Exhibit 10.1

PRECISION BIOSCIENCES, INC.

ELO LIFE SYSTEMS, INC.

LOAN AND SECURITY AGREEMENT

 

 

 

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This LOAN AND SECURITY AGREEMENT (the “Agreement”) is entered into as of May 15,
2019, by and between PACIFIC WESTERN BANK, a California state chartered bank
(“Bank”) and Precision Biosciences, Inc., a Delaware corporation (“Parent”), and
Elo Life Systems, Inc., a Delaware corporation (“ELO” and together with Parent,
individually and collectively, jointly and severally, “Borrower”).

RECITALS

Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower.  This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.

AGREEMENT

The parties agree as follows:

1.DEFINITIONS AND CONSTRUCTION.

1.1Definitions.  As used in this Agreement, all capitalized terms shall have the
definitions set forth on Exhibit A.  Any term used in the Code and not defined
herein shall have the meaning given to the term in the Code.

1.2Accounting Terms.  Any accounting term not specifically defined on Exhibit A
shall be construed in accordance with GAAP and all calculations shall be made in
accordance with GAAP (except for non-compliance with FAS 123R in monthly
reporting).  The term “financial statements” shall include the accompanying
notes and schedules.

2.LOAN AND TERMS OF PAYMENT.

2.1Credit Extensions.

(a)Promise to Pay.  Borrower promises to pay to Bank, in lawful money of the
United States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower, together with interest on the unpaid
principal amount of such Credit Extensions at rates in accordance with the terms
hereof.

(b)Advances Under Revolving Line.

(i)Amount.  Subject to and upon the terms and conditions of this Agreement,
Borrower may request Advances in an aggregate outstanding principal amount not
to exceed the Revolving Line. Amounts borrowed pursuant to this Section 2.1(b)
may be repaid and reborrowed at any time prior to the Revolving Maturity Date,
at which time all Advances under this Section 2.1(b) shall be immediately due
and payable. Borrower may prepay any Advances without penalty or premium at any
time.

(ii)Form of Request.  Whenever Borrower desires an Advance, Borrower will notify
Bank (which notice shall be irrevocable) by facsimile transmission or email no
later than 3:30 p.m. Eastern time (2:30 p.m. Eastern time for wire transfers),
on the Business

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Day that the Advance is to be made.  Each such notification shall be given by a
Loan Advance/Paydown Request Form in substantially the form of Exhibit C.  Bank
is authorized to make Advances under this Agreement, based upon instructions
received from an Authorized Officer, or without instructions if in Bank’s
discretion such Advances are necessary to meet Obligations which have become due
and remain unpaid.  Bank shall be entitled to rely on any notice given by a
person whom Bank reasonably believes to be an Authorized Officer, and Borrower
shall indemnify and hold Bank harmless for any damages, loss, costs and expenses
suffered by Bank as a result of such reliance.  Bank will credit the amount of
Advances made under this Section 2.1(b) to Borrower’s deposit account.

(c)Usage of Credit Card Services Under the Credit Card Line.

(i)Usage Period.  Subject to and upon the terms and conditions of this
Agreement, at any time from the Closing Date through the Credit Card Maturity
Date, Borrower may use the Credit Card Services (as defined below) in amounts
and upon terms as provided in Section 2.1(c)(ii) below.

(ii)Credit Card Services.  Subject to and upon the terms and conditions of this
Agreement, Borrower may request corporate credit cards and standard and
e-commerce merchant account services from Bank (collectively, the “Credit Card
Services”). The aggregate limit of the corporate credit cards and merchant
credit card processing reserves shall not exceed the Credit Card Line.  The
terms and conditions (including repayment and fees) of such Credit Card Services
shall be subject to the terms and conditions of Bank’s standard forms of
application and agreement for the Credit Card Services, which Borrower hereby
agrees to execute.

(iii)Collateralization of Obligations Extending Beyond Maturity.  If Borrower
has not cash secured its obligations with respect to any Credit Card Services by
the Credit Card Maturity Date, then, effective as of such date, the balance in
any deposit accounts held by Bank and the certificates of deposit or time
deposit accounts issued by Bank in Borrower’s name (and any interest paid
thereon or proceeds thereof, including any amounts payable upon the maturity or
liquidation of such certificates or accounts), shall automatically secure such
obligations to the extent of the then continuing or outstanding Credit Card
Services.  Borrower authorizes Bank to hold such balances in pledge and to
decline to honor any drafts thereon or any requests by Borrower or any other
Person to pay or otherwise transfer any part of such balances for so long as the
applicable Credit Card Services are outstanding or continue.

2.2Overadvances.  If the aggregate amount of the outstanding Advances exceeds
the Revolving Line at any time, Borrower shall immediately pay to Bank, in cash,
the amount of such excess.

2.3Interest Rates, Payments, and Calculations.

(a)Interest Rates.

(i)Advances.  Except as set forth in Section 2.3(b), the Advances shall bear
interest, on the outstanding daily balance thereof, at a variable annual rate
equal to (1) at all times when Borrower maintains a daily balance of Cash in its
demand deposit

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accounts at Bank of at least $25,000,000, the greater of (A) 1.25% below the
Prime Rate then in effect, or (B) 4.25%; and (2) at all times when Borrower does
not maintain a daily balance of Cash in demand deposit accounts at Bank of at
least $25,000,000, the greater of: (A) 0.25% above the Prime Rate then in
effect; or (B) 5.75%.

(b)Late Fee; Default Rate.  If any payment is not made within 15 days after the
date such payment is due, Borrower shall pay Bank a late fee equal to the lesser
of (i) 5% of the amount of such unpaid amount or (ii) the maximum amount
permitted to be charged under applicable law.  All Obligations shall bear
interest, from and after the occurrence and during the continuance of an Event
of Default, at a rate equal to 3 percentage points above the interest rate
applicable immediately prior to the occurrence of the Event of Default.

(c)Payments.  Interest under the Revolving Line shall be due and payable on the
first calendar day of each month during the term hereof.  Borrower authorizes
Bank to, at its option, charge such interest, all Bank Expenses, all Periodic
Payments, and any other amounts due and owing in accordance with the terms of
this Agreement against any of Borrower’s deposit accounts or against the
Revolving Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder.  Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.  

(d)Computation.  In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased, effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate.  All interest chargeable under the Loan
Documents shall be computed on the basis of a 360-day year for the actual number
of days elapsed.

2.4Crediting Payments.  Prior to the occurrence of an Event of Default, Bank
shall credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrower specifies.  After the occurrence and
during the continuance of an Event of Default, Bank shall have the right, in its
sole discretion, to immediately apply any wire transfer of funds, check, or
other item of payment Bank may receive to conditionally reduce Obligations, but
such applications of funds shall not be considered a payment on account unless
such payment is of immediately available federal funds or unless and until such
check or other item of payment is honored when presented for
payment.  Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 5:30 p.m. Eastern time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day.  Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.

2.5Fees.  Borrower shall pay to Bank the following:

(a)Facility Fee. On or before the Closing Date, a fee equal to $25,000, which
shall be nonrefundable;

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(b)Bank Expenses.  On the Closing Date, all Bank Expenses incurred through the
Closing Date, and, after the Closing Date, all Bank Expenses, as and when they
become due.

(c)Early Termination Fee. If this Agreement is terminated prior to the Revolving
Maturity Date, a fee (the “Early Termination Fee”) in an amount equal to one
percent (1.00%) of the Revolving Line.

(d)Unused Fee.  A fee, payable quarterly in arrears one Business Day after each
quarter and on the Revolving Maturity Date, in an amount equal to 0.50% per
annum of the unused portion of the Revolving Line during such quarter, measured
daily and averaged over such quarter, as determined by Bank. Notwithstanding the
foregoing, the unused fee shall be waived for any quarter in which Borrower
maintains a daily balance of Cash in its demand deposit accounts at Bank of at
least $25,000,000 at all times during such quarter.

2.6Term.  This Agreement shall become effective on the Closing Date and, subject
to Section 12.7, shall continue in full force and effect for so long as any
Obligations remain outstanding or Bank has any obligation to make Credit
Extensions under this Agreement.  Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.

3.CONDITIONS OF LOANS.

