VENTURE LOAN AND SECURITY AGREEMENT

Exhibit 10.4

 

VENTURE LOAN AND SECURITY AGREEMENT

 

Dated as of December 30, 2005

 

by and among

 

HORIZON TECHNOLOGY FUNDING COMPANY LLC,

a Delaware limited liability company

76 Batterson Park Road

Farmington, CT 06032

as a Lender

 

and

 

OXFORD FINANCE CORPORATION

a Delaware corporation

133 N. Fairfax Street

Alexandria, VA 22314,

as a Lender

 

And

 

NORTHSTAR NEUROSCIENCE, INC.,

a Washington corporation

2401 Fourth Avenue

Seattle, WA 98121

 

as Borrower

 

 

This Venture Loan and Security Agreement (this “ Agreement ”) is made by and among Northstar Neuroscience, Inc., a Washington corporation (“ Borrower ”); Horizon Technology Funding Company LLC, a Delaware limited liability company (“ Horizon ”) and Oxford Finance Corporation (“Oxford” and collectively with Horizon, “ Lenders ”). Lenders and Borrower hereby agree as follows:

 

AGREEMENT

 

1. Definitions and Construction.

 

1.1 Definitions . As used in this Agreement, the following capitalized terms shall have the following meanings:

 

“ Account Control Agreement ” means an agreement acceptable to Lenders which perfects via control Lenders’ security interest in Borrower’s deposit accounts and/or accounts holding securities.

 

“ Affiliate ” means any Person that owns or controls directly or indirectly ten percent (10%) or more of the stock of another entity, any Person that controls or is controlled by or is under common control with such Person or any Affiliate of such Person and each of such Person’s officers, directors, joint venturers or partners.

 

“ Agreement ” means this certain Venture Loan and Security Agreement by and among Borrower and Lenders dated as of the date on the cover page hereto (as it may from time to time be amended or supplemented in writing signed by the Borrower and Lenders).

 

“ Borrower ” means the Borrower as set forth on the cover page of this Agreement.

 

“ Borrower’s Home State ” means Washington.

 

“ Business Day ” means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to close in Connecticut or Borrower’s Home State.

 

“ Claim ” has the meaning given such term in Section 10.3 of this Agreement

 

“ Code ” means the Uniform Commercial Code as adopted and in effect in the State of Connecticut, as amended from time to time; provided that if by reason of mandatory provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Connecticut, the term “Code” shall also mean the Uniform Commercial Code as in effect from time to time in such jurisdiction for purposes of the provisions hereof relating to such creation, perfection or effect of perfection or non-perfection.

 

“ Collateral ” has the meaning given such term in Section 4.1 of this Agreement.

“ Commitment Amount ” means collectively, Commitment Amount Loan A, Commitment Amount Loan B and Commitment Amount Loan C.

 

“ Commitment Amount Loan A ” means, with respect to each Lender, the amount specified opposite such Lender’s name on the cover page of this Agreement in the column titled “Commitment Amount Loan A.”

 

“ Commitment Amount Loan B ” means, with respect to each Lender, the amount specified opposite such Lender’s name on the cover page of this Agreement in the column titled “Commitment Amount Loan B.”

 

“ Commitment Amount Loan C ” means, with respect to each Lender, the amount specified opposite such Lender’s name on the cover page of this Agreement in the column titled “Commitment Amount Loan C.”

 

“ Commitment Fee ” has the meaning given such term in Section 2.6(c) of this Agreement.

 

“ Commitment Termination Date ” means collectively, Commitment Termination Date Loan A, Commitment Termination Date Loan B and Commitment Termination Date Loan C.

 

“ Commitment Termination Date Loan A ,” “ Commitment Termination Date Loan B ”, and “ Commitment Termination Date Loan C ” each have the respective meanings as set forth on the cover page of this Agreement.

 

“ Default ” means any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder.

