LOAN AND SECURITY
AGREEMENT
THIS LOAN AND
SECURITY AGREEMENT (this “Agreement” ) dated
as of November 12, 2008 (the “Effective
Date” ) between OXFORD FINANCE CORPORATION (
“Oxford” ), as collateral agent (the
“Collateral Agent” ), Oxford, as a lender, and
SILICON VALLEY BANK ( “Bank” ; each, of
Oxford and Bank are sometimes individually referred to as a
“Lender” and collectively, as the
“Lenders” ), and ARDEA BIOSCIENCES, 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 and any other amounts due
hereunder as and when due in accordance with this
Agreement.
2.1.1 Growth
Capital Loan Facility.
(a)
Availability . Subject to the terms and conditions of this
Agreement, Lenders agree, severally and not jointly, to lend to
Borrower from time to time prior to the Growth Capital Commitment
Termination Date, advances (each, a “Growth Capital
Advance” and collectively, the “Growth Capital
Advances” ), according to each Lender’s pro rata
share of the Growth Capital Loan Commitment (based upon the
respective Growth Capital Commitment Percentage of each Lender), in
the aggregate amount not to exceed the Growth Capital Loan
Commitment When repaid, the Growth Capital Advances may not be
re-borrowed. Lenders’ obligation to lend hereunder shall
terminate on the earlier of (i) the occurrence and continuance
of an Event of Default, or (ii) the Growth Capital Commitment
Termination Date.
(b)
Repayment . For each Growth Capital Advance, Borrower shall
make monthly payments of interest only, in arrears commencing on
the first day of the month following the month in which the Growth
Capital Funding Date occurs and continuing thereafter on the first
day of each successive calendar month during the Growth Capital
Interest Only Period. Commencing on the Growth Capital Amortization
Date, Borrower shall make thirty-three (33) consecutive equal
monthly payments of principal and interest, in arrears which would
fully amortize the outstanding Growth Capital Advance as of the
Growth Capital Amortization Date over the Growth Capital Repayment
Period and continuing thereafter during the Growth Capital
Repayment Period on the first day of each successive calendar
month. All unpaid principal and accrued and unpaid interest is due
and payable in full on the Growth Capital Maturity Date with
respect to such Growth Capital Advance. The Growth Capital Advance
may only be prepaid in accordance with Sections 2.1.1(c) or
2.1.1(d) .
(c)
Prepayment . Borrower shall have the option to prepay all,
but not less than all, of the Growth Capital Advances advanced by
Lenders under this Agreement, provided Borrower,
(a) provides written notice to Lenders of its election to
prepay the Growth Capital Advances at least five (5) days
prior to such prepayment, and (b) pays, on the date of the
prepayment (i) all outstanding principal and accrued interest
on the Growth Capital Advances; (ii) the Prepayment Fee and
the Growth Capital Final Payment; and (iii) all other sums,
including Lenders’ Expenses, if any, that have become due and
payable hereunder with respect to the Growth Capital
Advances.
(d)
Mandatory Prepayment Upon an Acceleration . If the Growth
Capital Advances are accelerated following the occurrence of an
Event of Default, Borrower shall immediately pay to Lenders an
amount equal to the sum of: (i) all outstanding principal plus
accrued and unpaid interest on the Growth Capital
Advances,
(ii) the
Prepayment Fee and the Growth Capital Final Payment, plus
(iii) 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.
2.2 Payment of
Interest on the Credit Extensions.
(a)
Interest Rate . Subject to Section 2.2(b) , the
principal amount outstanding for each Growth Capital Advance shall
accrue interest, which interest shall be payable monthly in
arrears, at a fixed per annum rate equal to the greater of
(i) 12.00% and (ii) 795 basis points (7.95%) above the
3-month LIBOR as of the date that the Notes for such Growth Capital
Advance are prepared.
(b)
Default Rate . Immediately upon the occurrence and during
the continuance of an Event of Default, Obligations shall bear
interest at a rate per annum which is five percentage points above
the rate effective immediately before the Event of Default (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 Lenders.
(c)
360-Day Year . Interest shall be computed on the basis of a
360-day year of twelve 30-day months.
(d)
Debit of Accounts . Collateral Agent, or (but without
duplication) Bank, for the benefit of the Lenders, 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 when due. These debits shall not constitute a
set-off.
