Exhibit 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY
AGREEMENT (this “ Agreement ”) dated as of
May 21, 2008 (the “ Effective Date ”)
between SILICON VALLEY BANK , a California corporation and
with a loan production office located at 4370 La Jolla Village
Drive, Suite 860, San Diego, California 92122 (
“SVB” ), as collateral agent (the “
Collateral Agent ”), and the Lenders listed on
Schedule 1.1 thereof and party hereto, including without
limitation, SVB and OXFORD FINANCE CORPORATION , (“
OXFORD ”) and SOMAXON PHARMACEUTICALS, INC., a
Delaware corporation (“ Borrower ”), provides
the terms on which Lenders shall lend to Borrower and Borrower
shall repay Lenders. The parties agree as follows:
1 ACCOUNTING AND OTHER
TERMS
Accounting terms not defined in this
Agreement shall be construed following GAAP. Calculations and
determinations must be made following GAAP. Capitalized terms not
otherwise defined in this Agreement shall have the meanings set
forth in Section 13. All other terms contained in this
Agreement, unless otherwise indicated, shall have the meaning
provided by the Code to the extent such terms are defined
therein.
2 LOAN AND TERMS OF
PAYMENT
2.1 Promise to Pay . Borrower
hereby unconditionally promises to pay Lenders the outstanding
principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this
Agreement.
2.1.1 Term Loan .
(a)
Availability . Subject to the terms and conditions of this
Agreement, during the Draw Period, Lenders agree, severally and not
jointly, to make one (1) loan available to Borrower in an
amount up to the Term Loan, according to each Lender’s
pro-rata share of the Term Loan based upon the respective
Commitment Percentage of each Lender. After repayment, the Term
Loan may not be re-borrowed.
(b)
Interest Payments . Commencing on the first Payment Date of
the month following the month in which the Funding Date occurs,
Borrower shall make monthly payments of interest, in arrears, at
the rate set forth in Section 2.2(a).
(c)
Repayment . Commencing on the Amortization Date, and
continuing on the Payment Date of each month thereafter, Borrower
shall make consecutive equal monthly payments of principal and
interest, in arrears, to each Lender, as calculated by the
Collateral Agent based upon: (1) the amount of the Term Loan
multiplied by each Lender’s Commitment Percentage,
(2) the effective rate of interest, as determined in
Section 2.2(a), and (3) a repayment schedule equal to
thirty (30) months. All unpaid principal and accrued interest with
respect to the Term Loan is due and payable in full on the Term
Loan Maturity Date. Payments received after 12:00 p.m. Pacific
time are considered received at the opening of business on the next
Business Day. The Term Loan may only be prepaid in accordance with
Sections 2.1.1(d) and 2.1.1(e).
(d)
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 outstanding principal plus
accrued interest, (ii) the Prepayment Fee, (iii) the Final
Payment, plus (iv) all other sums, that shall have become due
and payable, including interest at the Default Rate with respect to
any past due amounts.
(e)
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 Collateral Agent of its
election to prepay the Term Loan at least thirty (30) days
prior to such prepayment, and (ii) pays, on the date of such
prepayment (A) all outstanding principal plus accrued
interest, (B) the Prepayment
Fee,
(C) the Final Payment, plus (D) all other sums, that
shall have become due and payable, including interest at the
Default Rate with respect to any past due amounts.
2.2 Payment of Interest on the
Credit Extensions .
(a)
Interest Rate. Subject to Section 2.2(b), the principal
amount outstanding under the Term Loan shall accrue interest at a
fixed per annum rate equal to 9.57%, which interest shall be
payable monthly in accordance with Section 2.2.(e).
(b)
Default Rate . Immediately upon the occurrence and during
the continuance of an Event of Default, the Credit Extensions shall
bear interest at a rate per annum which is five percentage points
above the rate that is otherwise applicable thereto (the “
Default Rate ”). Payment or acceptance of the
increased interest rate provided in this Section 2.2(b) is not
a permitted alternative to timely payment and shall not constitute
a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of Collateral Agent.
(c)
360-Day Year . Interest shall be computed on the basis of a
360-day year comprising twelve (12) months consisting of
thirty (30) days.
(d)
Debit of Accounts . Collateral Agent may debit any of
Borrower’s deposit accounts, including the Designated Deposit
Account, for principal and interest payments or any other amounts
Borrower owes Lenders under the Loan Documents when due unless
other arrangements are made for Borrower to make certain principal
and interest payments to any Lender, as provided in Section
2.1.1(c). These debits shall not constitute a set-off.