3.1Conditions Precedent to Closing.  The agreement of Bank to enter into this
Agreement on the Closing Date is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, each of the
following items and completed each of the following requirements:

(a)this Agreement;

(b)an officer’s certificate of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement;

(c)a financing statement (Form UCC-1);

(d)the certificates for the Shares, together with Assignments separate from
Certificates, duly executed by the pledgor in blank;

(e)payment of the fees and Bank Expenses then due specified in Section 2.5,
which may be debited from any of Borrower’s accounts with Bank;

(f)current SOS Reports indicating that except for Permitted Liens, there are no
other security interests or Liens of record in the Collateral;

(g)current financial statements, including audited statements for Borrower’s
most recently ended fiscal year, together with an unqualified opinion (or an
opinion qualified only for going concern so long as Borrower’s investors provide
additional equity as

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needed), company prepared consolidated and consolidating balance sheets,  income
statements, and statements of cash flows for the most recently ended month in
accordance with Section 6.2, and such other updated financial information as
Bank may reasonably request;

(h)a current Compliance Certificate in accordance with Section 6.2;

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

(j)a Borrower Information Certificate for each Borrower;

(k)a Securities Account Control Agreement, duly executed by Bank, Borrower, and
the applicable custodian;

(l)a legal opinion of Borrower’s counsel, together with the duly executed
signature thereto; and

(m)such other documents or certificates, and completion of such other matters,
as Bank may reasonably request.

3.2Conditions Precedent to all Credit Extensions.  The obligation of Bank to
make each Credit Extension, including the initial Credit Extension, is
contingent upon Borrower’s compliance with Section 3.1 above, and is further
subject to the following conditions:

(a)timely receipt by Bank of the Loan Advance/Paydown Request Form as provided
in Section 2.1;

(b)Borrower shall be in compliance with Section 6.6 hereof;

(c)in Bank’s good faith sole discretion, there has not been a Material Adverse
Effect; and

(d)the representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Loan
Advance/Paydown Request Form and on the effective date of each Credit Extension
as though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true and correct in all material
respects as of such date, and provided further that any representation or
warranty that contains a materiality qualification therein shall be true and
correct in all respects).  The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2.

3.3Covenant to Deliver.  

(a)Except as otherwise provided in Section 3.3(b), Borrower agrees to deliver to
Bank each item required to be delivered to Bank under this Agreement as a
condition

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precedent to any Credit Extension.  Borrower expressly agrees that a Credit
Extension made prior to the receipt by Bank of any such item shall not
constitute a waiver by Bank of Borrower’s obligation to deliver such item, and
the making of any Credit Extension in the absence of a required item shall be in
Bank’s sole discretion.

(b)Unless otherwise provided in writing, within thirty (30) days after the
Closing Date, Bank shall have received, in form and substance satisfactory to
Bank:

(i)a landlord waiver with respect to Borrower’s leased location at 302 East
Pettigrew Street, Dibrell Building, Suite A-100, Durham, NC 27701, and a
landlord or bailee waiver for each other location where Borrower maintains
Collateral with an aggregate book value in excess of $250,000.

4.CREATION OF SECURITY INTEREST.

4.1Grant of Security Interest.  Borrower grants and pledges to Bank a continuing
security interest in the Collateral to secure prompt repayment of any and all
Obligations and to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents.  Except for Permitted Liens or as
disclosed in the Schedule, such security interest constitutes a valid,
first-priority security interest in the presently existing Collateral, and will
constitute a valid, first-priority security interest in later-acquired
Collateral.  Borrower also hereby agrees not to sell, transfer, assign,
mortgage, pledge, lease, grant a security interest in, or encumber any of its
Intellectual Property (other than through the licensing thereof to third parties
pursuant to clause (b) of the definition of “Permitted
Transfer”).  Notwithstanding any termination of this Agreement or of any filings
undertaken related to Bank’s rights under the Code, Bank’s Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.

