Exhibit 10.3

 

THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR, SUBJECT TO SECTION 11 HEREOF, AN OPINION OF COUNSEL (WHICH MAY BE
COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

 

WARRANT AGREEMENT

 

To Purchase Shares of the Common Stock of

 

Baxano Surgical, Inc.

 

Dated as of December 3, 2013 (the “Effective Date”)

 

WHEREAS, Baxano Surgical, Inc., a Delaware corporation (the “Company”), has
entered into a Loan and Security Agreement of even date herewith (as amended and
in effect from time to time, the “Loan Agreement”) with Hercules Technology
Growth Capital, Inc., a Maryland corporation (the “Warrantholder”);

 

WHEREAS, pursuant to the Loan Agreement and as additional consideration to the
Warrantholder for, among other things, its agreements in the Loan Agreement, the
Company has agreed to issue to the Warrantholder this Warrant Agreement,
evidencing the right to purchase shares of the Company’s Common Stock (this
“Warrant,” “Agreement” or “Warrant Agreement”);

 

NOW, THEREFORE, in consideration of the Warrantholder having executed and
delivered the Loan Agreement and provided the financial accommodations
contemplated therein, and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:

 

SECTION 1.           GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

 

(a)           For value received, the Company hereby grants to the
Warrantholder, and the Warrantholder is entitled, upon the terms and subject to
the conditions hereinafter set forth, to subscribe for and purchase, from the
Company, up to the number of fully paid and non-assessable shares of Common
Stock (as defined below) as determined pursuant to Section 1(b) below, at a
purchase price per share equal to the Exercise Price (as defined below). The
number and Exercise Price of such shares are subject to adjustment as provided
in Section 8. As used herein, the following terms shall have the following
meanings:

 

“Act” means the Securities Act of 1933, as amended.

 

“Charter” means the Company’s Certificate of Incorporation or other
constitutional document, as may be amended and in effect from time to time.

 

“Common Stock” means the Company’s common stock, $0.0001 par value per share, as
presently constituted under the Charter, and any class and/or series of Company
capital stock for or into which such common stock may be converted or exchanged
in a reorganization, recapitalization or similar transaction.

 

 

 

 

“Effective Price” shall mean the quotient determined by dividing (i) the
aggregate gross cash consideration received, or deemed to have been received, by
the Company, for the issuance of additional shares of Common Stock by the
Company (including, without limitation, shares of Common Stock issuable upon the
conversion or exercise of Convertible Securities (as defined below) issued by
the Company) for cash for financing purposes in a single transaction or series
of related transactions not registered under the Act (including, without
limitation, a so-called PIPE transaction) after the Effective Date, by (ii) the
total number of such additional shares of Common Stock issued or deemed to be
issued in such transaction. In the event the Company issues any Convertible
Securities (as defined below) in such transaction, then the calculation of
“Effective Price” shall be adjusted as follows: (a) the amount of cash
consideration included in the numerator in clause (i) above shall include the
amount determined by multiplying the conversion or exercise price, as
applicable, of any shares of Common Stock issuable upon conversion or exercise
of any such Convertible Securities (the “Conversion Shares”) by the number of
Conversion Shares; and (b) the number of Conversion Shares shall be included in
the denominator in clause (ii) above.

 

“Exercise Price” means $1.02, subject to adjustment from time to time in
accordance with the provisions of this Warrant; provided, that if, at any time
and from time to time on or after the Effective Date and prior to the first
anniversary thereof, the Company shall sell and issue shares of Common Stock, or
securities, instruments or other rights exercisable for, convertible into or
otherwise representing the right to acquire shares of Common Stock
(collectively, “Convertible Securities”) to one or more investors for cash for
financing purposes, in a single transaction or series of related transactions
not registered under the Act (including, without limitation, a so-called PIPE
transaction), at an Effective Price per share of Common Stock less than the
Exercise Price in effect as of immediately prior to the consummation of such
sale and issuance, then from and after such consummation, the Exercise Price
shall equal such lower Effective Price, subject to adjustment thereafter from
time to time in accordance with the provisions of this Warrant.

