Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is made and dated as of May 9, 2014 and is
entered into by and among (a) (i) CELATOR PHARMACEUTICALS, INC., a Delaware
corporation (“Inc.”), (ii) CELATOR PHARMACEUTICALS CORP., a Nova Scotia
unlimited liability company (“Corp.”), and (iii) each of its subsidiaries
(hereinafter collectively referred to as the “Borrower”), (b) the several banks
and other financial institutions or entities from time to time parties to this
Agreement (collectively, referred to as “Lender”) and (c) HERCULES TECHNOLOGY
GROWTH CAPITAL, INC., a Maryland corporation, in its capacity as administrative
agent for itself and the Lender (in such capacity, the “Agent”).

 

RECITALS

 

A.           Borrower has requested Lender to make available to Borrower two (2)
term loans (each a “Term Loan Advance” and collectively, the “Term Loan
Advances”) in an aggregate principal amount of up to Fifteen Million Dollars
($15,000,000) (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, Agent 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:

 

“1933 Act” is defined in Section 8.2(c).

 

“Account Control Agreement(s)” means any agreement entered into by and among the
Agent, 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 Agent 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 Agent
in substantially the form of Exhibit A.

 

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

 

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

 

“Amortization Date” means June 1, 2015; provided, however, that if the Milestone
Event occurs prior to such date, at the request of Borrower, the Amortization
Date shall be December 1, 2015.

 

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

 

“BOA Account” is defined in Section 7.12.

 

“Board” means Borrower’s board of directors.

 

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“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.

 

“Borrower Repayment Election Notice” is defined in Section 8.2(a).

 

“Business Day” means any day other than Saturday, Sunday and any other day on
which banking institutions in the State of California are closed for business.

 

“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 or
any Subsidiary, sale or exchange of outstanding shares (or similar transaction
or series of related transactions) of Borrower or any Subsidiary in which the
holders of Borrower or Subsidiary’s outstanding 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 fifty percent (50%) 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 or
Subsidiary is the surviving entity.

 

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

 

“Closing Date” means the date of this Agreement.

 

“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 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.

 

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

 

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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.

 

“Delivery Date” is defined in Section 8.2(a).

 

“Domestic Subsidiary” means any Subsidiary that is not a Foreign Subsidiary.

 

“Draw Period” means the period commencing upon the December 15, 2014 and
continuing through the earlier to occur of (i) March 31, 2015, and (ii) an Event
of Default.

 

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

 

“Equity Rights Letter Agreement” means the Equity Rights Letter Agreement dated
as of even date hereof by and between Agent and Borrower.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations promulgated thereunder.

 

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

 

“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.

 

“Foreign Subsidiary” means any Subsidiary other than a Subsidiary organized
under the laws of any state within the United States.

 

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

 

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

 

“Indebtedness” means indebtedness of any kind, including (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 sixty (60) 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.

 

“Indemnified Person” has the meaning given to it in Section 6.3.

 

“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 similar relief.

 

“Intellectual Property” means all of Borrower’s Copyrights, Trademarks, Patents,
Licenses, service marks and other marks, tradenames or other trade rights of the
Borrower, trade secrets and inventions, mask works, and all of Borrower’s
applications therefor and reissues, extensions, or renewals thereof, and all of
Borrower’s goodwill associated with any of the foregoing, together with
Borrower’s rights to sue for past, present and future infringement of
Intellectual Property 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.

 

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“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.

 

“Liabilities” has the meaning given to it in Section 6.3.

 

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

 

“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, the Equity Rights Letter Agreement, any
subordination agreement, 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, prospects or condition (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform the Secured
Obligations in accordance with the terms of the Loan Documents, or the ability
of Agent or Lender to enforce any of its rights or remedies with respect to the
Secured Obligations; or (iii) the Collateral or Agent’s Liens on the Collateral
or the priority of such Liens.

 

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

 

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

 

“Milestone Event” means confirmation by Lender that Borrower has delivered
evidence acceptable to Lender in Lender’s sole discretion, after the Closing
Date, but on or prior to June 1 2015, that Borrower has achieved full enrollment
of its CPX-351 Phase 3 trial.

 

“Note(s)” means a promissory note or promissory notes to evidence Lender’s
Loans, as such Note(s) may be requested pursuant to Section 2.6.

 

“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 Accounts” is defined in Section 7.12.

 

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“Permitted Indebtedness” means: (i) Indebtedness of Borrower in favor of Lender
or Agent arising under this Agreement or any other Loan Document; (ii)
Indebtedness existing on the Closing Date which is disclosed in Schedule 1A;
(iii) Indebtedness of up to $100,000 outstanding at any time secured by a Lien
described in clause (vii) of the defined term “Permitted Liens,” provided such
Indebtedness does not exceed the lesser of the cost or fair market value of the
Equipment financed with such Indebtedness; (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) other Indebtedness in an amount not to exceed $100,000 at any time
outstanding, and (ix) extensions, refinancings and renewals of any items of
Permitted Indebtedness, provided that the principal amount is not increased or
the terms modified to impose materially more burdensome terms upon Borrower or
its Subsidiary, as the case may be.

 

“Permitted Investment” means: (i) Investments existing on the Closing Date which
are disclosed in Schedule 1B; (ii) (a) 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, (b)
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, (c) 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, and (d) money market
accounts; (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 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 loans
not involving the net transfer on a substantially contemporaneous basis of cash
proceeds to employees, officers or directors relating to the purchase of capital
stock of Borrower pursuant to employee stock purchase plans or other similar
agreements approved by Borrower’s Board; (viii) Investments consisting of travel
advances in the ordinary course of business; (ix) Investments in newly-formed
Domestic Subsidiaries, provided that each such Domestic Subsidiary enters into a
Joinder Agreement promptly after its formation by Borrower and execute such
other documents as shall be reasonably requested by Agent; (x) Investments in
Foreign Subsidiaries approved in advance in writing by Agent; (xi) 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 $100,000 in the aggregate in any fiscal
year; and (xii) additional Investments that do not exceed $250,000 in the
aggregate.

 

“Permitted Liens” means any and all of the following: (i) Liens in favor of
Agent or 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; (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 on Equipment or software or
other intellectual property constituting purchase money Liens and Liens in
connection with capital leases securing Indebtedness permitted in clause (iii)
of “Permitted 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 proceeds 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; and (xv) Liens incurred in connection with
the extension, renewal or refinancing of the Indebtedness secured by Liens of
the type described in clauses (i) through (xi) 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) sales of Inventory in the ordinary course of
business, (ii) licenses and similar arrangements for the use of Intellectual
Property 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 discrete geographical areas outside of
the United States, in each case in the ordinary course of business, or (iii)
dispositions of worn-out, obsolete or surplus Equipment at fair market value in
the ordinary course of business, and (iv) 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.

 

“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.

 

“Principal Installment Due Date” is defined in Section 8.2(a).

 

“Principal Installment Payment” is defined in Section 8.2(a).

 

“RBC Accounts” is defined in Section 7.12.

 

“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.

 

“Required Lenders” means at any time, the holders of more than 50% of the sum of
the aggregate unpaid principal amount of the Term Loan Advances then
outstanding.

 

“SEC” is defined in Section 8.2(c).

 

“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.

 

“Rule 144” is defined in Section 8.2(c).

 

“Stock Payment Conditions” is defined in Section 8.2(b).

 

“Stock Payment Option” is defined in Section 8.2(a).

 

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

 

6

 

 

“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 Commitment” means as to any Lender, the obligation of such Lender, if any,
to make a Term Loan Advance to the Borrower in a principal amount not to exceed
the amount set forth under the heading “Term Commitment” opposite such Lender’s
name on Schedule 1.1.

 

“Term Loan Advance” and “Term Loan Advances” are each defined in Recital A
hereof.

 

“Term Loan Interest Rate” means for any day, a floating per annum rate of
interest equal to the greater of either (i) nine and three quarters of one
percent (9.75%), or (ii) the sum of (A) nine and three quarters of one percent
(9.75%), 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 each day
that the Prime Rate changes.

 

“Term Loan Maturity Date” means December 1, 2017, and extended, if applicable,
upon the occurrence of the Milestone Event, at the request of Borrower, to June
1, 2018.

 

“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.

 

“Tranche A Amount” has the meaning given to it in Section 2.1(a).

 

“Tranche B Amount” means (a) Fifteen Million Dollars ($15,000,000), minus (b)
the original principal amount of the Tranche A Amount.

 

“ULC” means an issuer that is an unlimited company, unlimited liability
corporation or unlimited liability company.