(e)
Payments . Unless otherwise provided, interest is payable
monthly on the Payment Date of each month. Payments of principal
and/or interest received after 12:00 p.m. Pacific time are
considered received at the opening of business on the next Business
Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or
interest, as applicable, shall continue to accrue.
2.3 Secured Promissory Notes.
Each Term Loan shall be evidenced by a Secured Promissory Note in
the form attached as Exhibit D hereto (each a
“ Secured Promissory Note ”), and shall be
repayable as set forth herein. The Borrower irrevocably authorizes
each Lender to make or cause to be made, on or about the Funding
Date of any Term Loan or at the time of receipt of any payment of
principal on such Lender’s Secured Promissory Note, an
appropriate notation on such Lender’s Secured Promissory Note
Record reflecting the making of such Term Loan or (as the case may
be) the receipt of such payment. The outstanding amount of each
Term Loan set forth on such Lender’s Secured Promissory Note
Record shall be prima facie evidence of the principal amount
thereof owing and unpaid to such Lender, but the failure to record,
or any error in so recording, any such amount on such
Lender’s Secured Promissory Note Record shall not limit or
otherwise affect the obligations of the Borrower hereunder or under
any Secured Promissory Note to make payments of principal of or
interest on any Secured Promissory Note when due. Upon receipt of
an affidavit of an officer of a Lender as to the loss, theft,
destruction, or mutilation of its Secured Promissory Note, which
affidavit shall include customary indemnification obligations of
such Lender, the Borrower shall issue, in lieu thereof, a
replacement Secured Promissory Note in the same principal amount
thereof and of like tenor.
2.4 Fees . Borrower shall pay
to Collateral Agent:
(a)
Commitment Fee . A fully earned, non-refundable commitment
fee of Seventy-Five Thousand Dollars ($75,000) to be shared between
the Lenders pursuant to their respective Commitment
Percentages;
(b)
Prepayment Fee . The Prepayment Fee, as and when due
hereunder;
(c)
Final Payment . The Final Payment, as and when due
hereunder; and
(d)
Lenders’ Expenses . All Lenders’ Expenses
(including reasonable attorneys’ fees and expenses, plus
expenses, for documentation and negotiation of this Agreement)
incurred through and after the Effective Date, when due.
3 CONDITIONS OF
LOANS
3.1 Conditions Precedent to
Initial Credit Extension . Each Lender’s obligation to
make the initial Credit Extension is subject to the condition
precedent that Borrower shall consent to or shall have delivered,
in form and substance satisfactory to Lenders, such documents, and
completion of such other matters, as Lenders may reasonably deem
necessary or appropriate, including, without limitation:
(a) duly
executed original signatures to the Loan Documents to which
Borrower is a party;
(b) duly
executed original signatures to the Control Agreement[s];
(c) duly
executed original Secured Promissory Notes in favor of each Lender
according to its Commitment Percentage in amounts not to exceed the
Term Loans;
(d) Operating
Documents and a good standing certificate of Borrower certified by
the Secretary of State of the State of Delaware as of a date no
earlier than thirty (30) days prior to the Effective
Date;
(e) duly
executed original signatures to the completed Borrowing Resolutions
for Borrower;
(f) Collateral
Agent shall have received certified copies, dated as of a recent
date, of financing statement searches, as Collateral Agent shall
request, accompanied by written evidence (including any UCC
termination statements) that the Liens indicated in any such
financing statements either constitute Permitted Liens or have been
or, in connection with the initial Credit Extension, will be
terminated or released;
(g) intentionally
deleted;
(h) a
legal opinion of Borrower’s counsel dated as of the Effective
Date together with the duly executed original signatures
thereto;
(i) evidence
satisfactory to Collateral Agent that the insurance policies
required by Section 6.5 hereof are in full force and effect,
together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of Collateral
Agent, for the ratable benefit of the Lenders; and
(j) payment
of the fees and Lenders’ Expenses then due as specified in
Section 2.4 hereof.
3.2 Conditions Precedent to all
Credit Extensions . The obligation of each Lender to make each
Credit Extension, including the initial Credit Extension, is
subject to the following:
(a) except
as otherwise provided in Section 3.4, timely receipt of an
executed Payment/Advance Form;
(b) the
representations and warranties in Section 5 shall be true in
all material respects on the date of the Payment/Advance Form and
on the Funding Date of each Credit Extension; provided, however,
that such materiality qualifier shall not be applicable to any
portions of the representations and warranties that already are
qualified or modified by materiality; and provided, further that
those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material
respects as of such date, and no Event of Default shall have
occurred and be continuing or result from the Credit Extension.