4.2Perfection of Security Interest.  Borrower authorizes Bank to file at any
time financing statements, continuation statements, and amendments thereto that
(i) either specifically describe the Collateral or describe the Collateral as
all assets of Borrower of the kind pledged hereunder, and (ii) contain any other
information required by the Code for the sufficiency of filing office acceptance
of any financing statement, continuation statement, or amendment, including
whether Borrower is an organization, the type of organization and any
organizational identification number issued to Borrower, if
applicable.  Borrower shall have possession of the Collateral, except where
expressly otherwise provided in this Agreement or where Bank chooses to perfect
its security interest by possession in addition to the filing of a financing
statement.  Where Collateral is in possession of a third party bailee, Borrower
shall take such steps as Bank reasonably requests for Bank to (i) subject to
Section 7.11 below, obtain an acknowledgment, in form and substance satisfactory
to Bank, of the bailee that the bailee holds such Collateral for the benefit of
Bank, and (ii) obtain “control” of any Collateral consisting of investment
property, deposit accounts, letter-of-credit rights or electronic chattel paper
(as such items and the term “control” are defined in Revised Article 9 of the
Code) by causing the securities intermediary or depositary institution or
issuing bank to execute a control agreement in form and substance satisfactory
to Bank.  Borrower will not create any chattel paper without placing a legend on
the chattel paper acceptable to Bank indicating that Bank has a security
interest in the chattel paper.  Borrower from time to time may deposit with Bank
specific cash collateral to secure specific Obligations; Borrower authorizes
Bank to hold such specific balances in pledge and to decline to

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honor any drafts thereon or any request by Borrower or any other Person to pay
or otherwise transfer any part of such balances for so long as the specific
Obligations are outstanding.  If Borrower shall acquire a commercial tort claim
in excess of $250,000 (for any single claim or related claims), Borrower shall
promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Bank.  Borrower shall take such
other actions as Bank reasonably requests to perfect its security interests
granted under this Agreement.

4.3Pledge of Collateral.  Borrower hereby pledges, assigns and grants to Bank a
security interest in all the Shares, together with all proceeds and
substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations.  On the Closing Date, the
certificate or certificates for the Shares will be delivered to Bank,
accompanied by an instrument of assignment duly governing the Shares. Borrower
shall cause the books of each entity whose Shares are part of the Collateral and
any transfer agent to reflect the pledge of the Shares.  Upon the occurrence of
an Event of Default hereunder, Bank may effect the transfer of any securities
included in the Collateral (including but not limited to the Shares) into the
name of Bank and cause new certificates representing such securities to be
issued in the name of Bank or its transferee.  Unless an Event of Default shall
have occurred and be continuing, Borrower shall be entitled to exercise any
voting rights with respect to the Shares and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms.  All such rights to vote and give
consents, waivers and ratifications shall terminate upon notice from Bank to
Borrower following the occurrence and during the continuance of an Event of
Default.

5.REPRESENTATIONS AND WARRANTIES.

Borrower represents and warrants as follows:

5.1Due Organization and Qualification.  Borrower and each Subsidiary is duly
existing under the laws of the state in which it is organized and qualified and
licensed to do business in any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where the failure
to do so would not reasonably be expected to cause a Material Adverse Effect.  

5.2Due Authorization; No Conflict.  The execution, delivery, and performance of
the Loan Documents are within Borrower’s powers, have been duly authorized, and
are not in conflict with nor constitute a breach of any provision contained in
Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement by which it is bound,
except to the extent such default would not reasonably be expected to cause a
Material Adverse Effect.

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5.3Collateral.  Borrower has rights in or the power to transfer the Collateral,
and its title to the Collateral is free and clear of Liens, adverse claims, and
restrictions on transfer or pledge except for Permitted Liens.  Other than
movable items of personal property such as laptop computers, all Collateral
having an aggregate book value in excess of $100,000, is located solely in the
Collateral States.  All Inventory is in all material respects of good and
merchantable quality, free from all material defects, except for Inventory for
which adequate reserves have been made.  Except as set forth in the Schedule,
none of Borrower’s Cash is maintained or invested with a Person other than Bank
or Bank’s affiliates.

5.4Intellectual Property.  Borrower is the sole owner of the Intellectual
Property created or purchased by Borrower, except for licenses granted by
Borrower to its customers in the ordinary course of business.  To the best of
Borrower’s knowledge, each of the copyrights, trademarks and patents created or
purchased by Borrower is valid and enforceable, and no part of the Intellectual
Property created or purchased by Borrower has been judged invalid or
unenforceable, in whole or in part, and no claim has been made to Borrower that
any part of the Intellectual Property created or purchased by Borrower violates
the rights of any third party except to the extent such claim would not
reasonably be expected to cause a Material Adverse Effect.  

5.5Name; Location of Chief Executive Office.  Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof, and its exact legal name is as set forth
in the first paragraph of this Agreement.  The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.

5.6Litigation.  Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or
administrative agency in which a likely adverse decision would reasonably be
expected to have a Material Adverse Effect.

5.7No Material Adverse Change in Financial Statements.  All consolidated and
consolidating financial statements related to Borrower and any Subsidiary that
are delivered by Borrower to Bank fairly present in all material respects
Borrower’s consolidated and consolidating financial condition as of the date
thereof and Borrower’s consolidated and consolidating results of operations for
the period then ended.  There has not been a material adverse change in the
consolidated or in the consolidating financial condition of Borrower since the
date of the most recent of such financial statements submitted to Bank.

5.8Solvency, Payment of Debts.  Borrower is able to pay its debts (including
trade debts) as they mature; the fair saleable value of Borrower’s assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; and Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement.

5.9Compliance with Laws and Regulations.  Borrower and each Subsidiary have met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA.  No event has occurred resulting from Borrower’s failure
to comply with ERISA that is reasonably likely to result in Borrower’s incurring
any liability that could have a Material Adverse Effect.  Borrower is not an
“investment company” or a company “controlled” by an

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“investment company” within the meaning of the Investment Company Act of
1940.  Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations T and U of the Board of
Governors of the Federal Reserve System).  Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, the violation of which
would reasonably be expected to have a Material Adverse Effect.  Borrower and
each Subsidiary have filed or caused to be filed all tax returns required to be
filed, and have paid, or have made adequate provision for the payment of, all
taxes reflected therein except those being contested in good faith with adequate
reserves under GAAP or where the failure to file such returns or pay such taxes
would not reasonably be expected to have a Material Adverse Effect.

5.10Subsidiaries.  Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.

5.11Government Consents.  Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted,
except where the failure to do so would not reasonably be expected to cause a
Material Adverse Effect.

5.12Inbound Licenses.  Except as disclosed on the Schedule, and except for
non-customized, “off-the-shelf” licenses, Borrower is not a party to, nor is
bound by, any material license or other agreement important for the conduct of
Borrower’s business that prohibits or otherwise restricts Borrower from granting
a security interest in Borrower’s interest in such license or agreement or any
other property important for the conduct of Borrower’s business, other than this
Agreement or the other Loan Documents.

5.13Shares.  Borrower has full power and authority to create a first lien on the
Shares, and no disability or contractual obligations exists that would prohibit
Borrower from pledging the Shares pursuant to this Agreement.  To Borrower’s
knowledge, there are no subscriptions, warrants, rights of first refusal or
other restrictions on transfer relative to, or options exercisable with respect
to the Shares.  The Shares have been and will remain duly authorized and validly
issued, and are fully paid and non-assessable.  To Borrower’s knowledge, the
Shares are not the subject of any present or threatened suit, action,
arbitration, administrative or other proceeding, and Borrower knows of no
reasonable grounds for the institution of any such proceedings.

5.14Full Disclosure.  No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank taken
together with all such certificates and written statements furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading in light of the circumstances in which they were made,
it being recognized by Bank that the projections and forecasts provided by
Borrower in good faith and based upon reasonable assumptions are not to be
viewed as facts and that actual results during the period or periods covered by
any such projections and forecasts may differ from the projected or forecasted
results.

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6.AFFIRMATIVE COVENANTS.

Borrower covenants that, until payment in full of all outstanding Obligations,
and for so long as Bank may have any commitment to make a Credit Extension
hereunder, Borrower shall do all of the following:

6.1Good Standing and Government Compliance.  Borrower shall maintain its and
each of its Subsidiaries’ corporate existence and good standing in the
respective states of formation, shall maintain qualification and good standing
in each other jurisdiction in which the failure to so qualify would reasonably
be expected to have a Material Adverse Effect, and shall furnish to Bank the
organizational identification number issued to Borrower by the authorities of
the state in which Borrower is organized, if applicable.  Borrower shall meet,
and shall cause each Subsidiary to meet, the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA.  Borrower
shall comply, and shall cause each Subsidiary to comply, with all statutes,
laws, ordinances and government rules and regulations to which it is subject,
and shall maintain, and shall cause each of its Subsidiaries to maintain, in
force all licenses, approvals and agreements, the loss of which or failure to
comply with which would reasonably be expected to have a Material Adverse
Effect.

6.2Financial Statements, Reports, Certificates, Collateral Audits.  

