Exhibit 10.28

 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is made and dated as of November 25, 2013 and
is entered into by and between CELSION CORPORATION, a Delaware corporation
(“Borrower”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland
corporation (“Lender”).

 

RECITALS

 

A.     Borrower has requested Lender to make available to Borrower term loans
(each a “Term Loan Advance” and collectively, the “Term Loan Advances”) in an
aggregate principal amount of up to Twenty Million Dollars ($20,000,000) (the
“Maximum Term Loan Amount”); and

 

B.     Lender is willing to make the Term Loan Advances on the terms and
conditions set forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, Borrower and Lender agree as follows:

 

SECTION 1.     DEFINITIONS AND RULES OF CONSTRUCTION

 

1.1     Unless otherwise defined herein, the following capitalized terms shall
have the following meanings:

 

“Account Control Agreement(s)” means any agreement entered into by and among the
Lender, Borrower and a third party bank or other institution (including a
Securities Intermediary) in which Borrower maintains a Deposit Account or an
account holding Investment Property and which grants Lender a perfected first
priority security interest in the subject account or accounts.

 

“ACH Authorization” means the ACH Debit Authorization Agreement in substantially
the form of Exhibit H.

 

“Advance(s)” means a Term Loan Advance.

 

“Advance Date” means the funding date of any Advance.

 

“Advance Request” means a request for an Advance submitted by Borrower to Lender
in substantially the form of Exhibit A.

 

“Agreement” means this Loan and Security Agreement, as amended from time to
time.

 

“Amortization Date” means January 2, 2015.

 

“Assignee” has the meaning given to it in Section 11.13.

 

“Borrower” has the meaning given to it in the preamble to this Agreement.

 

“Borrower Products” means all products, software, service offerings, technical
data or technology currently being designed, manufactured or sold by Borrower or
which Borrower intends to sell, license, or distribute in the future including
any products or service offerings under development, collectively, together with
all products, software, service offerings, technical data or technology that
have been sold, licensed or distributed by Borrower since its incorporation.

 

 

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“Business Day” means any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of California or is a day on which
banking institutions located in such state are required by law or other
governmental action to close.

 

“Cash” means all cash and liquid funds.

 

“Change in Control” means any reorganization, recapitalization, consolidation or
merger (or similar transaction or series of related transactions) of Borrower,
sale or exchange of outstanding shares (or similar transaction or series of
related transactions) of Borrower in which the holders of Borrower’s outstanding
voting shares immediately before consummation of such transaction or series of
related transactions do not, immediately after consummation of such transaction
or series of related transactions, retain shares representing more than
forty-nine percent (49%) of the voting power of the surviving entity of such
transaction or series of related transactions (or the parent of such surviving
entity if such surviving entity is wholly owned by such parent), in each case
without regard to whether Borrower is the surviving entity (other than by the
sale of Borrower’s equity securities in a public or registered offering or a
private placement of public equity).

 

“Claims” has the meaning given to it in Section 11.10.

 

“Closing Date” means the date of this Agreement.

 

“Collaboration Transaction” means any transaction in the ordinary course of
business pursuant to which Borrower or any of Borrower’s Subsidiaries (a)
provides an exclusive or non-exclusive license or exclusive or non-exclusive
sublicense of its Intellectual Property (in any case not constituting a transfer
of title or ownership in such Intellectual Property), (b) with respect to its
Intellectual Property, provides a right of reference to regulatory filings and
applications with governmental health authorities, and/or (c) provides customary
rights to use Borrower’s pre-clinical and clinical data, in the case of each of
(a), (b) and (c) to one or more third parties in connection with the research,
clinical development, regulation, manufacturing, commercialization and/or
marketing of one or more of Borrower’s or any of Borrower’s Subsidiary’s drugs
or drug candidates, in each case that could not result in a legal transfer of
title of the property.

 

“Collateral” means the property described in Section 3.

 

“Confidential Information” has the meaning given to it in Section 11.12.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other similar obligation of
another, including any such obligation directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable; (ii)
any obligations with respect to undrawn letters of credit, corporate credit
cards or merchant services issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term “Contingent Obligation” shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.

 

“Copyright License” means any written agreement granting any right to use any
Copyright or Copyright registration, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.

 

“Copyrights” means all copyrights, whether registered or unregistered, held
pursuant to the laws of the United States, any State thereof, or of any other
country.

 

 
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“Deposit Accounts” means any “deposit accounts,” as such term is defined in the
UCC, and includes any checking account, savings account, or certificate of
deposit.

 

“Draw Period” means the period commencing upon the first Business Day following
the Closing Date and ending on the earlier to occur of (i) June 30, 2014 (which
date may be extended by Lender in its sole discretion), and (ii) an Event of
Default that has occurred and is continuing.

 

“End of Term Charge” is defined in Section 2.5.

 

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

 

“Event of Default” has the meaning given to it in Section 9.

 

“Excluded Accounts” are Deposit Accounts exclusively used for payroll, payroll
taxes and other employee wage and benefit payments to or for the benefit of
Borrower’s, or any of its Subsidiaries’, employees, and identified to Lender by
Borrower as such; provided that, at no time shall Borrower or any Subsidiary
maintain in any such Deposit Accounts an amount in excess of the equivalent of
two (2) payroll periods of Borrower.

 

“Facility Charge” means one percent (1.0%) of the Maximum Term Loan Amount.

 

“Financial Statements” has the meaning given to it in Section 7.1.

 

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

 

“Hisun Agreement” is that certain Technology Development Agreement among
Borrower, Zhejian Hisun Pharmaceutical Co. Ltd. and Hisun Pharmaceutical USA
Inc., dated as of May 7, 2012, as in effect on the Closing Date.

 

“Hisun Consulting Fees” are the fees due Zhejiang Hisun Pharmaceutical Co. Ltd.
and Hisun Pharmaceutical USA Inc. under Section 2.2.3 of the Hisun Agreement.

 

“Indebtedness” means any of (a) all indebtedness for borrowed money or the
deferred purchase price of property or services (excluding trade credit entered
into in the ordinary course of business due within one hundred twenty (120)
days), including reimbursement and other obligations with respect to surety
bonds and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations, and (d)
all Contingent Obligations.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, 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 all of Borrower’s Copyrights; Trademarks; Patents;
Licenses; trade secrets and inventions; mask works; Borrower’s applications
therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill
associated with any of the foregoing, together with Borrower’s rights to sue for
past, present and future infringement of any of the foregoing and the goodwill
associated therewith.

 

“Investment” means any beneficial ownership (including stock, partnership or
limited liability company interests) of or in any Person, or any loan, advance
or capital contribution to any Person or the acquisition of all, or
substantially all, of the assets of another Person.

 

“Joinder Agreements” means for each Subsidiary, a completed and executed Joinder
Agreement in substantially the form attached hereto as Exhibit G.

 

“Lender” has the meaning given to it in the preamble to this Agreement.

 

 
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“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests in or to Intellectual Property.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
against any property, any conditional sale or other title retention agreement,
and any lease in the nature of a security interest.

 

“Loan” means the Advances made under this Agreement.

 

“Loan Documents” means this Agreement, the Notes (if any), the ACH
Authorization, the Account Control Agreements, the Joinder Agreements, all UCC
Financing Statements, the Warrant and any other documents executed in connection
with the Secured Obligations or the transactions contemplated hereby, as the
same may from time to time be amended, modified, supplemented or restated.

 

“Material Adverse Effect” means a material adverse effect upon: (i) the
business, operations, properties, assets or financial condition of Borrower,
taken as a whole; or (ii) the ability of Borrower, taken as a whole, to perform
the Secured Obligations in accordance with the terms of the Loan Documents, or
the ability of Lender to enforce any of its rights or remedies with respect to
the Secured Obligations; or (iii) the Collateral, taken as a whole, or Lender’s
Liens on the Collateral, taken as a whole, or the priority of such Liens.

 

“Maximum Term Loan Amount” shall have the meaning assigned to such term in
Recital A of this Agreement.

 

“Maximum Rate” shall have the meaning assigned to such term in Section 2.2.

 

“Note(s)” means a promissory note or promissory notes to evidence Lender’s
Loans.

 

“Patent License” means any written agreement granting any right with respect to
any invention on which a Patent is in existence or a Patent application is
pending, in which agreement Borrower now holds or hereafter acquires any
interest.

 

“Patents” means all letters patent of, or rights corresponding thereto, in the
United States or in any other country, all registrations and recordings thereof,
and all applications for letters patent of, or rights corresponding thereto, in
the United States or any other country.

 

“Permitted Acquisition” means any acquisition by Borrower, whether by purchase,
merger or otherwise, of all or substantially all of the assets of, all of the
equity interests of, or a business line or unit or a division of, any Person;
provided, that, in each case, Lender has provided its prior written consent to
such acquisition in its sole and absolute discretion.

 