Each Credit Extension is Borrower’s representation and
warranty on that date that the representations and warranties in
Section 5 remain true in all material respects; provided,
however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material
respects as of such date; and
(c) there
has not been any Material Adverse Change.
3.3 Covenant to Deliver .
Borrower agrees to deliver to Collateral Agent each item required
to be delivered to Collateral Agent under this Agreement as a
condition to any Credit Extension. Borrower expressly agrees that a
Credit Extension made prior to the receipt by Collateral Agent of
any such item shall not constitute a
waiver
by Lenders of Borrower’s obligation to deliver such item, and
any such Credit Extension in the absence of a required item shall
be in Collateral Agent’s sole discretion.
3.4 Procedures for Borrowing
. Subject to the prior satisfaction of all other applicable
conditions to the making of the Term Loan set forth in this
Agreement, to obtain the Term Loan, Borrower shall notify
Collateral Agent (which notice shall be irrevocable) by electronic
mail, facsimile, or telephone by 12:00 noon Eastern time five
(5) Business Days prior to the date the Term Loan is to be
made. Together with any such electronic or facsimile notification,
Borrower shall deliver to Collateral Agent by electronic mail or
facsimile a completed Payment/Advance Form executed by a
Responsible Officer or his or her designee. Upon receipt of a
Payment/Advance Form, Collateral Agent shall promptly provide a
copy of the same to each Lender. Collateral Agent may rely on any
telephone notice given by a person whom Collateral Agent reasonably
believes is a Responsible Officer or designee. On the Funding Date,
each Lender shall credit and/or transfer (as applicable) to
Borrower’s Designated Deposit Account, an amount equal to its
Commitment Percentage multiplied by the amount of the Term
Loan.
4 CREATION OF SECURITY
INTEREST
4.1 Grant of Security
Interest . Borrower hereby grants Collateral Agent, for the
ratable benefit of the Lenders, and to each Lender, to secure the
payment and performance in full of all of the Obligations, a
continuing security interest in, and pledges to Collateral Agent,
for the ratable benefit of the Lenders, and to each Lender, the
Collateral, wherever located, whether now owned or hereafter
acquired or arising, and all proceeds and products thereof.
Borrower represents, warrants, and covenants that the security
interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral
(subject only to Permitted Liens that may have superior priority
under this Agreement). If Borrower shall acquire a commercial tort
claim, Borrower shall promptly notify Collateral Agent in a writing
signed by Borrower of the general details thereof (and further
details as may be required by Collateral Agent) and grant to
Collateral Agent, for the ratable benefit of the Lenders, and to
each Lender in such writing a security interest therein and in the
proceeds thereof to secure the payment and performance in full of
all of the Obligations, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to
Collateral Agent.
Notwithstanding the foregoing, in the
event that Borrower closes a Qualified Financing, the Collateral
Agent, and each Lender shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein
shall revert to Borrower; provided that in connection with, and
from and after, the consummation of such Qualified Financing,
Borrower shall grant to Collateral Agent, for the ratable benefit
of the Lenders, and to each Lender, to secure the payment and
performance in full of all of the Obligations, a continuing
security interest in, and pledge to Collateral Agent, for the
ratable benefit of the Lenders, and to each Lender a first
perfected security interest in favor of the Lenders, not avoidable
under applicable solvency or bankruptcy laws, in a certificate of
deposit maintained at SVB in otherwise unrestricted and
unencumbered funds in the minimum amount of the aggregate
outstanding Obligations from time to time (the “CD”).
The release of Lenders’ Lien hereunder may be delayed to take
into consideration any applicable preference periods under
bankruptcy laws.
If this Agreement is terminated,
Collateral Agent’s and each Lender’s Lien in the
Collateral shall continue until the Obligations (other than
inchoate indemnity obligations) are repaid in full in cash. Upon
payment in full in cash of the Obligations (other than inchoate
indemnity obligations) and at such time as the Lenders’
obligation to make Credit Extensions has terminated, the Collateral
Agent, and each Lender shall, at Borrower’s sole cost and
expense, release its Liens in the Collateral and all rights therein
shall revert to Borrower.
