Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of September 8,
2017 (the “Effective Date”) among SILICON VALLEY BANK, a California corporation
(“Bank”), SOPHIRIS BIO INC., a corporation existing under the laws of the
Province of British Columbia (“Canadian Borrower”), Sophiris Bio Corp., a
Delaware corporation (“US Borrower Corp”), and Sophiris Bio Holding Corp., a
Delaware corporation (“US Borrower Holding”; together with Canadian Borrower and
US Borrower Corp, collectively, “Borrower”), provides the terms on which Bank
shall lend to Borrower and Borrower shall repay Bank. The parties agree as
follows:

 

1.     ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code or the PPSA, as
applicable, to the extent such terms are defined therein.

 

Nothing herein (including the definition and use of the term Permitted Liens) is
intended or shall be deemed to expressly subordinate the security interest to
any Permitted Lien or any other lien, charge, mortgage, security interest,
hypothec or encumbrance affecting all or any portion of the Collateral; provided
that Liens in favor of Bank may be subject to Permitted Liens that are expressly
permitted pursuant to the terms of this Agreement to have superior priority to
Bank’s Lien in this Agreement.

 

2.     LOAN AND TERMS OF PAYMENT

 

2.1     Promise to Pay. Borrower hereby unconditionally, jointly and severally,
promises to pay Bank the outstanding principal amount of all Credit Extensions
and accrued and unpaid interest thereon as and when due in accordance with this
Agreement.

 

2.1.1     Term Loan Advances.

 

(a)     Availability. Subject to the terms and conditions of this Agreement,
Borrower may request that Bank make certain term loan advances to Borrower
(each, a “Term Loan Advance” and, collectively, the “Term Loan Advances”) in two
(2) tranches in an aggregate original principal amount not to exceed the Term
Loan Commitment Amount, as follows:  the first (1st) tranche shall be made to
Borrower on or about the Effective Date in the original principal amount not to
exceed Seven Million Dollars ($7,000,000) (the “Tranche One Term Loan Advance”)
and  provided that Bank has received and approved evidence satisfactory to Bank
in its reasonable discretion that Borrower has satisfied either Milestone A or
Milestone B, the second (2nd) tranche shall be available to Borrower in a single
advance during the Tranche Two Term Loan Draw Period in the original principal
amount not to exceed Three Million Dollars ($3,000,000) (the “Tranche Two Term
Loan Advance”). After repayment, no Term Loan Advance may be re-borrowed.

 

 

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(b)     Repayment.

 

(i)     Interest-Only Payments. For each Term Loan Advance, Borrower shall make
monthly payments of accrued interest-only commencing on the first (1st) calendar
day of the first (1st) month immediately following the month in which the
Funding Date occurs with respect to such Term Loan Advance and continuing
thereafter on the first (1st) calendar day of each successive month during the
Interest-Only Period.

 

(ii)     Principal and Interest Payments. For each Term Loan Advance, commencing
on the first (1st) calendar day of the month immediately following the end of
the Interest-Only Period (the “Conversion Date”) and continuing on the first
(1st) calendar day of each month thereafter through the Term Loan Maturity Date,
Borrower shall make the Applicable Number of equal monthly payments of
principal, each in an amount which would fully amortize such outstanding Term
Loan Advance, as of the Conversion Date, over the Term Loan Repayment Period,
plus accrued interest. All unpaid principal and accrued and unpaid interest on
the Term Loan Advances is due and payable in full on the Term Loan Maturity
Date.

 

(c)     Prepayment.

 

(i)     Mandatory Prepayment Upon an Acceleration. If the Term Loan Advances are
accelerated following the occurrence of an Event of Default or otherwise,
Borrower shall immediately pay to Bank an amount equal to the sum of (A) all
accrued and unpaid interest with respect to the Term Loan Advances through the
date the prepayment is made, plus (B) all outstanding principal with respect to
the Term Loan Advances, plus (C) the Make-Whole Premium, plus (D) the Final
Payment, plus (E) all other sums, if any, that shall have become due and payable
hereunder in connection with the Term Loan Advances, including interest at the
Default Rate with respect to any past due amounts.

 

(ii)     Permitted Prepayment. So long as an Event of Default has not occurred
and is not continuing, Borrower shall have the option to prepay all, but not
less than all, of the Term Loan Advances advanced by Bank under this Agreement,
provided Borrower (A) delivers written notice to Bank of its election to prepay
the Term Loan Advances at least ten (10) days prior to such prepayment, and
(B) pays, on the date of such prepayment (1) all accrued and unpaid interest
with respect to such Term Loan Advances through the date the prepayment is made,
plus (2) all unpaid principal with respect to such Term Loan Advances, plus (3)
the Make-Whole Premium, plus (4) the Final Payment, plus (5) all other sums, if
any, that shall have become due and payable hereunder in connection with the
Term Loan Advances.

 

2.2     Payment of Interest on the Credit Extensions.

 

(a)     Interest Rate. Subject to Section 2.2(b), the outstanding principal
amount of each Term Loan Advance shall accrue interest at a per annum rate equal
to the Prime Rate, fixed as of the Funding Date of the applicable Term Loan
Advance, plus two and one-half of one percent (2.50%), which interest shall be
payable monthly in accordance with Section 2.2(c).

 

(b)     Default Rate. Immediately upon the occurrence and during the continuance
of an Event of Default, Obligations shall bear interest at a rate per annum
which is five percent (5.0%) above the rate that is otherwise applicable thereto
(the “Default Rate”). Fees and expenses which are required to be paid by
Borrower pursuant to the Loan Documents (including, without limitation, Bank
Expenses) but are not paid when due shall bear interest until paid at a rate
equal to the highest rate applicable to the Obligations. Payment or acceptance
of the increased interest rate provided in this Section 2.2(b) is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

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(c)     Payment; Interest Computation. Interest is payable monthly on the first
(1st) calendar day of each month and shall be computed on the basis of a three
hundred sixty (360)-day year for the actual number of days elapsed. In computing
interest,  all payments received after 12:00 p.m. Pacific time on any day shall
be deemed received at the opening of business on the next Business Day, and  the
date of the making of any Credit Extension shall be included and the date of
payment shall be excluded; provided, however, that if any Credit Extension is
repaid on the same day on which it is made, such day shall be included in
computing interest on such Credit Extension.

 

(d)     Interest Act (Canada). Whenever interest is calculated, pursuant to any
provision in this Agreement and the other Loan Documents, on the basis of a
period of time less than a calendar year, the annual rate of interest to which
such rate of interest as determined by such calculation is equivalent, for the
purposes of the Interest Act (Canada), is such rate as so calculated multiplied
by a fraction, the numerator of which is the actual number of days in the
applicable calendar year in respect of which the calculation is made, and the
denominator of which is the number of days used in the calculation.

 

2.3     Fees. Borrower shall pay to Bank:

 

(a)     Good Faith Deposit. Borrower has paid to Bank a deposit of Twenty-Five
Thousand Dollars ($25,000) (the “Good Faith Deposit”) to initiate Bank’s due
diligence review process. Any portion of the Good Faith Deposit not utilized to
pay Bank Expenses on the Effective Date will be deposited into the Designated
Deposit Account;

 

(b)     Make-Whole Premium. The Make-Whole Premium if and when due pursuant to
the terms of Sections 2.1.1(c)(i) or 2.1.1(c)(ii);

 

(c)     Final Payment. The Final Payment when due hereunder; and

 

(d)     Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees
and expenses for documentation and negotiation of this Agreement) incurred
through and after the Effective Date, when due (or, if there is no stated due
date, upon demand by Bank).

 

(e)     Fees Fully Earned. Unless otherwise provided in this Agreement or in a
separate writing by Bank, Borrower shall not be entitled to any credit, rebate,
or repayment of any fees earned by Bank pursuant to this Agreement
notwithstanding any termination of this Agreement or the suspension or
termination of Bank’s obligation to make loans and advances hereunder. Bank may
deduct amounts owing by Borrower under the clauses of this Section 2.3 pursuant
to the terms of Section 2.4(c). Bank shall provide Borrower written notice of
deductions made from the Designated Deposit Account pursuant to the terms of the
clauses of this Section 2.3.

 

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2.4     Payments; Application of Payments; Debit of Accounts.

 

(a)     All payments to be made by Borrower under any Loan Document shall be
made in immediately available funds in Dollars, without setoff or counterclaim,
before 12:00 p.m. Pacific time on the date when due. Payments of principal
and/or interest received after 12:00 p.m. Pacific time are considered received
at the opening of business on the next Business Day. When a payment is due on a
day that is not a Business Day, the payment shall be due the next Business Day,
and additional fees or interest, as applicable, shall continue to accrue until
paid.

 

(b)     Bank has the exclusive right to determine the order and manner in which
all payments with respect to the Obligations may be applied. Borrower shall have
no right to specify the order or the accounts to which Bank shall allocate or
apply any payments required to be made by Borrower to Bank or otherwise received
by Bank under this Agreement when any such allocation or application is not
specified elsewhere in this Agreement.

 

(c)     Bank may debit any of Borrower’s deposit accounts, including the
Designated Deposit Account, for principal and interest payments or any other
amounts Borrower owes Bank when due. These debits shall not constitute a
set-off.

 

2.5     Withholding. Payments received by Bank from Borrower under this
Agreement will be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, duties, deductions, withholdings,
assessments, fees or other charges imposed by any Governmental Authority
(including any interest, additions to tax or penalties applicable thereto).
Specifically, however, if at any time any Governmental Authority, applicable
law, regulation or international agreement requires Borrower to make any
withholding or deduction from any such payment or other sum payable hereunder to
Bank, Borrower hereby covenants and agrees that the amount due from Borrower
with respect to such payment or other sum payable hereunder will be increased to
the extent necessary to ensure that, after the making of such required
withholding or deduction, Bank receives a net sum equal to the sum which it
would have received had no withholding or deduction been required, and Borrower
shall pay the full amount withheld or deducted to the relevant Governmental
Authority. Borrower will, upon request, furnish Bank with proof reasonably
satisfactory to Bank indicating that Borrower has made such withholding payment;
provided, however, that Borrower need not make any withholding payment if the
amount or validity of such withholding payment is contested in good faith by
appropriate and timely proceedings and as to which payment in full is bonded or
reserved against by Borrower. The agreements and obligations of Borrower
contained in this Section 2.5 shall survive the termination of this Agreement.