 

“ Default Rate ” means the per annum rate of interest equal to three percent (3%) over the Loan Rate, but such rate shall in no event be more than the highest rate permitted by applicable law to be charged on commercial loans in a default situation.

 

“ Disclosure Schedule ” means Exhibit A attached hereto.

 

“ Environmental Laws ” means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act.

 

“ Equity Securities ” of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests, membership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing.

 

“ ERISA ” has the meaning given to such term in Section 7.12 of this Agreement.

“ Event of Default ” has the meaning given to such term in Section 8 of this Agreement.

 

“ Funding Certificate ” means a certificate executed by a Responsible Officer of Borrower substantially in the form of Exhibit B or such other form as Lenders may agree to accept.

 

“ Funding Date ” means any date on which a Loan is made to or on account of Borrower under this Agreement.

 

“ GAAP ” means generally accepted accounting principles as in effect in the United States of America from time to time, consistently applied.

 

“ Good Faith Deposit ” has the meaning given such term in Section 2.6(a) of this Agreement.

 

“ Governmental Authority ” means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal, or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented.

 

“ Hazardous Materials ” means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste.

 

“ Indebtedness ” means, with respect to Borrower or any Subsidiary, the aggregate amount of, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person, (e) all obligations or liabilities of others secured by a Lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such Person. Unless otherwise indicated, the term “ Indebtedness ” shall include all Indebtedness of Borrower and the Subsidiaries.

 

“ Indemnified Person ” has the meaning given such term in Section 10.3 of this Agreement.

 

“ Intellectual Property ” means all of Borrower’s right, title and interest in and to patents, patent rights (and applications and registrations therefor), trademarks and service marks (and applications and registrations therefor), inventions, copyrights, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs, source code, object code, trade secrets, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, all whether now owned or subsequently acquired or developed by Borrower and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media (but not including embedded computer programs and supporting information included within the definition of “goods” under the Code).

“ Investment ” means the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, or any other investment in, or deposit with, any Person.

 

“ Landlord Agreement ” means an agreement substantially in the form provided by Lenders to Borrower or such other form as Lenders may reasonably request.

 

“ Lender ” means individually, each of the Lenders, and “ Lenders ” has the meaning given in the preamble to this Agreement.

 

“ Lenders’ Expenses ” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred by Lenders in connection with the preparation, negotiation, documentation, administration and funding of the Loan Documents; and Lenders’ reasonable attorneys’ fees, costs and expenses incurred in amending, modifying, enforcing or defending the Loan Documents (including fees and expenses of appeal or review), including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is brought, whether before or after bankruptcy or insolvency, including without limitation all fees and costs incurred by Lenders in connection with Lenders’ enforcement of its rights in a bankruptcy or insolvency proceeding filed by or against Borrower or its Property; provided however, Borrower’s liability for Lenders’ Expenses incurred in connection with the preparation, negotiation, documentation, administration and funding of the Loan Documents, including the making of Loan B and Loan C, shall not exceed $15,000.

 

“ Lien ” means any voluntary or involuntary security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien with respect to any Property in favor of any Person.

 

“ Loan ” means each advance of credit to Borrower made under this Agreement and, “ Loans ” means, collectively all such advances of credit.

 

“ Loan A ” means the first advance of credit to Borrower under this Agreement in the Commitment Amount Loan A.

 

“ Loan B ” means the advance of credit to Borrower under this Agreement in the Commitment Amount Loan B.

 

“ Loan C ” means the advance of credit to Borrower under this Agreement in the Commitment Amount Loan C.

 

“ Loan Documents ” means, collectively, this Agreement, the Notes, the Warrants, any Landlord Agreement, any Account Control Agreement and all other documents, instruments and agreements entered into in connection with this Agreement, all as amended or extended from time to time.

“ Loan Rate ” means, with respect to each Loan, the per annum rate of interest (based on a year of twelve 30-day months) equal to the greater of (a) 11.50% or (b) 11.50% plus the positive difference, if any, between (i) the one month LIBOR Rate, as reported in the Wall Street Journal, on the date which is five (5) days before the Funding Date for such Loan (or, if such date is not a Business Day, the next earlier Business Day) and (ii) 3.30%.

 

“ Maturity Date ” means, with respect to each Loan, January 1, 2009, or if earlier, the date of acceleration of such Loan following an Event of Default or the date of prepayment, whichever is applicable.

 

“ Note ” means each promissory note executed in connection with a Loan in substantially the form of Exhibit C attached hereto, and, collectively, “ Notes ” means all such promissory notes.

 

“ Obligations ” means all debt, principal, interest, fees, charges, expenses and attorneys’ fees and costs and other amounts, obligations, covenants, and duties owing by Borrower to Lenders of any kind and description (whether pursuant to or evidenced by the Loan Documents (other than the Warrant), or by any other agreement between any Lender and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all Lenders’ Expenses.

 

“ Officer’s Certificate ” means a certificate executed by a Responsible Officer substantially in the form of Exhibit E or such other form as Lenders may agree to accept.

 

“ Payment Date ” has the meaning given such term in Section 2.2(a) of this Agreement.

 

“ Permitted Indebtedness ” means and includes:

 

(a) Indebtedness of Borrower to Lenders;

 

(b) Indebtedness of Borrower in an aggregate outstanding principal amount not to exceed Two Million Dollars ($2,000,000) which is secured solely by Liens permitted under clause (e) of the definition of Permitted Liens;

 

(c) Indebtedness arising from the endorsement of instruments in the ordinary course of business;

 

(d) Trade debt and other unsecured Indebtedness incurred in the ordinary course of business;

 

(e) Guaranties by Borrower of obligations or liabilities of its Subsidiaries incurred in the ordinary course of business in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000);

 

(f) Indebtedness of Borrower to any of its Subsidiaries in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year;

(g) Surety, performance and similar bonds incurred in the ordinary course of business not securing Indebtedness for borrowed money;

 

(h) Indebtedness of Borrower in respect of standby letters of credit to secure its obligations and those of its Subsidiaries regarding real property leases;

 

(i) Indebtedness that is subordinated on terms acceptable to the Lenders in their sole discretion; and

 

(j) Indebtedness existing on the date hereof and set forth on the Disclosure Schedule.

 

“ Permitted Investments ” means and includes any of the following Investments:

 

(a) Deposits and deposit accounts with commercial banks organized under the laws of the United States or a state thereof to the extent: (i) the deposit accounts of each such institution are insured by the Federal Deposit Insurance Corporation up to the legal limit; and (ii) each such institution has an aggregate capital and surplus of not less than One Hundred Million Dollars ($100,000,000);

 

(b) Investments in marketable obligations issued or fully guaranteed by the United States and maturing not more than one (1) year from the date of issuance;

 

(c) Investments in open market commercial paper rated at least “A1” or “P1” or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof;

 

(d) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business;

 

(e) Investments in Subsidiaries in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year;

 

(f) Investments in joint ventures in the ordinary course of business in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year;

 

(g) Investments consisting of (i) travel advances, in the ordinary course of business, to employees and service providers; and (ii) cashless loans to service providers in respect of the purchase of Equity Securities of Borrower pursuant to employee stock purchase plans approved by Borrower’s board of directors;

 

(h) Investments pursuant to the Borrower’s “Recommended Investment Policy Guidelines” in effect on the date hereof and as modified by the Borrower’s Board of Directors; and

 

(i) Other Investments aggregating not in excess of Two Hundred Fifty Thousand Dollars ($250,000) at any time.

“ Permitted Liens ” means and includes:

 

(a) the Lien created by this Agreement;

 

(b) Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind which are not yet delinquent or which are being contested in good faith by appropriate proceedings which suspend the collection thereof ( provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower);

 

(c) Liens identified on the Disclosure Schedule;

 

(d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Liens arising in the ordinary course of business and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings ( provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower);

 

(e) Liens upon any equipment or other personal property acquired by Borrower after the date hereof to secure (i) the purchase price of such equipment or other personal property, or (ii) lease obligations or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or other personal property; provided that (A) such Liens are confined solely to the equipment or other personal property so acquired and the amount secured does not exceed the acquisition price thereof, and (B) no such Lien shall be created, incurred, assumed or suffered to exist in favor of Borrower’s officers, directors or shareholders holding five percent (5%) or more of Borrower’s Equity Securities;

 

(f) Licenses of components of Borrower’s Intellectual Property in connection with joint ventures and corporate collaborations;

 

(g) Liens and rights of setoff in favor of financial institutions arising in the ordinary course of business in connection with Borrower’s deposit accounts held at such institutions;

 

(h) cash pledges and deposits in an aggregate amount not to exceed One Million Dollars ($1,000,000) at any time to secure the performance of bids, trade contracts, leases, statutory obligations or governmental franchise obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, as well as cash deposits to collateralize letters of credit issued to serve such functions, in each case in the ordinary course of business; and

 

(i) Judgment Liens in respect of judgments that do not constitute an Event of Default under Section 8.8 below.

“ Person ” means and includes any individual, any partnership, any corporation, any business trust, any joint stock company, any limited liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency, authority or bureau of any of the foregoing.

 

“ Property ” means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible.

 

“ Responsible Officer ” has the meaning given such term in Section 6.3 of this Agreement.

 

“ Scheduled Payments ” has the meaning given such term in Section 2.2(a) of this Agreement.

 

“ Solvent ” has the meaning given such term in Section 5.11 of this Agreement.

 

“ Subsidiary ” means any corporation or other entity of which a majority of the outstanding Equity Securities entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries.

 

“ Third Party Equipment ” has the meaning given such term in Section 4.8 of this Agreement.

 

“ Transfer ” has the meaning given such term in Section 7.4 of this Agreement.

 

“ Warrants ” means the separate warrant or warrants dated on or about the date hereof in favor of the Lenders or their designees to purchase securities of Borrower.

 

1.2 Construction . References in this Agreement to “Articles,” “Sections,” “Exhibits,” “Schedules” and “Annexes” are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement and each of the other Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all documents, instruments or agreements issued or executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. The words “include” and “including” and words of similar import when used in this Agreement or any other Loan Document shall not be construed to be limiting or exclusive. Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP, and all terms describing Collateral shall be construed in accordance with the Code. The terms and information set forth on the cover page of this Agreement are incorporated into this Agreement.

2. Loans; Repayment .

 

2.1 Commitment .

 

(a) The Commitment Amount . Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, each Lender agrees and commits, severally and not jointly (i) to lend to Borrower at any time prior to the Commitment Termination Date Loan A, Loan A in the amount of Commitment Amount Loan A, (ii) to lend to Borrower at any time prior to the Commitment Termination Date Loan B, Loan B in the amount of Commitment Amount Loan B and (iii) to lend to Borrower at any time prior to the Commitment Termination Date Loan C, Loan C in the amount of Commitment Amount Loan C.

 

(b) The Loans and the Notes . The obligation of Borrower to repay the unpaid principal amount of and interest on each Loan made under this Agreement shall be evidenced by a single promissory note in favor of such Lender in the form of Exhibit C attached hereto, duly completed, executed and delivered to such Lender dated on or about the Funding Date for such Loan and made payable to such Lender. Borrower hereby authorizes each Lender to record on each Note or on its internal computerized records, the principal amount of such Loan and of each payment of principal received by such Lender on account of such Loan, which recordance, in the absence of manifest error, shall be conclusive as to the outstanding principal balance of such Loan; provided that, the failure to make such recordation with respect to any Loan or payment shall not limit or otherwise affect the obligations of the Borrower under this Agreement, the Notes or the other Loan Documents.

 

(c) Use of Proceeds . The proceeds of each Loan shall be used solely for working capital or general corporate purposes of Borrower.

 

(d) Termination of Commitment to Lend . Notwithstanding anything in the Loan Documents, each Lender’s obligation to lend the undisbursed portion of its Commitment Amount to Borrower hereunder shall terminate on the earlier of (i) at each Lender’s sole election, the occurrence of any Event of Default hereunder, and (ii) the applicable Commitment Termination Date. Notwithstanding the foregoing, each Lender’s obligation to lend the undisbursed portion of the Commitment Amount to Borrower shall terminate if, in such Lenders’ sole judgment, there has been a material adverse change in the general affairs, management, results of operations, condition (financial or otherwise) or prospects of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the business plan of Borrower presented to Lenders on or before the date of this Agreement.

 

2.2 Payments .

 

(a) Scheduled Payments . Borrower shall make payments of accrued interest only on the outstanding principal amount of each Loan on each Payment Date through and including July 1, 2006 and thirty (30) level payments of principal plus accrued interest on the outstanding principal amount of each Loan on each subsequent Payment Date (collectively, the “ Scheduled Payments ”). Borrower shall make such Scheduled Payments commencing on the

date set forth in the Note applicable to such Loan and continuing thereafter on the first Business Day of each calendar month (each a “ Payment Date ”) through the Maturity Date. In any event, all unpaid principal and accrued interest shall be due and payable in full on the Maturity Date or, if earlier, the date of prepayment of such Loan.

 

(b) Interim Payment . Unless the Funding Date for a Loan is the first day of a calendar month, Borrower shall pay the per diem interest (accruing at the Loan Rate from the Funding Date through the last day of that month) payable with respect to such Loan on the first Business Day of the next calendar month.

 

(c) Payment of Interest . Borrower shall pay interest on each Loan at a per annum rate of interest equal to the Loan Rate applicable to such Loan. All computations of interest (including interest at the Default Rate, if applicable) shall be based on a year of twelve 30-day months. Notwithstanding any other provision hereof, the amount of interest payable hereunder shall not in any event exceed the maximum amount permitted by the law applicable to interest charged on commercial loans.

 

(d) Application of Payments . All payments received by any Lender prior to an Event of Default shall be applied as follows: (1) first, to Lenders’ Expenses then due and owing; and (2) second to all Scheduled Payments then due and owing (provided, however, if such payments are not sufficient to pay the whole amount then due, such payments shall be applied first to unpaid interest at the Loan Rate, then to the remaining amount then due). After an Event of Default, all payments and application of proceeds shall be made as set forth in Section 9.7 .

 

(e) Late Payment Fee . Borrower shall pay to Lenders a late payment fee equal to four percent (4%) of any Scheduled Payment not paid within three (3) Business Days of when due.

 

(f) Default Rate . Borrower shall pay interest at a per annum rate equal to the Default Rate on any amounts required to be paid by Borrower under this Agreement or the other Loan Documents (including Scheduled Payments), payable with respect to any Loan, accrued and unpaid interest, and any fees or other amounts which remain unpaid after such amounts are due. If an Event of Default has occurred and the Obligations have been accelerated (whether automatically or by Lenders’ election), Borrower shall pay interest on the aggregate, outstanding accelerated balance hereunder from the date of the Event of Default until all Events of Default are cured, at a per annum rate equal to the Default Rate.

 

2.3 Prepayments .

 

(a) Mandatory Prepayment Upon an Acceleration . If the Loans are accelerated following the occurrence of an Event of Default pursuant to Section 9.1(a) hereof, then Borrower, in addition to any other amounts which may be due and owing hereunder, shall immediately pay to Lenders the amount set forth in Section 2.3(b) below, as if the Borrower had opted to prepay on the date of such acceleration.

(b) Upon ten (10) Business Days’ prior written notice to Lenders, Borrower may, at its option, at any time, prepay all of the Loans by paying to Lenders an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; (ii) an amount equal to (A) if the Loans are prepaid within twelve (12) months from the Funding Date of Loan A, four (4%) percent of the then outstanding principal balance of the Loans, (B) if the Loans are prepaid more than twelve (12) months from the date hereof but less than twenty-four (24) months from the Funding Date of Loan A, three (3%) percent of the then outstanding principal balance of the Loans, or (C) if the Loans are prepaid more than twenty-four (24) months from the Funding Date of Loan A, two (2%) percent of the then outstanding principal balance of the Loans; (iii) the outstanding principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder.

 

2.4 Other Payment Terms .

 

(a) Place and Manner . Borrower shall make all payments due to Lenders in lawful money of the United States. All payments of principal, interest, fees and other amounts payable by Borrower hereunder shall be made, in immediately available funds, not later than 1:00 p.m. Connecticut time, on the date on which such payment is due. Borrower shall make such payments to Lenders as follows:

 

 

(b) Date . Whenever any payment is due hereunder on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be.

 

2.5 Procedure for Making Loans .

 

(a) Notice . Whenever Borrower desires that Lenders make a Loan, Borrower shall notify Lenders of the date on which Borrower desires Lenders to make such Loan. Borrower’s notice shall be made at least five (5) Business Days in advance of the desired

Funding Date, unless Lenders elects at their sole discretion to allow the Funding Date to be within five (5) Business Days of the notice. Borrower’s execution and delivery to each Lender of a Note shall be Borrower’s agreement to the terms and calculations thereunder with respect to such Loan. Lenders’ obligation to make any Loans shall be expressly subject to the satisfaction of the conditions set forth in Sections 3.1 and 3.2 .

 

(b) Loan Rate Calculation . Prior to each Funding Date, Lenders shall establish the Loan Rate with respect to such Loan, which shall be set forth in each Note to be executed by Borrower with respect to such Loan and shall be conclusive in the absence of a manifest error.

 

(c) Disbursement . Each Lender shall disburse the proceeds of its Loan by wire transfer to Borrower at the account specified in the Funding Certificate for such Loan.

 

2.6 Good Faith Deposit; Legal and Closing Expenses; and Commitment Fee .

 

(a) Good Faith Deposit . Borrower has delivered to Horizon a good faith deposit in the amount of Fifty Thousand Dollars ($50,000) (the “ Good Faith Deposit ”). The Good Faith Deposit will be utilized to pay the Commitment Fee.

 

(b) Legal, Due Diligence and Documentation Expenses . Borrower shall pay to Lenders concurrently with its execution and delivery of this Agreement the aggregate amount of Fifteen Thousand Dollars ($15,000) for Lenders’ legal, due diligence and documentation expenses in connection with the negotiation and documentation of this Agreement and the Loan Documents.

 

(c) Commitment Fee . Borrower authorizes Lenders concurrently with its execution and delivery of this Agreement to apply the Good Faith Deposit to the commitment fee in an aggregate amount of Fifty Thousand Dollars ($50,000) (the “ Commitment Fee ”). The Commitment Fee shall be retained by Lenders and be deemed fully earned upon receipt.

 

3. Conditions of Loans .

 

3.1 Conditions Precedent to Closing . At the time of the execution and delivery of this Agreement, Lenders shall have received, in form and substance reasonably satisfactory to Lenders, all of the following (unless Lenders have agreed to waive such condition or document, in which case such condition or document shall be a condition precedent to the making of any Loan and shall be deemed added to Section 3.2 ):

 

(a) Loan Agreement . This Agreement duly executed by Borrower and Lenders.

 

(b) Warrants . The Warrants duly executed by Borrower.

 

(c) Secretary’s Certificate . A certificate of the secretary or assistant secretary of Borrower with copies of the following documents attached: (i) the articles of incorporation and bylaws of Borrower certified by Borrower as being complete and in full force

and effect on the date thereof, (ii) incumbency and representative signatures, and (iii) resolutions authorizing the execution and delivery of this Agreement and each of the other Loan Documents.