(e)
Payments . Unless otherwise provided, interest is payable
monthly on the first calendar day 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 Fees.
Borrower shall pay to Collateral Agent:
(a)
Loan Fee . A fully earned, non-refundable loan fee of Eighty
Thousand Dollars ($80,000) ((to be shared between Bank ($30,000)
and Oxford ($50,000)), receipt of which hereby is
acknowledged;
(b)
Prepayment Fee . The Prepayment Fee, when due
hereunder;
(c)
Growth Capital Final Payment . The Growth Capital Final
Payment, when due hereunder; and
(d)
Lenders’ Expenses . All documented Lenders’
Expenses (including reasonable attorneys’ fees and expenses
incurred in connection with the documentation and negotiation of
this Agreement) incurred through and after the Effective Date, when
due.
3.1 Conditions
Precedent to Initial Credit Extension. Lenders’
obligation to make the initial Credit Extension is subject to the
condition precedent that Lenders shall have received, 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 it is a
party;
(b) a
duly executed original signature to the Warrant to be issued to
Oxford and a duly executed original signature to the Warrant to be
issued to Bank;
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(c) duly
executed original signatures to the Control
Agreement[s];
(d) its
Operating Documents and a good standing certificate of Borrower
certified by the Secretary of State of the States of Delaware and
California 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 (one set for each Lender);
(f) certified
copies, dated as of a recent date, of financing statement searches,
as Lenders 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) a
legal opinion of Borrower’s counsel dated as of the Effective
Date together with the duly executed original signatures
thereto;
(h) two
Perfection Certificate(s) executed by Borrower (one for each
Lender);
(i) evidence
satisfactory to Lenders that the insurance policies required by
Section 6.4 hereof are in full force and effect, together
with appropriate evidence showing loss payable and/or additional
insured clauses or endorsements in favor of each Lender;
and
(j) payment
of the fees and Lenders’ Expenses then due as specified in
Section 2.3 hereof.
3.2 Conditions
Precedent to all Credit Extensions. Lenders’ obligations
to make each Credit Extension, including the initial Credit
Extension, are subject to the following:
(a) Borrower
shall have duly executed and delivered to Collateral Agent a
Payment/Advance Form;
(b) Borrower
shall have duly executed and delivered to each Lender a Note in the
amount of such Lender’s pro rata portion of such Growth
Capital Advance;
(c) 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 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 no Default or 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
(d) in
Lenders’ reasonable discretion, there has not been a Material
Adverse Change.
Borrower agrees to
deliver to Lenders each item required to be delivered to any Lender
under this Agreement as a condition to any Credit Extension.
Borrower expressly agrees that the extension of a Credit Extension
prior to the receipt by Lenders of any such item shall not
constitute a waiver by Lenders of Borrower’s obligation to
deliver such item, and any such extension in the absence of a
required item shall be in Lenders’ sole
discretion.
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3.4 Procedures
for Borrowing. To obtain a Growth Capital Advance, Borrower
must notify Collateral Agent by facsimile or telephone by
12:00 p.m. Pacific Time five (5) Business Days prior to
the date the Growth Capital Advance is to be made (except in the
case of the Growth Capital Advances to be made on or about the
Effective Date, notice of which shall be provided the Collateral
Agent on or prior to the Effective Date). If such notification is
by telephone, Borrower must promptly confirm the notification by
delivering to Collateral Agent a completed Payment/Advance Form in
the form attached as Exhibit B . Upon receipt of a
Payment/Advance Form, Collateral Agent shall promptly provide a
copy of the same to each Lender. On the Growth Capital Funding
Date, each Lender shall credit and/or transfer (as applicable) to
Borrower’s deposit account, an amount equal to its Growth
Capital Commitment Percentage multiplied by the amount of the
Growth Capital Advance. Each Lender may rely on any telephone
notice given by a person whom such Lender reasonably believes is a
Responsible Officer. Borrower shall indemnify each Lender for any
loss Lender suffers due to such reliance.
4 CREATION
OF SECURITY INTEREST
4.1 Grant of
Security Interest. Borrower hereby grants Collateral Agent, for
the benefit of the Lenders, to secure the payment and performance
in full of all of the Obligations, a continuing security interest
in 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
pursuant to the terms of this Agreement). If Borrower shall acquire
a commercial tort claim (as defined in the Code), 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 benefit
of the 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 reasonably satisfactory to
Collateral Agent.