4.2 Authorization to File
Financing Statements . Borrower hereby authorizes Collateral
Agent to file financing statements, without notice to Borrower,
with all appropriate jurisdictions to perfect or protect Collateral
Agent’s and each Lender’s interest or rights hereunder,
including a notice that any disposition of the Collateral, by
either Borrower or any other Person, shall be deemed to violate the
rights of the Collateral Agent and the Lenders under the
Code.
5 REPRESENTATIONS AND
WARRANTIES
Borrower
represents and warrants as follows:
5.1 Due Organization,
Authorization: Power and Authority . Borrower and each of its
Subsidiaries, if any, are duly existing and in good standing, as
Registered Organizations in their respective jurisdictions of
formation and are qualified and licensed to do business and are in
good standing in any jurisdiction in which the conduct of their
business or their ownership of property requires that they be
qualified except where the failure to do so could not reasonably be
expected to have a material adverse effect on Borrower’s
business. In connection with this Agreement, Borrower has delivered
to Collateral Agent a completed perfection certificate signed by
Borrower (the “ Perfection Certificate ”).
Borrower represents and warrants that as of the date of the
Perfection Certificate, (a) Borrower’s exact legal name
is that indicated on the Perfection Certificate and on the
signature page hereof; (b) 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 Borrower’s organizational
identification number or accurately states that Borrower has none;
(d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief
executive office as well as Borrower’s mailing address (if
different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years,
changed its jurisdiction of formation, organizational structure or
type, or any organizational number assigned by its jurisdiction;
and (f) all other information set forth on the Perfection
Certificate pertaining to Borrower and each of its Subsidiaries is
accurate and complete. If Borrower is not now a Registered
Organization but later becomes one, Borrower shall promptly notify
Collateral Agent of such occurrence and provide Collateral Agent
with Borrower’s organizational identification number.
The execution, delivery and
performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with
any of Borrower’s organizational documents,
(ii) contravene, conflict with, constitute a default under or
violate any Requirement of Law, except where such violation would
not have a material adverse effect on Borrower’s business,
(iii) contravene, conflict or violate any applicable order,
writ, judgment, injunction, decree, determination or award of any
Governmental Authority by which Borrower or any of its Subsidiaries
or any of their property or assets may be bound or affected,
(iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental
Authority (except such Governmental Approvals which have already
been obtained and are in full force and effect) or are being
obtained pursuant to Section 6.1(b), except where the failure
to so obtain a Governmental Approval would not have a material
adverse effect on Borrower’s business, or (v) constitute a
material breach under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which it
is a party or by which it is bound in which the default could
reasonably be expected to have a material adverse effect on
Borrower’s business.
5.2 Collateral . Borrower has
good title to, has rights in, and the power to transfer each item
of the Collateral upon which it purports to grant a Lien hereunder,
free and clear of any and all Liens except Permitted Liens.
Borrower has no deposit accounts other than the deposit accounts
with Collateral Agent, the deposit accounts, if any, described in
the Perfection Certificate delivered to Collateral Agent in
connection herewith, or of which Borrower has given Collateral
Agent notice and taken such actions as are necessary to give
Collateral Agent a perfected security interest therein.
The Collateral is not in the
possession of any third party bailee (such as a warehouse) except
as otherwise provided in the Perfection Certificate or as otherwise
permitted herein. No portion of the components of the Collateral,
except for Finished Inventory, in excess of One Hundred Thousand
Dollars ($100,000), shall be maintained at locations other than as
provided in the Perfection Certificate or as permitted pursuant to
Section 7.2. In the event that Borrower, after the date
hereof, intends to store or otherwise deliver any portion of the
Collateral in excess of One Hundred Thousand Dollars ($100,000),
except for Finished Inventory to a bailee other than those listed
in the Perfection Certificate, then Borrower will first receive the
written consent of Collateral Agent and at the election of
Collateral Agent, such bailee shall execute and deliver a bailee
agreement in form and substance satisfactory to Collateral Agent in
its sole discretion.
All Commercial Inventory is in all
material respects of good and marketable quality, free from
material defects.