 

2.6     Canadian Interest. If any provision of this Agreement or any other Loan
Document would obligate Borrower to make any payment of interest or other amount
payable to (including for the account of) Bank in an amount, or calculated at a
rate, that would be prohibited by law or would result in a receipt by Bank of
interest at a criminal rate (as such terms are defined under section 347 of the
Criminal Code (Canada)) then, notwithstanding such provision, such amount or
rate shall be deemed to have been adjusted with retroactive effect to the
maximum amount or rate of interest, as the case may be, as would not be so
prohibited by law or so result in a receipt by Bank of interest at a criminal
rate, such adjustment to be effected, to the extent necessary, as follows: (i)
first, by reducing the amount or rate of interest required to be paid Bank; and
(ii) thereafter, by reducing any fees, commissions, premiums and other amounts
required to be paid to Bank that would constitute interest for purposes of
Section 347 of the Criminal Code (Canada). Notwithstanding the foregoing, and
after giving effect to all adjustments contemplated thereby, if Bank shall have
received an amount in excess of the maximum amount permitted by that section of
the Criminal Code (Canada), then such Borrower shall be entitled, by notice in
writing to Bank, to obtain reimbursement from Bank in an amount equal to such
excess, and pending such reimbursement, such amount shall be deemed to be an
amount payable by Bank to such Borrower. Any amount or rate of interest referred
to in this Agreement shall be determined in accordance with generally accepted
actuarial practices and principles as an effective annual rate of interest over
the term that financing under this Agreement remains outstanding on the
assumption that any charges, fees or expenses that fall within the meaning of
“interest” (as defined in the Criminal Code (Canada)) shall, if they relate to a
specific period of time, be pro rated over that period of time and otherwise be
pro rated over the period during which the financing under this Agreement is
available and, in the event of a dispute, a certificate of a Fellow of the
Canadian Institute of Actuaries appointed by Bank shall be conclusive for the
purposes of such determination.

 

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3.     CONDITIONS OF LOANS

 

3.1     Conditions Precedent to Initial Credit Extension. Bank’s obligation to
make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:

 

(a)     duly executed original signatures to the Loan Documents;

 

(b)     duly executed original signatures to the Warrant;

 

(c)     duly executed original signatures to the Control Agreements with First
Republic Bank and Morgan Stanley;

 

(d)     the Operating Documents and good standing certificates of US Borrower
Corp and US Borrower Holding certified by the Secretaries of State (or
equivalent agency thereof) of the States of Delaware, California, and each other
jurisdiction in which US Borrower Corp and US Borrower Holding are qualified to
conduct business, each as of a date no earlier than thirty (30) days prior to
the Effective Date;

 

(e)     copies of the certificate of amalgamation, certificate of change of
name, current notice of articles and articles of Canadian Borrower and
certificate of good standing of Canadian Borrower in the Province of British
Columbia and similar documents in each other jurisdiction in which Canadian
Borrower is qualified to conduct business, each as of a date no earlier than
thirty (30) days prior to the Effective Date;

 

(f)     duly executed original signatures to the completed Borrowing Resolutions
for Borrower;

 

(g)     certified copies, dated as of a recent date, of financing statement
searches, as Bank may request, accompanied by written evidence (including any
UCC termination statements or PPSA discharge statements) that the Liens
indicated in any such financing statements either constitute Permitted Liens or
have been or, in connection with the initial Credit Extension, will be
terminated or released;

 

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(h)     the Perfection Certificates of Borrower, together with the duly executed
original signature thereto;

 

(i)     evidence satisfactory to Bank that the insurance policies and
endorsements required by Section 6.5 hereof are in full force and effect,
together with appropriate evidence showing lender loss payable and/or additional
insured clauses or endorsements in favor of Bank; and

 

(j)     payment of the fees and Bank Expenses then due as specified in
Section 2.3 hereof.

 

3.2     Conditions Precedent to all Credit Extensions. Bank’s obligations to
make each Credit Extension, including the initial Credit Extension, is subject
to the following conditions precedent:

 

(a)     timely receipt of an executed Payment/Advance Form;

 

(b)     the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the
Payment/Advance Form and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no
Event of Default shall have occurred and be continuing or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties in this Agreement remain true,
accurate, and complete in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and

 

(c)     Bank determines to its satisfaction that there has not been a Material
Adverse Change.

 

3.3     Post-Closing Conditions. Within thirty (30) days after the Effective
Date, Bank shall have received, in form and substance satisfactory to Bank, a
lender’s loss payable endorsement showing Bank as the sole lender loss payee.

 

3.4     Covenant to Deliver. Except as otherwise provided in Section 3.3,
Borrower agrees to deliver to Bank each item required to be delivered to Bank
under this Agreement as a condition precedent to any Credit Extension. Borrower
expressly agrees that a Credit Extension made prior to the receipt by Bank of
any such item shall not constitute a waiver by Bank of Borrower’s obligation to
deliver such item, and the making of any Credit Extension in the absence of a
required item shall be in Bank’s sole discretion.

 

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3.5     Procedures for Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of a Term Loan Advance set forth in this
Agreement, to obtain a Term Loan Advance, Borrower shall notify Bank (which
notice shall be irrevocable) by electronic mail, facsimile, or telephone by
12:00 p.m. Pacific time on the Funding Date of such Term Loan Advance. Together
with any such electronic or facsimile notification, Borrower shall deliver to
Bank by electronic mail or facsimile a completed Payment/Advance Form executed
by a Responsible Officer or his or her designee. Bank may rely on any telephone
notice given by a person whom Bank believes is a Responsible Officer or
designee. Bank shall credit Term Loan Advances to the Designated Deposit Account
on the Funding Date of such Term Loan Advance. Bank may make Term Loan Advances
under this Agreement based on instructions from a Responsible Officer or his or
her designee or without instructions if the Term Loan Advances are necessary to
meet Obligations which have become due.

 

4.     CREATION OF SECURITY INTEREST.

 

4.1     Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.

 

Borrower acknowledges that it previously has entered, and/or may in the future
enter, into Bank Services Agreements with Bank. Regardless of the terms of any
Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
perfected security interest in the Collateral granted herein (subject only to
Permitted Liens that are permitted pursuant to the terms of this Agreement to
have superior priority to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations (other than
inchoate indemnity obligations) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at the sole cost and expense of
Borrower, release its Liens in the Collateral and all rights therein shall
revert to Borrower. In the event (x) all Obligations (other than inchoate
indemnity obligations), except for Bank Services, are satisfied in full, and
(y) this Agreement is terminated, Bank shall terminate the security interest
granted herein upon Borrower providing cash collateral acceptable to Bank in its
good faith business judgment for Bank Services, if any. In the event such Bank
Services consist of outstanding Letters of Credit, Borrower shall provide to
Bank cash collateral in an amount equal to (x) if such Letters of Credit are
denominated in Dollars, then at least one hundred five percent (105.0%); and
(y) if such Letters of Credit are denominated in a Foreign Currency, then at
least one hundred ten percent (110.0%), of the Dollar Equivalent of the face
amount of all such Letters of Credit plus all interest, fees, and costs due or
to become due in connection therewith (as estimated by Bank in its business
judgment), to secure all of the Obligations relating to such Letters of Credit.

 

4.2     Priority of Security Interest. Borrower represents, warrants, and
covenants that the security interest granted herein is and shall at all times
continue to be a first priority perfected security interest in the Collateral
(subject only to Permitted Liens that are permitted pursuant to the terms of
this Agreement to have superior priority to Bank’s Lien under this Agreement).
If Borrower shall acquire a commercial tort claim, Borrower shall promptly
notify Bank in a writing signed by Borrower of the general details thereof and
grant to Bank in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form
and substance reasonably satisfactory to Bank.

 

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4.3     Authorization to File Financing Statements. Borrower hereby authorizes
Bank to file financing statements, without notice to Borrower, with all
appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code, provided that any description of Collateral shall not include
(directly or indirectly) the excluded Collateral indicated on Exhibit A hereto.

 

5.     REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1     Due Organization, Authorization; Power and Authority. Borrower is duly
existing and in good standing as a Registered Organization, provided that the
Canadian Borrower need not be a Registered Organization if not required to
register under the Code, in its jurisdiction of formation and is qualified and
licensed to do business and is in good standing in any jurisdiction in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
have a material adverse effect on Borrower’s business. In connection with this
Agreement, Borrower has delivered to Bank a completed certificate signed by
Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to
Bank that  Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof;  Borrower is an organization of
the type and is organized in the jurisdiction set forth in the Perfection
Certificate;  the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none;  the Perfection Certificate accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different than its chief executive office);  Borrower (and
each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and all other information
set forth on the Perfection Certificate pertaining to Borrower and each of its
Subsidiaries is accurate and complete in all material respects (it being
understood and agreed that Borrower may from time to time update certain
information in the Perfection Certificate after the Effective Date to the extent
permitted by one or more specific provisions in this Agreement).

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not  conflict with any of
Borrower’s organizational documents,  contravene, conflict with, constitute a
default under or violate any material Requirement of Law,  contravene, conflict
or violate any applicable order, writ, judgment, injunction, decree,
determination or award of any Governmental Authority by which Borrower or any of
its Subsidiaries or any of their property or assets may be bound or affected,
 require any action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such Governmental
Approvals which have already been obtained and are in full force and effect (or
are being obtained pursuant to Section 6.1(b)) or  conflict with, contravene,
constitute a default or breach under, or result in or permit the termination or
acceleration of, any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which it is a party or by which it is
bound in which the default could reasonably be expected to have a material
adverse effect on Borrower’s business.

 

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5.2     Collateral. Borrower has good title to, rights in, and the power to
transfer each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no Collateral Accounts at or with any bank or financial institution other
than Bank or Bank’s Affiliates except for the Collateral Accounts described in
the Perfection Certificate delivered to Bank in connection herewith or permitted
under Section 6.6(b) and which Borrower has taken such actions as are necessary
to give Bank a perfected security interest therein, pursuant to the terms of
Section 6.6(b). The Accounts are bona fide, existing obligations of the Account
Debtors.

 

As of the Effective Date, the Collateral is not in the possession of any third
party bailee (such as a warehouse) except as otherwise provided in the
Perfection Certificate. None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.2.

 

All finished goods Inventory for sale is in all material respects of good and
marketable quality, free from material defects.

 

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for  non-exclusive licenses granted to its customers in
the ordinary course of business,  over-the-counter software that is commercially
available to the public, licenses that could not result in a legal transfer of
title of the licensed property but that may be exclusive in respects other than
territory and that may be exclusive as to territory only as to direct
geographical areas outside of the United States; and  material Intellectual
Property licensed to Borrower and noted on the Perfection Certificate (as the
same may be updated from time to time pursuant to Section 5.1). To the best of
Borrower’s knowledge, each Patent which it owns or purports to own and which is
material to Borrower’s business is valid and enforceable, and no part of the
Intellectual Property which Borrower owns or purports to own and which is
material to Borrower’s business has been judged invalid or unenforceable, in
whole or in part. To the best of Borrower’s knowledge, no claim has been made
that any part of the Intellectual Property violates the rights of any third
party except to the extent such claim would not reasonably be expected to have a
material adverse effect on Borrower’s business.

 

Except for off-the-shelf licenses in the ordinary course of business or as noted
on the Perfection Certificate (as the same may be updated from time to time
pursuant to Section 7.10(b), Borrower is not a party to, nor is it bound by, any
Restricted License.

 

5.3     Litigation. There are no actions or proceedings pending or, to the
knowledge of any Responsible Officer, threatened in writing by or against
Borrower or any of its Subsidiaries which could reasonably be expected to result
in damage of more than, individually or in the aggregate, Fifty Thousand Dollars
($50,000).

 

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5.4     Financial Statements; Financial Condition. All consolidated financial
statements for Borrower and any of its Subsidiaries delivered to Bank fairly
present in all material respects Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations as of the dates and periods
covered thereby. There has not been any material deterioration in Borrower’s
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

 

5.5     Solvency. The fair salable value of Borrower’s consolidated assets
(including goodwill minus disposition costs) exceeds the fair value of
Borrower’s liabilities; Borrower is not left with unreasonably small capital
after the transactions in this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.

 

5.6     Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the
Federal Reserve Board of Governors). Borrower  has complied in all material
respects with all Requirements of Law, and  has not violated any Requirements of
Law the violation of which could reasonably be expected to have a material
adverse effect on its business. None of Borrower’s or any of its Subsidiaries’
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all Government Authorities that are necessary to continue their respective
businesses as currently conducted, except where failure to obtain or make such
consents, declarations, filings or notices could not reasonably be expected to
have a material adverse effect on Borrower’s business.

 

5.7     Subsidiaries; Investments. Borrower does not own any stock, partnership,
or other ownership interest or other equity securities except for Permitted
Investments.

 

5.8     Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all required tax returns and reports, and Borrower has timely paid all
foreign, federal, state, provincial, territorial, and local taxes, assessments,
deposits and contributions owed by Borrower except  to the extent such taxes are
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, so long as such reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made therefor,
or  if such taxes, assessments, deposits and contributions do not, individually
or in the aggregate, exceed Five Thousand Dollars ($5,000).

 

To the extent Borrower defers payment of any contested taxes, Borrower shall
 notify Bank in writing of the commencement of, and any material development in,
the proceedings, and  post bonds or take any other steps required to prevent the
governmental authority levying such contested taxes from obtaining a Lien upon
any of the Collateral that is other than a “Permitted Lien.” Borrower is unaware
of any claims or adjustments proposed for any of Borrower’s prior tax years
which could result in additional taxes becoming due and payable by Borrower.
Borrower has paid all amounts necessary to fund all present pension, profit
sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, and has not permitted partial
or complete termination of, or permitted the occurrence of any other event with
respect to, any such plan which could reasonably be expected to result in any
liability of Borrower, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency. Borrower does
not maintain or contribute to and has never maintained or contributed to a plan
that contains a “defined benefit provision” as defined in the Income Tax Act
(Canada).

 

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5.9     Use of Proceeds. Borrower shall use the proceeds of the Credit
Extensions solely as working capital and to fund its general business
requirements and not for personal, family, household or agricultural purposes.

 

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

 

5.11     Definition of “Knowledge.” For purposes of the Loan Documents, whenever
a representation or warranty is made to Borrower’s knowledge or awareness, to
the “best of” Borrower’s knowledge, or with a similar qualification, knowledge
or awareness means the actual knowledge, after reasonable investigation, of any
Responsible Officer.

 

6.     AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1     Government Compliance.

 

(a)     Except as permitted under Section 7.2, maintain its and all its
Subsidiaries’ legal existence and good standing in their respective
jurisdictions of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to have a material
adverse effect on Borrower’s business or operations. Borrower shall comply, and
have each Subsidiary comply, in all material respects, with all laws, ordinances
and regulations to which it is subject.

 

(b)     Obtain all of the Governmental Approvals necessary for the performance
by Borrower of its obligations under the Loan Documents to which it is a party
and the grant of a security interest to Bank in the Collateral. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2     Financial Statements, Reports, Certificates. Provide Bank with the
following:

 

(a)     Quarterly Financial Statements. As soon as available, but no later than
five (5) days after filing with the SEC, a quarterly company-prepared
consolidated balance sheet and income statement covering Borrower’s consolidated
operations for such quarter certified by a Responsible Officer and in a form
acceptable to Bank (the “Quarterly Financial Statements”);

 

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(b)     Quarterly Compliance Certificate. Together with the Quarterly Financial
Statements, a duly completed Compliance Certificate signed by a Responsible
Officer, certifying that as of the end of such quarter, Borrower was in full
compliance with all of the terms and conditions of this Agreement, and setting
forth calculations showing compliance with the financial covenants set forth in
this Agreement (if any) and such other information as Bank may reasonably
request.

 

(c)     Annual Operating Budget and Financial Projections. Within the earlier of
(i) sixty (60) days after the last day of each fiscal year of Borrower or (ii)
ten (10) days after the approval of Borrower’s Board of Directors (and more
frequently as updated), (1) annual operating budgets (including income
statements, balance sheets and cash flow statements, by month) for the upcoming
fiscal year of Borrower, and (2) annual financial projections for the following
fiscal year (on a quarterly basis), in each case as approved by Borrower’s Board
of Directors, together with any related business forecasts used in the
preparation of such annual financial projections;

 

(d)     Annual Audited Financial Statements. As soon as available, but no later
than the earlier of (i) one hundred eighty (180) days after the last day of
Borrower’s fiscal year or (ii) five (5) days after filing with the SEC, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank;

 

(e)     [Reserved];

 

(f)     SEC Filings. Within five (5) days of filing, copies of all periodic and
other reports, proxy statements and other materials filed by Borrower with the
SEC, any Governmental Authority succeeding to any or all of the functions of the
SEC or with any national securities exchange, or distributed to its
shareholders, as the case may be. Documents required to be delivered pursuant to
the terms hereof (to the extent any such documents are included in materials
otherwise filed with the SEC) may be delivered electronically and if so
delivered, shall be deemed to have been delivered on the date on which Borrower
posts such documents, or provides a link thereto, on Borrower’s website on the
Internet at Borrower’s website address; provided, however, Borrower shall
promptly notify Bank in writing (which may be by electronic mail) of the posting
of any such documents;

 

(g)     Legal Action Notice. A prompt report of any legal actions pending or
threatened in writing against Borrower or any of its Subsidiaries that could
reasonably be expected to result in damages or costs to Borrower or any of its
Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars
($100,000) or more; and

 

(h)     Other Financial Information. Other financial information reasonably
requested by Bank.

 

6.3     Inventory; Returns. Keep all finished goods Inventory for sale in good
and marketable condition, free from material defects. Returns and allowances
between Borrower and its Account Debtors shall follow Borrower’s customary
practices as they exist at the Effective Date. Borrower must promptly notify
Bank of all returns, recoveries, disputes and claims that involve more than
Fifty Thousand Dollars ($50,000).

 

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6.4     Taxes; Pensions. Timely file, and require each of its Subsidiaries to
timely file, or obtain extensions for filing, all required tax returns and
reports and timely pay, and require each of its Subsidiaries to timely pay, all
foreign, federal, state, provincial, territorial, and local taxes, assessments,
deposits and contributions owed by Borrower and each of its Subsidiaries, except
for deferred payment of any taxes contested pursuant to the terms of Section 5.8
hereof, and shall deliver to Bank, on demand, appropriate certificates attesting
to such payments, and pay all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms.

 

6.5     Insurance.

 

(a)     Keep its business and the Collateral insured for risks and in amounts
standard for companies in Borrower’s industry and location and as Bank may
reasonably request. Insurance policies shall be in a form, with financially
sound and reputable insurance companies that are not Affiliates of Borrower, and
in amounts that are reasonably satisfactory to Bank. All property policies shall
have a lender’s loss payable endorsement showing Bank as the sole lender loss
payee. All liability policies shall show, or have endorsements showing, Bank as
an additional insured. Bank shall be named as lender loss payee and/or
additional insured with respect to any such insurance providing coverage in
respect of any Collateral.

 

(b)     Ensure that proceeds payable under any property policy are, at Bank’s
option, payable to Bank on account of the Obligations. Notwithstanding the
foregoing, (a) so long as no Event of Default has occurred and is continuing,
Borrower shall have the option of applying the proceeds of any casualty policy
up to One Hundred Thousand Dollars ($100,000) with respect to any loss, but not
exceeding One Hundred Thousand Dollars ($100,000) in the aggregate for all
losses under all casualty policies in any one year, toward the replacement or
repair of destroyed or damaged property; provided that any such replaced or
repaired property shall be of equal or like value as the replaced or repaired
Collateral and  shall be deemed Collateral in which Bank has been granted a
first priority security interest, and (b) after the occurrence and during the
continuance of an Event of Default, all proceeds payable under such casualty
policy shall, at the option of Bank, be payable to Bank on account of the
Obligations.

 

(e)     At Bank’s request, Borrower shall deliver certified copies of insurance
policies and evidence of all premium payments. Each provider of any such
insurance required under this Section 6.5 shall agree, by endorsement upon the
policy or policies issued by it or by independent instruments furnished to Bank,
that it will give Bank thirty (30) days (ten (10) days for non-payment of
premium) prior written notice before any such policy or policies shall be
materially altered or canceled. If Borrower fails to obtain insurance as
required under this Section 6.5 or to pay any amount or furnish any required
proof of payment to third persons and Bank, Bank may make all or part of such
payment or obtain such insurance policies required in this Section 6.5, and take
any action under the policies Bank deems prudent.

 

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6.6     Operating Accounts.

 

(a)     Maintain at least one (1) deposit account or securities account with
Bank or Bank’s Affiliate.

 

(b)     Provide Bank five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution other than Bank
or Bank’s Affiliates. For each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial institution
(other than Bank) at or with which any Collateral Account is maintained to
execute and deliver a Control Agreement or other appropriate instrument with
respect to such Collateral Account to perfect Bank’s Lien where applicable and
otherwise in respect of Bank’s Lien, in each case in such Collateral Account in
accordance with the terms hereunder which Control Agreement may not be
terminated without the prior written consent of Bank. The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such
and  Borrower’s accounts at Royal Bank of Canada, provided that the amount in
such account(s) at Royal Bank of Canada shall not exceed Fifty Thousand Dollars
($50,000).

 

6.7     Reserved.

 

6.8     Protection of Intellectual Property Rights.

 

(a)      Protect, defend and maintain the validity and enforceability of its
Intellectual Property material to Borrower’s business;  promptly advise Bank in
writing of material infringements or any other event that could reasonably be
expected to materially and adversely affect the value of its Intellectual
Property material to Borrower’s business; and  not allow any Intellectual
Property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Bank’s written consent.

 

(b)     Provide written notice to Bank within thirty (30) days of entering or
becoming bound by any Restricted License (other than over-the-counter software
that is commercially available to the public). Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for  any Restricted License to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such Restricted
License, whether now existing or entered into in the future, and  Bank to have
the ability in the event of a liquidation of any Collateral to dispose of such
Collateral in accordance with Bank’s rights and remedies under this Agreement
and the other Loan Documents, provided that this Section 6.8(b) shall not apply
to the Existing Inbound Licenses.

 

6.9     Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower’s books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

 

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6.10     Access to Collateral; Books and Records. At reasonable times, on three
(3) Business Days’ notice (provided no notice is required if an Event of Default
has occurred and is continuing), allow Bank, or its agents, to inspect the
Collateral and audit and copy Borrower’s Books. The foregoing inspections and
audits shall be conducted no more often than once every twelve (12) months
unless an Event of Default has occurred and is continuing, in which case such
inspections and audits shall occur as often as Bank shall determine is
necessary. The foregoing inspections and audits shall be at Borrower’s expense,
and the charge therefor shall be One Thousand Dollars ($1,000) per person per
day (or such higher amount as shall represent Bank’s then-current standard
charge for the same), plus reasonable out-of-pocket expenses. In the event
Borrower and Bank schedule an audit more than ten (10) days in advance, and
Borrower cancels or seeks to reschedule the audit with less than ten (10) days
written notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrower shall pay Bank a fee of One Thousand Dollars ($1,000) plus
any out-of-pocket expenses incurred by Bank to compensate Bank for the
anticipated costs and expenses of the cancellation or rescheduling.

 

6.11     Formation or Acquisition of Subsidiaries. Notwithstanding and without
limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the
time that Borrower forms any direct or indirect Subsidiary or acquires any
direct or indirect Subsidiary after the Effective Date, Borrower shall, upon
Bank’s request in its sole and absolute discretion,  cause such new Subsidiary
to provide to Bank either a joinder to this Agreement to cause such Subsidiary
to become a co-borrower hereunder, together with such appropriate financing
statements and/or Control Agreements, all in form and substance satisfactory to
Bank (including being sufficient to grant Bank a first priority Lien (subject to
Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary),  provide to Bank appropriate certificates and powers and financing
statements, pledging all of the direct or beneficial ownership interest in such
new Subsidiary, in form and substance satisfactory to Bank, and  provide to Bank
all other documentation in form and substance satisfactory to Bank, including
one or more opinions of counsel satisfactory to Bank, which in its opinion is
appropriate with respect to the execution and delivery of the applicable
documentation referred to above. Any document, agreement, or instrument executed
or issued pursuant to this Section 6.11 shall be a Loan Document.

 

6.12     Further Assurances. Execute any further instruments and take further
action as Bank reasonably requests to perfect or continue Bank’s Lien in the
Collateral or to effect the purposes of this Agreement.

 

7.     NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1     Dispositions. Convey, sell, lease, transfer, assign, or otherwise
dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers  of
Inventory in the ordinary course of business; of worn-out or obsolete Equipment
that is, in the reasonable judgment of Borrower, no longer economically
practicable to maintain or useful in the ordinary course of business of
Borrower;  consisting of Permitted Liens and Permitted Investments;  consisting
of the sale or issuance of any stock of Borrower (other than to the extent same
would result in a Change in Control);  consisting of Borrower’s use or transfer
of money or Cash Equivalents in the ordinary course of its business for the
payment of ordinary course business expenses in a manner that is not prohibited
by the terms of this Agreement or the other Loan Documents;  of non-exclusive
licenses for the use of the property or Borrower or its Subsidiaries in the
ordinary course of business and licenses that could not result in a legal
transfer of title of the licensed property but that may be exclusive in respects
other than territory and that may be exclusive as to territory only as to direct
geographical areas outside of the United States;  transfers of property
consisting of demonstration units or located at clinical sites;  among
Borrowers; and  of other property not to exceed Twenty-Five Thousand Dollars
($25,000) in the aggregate in any fiscal year.

 

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7.2     Changes in Business, Management, Control, or Business Locations. Engage
in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto;  liquidate or dissolve (except that a Subsidiary
may liquidate or dissolve provided simultaneous therewith all of its assets are
transferred to Borrower);  fail to provide notice to Bank of the Chief Executive
Officer departing from or ceasing to be employed by Borrower within five (5)
days after such person’s departure from Borrower; or  permit or suffer any
Change in Control.

 

Borrower shall not, without at least twenty (20) days prior written notice to
Bank: add any new offices or business locations, including warehouses (unless
such new offices or business locations contain less than One Hundred Thousand
Dollars ($100,000) in Borrower’s assets or property) or deliver any portion of
the Collateral valued, individually or in the aggregate, in excess of One
Hundred Thousand Dollars ($100,000) to a bailee at a location other than to a
bailee and at a location already disclosed in the Perfection Certificate,
 change its jurisdiction of organization,  change its organizational structure
or type,  change its legal name, or  change any organizational number (if any)
assigned by its jurisdiction of organization. If Borrower intends to deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
One Hundred Thousand Dollars ($100,000) to a bailee located in the United
States, and Bank and such bailee are not already parties to a bailee agreement
governing both the Collateral and the location to which Borrower intends to
deliver the Collateral, then Borrower will use commercially reasonable efforts
to obtain a bailee agreement in form and substance satisfactory to Bank.

 

7.3     Mergers, Amalgamations, Winding-Up, or Acquisitions. Merge, amalgamate,
consolidate, wind-up, or permit any of its Subsidiaries to merge, amalgamate,
consolidate, or wind up into or with any other Person, or acquire, or permit any
of its Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person (including, without limitation, by the formation of
any Subsidiary). A Subsidiary may merge, amalgamate, wind up, or consolidate
into another Subsidiary or into Borrower.

 

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

 

7.5     Encumbrance. Create, incur, allow, or suffer any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
Intellectual Property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Liens” herein.

 

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7.6     Maintenance of Collateral Accounts. Maintain any Collateral Account
except pursuant to the terms of Section 6.6(b) hereof.

 

7.7     Distributions; Investments.  Pay any dividends or make any distribution
or payment or redeem, retire or purchase any capital stock, provided that (i) a
Subsidiary may pay dividends and distributions to a Borrower parent and (ii)
Borrower may repurchase the stock of former employees or consultants pursuant to
stock repurchase agreements so long as an Event of Default does not exist at the
time of any such repurchase and would not exist after giving effect to any such
repurchase, provided that the aggregate amount of all such repurchases does not
exceed One Hundred Thousand Dollars ($100,000) per fiscal year; or  directly or
indirectly make any Investment (including, without limitation, by the formation
of any Subsidiary) other than Permitted Investments, or permit any of its
Subsidiaries to do so.

 

7.8     Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for  transactions that are in the ordinary course of Borrower’s business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person,  debt
financings from Borrower’s investors so long as all such Indebtedness is
Subordinated Debt,  reasonable and customary compensation arrangements and
benefit plans for officers and other employees of Borrower and its Subsidiaries
entered into or maintained in the ordinary course of business,  transactions
permitted pursuant to the terms of Section 7.7 hereof, and customary and
reasonable compensation of outside directors.

 

7.9     Subordinated Debt.  Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or  amend any provision in
any document relating to the Subordinated Debt which would increase the amount
thereof, provide for earlier or greater principal, interest, or other payments
thereon, or adversely affect the subordination thereof to Obligations owed to
Bank.

 

7.10     Compliance. Become an “investment company” or a company controlled by
an “investment company”, under the Investment Company Act of 1940, as amended,
or undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to  meet the minimum funding requirements of ERISA,  prevent a
Reportable Event or Prohibited Transaction, as defined in ERISA from occurring,
or  comply with the Federal Fair Labor Standards Act, the failure of any of the
conditions described in clauses (a) through (c) which could reasonably be
expected to have a material adverse effect on Borrower’s business; or violate
any other law or regulation, if the violation could reasonably be expected to
have a material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

 

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8.     EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

 

8.1     Payment Default. Borrower fails to  make any payment of principal or
interest on any Credit Extension when due, or  pay any other Obligations within
three (3) Business Days after such Obligations are due and payable (which three
(3) Business Day cure period shall not apply to payments due on the Term Loan
Maturity Date). During the cure period, the failure to make or pay any payment
specified under clause (b) hereunder is not an Event of Default (but no Credit
Extension will be made during the cure period);

 

8.2     Covenant Default.

 

(a)     Borrower fails or neglects to perform any obligation in Sections 3.3,
6.2, 6.4, 6.5, 6.6, 6.7 (if applicable), 6.8(b), 6.10 or violates any covenant
in Section 7; or

 

(b)     Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Cure periods provided under this section shall not
apply, among other things, to financial covenants (if any) or any other
covenants set forth in clause (a) above;

 

8.3     Material Adverse Change. A Material Adverse Change occurs;

 

8.4     Attachment; Levy; Restraint on Business.

 

(a)      The service of process seeking to attach, by trustee or similar
process, any funds of Borrower or of any entity under the control of Borrower
(including a Subsidiary), or  a notice of lien or levy is filed against any of
Borrower’s assets by any Governmental Authority, and the same under
subclauses (i)and (ii) hereof are not, within ten (10) days after the occurrence
thereof, discharged or stayed (whether through the posting of a bond or
otherwise); provided, however, no Credit Extensions shall be made during any ten
(10) day cure period; or

 

(b)      any material portion of Borrower’s assets is attached, seized, levied
on, or comes into possession of a trustee or receiver, or  any court order
enjoins, restrains, or prevents Borrower from conducting all or any material
part of its business;

 

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8.5     Insolvency.  Borrower or any of its Subsidiaries is unable to pay its
debts (including trade debts) as they become due or otherwise becomes insolvent;
 Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or  an
Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and
is not dismissed or stayed within forty-five (45) days (but no Credit Extensions
shall be made while any of the conditions described in clause (a) exist and/or
until any Insolvency Proceeding is dismissed);

 

8.6     Other Agreements. There is, under any agreement to which Borrower is a
party with a third party or parties,  any default resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount individually or in the aggregate in excess of One
Hundred Thousand Dollars ($100,000); or any breach or default by Borrower, the
result of which could reasonably be expected to have a material adverse effect
on Borrower’s business, provided, however, that the Event of Default under this
Section 8.6 caused by the occurrence of a breach or default under such other
agreement shall be cured or waived for purposes of this Agreement upon Bank
receiving written notice from the party asserting such breach or default of such
cure or waiver of the breach or default under such other agreement, if at the
time of such cure or waiver under such other agreement (x) Bank has not declared
an Event of Default under this Agreement and/or exercised any rights with
respect thereto; (y) any such cure or waiver does not result in an Event of
Default under any other provision of this Agreement or any Loan Document; and
(z) in connection with any such cure or waiver under such other agreement, the
terms of any agreement with such third party are not modified or amended in any
manner which could in the good faith business judgment of Bank be materially
less advantageous to Borrower;

 

8.7     Judgments; Penalties. One or more fines, penalties or final judgments,
orders or decrees for the payment of money in an amount, individually or in the
aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by
independent third-party insurance as to which liability has been accepted by
such insurance carrier) shall be rendered against Borrower by any Governmental
Authority, and the same are not, within ten (10) days after the entry,
assessment or issuance thereof, discharged, satisfied, or paid, or after
execution thereof, stayed or bonded pending appeal, or such judgments are not
discharged prior to the expiration of any such stay (provided that no Credit
Extensions will be made prior to the satisfaction, payment, discharge, stay, or
bonding of such fine, penalty, judgment, order or decree);

 

8.8     Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;

 

8.9     Subordinated Debt. Any document, instrument, or agreement evidencing any
Subordinated Debt shall for any reason be revoked or invalidated or otherwise
cease to be in full force and effect, any Person shall be in breach thereof or
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder, or the Obligations shall for any
reason be subordinated or shall not have the priority contemplated by this
Agreement; or

 

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9.     BANK’S RIGHTS AND REMEDIES

 

9.1     Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, without notice or demand, do any or all of the
following:

 

(a)     declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);

 

(b)     stop advancing money or extending credit for Borrower’s benefit under
this Agreement or under any other agreement between Borrower and Bank;

 

(c)     for any Letters of Credit, demand that Borrower  deposit cash with Bank
in an amount equal to (x) if such Letters of Credit are denominated in Dollars,
then at least one hundred five percent (105%); and (y) if such Letters of Credit
are denominated in a Foreign Currency, then at least one hundred ten percent
(110%) of the Dollar Equivalent of the aggregate face amount of all of such
Letters of Credit remaining undrawn (plus all interest, fees, and costs due or
to become due in connection therewith (as estimated by Bank in its good faith
business judgment)), to secure all of the Obligations relating to such Letters
of Credit, as collateral security for the repayment of any future drawings under
such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and  pay in advance all letter of credit fees scheduled to be paid or
payable over the remaining term of any Letters of Credit;

 

(d)     terminate any FX Contracts;

 

(e)     verify the amount of, demand payment of and performance under, and
collect any Accounts and General Intangibles, settle or adjust disputes and
claims directly with Account Debtors for amounts on terms and in any order that
Bank considers advisable, and notify any Person owing Borrower money of Bank’s
security interest in such funds;

 

(f)     make any payments and do any acts it considers necessary or reasonable
to protect the Collateral and/or its security interest in the Collateral.
Borrower shall assemble the Collateral if Bank requests and make it available as
Bank designates. Bank may enter premises where the Collateral is located, take
and maintain possession of any part of the Collateral, and pay, purchase,
contest, or compromise any Lien which appears to be prior or superior to its
security interest and pay all expenses incurred. Borrower grants Bank a license
to enter and occupy any of its premises, without charge, to exercise any of
Bank’s rights or remedies;

 

(g)     apply to the Obligations any  balances and deposits of Borrower it
holds, or   amount held by Bank owing to or for the credit or the account of
Borrower;

 

(h)     ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section, Borrower’s rights under all licenses
and all franchise agreements inure to Bank’s benefit;

 

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(i)     place a “hold” on any account maintained with Bank and/or deliver a
notice of exclusive control, any entitlement order, or other directions or
instructions pursuant to any Control Agreement or similar agreements providing
control of any Collateral;

 

(j)     demand and receive possession of Borrower’s Books; and

 

(k)     exercise all rights and remedies available to Bank under the Loan
Documents or at law or equity, including all remedies provided under the PPSA
and the Code (including disposal of the Collateral pursuant to the terms
thereof).

 

9.2     Power of Attorney. Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to:  endorse Borrower’s name on any checks
or other forms of payment or security;  sign Borrower’s name on any invoice or
bill of lading for any Account or drafts against Account Debtors;  settle and
adjust disputes and claims about the Accounts directly with Account Debtors, for
amounts and on terms Bank determines reasonable;  make, settle, and adjust all
claims under Borrower’s insurance policies;  pay, contest or settle any Lien,
charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and  transfer the Collateral into the name of
Bank or a third party as the PPSA and the Code permit. Borrower hereby appoints
Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents
necessary to perfect or continue the perfection of Bank’s security interest in
the Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s
attorney in fact, and all of Bank’s rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.

 

9.3     Protective Payments. If Borrower fails to obtain the insurance called
for by Section 6.5 or fails to pay any premium thereon or fails to pay any other
amount which Borrower is obligated to pay under this Agreement or any other Loan
Document or which may be required to preserve the Collateral, Bank may obtain
such insurance or make such payment, and all amounts so paid by Bank are Bank
Expenses and immediately due and payable, bearing interest at the then highest
rate applicable to the Obligations, and secured by the Collateral. Bank will
make reasonable efforts to provide Borrower with notice of Bank obtaining such
insurance at the time it is obtained or within a reasonable time thereafter. No
payments by Bank are deemed an agreement to make similar payments in the future
or Bank’s waiver of any Event of Default.

 

9.4     Application of Payments and Proceeds Upon Default. If an Event of
Default has occurred and is continuing, Bank shall have the right to apply in
any order any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay
any surplus to Borrower by credit to the Designated Deposit Account or to other
Persons legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency. If Bank, directly or indirectly, enters into a deferred payment or
other credit transaction with any purchaser at any sale of Collateral, Bank
shall have the option, exercisable at any time, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

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9.5     Bank’s Liability for Collateral. So long as Bank complies with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Bank, Bank shall not be liable or responsible
for:  the safekeeping of the Collateral;  any loss or damage to the Collateral;
 any diminution in the value of the Collateral; or  any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral.

 

9.6     No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any
other Loan Document shall not waive, affect, or diminish any right of Bank
thereafter to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by the party granting the
waiver and then is only effective for the specific instance and purpose for
which it is given. Bank’s rights and remedies under this Agreement and the other
Loan Documents are cumulative. Bank has all rights and remedies provided under
the PPSA or the Code, by law, or in equity. Bank’s exercise of one right or
remedy is not an election and shall not preclude Bank from exercising any other
remedy under this Agreement or other remedy available at law or in equity, and
Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay
in exercising any remedy is not a waiver, election, or acquiescence.

 

9.7     Demand Waiver. Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

 

9.8     Borrower Liability. Each Borrower may, acting singly, request Advances
hereunder. Each Borrower hereby appoints the other as agent for the other for
all purposes hereunder, including with respect to requesting Advances hereunder.
Each Borrower hereunder shall be jointly and severally obligated to repay all
Advances made hereunder, regardless of which Borrower actually receives said
Advance, as if each Borrower hereunder directly received all Advances. Each
Borrower waives  any suretyship defenses available to it under the Code or any
other applicable law, including, without limitation, the benefit of California
Civil Code Section 2815 permitting revocation as to future transactions and the
benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845,
2847, 2848, 2849, 2850, and 2899 and 3433, and  any right to require Bank to:
 proceed against any Borrower or any other person;  proceed against or exhaust
any security; or  pursue any other remedy. Bank may exercise or not exercise any
right or remedy it has against any Borrower or any security it holds (including
the right to foreclose by judicial or non-judicial sale) without affecting any
Borrower’s liability. Notwithstanding any other provision of this Agreement or
other related document, each Borrower irrevocably waives all rights that it may
have at law or in equity (including, without limitation, any law subrogating
Borrower to the rights of Bank under this Agreement) to seek contribution,
indemnification or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by Borrower with respect to the Obligations in
connection with this Agreement or otherwise and all rights that it might have to
benefit from, or to participate in, any security for the Obligations as a result
of any payment made by Borrower with respect to the Obligations in connection
with this Agreement or otherwise. Any agreement providing for indemnification,
reimbursement or any other arrangement prohibited under this Section shall be
null and void. If any payment is made to a Borrower in contravention of this
Section, such Borrower shall hold such payment in trust for Bank and such
payment shall be promptly delivered to Bank for application to the Obligations,
whether matured or unmatured.

 

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10.     NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by
any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered:  upon the
earlier of actual receipt and three (3) Business Days after deposit in the U.S.
mail, first class, registered or certified mail return receipt requested, with
proper postage prepaid;  upon transmission, when sent by electronic mail or
facsimile transmission (if applicable);  one (1) Business Day after deposit with
a reputable overnight courier with all charges prepaid; or  when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number (if applicable), or email
address indicated below. Bank or Borrower may change its mailing or electronic
mail address or facsimile number (if applicable) by giving the other party
written notice thereof in accordance with the terms of this Section 10.

 

If to Borrower:     c/o Sophiris Bio Inc.  

1258 Prospect Street

La Jolla, California 92037

Attn:     Randal Woods, CEO
Fax: (858) 412-5693
Email:     randy@sophiris.com
    If to Bank: Silicon Valley Bank  

4370 La Jolla Village Drive, Suite 1050

San Diego, California 92122

Attn:     Anthony Flores, Director

Fax: (___) ___-_____  

Email:     aflores@svb.com

                            

11.     CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 

Except as otherwise expressly provided in any of the Loan Documents, California
law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Bank each submit to the exclusive jurisdiction of the State and
Federal courts in Santa Clara County, California; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank. Borrower expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and Borrower hereby waives any objection that it may have based upon
lack of personal jurisdiction, improper venue, or forum non conveniens and
hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in,
or subsequently provided by Borrower in accordance with, Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to
occur of Borrower’s actual receipt thereof or three (3) days after deposit in
the U.S. mails, proper postage prepaid.

 

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TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE
THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and orders applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help
remedies, foreclose against collateral, or obtain provisional remedies. The
private judge shall also determine all issues relating to the applicability,
interpretation, and enforceability of this paragraph.

 

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This Section 11 shall survive the termination of this Agreement.

 

12.     GENERAL PROVISIONS

 

12.1     Termination Prior to Term Loan Maturity Date; Survival. All covenants,
representations and warranties made in this Agreement shall continue in full
force until this Agreement has terminated pursuant to its terms and all
Obligations have been satisfied (other than inchoate indemnity obligations, any
other obligations which, by their terms, are to survive the termination of this
Agreement, and any Obligations under Bank Services Agreements that are cash
collateralized in accordance with Section 4.1 of this Agreement. So long as
Borrower has satisfied the Obligations (other than inchoate indemnity
obligations, any other obligations which, by their terms, are to survive the
termination of this Agreement, and any Obligations under Bank Services
Agreements that are cash collateralized in accordance with Section 4.1 of this
Agreement), this Agreement may be terminated prior to the Term Loan Maturity
Date by Borrower pursuant to the terms and conditions set forth in Section
2.1.1(c)(ii). Those obligations that are expressly specified in this Agreement
as surviving this Agreement’s termination shall continue to survive
notwithstanding this Agreement’s termination.

 

12.2     Successors and Assigns. This Agreement binds and is for the benefit of
the successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Subject to the
succeeding sentence, Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, assign, negotiate, or grant participation in all or
any part of, or any interest in, Bank’s obligations, rights, and benefits under
this Agreement and the other Loan Documents (other than the Warrant, as to which
assignment, transfer and other such actions are governed by the terms thereof).
Notwithstanding the foregoing, prior to the occurrence of an Event of Default,
Bank shall not assign any interest in the Loan Documents to any Person which is
a known direct competitor of Borrower or a vulture fund in each case without the
prior written consent of Borrower.

 

12.3     Indemnification. Borrower agrees to indemnify, defend and hold Bank and
its directors, officers, employees, agents, attorneys, or any other Person
affiliated with or representing Bank (each, an “Indemnified Person”) harmless
against:  all obligations, demands, claims, and liabilities (collectively,
“Claims”) claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and  all losses or expenses
(including Bank Expenses) in any way suffered, incurred, or paid by such
Indemnified Person as a result of, following from, consequential to, or arising
from transactions between Bank and Borrower (including reasonable attorneys’
fees and expenses), except for Claims and/or losses directly caused by such
Indemnified Person’s gross negligence or willful misconduct.

 

This Section 12.3 shall survive until all statutes of limitation with respect to
the Claims, losses, and expenses for which indemnity is given shall have run.

 

12.4     Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

 

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12.5     Severability of Provisions. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.

 

12.6     Correction of Loan Documents. Bank may correct patent errors and fill
in any blanks in the Loan Documents consistent with the agreement of the
parties.

 

12.7     Amendments in Writing; Waiver; Integration. No purported amendment or
modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents.

 

12.8     Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, is an original, and all taken together, constitute
one Agreement.

 

12.9     Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made:  to Bank’s Subsidiaries
or Affiliates (such Subsidiaries and Affiliates, together with Bank,
collectively, “Bank Entities”);  to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however, that any prospective
transferee or purchaser shall have entered into an agreement containing
provisions substantially the same as those in this Section 12.9);  as required
by law, regulation, subpoena, or other order;  to Bank’s regulators or as
otherwise required in connection with Bank’s examination or audit;  as Bank
considers appropriate in exercising remedies under the Loan Documents; and  to
third-party service providers of Bank so long as such service providers have
executed a confidentiality agreement with Bank with terms no less restrictive
than those contained herein. Confidential information does not include
information that is either:  in the public domain or in Bank’s possession when
disclosed to Bank, or becomes part of the public domain (other than as a result
of its disclosure by Bank in violation of this Agreement) after disclosure to
Bank; or  disclosed to Bank by a third party, if Bank does not know that the
third party is prohibited from disclosing the information.

 

Bank Entities may use anonymous forms of confidential information for aggregate
datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower. The provisions of the immediately preceding
sentence shall survive termination of this Agreement.

 

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12.10     Attorneys’ Fees, Costs and Expenses. In any action or proceeding
between Borrower and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees on
a full indemnity basis and other costs and expenses incurred, in addition to any
other relief to which it may be entitled.

 

12.11     Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.

 

12.12     Captions. The headings used in this Agreement are for convenience only
and shall not affect the interpretation of this Agreement.

 

12.13     Construction of Agreement. The parties mutually acknowledge that they
and their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed without
regard to which of the parties caused the uncertainty to exist.

 

12.14     Relationship. The relationship of the parties to this Agreement is
determined solely by the provisions of this Agreement. The parties do not intend
to create any agency, partnership, joint venture, trust, fiduciary or other
relationship with duties or incidents different from those of parties to an
arm’s-length contract.

 

12.15     Third Parties. Nothing in this Agreement, whether express or implied,
is intended to:  confer any benefits, rights or remedies under or by reason of
this Agreement on any persons other than the express parties to it and their
respective permitted successors and assigns;  relieve or discharge the
obligation or liability of any person not an express party to this Agreement; or
 give any person not an express party to this Agreement any right of subrogation
or action against any party to this Agreement.

 

13.     DEFINITIONS

 

13.1     Definitions. As used in the Loan Documents, the word “shall” is
mandatory, the word “may” is permissive, the word “or” is not exclusive, the
words “includes” and “including” are not limiting, the singular includes the
plural, and numbers denoting amounts that are set off in brackets are negative.
As used in this Agreement, the following capitalized terms have the following
meanings:

 

“Account” is any “account” as defined in the Code or the PPSA with such
additions to such term as may hereafter be made, and includes, without
limitation, all accounts receivable and other sums owing to Borrower.

 

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

 

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“Affiliate” is, with respect to any Person, each other Person that owns or
controls directly or indirectly the Person, any Person that controls or is
controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and members.

 

“Agreement” is defined in the preamble hereof.

 

“Applicable Number” is thirty-six (36); provided, however upon satisfaction of
the Interest-Only Period Extension Milestone, the Applicable Number shall
automatically be thirty (30).

 

“Bank” is defined in the preamble hereof.

 

“Bank Entities” is defined in Section 12.9.

 

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses on a full indemnity basis) for
preparing, amending, negotiating, administering, defending and enforcing the
Loan Documents (including, without limitation, those incurred in connection with
appeals or Insolvency Proceedings) or otherwise incurred with respect to
Borrower.

 

“Bank Services” are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct deposit of payroll, business credit cards, and check
cashing services), interest rate swap arrangements, and foreign exchange
services as any such products or services may be identified in Bank’s various
agreements related thereto (each, a “Bank Services Agreement”).

 

“Borrower” is defined in the preamble hereof.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal, state, provincial, and territorial tax returns, records regarding
Borrower’s assets or liabilities, the Collateral, business operations or
financial condition, and all computer programs or storage or any equipment
containing such information.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit D.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

 

“Canadian Security Agreement” is that certain General Security Agreement, dated
the Effective Date, by Canadian Borrower for the benefit of Bank, as amended,
modified, supplemented or restated.

 

“Canadian Security Documents” are, collectively, the Canadian Security
Agreement, any other security agreements, charges, mortgages, hypothecs or other
agreements executed by Canadian Borrower, and any other present or future
agreement by Canadian Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, modified, supplemented or restated.

 

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“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Change in Control” means (a) at any time, any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), shall become, or obtain rights (whether
by means or warrants, options or otherwise) to become, the “beneficial owner”
(as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of forty-nine percent (49%) or more of the ordinary voting power for
the election of directors of Borrower (determined on a fully diluted basis)
other than by the sale of Borrower’s equity securities in a public offering or
to venture capital or private equity investors so long as Borrower identifies to
Bank the venture capital or private equity investors at least seven (7) Business
Days prior to the closing of the transaction and provides to Bank a description
of the material terms of the transaction; or (b) at any time, Borrower shall
cease to own and control, of record and beneficially, directly or indirectly,
one hundred percent (100%) of each class of outstanding capital stock of each
subsidiary of Borrower free and clear of all Liens (except Liens created by this
Agreement).

 

“Claims” is defined in Section 12.3.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of California, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of the provisions thereof relating to
such attachment, perfection, priority, or remedies and for purposes of
definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

 

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“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation, in each
case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold
with recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.

 

“Control Agreement” is any control agreement or blocked account agreement
entered into among the depository institution at which Borrower maintains a
Deposit Account or the securities intermediary or commodity intermediary at
which Borrower maintains a Securities Account or a Commodity Account, Borrower,
and Bank pursuant to which Bank obtains control (within the meaning of the Code,
the STA or the PPSA, as applicable) over such Deposit Account, Securities
Account, or Commodity Account.

 

“Conversion Date” is defined in Section 2.1.1(b)(ii).

 

“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.

 

“Credit Extension” is any Term Loan Advance or any other extension of credit by
Bank for Borrower’s benefit.

 

“Default Rate” is defined in Section 2.2(b).

 

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Designated Deposit Account” is the multicurrency account denominated in
Dollars, account number *******___ (the last 3 digits only), maintained by
Borrower with Bank.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

 

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“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

 

“Effective Date” is defined in the preamble hereof.

 

“Equipment” is all “equipment” as defined in the Code or the PPSA, as
applicable, with such additions to such term as may hereafter be made, and
includes without limitation all machinery, fixtures, goods, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Existing Inbound Licenses” means (i) that certain Exclusive License Agreement
effective September 30, 2004 by and among UVIC Industry Partnership Inc., The
Johns Hopkins University and Sophiris Bio Inc. and its related amendments dated
January 10, 2005 and July 1, 2010; and (ii) that certain Exclusive License
Agreement effective October 16, 2009 by and among UVIC Industry Partnership
Inc., The Johns Hopkins University and Sophiris Bio Inc. and its related
amendment dated July 1, 2010, in each case as the same may be amended or
otherwise modified from time to time.

 

“Final Payment” is a payment (in addition to and not a substitution for the
regular monthly payments of principal plus accrued interest) due on the earliest
to occur of (a) the Term Loan Maturity Date, or (b) the acceleration of the Term
Loan Advances, or (c) the prepayment of the Term Loan Advances in full pursuant
to Section 2.1.1(c)(i) or 2.1.1(c)(ii), or (d) on the final payment date of the
Term Loan, equal to the original aggregate principal amount of the Term Loan
Advances advanced to Borrower multiplied by the Final Payment Percentage.

 

“Final Payment Percentage” is five percent (5.00%).

 

“Foreign Currency” means lawful money of a country other than the United States.

 

“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.

 

“FX Contract” is any foreign exchange contract by and between Borrower and Bank
under which Borrower commits to purchase from or sell to Bank a specific amount
of Foreign Currency on a specified date.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

 

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“General Intangibles” is all “general intangibles” as defined in the Code or
“intangibles” as defined in the PPSA in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation, all Intellectual Property, claims, income and other tax refunds,
security and other deposits, payment intangibles, contract rights, options to
purchase or sell real or personal property, rights in all litigation presently
or hereafter pending (whether in contract, tort or otherwise), insurance
policies (including without limitation key man, property damage, and business
interruption insurance), payments of insurance and rights to payment of any
kind.

 

“Good Faith Deposit” is defined in Section 2.3(a).

 

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

“Governmental Authority” is any nation or government, any state, provincial,
territorial, or other political subdivision thereof, any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative functions
of or pertaining to government, any securities exchange and any self-regulatory
organization.

 

“Guaranty” is any guarantee of all or any part of the Obligations, as the same
may from time to time be amended, restated, modified or otherwise supplemented.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.

 

“Indemnified Person” is defined in Section 12.3.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada), the
Companies Creditors Arrangement Act (Canada), the Winding-Up and Restructuring
Act (Canada) and the provisions of federal or provincial corporate statutes to
the extent they provide for a compromise of debts, or any other bankruptcy or
insolvency law, including assignments for the benefit of creditors,
compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

 

“Intellectual Property” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following:

 

(a)     its Copyrights, Trademarks and Patents;

 

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(b)     any and all trade secrets and trade secret rights, including, without
limitation, any rights to unpatented inventions, know-how, operating manuals;

 

(c)     any and all source code;

 

(d)     any and all design rights which may be available to such Person;

 

(e)     any and all claims for damages by way of past, present and future
infringement of any of the foregoing, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
Intellectual Property rights identified above; and

 

(f)     all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents.

 

“Interest-Only Period” means, for each Term Loan Advance, the period commencing
on the Funding Date of the applicable Term Loan Advance and ending on September
30, 2018; provided, however, that upon the satisfaction of the Interest-Only
Period Extension Milestone, the Interest-Only Period shall be automatically
extended to March 31, 2019.

 

“Interest-Only Period Extension Milestone” is Bank’s receipt and approval of
evidence satisfactory to Bank in its reasonable discretion that Borrower has
obtained positive interim Phase 2b data in Topsalysin trial for the treatment of
localized prostate cancer prior to September 30, 2018, which shall be confirmed
by discussion with Borrower’s management team and a member of Borrower’s Board
of Directors that the Topsalysin Phase 2b interim data is satisfactory and the
Topsalysin trial is ongoing.

 

“Inventory” is all “inventory” as defined in the Code or the PPSA, as
applicable, in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products, including without limitation such inventory as is temporarily
out of Borrower’s custody or possession or in transit and including any returned
goods and any documents of title representing any of the above.

 

“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.

 

“Letter of Credit” is a standby or commercial letter of credit issued by Bank
upon request of Borrower based upon an application, guarantee, indemnity, or
similar agreement.

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

 

“Loan Documents” are, collectively, this Agreement and any schedules, exhibits,
certificates, notices, and any other documents related to this Agreement, the
Warrant, the Canadian Security Documents, any Bank Services Agreement, any
subordination agreement, any note, or notes or guaranties executed by Borrower
or any guarantor, and any other present or future agreement by Borrower and/or
any guarantor with or for the benefit of Bank in connection with this Agreement
or Bank Services, all as amended, restated, or otherwise modified.

 

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“Make-Whole Premium” is an amount equal to (a) three percent (3.00%) of the
outstanding principal amount of each Term Loan Advance if the prepayment is made
on or before the first (1st) anniversary of the Funding Date of such Term Loan
Advance, (b) two percent (2.00%) of the outstanding principal amount of each
Term Loan Advance if the prepayment is made after the first (1st) anniversary of
the Funding Date of such Term Loan Advance but on or before the second (2nd)
anniversary of the Funding Date of such Term Loan Advance, and (c) one percent
(1.00%) of the outstanding principal amount of each Term Loan Advance if the
prepayment is made after the second (2nd) anniversary of the Funding Date of
such Term Loan Advance but before the Term Loan Maturity Date.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower and Subsidiaries taken as a whole; or (c) a
material impairment of the prospect of repayment of any portion of the
Obligations.

 

“Milestone A” means Borrower has received Net Proceeds in the aggregate amount
of not less than Twenty Million Dollars ($20,000,000) prior to December 31,
2018.

 

“Milestone B” means Borrower has obtained positive Phase 2b data in Topsalysin
trial for the treatment of localized prostate cancer prior to December 31, 2018,
which shall be confirmed by discussion with Borrower’s management team and a
member of Borrower’s Board of Directors that Borrower will advance the
development of Topsalysin for the treatment of localized prostate cancer to the
next stage.

 

“Net Proceeds” means the gross proceeds received by Borrower from a sale of
Canadian Borrower common shares, less reasonable and customary closing costs
(including, but not limited to, reasonable attorneys’ fees, brokers’ fees or
commissions, investment bankers’ fees or commissions and similar items) owed to
any Person in an arm’s length transaction that are actually incurred in
connection with such sale of shares.

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or
later, whether under this Agreement, the other Loan Documents (other than the
Warrant), or otherwise, including, without limitation, all obligations relating
to letters of credit (including reimbursement obligations for drawn and undrawn
letters of credit), cash management services, and foreign exchange contracts, if
any, and including interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower assigned to Bank, and to perform
Borrower’s duties under the Loan Documents (other than the Warrant).

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State (or equivalent agency) of such Person’s
jurisdiction of organization (other than in respect of Persons formed under the
laws of Canada or a province or territory thereof) on a date that is no earlier
than thirty (30) days prior to the Effective Date, and, (a) if such Person is a
corporation, its bylaws in current form, (b) if such Person is a limited
liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.

 

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“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

“Payment/Advance Form” is that certain form attached hereto as Exhibit C.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

(a)     Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;

 

(b)     Indebtedness existing on the Effective Date and shown on the Perfection
Certificate;

 

(c)     Subordinated Debt;

 

(d)     unsecured Indebtedness to trade creditors incurred in the ordinary
course of business;

 

(e)     Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;

 

(f)     Indebtedness secured by Liens permitted under clauses (a) and (c) of the
definition of “Permitted Liens” hereunder;

 

(g)     Indebtedness of a Borrower to another Borrower;

 

(h)     unsecured Indebtedness to First Republic Bank for purchasing cards of
not more than Five Thousand Dollars ($5,000) in the aggregate; and

 

(i)     extensions, refinancings, modifications, amendments and restatements of
any items of Permitted Indebtedness (a) through (h) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.

 

“Permitted Investments” are:

 

(a)     Investments (including, without limitation, Subsidiaries) existing on
the Effective Date and shown on the Perfection Certificate;

 

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(b)     Investments consisting of Cash Equivalents;

 

(c)     Investments consisting of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
Borrower;

 

(d)     Investments consisting of deposit accounts in which Bank has a perfected
security interest;

 

(e)     Investments accepted in connection with Transfers permitted by
Section 7.1;

 

(f)     Investments  by a Borrower in another Borrower,  by Borrower in
non-Borrower Subsidiaries not to exceed Fifty Thousand Dollars ($50,000) in the
aggregate in any fiscal year and  by non-Borrower Subsidiaries in other
non-Borrower Subsidiaries not to exceed Fifty Thousand Dollars ($50,000) in the
aggregate in any fiscal year or in Borrower;

 

(g)     Investments consisting of  travel advances and employee relocation loans
and other employee loans and advances in the ordinary course of business, and
 loans to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors;

 

(h)     Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;

 

(i)     Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in
the ordinary course of business; provided that this paragraph (i) shall not
apply to Investments of Borrower in any Subsidiary; and

 

(j)     Investments permitted by Borrower’s investment policy as approved by
Borrower’s board of directors and in effect as of the date hereof as delivered
to Bank on the Effective Date.

 

“Permitted Liens” are:

 

(a)     Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and the other Loan Documents;

 

(b)     Liens for taxes, fees, assessments or other government charges or
levies, either not due and payable or  being contested in good faith and for
which Borrower maintains adequate reserves on its Books, provided that no notice
of any such Lien has been filed or recorded under the PPSA or the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations adopted
thereunder or any foreign equivalent;

 

(c)     purchase money Liens and capital leases  on Equipment acquired or held
by Borrower incurred for financing the acquisition of the Equipment securing no
more than Fifty Thousand Dollars ($50,000) in the aggregate amount outstanding,
or existing on Equipment when acquired, if the Lien is confined to the property
and improvements and the proceeds of the Equipment;

 

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(d)     Liens of carriers, warehousemen, suppliers, or other Persons that are
possessory in nature arising in the ordinary course of business so long as such
Liens attach only to Inventory, securing liabilities in the aggregate amount not
to exceed Fifty Thousand Dollars ($50,000) and which are not delinquent or
remain payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;

 

(e)     Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than Liens imposed by ERISA);

 

(f)     Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;

 

(g)     leases or subleases of real property granted in the ordinary course of
Borrower’s business (or, if referring to another Person, in the ordinary course
of such Person’s business), and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of Borrower’s business (or, if referring to another Person,
in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest
therein;

 

(h)     non-exclusive licenses of Intellectual Property granted to third parties
in the ordinary course of business, and licenses of Intellectual Property that
could not result in a legal transfer of title of the licensed property that may
be exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas outside of the United States;

 

(i)     Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

 

(j)     deposits to secure the performance of bids, trade contracts (other than
for borrowed money), contracts for the purchase of property permitted hereunder,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case, incurred in the ordinary course of
business not representing an obligation for borrowed money in an aggregate
amount not to exceed One Hundred Thousand Dollars ($100,000);

 

(k)     deposits to secure the performance of real property leases incurred in
the ordinary course of business and not representing an obligation for borrowed
money so long as each such deposit: (i) is made at the commencement of a lease
or its renewal when there is no underlying default under such lease, and (ii) is
in an amount not exceeding Fifty Thousand Dollars ($50,000) in the aggregate for
all such leases; and

 

(l)     Liens in favor of other financial institutions arising in connection
with Borrower’s deposit and/or securities accounts held at such institutions,
provided that Bank has a perfected security interest in the amounts held in such
deposit and/or securities accounts.

 

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“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

 

“PPSA” shall mean the Personal Property Security Act as in effect in the
Province of Ontario or British Columbia, as applicable, the Civil Code of Quebec
as in effect in the Province of Quebec or any other Canadian federal,
territorial or provincial statute pertaining to the granting, perfecting,
priority or ranking of security interests, liens, hypothecs on personal
property, and any successor statutes, together with any regulations thereunder,
in each case as in effect from time to time. References to sections of the PPSA
shall be construed to also refer to any successor sections.

 

“Prime Rate” is the rate of interest per annum from time to time published in
the money rates section of The Wall Street Journal or any successor publication
thereto as the “prime rate” then in effect; provided that, in the event such
rate of interest is less than zero, such rate shall be deemed to be zero for
purposes of this Agreement; and provided further that if such rate of interest,
as set forth from time to time in the money rates section of The Wall Street
Journal, becomes unavailable for any reason as determined by Bank, the “Prime
Rate” shall mean the rate of interest per annum announced by Bank as its prime
rate in effect at its principal office in the State of California (such Bank
announced Prime Rate not being intended to be the lowest rate of interest
charged by Bank in connection with extensions of credit to debtors); provided
that, in the event such rate of interest is less than zero, such rate shall be
deemed to be zero for purposes of this Agreement.

 

“Quarterly Financial Statements” is defined in Section 6.2(a).

 

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

 

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Chief Operating Officer of Borrower.

 

“Restricted License” is any material license or other material agreement with
respect to which Borrower is the licensee (a) that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower’s interest in
such license or agreement or any other property, or (b) for which a default
under or termination of could interfere with the Bank’s right to sell any
Collateral.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.

 

“Securities Account” is any “securities account” as defined in the Code or the
STA, as applicable, with such additions to such term as may hereafter be made.

 

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“STA” shall mean the Securities Transfer Act as in effect in the Province of
Ontario or British Columbia, as applicable, or any other equivalent Canadian
federal, territorial or provincial statute.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

 

“Term Loan Advance” is defined in Section 2.1.1(a).

 

“Term Loan Commitment Amount” is Ten Million Dollars ($10,000,000).

 

“Term Loan Maturity Date” is September 1, 2021.

 

“Term Loan Repayment Period” is the period of time commencing on the Conversion
Date and ending on the Term Loan Maturity Date, of the Applicable Number of
months.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

 

“Tranche One Term Loan Advance” is defined in Section 2.1.1(a).

 

“Tranche Two Term Loan Advance” is defined in Section 2.1.1(a).

 

“Tranche Two Term Loan Draw Period” is the period commencing on the date on
which Bank receives and approves evidence satisfactory to Bank in its reasonable
discretion that Borrower has satisfied either Milestone A or Milestone B and
ending on December 31, 2018.

 

“Transfer” is defined in Section 7.1.

 

“Warrant” is that certain Warrant to Purchase Common Shares dated as of the
Effective Date executed by Canadian Borrower in favor of Bank, as the same may
be amended, modified, supplemented or restated from time to time.

 

[Signature page follows.]

 

39

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWER:

 

SOPHIRIS BIO INC.

 

 

By:  /s/ Randall Woods

Name: Randall Woods

Title:    President and CEO

 

SOPHIRIS BIO CORP.

 

 

By:  /s/ Randall Woods

Name: Randall Woods

Title: President and CEO

 

SOPHIRIS BIO HOLDING CORP.

 

 

By:  /s/ Randall Woods

Name: Randall Woods

Title: President and CEO

 

 

BANK:

 

SILICON VALLEY BANK

 

 

By:  /s/ Anthony Flores

Name: Anthony Flores

Title:   Director

 

[Signature Page to Loan and Security Agreement]

 

 

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EXHIBIT A

 

COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to
the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, certificates of
deposit, fixtures, letters of credit rights (whether or not the letter of credit
is evidenced by a writing), securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and

 

All Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include the Existing
Inbound Licenses or any Intellectual Property; provided, however, the Collateral
shall include all Accounts and all proceeds of Intellectual Property. If a
judicial authority (including a U.S. Bankruptcy Court) would hold that a
security interest in the underlying Intellectual Property is necessary to have a
security interest in such Accounts and such property that are proceeds of
Intellectual Property, then the Collateral shall automatically, and effective as
of the Effective Date, include the Intellectual Property to the extent necessary
to permit perfection of Bank’s security interest in such Accounts and such other
property of Borrower that are proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank,
Borrower has agreed not to encumber any of its Intellectual Property without
Bank’s prior written consent.

 

 

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Exhibit B

 

Compliance Certificate

 

TO:     SILICON VALLEY BANK                                                    
Date: ________________________

 

FROM:     SOPHIRIS BIO INC., SOPHIRIS BIO CORP., AND SOPHIRIS BIO HOLDING CORP.

 

Each of the undersigned authorized officers of SOPHIRIS BIO INC. (“Canadian
Borrower”), Sophiris Bio Corp. (“US Borrower Corp”), and Sophiris Bio Holding
Corp. (“US Borrower Holding”; together with Canadian Borrower and US Borrower
Corp, collectively, “Borrower”) certifies that under the terms and conditions of
the Loan and Security Agreement between Borrower and Bank (the “Agreement”):

 

(1) Borrower is in complete compliance for the period ending _______________
with all required covenants except as noted below; (2) there are no Events of
Default; (3) all representations and warranties in the Agreement are true and
correct in all material respects on this date except as noted below; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date;
(4) Borrower, and each of its Subsidiaries, has timely filed or obtained
extensions for filing, all required tax returns and reports, and Borrower has
timely paid all foreign, federal, state, provincial, territorial and local
taxes, assessments, deposits and contributions owed by Borrower except as
otherwise permitted pursuant to the terms of Section 5.8 of the Agreement; and
(5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank.

 

Attached are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered. Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenants

Required

Complies

     

Quarterly financial statements +
Compliance Certificate

Within 5 days after filing with SEC

Yes   No

Annual financial statement (CPA Audited)

The earlier of (i) 180 days of FYE or (ii) 5 days after filing with SEC

Yes   No

Annual budget and board-approved projections

The earlier of 60 days of FYE or 10 days of Board approval

Yes   No

10-Q, 10-K and 8-K

Within 5 days after filing with SEC

Yes   No

 

 

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Other Matters

 

Have there been any amendments of or other changes to the Operating Documents of
Borrower or any of its Subsidiaries? If yes, provide copies of any such
amendments or changes with this Compliance Certificate.

Yes

No

 

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

 

SOPHIRIS BIO INC.

 

 

By:                                                   

Name:                                              

Title:                                                

 

SOPHIRIS BIO CORP.

 

 

By:                                                 

Name:                                            

Title:                                              

 

SOPHIRIS BIO HOLDING CORP.

 

 

By:                                              

Name:                                         

Title:                                            

BANK USE ONLY

 

Received by: _____________________

authorized signer

Date: _________________________

 

Verified: ________________________

authorized signer

Date: _________________________

 

Compliance Status:     Yes     No

 

 

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EXHIBIT C

 

LOAN PAYMENT/ADVANCE REQUEST FORM

 

Deadline for same day processing is Noon Pacific Time

 

Fax To:      Date: _____________________

 

Loan Payment:
SOPHIRIS BIO INC., SOPHIRIS BIO CORP, AND SOPHIRIS BIO HOLDING CORP.

 

From Account #________________________________     To Account
#__________________________________________________
                                        (Deposit Account
#)                                                                        (Loan
Account #)
Principal $____________________________________     and/or Interest
$________________________________________________

 

Authorized Signature:                                                         
                                     Phone Number:                              
                              
Print Name/Title:                                       

 

 

Loan Advance:

 

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

 

From Account #________________________________     To Account
#__________________________________________________
                                          (Loan Account
#)                                                                      (Deposit
Account #)

 

Amount of Advance $___________________________

 

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
request for an advance; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:

 

Authorized Signature:                                                           
                                    Phone Number:                     
                                       

 

Print Name/Title:                                                            

 

 

 

Outgoing Wire Request:
Complete only if all or a portion of funds from the loan advance above is to be
wired.
Deadline for same day processing is noon, Pacific Time

 

Beneficiary Name: _____________________________      Amount of Wire: $         
                                                                   
Beneficiary Bank: ______________________________     Account Number:            
                                                                  
City and State:                                                                 

 

Beneficiary Bank Transit (ABA) #:                                     
Beneficiary Bank Code (Swift, Sort, Chip, etc.):                               
                                                                                                        
(For International Wire Only)

 

Intermediary Bank:                                                              
Transit (ABA) #:                                                                
               

 

For Further Credit to:

 

Special
Instruction:                                                                                                                                                                        

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

Authorized Signature: ___________________________     2nd Signature (if
required): _______________________________________

 

Print Name/Title: ______________________________     Print Name/Title:
______________________________________________

 

Telephone #:                                                                 
       Telephone #:                                                            
                                        

 

 

 

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EXHIBIT D

 

FORM OF BORROWING RESOLUTIONS

 

CORPORATE BORROWING CERTIFICATE

 

 

BORROWER:                                                
                                     DATE:                                     

BANK:                 Silicon Valley Bank

 

 

I hereby certify as follows, as of the date set forth above:

 

 

1.     I am the Secretary, Assistant Secretary or other officer of Borrower. My
title is as set forth below.

 

2.     Borrower’s exact legal name is set forth above. Borrower is a corporation
existing under the laws of the State of                                     .

 

3.     Attached hereto are true, correct and complete copies of Borrower’s
Articles/Certificate of Incorporation (including amendmennts), as filed with the
Secretary of State of the state in which Borrower is incorporated as set forth
above. Such Articles/Certificate of Incorporation have not been amended,

annulled, rescinded, revoked or supplemented, and remain in full force and
effects as of the datahereof.

 

 

--------------------------------------------------------------------------------

 

 

4.     The following resolutions were duly and validly adopted by Borrower’s
Board of Directors at a duly held meeting of such directors (or pursuant to a
unanimous written consent or other authorized corporate action). Such
resolutions are in full force and effect as of the date hereof and have not been
in any way modified, repealed, rescinded, amended or revoked, and Silicon Valley
Bank (“Bank”) may rely on them until Bank receives written notice of revocation
from Borrower.

 

RESOLVED, that any one of the following officers or employees of Borrower, whose
names, titles and signatures are below, may act on behalf of Borrower:

 

Name

 

Title

 

Signature

 

Authorized to

Add or Remove

Signatories

                          ☐                          

☐

                         

☐

                         

☐

 

RESOLVED FURTHER, that any one of the persons designated above with a checked
box beside his or her name may, from time to time, add or remove any individuals
to and from the above list of persons authorized to act on behalf of Borrower.

 

RESOLVED FURTHER, that such individuals may, on behalf of Borrower:

 

 

Borrow Money. Borrow money from Bank.

Execute Loan Documents. Execute any loan documents Bank requires.

Grant Security. Grant Bank a security interest in any of Borrower’s assets.

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory
notes, or other indebtedness in which Borrower has an interest and receive cash
or otherwise use the proceeds.

Apply for Letters of Credit. Apply for letters of credit from Bank.

Enter Derivative Transactions. Execute spot or forward foreign exchange
contracts, interest rate swap agreements, or other derivative transactions.

Issue Warrants. Issue warrants for Borrower’s capital stock.

Further Acts. Designate other individuals to request advances, pay fees and
costs and execute other documents or agreements (including documents or
agreement that waive Borrower’s right to a jury trial) they believe to be
necessary to effect these resolutions.

 

RESOLVED FURTHER, that all acts authorized by the above resolutions and any
prior acts relating thereto are ratified.

 

5.     The persons listed above are Borrower’s officers or employees with their
titles and signatures shown next to their names.

 

By:                                                

Name:                                           

Title:                                             

 

 

*** If the Secretary, Assistant Secretary or other certifying officer executing
above is designated by the resolutions set forth in paragraph 4 as one of the
authorized signing officers, this Certificate must also be signed by a second
authorized officer or director of Borrower.

 

I, the     of Borrower, hereby certify as to paragraphs 1 through 5 above, as of
the date set forth above.

 

By:                                               

Name:                                           

Title: