VENTURE LOAN AND SECURITY AGREEMENT

Exhibit 10.8

VENTURE LOAN AND SECURITY AGREEMENT

Dated as of June 30, 2006

by and between

HORIZON TECHNOLOGY FUNDING COMPANY LLC,

a Delaware limited liability company

76 Batterson Park Road

Farmington, CT 06032

as Lender

and

INFINITY PHARMACEUTICALS, INC.,

a Delaware corporation

780 Memorial Drive

Cambridge, MA 02139

as Borrower

Commitment Amount Loan A: $5,000,000

Commitment Amount Loan B: $2,500,000

Commitment Termination Date Loan A: June 30, 2006

Commitment Termination Date Loan B: June 30, 2006

The Lender 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 deposit or investment account control agreements among the Borrower, Oxford Finance Corporation and Silicon Valley Bank or State Street bank and Trust Company or an agreement acceptable to Lender which perfects via control Lender’s 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 Persons or any Affiliate of such Persons and each of such Person’s officers, directors, joint venturers or partners.

“ Agreement ” means this certain Venture Loan and Security Agreement by and between Borrower and Lender 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 Lender).

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

“ Borrower’s Home State ” means Massachusetts.

“ 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 and Commitment Amount Loan B.

 

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

“ 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 and Commitment Termination Date Loan B.

“ Commitment Termination Date Loan A ” and “ Commitment Termination Date Loan B ” 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 eighteen percent (18%), 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 Lender 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.

 

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“ 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 ” shall mean (a) all of the Borrower’s right, title and interest, whether now owned or existing or hereafter acquired or arising, in and to all domestic and foreign copyrights, copyright registrations and copyright applications, whether or not registered or filed with any governmental authority, together with (i) all renewals thereof, (ii) all present and future rights of the Borrower under all present and future license agreements relating thereto, whether the Borrower is licensee or licensor thereunder, (iii) all income, royalties, damages and payments now or hereafter due and/or payable to the Borrower thereunder or with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) all of the Borrower’s present and future claims, causes of action and rights to sue for past, present or future infringements thereof, and (v) all rights corresponding thereto throughout the world (collectively “Copyright Rights” ); (b) all of the Borrower’s right, title and interest, whether now owned or existing or hereafter acquired or arising, in and to all United States and foreign patents, and pending and abandoned United States and foreign patent applications, including, without limitation, the inventions and improvements described or claimed therein, together with (i) any reissues, divisions, continuations, certificates of re-examination, extensions and continuarions-in-part thereof, (ii) all present and future rights of the Borrower under all present and future license agreements relating thereto, whether the Borrower is licensee or licensor thereunder, (iii) all income, royalties, damages and payments

 

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now or hereafter due and/or payable to the Borrower thereunder or with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) all of the Borrower’s present and future claims, causes of action and rights to sue for past, present or future infringements thereof, and (v) all rights corresponding thereto throughout the world (collectively “Patent Rights”); (c) all of the Borrower’s right, title and interest, whether now owned or existing or hereafter acquired or arising, in and to all domestic and foreign trademarks, trademark registrations, trademark applications and trade names, whether or not registered or filed with any governmental authority, together with (i) all renewals thereof, (ii) all present and future rights of the Borrower under all present and future license agreements relating thereto, whether the Borrower is licensee or licensor thereunder, (iii) all income, royalties, damages and payments now or hereafter due and/or payable to the Borrower thereunder or with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) all of the Borrower’s present and future claims, causes of action and rights to sue for past, present or future infringements thereof, and (v) all rights corresponding thereto throughout the world and all goodwill related to the foregoing (collectively “Trademark Rights” ); (d) all present and future licenses and license agreements of the Borrower, and all rights of the Borrower under or in connection therewith, whether the Borrower is licensee or licensor thereunder, including, without limitation, any present or future franchise agreements under which the Borrower is franchisee or franchisor, together with (i) all renewals thereof, (ii) all income, royalties, damages and payments now or hereafter due and/or payable to the Borrower thereunder or with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iii) all claims, causes of action and rights to sue for past, present or future infringements thereof, and (iv) all rights corresponding thereto throughout the world (collectively “License Rights” ); (e) all present and future trade secrets of the Borrower; and (f) all other present and future intellectual property of the Borrower.

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

“ Lender’s Expenses ” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, documentation, administration and funding of the Loan Documents; and Lender’s 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 Lender in connection with Lender’s enforcement of its rights in a bankruptcy or insolvency proceeding filed by or against Borrower or its Property.

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

 

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

“ Loan Documents ” means, collectively, this Agreement, the Notes, the Warrant 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 11.25% plus the difference, whether positive or negative, between (i) the one month LIBOR Rate (rounded to the nearest one hundredth percent), as reported in the Wall Street Journal on the date which is five (5) Business Days before the Funding Date for such Loan (or, if the Wall Street Journal i s not published on such date, the next earlier date on which it is published) and (ii) 4.64%.

“ Maturity Date ” means, with respect to Loan A, September 1, 2009, or if earlier, the date of acceleration of Loan A following an Event of Default or the date of prepayment, whichever is applicable and, with respect to Loan B, the date which is thirty-nine (39) months after the first day of the month following the month in which Loan B is made, or the date of prepayment, whichever is applicable.

“ Merger Agreement ” means a certain Agreement and Plan of Merger and Reorganization dated as of April 11, 2006 by and among Discovery Partners International, Inc., Darwin Corp. and Borrower.

“ 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 Lender of any kind and description pursuant to or evidenced by the Loan Documents (other than the Warrant) 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 Lender’s Expenses.

“ Officer’s Certificate ” means a certificate executed by a Responsible Officer substantially in the form of Exhibit D or such other form as Lender 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 Lender;

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

 

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(c) Indebtedness existing on the date hereof and set forth in the Disclosure Schedule and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension;

(d) Indebtedness incurred pursuant to a secured loan arrangement entered into by and between the Borrower and Oxford Finance Corporation (or its designee) in connection with a certain Master Loan and Security Agreement dated as of October 16, 2002 and amended as of March 31, 2006, all schedules and exhibits thereto, and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension;

(e) Indebtedness secured by Liens permitted under clause (j) of the definition of Permitted Liens;

(f) Indebtedness incurred in connection with any license, joint venture, partnership, corporate collaboration or project financing in the ordinary course of business involving the Borrower’s Intellectual Property;

(g) Indebtedness owed from the Borrower to any Subsidiary;

(h) Indebtedness existing in the books of any entity acquired by the Borrower in a transaction permitted under this Agreement together with any Indebtedness incurred for the purpose of refinancing such existing Indebtedness; provided that such Indebtedness is in existence on the date of such acquisition and is not created in anticipation thereof;

(i) Indebtedness consisting of trade debt incurred in the ordinary course of business and guarantees by the Borrower of any Subsidiary indebtedness not otherwise prohibited hereunder;

(j) Indebtedness incurred in the ordinary course of business consisting of obligations from any interest rate, interest rate cap or collar, currency or currency swap or other agreements or arrangement designed to protect the Borrower against fluctuations in interest rates or currency exchange rates;

(k) Indebtedness with a maturity not to exceed six (6) months;

(1) Subordinated Indebtedness; and

 

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(m) Other Indebtedness aggregating not in excess of One Million Dollars ($1,000,000).

“ Permitted Liens ” means and includes:

(a) liens in favor of Lender;

(b) liens for taxes not yet due or for taxes being contested in good faith for which adequate reserves have been established and which do not involve, any imminent sale, forfeiture or loss of any of the Collateral;

(c) inchoate material men’s, mechanic’s, repairmen’s and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent;

(d) Liens existing on the date hereof and set forth in the Disclosure Schedule and any refinancings, renewals or extensions thereof, provided that the property covered thereby is not changed and the amount secured or benefited thereby is not increased except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing, renewals or extensions;

(e) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Liens imposed by ERISA;

(f) Liens on assets of any entity acquired by the Borrower or any of its Subsidiaries in a transaction permitted under this Agreement; provided that such Liens are in existence on the date of such acquisition and are not created in anticipation thereof;

(g) Liens securing Indebtedness permitted under clauses (d), (f) or (j) of the definition of Permitted Indebtedness;

(h) any interest or title of a lessor under any lease entered into by the Borrower or any other subsidiary in the ordinary course of its business and covering only the assets so leased; and

(i) Liens consisting of statutory or contractual liens in favor of banks or institutions holding, providing or issuing Borrower’s deposit accounts and certificates of deposits, easements affecting real property, and Liens in the nature of performance bonds or security deposits arising in the ordinary course of business; and

(j) Liens upon any Equipment and proceeds, leasehold improvements and soft costs acquired by Debtor after the date hereof to secure (i) the purchase price (including the refunding to the Borrower of the purchase price) of such equipment or other personal property, or (ii) lease obligations or indebtedness incurred solely for the purpose of financing such Equipment and proceeds, leasehold improvements and soft costs; provided that (A) such Liens are confined solely to the Equipment so financed, leasehold improvements, soft costs and proceeds thereof and the amount secured does not exceed the price thereof, and (B) no such Lien

 

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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.

“ 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.

“ Prepayment ” means to prepay, redeem, repurchase, defease or otherwise satisfy any manner prior to the scheduled repayment thereof any Indebtedness (other than Subordinated Indebtedness) for borrowed money or lease obligations.

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

“ Ratable Portion ” means an amount equal to the product of (A) the amount of Indebtedness owed to Lender at the time multiplied by (B) a fraction, the numerator of which is the dollar amount of all Prepayments made within that six (6) month period in excess of Ten Million Dollars ($10,000,000) and the denominator of which is the sum of (i) all outstanding Indebtedness (other than Subordinated Indebtedness) and (ii) the Indebtedness owed to Lender.

“ 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.

“ Subordinated Indebtedness ” means any Indebtedness which has been subordinated to the Obligations on terms and conditions acceptable to Lender in its sole discretion.

“ 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.

“ Warrant ” means the separate warrant or warrants dated on or about the date hereof in favor of the Lender or its 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

 

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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, Lender agrees to lend to Borrower prior to the Commitment Termination Date Loan A, Loan A in the principal amount of Commitment Amount Loan A. Subject to the terms and conditions of this Agreement, including, without limitation, Section 3.3 below, and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Lender agrees to lend to Borrower prior to the Commitment Termination Date Loan B, Loan B in the principal amount of Commitment Amount Loan B.

(b) The Loans and the Notes . The obligation of Borrower to repay the unpaid principal amount of and interest on each Loan shall be evidenced by a Note issued to Lender.

(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, Lender’s obligation to lend the undisbursed portion of the Commitment Amount to Borrower hereunder shall terminate on the earlier of (i) at Lender’s sole election, the occurrence and the continuance of any Default or the occurrence of any Event of Default (which has not been waived by Lender) hereunder, and (ii) the Commitment Termination Date. Notwithstanding the foregoing, Lender’s obligation to lend the undisbursed portion of the Commitment Amount to Borrower shall terminate if, in Lender’s reasonable judgment, there has been a material adverse change in the results of operations or financial condition of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any

 

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material adverse deviation by Borrower from the business plan of Borrower presented to Lender 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 the first nine (9) Payment Dates specified in the Note applicable to such Loan and thirty (30) equal payments of principal plus accrued interest on the outstanding principal amount of each Loan on each Payment Date as set forth in the Note applicable to such Loan (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.

(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. 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 Lender prior to an Event of Default shall be applied as follows: (1) first, to Lender’s 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 Lender a late payment fee equal to five percent (5%) of any Scheduled Payment not paid 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 Lender’s 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.

 

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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 Lender 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 Lender, Borrower may, at its option, at any time, prepay all of the Loans, by paying to Lender an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; (ii) for each Loan an amount equal to (A) if the Loan is prepaid within twelve (12) months from the Funding Date thereof, four (4%) percent of the then outstanding principal balance of the Loan, (B) if the Loan is prepaid on or after twelve (12) months from the Funding Date thereof but less than twenty-four (24) months from the Funding Date, three (3%) percent of the then outstanding principal balance of the Loan, or (C) if the Loan is prepaid on or after twenty-four (24) months from the Funding Date thereof but less than thirty-six (36) months from the Funding Date, two (2%) percent of the then outstanding principal balance of the Loan; and (D) if the Loan is prepaid on or after thirty-six (36) months from the Funding Date thereof, zero (0%) percent of the then outstanding principal balance of the Loan; (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 Lender 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 12:00 p.m. Connecticut time, on the date on which such payment is due. Borrower shall make such payments to Lender via wire transfer as follows:

 

 

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(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 the Loans .