Except as noted on the Perfection
Certificate, Borrower is not a party to, nor is bound by, any
material license or other material agreement with respect to which
Borrower is the licensee that (a) prohibits or otherwise
restricts Borrower from granting a security interest in
Borrower’s interest in such material license or material
agreement or any other property, or (b) for which a default
under or termination of could interfere with Collateral
Agent’s right to sell any Collateral. Borrower shall provide
written notice to Collateral Agent within thirty
(30) days
of
entering or becoming bound by any such license or agreement (other
than over-the-counter software that is commercially available to
the public). Borrower shall take such steps as Collateral Agent
reasonably requests to obtain the consent of, or waiver by, any
person whose consent or waiver is necessary for (x) all such
material licenses or material agreements to be deemed
“Collateral” and for Collateral Agent and each Lender
to have a security interest in it that might otherwise be
restricted or prohibited by law or by the terms of any such license
or, whether now existing or entered into in the future, and
(y) Collateral Agent shall have the ability in the event of a
liquidation of any Collateral to dispose of such Collateral in
accordance with Collateral Agent’s rights and remedies under
this Agreement and the other Loan Documents. Notwithstanding the
foregoing, the terms of the previous sentence shall not apply to
and the Collateral shall not include license agreements solely for
the use of Intellectual Property of a third party with respect to
which Borrower is the licensee.
5.3 Litigation . There are no
actions or proceedings pending or, to the knowledge of the
Responsible Officers, threatened in writing by or against Borrower
or any of its Subsidiaries involving more than One Hundred Thousand
Dollars ($100,000).
5.4 No Material Deviation in
Financial Statements . All consolidated financial statements
for Borrower and any of its Subsidiaries delivered to Collateral
Agent fairly present, in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated
results of operations, in each case as of the respective dates
hereof. Except with respect to spending of cash in the ordinary
course of business, provided that Borrower is not in violation of
any other provision hereof, there has not been any material
deterioration in Borrower’s consolidated financial condition
since the date of the most recent financial statements submitted to
Collateral Agent.
5.5 Solvency . The fair
salable value of Borrower’s assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities;
Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance .
Borrower is not an “investment company” or a company
“controlled” by an “investment company”
under the Investment Company Act of 1940, as amended. Borrower is
not engaged 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. Neither Borrower nor any of its Subsidiaries is a
“holding company” or an “affiliate” of a
“holding company” or a “subsidiary company”
of a “holding company” as each term is defined and used
in the Public Utility Holding Company Act of 2005. Borrower has not
violated any laws, ordinances or rules, the violation of which
could reasonably be expected to have a material adverse effect on
its business. None of Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower
or any Subsidiary or, to the best of Borrower’s knowledge, by
previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than in material
compliance with all applicable laws. Borrower and each of its
Subsidiaries have 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 their respective businesses as currently conducted, except
where the failure to do so would not have a material adverse effect
on Borrower’s business.
5.7 Subsidiaries; Investments
. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.
5.8 Tax Returns and Payments;
Pension Contributions . Borrower has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and
contributions owed by Borrower, except where the failure to do so
would not have a material adverse effect on Borrower’s
business or as permitted in the next sentence. Borrower may defer
payment of any contested taxes, provided that Borrower (a) in
good faith contests its obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted,
(b) notifies Collateral Agent in writing of the commencement
of, and any material development in, the proceedings,
(c) posts bonds or takes any other steps required to prevent
the governmental authority levying such contested taxes from
obtaining a Lien upon any of the Collateral that is other than a
“Permitted Lien”. Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years
which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from
participation in, and has not 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, including any
liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
5.9 Use of Proceeds .
Borrower shall use the proceeds of the Credit Extensions solely as
working capital and to fund its general business requirements and
not for personal, family, household or agricultural purposes.
5.10 Full Disclosure . No
written representation, warranty or other statement of Borrower in
any certificate or written statement given to Collateral Agent or
any Lender, as of the date such representation, warranty, or other
statement was made, taken together with all such written
certificates and written statements given to Collateral Agent or
any Lender, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading (it
being recognized 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:
6.1 Government Compliance
.
(a) Maintain
its and all its Subsidiaries’ legal existence and good
standing in their respective jurisdictions of formation 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, ordinances
and regulations to which it is subject, noncompliance with which
could have a material adverse effect on Borrower’s
business.
(b) Obtain
all of the Governmental Approvals necessary for the performance by
Borrower of its obligations under the Loan Documents to which it is
a party and the grant of a security interest to Collateral Agent
for the ratable benefit of the Lenders, in the Collateral. Borrower
shall promptly provide copies of any such obtained Governmental
Approvals to Collateral Agent.
6.2 Financial Statements,
Reports, Certificates .