“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender
arising under this Agreement or any other Loan Document; (ii) Indebtedness
existing on the Closing Date which is disclosed in Schedule 1A; (iii)
Indebtedness consisting of capitalized lease obligations and purchase money
Indebtedness for fixed or capital assets, in each case incurred by Borrower or
any of its Subsidiaries to finance the acquisition, repair, improvement or
construction of fixed or capital assets of such person, provided that the
aggregate outstanding principal amount of all such Indebtedness does not exceed
at any time the lesser of (A) $1,250,000 or (B) the lower of the cost or fair
market value of the property so acquired or constructed or of such repairs or
improvements financed with such Indebtedness (each measured at the time of such
acquisition, repair, improvement or construction is made); (iv) Indebtedness to
trade creditors incurred in the ordinary course of business, including
Indebtedness incurred in the ordinary course of business with corporate credit
cards; (v) Indebtedness that also constitutes a Permitted Investment; (vi)
Subordinated Indebtedness; (vii) reimbursement obligations in connection with
letters of credit that are secured by cash or cash equivalents and issued on
behalf of the Borrower or a Subsidiary thereof in an amount not to exceed
$200,000 at any time outstanding; (viii) Indebtedness of Borrower or any
Subsidiary thereof consisting of interest rate, currency or commodity swap
agreements, interest rate cap agreements, interest rate collar agreements, and
other agreements or arrangements designed to protect against fluctuation in
interest rates, currency exchange rates or commodity prices and not for
speculative purposes; (ix) Indebtedness in respect of performance bonds, bid
bonds, appeal bonds, surety bonds and completion guarantees and similar
obligations, in each case provided in the ordinary course of business, including
those incurred to secure health, safety and environmental obligations in the
ordinary course of business; (x) Indebtedness arising from the honoring or
dishonoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course of
business; (xi) Collaboration Transactions, to the extent involving the
incurrence of Indebtedness, provided that such Indebtedness is unsecured and
that the aggregate amount of such Indebtedness shall not exceed Two Million
Dollars ($2,000,000.00) at any time; (xii) Indebtedness of a Subsidiary acquired
after the Closing Date or of an entity merged into or consolidated with Borrower
or any Subsidiary of Borrower acquired after the Closing Date and Indebtedness
assumed in connection with the acquisition of assets, in each case, solely in
connection with a Permitted Acquisition, (xiii) Indebtedness incurred as a
result of endorsing negotiable instruments received in the ordinary course of
Borrower’s business; (xiv) Indebtedness of Borrower to any Subsidiary of
Borrower, and Indebtedness of any Subsidiary to Borrower, provided in each case
that any such Subsidiary is a co-borrower or secured Guarantor hereunder; (xv)
unsecured Indebtedness under the Hisun Agreement, other than the Hisun
Consulting Fees (which Hisun Consulting Fees may not be paid prior to the
termination of this Agreement without the prior written consent of Lender);
(xvi) unsecured Indebtedness incurred with respect to financing insurance
premiums; provided that the aggregate outstanding principal balance of such
Indebtedness shall not exceed $500,000 at any time; (xvii) other Indebtedness in
an amount not to exceed $100,000 at any time outstanding, and (xviii)
extensions, refinancings and renewals of any items of Permitted Indebtedness,
provided that the principal amount is not increased (except by the amount of any
reasonable fees and expenses in connection with such extension, refinancing or
renewal that are not disguised as additional principal) or the terms modified to
impose materially more burdensome terms upon Borrower or its Subsidiary, as the
case may be.

 

 
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“Permitted Investment” means: (i) Investments existing on the Closing Date which
are disclosed in Schedule 1B; (ii) (a) Cash, (b) marketable direct obligations
issued or unconditionally guaranteed by the United States of America or any
agency or any State thereof maturing within one year from the date of
acquisition thereof, (c) commercial paper maturing no more than one year from
the date of creation thereof and currently having a rating of at least A-2 or
P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (d)
certificates of deposit issued by any bank with assets of at least $500,000,000
maturing no more than one year from the date of investment therein, (e) money
market accounts and (f) any Investments permitted by Borrower’s investment
policy, as amended from time to time, provided that such investment policy (and
any such amendment thereto) has been approved in writing by Lender, it being
understood that the investment policy delivered to Lender on or around November
19, 2013 has been approved by Lender by virtue of Lender’s execution of this
Agreement; (iii) repurchases of stock from former employees, directors, or
consultants of Borrower under the terms of applicable repurchase agreements at
the original issuance price of such securities in an aggregate amount not to
exceed $250,000 in any fiscal year, provided that no Event of Default has
occurred, is continuing or would exist after giving effect to the repurchases;
(iv) Investments accepted as consideration in connection with Permitted
Transfers and Investments in connection with Permitted Transfers; (v)
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 Borrower’s business; (vi) 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 subparagraph (vi) shall not apply to
Investments of Borrower in any Subsidiary; (vii) Investments consisting of (a)
loans not involving the net transfer on a substantially contemporaneous basis of
cash proceeds to employees, officers and directors of Borrower relating to the
purchase of capital stock of Borrower pursuant to an employee stock purchase or
incentive plan or other similar agreement approved by Borrower’s Board of
Directors (or its delegate) and (b) the retaining of any of its capital stock by
Borrower, or the reacquisition of any such stock by Borrower from an employee,
officer or director of Borrower, in each case as full or partial payment in
connection with any award under an employee stock purchase or incentive plan or
other similar agreement approved by Borrower’s Board of Directors (or its
delegate), or to satisfy the tax withholding obligations related to any such
award; (viii) Investments consisting of travel advances in the ordinary course
of business; (ix) Investments consisting of employee relocation loans or
guarantees of such loans granted by a third party, in each case in the ordinary
course of business, not to exceed at any time $250,000 in aggregate outstanding
principal amount; (x) Investments pursuant to interest rate, currency or
commodity swap agreements, interest rate cap agreements, interest rate collar
agreements, and other agreements or arrangements designed to protect against
fluctuation in interest rates, currency exchange rates or commodity prices and
not for speculative purposes; (xi) Investments consisting of the merger or
consolidation of a Subsidiary of Borrower into another Subsidiary of Borrower or
into Borrower; (xii) Collaboration Transactions, to the extent constituting
Investments; (xiii) Investments consisting of Permitted Acquisitions; (xiv)
Investments consisting of endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; (xv)
Investments consisting of Deposit Accounts and accounts holding Investment
Property, in each case (other than with respect to Excluded Accounts) in which
Lender has a first priority perfected security interest pursuant to a Control
Agreement; (xvi) Investments in newly-formed Subsidiaries organized in the
United States, provided that such Subsidiaries enter into a Joinder Agreement
promptly after their formation by Borrower and execute such other documents as
shall be reasonably requested by Lender; (xvii) Investments in subsidiaries
organized outside of the United States approved in advance in writing by Lender;
(xviii) Investments in joint ventures or strategic alliances in the ordinary
course of Borrower’s business consisting of the nonexclusive licensing of
technology, the development of technology or the providing of technical support,
provided that any cash Investments by Borrower do not exceed $250,000 in the
aggregate in any fiscal year; and (xix) additional Investments that do not
exceed $250,000 in the aggregate.

 

 
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“Permitted Licenses” are licenses (under which Borrower is the licensee) of
over-the-counter software that is commercially available to the public.

 

“Permitted Liens” means any and all of the following: (i) Liens in favor of
Lender; (ii) Liens existing on the Closing Date which are disclosed in Schedule
1C; (iii) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings; provided, that Borrower maintains adequate reserves therefor in
accordance with GAAP; (iv) Liens securing claims or demands of materialmen,
artisans, mechanics, carriers, warehousemen, landlords and other like Persons
arising in the ordinary course of Borrower’s business and imposed without action
of such parties; provided, that the payment thereof is not yet required or which
is 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; (v) Liens arising from judgments, decrees or attachments in
circumstances which do not constitute an Event of Default hereunder; (vi) the
following deposits, to the extent made in the ordinary course of business:
deposits under worker’s compensation, unemployment insurance, social security
and other similar laws, or to secure the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure
indemnity, performance or other similar bonds for the performance of bids,
tenders or contracts (other than for the repayment of borrowed money) or to
secure statutory obligations (other than liens arising under ERISA or
environmental liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds; (vii) Liens securing Indebtedness permitted
under clause (iii) of the definition of “Permitted Indebtedness”, provided that
(a) such Liens exist prior to the acquisition of, or attach substantially
simultaneously with (or within twenty (20) days after) the acquisition, lease,
repair, improvement or construction of, such property financed or leased by such
Indebtedness and (b) such Liens do not extend to any property of Borrower other
than the property (and proceeds thereof) acquired, leased or built, or the
improvements or repairs financed by such Indebtedness; (viii) Liens incurred in
connection with Subordinated Indebtedness; (ix) leasehold interests in leases or
subleases and licenses granted in the ordinary course of business and not
interfering in any material respect with the business of the licensor; (x) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payment of custom duties that are promptly paid on or before the date they
become due; (xi) Liens on insurance policies and proceeds thereof (including,
unearned premiums, returned premiums, dividend payments and loss payments)
securing the payment of financed insurance premiums that are promptly paid on or
before the date they become due (provided that such Liens extend only to such
insurance proceeds and not to any other property or assets); (xii) statutory and
common law rights of set-off and other similar rights as to deposits of cash and
securities in favor of banks, other depository institutions and brokerage firms;
(xiii) easements, zoning restrictions, rights-of-way and similar encumbrances on
real property imposed by law or arising in the ordinary course of business so
long as they do not materially impair the value or marketability of the related
property; (xiv) Liens on cash or cash equivalents securing obligations permitted
under clause (vii) of the definition of Permitted Indebtedness; (xv) Liens
consisting of Licenses granted in connection with Collaboration Transactions
permitted hereunder; (xvi) Liens securing Indebtedness permitted in clause (xii)
of the definition of “Permitted Indebtedness” pursuant to a subordination
agreement in form and substance acceptable to Lender in its sole and absolute
discretion; (xvii) Liens that are contractual rights of set off (a) relating to
the establishment of depository relations with banks, (b) relating to pooled
deposit or sweep accounts of Borrower or any Subsidiary of Borrower to permit
satisfaction of overdraft or similar obligations incurred in the ordinary course
of business of Borrower or any such Subsidiary or (c) relating to purchase
orders and other similar agreements entered into with customers of Borrower or
any Subsidiary of Borrower in the ordinary course of business; (xviii) Liens of
financial institutions (solely in their capacity as such) on Borrower’s Deposit
Accounts arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set off or similar rights; (xix) deposits
made in the ordinary course of business to secure liability for premiums to
insurance carriers; provided any such Lien is limited to the insurance proceeds
and secures liability in the aggregate amount not to exceed $100,000; (xx) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods in the ordinary course of business in
accordance with the past practices; (xxi) the filing of UCC financing statements
solely as a precautionary measure in connection with operating leases or
consignment of goods; in each case, arising in the ordinary course of business;
(xxii) Liens consisting of Permitted Licenses, (xxiii) other Liens securing
obligations in an aggregate principal amount not to exceed $100,000 at any time
outstanding; and (xxiv) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (i) through (xxiii) above; provided, that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced (as may have been reduced by any payment thereon) does not increase.

 

 
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“Permitted Transfers” means (i) cash payments to trade creditors, and sales of
Inventory, in each case in the normal course of business, (ii) non-exclusive
licenses and similar arrangements for the use of Intellectual Property 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
discreet geographical areas outside of the United States in the ordinary course
of business, (iii) dispositions of worn-out, obsolete or surplus Equipment at
fair market value in the ordinary course of business, (iv) Transfers consisting
of Permitted Investments and Permitted Liens, (v) Transfers in connection with
Permitted Acquisitions, (vi) sales, leases or other dispositions of Inventory of
Borrower and its Subsidiaries determined by the management of Borrower to be no
longer useful or necessary in the operation of the business of Borrower or any
of its Subsidiaries for fair market value, (vii) Collaboration Transactions to
the extent constituting Transfers, and (viii) other Transfers of assets having a
fair market value of not more than $250,000 in the aggregate in any fiscal year.

 

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, other entity or government.

 

“Preferred Stock” means at any given time any equity security issued by Borrower
that has any rights, preferences or privileges senior to Borrower’s common
stock.

 

“Prepayment Charge” shall have the meaning assigned to such term in Section 2.4.

 

“Prime Rate” means the “prime rate” as reported in The Wall Street Journal, and
if not reported, then the prime rate most recently reported in The Wall Street
Journal.

 

“Receivables” means (i) all of Borrower’s Accounts, Instruments, Documents,
Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter
of credit, and Letter of Credit Rights, and (ii) all customer lists, software,
and business records related thereto.

 

“Secured Obligations” means Borrower’s obligations under this Agreement and any
Loan Document, including any obligation to pay any amount now owing or later
arising hereunder or thereunder.

 

“Subordinated Indebtedness” means Indebtedness subordinated to the Secured
Obligations in amounts and on terms and conditions satisfactory to Lender in its
sole discretion.

 

“Subsequent Financing” means any sale and issuance by Borrower on or after the
date hereof and prior to expiration or earlier termination of this Agreement, in
a single transaction or series of related transactions not registered under the
Securities Act of 1933, as amended, of shares of its preferred stock, common
stock or other equity security, or of any instrument exercisable for or
convertible into or otherwise representing the right to acquire shares of
Borrower preferred stock, common stock or other equity security, to one or more
investors for cash for financing purposes (including, without limitation, any
so-called PIPE transaction), which offering by Borrower is broadly marketed to
multiple investors, resulting in aggregate proceeds to Borrower of at least
$20,000,000.

 

 
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“Subsidiary” means an entity, whether corporate, partnership, limited liability
company, joint venture or otherwise, in which Borrower owns or controls 50% or
more of the outstanding voting securities, including each entity listed on
Schedule 1 hereto.

 

“Term Loan Advance” and “Term Loan Advances” are each defined in Recital A of
this Agreement.

 

“Term Loan Interest Rate” means for any day, a floating per annum rate equal to
the greater of either (i) eleven and one-quarter of one percent (11.25%), or
(ii) the sum of (A) eleven and one-quarter of one percent (11.25%), plus (B) the
Prime Rate minus three and one-quarter of one percent (3.25%). The Term Loan
Interest Rate will change from time to time on the day the Prime Rate changes,
if applicable.

 

“Term Loan Maturity Date” means June 1, 2017.

 

“Trademark License” means any written agreement granting any right to use any
Trademark or Trademark registration, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.

 

“Trademarks” means all trademarks (registered, common law or otherwise) and any
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country or
any political subdivision thereof.

 

“Transfer” means, with respect to any property or asset, to voluntarily or
involuntarily transfer, sell, lease, license, lend or in any other manner convey
any equitable, beneficial or legal interest in such property or asset.

 

“UCC” means the Uniform Commercial Code as the same is, from time to time, in
effect in the State of California; provided, 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, Lender’s Lien on any Collateral is
governed by the Uniform Commercial Code as the same is, from time to time, in
effect in a jurisdiction other than the State of California, then the term “UCC”
shall mean the Uniform Commercial Code as in effect, from time to time, in such
other jurisdiction solely for purposes of the provisions thereof relating to
such attachment, perfection, priority or remedies and for purposes of
definitions related to such provisions.

 

“Warrant” means the warrant entered into in connection with the Loan.

 

Unless otherwise specified, all references in this Agreement or any Annex or
Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule”
shall refer to the corresponding Section, subsection, Exhibit, Annex, or
Schedule in or to this Agreement. Unless otherwise specifically provided herein,
any accounting term used in this Agreement or the other Loan Documents shall
have the meaning customarily given such term in accordance with GAAP, and all
financial computations hereunder shall be computed in accordance with GAAP,
consistently applied. Unless otherwise defined herein or in the other Loan
Documents, terms that are used herein or in the other Loan Documents and defined
in the UCC shall have the meanings given to them in the UCC.

 

SECTION 2.     THE LOAN

 

2.1     Term Loan.

 

(a)     Advances. Subject to the terms and conditions of this Agreement, Lender
will make, and Borrower agrees to draw, an initial Term Loan Advance in the
amount of Five Million Dollars ($5,000,000) on the Closing Date. Subject to the
terms and conditions of this Agreement, during the Draw Period, Borrower may
request, but, notwithstanding any provision of this Agreement, Lender shall have
no obligation to make (and any such advance will be made only in Lender’s sole
discretion), up to three (3) additional Term Loan Advances in an aggregate
amount of up to Fifteen Million Dollars ($15,000,000) in minimum increments of
Five Million Dollars ($5,000,000). The aggregate outstanding Term Loan Advances
shall not exceed the Maximum Term Loan Amount. Proceeds of any Advance shall be
deposited into an account that is subject to a perfected security interest in
favor of Lender perfected by a control agreement.

 

 
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(b)     Advance Request. To obtain a Term Loan Advance, Borrower shall complete,
sign and deliver to Lender an Advance Request (at least thirty (30) days before
the Advance Date (or such shorter time period as Lender may in its sole
discretion agree to in writing), or, with respect to the initial Term Loan
Advance only, at least two (2) Business Days before the Advance Date (or such
shorter time period as Lender may in its sole discretion agree to in writing)).
Lender shall fund the Term Loan Advance in the manner requested by the Advance
Request provided that each of the conditions precedent to such Term Loan Advance
is satisfied as of the requested Advance Date.

 

(c)     Interest. The principal balance of each Term Loan Advance shall bear
interest thereon from such Advance Date at the Term Loan Interest Rate based on
a year consisting of 360 days, with interest computed daily based on the actual
number of days elapsed. The Term Loan Interest Rate will float and change on the
day the Prime Rate changes from time to time, if applicable.

 

(d)     Payment. Borrower will pay interest on each Term Loan Advance on the
first (1st) Business Day of each month, beginning the month after the Advance
Date. Commencing on the Amortization Date, and continuing on the first (1st)
Business Day of each month thereafter, Borrower shall repay the aggregate
principal balance of Term Loan Advances that are outstanding on the Amortization
Date in equal monthly installments of principal and interest (mortgage style)
based upon an amortization schedule equal to thirty (30) consecutive months. The
entire principal balance of the Term Loan Advances and all accrued but unpaid
interest hereunder, and all other Secured Obligations then outstanding with
respect to the Term Loan Advances, shall be due and payable on the Term Loan
Maturity Date. Borrower shall make all payments under this Agreement without
setoff, recoupment or deduction and regardless of any counterclaim or defense.
Lender will initiate debit entries to the Borrower’s account as authorized on
the ACH Authorization on each payment date of all periodic obligations payable
to Lender under each Term Loan Advance. Once repaid, a Term Loan Advance or any
portion thereof may not be reborrowed.

 

2.2     Maximum Interest. Notwithstanding any provision in this Agreement or any
other Loan Document, it is the parties’ intent not to contract for, charge or
receive interest at a rate that is greater than the maximum rate permissible by
law that a court of competent jurisdiction shall deem applicable hereto (which
under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the “Maximum
Rate”). If a court of competent jurisdiction shall finally determine that
Borrower has actually paid to Lender an amount of interest in excess of the
amount that would have been payable if all of the Secured Obligations had at all
times borne interest at the Maximum Rate, then such excess interest actually
paid by Borrower shall be applied as follows: first, to the payment of the
Secured Obligations consisting of the outstanding principal of the Term Loan
Advances; second, after all principal is repaid, to the payment of Lender’s
accrued interest, costs, expenses, professional fees and any other Secured
Obligations; and third, after all Secured Obligations are repaid, the excess (if
any) shall be refunded to Borrower.

 

2.3     Default Interest. In the event any payment is not paid on the scheduled
payment date (after giving effect to any applicable cure periods therefor), an
amount equal to three percent (3%) of the past due amount shall be payable on
demand. In addition, upon the occurrence and during the continuation of an Event
of Default hereunder, at Lender’s election all Secured Obligations, including
principal, interest, compounded interest, and professional fees, shall bear
interest at a rate per annum equal to the rate set forth in Section 2.1(c), plus
four percent (4%) per annum. In the event any interest is not paid when due
hereunder, delinquent interest shall be added to principal and shall bear
interest on interest, compounded at the rate set forth in Section 2.1(c).

 

2.4     Prepayment. At its option upon at least seven (7) Business Days prior
notice to Lender, Borrower may prepay all, or any portion, of the outstanding
Advances by paying the entire principal balance or a portion thereof, all
accrued and unpaid interest on the portion prepaid, all unpaid Lender’s fees and
expenses accrued to the date of the repayment (including the End of Term
Charge), together with a prepayment charge on the portion prepaid equal to the
following percentage of the Advance amount being prepaid: if such Advance
amounts are prepaid in any of the first twelve (12) months following the Closing
Date, three percent (3%); after twelve (12) months but prior to twenty four (24)
months, two percent (2%); and after twenty four (24) months but prior to the
Term Loan Maturity Date, one percent (1%) (each, a “Prepayment Charge”).
Borrower agrees that the Prepayment Charge is a reasonable calculation of
Lender’s lost profits in view of the difficulties and impracticality of
determining actual damages resulting from an early repayment of the Advances.
Upon the occurrence of a Change in Control, Borrower shall prepay the
outstanding amount of all principal and accrued interest through the prepayment
date and all unpaid Lender’s fees and expenses accrued to the date of the
repayment (including the End of Term Charge) together with any applicable
Prepayment Charge.

 

 
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2.5     End of Term Charge. On the earliest to occur of (i) the Term Loan
Maturity Date, (ii) the date that Borrower prepays the outstanding Secured
Obligations in full, or (iii) the date that the Secured Obligations become due
and payable in full, Borrower shall pay Lender a charge equal to three and
one-half of one percent (3.50%) of the aggregate original principal amount of
all Term Loan Advances made by Lender (the “End of Term Charge”).
Notwithstanding the required payment date of such charge, it shall be deemed
earned by Lender as of the Closing Date.

 

2.6     Notes. If so requested by Lender by written notice to Borrower, then
Borrower shall execute and deliver to Lender (and/or, if applicable and if so
specified in such notice, to any person who is an assignee of Lender pursuant to
Section 11.13) (promptly after the Borrower’s receipt of such notice) a Note or
Notes to evidence Lender’s Loans.

 

SECTION 3.     SECURITY INTEREST

 

3.1     As security for the prompt, complete and indefeasible payment when due
(whether on the payment dates or otherwise) of all the Secured Obligations,
Borrower grants to Lender a security interest in all of Borrower’s right, title,
and interest in and to the following personal property whether now owned or
hereafter acquired (collectively, the “Collateral”): (a) Receivables; (b)
Equipment; (c) Fixtures; (d) General Intangibles (except as noted below); (e)
Inventory; (f) Investment Property (except as noted below); (g) Deposit
Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal
property of Borrower whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, Borrower and wherever located, and any of
Borrower’s property in the possession or under the control of Lender; and, to
the extent not otherwise included, all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and
products of each of the foregoing. Notwithstanding anything in this Agreement or
any other Loan Document to the contrary, in no event shall the Collateral
include, and Borrower shall not be deemed to have granted a security interest
in: (i) Intellectual Property; provided, however, that the Collateral shall
include all Accounts and General Intangibles that consist of rights to payment
and proceeds from the sale, licensing or disposition of all or any part, or
rights in, the Intellectual Property (the “Rights to Payment”); (ii) more than
sixty-five percent (65%) of the issued and outstanding voting capital stock of
any Subsidiary of Borrower that is incorporated or organized in a jurisdiction
other than the United States or any state or territory thereof; or (iii) any of
the Borrower’s rights or interests in or under, any license, contract, permit,
instrument, security or franchise to which the Borrower is a party or any of its
rights or interests thereunder to the extent, but only to the extent, that such
a grant would, under the terms of such license, contract, permit, instrument,
security or franchise, result in a breach of the terms of, or constitute a
default under, such license, contract, permit, instrument, security or franchise
(other than to the extent that any such term would be rendered ineffective
pursuant to the UCC or any other applicable law (including the United States
Bankruptcy Code) or principles of equity); provided, that immediately upon the
ineffectiveness, lapse or termination of any such provision the Collateral shall
include, and the Borrower shall be deemed to have granted a security interest
in, all the rights and interests described in the foregoing clause (iii) as if
such provision had never been in effect. Notwithstanding the foregoing, if a
judicial authority (including a U.S. Bankruptcy Court) holds that a security
interest in the underlying Intellectual Property is necessary to have a security
interest in the Rights to Payment, then the Collateral shall automatically, and
effective as of the Closing Date, include the Intellectual Property to the
extent necessary to permit perfection of Lender’s security interest in the
Rights to Payment.

 

SECTION 4.     CONDITIONS PRECEDENT TO LOAN

 

The obligation of Lender to make the Term Loan Advances hereunder is subject to
Section 2.1(a) and the satisfaction by Borrower of the following conditions:

 

4.1     Initial Advance. On or prior to the Closing Date, Borrower shall have
delivered to Lender the following:

 

(a)     executed copies of the Loan Documents, a legal opinion of Borrower’s
counsel, and all other documents and instruments reasonably required by Lender
to effectuate the transactions contemplated hereby or to create and perfect the
Liens of Lender with respect to all Collateral, in all cases in form and
substance reasonably acceptable to Lender;

 

 
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(b)     certified copy of resolutions of Borrower’s board of directors
evidencing approval of (i) the Loan and other transactions evidenced by the Loan
Documents; and (ii) the Warrant and transactions evidenced thereby;

 

(c)     certified copies of the Certificate of Incorporation and the Bylaws, as
amended through the Closing Date, of Borrower;

 

(d)     a certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in which it
does business and where the failure to be qualified would have a Material
Adverse Effect;

 

(e)     a payoff letter from (i) Horizon Funding Trust 2013-1, and (ii) Oxford
Finance LLC;

 

(f)     evidence that (i) the Liens securing Indebtedness owed by Borrower to
Horizon Funding Trust 2013-1 and Oxford Finance LLC will be terminated
concurrently with the initial Term Loan Advance and (ii) the documents and/or
filings evidencing such Liens, including without limitation any financing
statements and/or control agreements, have or will, concurrently with (or, in
the case of the Account Control Agreement with UBS Financial Services Inc. (the
“UBS Account Control Agreement”), immediately following) the initial Term Loan
Advance, be terminated;

 

(g)     payment of the Facility Charge and reimbursement of Lender’s current
expenses reimbursable pursuant to this Agreement, which amounts may be deducted
from the initial Advance; and

 

(h)     such other documents as Lender may reasonably request.

 

4.2     All Advances. On each Advance Date:

 

(a)     Lender shall have received (i) an Advance Request for the relevant
Advance as required by Section 2.1(b), duly executed by Borrower’s Chief
Executive Officer, Chief Financial Officer, President, Chief Accounting Officer
or any other duly authorized officer of Borrower, and (ii) any other documents
Lender may reasonably request.

 

(b)     The representations and warranties set forth in this Agreement and in
Section 5 and in the Warrant shall be true and correct in all material respects
on and as of the Advance Date with the same effect as though made on and as of
such date, except to the extent such representations and warranties expressly
relate to an earlier date.

 

(c)     Borrower shall be in compliance with all the terms and provisions set
forth herein and in each other Loan Document on its part to be observed or
performed, and at the time of and immediately after such Advance no Event of
Default shall have occurred and be continuing.

 

(d)     Each Advance Request shall be deemed to constitute a representation and
warranty by Borrower on the relevant Advance Date as to the matters specified in
paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in
the Advance Request.

 

4.3     No Default. As of the Closing Date and each Advance Date, (i) no fact or
condition exists that constitutes (or would, with the passage of time, the
giving of notice, or both, constitute) an Event of Default and (ii) no event
that has had or could reasonably be expected to have a Material Adverse Effect
has occurred and is continuing.

 

 
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SECTION 5.     REPRESENTATIONS AND WARRANTIES OF BORROWER

 

Borrower represents and warrants that:

 

5.1     Corporate Status. Borrower is a corporation duly organized, legally
existing and in good standing under the laws of the State of Delaware, and is
duly qualified as a foreign corporation in all jurisdictions in which the nature
of its business or location of its properties require such qualification, except
where the failure to be qualified could not reasonably be expected to have a
Material Adverse Effect. Borrower’s present name, former names (if any),
locations, place of formation, tax identification number, organizational
identification number and other information are correctly set forth in Schedule
5.1, as may be updated by Borrower in a written notice (including any Compliance
Certificate) provided to Lender after the Closing Date.

 

5.2     Collateral. Subject to Section 4.1(f), Borrower owns the Collateral and
the Intellectual Property, free of all Liens, except for Permitted Liens.
Borrower has the power and authority to grant to Lender a Lien in the Collateral
as security for the Secured Obligations.

 

5.3     Consents. Borrower’s execution, delivery and performance of the Notes
(if any), this Agreement and all other Loan Documents to which it is a party,
and Borrower’s execution of the Warrant, (i) have been duly authorized by all
necessary corporate action or other organizational action, as applicable, of
Borrower, (ii) will not result in the creation or imposition of any Lien upon
the Collateral, other than Permitted Liens and the Liens created by this
Agreement and the other Loan Documents, (iii) do not violate any provisions of
Borrower’s Certificate or Articles of Incorporation (as applicable), bylaws, or
any law, regulation, order, injunction, judgment, decree or writ to which
Borrower is subject and (iv) except as described on Schedule 5.3, do not violate
any contract or agreement or require the consent or approval of any other
Person. The individual or individuals executing the Loan Documents and the
Warrant on behalf of Borrower are duly authorized to do so.

 

Without limiting the generality of the foregoing, (a) Borrower’s execution,
delivery and performance of the Notes (if any), this Agreement and all other
Loan Documents to which it is a party, and Borrower’s execution of the Warrant,
do not and will not require the separate vote or consent of, or waiver by, any
class or series of Borrower’s capital stock, and (b) as of the Closing Date,
there are no shares of 8% Series A Redeemable Convertible Preferred Stock of
Borrower issued and outstanding, and no shares of 8% Series A Redeemable
Convertible Preferred Stock shall be issued or outstanding under that certain
Certificate of Designation for 8% Series A Redeemable Convertible Preferred
Stock filed by Borrower with the Delaware Secretary of State on January 14, 2011
at any time after the Closing Date, accordingly, the restrictions set forth in
Section 13 of that certain Certificate of Designation for 8% Series A Redeemable
Convertible Preferred Stock filed by Borrower with the Delaware Secretary of
State on January 14, 2011 are now, and hereafter shall be, without force or
effect.

 

5.4     Material Adverse Effect. No event that has had or could reasonably be
expected to have a Material Adverse Effect has occurred and is continuing.
Borrower is not aware of any event likely to occur that is reasonably expected
to result in a Material Adverse Effect.

 

5.5     Actions Before Governmental Authorities. Except as described on Schedule
5.5 (which may be updated from time to time, provided that any new information
or disclosure shall not be deemed to be included in such schedule unless
consented to by Lender in writing pursuant to the terms and conditions hereof),
there are no actions, suits or proceedings at law or in equity or by or before
any governmental authority now pending or, to the knowledge of Borrower,
threatened in writing against or affecting Borrower or its property which, if
adversely determined against Borrower or its property, would reasonably be
expected to result in liability in excess of $250,000.

 

5.6     Laws. Borrower is not in violation of any law, rule or regulation, or in
default with respect to any judgment, writ, injunction or decree of any
governmental authority, where such violation or default is reasonably expected
to result in a Material Adverse Effect. Borrower is not in default in any
material respect under any provision of any agreement or instrument evidencing
indebtedness, or any other material agreement to which it is a party or by which
it is bound.

 

 
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5.7     Information Correct and Current. No information, report, Advance
Request, financial statement, exhibit or schedule furnished, by or on behalf of
Borrower to Lender in connection with any Loan Document or included therein or
delivered pursuant thereto, when taken together with all such information,
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading at the time such statement was made or deemed
made (it being recognized by Lender that financial or business projections and
other forward looking information provided in good faith and based on the then
most current data and information available to Borrower are not to be viewed as
facts and that actual results during the period or periods covered by any such
projections may differ from the projected results). Additionally, any and all
financial or business projections provided by Borrower to Lender shall be
provided in good faith and based on the then most current data and information
available to Borrower, it being recognized by Lender that such projections are
not to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results.

 

5.8     Tax Matters. Except as described on Schedule 5.8 (which may be updated
from time to time, provided that any new information or disclosure shall not be
deemed to be included in such schedule unless consented to by Lender in writing
pursuant to the terms and conditions hereof), (a) Borrower has filed all
federal, state and material local tax returns that it is required to file, (b)
Borrower has duly paid or fully reserved for all taxes or installments thereof
(including any interest or penalties) as and when due, which have or may become
due pursuant to such returns, and (c) Borrower has paid or fully reserved for
any tax assessment received by Borrower for the three (3) years preceding the
Closing Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).

 

5.9     Intellectual Property Claims. Borrower is the sole owner of, or
otherwise has the right to use, the Intellectual Property. Except as described
on Schedule 5.9A (which may be updated from time to time, provided that any new
information or disclosure shall not be deemed to be included in such schedule
unless consented to by Lender in writing pursuant to the terms and conditions
hereof), (i) to the knowledge of Borrower, each of the material issued or
registered Copyrights, Trademarks and Patents is valid and enforceable, (ii) no
material part of the Intellectual Property owned by Borrower has been judged
invalid or unenforceable, in whole or in part, other than a rejection by the
United States Patent and Trademark Office or any corresponding foreign office or
agency with respect to applications for any Patents or Trademarks where such
rejection would not have a material adverse effect on Borrower’s business, and
(iii) no written claim has been made to Borrower that any material part of the
Intellectual Property violates the rights of any third party which claim, if
adversely determined against Borrower, would reasonably be expected to result in
liability in excess of $250,000. Schedule 5.9B is a true, correct and complete
list of each of Borrower’s Patents, registered Trademarks, registered
Copyrights, and material agreements under which Borrower licenses intellectual
property from third parties (other than shrink-wrap software licenses and other
licenses for over-the-counter software), together with application or
registration numbers, as applicable, owned by Borrower or any Subsidiary, in
each case as of the Closing Date. Borrower is not in material breach of, nor has
Borrower failed to perform any material obligations under, any of the foregoing
contracts, licenses or agreements and, to Borrower’s knowledge, no third party
to any such contract, license or agreement is in material breach thereof or has
failed to perform any material obligations thereunder.

 

5.10     Intellectual Property. Except as described on Schedule 5.10 (which may
be updated from time to time, provided that any new information or disclosure
shall not be deemed to be included in such schedule unless consented to by
Lender in writing pursuant to the terms and conditions hereof), Borrower has, or
in the case of any proposed business, to the knowledge of Borrower will have,
all material rights with respect to the Intellectual Property necessary in the
operation or conduct of Borrower’s business as currently conducted and proposed
to be conducted by Borrower. Without limiting the generality of the foregoing,
and in the case of Licenses, except for restrictions that are unenforceable
under Division 9 of the UCC, Borrower has the right, to the extent required to
operate Borrower’s business, to freely transfer, license or assign the
Intellectual Property without condition, restriction or payment of any kind
(other than license payments in the ordinary course of business) to any third
party, and, to the knowledge of Borrower, Borrower owns or has the right to use,
pursuant to valid licenses, all software development tools, library functions,
compilers and all other third-party software and other items that are used in
the design, development, promotion, sale, license, manufacture, import, export,
use or distribution of Borrower Products.

 

 
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5.11     Borrower Products. Except as described on Schedule 5.11 (which may be
updated from time to time, provided that any new information or disclosure shall
not be deemed to be included in such schedule unless consented to by Lender in
writing pursuant to the terms and conditions hereof), no Intellectual Property
owned by Borrower or Borrower Product is subject to any actual or, to the
knowledge of Borrower, threatened litigation, proceeding (except for any
proceeding in the United States Patent and Trademark Office or any corresponding
foreign office or agency, in each case involving a pending application for any
Patents, Trademarks or Copyrights) or outstanding decree, order, judgment,
settlement agreement or stipulation that restricts in any material manner
Borrower’s use, transfer or licensing thereof or that may materially affect the
validity, use or enforceability thereof. There is no decree, order, judgment,
agreement, stipulation, arbitral award or other provision entered into in
connection with any litigation or proceeding that obligates Borrower to grant
licenses or ownership interest in any future Intellectual Property related to
the operation or conduct of the business of Borrower or Borrower Products.
Borrower has not received any written notice or claim, or, to the knowledge of
Borrower, oral notice or claim, challenging or questioning Borrower’s ownership
in any of the Intellectual Property purportedly owned by Borrower (or written
notice of any claim challenging or questioning the ownership in any licensed
Intellectual Property of the owner thereof) or suggesting that any third party
has any claim of legal or beneficial ownership with respect thereto, which, if
adversely determined against Borrower or its property, would reasonably be
expected to result in liability in excess of $250,000, nor, to Borrower’s
knowledge, is there a reasonable basis for any such claim. To the knowledge of
Borrower, neither Borrower’s use of its Intellectual Property nor the production
and sale of Borrower Products infringes the intellectual property or other
rights of others.

 

5.12     Financial Accounts. Schedule 5.12, as may be updated by the Borrower in
a written notice provided to Lender after the Closing Date, is a true, correct
and complete list of (a) all banks and other financial institutions at which
Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions
at which Borrower or any Subsidiary maintains an account holding Investment
Property, and such exhibit correctly identifies the name, address and telephone
number of each bank or other institution, the name in which the account is held,
a description of the purpose of the account, and the complete account number
therefor.

 

5.13     Employee Loans. Except as set forth in Schedule 5.13 (which may be
updated from time to time, provided that any new information or disclosure shall
not be deemed to be included in such schedule unless consented to by Lender in
writing pursuant to the terms and conditions hereof), Borrower has no
outstanding loans to any employee, officer or director of the Borrower nor has
Borrower guaranteed the payment of any loan made to an employee, officer or
director of the Borrower by a third party.

 

5.14     Capitalization and Subsidiaries. Borrower does not own any stock,
partnership interest or other securities of any Person, except for Permitted
Investments. Attached as Schedule 5.14, as may be updated by Borrower in a
written notice provided after the Closing Date, is a true, correct and complete
list of each Subsidiary.

 

SECTION 6.     INSURANCE; INDEMNIFICATION

 

6.1     Coverage. Borrower shall cause to be carried and maintained insurance,
including directors’ and officers’ insurance and commercial general liability
insurance, on an occurrence form, against risks customarily insured against in
Borrower’s line of business and in amounts standard for companies in Borrower’s
industry and location. Such risks shall include the risks of bodily injury,
including death, property damage, personal injury, advertising injury, and
contractual liability per the terms of the indemnification agreement found in
Section 6.3. So long as there are any Secured Obligations outstanding, Borrower
shall also cause to be carried and maintained insurance upon the Collateral,
insuring against all risks of physical loss or damage howsoever caused, in an
amount not less than the full replacement cost of the Collateral, provided that
such insurance may be subject to standard exceptions and deductibles.

 

6.2     Certificates. Borrower shall deliver to Lender certificates of insurance
that evidence Borrower’s compliance with its insurance obligations in Section
6.1 and the obligations contained in this Section 6.2. Borrower’s insurance
certificate shall state Lender is an additional insured for commercial general
liability, a loss payee for all risk property damage insurance, subject to the
insurer’s approval, a loss payee for fidelity insurance, and a loss payee for
property insurance and additional insured for liability insurance for any future
insurance that Borrower may acquire from such insurer. Attached to the
certificates of insurance will be additional insured endorsements for liability
and lender’s loss payable endorsements for all risk property damage insurance
and fidelity. All certificates of insurance will provide that the insurer shall
endeavor to provide a minimum of thirty (30) days advance written notice to
Lender of cancellation. Any failure of Lender to scrutinize such insurance
certificates for compliance is not a waiver of any of Lender’s rights, all of
which are reserved.

 

 
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6.3     Indemnity. Borrower agrees to indemnify and hold Lender and its
officers, directors, employees, agents, in-house attorneys, representatives and
shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including such claims, costs, expenses, damages and
liabilities based on liability in tort, including strict liability in tort),
including reasonable attorneys’ fees and disbursements and other costs of
investigation or defense (including those incurred upon any appeal), that may be
instituted or asserted against or incurred by Lender or any such Person as the
result of credit having been extended, suspended or terminated under this
Agreement and the other Loan Documents or the administration of such credit, or
in connection with or arising out of the transactions contemplated hereunder and
thereunder, or any actions or failures to act in connection therewith, or
arising out of the disposition or utilization of the Collateral, excluding in
all cases claims, costs, expenses, damages and liabilities resulting from
Lender’s gross negligence or willful misconduct. Borrower agrees to pay, and to
save Lender harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes
(excluding taxes imposed on or measured by the net income of Lender) that may be
payable or determined to be payable with respect to any of the Collateral or
this Agreement.

 

SECTION 7.     COVENANTS OF BORROWER

 

Borrower agrees as follows:

 

7.1     Financial Reports. Borrower shall furnish to Lender the financial
statements and reports listed hereinafter (the “Financial Statements”):

 

(a)     as soon as practicable (and in any event within 30 days) after the end
of each month, unaudited interim and year-to-date financial statements as of the
end of such month (prepared on a consolidated and consolidating basis, if
applicable), including balance sheet and related statements of income and cash
flows accompanied by a report detailing any material contingencies (including
the commencement of any material litigation by or against Borrower) or any other
occurrence that would reasonably be expected to have a Material Adverse Effect,
all certified by Borrower’s Chief Executive Officer, Chief Financial Officer,
President or Chief Accounting Officer to the effect that they have been prepared
in accordance with GAAP, except (i) for the absence of footnotes, (ii) that they
are subject to normal year-end and quarter-end adjustments, and (iii) they do
not contain certain non-cash items that are customarily included in quarterly
and annual financial statements;

 

(b)     as soon as practicable (and in any event within 45 days) after the end
of each fiscal quarter, unaudited interim and year-to-date financial statements
as of the end of such calendar quarter (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows accompanied by a report detailing any
material contingencies (including the commencement of any material litigation by
or against Borrower) or any other occurrence that would reasonably be expected
to have a Material Adverse Effect, certified by Borrower’s Chief Executive
Officer, Chief Financial Officer, President or Chief Accounting Officer to the
effect that they have been prepared in accordance with GAAP, except (i) for the
absence of footnotes, and (ii) that they are subject to normal year-end
adjustments;

 

(c)     as soon as practicable (and in any event within one hundred fifty (150)
days) after the end of each fiscal year, unqualified audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows, and setting forth in comparative form the
corresponding figures for the preceding fiscal year, together with an
unqualified opinion on the financial statements by a firm of independent
certified public accountants selected by Borrower and reasonably acceptable to
Lender (it being agreed that Stegman & Company is acceptable to Lender),
accompanied by any management report from such accountants;

 

(d)     as soon as practicable (and in any event within 30 days) after the end
of each month, a Compliance Certificate in the form of Exhibit F;

 

 
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(e)     promptly after the sending or filing thereof, as the case may be, copies
of any proxy statements, financial statements or reports that Borrower has made
available to holders of its capital stock and copies of all regular, periodic
and special reports or registration statements that Borrower files with the
Securities and Exchange Commission or any governmental authority that may be
substituted therefor, or any national securities exchange (including, without
limitation, the NASDAQ exchange); and

 

(f)     annual financial and business projections, promptly following their
approval by Borrower’s Board of Directors, as well as budgets, operating plans
and other financial information reasonably requested by Lender or generally
provided to security holders.

 

Borrower shall not make any change in its (a) accounting policies or reporting
practices (except as required under GAAP), or (b) fiscal years or fiscal
quarters. The fiscal year of Borrower shall end on December 31.

 

The executed Compliance Certificate may be sent via facsimile to Lender at (650)
473-9194 or via e-mail to BJadot@HTGC.com. All Financial Statements required to
be delivered pursuant to clauses (a), (b) and (c) shall be sent via e-mail to
financialstatements@herculestech.com with a copy to BJadot@HTGC.com and
BBang@HTGC.com provided, that if e-mail is not available or sending such
Financial Statements via e-mail is not possible, they shall be sent via
facsimile to Lender at: (866) 468-8916, attention Chief Credit Officer.

 

Notwithstanding the foregoing, documents required to be delivered pursuant to
the terms of this Section 7.1 (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 both
of the following occur (a) Borrower posts such document, or provides a working
link thereto, on Borrower’s website on the internet (at Borrower’s website
address) or files such documents with the SEC provided they are publicly
available on the SEC’s website and (b) Borrower provides an email to Lender
confirming the circumstances in clause (a) and Lender acknowledges receipt of
such email.

 

7.2     Management Rights. Borrower shall permit any representative that Lender
authorizes, including its attorneys and accountants, to inspect the Collateral
and examine and make copies and abstracts of the books of account and records of
Borrower at reasonable times and upon reasonable notice during normal business
hours. In addition, any such representative shall have the right to meet with
management and officers of Borrower to discuss such books of account and
records. In addition, subject to the confidentiality provisions in this
Agreement, Lender shall be entitled at reasonable times and intervals to consult
with and advise the management and officers of Borrower concerning significant
business issues affecting Borrower. Such consultations shall not unreasonably
interfere with Borrower’s business operations. The parties intend that the
rights granted Lender shall constitute “management rights” within the meaning of
29 C.F.R Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or
participation by Lender with respect to any business issues shall not be deemed
to give Lender, nor be deemed an exercise by Lender of, control over Borrower’s
management or policies. Information provided or to be provided to Lender or its
representatives pursuant to this Section 7.2 is subject to the confidentiality
provisions contained in this Agreement.

 

7.3     Further Assurances. Borrower shall from time to time execute, deliver
and file, alone or with Lender, any financing statements, security agreements,
collateral assignments, notices, control agreements, or other documents to
perfect or give the highest priority (subject to Permitted Liens) to Lender’s
Lien on the Collateral. Borrower shall from time to time procure any instruments
or documents as may be reasonably requested by Lender, and take all further
action that may be necessary or desirable, or that Lender may reasonably
request, to perfect and protect the Liens granted hereby and thereby. In
addition, and for such purposes only, Borrower hereby authorizes Lender to
execute and deliver on behalf of Borrower and to file such financing statements,
collateral assignments, notices, control agreements, security agreements and
other documents without the signature of Borrower either in Lender’s name or in
the name of Lender as agent and attorney-in-fact for Borrower. Except as
otherwise explicitly set forth herein, Borrower shall protect and defend
Borrower’s title to the Collateral and Lender’s Lien thereon against all Persons
claiming any interest adverse to Borrower or Lender other than Permitted Liens.

 

7.4     Indebtedness. Borrower shall not create, incur, assume, guarantee or be
or remain liable with respect to any Indebtedness, or permit any Subsidiary so
to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any
actions which impose on Borrower an obligation to prepay any Indebtedness,
except for the conversion of Indebtedness into equity securities and the payment
of cash in lieu of fractional shares in connection with such conversion.

 

 
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7.5     Collateral. Borrower shall at all times keep the Collateral, the
Intellectual Property and all other property and assets used in Borrower’s
business or in which Borrower now or hereafter holds any interest free and clear
from any Liens whatsoever (except for Permitted Liens), and shall give Lender
prompt written notice of any legal process affecting the Collateral, the
Intellectual Property, such other property and assets, or any Liens (other than
Permitted Liens) thereon. Borrower shall cause its Subsidiaries to protect and
defend such Subsidiary’s title to its assets from and against all Persons
claiming any interest adverse to such Subsidiary, and Borrower shall cause its
Subsidiaries at all times to keep such Subsidiary’s property and assets free and
clear from any Liens whatsoever (except for Permitted Liens), and shall give
Lender prompt written notice of any legal process affecting such Subsidiary’s
assets. Borrower shall not agree with any Person other than Lender not to
encumber its property.

 

7.6     Investments. Borrower shall not directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments.

 

7.7     Distributions. Borrower shall not, and shall not allow any Subsidiary
to, (a) repurchase or redeem any class of stock or other equity interest other
than (i) pursuant to employee, director or consultant repurchase or stock option
plans or employee restricted stock agreements, stockholder rights plans or other
similar agreements, provided that all such repurchases and redemptions do not
exceed $100,000 per fiscal year in the aggregate, (ii) noncash repurchases of
equity interests of Borrower deemed to occur upon exercise of stock options if
such equity interests represent a portion of the exercise price of such options
or (iii) the retaining of any of its capital stock by Borrower, or the
reacquisition of any such stock by Borrower from any employee, officer or
director of Borrower, in each case as full or partial payment in connection with
any award under an employee stock purchase or incentive plan or other similar
agreement approved by Borrower’s board of directors (or its delegate) or to
satisfy the tax withholding obligations related to any such award, provided that
all such reacquisitions do not exceed $100,000 per fiscal year in the aggregate,
or (b) declare or pay any cash dividend or make a cash distribution on any class
of stock or other equity interest, except that (i) a Subsidiary may pay
dividends or make distributions to Borrower and (ii) Borrower may make payments
in cash, in lieu of the issuance of fractional shares, upon the exercise of
warrants or upon the conversion or exchange of equity interests of Borrower, or
(c) lend money to any employees, officers or directors or guarantee the payment
of any such loans granted by a third party, except for transactions permitted
under clauses (vii) and (ix) of the definition of “Permitted Investments”, or
(d) waive, release or forgive any indebtedness owed by any employees, officers
or directors in excess of $100,000 in the aggregate.

 

7.8     Transfers. Except for Permitted Transfers, Borrower shall not Transfer
any material portion of its assets.

 

7.9     Mergers or Acquisitions. Borrower shall not merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization (other than mergers or consolidations of a Subsidiary into
another Subsidiary or into Borrower), or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person (other than Permitted Acquisitions).

 

7.10     Taxes. Borrower and its Subsidiaries shall pay when due all taxes, fees
or other similar charges of any nature whatsoever (together with any related
interest or penalties) now or hereafter imposed or assessed against Borrower,
Lender or the Collateral or upon Borrower’s ownership, possession, use,
operation or disposition thereof or upon Borrower’s rents, receipts or earnings
arising therefrom. Borrower shall file on or before the due date therefor all
personal property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor in accordance with
GAAP.

 

7.11     Corporate Changes. Neither Borrower nor any Subsidiary shall change its
corporate name, legal form or jurisdiction of formation without fifteen (15)
days’ prior written notice to Lender. Neither Borrower nor any Subsidiary shall
relocate its chief executive office or its principal place of business unless:
(i) it has provided prior written notice to Lender; and (ii) such relocation
shall be within the continental United States. Neither Borrower nor any
Subsidiary shall relocate any item of tangible Collateral (other than (x) sales
of Inventory in the ordinary course of business, (y) relocations of Equipment
having an aggregate value of up to $150,000 in any fiscal year, and (z)
relocations of Collateral from a location described on Schedule 5.1 to another
location described on Schedule 5.1) unless (i) it has provided prompt written
notice to Lender, (ii) such relocation is within the continental United States
and, (iii) with respect to Collateral with a fair market value in excess of
$150,000 individually or in the aggregate, if such relocation is to a third
party bailee, it has used commercially reasonable efforts to deliver a bailee
agreement in form and substance reasonably acceptable to Lender.

 

 
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7.12     Deposit Accounts. Neither Borrower nor any Subsidiary shall maintain
any Deposit Accounts (other than Excluded Accounts), or accounts holding
Investment Property, except with respect to which Lender has an Account Control
Agreement (provided that the UBS Account Control Agreement may be delivered
within 5 Business Days of the Closing Date).

 

7.13     Subsidiaries. Borrower shall notify Lender of each Subsidiary formed
subsequent to the Closing Date and, within 15 days of formation (or such later
date as Lender may agree in writing in its sole discretion), at the election of
Lender, shall cause any such Subsidiary organized under the laws of any State
within the United States to execute and deliver to Lender a Joinder Agreement
and such other documents as shall be reasonably requested by Lender.

 

SECTION 8.     RIGHT TO INVEST

 

8.1     Hercules Technology Growth Capital, Inc. or its assignee or nominee
(which assignee or nominee shall be an affiliate of Lender) shall have the
right, in its discretion, to participate in any one or more Subsequent
Financings in an aggregate amount, for all such Subsequent Financings in which
Lender and/or its assignee(s) or nominee(s) participate, of up to One Million
Dollars ($1,000,000), on the same terms, conditions and pricing afforded to
others participating in any such Subsequent Financing; provided, that Lender
shall be afforded the same notice period as other investors participating in
such Subsequent Financing; provided further that, in the event of any Subsequent
Financing (a) that is a private placement under Section 4(2) of the Securities
Act of 1933, as amended (or otherwise exempt from the registration requirements
of such act), (b) that has an initial closing prior to the Lender receiving five
Business Days’ advance written notice to accept or decline to participate in
such Subsequent Financing, and (c) in which Lender’s participation or potential
participation would not cause stockholder consent of the Borrower to be required
under applicable NASDAQ rules, which consent would not be required but for
Lender’s participation or potential participation, then the Company shall allow
the Lender to participate in an additional closing of the Subsequent Financing
within 30 days of, and otherwise on the same, terms, conditions and pricing in,
the initial closing but no less than five (5) Business Days after Lender has
been provided advance written notice to accept or decline to participate in such
Subsequent Financing.

 

SECTION 9.     EVENTS OF DEFAULT

 

The occurrence of any one or more of the following events shall be an Event of
Default:

 

9.1     Payments. Borrower fails to pay any amount due under this Agreement or
any of the other Loan Documents on the due date (or within three (3) days of the
due date, provided that such late payment is due to an administrative error in
connection with the ACH Authorization); or

 

9.2     Covenants. Borrower breaches or defaults in the performance of any
covenant or Secured Obligation under this Agreement or any of the other Loan
Documents, and (a) with respect to a default under any covenant under this
Agreement (other than under Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8 or 7.9) such
default continues for more than ten (10) Business Days after the earlier of the
date on which (i) Lender has given notice of such default to Borrower and (ii)
Borrower has actual knowledge of such default or (b) with respect to a default
under any of Sections 6, 7.4, 7.5, 7.6, 7.7, 7.8 or 7.9, the occurrence of such
default; or

 

9.3     Material Adverse Effect. A circumstance has occurred that would
reasonably be expected to have a Material Adverse Effect; or

 

 
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9.4     Other Loan Documents. The occurrence of any default under any Loan
Document or any other agreement between Borrower and Lender and such default
continues for more than ten (10) Business Days after the earlier of (a) Lender
has given notice of such default to Borrower, or (b) Borrower has actual
knowledge of such default; or

 

9.5     Representations. Any representation or warranty made by Borrower in any
Loan Document shall have been false or misleading in any material respect when
made; or

 

9.6     Insolvency. Borrower (A) (i) shall make an assignment for the benefit of
creditors; or (ii) shall be unable to pay its debts as they become due, or be
unable to pay or perform under the Loan Documents, or shall become insolvent; or
(iii) shall file a voluntary petition in bankruptcy; or (iv) shall file any
petition, answer, or document seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation pertinent to such
circumstances; or (v) shall seek or consent to or acquiesce in the appointment
of any trustee, receiver, or liquidator of Borrower or of all or any substantial
part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi)
shall cease operations of its business as its business has normally been
conducted (provided that the normal conduct of business shall include the
business conducted by Borrower as of the date hereof and reasonable extensions
thereof and businesses ancillary or complimentary thereto), or terminate
substantially all of its employees; or (vii) Borrower or its directors or
majority shareholders shall take any action initiating any of the foregoing
actions described in clauses (i) through (vi); or (B) either (i) forty-five (45)
days shall have expired after the commencement of an involuntary action against
Borrower seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, without such action being dismissed or all orders or
proceedings thereunder affecting the operations or the business of Borrower
being stayed; or (ii) a stay of any such order or proceedings shall thereafter
be set aside and the action setting it aside shall not be timely appealed; or
(iii) Borrower shall file any answer admitting or not contesting the material
allegations of a petition filed against Borrower in any such proceedings; or
(iv) the court in which such proceedings are pending shall enter a decree or
order granting the relief sought in any such proceedings; or (v) forty-five (45)
days shall have expired after the appointment, without the consent or
acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or
of all or any substantial part of the properties of Borrower without such
appointment being vacated; or

 

9.7     Attachments; Judgments. Any portion of Borrower’s assets is attached or
seized, or a levy is filed against any such assets, or a judgment or judgments
is/are entered for the payment of money, individually or in the aggregate, of at
least $250,000 (not covered by independent third party insurance as to which
liability has been accepted by such insurance carrier), which judgment or
judgments is/are not discharged or effectively waived or stayed for a period of
thirty (30) consecutive days, or Borrower is enjoined or in any way prevented by
court order from conducting any part of its business; or

 

9.8     Other Obligations. The occurrence of any default under any agreement or
obligation of Borrower involving any Indebtedness in excess of $150,000 which
enables or permits the holder or holders of any such Indebtedness or any trustee
or agent on its or their behalf to cause any such Indebtedness to become due, or
to require the prepayment, repurchase, redemption or defeasance thereof, prior
to its scheduled maturity, whether or not exercised, or the occurrence of any
default under any agreement or obligation of Borrower that could reasonably be
expected to have a Material Adverse Effect.

 

SECTION 10.     REMEDIES

 

10.1     General. Upon and during the continuance of any one or more Events of
Default, (i) Lender may, at its option, accelerate and demand payment of all or
any part of the Secured Obligations together with a Prepayment Charge and
declare them to be immediately due and payable (provided, that upon the
occurrence of an Event of Default of the type described in Section 9.6, all of
the Secured Obligations shall automatically be accelerated and made due and
payable, in each case without any further notice or act), and (ii) Lender may
notify any of Borrower’s account debtors to make payment directly to Lender,
compromise the amount of any such account on Borrower’s behalf and endorse
Lender’s name without recourse on any such payment for deposit directly to
Lender’s account. Lender may exercise all rights and remedies with respect to
the Collateral under the Loan Documents or otherwise available to it under the
UCC and other applicable law, including the right to release, hold, sell, lease,
liquidate, collect, realize upon, or otherwise dispose of all or any part of the
Collateral and the right to occupy, utilize, process and commingle the
Collateral. All Lender’s rights and remedies shall be cumulative and not
exclusive.

 

 
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10.2     Collection; Foreclosure. Upon the occurrence and during the continuance
of any Event of Default, Lender may, at any time or from time to time, apply,
collect, liquidate, sell in one or more sales, lease or otherwise dispose of,
any or all of the Collateral, in its then condition or following any
commercially reasonable preparation or processing, in such order as Lender may
elect. Any such sale may be made either at public or private sale at its place
of business or elsewhere. Borrower agrees that any such public or private sale
may occur upon ten (10) calendar days’ prior written notice to Borrower. Lender
may require Borrower to assemble the Collateral and make it available to Lender
at a place designated by Lender that is reasonably convenient to Lender and
Borrower. The proceeds of any sale, disposition or other realization upon all or
any part of the Collateral shall be applied by Lender in the following order of
priorities:

 

First, to Lender in an amount sufficient to pay in full Lender’s costs and
professionals’ and advisors’ fees and expenses as described in Section 11.11;

 

Second, to Lender in an amount equal to the then unpaid amount of the Secured
Obligations (including principal, interest, and the Default Rate interest), in
such order and priority as Lender may choose in its sole discretion; and

 

Finally, after the full, final, and indefeasible payment in Cash of all of the
Secured Obligations, to any creditor holding a junior Lien on the Collateral, or
to Borrower or its representatives or as a court of competent jurisdiction may
direct.

 

Lender shall be deemed to have acted reasonably in the custody, preservation and
disposition of any of the Collateral if it complies with the obligations of a
secured party under the UCC.

 

10.3     No Waiver. Lender shall be under no obligation to marshal any of the
Collateral for the benefit of Borrower or any other Person, and Borrower
expressly waives all rights, if any, to require Lender to marshal any
Collateral.

 

10.4     Cumulative Remedies. The rights, powers and remedies of Lender
hereunder shall be in addition to all rights, powers and remedies given by
statute or rule of law and are cumulative. The exercise of any one or more of
the rights, powers and remedies provided herein shall not be construed as a
waiver of or election of remedies with respect to any other rights, powers and
remedies of Lender.

 

SECTION 11.     MISCELLANEOUS

 

11.1     Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent and duration of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

 

11.2     Notice. Except as otherwise provided herein, any notice, demand,
request, consent, approval, declaration, service of process or other
communication (including the delivery of Financial Statements) that is required,
contemplated, or permitted under the Loan Documents or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given, delivered, and received upon the earlier of: (i) the day
of transmission by facsimile or hand delivery or delivery by an overnight
express service or overnight mail delivery service; or (ii) the third calendar
day after deposit in the United States mails, with proper first class postage
prepaid, in each case addressed to the party to be notified as follows:

 

 

If to Lender:

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Legal Department
Attention: Chief Legal Officer and Mr. Bryan Jadot
400 Hamilton Avenue, Suite 310
Palo Alto, California 94301
Facsimile: 650-473-9194
Telephone: 650-289-3060

 

 
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If to Borrower:

CELSION CORPORATION
Attention: Jeffrey Church
997 Lenox Drive, Suite 100
Lawrenceville, New Jersey 08648
Facsimile: (609) 896-2000
Telephone: (609) 896-9100

        With a copy to: O’Melveny & Myers LLP

Attention: Sam Zucker

2765 Sand Hill Road

Menlo Park, CA 94025

Facsimile: (650) 473-2601

Telephone: (650) 473-2638

 

or to such other address as each party may designate for itself by like notice.

 

11.3     Entire Agreement; Amendments. This Agreement and the other Loan
Documents constitute the entire agreement and understanding of the parties
hereto in respect of the subject matter hereof and thereof, and supersede and
replace in their entirety any prior proposals, term sheets, non-disclosure or
confidentiality agreements, letters, negotiations or other documents or
agreements, whether written or oral, with respect to the subject matter hereof
or thereof (including Lender’s revised proposal letter dated October 3, 2013).
None of the terms of this Agreement or any of the other Loan Documents may be
amended except by an instrument executed by Borrower and Lender.

 

11.4     No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.

 

11.5     No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its rights hereunder and under the other Loan Documents and
its interest in the Collateral and shall not impose any duty upon Lender to
exercise any such powers. No omission or delay by Lender at any time to enforce
any right or remedy reserved to it, or to require performance of any of the
terms, covenants or provisions hereof by Borrower at any time designated, shall
be a waiver of any such right or remedy to which Lender is entitled, nor shall
it in any way affect the right of Lender to enforce such provisions thereafter.

 

11.6     Survival. Except as provided below, all agreements, representations and
warranties contained in this Agreement and the other Loan Documents or in any
document delivered pursuant hereto or thereto shall be for the benefit of Lender
and shall survive the execution and delivery of this Agreement and the
expiration or other termination of this Agreement. Notwithstanding anything in
this Section 11.6 to the contrary, all covenants contained in this Agreement
other than those which expressly survive termination of this Agreement by their
terms and Sections 6.3 and 11.12, shall terminate upon the payment in full of
the Secured Obligations.

 

11.7     Successors and Assigns. The provisions of this Agreement and the other
Loan Documents shall inure to the benefit of and be binding on Borrower and its
permitted assigns (if any). Borrower shall not assign its obligations under this
Agreement or any of the other Loan Documents without Lender’s express prior
written consent, and any such attempted assignment shall be void and of no
effect. Lender may assign, transfer, or endorse its rights hereunder and under
the other Loan Documents without prior notice to Borrower, and all of such
rights shall inure to the benefit of Lender’s successors and assigns.
Notwithstanding the foregoing, prior to the occurrence of an Event of Default,
Lender shall not assign its interest in the Loan Documents to a direct
competitor of Borrower.

 

 
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11.8     Governing Law. This Agreement and the other Loan Documents have been
negotiated and delivered to Lender in the State of California, and shall have
been accepted by Lender in the State of California. Payment to Lender by
Borrower of the Secured Obligations is due in the State of California. This
Agreement and the other Loan Documents (other than as expressly set forth in any
other Loan Document) shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.

 

11.9     Consent to Jurisdiction and Venue. All judicial proceedings (to the
extent that the reference requirement of Section 11.10 is not applicable)
arising in or under or related to this Agreement or any of the other Loan
Documents may be brought in any state or federal court located in the State of
California. By execution and delivery of this Agreement, each party hereto
generally and unconditionally: (a) consents to nonexclusive personal
jurisdiction in Santa Clara County, State of California; (b) waives any
objection as to jurisdiction or venue in Santa Clara County, State of
California; (c) agrees not to assert any defense based on lack of jurisdiction
or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement or the other Loan
Documents. Service of process on any party hereto in any action arising out of
or relating to this Agreement shall be effective if given in accordance with the
requirements for notice set forth in Section 11.2, and shall be deemed effective
and received as set forth in Section 11.2. Nothing herein shall affect the right
to serve process in any other manner permitted by law or shall limit the right
of either party to bring proceedings in the courts of any other jurisdiction.

 

11.10     Mutual Waiver of Jury Trial / Judicial Reference.

 

(a)     Because disputes arising in connection with complex financial
transactions are most quickly and economically resolved by an experienced and
expert person and the parties wish applicable state and federal laws to apply
(rather than arbitration rules), the parties desire that their disputes be
resolved by a judge applying such applicable laws. EACH OF BORROWER AND LENDER
SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF
ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM
(COLLECTIVELY, “CLAIMS”) ASSERTED BY BORROWER AGAINST LENDER OR ITS ASSIGNEE OR
BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver extends to all such
Claims, including Claims that involve Persons other than Borrower and Lender;
Claims that arise out of or are in any way connected to the relationship between
Borrower and Lender; and any Claims for damages, breach of contract, tort,
specific performance, or any equitable or legal relief of any kind, arising out
of this Agreement, any other Loan Document.

 

(b)     If the waiver of jury trial set forth in Section 11.10(a) is ineffective
or unenforceable, the parties agree that all Claims shall be resolved by
reference to a private judge sitting without a jury, pursuant to Code of Civil
Procedure Section 638, before a mutually acceptable referee or, if the parties
cannot agree, a referee selected by the Presiding Judge of the Santa Clara
County, California. Such proceeding shall be conducted in Santa Clara County,
California, with California rules of evidence and discovery applicable to such
proceeding.

 

(c)     In the event Claims are to be resolved by judicial reference, either
party may seek from a court identified in Section 11.9, any prejudgment order,
writ or other relief and have such prejudgment order, writ or other relief
enforced to the fullest extent permitted by law notwithstanding that all Claims
are otherwise subject to resolution by judicial reference.

 

11.11     Professional Fees. Borrower promises to pay Lender’s documented fees
and expenses necessary to finalize the loan documentation, including but not
limited to reasonable attorneys’ fees, UCC and other lien searches, filing
costs, and other miscellaneous expenses. In addition, Borrower promises to pay
any and all reasonable attorneys’ and other professionals’ fees and expenses
(including fees and expenses of in-house counsel) incurred by Lender after the
Closing Date in connection with or related to: (a) the Loan; (b) the
administration, collection, or enforcement of the Loan; (c) the amendment or
modification of the Loan Documents; (d) any waiver, consent, release, or
termination under the Loan Documents; (e) the protection, preservation, sale,
lease, liquidation, or disposition of Collateral or the exercise of remedies
with respect to the Collateral; (f) any legal, litigation, administrative,
arbitration, or out of court proceeding in connection with or related to
Borrower or the Collateral, and any appeal or review thereof; and (g) any
bankruptcy, restructuring, reorganization, assignment for the benefit of
creditors, workout, foreclosure, or other action related to Borrower, the
Collateral, the Loan Documents, including representing Lender in any adversary
proceeding or contested matter commenced or continued by or on behalf of
Borrower’s estate, and any appeal or review thereof.

 

 
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11.12     Confidentiality. Lender acknowledges that certain items of Collateral
and information provided to Lender by Borrower are confidential and proprietary
information of Borrower, if and to the extent such information either (x) is
marked as confidential by Borrower at the time of disclosure, or (y) should
reasonably be understood to be confidential (the “Confidential Information”).
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, administering, or perfecting Lender’s security interest
in the Collateral, or otherwise pursuant to Section 7.2 hereof, shall not be
disclosed to any other person or entity in any manner whatsoever, in whole or in
part, without the prior written consent of Borrower, except that Lender may
disclose any such information: (a) to its own directors, officers, employees,
accountants, counsel and other professional advisors and to its affiliates if
Lender in its sole discretion determines that any such party should have access
to such information in connection with such party’s responsibilities in
connection with the Loan or this Agreement and, provided that such recipient of
such Confidential Information either (i) agrees to be bound by the
confidentiality provisions of this paragraph or (ii) is otherwise subject to
confidentiality restrictions that reasonably protect against the disclosure of
Confidential Information; (b) if such information is generally available to the
public; (c) if required or appropriate in any report, statement or testimony
submitted to any governmental authority having or claiming to have jurisdiction
over Lender; (d) if required or appropriate in response to any summons or
subpoena or in connection with any litigation, to the extent permitted or deemed
advisable by Lender’s counsel; (e) to comply with any legal requirement or law
applicable to Lender; (f) to the extent reasonably necessary in connection with
the exercise of any right or remedy under any Loan Document, including Lender’s
sale, lease, or other disposition of Collateral after default; (g) to any
participant or assignee of Lender or any prospective participant or assignee;
provided, that such participant or assignee or prospective participant or
assignee agrees in writing to be bound by this Section prior to such disclosure;
or (h) otherwise with the prior consent of Borrower; provided, that any
disclosure made in violation of this Agreement shall not affect the obligations
of Borrower or any of its affiliates or any guarantor under this Agreement or
the other Loan Documents.

 

11.13     Assignment of Rights. Borrower acknowledges and understands that
(subject to the last sentence of Section 11.7) Lender may sell and assign all or
part of its interest hereunder and under the Loan Documents to any person or
entity (an “Assignee”). After such assignment the term “Lender” as used in the
Loan Documents shall mean and include such Assignee, and such Assignee shall be
vested with all rights, powers and remedies of Lender hereunder with respect to
the interest so assigned; but with respect to any such interest not so
transferred, Lender shall retain all rights, powers and remedies hereby given.
No such assignment by Lender shall relieve Borrower of any of its obligations
hereunder. Lender agrees that in the event of any transfer by it of the
Note(s)(if any), it will endorse thereon a notation as to the portion of the
principal of the Note(s), which shall have been paid at the time of such
transfer and as to the date to which interest shall have been last paid thereon.

 

11.14     Revival of Secured Obligations. This Agreement and the Loan Documents
shall remain in full force and effect and continue to be effective if any
petition is filed by or against Borrower for liquidation or reorganization, if
Borrower becomes insolvent or makes an assignment for the benefit of creditors,
if a receiver or trustee is appointed for all or any significant part of
Borrower’s assets, or if any payment or transfer of Collateral is recovered from
Lender. The Loan Documents and the Secured Obligations and Collateral security
shall continue to be effective, or shall be revived or reinstated, as the case
may be, if at any time payment and performance of the Secured Obligations or any
transfer of Collateral to Lender, or any part thereof is rescinded, avoided or
avoidable, reduced in amount, or must otherwise be restored or returned by, or
is recovered from, Lender or by any obligee of the Secured Obligations, whether
as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though
such payment, performance, or transfer of Collateral had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, avoided,
avoidable, restored, returned, or recovered, the Loan Documents and the Secured
Obligations shall be deemed, without any further action or documentation, to
have been revived and reinstated except to the extent of the full, final, and
indefeasible payment to Lender in Cash.

 

11.15     Counterparts. This Agreement and any amendments, waivers, consents or
supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.

 

 
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11.16     No Third Party Beneficiaries. No provisions of the Loan Documents are
intended, nor will be interpreted, to provide or create any third-party
beneficiary rights or any other rights of any kind in any person other than
Lender and Borrower unless specifically provided otherwise herein, and, except
as otherwise so provided, all provisions of the Loan Documents will be personal
and solely between the Lender and the Borrower.

 

11.17     Publicity. Lender may use Borrower’s name and logo, and include a
brief description of the relationship between Borrower and Lender, in Lender’s
marketing materials. (a)      Borrower consents to the publication and use by
Lender and any of its member businesses and affiliates of (i) Borrower's name
(including a brief description of the relationship between Borrower and Lender)
and logo and a hyperlink to Borrower’s web site, separately or together, in
written and oral presentations, advertising, promotional and marketing
materials, client lists, public relations materials or on its web site
(together, the “Lender Publicity Materials”); (ii) the names of officers of
Borrower in the Lender Publicity Materials; and (iii) Borrower’s name,
trademarks or servicemarks in any news release concerning Lender.

 

(b)     Neither Borrower nor any of its member businesses and affiliates shall,
without Lender’s consent, publicize or use (i) Lender's name (including a brief
description of the relationship between Borrower and Lender), logo or hyperlink
to Lender’s web site, separately or together, in written and oral presentations,
advertising, promotional and marketing materials, client lists, public relations
materials or on its web site (together, the “Borrower Publicity Materials”);
(ii) the names of officers of Lender in the Borrower Publicity Materials; and
(iii) Lender’s name, trademarks, servicemarks in any news release concerning
Borrower; provided that notwithstanding anything in the foregoing to the
contrary, Borrower may use Lender’s name and describe the transactions
contemplated by Loan Documents in the Borrower’s filings with the Securities and
Exchange Commission (the “SEC”) and may file such Loan Documents with the SEC.

 

(SIGNATURES TO FOLLOW)

 

 
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IN WITNESS WHEREOF, Borrower and Lender have duly executed and delivered this
Loan and Security Agreement as of the day and year first above written.

 

BORROWER:

 

CELSION CORPORATION

 

 

Signature:     /s/ Michael H. Tardugno                      

Print Name:   Michael H. Tardugno                           

Title:              President and Chief Executive Officer

 

 

 

Accepted in Palo Alto, California:

LENDER:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

 

By:         /s/ Ben Bang                                                   

Name:    Ben Bang                                                         

Its:         Senior Counsel