 

“Liquid Sale” means the closing of a Merger Event in which the consideration
received by the Company and/or its stockholders, as applicable, consists solely
of cash and/or Marketable Securities.

 

“Marketable Securities” in connection with a Merger Event means securities
meeting all of the following requirements: (i) the issuer thereof is then
subject to the reporting requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is then
current in its filing of all required reports and other information under the
Act and the Exchange Act; (ii) the class and series of shares or other security
of the issuer that would be received by the Warrantholder in connection with the
Merger Event were the Warrantholder to exercise this Warrant on or prior to the
closing thereof is then traded on a national securities exchange or
over-the-counter market, and (iii) following the closing of such Merger Event,
Warrantholder would not be restricted from publicly re-selling all of the
issuer’s shares and/or other securities that would be received by Warrantholder
in such Merger Event were Warrantholder to exercise this Warrant in full on or
prior to the closing of such Merger Event, except to the extent that any such
restriction (x) arises solely under federal or state securities laws, rules or
regulations, and (y) does not extend beyond six (6) months from the closing of
such Merger Event.

 

2

 

 

“Merger Event” means any of the following: (i) a sale, lease or other transfer
of all or substantially all assets of the Company, (ii) any merger or
consolidation involving the Company in which the Company is not the surviving
entity or in which the outstanding shares of the Company’s capital stock are
otherwise converted into or exchanged for shares of capital stock or other
securities or property of another entity, or (iii) any sale by holders of the
outstanding voting equity securities of the Company in a single transaction or
series of related transactions of shares constituting a majority of the
outstanding combined voting power of the Company.

 

"Purchase Price" means, with respect to any exercise of this Warrant, an amount
equal to the then-effective Exercise Price multiplied by the number of shares of
Common Stock as to which this Warrant is then exercised.

 

(b)           Number of Shares.           This Warrant shall be exercisable for
882,353 shares of Common Stock, subject to adjustment from time to time in
accordance with the provisions of this Warrant (the “Initial Shares”); provided,
that, in addition to and not in lieu of the Initial Shares, on such date (if
any) as a Term Loan Advance (as defined in the Loan Agreement), other than the
initial Term Loan Advance, shall first be made to the Company in any amount,
this Warrant automatically shall become exercisable for 294,118 additional
shares of Common Stock, subject to further adjustment thereafter from time to
time in accordance with the provisions of this Warrant.

 

SECTION 2.           TERM OF THE AGREEMENT.

 

The term of this Agreement and the right to purchase Common Stock as granted
herein shall commence on the Effective Date and, subject to Section 8(a) below,
shall be exercisable for a period ending upon the fifth (5th) anniversary of the
Effective Date.

 

SECTION 3.           EXERCISE OF THE PURCHASE RIGHTS.

 

(a)           Exercise. The purchase rights set forth in this Agreement are
exercisable by the Warrantholder, in whole or in part, at any time, or from time
to time, prior to the expiration of the term set forth in Section 2, by
tendering to the Company at its principal office a notice of exercise in the
form attached hereto as Exhibit I (the “Notice of Exercise”), duly completed and
executed. Promptly upon receipt of the Notice of Exercise and the payment of the
Purchase Price in accordance with the terms set forth below, and in no event
later than three business (3) days thereafter, the Company shall issue to the
Warrantholder a certificate for the number of shares of Common Stock purchased
and shall execute the acknowledgment of exercise in the form attached hereto as
Exhibit II (the “Acknowledgment of Exercise”) indicating the number of shares
which remain subject to future purchases under this Warrant, if any.