(a) Deliver
to Collateral Agent: (i) as soon as available, but no later
than sixty (60) days after the last day of Borrower’s
fiscal year end, Borrower’s budget for the following fiscal
year as approved by Borrower’s Board of Directors;
(ii) within ten (10) days of delivery, copies of all
statements, reports and notices made available to all of
Borrower’s security holders or to any holders of Subordinated
Debt; except to the extent otherwise filed with the Securities and
Exchange Commission on its EDGAR web site; (iii) within five
(5) days of filing, all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission, except to the
extent otherwise filed with the Securities and Exchange Commission
on its EDGAR web site; (iv) a prompt report of any legal
actions pending or threatened against Borrower or any of its
Subsidiaries that could result in damages or costs to Borrower or
any of its Subsidiaries of One Hundred Thousand Dollars ($100,000)
or more; and (v) other financial information reasonably
requested by Collateral Agent.
(b) Within
thirty (30) days after the last day of each month, deliver to
Collateral Agent, a duly completed Compliance Certificate signed by
a Responsible Officer.
6.3 Inventory; Returns . 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. Borrower
must promptly notify Collateral Agent of all returns, recoveries,
disputes and claims by Account Debtors that involve more than Two
Hundred Fifty Thousand Dollars ($250,000).
6.4 Taxes; Pensions . Timely
file, and require each of its Subsidiaries to timely file, all
required tax returns and reports and timely pay, and require each
of its Subsidiaries to timely file, all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by
Borrower and each of its Subsidiaries, except for
deferred
payment of any taxes contested pursuant to the terms of
Section 5.8 hereof and except where any delay in doing so
would not have a material adverse effect on Borrower’s
business, and shall deliver to Collateral Agent, on demand,
appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms.
6.5 Insurance . Keep its
business and the Collateral insured for risks and in amounts
standard for companies in Borrower’s industry and location
and as Collateral Agent may reasonably request. Insurance policies
shall be in a form, with companies, and in amounts that are
reasonably satisfactory to Collateral Agent. All property policies
shall have a lender’s loss payable endorsement showing
Collateral Agent as lender loss payee and waive subrogation against
Collateral Agent, and all liability policies shall show, or have
endorsements showing, the Collateral Agent, as an additional
insured. All policies (or the loss payable and additional insured
endorsements) shall provide that the insurer must give Collateral
Agent at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At Collateral
Agent’s request, Borrower shall deliver certificates of
insurance and evidence of all premium payments. Proceeds payable
under any policy shall, at Collateral Agent’s option, be
payable to Collateral Agent on behalf of the Lenders on account of
the Obligations. Notwithstanding the foregoing, (a) so long as
no Event of Default has occurred and is continuing, Borrower shall
have the option of applying the proceeds of any casualty policy up
to $500,000 with respect to any loss, but not exceeding $500,000,
in the aggregate for all losses under all casualty policies in any
one year, toward the replacement or repair of destroyed or damaged
property; provided that any such replaced or repaired property (i)
shall be of equal or like value as the replaced or repaired
Collateral and (ii) shall be deemed Collateral in which
Collateral Agent and Lenders have been granted a first priority
security interest, and (b) after the occurrence and during the
continuance of an Event of Default, all proceeds payable under such
casualty policy shall, at the option of Collateral Agent, be
payable to Collateral Agent, for the ratable benefit of the
Lenders, on account of the Obligations. If Borrower fails to obtain
insurance as required under this Section 6.5 or to pay any
amount or furnish any required proof of payment to third persons
and Collateral Agent, Collateral Agent may make all or part of such
payment or obtain such insurance policies required in this
Section 6.5, and take any action under the policies Collateral
Agent deems prudent.
6.6 Operating Accounts
.
(a) Maintain
an operating account with Collateral Agent. At least fifty percent
(50%) of the dollar value of Borrower’s and its
Subsidiaries’ cash and securities accounts at all financial
institutions shall be maintained with Collateral Agent or an
Affiliate of Collateral Agent.
(b) Provide
Collateral Agent five (5) days prior written notice before
establishing any Collateral Account at or with any bank or
financial institution other than Collateral Agent or its
Affiliates. In addition, for each Collateral Account that Borrower
at any time maintains, Borrower shall cause the applicable bank or
financial institution (other than Collateral Agent) at or with
which any Collateral Account is maintained to execute and deliver a
Control Agreement or other appropriate instrument with respect to
such Collateral Account to perfect Collateral Agent’s Lien in
such Collateral Account in accordance with the terms hereunder,
which Control Agreement may not be terminated without prior written
consent of Collateral Agent. 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 Borrower’s employees and identified
to Collateral Agent by Borrower as such.
6.7 Qualified
Financing.
(a) Minimum Cash at SVB. As of the Effective Date and
at all times thereafter, Borrower shall maintain unrestricted and
unencumbered cash, Cash Equivalents and Investments permitted by
the Borrower’s investment policy, as amended from time to
time (provided that such investment policy and any such amendment
thereto has been approved by the board of directors of Borrower or
the audit committee of the board of directors of Borrower) in
accounts with SVB or an Affiliate of SVB: (i) prior to the
occurrence of the Qualified Financing, in an amount of at least
fifty percent (50.0%) of the aggregate outstanding principal amount
of all Credit Extensions hereunder, and (ii) after the
occurrence of the Qualified Financing, in the minimum amount of the
aggregate outstanding Obligations from time to time, in the
CD.
6.8 Protection of Intellectual
Property Rights . Borrower shall use commercially reasonably
efforts to protect, defend and maintain the validity and
enforceability of its Intellectual Property.
6.9 Litigation Cooperation .
From the date hereof and continuing through the termination of this
Agreement, make available to Collateral Agent, without expense to
Collateral Agent, Borrower and its officers, employees and agents
and Borrower’s books and records, to the extent that
Collateral Agent may deem them reasonably necessary to prosecute or
defend any third-party suit or proceeding instituted by or against
Collateral Agent with respect to any Collateral or relating to
Borrower.
6.10 Further Assurances .
Execute any further instruments and take further action as
Collateral Agent reasonably requests to perfect or continue
Collateral Agent’s and Lenders’ Lien in the Collateral
or to effect the purposes of this Agreement.
6.11 Notices of Litigation and
Default. Borrower will give prompt written notice to Collateral
Agent of any litigation or governmental proceedings pending or
threatened (in writing) against Borrower which, if finally decided
against Borrower, would have a material adverse effect on
Borrower’s business. Without limiting or contradicting any
other more specific provision of this Agreement, promptly (and in
any event within five (5) Business Days) upon Borrower
becoming aware of the existence of any Event of Default or event
which, with the giving of notice or passage of time, or both, would
constitute an Event of Default, Borrower shall give written notice
to Collateral Agent of such occurrence, which such notice shall
include a reasonably detailed description of such Event of Default
or event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default.
6.12 Creation/Acquisition of
Subsidiaries . In the event Borrower or any Subsidiary creates
or acquires any Subsidiary, Borrower and such Subsidiary shall
promptly notify Collateral Agent of the creation or acquisition of
such new Subsidiary and take all such action as may be reasonably
required by Collateral Agent to cause each such domestic Subsidiary
to guarantee the Obligations of Borrower under the Loan Documents
and grant a continuing pledge and security interest in and to the
assets of such Subsidiary (substantially as described on
Exhibit A hereto); and Borrower shall grant and pledge to
Collateral Agent, for the ratable benefit of Lenders a perfected
security interest in the stock, units or other evidence of
ownership of each Subsidiary (in the case of a foreign Subsidiary,
such pledge shall not exceed 65% of such stock units or other
evidence of ownership); provided, however, that the obligations
contained in this Section 6.12 shall not apply to any
Subsidiary created in connection with any Qualified Financing,
provided Borrower is in compliance with all of the terms
hereunder.
7 NEGATIVE
COVENANTS
Borrower shall not do any of the
following without Collateral Agent’s prior written
consent:
7.1 Dispositions . Without
the prior written consent of the Collateral Agent, which consent
shall not be unreasonably withheld or delayed, convey, sell, lease,
transfer, or otherwise dispose of (collectively, “
Transfer ”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for
Transfers (a) of Inventory in the ordinary course of business;
(b) of worn-out or obsolete Equipment; and (c) in
connection with Permitted Liens and Permitted Investments;
(d) of non-exclusive licenses for the use of the Intellectual
Property of Borrower or its Subsidiaries, in connection with joint
ventures and corporate collaborations in the ordinary course of
business, such as agreements with contract sales organizations,
pharmaceutical companies or specialty pharmaceutical companies to
co-promote or otherwise further the commercialization of
Borrower’s product candidate SILENOR™ (doxepin HCl);
and (e) in the ordinary course of business for reasonably
equivalent consideration.
7.2 Changes in Business,
Ownership, or Business Locations . Without the prior written
consent of the Collateral Agent, which consent shall not be
unreasonably withheld or delayed: (a) engage in or permit any
of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or
dissolve; or (c) enter into any transaction or series of
related transactions in which the stockholders of Borrower who were
not stockholders immediately prior to the first such transaction
own more than 40% of the voting stock of Borrower immediately after
giving effect to such transaction or related series of such
transactions (other than by the sale of Borrower’s equity
securities in a public offering or to venture capital investors or
any PIPE transaction). Borrower shall not, without at least fifteen
(15) days prior written notice to Collateral Agent:
(1) add any new offices or business locations, including
warehouses (unless such new offices or business locations contain
less than Twenty-Five Thousand Dollars ($25,000) in
Borrower’s assets or property), (2) change its
jurisdiction of organization, (3) change its organizational
structure or
type,
(4) change its legal name, or (5) change any
organizational number (if any) assigned by its jurisdiction of
organization.
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; provided, however,
that if Lenders do not consent to any such transaction, then
Borrower shall be entitled to prepay all of the Obligations. A
Subsidiary may merge or consolidate into another Subsidiary or into
Borrower. Notwithstanding the foregoing, Borrower may merge or
consolidate so long as: (A) the entity tor entities that
result from such merger or consolidation (collectively, the
“Surviving Entity”) shall have executed and delivered
to Lenders an agreement in form and substance reasonably
satisfactory to Lenders, containing an assumption by the Surviving
Entity of the due and punctual payment and performance of all
Obligations and performance and observance of each covenant and
condition of Borrower in the Loan Documents: (B) all such
obligations of the Surviving Entity to Lenders shall be guaranteed
by any entity, if any, that directly or indirectly owns or controls
more than 50% of the voting stock of the Surviving Entity (which
guaranty shall be secured in the discretion of the Lenders);
(C) immediately after giving effect to such merger or
consolidation, no Default or Event of Default shall have occurred
and be continuing; and (D) the credit risk to Lenders, in
their sole discretion, of the Surviving Entity shall not be
increased. In determining whether the proposed merger or
consolidation would result in any increased credit risk, Lenders
may consider, among other things, changes in Borrower’s
management team, employee base, access to equity markets, investor
support, financial position, business plan, and/or disposition of
Intellectual Property rights which may reasonably be anticipated as
a result of the transaction.
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, allow, or suffer any Lien on any of its 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, and non-exclusive licenses permitted under
Section 7.1, or permit any Collateral not to be subject to the
first priority security interest granted herein, (which Collateral
may be subject to Permitted Liens), or enter into any agreement,
document, instrument or other arrangement (except with or in favor
of Collateral Agent) with any Person which directly or indirectly
prohibits or has the effect of prohibiting Borrower or any
Subsidiary from assigning, mortgaging, pledging, granting a
security interest in or upon, or encumbering any of
Borrower’s or any Subsidiary’s Intellectual Property,
in each case except as is otherwise permitted in Sections 4.1
or 7.1 hereof and the definition of “Permitted Liens”
herein.
7.6 Maintenance of Collateral
Accounts . Maintain any Collateral Account except pursuant to
the terms of Section 6.6(b) hereof.
7.7 Distributions;
Investments . (a) Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital
stock provided that (i) Borrower may convert any of its
convertible securities into other securities pursuant to the terms
of such convertible securities or otherwise in exchange thereof,
(ii) Borrower may pay dividends or distributions solely in
capital stock; (iii) Borrower may repurchase the stock of
employees or consultants pursuant to stock repurchase agreements so
long as an Event of Default does not exist at the time of such
repurchase and would not exist after giving effect to such
repurchase, provided such repurchase does not exceed in the
aggregate of Seven Hundred Fifty Thousand Dollars ($750,000) per
fiscal year and provided further, that the foregoing limitations do
not apply to the repurchase of the unvested restricted stock (one
hundred thirty-five thousand shares (135,000) issued to
Borrower’s current executive officers on October 8,
2007, pursuant to the terms and conditions of the restricted stock
purchase agreements currently in effect between Borrower and each
of such executive officers; (iv) purchases for value of any rights
distributed in connection with any stockholder rights plan; (v)
purchases of capital stock or options to acquire such capital stock
with the proceeds received from a substantially concurrent issuance
of capital stock or convertible securities; (vi) purchases of
capital stock in connection with the exercise of stock opti
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