If this Agreement
is terminated, Collateral Agent’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, Collateral Agent shall, at
Borrower’s sole cost and expense, release its Lien 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 Agents’ interest or rights hereunder,
including a notice that any disposition of the Collateral, by
either Borrower or any other Person, other than in accordance with
this Agreement shall be deemed to violate the rights of Collateral
Agent under the Code.
5
REPRESENTATIONS AND WARRANTIES
Borrower
represents and warrants as follows:
5.1 Due
Organization and Authorization. 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 (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
4
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 Operating Documents,
(ii) contravene, conflict with, constitute a default under or
violate any material Requirement of Law, (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), or (v) constitute an
event of default 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 Bank, the deposit accounts, if
any, described in the Perfection Certificate delivered to
Collateral Agent in connection herewith, or of which Borrower has
given Lenders notice and taken such actions as are necessary to
give Collateral Agent a perfected security interest
therein.
No Collateral in
excess of $50,000 in the aggregate is in the possession of any
third-party bailee (such as a warehouse) except as otherwise
provided in the Perfection Certificate. None of the components of
the Collateral in excess of $50,000 in the aggregate shall be
maintained at locations other than as provided in the Perfection
Certificate or as Borrower has given Lenders notice 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 $50,000 in the aggregate to a bailee,
then Borrower will first receive the written consent of Lenders and
such bailee must execute and deliver a bailee agreement in form and
substance reasonably satisfactory to Collateral Agent in its sole
discretion.
All Inventory is
in all material respects of good and marketable quality, free from
material defects, normal wear and tear excepted.
Borrower is the
sole owner of its intellectual property, except for licenses
granted to its customers in the ordinary course of business which
do not result in a legal transfer of title of the licensed property
but that may be exclusive in respects other than territory and that
may be exclusive as to territory only as to discreet geographical
areas outside of the United States. Each patent is valid and
enforceable, and no part of the intellectual property has been
judged invalid or unenforceable, in whole or in part, and to
Borrower’s knowledge, no claim has been made that any part of
the intellectual property violates the rights of any third party
except to the extent such claim could not reasonably be expected to
have a material adverse effect on Borrower’s business. Except
as noted on the Perfection Certificate, Borrower is not a party to,
nor is bound by, any material license or other agreement with
respect to which Borrower is the licensee (a) that prohibits
or otherwise restricts Borrower from granting a security interest
in Borrower’s interest in such license or 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 ten (10) 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 licenses or agreements to
be deemed “Collateral” and for Bank 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 agreement, whether now
existing or entered into in the future, and (y) Collateral
Agent to 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.
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
$250,000.
5
5.4 No
Material Deviation in Financial Statements. All consolidated
financial statements for Borrower and any of its Subsidiaries
delivered to Lenders fairly present in all material respects
Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations. There has not
been any material deterioration in Borrower’s consolidated
financial condition since the date of the most recent financial
statements submitted to Lenders.
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 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.
5.6 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 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.
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 legally. 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 Governmental Authorities that are
necessary to continue their respective businesses as currently
conducted.
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 and
its Subsidiaries have timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by
Borrower; provided that 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 Lenders 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).
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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 reasonably be expected to 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 all of its property.
Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Collateral Agent.
6.2 Financial
Statements, Reports, Certificates.
(a) Deliver
to each Lender: (i) within five (5) 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; and (ii) within five (5) days of
filing, all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission or a link thereto on
Borrower’s or another website on the Internet; (iii) 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 $250,000 or more;
and (iv) other financial information reasonably requested by
Collateral Agent.
(b) Within
forty-five (45) days after the last day of each calendar
quarter, deliver to each Lender, a duly completed Compliance
Certificate signed by a Responsible Officer.
(c) Within
five (5) days prior to the execution of any license
contemplated by Section 7.1(e) hereof, deliver to each Lender
a duly completed Compliance Certificate signed by a Responsible
Officer certifying, among other things, that such license satisfies
the requirements of Section 7.1(e).
(d) Allow
Lenders to audit or inspect Borrower’s Collateral at
Borrower’s expense. Such audits or inspections shall be
conducted no more often than once every twelve (12) months
unless a Default or an Event of Default has occurred and is
continuing.
6.3 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 shall deliver to Lenders, 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.
6.4
Insurance. Keep its business and the Collateral insured for
risks (other than earthquake and flood) and in amounts standard for
companies in Borrower’s industry and location and as Lenders
may reasonably request. Insurance policies shall be in a form, with
companies (with an AM Best Rating of A7 or better), and in amounts
that are reasonably satisfactory to Lenders. All property policies
shall have a lender’s loss payable endorsement showing
Collateral Agent, and/or its assigns, as an additional lender loss
payee and waive subrogation against Lenders, and all general
liability (product liability being excluded) and excess liability
policies shall show, or have endorsements showing, Collateral
Agent, and/or its assigns, as an additional insured. All policies
insuring the Collateral (or the loss payable and additional insured
endorsements) shall provide that the insurer will endeavor to give
Collateral Agent at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At
Collateral Agent’s and any Lenders’ request, Borrower
shall deliver Certificates of Insurance and such
7
other evidence
of all premium payments as Collateral Agent and or Lenders may
reasonably request. Proceeds payable under any policy insuring the
Collateral shall, at Lenders’ option, be payable to 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 property policy up to $100,000, in the aggregate, 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
(subject to Permitted Liens), 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 6.4 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 6.4 , and take any action under the policies
Collateral Agent deems prudent.
(a) Within
60 days of the Effective Date, transfer (if applicable) and
maintain its primary depository, operating and securities accounts
with Bank or Bank’s Affiliates, which accounts shall
represent at least 85% of the dollar value of Borrower’s and
Borrower’s Subsidiaries’ accounts at all financial
institutions; provided that the Growth Capital Advances shall be
credited to and maintained in the Designated Deposit Account until
such time as 85% of the dollar value of Borrower’s and
Borrower’s Subsidiaries’ accounts at all financial
institutions are maintained with Bank or Bank’s
Affiliates.
(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 Bank or Bank’s Affiliates.
In addition, for each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial
institution (other than Bank) 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
the Lenders. 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.
6.6 Protection
of Intellectual Property Rights. Borrower shall: (a) use
commercially reasonable efforts to protect, defend and maintain the
validity and enforceability of its intellectual property;
(b) promptly advise Lenders in writing of material
infringements of its intellectual property; and (c) not allow
any intellectual property material to Borrower’s business to
be abandoned, forfeited or dedicated to the public without
Lenders’ written consent.
6.7 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.
6.8 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 would reasonably be expected to have a material adverse
effect with respect to Borrower. Without limiting or contradicting
any other more specific provision of this Agreement, promptly (and
in any event within three (3) 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.
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6.9
Creation/Acquisition of Subsidiaries. In the event Borrower or
any Subsidiary creates or acquires any Subsidiary, Borrower and
such Subsidiary shall promptly notify Lenders of the creation or
acquisition of such new Subsidiary and take all such action as may
be reasonably required by Lenders 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
Lenders a perfected security interest in the stock, units or other
evidence of ownership of each Subsidiary (not to exceed 65% of such
stock units or other evidence of ownership in the case of a foreign
Subsidiary).
6.10 Right to
Invest. Grant to each Lender (or its Affiliates) a right (but
not an obligation) to invest up to its pro rata share (based on its
Growth Capital Commitment Percentage) of the aggregate amount of
One Million Five Hundred Thousand Dollars ($1,500,000) in
Borrower’s first round of private equity financing occurring
after the Effective Date on the same terms, conditions and pricing
offered to the lead investors in such financing. Borrower shall
give Lenders no less than five (5) Business Days’ (or
such greater or lesser notice as is provided prospective investors
in such financing) prior written notice of the private equity
financing which notice shall (a) identify the principal
investors participating in such private equity financing and
contain the material terms, conditions and pricing of the private
equity financing, and (b) be delivered to Lenders’
addresses set forth in Section 10 hereof. For the
avoidance of doubt, the right granted hereunder shall not apply to
equity investments made solely in connection with corporate
collaborations. The right granted hereunder shall survive the
termination of this Agreement. Lenders’ costs and expenses in
connection with their exercise of the rights granted pursuant to
this Section 6.10 shall not constitute
“Lender’s Expenses” and shall not be reimbursable
by Borrower.
6.11 Further
Assurances. Execute any further instruments and take further
action as Collateral Agent reasonably requests to perfect or
continue Lenders’ Lien in the Collateral or to effect the
purposes of this Agreement. Deliver to Collateral Agent, within ten
(10) days after the same are sent or received, copies of all
correspondence, reports, documents and other filings with any
Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could
reasonably be expected to have a material adverse effect on any of
the Governmental Approvals or otherwise on the operations of
Borrower or any of its Subsidiaries. Without limiting the
foregoing, Borrower shall cause to be delivered to Collateral
Agent, within ten (10) days’ of the Effective Date, a
landlord’s consent, in form and content reasonably acceptable
to Lenders, executed by Borrower’s master lessor and
sublessor.
Borrower shall not
do any of the following without Collateral Agent’s prior
written consent:
7.1
Dispositions. 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; (c) in connection with Permitted Liens and
Permitted Investments; (d) of non-exclusive licenses of
Borrower’s intellectual property in the ordinary course of
business, or (e) of exclusive licenses of Borrower’s
intellectual property, so long as, with respect to each such
exclusive license (other than the Valeant Rights and the Valeant
Option, except as set forth below), (i) no Default or Event of
Default exists at the time of such Transfer, (ii) the license
constitutes an arms-length negotiated transaction made in
connection with a corporate licensing or collaborative arrangement
the terms of which, on their face, do not provide for a sale or
assignment of any material intellectual property,
(iii) Borrower delivers to each Lender, within five
(5) days prior to execution thereof, a duly completed
Compliance Certificate signed by a Responsible Officer certifying,
among other things, that such license satisfies the requirements of
this Section 7.1(e), (iv) Borrower delivers to Collateral
Agent copies of the final executed documents in connection with the
licensing or collaborative arrangement upon filing thereof and as
filed with the Securities and Exchange Commission and (v) all
royalties, milestone payments or other proceeds arising from any
licensing or collaborative arrangement (including, without
limitation, in connection with the Valeant Rights and the Valeant
Option) are paid to a deposit account that is governed by an
Account Control Agreement.
7.2 Changes in
Business, Management, Ownership, or Business Locations.
(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) (i) replace its
Chief
9
Executive
Officer or Chief Financial Officer without thirty (30) days
prior written notification to Lenders (unless any such officer
voluntarily resigns or cause exists for (and results in) immediate
termination, in which case Borrower shall promptly notify Lenders
upon receipt of such resignation or upon such termination) or
(ii) enter into any transaction or series of related
transactions in which the stockholders of Borrower immediately
prior to the first such transaction own less than 65% 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 private investors). Borrower shall not, without at least
thirty (30) days prior written notice to Lenders: (1) add
any new offices or business locations, including warehouses (unless
such new offices or business locations contain in the aggregate
less than Fifty Thousand Dollars ($50,000) 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. Notwithstanding the foregoing, a Subsidiary may merge or
consolidate into another 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
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 (subject to Permitted Liens). Borrower
shall not sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber, 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 selling, transferring, assigning, mortgaging,
pledging, leasing, granting a security interest in or upon, or
encumbering any of Borrower’s or any Subsidiary’s
intellectual property, except as is otherwise permitted in
Section 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 6.5(b)
hereof.
7.7
Distributions; Investments. (a) Directly or indirectly
make any Investment other than Permitted Investments, or permit any
of its Subsidiaries to do so; or (b) pay any dividends or make
any distribution or payment or redeem, retire or purchase any
capital stock provided that (i) Borrower may pay dividends solely
in common stock; and (ii) Borrower may repurchase the stock of
former 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 $100,000 per fiscal year.
7.8
Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of
Borrower, except for sales of equity securities and other
transactions that are in the ordinary course of Borrower’s
business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person.
7.9
Subordinated Debt. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination,
intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in
any document relating to the Subordinated Debt which would increase
the amount thereof or adversely affect the subordination thereof to
Obligations owed to the Lenders.
7.10
Compliance. Become an “investment company” or a
company controlled by an “investment company”, under
the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin
stock (as defined in Regulation U of the Board of Governors of
the Federal Reserve System), or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to
10
comply with the
Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a
material adverse effect on Borrower’s business, or permit any
of its Subsidiaries to do so; withdraw or permit any Subsidiary to
withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other e
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