 

The Purchase Price may be paid at the Warrantholder’s election either (i) by
cash or check, or (ii) by surrender of all or a portion of the Warrant for
shares of Common Stock to be exercised under this Agreement and, if applicable,
an amended Agreement setting forth the remaining number of shares purchasable
hereunder, as determined below (“Net Issuance”). If the Warrantholder elects the
Net Issuance method, the Company will issue shares of Common Stock in accordance
with the following formula:

 

3

 

 

X = Y(A-B)

     A

 

Where: X = the number of shares of Common Stock to be issued to the
Warrantholder.         Y = the number of shares of Common Stock requested to be
exercised under this Agreement.         A = the then-current fair market value
of one (1) share of Common Stock at the time of exercise.         B = the
then-effective Exercise Price.

 

For purposes of the above calculation, the current fair market value of shares
of Common Stock shall mean with respect to each share of Common Stock:

 

(i)           at all times when the Common Stock shall be traded on a national
securities exchange, inter-dealer quotation system or over-the-counter bulletin
board service, the average of the closing prices over a five (5) day period
ending three days before the day the current fair market value of the securities
is being determined;

 

(ii)           if the exercise is in connection with a Merger Event, the fair
market value of a share of Common Stock shall be deemed to be the per share
value received by the holders of the outstanding shares of Common Stock pursuant
to such Merger Event as determined in accordance with the definitive transaction
documents executed among the parties in connection therewith; or

 

(iii)           in cases other than as described in the foregoing clauses (i)
and (ii), the current fair market value of a share of Common Stock shall be
determined in good faith by the Company’s Board of Directors.

 

Upon partial exercise by either cash or, upon request by the Warrantholder and
surrender of all or a portion of this Warrant, Net Issuance, prior to the
expiration or earlier termination hereof, the Company shall promptly issue an
amended Agreement representing the remaining number of shares purchasable
hereunder. All other terms and conditions of such amended Agreement shall be
identical to those contained herein, including, but not limited to the Effective
Date hereof.

 

(b)           Exercise Prior to Expiration. To the extent this Warrant is not
previously exercised as to all shares subject hereto, and if the then-current
fair market value of one share of Common Stock is greater than the Exercise
Price then in effect, or, in the case of a Liquid Sale, where the value per
share of Common Stock (as determined as of the closing of such Liquid Sale in
accordance with the definitive agreements executed by the parties in connection
with such Merger Event) to be paid to the holders thereof is greater than the
Exercise Price then in effect, this Agreement shall be deemed automatically
exercised on a Net Issuance basis pursuant to Section 3(a) (even if not
surrendered) as of immediately before its expiration determined in accordance
with Section 2. For purposes of such automatic exercise, the fair market value
of one share of Common Stock upon such expiration shall be determined pursuant
to Section 3(a). To the extent this Warrant or any portion hereof is deemed
automatically exercised pursuant to this Section 3(b), the Company agrees to
promptly notify the Warrantholder of the number of shares of Common Stock if
any, the Warrantholder is to receive by reason of such automatic exercise, and
to issue a certificate to Warrantholder evidencing such shares.

 

4

 

 

SECTION 4.           RESERVATION OF SHARES.

 

During the term of this Agreement, the Company will at all times have authorized
and reserved a sufficient number of shares of its Common Stock to provide for
the exercise of the rights to purchase Common Stock as provided for herein.

 

SECTION 5.           NO FRACTIONAL SHARES OR SCRIP.

 

No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of this Agreement, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.

 

SECTION 6.           NO RIGHTS AS SHAREHOLDER/STOCKHOLDER.

 

Without limitation of any provision hereof, Warrantholder agrees that this
Agreement does not entitle the Warrantholder to any voting rights or other
rights as a shareholder/stockholder of the Company prior to the exercise of any
of the purchase rights set forth in this Agreement.

 

SECTION 7.           WARRANTHOLDER REGISTRY.

 

The Company shall maintain a registry showing the name and address of the
registered holder of this Agreement. Warrantholder's initial address, for
purposes of such registry, is set forth in Section 12(g) below. Warrantholder
may change such address by giving written notice of such changed address to the
Company.

 

SECTION 8.           ADJUSTMENT RIGHTS.

 

The Exercise Price and the number of shares of Common Stock purchasable
hereunder are subject to adjustment from time to time, as follows:

 

(a)        Merger Event. In connection with a Merger Event that is a Liquid
Sale, this Warrant shall, on and after the closing thereof, automatically and
without further action on the part of any party or other person, represent the
right to receive the consideration payable on or in respect of all shares of
Common Stock that are issuable hereunder as of immediately prior to the closing
of such Merger Event less the Purchase Price for all such shares of Common Stock
(such consideration to include both the consideration payable at the closing of
such Merger Event and all deferred consideration payable thereafter, if any,
including, but not limited to, payments of amounts deposited at such closing
into escrow and payments in the nature of earn-outs, milestone payments or other
performance-based payments), and such Merger Event consideration shall be paid
to Warrantholder as and when it is paid to the holders of the outstanding shares
of Common Stock. In connection with a Merger Event that is not a Liquid Sale,
the Company shall cause the successor or surviving entity to assume this Warrant
and the obligations of the Company hereunder on the closing thereof, and
thereafter this Warrant shall be exercisable for the same number and type of
securities or other property as the Warrantholder would have received in
consideration for the shares of Common Stock issuable hereunder had it exercised
this Warrant in full as of immediately prior to such closing, at an aggregate
Exercise Price no greater than the aggregate Exercise Price in effect as of
immediately prior to such closing, and subject to further adjustment from time
to time in accordance with the provisions of this Warrant. The provisions of
this Section 8(a) shall similarly apply to successive Merger Events.

 

5

 

 

(b)        Reclassification of Shares. Except for Merger Events subject to
Section 8(a), if the Company at any time shall, by combination,
reclassification, exchange or subdivision of securities or otherwise, change any
of the securities as to which purchase rights under this Agreement exist into
the same or a different number of securities of any other class or classes of
securities, this Agreement shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as the result of such
change with respect to the securities which were subject to the purchase rights
under this Agreement immediately prior to such combination, reclassification,
exchange, subdivision or other change. The provisions of this Section 8(b) shall
similarly apply to successive combination, reclassification, exchange,
subdivision or other change.

 

(c)        Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Common Stock, (i) in the case of a subdivision,
the Exercise Price shall be proportionately decreased and the number of shares
for which this Warrant is exercisable shall be proportionately increased, or
(ii) in the case of a combination, the Exercise Price shall be proportionately
increased and the number of shares for which this Warrant is exercisable shall
be proportionately decreased.

 

(d)           Stock Dividends. If the Company at any time while this Agreement
is outstanding and unexpired shall:

 

(i)           pay a dividend with respect to the outstanding shares of Common
Stock payable in additional shares of Common Stock, then the Exercise Price
shall be adjusted, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (A) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (B) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution, and the number of
shares of Common Stock for which this Warrant is exercisable shall be
proportionately increased; or

 

(ii)           make any other dividend or distribution on or with respect to
Common Stock, except any dividend or distribution (A) in cash, or (B)
specifically provided for in any other clause of this Section 8, then, in each
such case, provision shall be made by the Company such that the Warrantholder
shall receive upon exercise or conversion of this Warrant a proportionate share
of any such distribution as though it were the holder of the Common Stock (or
other stock for which the Common Stock is convertible) as of the record date
fixed for the determination of the shareholders of the Company entitled to
receive such distribution.

 

(e) Notice of Certain Events. If: (i) the Company shall declare any dividend or
distribution upon its outstanding Common Stock, payable in stock, cash, property
or other securities (provided that Warrantholder in its capacity as lender under
the Loan Agreement consents to such dividend); (ii) the Company shall offer for
subscription pro rata to the holders of its Common Stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary dissolution, liquidation or winding up of the
Company; then, in connection with each such event, the Company shall give the
Warrantholder notice thereof at the same time and in the same manner as it gives
notice thereof to the holders of outstanding Common Stock.

 

6

 

 

SECTION 9.           REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

 

(a)      Reservation of Common Stock. The Company covenants and agrees that all
shares of Common Stock, if any, that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and non-assessable. The Company further covenants and
agrees that the Company will, at all times during the term hereof, have
authorized and reserved, free from preemptive rights, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant. If at any time during the term hereof the number of authorized but
unissued shares of Common Stock shall not be sufficient to permit exercise of
this Warrant in full, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.

 

(b)      Due Authority. The execution and delivery by the Company of this
Agreement and the performance of all obligations of the Company hereunder,
including the issuance to Warrantholder of the right to acquire the shares of
Common Stock, have been duly authorized by all necessary corporate action on the
part of the Company. This Agreement: (1) does not violate the Company's Charter
or current bylaws; (2) does not contravene any law or governmental rule,
regulation or order applicable to it; and (3) except as could not reasonably be
expected to have a Material Adverse Effect (as defined in the Loan Agreement),
does not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound. This Agreement constitutes a legal, valid and
binding agreement of the Company, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors’ rights generally (including,
without limitation, fraudulent conveyance laws) and by general principles of
equity, regardless of whether considered in a proceeding in equity or at law.

 

(c)      Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Agreement, except for the filing of notices pursuant to Regulation D under
the Act and any filing required by applicable state securities law, which
filings will be effective by the time required thereby.

 

(d)      [Intentionally Omitted].

 

(e)      [Intentionally Omitted].

 

(f)      Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10, the issuance of the Common Stock upon exercise of
this Agreement will constitute a transaction exempt from (i) the registration
requirements of Section 5 of the Act, in reliance upon Section 4(a)(2) thereof,
and (ii) the qualification requirements of the applicable state securities laws.

 

(g)      Registration Rights. If, prior to the date on which Warrantholder may
sell all shares of Common Stock issuable upon exercise of this Warrant without
restriction pursuant to Rule 144 promulgated under the Act (assuming that
Warrantholder were to exercise this Warrant by Net Issuance), the Company
proposes to register under the Act for resale any shares of Common Stock held by
any person (other than the Company, Lincoln Park Capital Fund, LLC (“LPC”) and
affiliates of LPC), then the Company shall give Warrantholder reasonable prior
written notice of such proposed registration and shall permit Warrantholder to
include (but Warrantholder shall not be obligated to include) all or a portion
(as determined by Warrantholder in its sole discretion) of the shares of Common
Stock issuable upon exercise of this Warrant in such registration on a pari
passu basis with the other holders participating therein and on the same terms
and conditions as applicable to such other holders.

 

7

 

 

(h)      Information Rights. At all times (if any) prior to the earlier to occur
of (x) the date on which all shares of Common Stock issued on exercise of this
Warrant have been sold, or (y) the expiration or earlier termination of this
Warrant, when the Company shall not be required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act or shall not have timely filed all such
required reports, Warrantholder shall be entitled to the information rights
contained in Section 7.1(b) – (f) of the Loan Agreement, and in any such event
Section 7.1(b) – (f) of the Loan Agreement is hereby incorporated into this
Agreement by this reference as though fully set forth herein, provided, however,
that the Company shall not be required to deliver a Compliance Certificate once
all Indebtedness (as defined in the Loan Agreement) owed by the Company to
Warrantholder has been repaid.

 

(i)      Rule 144 Compliance.           The Company shall, at all times prior to
the earlier to occur of (x) the date of sale or other disposition by
Warrantholder of this Warrant or all shares of Common Stock issued on exercise
of this Warrant, (y) the registration pursuant to subsection (g) above of the
shares issued on exercise of this Warrant, or (z) the expiration or earlier
termination of this Warrant if the Warrant has not been exercised in full or in
part on such date, use all commercially reasonable efforts to timely file all
reports required under the 1934 Act and otherwise timely take all actions
necessary to permit the Warrantholder to sell or otherwise dispose of this
Warrant and the shares of Common Stock issued on exercise hereof pursuant to
Rule 144 promulgated under the Act as amended and in effect from time to time,
provided that the foregoing shall not apply in the event of a Merger Event
following which the successor or surviving entity is not subject to the
reporting requirements of the 1934 Act. If the Warrantholder proposes to sell
Common Stock issuable upon the exercise of this Agreement in compliance with
Rule 144, then, upon Warrantholder’s written request to the Company, the Company
shall furnish to the Warrantholder, within five (5) business days after receipt
of such request, a written statement confirming the Company’s compliance with
the filing and other requirements of such Rule.

 

SECTION 10.      REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

 

This Agreement has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder:

 

(a)       Investment Purpose. This Warrant and the shares issued on exercise
hereof will be acquired for investment and not with a view to the sale or
distribution of any part thereof in violation of applicable federal and state
securities laws, and the Warrantholder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption.

 

(b)      Private Issue. The Warrantholder understands (i) that the Common Stock
issuable upon exercise of this Agreement is not, as of the Effective Date,
registered under the Act or qualified under applicable state securities laws,
and (ii) that the Company's reliance on exemption from such registration is
predicated on the representations set forth in this Section 10.

 

(c)      Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.

 

(d)      Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of Rule 501 of Regulation D promulgated under the Act, as presently
in effect (“Regulation D”).

 

(e)     No Short Sales.  Warrantholder has not at any time on or prior to the
Effective Date engaged in any short sales or equivalent transactions in the
Common Stock. Warrantholder agrees that at all times from and after the
Effective Date and on or before the expiration or earlier termination of this
Warrant, it shall not engage in any short sales or equivalent transactions in
the Common Stock.

 

8

 

 

SECTION 11.           TRANSFERS.

 

Subject to compliance with applicable federal and state securities laws, this
Agreement and all rights hereunder are transferable, in whole or in part,
without charge to the holder hereof (except for transfer taxes) upon surrender
of this Agreement properly endorsed. Each taker and holder of this Agreement, by
taking or holding the same, consents and agrees that this Agreement, when
endorsed in blank, shall be deemed negotiable, and that the holder hereof, when
this Agreement shall have been so endorsed and its transfer recorded on the
Company’s books, shall be treated by the Company and all other persons dealing
with this Agreement as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this Agreement. The
transfer of this Agreement shall be recorded on the books of the Company upon
receipt by the Company of a notice of transfer in the form attached hereto as
Exhibit III (the "Transfer Notice"), at its principal offices and the payment to
the Company of all transfer taxes and other governmental charges imposed on such
transfer. Until the Company receives such Transfer Notice, the Company may treat
the registered owner hereof as the owner for all purposes. Notwithstanding
anything herein or in any legend to the contrary, the Company shall not require
an opinion of counsel in connection with any sale, assignment or other transfer
by Warrantholder of this Warrant (or any portion hereof or any interest herein)
or of any shares of Common Stock issued upon any exercise hereof to an affiliate
(as defined in Regulation D) of Warrantholder, provided that such affiliate is
an “accredited investor” as defined in Regulation D.

 

SECTION 12.           MISCELLANEOUS.

 

(a)   Effective Date. The provisions of this Agreement shall be construed and
shall be given effect in all respects as if it had been executed and delivered
by the Company on the date hereof. This Agreement shall be binding upon any
successors or assigns of the Company.

 

(b)  Remedies. In the event of any default hereunder, the non-defaulting party
may proceed to protect and enforce its rights either by suit in equity and/or by
action at law, including but not limited to an action for damages as a result of
any such default, and/or an action for specific performance for any default
where Warrantholder will not have an adequate remedy at law and where damages
will not be readily ascertainable.

 

(c)  No Impairment of Rights. The Company will not, by amendment of its Charter
or through any other means, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.

 

(d)  Additional Documents. The Company agrees to supply such other documents as
the Warrantholder may from time to time reasonably request.

 

(e)  Attorneys’ Fees. In any litigation, arbitration or court proceeding between
the Company and the Warrantholder relating hereto, the prevailing party shall be
entitled to attorneys’ fees and expenses and all costs of proceedings incurred
in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’
fees shall include without limitation fees incurred in connection with the
following: (i) contempt proceedings; (ii) discovery; (iii) any motion,
proceeding or other activity of any kind in connection with an insolvency
proceeding; (iv) garnishment, levy, and debtor and third party examinations; and
(v) post-judgment motions and proceedings of any kind, including without
limitation any activity taken to collect or enforce any judgment.

 

9

 

 

(f)    Severability. In the event any one or more of the provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.

 

(g)   Notices. Except as otherwise provided herein, any notice, demand, request,
consent, approval, declaration, service of process or other communication that
is required, contemplated, or permitted under this Agreement 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: (a) personal
delivery to the party to be notified, (b) when sent by confirmed telex,
electronic transmission or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day, (c) five days after having
been sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt, and
shall be addressed to the party to be notified as follows:

 

  If to Warrantholder:           Hercules Technology GROWTH CAPITAL, INC.    
Legal Department     Attention:  Chief Legal Officer and Manuel Henriquez    
400 Hamilton Avenue, Suite 310     Palo Alto, CA 94301    
Facsimile:  650-473-9194     Telephone:  650-289-3060         If to the Company:
          BAXANO SURGICAL, INC.     Attention: Chief Financial Officer     110
Horizon Drive, Suite 230     Raleigh, NC 27615     Facsimile: 919-926-1185    
Telephone: 919-800-0020

 

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

 

(h)    Entire Agreement; Amendments. This Agreement constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof, and supersedes and replaces in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof. None of the
terms of this Agreement may be amended except by an instrument executed by each
of the parties hereto.

 

(i)     Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.

 

(j)     Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed (or had an opportunity to discuss) with its counsel
this Agreement and, specifically, the provisions of Sections 12(n), 12(o),
12(p), 12(q) and 12(r).

 

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(k)    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.

 

(l)     No Waiver. No omission or delay by Warrantholder 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 Warrantholder at any time designated,
shall be a waiver of any such right or remedy to which Warrantholder is
entitled, nor shall it in any way affect the right of Warrantholder to enforce
such provisions thereafter during the term of this Agreement.

 

(m)    Survival. All agreements, representations and warranties contained in
this Agreement or in any document delivered pursuant hereto shall be for the
benefit of Warrantholder and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement.

 

(n)    Governing Law. This Agreement has been negotiated and delivered to
Warrantholder in the State of California, and shall be deemed to have been
accepted by Warrantholder in the State of California. Delivery of Common Stock
to Warrantholder by the Company under this Agreement is due in the State of
California. This Agreement 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.

 

(o)    Consent to Jurisdiction and Venue. All judicial proceedings arising in or
under or related to this Agreement may be brought in any state or federal court
of competent jurisdiction located in the State of California. By execution and
delivery of this Agreement, each party hereto generally and unconditionally: (a)
consents to 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.
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 12(g), and shall be deemed
effective and received as set forth in Section 12(g). 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.

 

(p)    Mutual Waiver of Jury Trial. 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 arising under or in connection with this Warrant be resolved by a judge
applying such applicable laws. EACH OF THE COMPANY AND WARRANTHOLDER
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 THE COMPANY AGAINST WARRANTHOLDER OR ITS
ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY RELATING TO
THIS WARRANT. This waiver extends to all such Claims, including Claims that
involve persons or entities other the Company and Warrantholder; Claims that
arise out of or are in any way connected to the relationship between the Company
and Warrantholder; and any Claims for damages, breach of contract, specific
performance, or any equitable or legal relief of any kind, arising out of this
Agreement.

 

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(q)    Arbitration. If the Mutual Waiver of Jury Trial set forth in Section
12(p) is ineffective or unenforceable, the parties agree that all Claims shall
be submitted to binding arbitration in accordance with the commercial
arbitration rules of JAMS (the “Rules”), such arbitration to occur before one
arbitrator, which arbitrator shall be a retired California state judge or a
retired Federal court judge. Such proceeding shall be conducted in Santa Clara
County, State of California, with California rules of evidence and discovery
applicable to such arbitration. The decision of the arbitrator shall be binding
on the parties, and shall be final and nonappealable to the maximum extent
permitted by law. Any judgment rendered by the arbitrator may be entered in a
court of competent jurisdiction and enforced by the prevailing party as a final
judgment of such court.

 

(r)    Pre-arbitration Relief. In the event Claims are to be resolved by
arbitration, either party may seek from a court of competent jurisdiction
identified in Section 12(o), 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 binding arbitration.

 

(s)    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.

 

(t)    Specific Performance. The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to Warrantholder by
reason of the Company’s failure to perform any of the obligations under this
Agreement and agree that the terms of this Agreement shall be specifically
enforceable by Warrantholder. If Warrantholder institutes any action or
proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that Warrantholder has an adequate remedy at law, and such person shall
not offer in any such action or proceeding the claim or defense that such remedy
at law exists.

 

(u)    Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as it may reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

 

(v)    Legends. To the extent required by applicable laws, this Warrant and the
shares of Common Stock issuable hereunder (and the securities issuable, directly
or indirectly, upon conversion of such shares of Common Stock, if any) may be
imprinted with a restricted securities legend in substantially the following
form:

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.

 

  COMPANY:   BAXANO SURGICAL, INC.                     By: /s/ Ken Reali        
Name:  Ken Reali         Title: President and Chief Executive Officer  

 

WARRANTHOLDER:   HERCULES TECHNOLOGY GROWTH CAPITAL, INC.               By: /s/
Ben Bang       Name: Ben Bang       Title: Senior Counsel  

 

 

 

 

EXHIBIT I

 

NOTICE OF EXERCISE

 

To:     [____________________________]

 

(1)The undersigned Warrantholder hereby elects to purchase [_______] shares of
the Common Stock of [_________________], pursuant to the terms of the Agreement
dated the [___] day of [______, _____] (the "Agreement") between
[_________________] and the Warrantholder, and tenders herewith payment of the
Purchase Price in full, together with all applicable transfer taxes, if any.
[NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net
Issuance.]

 

(2)Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below.

 

          (Name)           (Address)

 

WARRANTHOLDER:   HERCULES TECHNOLOGY GROWTH CAPITAL, INC.             By:      
Name:       Title:  

 

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EXHIBIT II

 

1.ACKNOWLEDGMENT OF EXERCISE

 

The undersigned [____________________________________], hereby acknowledge
receipt of the "Notice of Exercise" from Hercules Technology Growth Capital,
Inc. to purchase [_____] shares of the Common Stock of [_________________],
pursuant to the terms of the Agreement, and further acknowledges that [______]
shares remain subject to purchase under the terms of the Agreement.

 

COMPANY:   [_________________]                 By:                   Title:    
              Date:  

 

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EXHIBIT III

 

TRANSFER NOTICE

 

(To transfer or assign the foregoing Agreement execute this form and supply
required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are
hereby transferred and assigned to

 

(Please Print)       whose address is            

 

  Dated:                 Holder's Signature:               Holder's Address:    
                        Signature Guaranteed:        

 

NOTE:       The signature to this Transfer Notice must correspond with the name
as it appears on the face of the Agreement, without alteration or enlargement or
any change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Agreement.

 

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