 

“ULC Laws” means the Companies Act (Nova Scotia) and any other present or future
Nova Scotia laws governing ULCs.

 

“ULC Shares” means shares or other equity interests in the capital stock of a
ULC

 

“UCC” means (a) with respect to any assets located in the United States, 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, Agent’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, and (b) with respect to any assets located in
Canada, the Personal Property Security Act (British Columbia) as amended and as
may be further amended and in effect from time to time; provided further, that
in the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection, or priority of, or remedies with respect to, Lender’s
Lien on any Collateral is governed by the Personal Property Security Act or
equivalent legislation in effect in a provincial jurisdiction other than Nova
Scotia, the term “Code” shall mean the Personal Property Security Act or
equivalent legislation as enacted and in effect in such other province solely
for purposes of the provisions thereof relating to such attachment, perfection,
priority, or remedies and for purposes of definitions relating to such
provisions.

 

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“Warrant” means any warrant entered into in connection with the Loan, as may be
amended, restated or modified from time to time.

 

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)          Term Loan Advances. Subject to the terms and conditions of this
Agreement, Lender will severally (and not jointly) make, in an amount not to
exceed its respective Term Commitment, and Borrower agrees to draw, an initial
Term Loan Advance on the Closing Date in an amount of at least Ten Million
Dollars ($10,000,000), but not exceeding Fifteen Million Dollars ($15,000,000)
(the amount of principal advanced on the Closing Date is hereinafter referred to
as the “Tranche A Amount”). During the Draw Period, Borrower may request one (1)
additional Term Loan Advance in an amount of up to the Tranche B Amount. 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 first priority perfected security interest in favor of Agent
perfected by an Account Control Agreement.

 

(b)           Advance Request. To obtain a Term Loan Advance, Borrower shall
complete, sign and deliver an Advance Request (at least two (2) Business Days
before the Advance Date) to Agent. 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 the Advance Date applicable to the Term Loan Advance
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 each day that the Prime Rate changes
from time to time.

 

(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 day
immediately preceding the Amortization Date in equal monthly installments of
principal and interest (mortgage style) beginning on the Amortization Date and
continuing on the first (1st) Business Day of each month thereafter until the
Secured Obligations are repaid. After any change in the Term Loan Interest Rate
hereunder, Agent shall recalculate future payments of principal and interest to
fully amortize the outstanding principal amount over the remaining scheduled
monthly payments hereunder prior to the Term Loan Maturity Date. The entire
principal balance of the Term Loan Advances and all accrued but unpaid interest
hereunder, and all other Secured Obligations with respect to the Term Loan
Advances, shall be due and payable on Term Loan Maturity Date. For the avoidance
of doubt, in the event of any conversion of a portion of any Term Loan Advance
pursuant to Section 8.1 below, the remaining monthly payments described in this
Section 2.1(d) shall be recalculated by Agent following such conversion date to
reflect (i) the lower outstanding principal of the Term Loan Advance so
converted, (ii) the lower interest payments resulting from such reduced
principal, and (iii) the remaining months until 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 amount 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.

 

8

 

 

2.3           Default Interest. In the event any payment is not paid on the
scheduled payment date, an amount equal to five percent (5%) 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, 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 five percent (5%) 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) or
Section 2.3, as applicable.

 

2.4           Prepayment. At its option upon at least seven (7) Business Days
prior notice to Agent, 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
Agent’s and 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 (3.00%); after twelve (12)
months but prior to twenty four (24) months following the Closing Date, two
percent (2.00%); and thereafter, one percent (1.00%) (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 Agent’s and Lender’s fees and expenses accrued to the date
of the repayment (including the End of Term Charge) together with the applicable
Prepayment Charge.

 

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, or (iii) the date that the Secured Obligations become due and
payable, Borrower shall pay Lender a charge equal to Five Hundred Ninety-Two
Thousand Five Hundred Dollars ($592,500) (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.

 

2.7           Pro Rata Treatment. Each payment (including prepayment) on account
of any fee and any reduction of the Term Loan Advances shall be made pro rata
according to the Term Commitments of the relevant Lender.

 

2.8           Withholding. Payments received by Lender from Borrower under this
Agreement will be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, duties, deductions, withholdings,
assessments, fees or other charges imposed by any governmental authority
(including any interest, additions to tax or penalties applicable thereto).
Specifically, however, if at any time any governmental authority, applicable
law, regulation or international agreement requires Borrower to make any
withholding or deduction from any such payment or other sum payable hereunder to
Lender, Borrower hereby covenants and agrees that the amount due from Borrower
with respect to such payment or other sum payable hereunder will be increased to
the extent necessary to ensure that, after the making of such required
withholding or deduction, Lender receives a net sum equal to the sum which it
would have received had no withholding or deduction been required, and Borrower
shall pay the full amount withheld or deducted to the relevant governmental
authority. Borrower will, upon request, furnish Lender with proof reasonably
satisfactory to Lender indicating that Borrower has made such withholding
payment; provided, however, that Borrower need not make any withholding payment
if the amount or validity of such withholding payment is contested in good faith
by appropriate and timely proceedings and as to which payment in full is bonded
or reserved against by Borrower. The agreements and obligations of Borrower
contained in this Section 2.8 shall survive the termination of this Agreement.

 

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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 Agent 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 (other than Intellectual
Property); (e) Inventory; (f) Investment Property (but excluding thirty-five
percent (35%) of the capital stock of any Foreign Subsidiary that constitutes a
Permitted Investment); (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 Agent; 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; 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”). 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 date of this Agreement, include the Intellectual Property to the extent
necessary to permit perfection of Agent’s security interest in the Rights to
Payment.

 

3.2           Borrower acknowledges that certain of the Collateral may now or in
the future consist of ULC Shares, and that it is the intention of Lender and
Borrower that the Creditor should not under any circumstances prior to
realization thereon be held to be a “member” or a “shareholder”, as applicable,
of a ULC for the purposes of any ULC Laws. Therefore, notwithstanding any
provisions to the contrary contained in this Agreement or the Loan Documents,
where Inc. is the registered owner of ULC Shares which are Collateral, Inc.
shall remain the sole registered owner of such ULC Shares until such time as
such ULC Shares are effectively transferred into the name of the Lender or any
other Person on the books and records of the applicable ULC. Accordingly, Inc.
shall be entitled to receive and retain for its own account any dividend on or
other distribution, if any, with respect to such ULC Shares and shall have the
right to vote such ULC Shares and to control the direction, management and
policies of the applicable ULC to the same extent as Inc. would if such ULC
Shares were not encumbered to the Lender pursuant hereto. Nothing in this
Agreement, or the Loan Documents is intended to, and nothing in this Agreement,
or the Loan Documents shall, constitute the Lender or any Person other than
Inc., a member or shareholder of a ULC for the purposes of any ULC Laws (whether
listed or unlisted, registered or beneficial), until such time as notice is
given to Inc. and further steps are taken pursuant hereto or thereto so as to
register Lender or such other Person, as specified in such notice, as the holder
of the ULC Shares. To the extent any provision hereof would have the effect of
constituting Lender as a member or a shareholder, as applicable, of any ULC
prior to such time, such provision shall be severed herefrom and shall be
ineffective with respect to ULC Shares which are Collateral without otherwise
invalidating or rendering unenforceable this Agreement or invalidating or
rendering unenforceable such provision insofar as it relates to Collateral which
is not ULC Shares. Except upon the exercise of rights of Lender to sell,
transfer or otherwise dispose of ULC Shares in accordance with this Agreement,
Inc. shall not cause or permit, Lender to: (a) be registered as a shareholder or
member of the applicable ULC; (b) have any notation entered in their favour in
the share register of such ULC; (c) be held out as shareholders or members of
such ULC; (d) receive, directly or indirectly, any dividends, property or other
distributions from such ULC by reason of Lender holding a security interest over
the ULC Shares; or (e) act as a shareholder of such ULC, or exercise any rights
of a shareholder including the right to attend a meeting of shareholders of such
ULC or to vote its ULC Shares.

 

SECTION 4.          CONDITIONS PRECEDENT TO LOAN

 

The obligation of Lender to make the Term Loan Advances hereunder are subject to
the satisfaction by Borrower of the following conditions:

 

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

 

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

 

(b)          certified copy of resolutions of Borrower’s Board 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;

 

10

 

 

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

 

(f)          such other documents as Agent may reasonably request.

 

4.2           All Advances. On each Advance Date:

 

(a)          Agent shall have received (i) an Advance Request for the relevant
Advance as required by Section 2.1(b), each duly executed by Borrower’s Chief
Executive Officer or Chief Financial Officer, and (ii) any other documents Agent
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 would (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.

 

SECTION 5.          REPRESENTATIONS AND WARRANTIES OF BORROWER

 

Borrower represents and warrants that:

 

5.1           Corporate Status. Inc. is a corporation duly organized, legally
existing and in good standing under the laws of the State of Delaware and Corp.
is a corporation duly organized, legally existing and in good standing under the
laws of the Province of Nova Scotia. Borrower is duly qualified as a foreign
corporation in all jurisdictions in which the nature of its business or location
of its properties require such qualifications and where the failure to be
qualified could 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 Exhibit C, as may be updated by Borrower
in a written notice (including any Compliance Certificate) provided to Agent
after the Closing Date.

 

5.2           Collateral. 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 Agent 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, and Borrower’s
execution of the Warrant, (i) have been duly authorized by all necessary
corporate action 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 which has not already been obtained. The individual
or individuals executing the Loan Documents and the Warrant are duly authorized
to do so.

 

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, 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 against or affecting Borrower or its property.

 

11

 

 

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 manner
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.

 

5.7           Information Correct and Current. No information, report, Advance
Request, financial statement, exhibit or schedule furnished, by or on behalf of
Borrower to Agent in connection with any Loan Document or included therein or
delivered pursuant thereto 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. Additionally, any and all financial or
business projections provided by Borrower to Agent, whether prior to or after
the Closing Date, shall be (i) provided in good faith and based on the most
current data and information available to Borrower, and (ii) the most current of
such projections provided to Borrower’s Board.

 

5.8           Tax Matters. Except as described on Schedule 5.8, (a) Borrower has
filed all federal, state and local tax returns that it is required to file, or
has timely filed any necessary extension to file such tax returns, (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 5.9, (i) each of the material Copyrights, Trademarks and Patents is
valid and enforceable, (ii) no material part of the Intellectual Property has
been judged invalid or unenforceable, in whole or in part, and (iii) no claim
has been made to Borrower that any material part of the Intellectual Property
violates the rights of any third party. Exhibit D 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), 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,
Borrower has, or in the case of any proposed business, will have, all material
rights with respect to 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 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 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.

 

5.11         Borrower Products. Except as described on Schedule 5.11, no
Intellectual Property owned by Borrower or Borrower Product has been or is
subject to any actual or, to the knowledge of Borrower, threatened litigation,
proceeding (including any proceeding in the United States Patent and Trademark
Office or any corresponding foreign office or agency) or outstanding decree,
order, judgment, settlement agreement or stipulation that restricts in any
manner Borrower’s use, transfer or licensing thereof or that may 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 Intellectual Property (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 nor, to Borrower’s knowledge, is there a
reasonable basis for any such claim. 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.

 

12

 

 

5.12         Financial Accounts. Exhibit E, as may be updated by the Borrower in
a written notice provided to Agent 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. 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’s capitalization as of
the Closing Date is set forth on Schedule 5.14 annexed hereto. 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.

 

 

5.15         Use of Proceeds. Borrower shall use the proceeds of the Term Loan
Advances as working capital and to fund its general business requirements and
not for personal, family, household or agricultural purposes.

 

SECTION 6.          INSURANCE; INDEMNIFICATION

 

6.1           Coverage. Borrower shall cause to be carried and maintained
commercial general liability insurance, on an occurrence form, against risks
customarily insured against in Borrower’s line of business. 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. Borrower must maintain a minimum
of $2,000,000 of commercial general liability insurance for each occurrence.
Borrower has and agrees to maintain a minimum of $2,000,000 of directors’ and
officers’ insurance for each occurrence and $5,000,000 in the aggregate. 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 Agent 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 Agent is an additional insured for commercial
general liability, a loss payee for all risk property damage insurance, subject
to the insurer’s approval, 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. All
certificates of insurance will provide for a minimum of thirty (30) days advance
written notice to Agent of cancellation or any other change adverse to Agent’s
interests. Any failure of Agent to scrutinize such insurance certificates for
compliance is not a waiver of any of Agent’s rights, all of which are reserved.

 

6.3           Indemnity. Borrower agrees to indemnify and hold Agent, Lender and
their officers, directors, employees, agents, in-house attorneys,
representatives and shareholders (each, an “Indemnified Person”) 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) (collectively, “Liabilities”), that
may be instituted or asserted against or incurred by such Indemnified 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 Liabilities to the extent resulting solely from any Indemnified
Person’s gross negligence or willful misconduct. Borrower agrees to pay, and to
save Agent and 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 Agent or
Lender) that may be payable or determined to be payable with respect to any of
the Collateral or this Agreement. In no event shall any Indemnified Person be
liable on any theory of liability for any special, indirect, consequential or
punitive damages (including any loss of profits, business or anticipated
savings).

 

SECTION 7.          COVENANTS OF BORROWER

 

Borrower agrees as follows:

 

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

 

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(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 or Chief Financial 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
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 fiscal 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 or Chief Financial 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; as well as the most recent
capitalization table for Borrower, including the weighted average exercise price
of employee stock options;

 

(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, certified by a firm of
independent certified public accountants selected by Borrower and reasonably
acceptable to Agent, 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;

 

(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 any 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; and

 

(f)          financial and business projections promptly following their
approval by Borrower’s Board, and in any event, within 30 days prior to the end
of Borrower’s fiscal year, as well as budgets, operating plans and other
financial information reasonably requested by Agent.

 

Borrower shall not make any change in its (a) accounting policies or reporting
practices, 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 Agent at (650)
473-9194 or via e-mail to BJadot@herculestech.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
BBang@herculestech.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 Agent at: (866) 468-8916, attention Chief Credit Officer.

 

7.2           Management Rights. Upon five (5) Business Days’ notice (provided
no notice is required if an Event of Default has occurred and is continuing)
Borrower shall permit any representative that Agent or 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, Agent or 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 Agent and 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 Agent or Lender with respect to any
business issues shall not be deemed to give Agent or Lender, nor be deemed an
exercise by Agent or Lender of, control over Borrower’s management or policies.

 

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7.3           Further Assurances. Borrower shall from time to time execute,
deliver and file, alone or with Agent, any financing statements, security
agreements, collateral assignments, notices, control agreements, or other
documents to perfect or give the highest priority to Agent’s Lien on the
Collateral. Borrower shall from time to time procure any instruments or
documents as may be requested by Agent, and take all further action that may be
necessary or desirable, or that Agent may reasonably request, to perfect and
protect the Liens granted hereby and thereby. In addition, and for such purposes
only, Borrower hereby authorizes Agent 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 Agent’s name or in the name of Agent as agent
and attorney-in-fact for Borrower. Borrower shall protect and defend Borrower’s
title to the Collateral and Agent’s Lien thereon against all Persons claiming
any interest adverse to Borrower or Agent 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.

 

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 legal process known to Borrower or Liens whatsoever (except for
Permitted Liens), and shall give Agent prompt written notice of any legal
process affecting the Collateral, the Intellectual Property, such other property
and assets, or any Liens thereon, provided however, that the Collateral and such
other property and assets may be subject to Permitted Liens except that there
shall be no Liens whatsoever on Intellectual Property. 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 legal process or Liens whatsoever
(except for Permitted Liens, provided however, that there shall be no Liens
whatsoever on Intellectual Property), and shall give Agent prompt written notice
of any legal process known to Borrower affecting such Subsidiary’s assets.
Borrower shall not agree with any Person other than Agent or 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 pursuant to employee, director or consultant repurchase
plans or other similar agreements, provided, however, in each case the
repurchase or redemption price does not exceed the original consideration paid
for such stock or equity interest, or (b) declare or pay any cash dividend or
make a cash distribution on any class of stock or other equity interest, except
that a Subsidiary may pay dividends or make distributions to Borrower, or (c)
lend money to any employees, officers or directors or guarantee the payment of
any such loans granted by a third party in excess of $100,000 in the aggregate
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
voluntarily or involuntarily transfer, sell, lease, license, lend or in any
other manner convey any equitable, beneficial or legal interest in any material
portion of its assets.

 

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

 

7.10         Taxes. Borrower and its Subsidiaries shall pay when due all taxes,
fees or other charges of any nature whatsoever (together with any related
interest or penalties) now or hereafter imposed or assessed against Borrower,
Agent, 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.

 

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7.11         Corporate Changes. Neither Borrower nor any Subsidiary shall change
its corporate name, legal form or jurisdiction of formation without twenty (20)
days’ prior written notice to Agent. Neither Borrower nor any Subsidiary shall
suffer a Change in Control. 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 Agent; and (ii) such relocation shall be within
the continental United States. Neither Borrower nor any Subsidiary shall
relocate any item of 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 Exhibit C to another location described on Exhibit
C) unless (i) it has provided prompt written notice to Agent, (ii) such
relocation is within the continental United States and, (iii) if such relocation
is to a third party bailee, it has delivered a bailee agreement in form and
substance reasonably acceptable to Agent.

 

7.12         Deposit Accounts. Neither Borrower nor any Subsidiary shall
maintain any Deposit Accounts (other than the Permitted Accounts (as defined
herein)), or accounts holding Investment Property, except with respect to which
Agent has an Account Control Agreement. Notwithstanding the foregoing, Borrower
may maintain (i) a petty cash account with Bank of America, provided that the
aggregate balance of such account does not exceed Ten Thousand Dollars
($10,000.00) at any time (the “BOA Account”), and (ii) deposit accounts with
Royal Bank of Canada, provided that the aggregate balance of such accounts do
not exceed One Hundred Thousand Dollars ($100,000.00) (the “RBC Accounts”) (the
BOA Account and the RBC Account, collectively the “Permitted Accounts”).

 

7.13         Subsidiaries. Borrower shall notify Agent of each Subsidiary formed
subsequent to the Closing Date and, within 15 days of formation, shall cause any
such Subsidiary to execute and deliver to Agent a Joinder Agreement.

 

7.14         Notification of Event of Default. Borrower shall notify Agent
immediately of the occurrence of any Event of Default, such notice to be sent
via facsimile to Agent.

 

SECTION 8.          RIGHT TO invest; PAYMENT IN CASH OR COMMON STOCK

 

8.1           Right to Invest. Lender or its assignee or nominee shall have the
right, in its discretion, to participate in a Subsequent Financing (as defined
in the Equity Rights Letter Agreement) pursuant to the terms set forth in the
Equity Rights Letter Agreement.

 

8.2           Payment in Cash or Common Stock.

 

(a)          Subject to satisfaction of the Stock Payment Conditions set forth
in paragraph (b) of this Section 8.2 and compliance with the other terms and
conditions of this Section 8.2, Borrower may elect to pay, in whole or in part,
up to $3,000,000 in the aggregate of any regularly scheduled installment of
principal (a “Principal Installment Payment”) by converting the Notes into
shares of Common Stock in lieu of payment in cash (such option, the “Stock
Payment Option”). In order to validly exercise a Stock Payment Option, Borrower
(A) must deliver written notice thereof, in the form attached hereto as Exhibit
I, to Lender (a “Borrower Repayment Election Notice”) five (5) days prior to the
applicable due date of the Principal Installment Payment (the “Principal
Installment Due Date”) and (B) shall either (i) (provided that Borrower’s
transfer agent is participating in the Fast Automated Securities Transfer
Program of the Depository Trust Company) credit to Lender by no later than the
second trading day following the applicable Principal Installment Due Date (such
date, the “Delivery Date”) such aggregate number of shares of Common Stock to be
issued to Lender with respect to such Borrower Repayment Election Notice, as
determined in accordance with this Section 8.2, or (ii) deliver to Lender stock
certificates evidencing the number of shares of Common Stock with respect to
such Borrower Repayment Election Notice, as determined in accordance with this
Section 8.2, by no later than the second trading day following the applicable
Delivery Date. All payments in respect of a Principal Installment Payment shall
be made in cash, unless (i) Borrower timely delivers a Borrower Repayment
Election Notice in accordance with the immediately preceding sentence; (ii)
Borrower timely delivers the requisite stock certificates or credits the shares
of Common Stock to Lender in accordance with this Section 8.2; and (iii) the
Stock Payment Conditions set forth in Section 8.2(b) are satisfied in respect of
such payment. A Borrower Repayment Election Notice, once delivered by Borrower,
shall be irrevocable unless otherwise agreed, in writing, by Agent, on behalf of
the Lender. If Borrower elects to convert the Notes (if applicable) to repay a
Principal Installment Payment, in whole or in part, in shares of Common Stock,
the number of such shares of Common Stock to be issued in respect of such
Principal Installment Payment shall be equal to the number determined by
dividing (x) the principal amount to be paid in shares of Common Stock by (y)
the Fixed Conversion Price. For purposes hereof, the “Fixed Conversion Price”
shall be the price that is 15% higher than the Exercise Price (as defined in the
Warrant); provided, however, that upon the occurrence of any stock split, stock
dividend, combination of shares or reverse stock split pertaining to the Common
Stock, the Fixed Conversion Price shall be proportionately increased or
decreased as necessary to reflect the proportionate change in the shares of
Common Stock issued and outstanding as a result of such stock split, stock
dividend, combination of shares or reverse stock split. Any shares of Common
Stock issued pursuant to a Borrower Repayment Election Notice shall be deemed to
be issued upon conversion of the Notes.

 

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(b)          Notwithstanding Section 8.2(a), Borrower’s right to deliver, and
Lender’s obligation to accept, shares of Common Stock in lieu of payment in cash
of a Principal Installment Payment is conditioned on the satisfaction of each of
the following conditions (the “Stock Payment Conditions”) as of such Delivery
Date: (A) the closing price of the shares of Common Stock as reported by NASDAQ
on the NASDAQ market for each of the seven (7) consecutive trading days
immediately preceding the Delivery Date shall be greater than or equal to 115%
of the Fixed Conversion Price; (B) the Common Stock issued in connection with
any such payment does not exceed 15% of the total trading volume of the Common
Stock for the twenty-two (22) consecutive trading days immediately prior to and
including such Delivery Date; (C) only one Repayment Election Notice may be
given in any calendar month; (D) the aggregate principal amount to be paid in
shares of Common Stock pursuant to Section 8.2 of this Agreement shall not
exceed Three Million Dollars ($3,000,000); (E) the Common Stock is (and was on
each of the twenty-two (22) consecutive trading days immediately preceding such
Delivery Date) quoted or listed on the NASDAQ market; (F) a registration
statement is effective and available for the resale of all of the shares of
Common Stock to be delivered on such Delivery Date, or such shares of Common
Stock are eligible for resale to the public pursuant to Rule 144 without any
limitation; (G) after giving effect to the issuance of such shares of Common
Stock to Lender, any individual Lender would not (A) beneficially own, together
with its affiliates, Common Stock in excess of the limitations specified in
subsection 8.2(c) below and (B) have been issued shares of Common Stock pursuant
to all Repayment Election Notices in an aggregate amount in excess of the Cap;
(H) as of such Delivery Date, there is no outstanding Event of Default and there
is no breach or default that, if left uncured, would result in an Event of
Default; and (I) Inc. shall have sufficient authorized but unissued shares of
Common Stock to provide for the issuance of the shares of Common Stock pursuant
to the Borrower Repayment Election Notice. If any of the Stock Payment
Conditions are not satisfied as of a Delivery Date, Borrower shall not be
permitted to pay, and the Lender shall not be obligated to accept, the Principal
Installment Payment in shares of Common Stock, and Borrower shall instead pay
such principal amount in cash; provided, however, that the Stock Payment
Conditions set forth in clauses (A), (B), (C), (E), (F) and (H) above may be
waived by a writing executed by both Borrower and Lender. In the event the
Borrower is relying upon an effective registration statement to satisfy clause
(F) of the Stock Payment Conditions, each of Inc. and Lender shall provide
customary indemnification to one another with respect to such registration
statement in a form acceptable to the Borrower and Lender. By no later than the
first trading day following the Delivery Date, Borrower shall either (i)
(provided that Borrower's transfer agent is participating in the Fast Automated
Securities Transfer Program of the Depository Trust Company) credit to Lender
the shares of Common Stock to be delivered by Borrower with respect to the
portion of the Principal Installment Payment being paid in shares of Common
Stock or (ii) deliver to Agent, on behalf of each Lender, certificates, free of
restrictive legends, evidencing the shares of Common Stock to be delivered by
Borrower with respect to the portion of the Principal Installment Payment being
paid in shares of Common Stock, which shares of Common Stock, in the case of
clauses (i) and (ii), shall be allocated among each Lender in the manner
specified to Borrower by the Agent.

 

(c)          Notwithstanding any provision herein to the contrary, no individual
Lender, together with its affiliates, shall be permitted to beneficially own a
number of shares of Common Stock (other than shares that may be deemed
beneficially owned except for being subject to a limitation analogous to the
limitation contained in this Section 8.2(c)) in excess of 9.99% of the number of
shares of Common Stock then issued and outstanding, it being the intent of
Borrower and each Lender that each Lender, together with its respective
affiliates, not be deemed at any time to have the power to vote or dispose of
greater than 9.99% of the number of shares of Common Stock issued and
outstanding at any time; provided, however, that each Lender shall have the
right, upon 61 days’ prior written notice to Borrower, to waive the 9.99%
limitation of this subsection 8.2(c); provided, further, that upon such Lender’s
waiver of such 9.99% limitation, such Lender shall comply with the provisions
under Rule 144 (“Rule 144”) of the Securities Act of 1933, as amended (the “1933
Act”). Notwithstanding anything contained herein to the contrary, Borrower shall
not be permitted to issue to any Lender, and no Lender shall not be required to
accept, shares of Common Stock pursuant to a Borrower Repayment Election Notice
if and to the extent such issuance, when taking together with all other
issuances pursuant to prior Borrower Repayment Election Notices, would result in
(A) the issuance of more than 19.99% of the Common Stock outstanding as of the
date of this Agreement or (B) such Lender, together with its affiliates,
beneficially owning in excess of 19.99% of the outstanding Common Stock (each of
clauses (A) and (B) are referred to herein as the “Cap”). As used herein,
beneficial ownership shall be determined in accordance with Section 13(d) of the
1934 Act. Upon the reasonable written request of any Lender, Borrower shall
within three (3) Business Days confirm in writing to Lender the number of shares
of Common Stock then issued and outstanding as of any given date. For purposes
of Borrower’s compliance with this Section 8(c), in determining the percentage
of Borrower’s issued and outstanding Common Stock owned beneficially and/or of
record by Lender and its affiliates as at any date, Borrower shall be entitled
to rely on the most recent written notice of such ownership (if any) provided by
Lender to Borrower or the information as to such ownership contained in the
reports and schedules then filed with the Securities and Exchange Commission
(the “SEC”) by Lender; provided, that the foregoing shall not operate to impair
Lender’s ability to refuse or reject any shares of Common Stock issued to Lender
by Borrower pursuant to this Section 8.2 if Lender’s acceptance of such shares
would violate any of the thresholds set forth in this Section 8.2(c).

 

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(d)          With a view to making available to Lender the benefits of Rule 144
(or its successor rule) and any other rule or regulation of the SEC that may at
any time permit Lender to sell shares of Common Stock issued pursuant to Section
8.2 of this Agreement to the public without registration, Borrower covenants and
agrees that, upon Lender’s written request to Borrower, Borrower shall furnish
to Lender, within ten (10) Business Days after receipt of such request, a
written statement confirming the compliance of Inc. with the filing requirements
of the SEC as set forth in paragraph (c)(1) of Rule 144, as such Rule may be
amended from time to time.

 

(e)          If Borrower elects to deliver a Borrower Repayment Election Notice,
Inc. covenants and agrees to reserve from its duly authorized capital stock, as
of that date and any Delivery Date, not less than the number of shares of Common
Stock that may be issuable upon payment of any Principal Installment Payment
pursuant to Section 8.2 of this Agreement. Borrower further represents, warrants
and covenants that, upon issuance of any shares of Common Stock pursuant to
Section 8.2 of this Agreement, such shares of Common Stock shall be validly
issued, fully paid and non-assessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issue thereof.

 

(f)          For so long as Lender holds any shares of Common Stock issued
pursuant to Section 8.2 of this Agreement, Inc. shall make reasonable efforts to
maintain the Common Stock’s authorization for listing on NASDAQ and Inc. shall
not take any action which would reasonably be expected to result in the
delisting or suspension of the Common Stock on NASDAQ.

 

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, the Notes, or any of the other Loan Documents on the due date; 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 or any other agreement among Borrower, Agent and Lender, 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, 7.9, and 7.14,), any other Loan Document or
any other agreement among Borrower, Agent and Lender, such default continues for
more than ten (10) days after the earlier of the date on which (i) Agent or
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, 7.9, and 7.14, 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

 

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

 

9.5           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, 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) thirty (30) 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)
thirty (30) 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

 

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9.6           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 $100,000, or Borrower is enjoined or in any way prevented
by court order from conducting any part of its business; or

 

9.7           Other Obligations. The occurrence of any default under any
agreement or obligation of Borrower involving any Indebtedness in excess of
$50,000, 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) Agent 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 9.5, all of
the Secured Obligations shall automatically be accelerated and made due and
payable, in each case without any further notice or act), (ii) Agent may, at its
option, sign and file in Borrower’s name any and all collateral assignments,
notices, control agreements, security agreements and other documents it deems
necessary or appropriate to perfect or protect the repayment of the Secured
Obligations, and in furtherance thereof, Borrower hereby grants Agent an
irrevocable power of attorney coupled with an interest, and (iii) Agent may
notify any of Borrower’s account debtors to make payment directly to Agent,
compromise the amount of any such account on Borrower’s behalf and endorse
Agent’s name without recourse on any such payment for deposit directly to
Agent’s account. Agent 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 Agent’s rights and remedies shall be cumulative and not
exclusive.

 

10.2         Collection; Foreclosure. Upon the occurrence and during the
continuance of any Event of Default, Agent 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 Agent 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. Agent
may require Borrower to assemble the Collateral and make it available to Agent
at a place designated by Agent that is reasonably convenient to Agent and
Borrower. The proceeds of any sale, disposition or other realization upon all or
any part of the Collateral shall be applied by Agent in the following order of
priorities:

 

First, to Agent and Lender in an amount sufficient to pay in full Agent’s and
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 Agent 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.

 

Agent 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.

 

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10.3         No Waiver. Agent 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 Agent to marshal any Collateral.

 

10.4         Cumulative Remedies. The rights, powers and remedies of Agent
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 Agent.

 

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:

 

  (a) If to Agent: HERCULES TECHNOLOGY GROWTH CAPITAL, INC.       Legal
Department       Attention:  General Counsel and Mr. Bryan Jadot       400
Hamilton Avenue, Suite 310       Palo Alto, California  94301      
Facsimile:  650-473-9194       Telephone:  650-289-3060   (b) If to Lender:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.       Legal Department      
Attention:  General Counsel and Mr. Bryan Jadot       400 Hamilton Avenue, Suite
310       Palo Alto, CA  94301       Facsimile:  650-473-9194      
Telephone:  650-289-3060   (c) If to Borrower: Celator Pharmaceuticals, Inc    
  Celator Pharmaceuticals Corp.       Attention:  Chief Financial Officer      
200 Princeton South Corporate Center, Suite 180       Ewing, New Jersey 08628  
    Facsimile:  609-243-0202       Telephone:  609-243-0123

 

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

 

11.3         Entire Agreement; Amendments.

 

(a)          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 Agent’s revised
proposal letter dated March 24, 2014).

 

20

 

 

(b)          Neither this Agreement, any other Loan Document, nor any terms
hereof or thereof may be amended, supplemented or modified except in accordance
with the provisions of this Section 11.3(b). The Required Lenders and Borrower
party to the relevant Loan Document may, or, with the written consent of the
Required Lenders, the Agent and the Borrower party to the relevant Loan Document
may, from time to time, (i) enter into written amendments, supplements or
modifications hereto and to the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(ii) waive, on such terms and conditions as the Required Lenders or the Agent,
as the case may be, may specify in such instrument, any of the requirements of
this Agreement or the other Loan Documents or any default or Event of Default
and its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall (A) forgive the principal amount or
extend the final scheduled date of maturity of any Loan, extend the scheduled
date of any amortization payment in respect of any Term Loan Advance, or reduce
the stated rate of any interest or fee payable hereunder) or extend the
scheduled date of any payment thereof, in each case without the written consent
of each Lender directly affected thereby; (B) eliminate or reduce the voting
rights of any Lender under this Section 11.3(b) without the written consent of
such Lender; (C) reduce any percentage specified in the definition of Required
Lenders, consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement and the other Loan Documents,
release all or substantially all of the Collateral or release a Borrower from
its obligations under the Loan Documents, in each case without the written
consent of all Lenders; or (D) amend, modify or waive any provision of Section
11.17 without the written consent of the Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each Lender and
shall be binding upon Borrower, the Lender, the Agent and all future holders of
the Loans.

 

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 Agent and 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
Agent or Lender to exercise any such powers. No omission or delay by Agent or
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
Agent or Lender is entitled, nor shall it in any way affect the right of Agent
or Lender to enforce such provisions thereafter.

 

11.6         Survival. 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 Agent and Lender and
shall survive the execution and delivery of this Agreement and the expiration or
other termination of this Agreement. For the avoidance of doubt, the termination
of this Agreement and/or any payment or prepayment of the Secured Obligations
shall not affect the term of the Warrant unless otherwise agreed in writing by
Agent.

 

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 Agent’s express
prior written consent, and any such attempted assignment shall be void and of no
effect. Agent and 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 Agent’s and Lender’s successors and
assigns.

 

11.8         Governing Law. This Agreement and the other Loan Documents have
been negotiated and delivered to Agent and Lender in the State of California,
and shall have been accepted by Agent and Lender in the State of California.
Payment to Agent and Lender by Borrower of the Secured Obligations is due in the
State of California. This Agreement and the other Loan Documents 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.

 

21

 

 

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, AGENT 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 AGENT, LENDER OR
THEIR RESPECTIVE ASSIGNEE OR BY AGENT, LENDER OR THEIR RESPECTIVE ASSIGNEE
AGAINST BORROWER. This waiver extends to all such Claims, including Claims that
involve Persons other than Agent, Borrower and Lender; Claims that arise out of
or are in any way connected to the relationship among Borrower, Agent 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 Agent’s and Lender’s
fees and expenses necessary to finalize the loan documentation, including but
not limited to reasonable attorney’s fees, UCC 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 Agent and 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, audit, field exam, 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 Agent or 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.

 

11.12         Confidentiality. Agent and Lender acknowledge that certain items
of Collateral and information provided to Agent and 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, Agent and Lender agree that any
Confidential Information it may obtain in the course of acquiring,
administering, or perfecting Agent’s security interest in the Collateral 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
Agent and Lender may disclose any such information: (a) to its own directors,
officers, employees, accountants, counsel and other professional advisors and to
its affiliates if Agent or Lender in their 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 Agent or 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 Agent’s or Lender’s
counsel; (e) to comply with any legal requirement or law applicable to Agent or
Lender; (f) to the extent reasonably necessary in connection with the exercise
of any right or remedy under any Loan Document, including Agent’s sale, lease,
or other disposition of Collateral after default; (g) to any participant or
assignee of Agent or 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 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.

 

22

 

 

11.13          Assignment of Rights. Borrower acknowledges and understands that
Agent or 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 “Agent” or “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 Agent and Lender hereunder with respect to the interest
so assigned; but with respect to any such interest not so transferred, Agent and
Lender shall retain all rights, powers and remedies hereby given. No such
assignment by Agent or 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 Agent or 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 Agent, or any part thereof
is rescinded, avoided or avoidable, reduced in amount, or must otherwise be
restored or returned by, or is recovered from, Agent, 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 Agent or
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.

 

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
Agent, 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 among Agent, the Lender and the Borrower.

 

11.17         Agency.

 

(a)          Lender hereby irrevocably appoints Hercules Technology Growth
Capital, Inc. to act on its behalf as the Agent hereunder and under the other
Loan Documents and authorizes the Agent to take such actions on its behalf and
to exercise such powers as are delegated to the Agent by the terms hereof or
thereof, together with such actions and powers as are reasonably incidental
thereto.

 

(b)          Lender agrees to indemnify the Agent in its capacity as such (to
the extent not reimbursed by Borrower and without limiting the obligation of
Borrower to do so), according to its respective Term Commitment percentages
(based upon the total outstanding Term Loan Commitments) in effect on the date
on which indemnification is sought under this Section 11.17, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever that
may at any time be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Agent under or in connection with any of the foregoing; The agreements in
this Section shall survive the payment of the Loans and all other amounts
payable hereunder.

 

(c)          Agent in Its Individual Capacity. The Person serving as the Agent
hereunder shall have the same rights and powers in its capacity as a Lender as
any other Lender and may exercise the same as though it were not the Agent and
the term “Lender” shall, unless otherwise expressly indicated or unless the
context otherwise requires, include each such Person serving as Agent hereunder
in its individual capacity.

 

(d)          Exculpatory Provisions. The Agent shall have no duties or
obligations except those expressly set forth herein and in the other Loan
Documents. Without limiting the generality of the foregoing, the Agent shall
not:

 

1.          be subject to any fiduciary or other implied duties, regardless of
whether any default or any Event of Default has occurred and is continuing;

 

23

 

 

2.          have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Agent is required to
exercise as directed in writing by the Lender, provided that the Agent shall not
be required to take any action that, in its opinion or the opinion of its
counsel, may expose the Agent to liability or that is contrary to any Loan
Document or applicable law; and

 

3.          except as expressly set forth herein and in the other Loan
Documents, have any duty to disclose, and the Agent shall not be liable for the
failure to disclose, any information relating to the Borrower or any of its
affiliates that is communicated to or obtained by any Person serving as the
Agent or any of its affiliates in any capacity.

 

(e)          The Agent shall not be liable for any action taken or not taken by
it (i) with the consent or at the request of the Lender or as the Agent shall
believe in good faith shall be necessary, under the circumstances or (ii) in the
absence of its own gross negligence or willful misconduct.

 

(f)          The Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with this Agreement or any other Loan Document, (ii) the
contents of any certificate, report or other document delivered hereunder or
thereunder or in connection herewith or therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein or therein or the occurrence of any default or Event of Default,
(iv) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or
document or (v) the satisfaction of any condition set forth in Section 4 or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Agent.

 

(g)          Reliance by Agent. Agent may rely, and shall be fully protected in
acting, or refraining to act, upon, any resolution, statement, certificate,
instrument, opinion, report, notice, request, consent, order, bond or other
paper or document that it has no reason to believe to be other than genuine and
to have been signed or presented by the proper party or parties or, in the case
of cables, telecopies and telexes, to have been sent by the proper party or
parties. In the absence of its gross negligence or willful misconduct, Agent may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to Agent
and conforming to the requirements of the Loan Agreement or any of the other
Loan Documents. Agent may consult with counsel, and any opinion or legal advice
of such counsel shall be full and complete authorization and protection in
respect of any action taken, not taken or suffered by Agent hereunder or under
any Loan Documents in accordance therewith. Agent shall have the right at any
time to seek instructions concerning the administration of the Collateral from
any court of competent jurisdiction. Agent shall not be under any obligation to
exercise any of the rights or powers granted to Agent by this Agreement, the
Loan Agreement and the other Loan Documents at the request or direction of
Lenders unless Agent shall have been provided by Lender with adequate security
and indemnity against the costs, expenses and liabilities that may be incurred
by it in compliance with such request or direction.

 

11.18         Publicity.

 

(a)          Borrower consents to the publication and use by Agent or Lender the
following items and information, to the extent such items and information are
already contained in any regular, periodic or special reports or registration
statements that Borrower files with the Securities and Exchange Commission or
otherwise contained in any press release or publicly available investor
presentation made available on the Borrower’s website, and provided that such
items and information as depicted, described or otherwise used by Agent or
Lender are done so in a manner consistent with such reports or registration
statements wherein the items or information are found: (i) Borrower's name
(including a brief description of the relationship among Borrower, Agent 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 Agent or Lender.

 

(b)          Borrower shall, without Agent’s or Lender’s consent, have the right
to publicize or use Agent’s or Lender's name (including a brief description of
the relationship among Borrower, Agent and Lender) in conjunction with (i) any
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, or (ii)
any public or private offering materials or other investor relations information
produced by the Borrower: Agent’s or Lender's name (including a brief
description of the relationship among Borrower, Agent and Lender).

 

24

 

 

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

 

(SIGNATURES TO FOLLOW)

 

25

 

 

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

 

  BORROWER:   CELATOR PHARMACEUTICALS, INC.   Signature: /s/ Scott T. Jackson  
Print Name: Scott T. Jackson   Title: Chief Executive Officer         CELATOR
PHARMACEUTICALS CORP.   Signature: /s/ Scott T. Jackson   Print Name: Scott T.
Jackson   Title: Chief Executive Officer       Accepted in Palo Alto,
California:       AGENT:   HERCULES TECHNOLOGY GROWTH CAPITAL, INC.   Signature:
/s/ Michael Penney   Print Name: Michael Penney   Title: General Counsel        
LENDER:   HERCULES TECHNOLOGY GROWTH CAPITAL, INC.   Signature: /s/ Michael
Penney   Print Name: Michael Penney   Title: General Counsel

 

26

 

 

Table of Exhibits and Schedules

 

Exhibit A: Advance Request   Attachment to Advance Request Exhibit B: Promissory
Note Exhibit C: Name, Locations, and Other Information for Borrower Exhibit D:
Borrower’s Patents, Trademarks, Copyrights and Licenses Exhibit E: Borrower’s
Deposit Accounts and Investment Accounts Exhibit F: Compliance Certificate
Exhibit G: Joinder Agreement Exhibit H: ACH Debit Authorization Agreement
Exhibit I: Borrower Repayment Election Notice Schedule 1 Subsidiaries Schedule
1.1 Commitments Schedule 1A Existing Permitted Indebtedness Schedule 1B Existing
Permitted Investments Schedule 1C Existing Permitted Liens Schedule 5.3
Consents, Etc. Schedule 5.5 Actions Before Governmental Authorities Schedule 5.8
Tax Matters Schedule 5.9 Intellectual Property Claims Schedule 5.10 Intellectual
Property Schedule 5.11 Borrower Products Schedule 5.14 Capitalization

 

27

 

 

EXHIBIT A

 

ADVANCE REQUEST

 

To: Agent:   Date: __________, 2014   Hercules Technology Growth Capital, Inc.
(the “Agent”)         400 Hamilton Avenue, Suite 310         Palo Alto, CA 94301
        Facsimile:  650-473-9194         Attn:      

 

Celator Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp. (“Borrower”)
hereby requests from Hercules Technology Growth Capital, Inc. (“Lender”) an
Advance in the amount of _____________________ Dollars ($________________) on
______________, _____ (the “Advance Date”) pursuant to the Loan and Security
Agreement among Borrower, Agent and Lender (the “Agreement”). Capitalized words
and other terms used but not otherwise defined herein are used with the same
meanings as defined in the Agreement.

Please:

 

(a)           Issue a check payable to Borrower
                           ________

or

(b)           Wire Funds to Borrower’s account                          
________

  Bank:       Address:                 ABA Number:       Account Number:      
Account Name:    

 

Borrower represents that the conditions precedent to the Advance set forth in
the Agreement are satisfied and shall be satisfied upon the making of such
Advance, including but not limited to: (i) that no event that has had or could
reasonably be expected to have a Material Adverse Effect has occurred and is
continuing; (ii) that the representations and warranties set forth in the
Agreement and in the Warrant are and 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; (iii) that Borrower is in compliance with
all the terms and provisions set forth in each Loan Document on its part to be
observed or performed; and (iv) that as of the Advance Date, no fact or
condition exists that would (or would, with the passage of time, the giving of
notice, or both) constitute an Event of Default under the Loan Documents.
Borrower understands and acknowledges that Agent has the right to review the
financial information supporting this representation and, based upon such review
in its sole discretion, Lender may decline to fund the requested Advance.

 

Borrower hereby represents that Borrower’s corporate status and locations have
not changed since the date of the Agreement or, if the Attachment to this
Advance Request is completed, are as set forth in the Attachment to this Advance
Request.

 

Borrower agrees to notify Agent promptly before the funding of the Loan if any
of the matters which have been represented above shall not be true and correct
on the Borrowing Date and if Agent has received no such notice before the
Advance Date then the statements set forth above shall be deemed to have been
made and shall be deemed to be true and correct as of the Advance Date.

 

(SIGNATURE PAGE FOLLOWS)

 

28

 

 

Executed as of [ ], 2014.

BORROWER: CELATOR PHARMACEUTICALS, INC.

SIGNATURE:________________________
TITLE:_____________________________
PRINT NAME:______________________

 

BORROWER: CELATOR PHARMACEUTICALS CORP.

SIGNATURE:________________________
TITLE:_____________________________
PRINT NAME:______________________

 

29

 

 

ATTACHMENT TO ADVANCE REQUEST

 

Dated: _______________________

 

Borrower hereby represents and warrants to Agent that Borrower’s current name
and organizational status is as follows:

 

Name: Celator Pharmaceuticals, Inc. Type of organization: Corporation State of
organization: Delaware Organization file number: 3946959     Name: Celator
Pharmaceuticals Corp. Type of organization: Unlimited Liability Company State of
organization:   Organization file number:  

 

Borrower hereby represents and warrants to Agent that the street addresses,
cities, states and postal codes of its current locations are as follows:

 

30

 

 

EXHIBIT B

 

PROMISSORY NOTE

 

$[  ],000,000 Advance Date:  ___ __, 20[  ]   Maturity Date:  _____ ___, 20[ ]

 

FOR VALUE RECEIVED, Celator Pharmaceuticals, Inc., a Delaware corporation, and
Celator Pharmaceuticals Corp., in each case for itself and its Subsidiaries (the
“Borrower”) hereby promises to pay to the order of Hercules Technology Growth
Capital, Inc., a Maryland corporation or the holder of this Note (the “Lender”)
at 400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301 or such other place of
payment as the holder of this Secured Term Promissory Note (this “Promissory
Note”) may specify from time to time in writing, in lawful money of the United
States of America, the principal amount of [ ] Million Dollars ($[ ],000,000) or
such other principal amount as Lender has advanced to Borrower, together with
interest at a floating per annum rate equal to the greater of either (i) nine
and three quarters of one percent (9.75%), or (ii) the sum of (A) nine and three
quarters of one percent (9.75%), plus (B) the Prime Rate minus three and one
quarter of one percent (3.25%) based upon a year consisting of 360 days, with
interest computed daily based on the actual number of days in each month.

 

This Promissory Note is the Note referred to in, and is executed and delivered
in connection with, that certain Loan and Security Agreement dated [ ], 20[ ],
by and among Borrower, Hercules Technology Growth Capital, Inc., a Maryland
corporation (the “Agent”) and the several banks and other financial institutions
or entities from time to time party thereto as lender (as the same may from time
to time be amended, modified or supplemented in accordance with its terms, the
“Loan Agreement”), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All payments shall be made in accordance with the Loan Agreement. All
terms defined in the Loan Agreement shall have the same definitions when used
herein, unless otherwise defined herein. An Event of Default under the Loan
Agreement shall constitute a default under this Promissory Note.

 

Borrower waives presentment and demand for payment, notice of dishonor, protest
and notice of protest under the UCC or any applicable law. Borrower agrees to
make all payments under this Promissory Note without setoff, recoupment or
deduction and regardless of any counterclaim or defense. This Promissory Note
has been negotiated and delivered to Lender and is payable in the State of
California. This Promissory Note shall be governed by and construed and enforced
in accordance with, the laws of the State of California, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.

 

BORROWER FOR ITSELF AND     ON BEHALF OF ITS SUBSIDIARIES: CELATOR
PHARMACEUTICALS, INC.   By:     Title:           CELATOR PHARMACEUTICALS CORP.  
By:     Title:  

 

 

 

 

EXHIBIT C

 

NAME, LOCATIONS, AND OTHER INFORMATION FOR BORROWER

 

1. Borrower represents and warrants to Agent that Borrower’s current name and
organizational status as of the Closing Date is as follows:

 

Name: Celator Pharmaceuticals, Inc.       Celator Pharmaceuticals Corp.     Type
of organization: Corporation     State of organization: Delaware    
Organization file number: 3946959

 

2. Borrower represents and warrants to Agent that for five (5) years prior to
the Closing Date, Borrower did not do business under any other name or
organization or form except the following: NONE.

 

Name:
Used during dates of:
Type of Organization:
State of organization:
Organization file Number:
Borrower’s fiscal year ends on _____
Borrower’s federal employer tax identification number is: _______________

 

3. Borrower represents and warrants to Agent that its chief executive office is
located at 200 PrincetonSouth Corporate Center, Suite 180, Ewing, New Jersey,
USA 08628.

 

 

 

 

EXHIBIT D

 

BORROWER’S PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

 

 

 

 

EXHIBIT E

 

BORROWER’S DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS

 

 

 

 

EXHIBIT F

 

COMPLIANCE CERTIFICATE

 

Hercules Technology Growth Capital, Inc. (as “Agent”)
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

 

Reference is made to that certain Loan and Security Agreement dated [ ], 20[ ]
and all ancillary documents entered into in connection with such Loan and
Security Agreement all as may be amended from time to time, (hereinafter
referred to collectively as the “Loan Agreement”) by and among Hercules
Technology Growth Capital, Inc. (the “Agent”), the several banks and other
financial institutions or entities from time to time party thereto
(collectively, the “Lender”) and Hercules Technology Growth Capital, Inc., as
agent for the Lender (the “Agent”) and Celator Pharmaceuticals, Inc. and Celator
Pharmaceuticals Corp. (the “Borrower”) as Borrower. All capitalized terms not
defined herein shall have the same meaning as defined in the Loan Agreement.

 

The undersigned is an Officer of the Borrower, knowledgeable of all Borrower
financial matters, and is authorized to provide certification of information
regarding the Borrower; hereby certifies that in accordance with the terms and
conditions of the Loan Agreement, the Borrower is in compliance for the period
ending ___________ of all covenants, conditions and terms and hereby reaffirms
that all representations and warranties contained therein are true and correct
on and as of the date of this Compliance Certificate 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, after giving effect in all
cases to any standard(s) of materiality contained in the Loan Agreement as to
such representations and warranties. Attached are the required documents
supporting the above certification. The undersigned further certifies that these
are prepared in accordance with GAAP (except for the absence of footnotes with
respect to unaudited financial statement and subject to normal year end
adjustments) and are consistent from one period to the next except as explained
below.

 

    CHECK IF REPORTING REQUIREMENT REQUIRED ATTACHED Interim Financial
Statements Monthly within 30 days   Interim Financial Statements Quarterly
within 45 days   Audited Financial Statements FYE within 150 days  

  

ACCOUNT BALANCES   Name of Bank Balance of Account (as of the delivery of the
Compliance Certificate)     Bank of America $________________

 

  Very Truly Yours,   CELATOR PHARMACEUTICALS, INC.   By:     Name:     Its:    
      CELATOR PHARMACEUTICALS CORP.   By:     Name:     Its:  

 

 

 

 

EXHIBIT G

 

FORM OF JOINDER AGREEMENT

 

This Joinder Agreement (the “Joinder Agreement”) is made and dated as of [ ],
20[ ], and is entered into by and between__________________., a ___________
corporation (“Subsidiary”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a
Maryland corporation (as “Agent”).

 

RECITALS

 

A. Subsidiary’s Affiliate, Celator Pharmaceuticals, Inc. and Celator
Pharmaceuticals Corp.(“Borrower”) [has entered/desires to enter] into that
certain Loan and Security Agreement dated [ ], 2014, with the several banks and
other financial institutions or entities from time to time party thereto as
lender (collectively, the “Lender”) and the Agent, as such agreement may be
amended (the “Loan Agreement”), together with the other agreements executed and
delivered in connection therewith;

 

B. Subsidiary acknowledges and agrees that it will benefit both directly and
indirectly from Borrower’s execution of the Loan Agreement and the other
agreements executed and delivered in connection therewith;

 

AGREEMENT

 

NOW THEREFORE, Subsidiary and Agent agree as follows:

 

1.The recitals set forth above are incorporated into and made part of this
Joinder Agreement. Capitalized terms not defined herein shall have the meaning
provided in the Loan Agreement.

 

2.By signing this Joinder Agreement, Subsidiary shall be bound by the terms and
conditions of the Loan Agreement the same as if it were the Borrower (as defined
in the Loan Agreement) under the Loan Agreement, mutatis mutandis, provided
however, that (a) with respect to (i) Section 5.1 of the Loan Agreement,
Subsidiary represents that it is an entity duly organized, legally existing and
in good standing under the laws of [ ], (b) neither Agent nor Lender shall have
any duties, responsibilities or obligations to Subsidiary arising under or
related to the Loan Agreement or the other agreements executed and delivered in
connection therewith, (c) that if Subsidiary is covered by Borrower’s insurance,
Subsidiary shall not be required to maintain separate insurance or comply with
the provisions of Sections 6.1 and 6.2 of the Loan Agreement, and (d) that as
long as Borrower satisfies the requirements of Section 7.1 of the Loan
Agreement, Subsidiary shall not have to provide Agent separate Financial
Statements. To the extent that Agent or Lender has any duties, responsibilities
or obligations arising under or related to the Loan Agreement or the other
agreements executed and delivered in connection therewith, those duties,
responsibilities or obligations shall flow only to Borrower and not to
Subsidiary or any other Person or entity. By way of example (and not an
exclusive list): (i) Agent’s providing notice to Borrower in accordance with the
Loan Agreement or as otherwise agreed among Borrower, Agent and Lender shall be
deemed provided to Subsidiary; (ii) a Lender’s providing an Advance to Borrower
shall be deemed an Advance to Subsidiary; and (iii) Subsidiary shall have no
right to request an Advance or make any other demand on Lender.

 

3.Subsidiary agrees not to certificate its equity securities without Agent’s
prior written consent, which consent may be conditioned on the delivery of such
equity securities to Agent in order to perfect Agent’s security interest in such
equity securities.

 

4.Subsidiary acknowledges that it benefits, both directly and indirectly, from
the Loan Agreement, and hereby waives, for itself and on behalf on any and all
successors in interest (including without limitation any assignee for the
benefit of creditors, receiver, bankruptcy trustee or itself as
debtor-in-possession under any bankruptcy proceeding) to the fullest extent
provided by law, any and all claims, rights or defenses to the enforcement of
this Joinder Agreement on the basis that (a) it failed to receive adequate
consideration for the execution and delivery of this Joinder Agreement or (b)
its obligations under this Joinder Agreement are avoidable as a fraudulent
conveyance.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

[SIGNATURE PAGE TO JOINDER AGREEMENT]

 

SUBSIDIARY:       _________________________________.  

 

  By:   Name:   Title:       Address:       Telephone: ___________   Facsimile:
____________

  

AGENT:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

 

  By:       Name:       Title:    

 

  Address:   400 Hamilton Ave., Suite 310   Palo Alto, CA 94301  
Facsimile:  650-473-9194   Telephone:  650-289-3060

 

 

 

 

EXHIBIT H

 

ACH DEBIT AUTHORIZATION AGREEMENT

 

Hercules Technology Growth Capital, Inc.
400 Hamilton Avenue, Suite 310
Palo Alto, CA 94301

 

Re:       Loan and Security Agreement dated _______________ between Celator
Pharmaceuticals, Inc. and Celator Pharmaceuticals Corp. (“Borrower”) and
Hercules Technology Growth Capital, Inc. (“Agent”) (the “Agreement”)

 

In connection with the above referenced Agreement, the Borrower hereby
authorizes the Agent to initiate debit entries for the periodic payments due
under the Agreement to the Borrower’s account indicated below. The Borrower
authorizes the depository institution named below to debit to such account.

 

Depository Name Branch City State and Zip Code Transit/ABA Number Account Number

 

This authority will remain in full force and effect so long as any amounts are
due under the Agreement.

 

    (Borrower)(Please Print)   By:     Date:    

 

 

 

 

 

EXHIBIT I

 

BORROWER REPAYMENT ELECTION NOTICE

 

[INSERT DATE]

 

Hercules Technology Growth Capital, Inc.

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

 

Reference is made to that certain Loan and Security Agreement dated [ ], 20[ ]
and all ancillary documents entered into in connection with such Loan and
Security Agreement all as may be amended from time to time, (hereinafter
referred to collectively as the “Loan Agreement”) by and among Hercules
Technology Growth Capital, Inc. (the “Agent”), the several banks and other
financial institutions or entities from time to time party thereto
(collectively, the “Lender”) and Hercules Technology Growth Capital, Inc., as
agent for the Lender (the “Agent”) and Celator Pharmaceuticals, Inc. and Celator
Pharmaceuticals Corp. (the “Borrower”) as Borrower. All capitalized terms not
defined herein shall have the same meaning as defined in the Loan Agreement.

 

Borrower hereby irrevocably elects to make the Principal Installment Payment in
the amount of $_________ due on [________] (the “Delivery Date”) in shares of
Common Stock in accordance with Section 8.1 of the Loan Agreement.1 The number
of shares of Common Stock to be delivered to Agent, on or prior to the Delivery
Date, is [_____________], which amount was determined in accordance with Section
8.2 of the Loan Agreement. The stock certificates shall be delivered free and
clear of any restrictive legends.

 

Borrower hereby represents, warrants and certifies to Agent and Lender that, as
of the Delivery Date, all of the Stock Payment Conditions shall be satisfied.
Borrower acknowledges and agrees that its right to pay the Principal Installment
Payment in Common Stock in accordance with this Borrower Repayment Election
Notice is subject to the satisfaction of all of the Stock Payment Conditions on
the Delivery Date and, to the extent any of the Stock Payment Conditions are not
satisfied on the Delivery Date, Borrower shall pay the Principal Installment
Payment in cash.

 

  Sincerely,       Very Truly Yours,   CELATOR PHARMACEUTICALS, INC.   By:    
Name:       Its:           CELATOR PHARMACEUTICALS CORP.   By:     Name:        
Its:  

 

 

1 Note: In accordance with Section 8.2 of the Loan Agreement, the date of
delivery of this Borrower Repayment Election Notice must occur at least 5 days
prior to the Delivery Date.

 

 

 

 

 

SCHEDULE 1.1

COMMITMENTS

 

LENDER  TERM COMMITMENT  Hercules Technology Growth Capital, Inc.  $15,000,000 
TOTAL COMMITMENTS  $15,000,000