 

(d) Good Standing Certificates . A good standing certificate from Borrower’s state of incorporation and the state in which Borrower’s principal place of business is located, each dated as of a recent date.

 

(e) Certificate of Insurance . Evidence of the insurance coverage required by Section 6.8 of this Agreement.

 

(f) Consents . All necessary consents of shareholders and other third parties with respect to the execution, delivery and performance of this Agreement, the Warrants and the other Loan Documents.

 

(g) Legal Opinion . A legal opinion of Borrower’s counsel covering the matters set forth in Exhibit D hereto.

 

(h) Account Control Agreements . Account Control Agreements for all of Borrower’s deposit accounts and accounts holding securities duly executed by all of the parties thereto, in the forms provided by Lenders.

 

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

 

3.2 Conditions Precedent to Making a Loan . The obligation of any Lender to make a Loan is further subject to the following conditions:

 

(a) No Default . No Default or Event of Default shall have occurred and be continuing.

 

(b) Landlord Agreements . Borrower shall have provided Lenders with a Landlord Agreement for each location where Borrower’s books and records and the Collateral is located other than locations: (i) that Borrower is the fee owner thereof; (ii) where less than $500,000 of Collateral is located, (iii) where Collateral may be temporarily located for sales, clinical trials, manufacturing, testing or demonstration purposes.

 

(c) Note . Borrower shall have duly executed and delivered to such Lender a Note in the amount of the Loan.

 

(d) UCC Financing Statements . Lenders shall have received such documents, instruments and agreements, including UCC financing statements or amendments to UCC financing statements, as Lenders shall reasonably request to evidence the perfection and priority of the security interests granted to Lenders pursuant to Section 4 . Borrower authorizes Lenders to file any UCC financing statements, continuations of or amendments to UCC financing statements it deems necessary to perfect its security interest in the Collateral.

 

(e) Funding Certificate . Borrower shall have duly executed and delivered to Lenders a Funding Certificate for such Loan.

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

 

3.3 Covenant to Deliver . Borrower agrees (not as a condition but as a covenant) to deliver to Lenders each item required to be delivered to Lenders as a condition to each Loan, if such Loan is advanced. Borrower expressly agrees that the extension of any Loan 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.

 

4. Creation of Security Interest .

 

4.1 Grant of Security Interest . Borrower grants to Lenders for the ratable benefit of the Lenders, a valid continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to secure prompt, full and complete performance by Borrower of each of its covenants and duties under each of the Loan Documents (other than the Warrant). The “ Collateral ” shall mean and include all right, title, interest, claims and demands of Borrower in and to all personal property of Borrower, including without limitation, all of the following:

 

(a) All goods (and embedded computer programs and supporting information included within the definition of “goods” under the Code) and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

 

(b) All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower’s books relating to any of the foregoing;

 

(c) All contract rights and general intangibles (except to the extent included within the definition of Intellectual Property), now owned or hereafter acquired, including, without limitation, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, software, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payment intangibles, commercial tort claims, payments of insurance and rights to payment of any kind;

 

(d) All now existing and hereafter arising accounts, contract rights, royalties, license rights, license fees and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by

Borrower (subject, in each case, to the contractual rights of third parties to require funds received by Borrower to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s books relating to any of the foregoing;

 

(e) All documents, cash, deposit accounts, letters of credit (whether or not the letter of credit is evidenced by a writing), certificates of deposit, instruments, promissory notes, chattel paper (whether tangible or electronic) and investment property, including, without limitation, all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and Borrower’s books relating to the foregoing;

 

(f) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including, without limitation, insurance, condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual Property to the extent such proceeds no longer constitute Intellectual Property; but

 

(g) Notwithstanding the foregoing, the Collateral shall not include any Intellectual Property or more than sixty-five percent (65%) of the voting stock of any Subsidiary organized outside of the United States of America; provided , however , that the Collateral shall include all accounts receivables, accounts, and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “ Rights to Payment ”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the Closing Date, include the Intellectual Property to the extent necessary to permit perfection o