(a) Notice . Borrower shall notify Lender of the date on which Borrower desires Lender to make any Loan at least five (5) Business Days in advance of the desired Funding Date, unless Lender elects at its sole discretion to allow the Funding Date to be within five (5) Business Days of Borrower’s notice. Borrower’s execution and delivery to Lender of a Note shall be Borrower’s agreement to the terms and calculations thereunder with respect to the Loan. Lender’s obligation to make any Loan shall be expressly subject to the satisfaction of the conditions set forth in Section 3 .

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

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

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

(a) Good Faith Deposit . Borrower has delivered to Lender a good faith deposit in the amount of Thirty Seven Thousand Five Hundred Dollars ($37,500) (the “Good Faith Deposit ”). The Good Faith Deposit will be utilized to pay the Commitment Fee and a portion of the amounts due under Section 2.6(b) below.

(b) Legal, Due Diligence and Documentation Expenses . Concurrently with its execution and delivery of this Agreement, Borrower shall pay to Lender Lender’s legal, due diligence and documentation expenses in connection with the negotiation and documentation of this Agreement and the Loan Documents in an amount not to exceed Twelve Thousand Dollars ($12,000).

(c) Commitment Fee . Borrower shall pay Lender concurrently with its execution and delivery of this Agreement a commitment fee in the amount of Thirty Thousand Dollars ($30,000) (the “ Commitment Fee ”). The Commitment Fee shall be retained by Lender and be deemed fully earned upon receipt.

3. Conditions of Loan .

3.1 Conditions Precedent to Closing . At the time of the execution and delivery of this Agreement, Lender shall have received, in form and substance reasonably satisfactory to Lender, all of the following (unless Lender has 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 Lender.

 

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

(c) Intercreditor Agreement . Lender and Oxford Finance Corporation shall have executed an agreement setting forth the rights and responsibilities of Oxford and Lender, as lenders, with respect to the Borrower and its assets.

(d) Secretary’s Certificate . A certificate of the secretary or assistant secretary of Borrower with copies of the following documents attached: (i) the certificate 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.

(e) 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.

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

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

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

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

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

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

(c) UCC Financing Statements . Lender shall have received such documents, instruments and agreements, including UCC financing statements or amendments to UCC financing statements, as Lender shall reasonably request to evidence the perfection and priority of the security interests granted to Lender pursuant to Section 4 . Borrower authorizes Lender 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.

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

 

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

3.3 Covenant to Deliver . Borrower agrees (not as a condition but as a covenant) to deliver to Lender each item required to be delivered to Lender as a condition to each Loan, if such Loan is advanced. Borrower expressly agrees that the extension of such Loan prior to the receipt by Lender of any such item shall not constitute a waiver by Lender of Borrower’s obligation to deliver such item, and any such extension in the absence of a required item shall be in Lender’s sole discretion.

4. Creation of Security Interest .

4.1 Grant of Security Interest . Borrower grants to Lender a valid, first priority (subject to Permitted Liens), 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, franchise agreements, blueprints, drawings, purchase orders, customer lists to the extent permitted by law, route lists, infringements, claims, non-proprietary 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

 

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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; and

(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 and contracts which by their terms do not permit or would be violated by the grant of a lien or security interest in them to the extent that such terms are enforceable under Section 9-408 of the UCC and assets which are subject to Liens described in clause (j) of the definition of Permitted Liens (until such Liens have been terminated, at which time such assets shall be part of the Collateral); 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 ”).

4.2 After-Acquired Property . If Borrower shall at any time acquire a commercial tort claim, as defined in the Code having a reasonable expected value in excess of $250,000, Borrower shall immediately notify Lender in writing signed by Borrower of the brief details thereof and, upon request of Lender, grant to Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lender.

4.3 Duration of Security Interest . Lender’s security interest in the Collateral shall continue until the payment in full and the satisfaction of all Obligations and termination of Lender’s commitment to fund the Loans, whereupon such security interest shall terminate. Lender shall, at Borrower’s sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to make effective the release contemplated by this Section 4.3, including duly executing and delivering termination statements for filing in all relevant jurisdictions under the Code; provided, however, that Lender’s security interest in the Collateral shall not continue with respect to any Obligations arising from Section 10.3(a) of this Agreement after the repayment in full of all other Obligations and termination of Lender’s commitment to fund the Loans.

 

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4.4 Location and Possession of Collateral . The Collateral is and shall remain in the possession of Borrower at its location listed on the cover page hereof or as set forth in the Disclosure Schedule or any other location of which Borrower has notified Lender as provided herein. Borrower shall remain in full possession, enjoyment and control of the Collateral (except only as may be otherwise required by Lender for perfection of its security interest therein).

4.5 Delivery of Additional Documentation Required . Borrower shall from time to time execute and deliver to Lender, at the request of Lender, all financing statements and other documents Lender may reasonably request, in form satisfactory to Lender, to perfect and continue Lender’s perfected security interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents.

4.6 Right to Inspect . Lender (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours, to inspect Borrower’s books and records and to make copies thereof and to inspect, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral, provided, that if no Event of Default shall have occurred, Lender shall not make more than one (1) inspection in any calendar year. If no Event of Default shall have occurred, Lender shall use its best efforts to coordinate such inspection with Oxford Finance Corporation.

4.7 Protection of Intellectual Property . Borrower shall protect, defend and maintain the validity and enforceability of the Intellectual Property necessary for the operation of its business.

4.8 Lien Subordination . Lender agrees that the Liens granted to it hereunder in Third Party Equipment shall be subordinate to the Liens of future lenders providing equipment financing and equipment lessors for equipment and other personal property acquired by Borrower after the date hereof (“ Third Party Equipment ”); provided that such Liens are confined solely to the equipment so financed and the proceeds thereof and are Permitted Liens. Notwithstanding the foregoing, the Obligations hereunder shall not be subordinate in right of payment to any obligations to other equipment lenders or equipment lessors and Lender’s rights and remedies hereunder with respect to Collateral that does not constitute Third Party Equipment shall not in any way be subordinate to the rights and remedies of any such lenders or equipment lessors. So long as no Event of Default has occurred, Lender agrees to execute and deliver such agreements and documents as may be reasonably requested by Borrower from time to time which set forth the lien subordination described in this Section 4.8 and are reasonably acceptable to Lender. Lender shall have no obligation to execute any agreement or document which would impose obligations, restrictions or lien priority on Lender which are less favorable to Lender than those described in this Section 4.8 .

5. Representations and Warranties . Except as set forth in the Disclosure Schedule, Borrower represents and warrants as follows:

5.1 Organization and Qualification . Borrower is a corporation duly organized and validly existing under the laws of its state of incorporation and qualified and licensed to do

 

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business in, and is in good standing in, any state in which the conduct of its business or its ownership of Property requires that it be so qualified or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a material adverse effect on Borrower.

5.2 Authority , Borrower has all necessary power and authority to execute, deliver, and perform in accordance with the terms thereof, the Loan Documents to which it is a party. Borrower has all requisite power and authority to own and operate its Property and to carry on its businesses as now conducted.

5.3 Conflict with Other Instruments, etc . Neither the execution and delivery of any Loan Document to which Borrower is a party nor the consummation of the transactions therein contemplated will conflict with or result in a breach of any of the terms, conditions or provisions of the certificate of incorporation, the by-laws, or any other organizational documents of Borrower or any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality or any material agreement or instrument to which Borrower is a party or by which it or any of its Property is bound or to which it or any of its Property is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens.

5.4 Authorization; Enforceability . The execution and delivery of this Agreement, the granting of the security interest in the Collateral, the incurring of the Loans, the execution and delivery of the other Loan Documents to which Borrower is a party and the consummation of the transactions herein and therein contemplated have each been duly authorized by all necessary action on the part of Borrower. No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with, or notice to, any Person is, was or will be necessary to (i) the valid execution and delivery of any Loan Document to which Borrower is a party, (ii) the performance of Borrower’s obligations under any Loan Document, or (iii) the granting of the security interest in the Collateral, except for filings and agreements in connection with the perfection of the security interest in any of the Collateral or the issuance of the Warrant. The Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolv