material default or termination of such lease; and (vi) other financial information reasonably requested by the Lenders.  Borrower may comply with the requirements of clauses (ii) and (iii) above by maintaining an electronic link to its SEC reports on Borrower’s website.

 

(b)                                  Borrower will keep proper books of record and account in accordance with GAAP in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities.  Borrower shall allow, at the sole cost of Borrower,  Agent to visit and inspect any of its properties, to examine and make abstracts or copies from any of their respective books and records, to conduct a collateral audit and analysis of its operations and the Collateral, to verify the amount and age of the accounts, the identity and credit of the respective account debtors, to review the billing practices of Borrower and to discuss its respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be requested.  Notwithstanding the foregoing, such audits shall be conducted at Borrower’s expense no more often than once every twelve (12) months unless an Event of Default or a Default has occurred and is continuing.

 

(c)                                   (i) Borrower will give prompt written notice to Agent of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which would reasonably be expected to result in a Material Adverse Change with respect to Borrower; (ii) Borrower shall provide to Agent evidence of the payments required to be made to Genzyme Corporation, as successor to AnorMED, Inc., pursuant to a License Agreement between them promptly after each such payment but in any event within 5 days of each such payment; and (iii) without limiting or contradicting any other more specific provision of this Agreement, promptly (and in any event within 3 Business Days) upon Borrower becoming aware of the existence of any Event of Default or Default, Borrower shall give written notice to Agent of such occurrence, which such notice shall include a reasonably detailed description of such Event of Default or Default.

 

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6.3                                Inventory; Returns.

 

Borrower shall keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors shall follow Borrower’s customary practices as they exist at the Closing Date. Borrower must promptly notify Agent of all returns, recoveries, disputes and claims, that  involve more than $100,000.

 

6.4                                Taxes.

 

Borrower shall make, and cause each Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments (other than taxes and assessments which Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP) and will deliver to Agent, on demand, appropriate certificates attesting to such payments.

 

6.5                                Insurance.

 

Borrower shall keep its business and the Collateral insured for risks and in amounts, customary for similarly situated companies in Borrower’s industry as Lenders and Agent may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Agent in Agent’s reasonable discretion. All property policies shall have a lenders’ loss payable endorsement showing Agent as an additional lenders’ loss payee and all liability policies shall show the Lenders and Agent as an additional insured and all policies shall provide that the insurer must give Agent on behalf of Lenders at least 20 days notice before canceling its policy. At any Lender’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Agent’s option, be payable to Agent on behalf of Lenders on account of the Obligations. Notwithstanding the foregoing, so long as no Event of Default or Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy toward the replacement or repair of destroyed or damaged property in an aggregate amount not to exceed $350,000 per fiscal year; provided that such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired Collateral, (b) shall be deemed Collateral in which Agent has been granted a first priority security interest pursuant to the terms hereunder, and (c) shall be obtained within 365 days of the receipt of such proceeds.

 

6.6                                Primary Accounts.

 

Neither Borrower nor any Subsidiary shall directly or indirectly maintain or establish any deposit account or securities account, unless Agent, Borrower or such Subsidiary and the depository institution or securities intermediary at which the account is or will be maintained enter into a Control Agreement. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the Borrower’s employees.

 

6.7                                Registration of Intellectual Property Rights.

 

Borrower shall: (i) protect, defend and maintain the validity and enforceability of the Intellectual Property material to Borrower’s business; (ii) promptly advise Lenders in writing of material infringements of the Intellectual Property; and (iii) not allow any Intellectual Property

 

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material to the Borrower’s business to be abandoned, forfeited or dedicated to the public without Lenders’ written consent.

 

6.8                                Financial Covenants.

 

(a)                                   Borrower shall maintain minimum unrestricted cash and Cash Equivalents in an amount not less than (i) at all times prior to the date of the Post Closing Term Loan Advance, the lesser of (A) $11,440,000 and (B) the outstanding principal balance of the Term Loan Advances plus $4,000,000 and (ii) on the date of the Post Closing Term Loan Advance and at all times thereafter, the lesser of (A) $17,940,000 and (B) the outstanding principal balance of the Term Loan Advances plus $4,000,000, in each such case cash and Cash Equivalents shall be at all times subject to a Control Agreement.

 

(b)                                  Borrower shall maintain, at all times, cash and Cash Equivalents accounts with SVB or SVB’s Affiliates (the “ SVB Accounts ”) in an amount not less than 85% of the dollar value of the Borrower’s cash and Cash Equivalents at all financial institutions.

 

6.9                                Use of Proceeds.

 

Borrower shall use the Term Loan for working capital needs. No portion of the Term Loan will be used for personal, family, agricultural or household use.

 

6.10                         Notice of Management Change.

 

Borrower shall notify Agent of the separation of any of the following parties from employment at Borrower within 10 days of such separation: the Chief Executive Officer, the Chief Financial Officer, the Chief Medical Officer, any Senior Vice President, and any executive Vice President of Borrower.

 

6.11                         Leased Real Property.

 

(a)                                   Borrower shall use commercially reasonable efforts to obtain a landlord waiver, in form and substance reasonably acceptable to the Lenders, for each Material Real Property Lease existing on the Closing Date on or before October 14, 2008.

 

(b)                                  Upon any Lender’s request, promptly (and in any event within 10 Business Days) deliver to Agent: (a) evidence in form reasonably satisfactory to the Lenders that rental payments were made with respect to any Material Real Property Lease, and (b) a certification by an officer of Borrower that no default or event of default exists under any Material Real Property Lease. Borrower shall provide Agent 30 days prior written notice of its intention to enter into a Material Real Property Lease and prior to the effectiveness thereof, Borrower shall cause the landlord of such property to enter into and deliver to Agent a fully executed landlord waiver, in form and substance reasonably acceptable to Agent.

 

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6.12                         Further Assurances.

 

Borrower shall execute any further documents, instruments and agreements and take further action as Agent reasonably requests to perfect or continue Agent’s for the benefit of itself and the Lenders security interest in the Collateral or to effect the purposes of this Agreement.

 

7.                                       NEGATIVE COVENANTS

 

Borrower shall not do any of the following without the Lenders’ prior written consent, which shall not be unreasonably withheld or delayed, for so long as Agent or any Lender has an obligation to make Credit Extensions or there are any outstanding Obligations:

 

7.1                                Dispositions.

 

Convey, sell, lease, transfer or otherwise dispose of (collectively a “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (i) of Inventory in the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (iii) of worn-out or obsolete Equipment in an aggregate amount not to exceed $250,000; (iv) of assets constituting all or part of the Non-Core Technologies; (v) in connection with partnerships, joint ventures or similar arrangements (including out-licenses) relating to Borrower’s Picoplatin and future product development programs to the extent approved by Borrower’s board of directors and so long as no Event of Default or Default shall have occurred and be continuing at the time of, or would result from, such Transfer; (vi) in connection with Permitted Liens and Permitted Investments; and (vii) other Transfers which in the aggregate do not exceed $100,000 in any fiscal year.

 

7.2                                Changes in Business, Ownership, Management or Locations of Collateral.

 

Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto, or consummate any offering of equity securities, whether in a single transaction or a series of related transactions, following which the shareholders of Borrower who were shareholders immediately preceding such securities offering would, on a fully diluted basis, beneficially own less than 50% of the common stock of Borrower immediately after giving effect to the such transaction or transactions. Borrower shall not, without at least 30 days prior written notice to Agent: (i) relocate its chief executive office, or add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than $100,000 in Borrower’s assets or property), or (ii) change the fiscal year end of Borrower. Borrower shall not (i) change its jurisdiction of organization, or (ii) change its status as a registered organization (within the meaning of the Code) in the State of Washington, or (iii) change its legal name, or (iv) change any organizational number (if any) assigned by its jurisdiction of organization, or (vi) remove or maintain any of the Collateral from the continental United States (other than (A) inventory manufactured outside of the United States that has not been imported into the United States, and (B) such other Collateral maintained outside of the United States in the ordinary course of business but provided that the aggregate value of all Collateral described in this clause (2) cannot exceed $500,000 at any time).

 

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7.3                                Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, except where (i) no Default or Event of Default has occurred and is continuing or would result from such action during the term of this Agreement; (ii) Borrower is the surviving entity after such transaction is consummated (to the extent Borrower was a party thereto); (iii) no material adverse change in financial position or outlook of the combined entity is reasonably likely to result, (iv) Borrower has given Lenders at least 15 days prior written notice of such proposed transaction, (v) Lenders shall have received all documents, instruments, agreements and information as Lenders reasonably require in connection with such proposed transaction, (vi) the board of directors (or other comparable governing body) of the target or selling entity shall have duly approved such proposed transaction and (vii) Borrower maintains at the time of such transaction minimum unrestricted cash and Cash Equivalents in an amount not less than (A) if prior to the date of the Post Closing Term Loan Advance, $11,440,000 and (B) if on the date of the Post Closing Term Loan Advance and at all times thereafter, $17,940,000, in each such case cash and Cash Equivalents shall be at all times subject to a Control Agreement. A Subsidiary may merge or consolidated into any other Subsidiary or into Borrower.

 

7.4                                Indebtedness.

 

Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

 

7.5                                Encumbrance.

 

Create, incur, or allow any Lien on any of its assets or property (including, without limitation, its Intellectual Property), or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security interest granted herein, except that the Collateral may also be subject to Permitted Liens. In addition, except as permitted by Section 7.1 of this Agreement, Borrower shall not sell, tra