(a)Borrower shall deliver to Bank:  (i) as soon as available, but in any event
within 30 days after the end of each calendar month, a company prepared
consolidated and consolidating balance sheet,  income statement, and statement
of cash flows covering Borrower’s operations during such period, in a form
reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as
soon as available, but in any event within 180 days after the end of Borrower’s
fiscal year, audited consolidated and consolidating financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an opinion which is either unqualified, qualified only for going concern so long
as Borrower’s investors provide additional equity as needed (or qualified for
going concern as a result of the scheduled occurrence of the Maturity Date), or
otherwise consented to in writing by Bank on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) annual budget approved by Borrower’s Board of Directors as soon as
available but not later than 15 days after the end of each fiscal year during
the term hereof; (iv) if applicable, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed
with the Securities and Exchange Commission; (v) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could reasonably be expected to result in damages or costs
to Borrower or any Subsidiary of $500,000 or more; (vi) promptly upon receipt,
each management letter prepared by Borrower’s independent certified public
accounting firm regarding Borrower’s management control systems; and (vii) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.  

(b)Within 30 days after the last day of each month, Borrower shall deliver to
Bank detailed aged listings by invoice date of accounts receivable and accounts
payable.

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(c)Within 30 days after the last day of each month, Borrower shall deliver to
Bank with the monthly financial statements a Compliance Certificate certified as
of the last day of the applicable month and signed by a Responsible Officer in
substantially the form of Exhibit D hereto.

(d)As soon as possible and in any event within 3 Business Days after becoming
aware of the occurrence or existence of an Event of Default hereunder, a written
statement of a Responsible Officer setting forth details of the Event of
Default, and the action which Borrower has taken or proposes to take with
respect thereto.

(e)Bank (through any of its officers, employees, or agents) shall have the
right, upon reasonable prior notice, from time to time during Borrower’s usual
business hours but no more than once a year (unless an Event of Default has
occurred and is continuing), to inspect Borrower’s Books and to make copies
thereof and to check, test, inspect, audit and appraise the Collateral at
Borrower’s expense in order to verify Borrower’s financial condition or the
amount, condition of, or any other matter relating to, the Collateral.

(f)Borrower shall deliver to Bank, promptly following the end of each calendar
quarter, quarterly strategic business updates in a form satisfactory to Bank.

Borrower may deliver to Bank on an electronic basis any certificates, reports or
information required pursuant to this Section 6.2, and Bank shall be entitled to
rely on the information contained in the electronic files, provided that Bank in
good faith believes that the files were delivered by a Responsible
Officer.  Borrower shall include a submission date on any certificates and
reports to be delivered electronically.

6.3Inventory and Equipment; Returns.  Borrower shall keep all Inventory and
Equipment in good and merchantable condition, ordinary wear and tear excepted,
free from all material defects except for Inventory and Equipment (i) sold in
the ordinary course of business, and (ii) for which adequate reserves have been
made, in all cases in the United States and such other locations as to which
Borrower gives prior written notice.  Returns and allowances, if any, as between
Borrower and its account debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist on the Closing
Date.  Borrower shall promptly notify Bank of all returns and recoveries and of
all disputes and claims involving inventory having a book value of more than
$250,000.

6.4Taxes.  Borrower shall make, and cause each Subsidiary to make, due and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, including, but not limited
to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability,
and will execute and deliver to Bank, on demand, proof satisfactory to Bank
indicating that Borrower or a Subsidiary has made such payments or deposits and
any appropriate certificates attesting to the payment or deposit thereof;
provided that Borrower or a Subsidiary need not make any payment if the amount
or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by Borrower
or such Subsidiary.

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6.5Insurance.  Borrower, at its expense, shall (i) keep the Collateral insured
against loss or damage, and (ii) maintain liability and other insurance, in each
case as ordinarily insured against by other owners in businesses similar to
Borrower’s.  All such policies of insurance shall be in such form, with such
companies, and in such amounts as reasonably satisfactory to Bank.  All policies
of property insurance shall contain a lender’s loss payable endorsement, in a
form satisfactory to Bank, showing Bank as lender's loss payee.  All liability
insurance policies shall show, or have endorsements showing, Bank as an
additional insured.  Any such insurance policies shall specify that the insurer
must give at least 20 days’ notice to Bank before canceling its policy for any
reason.  Within 30 days of the Closing Date, Borrower shall cause to be
furnished to Bank a copy of its policies including any endorsements covering
Bank or showing Bank as an additional insured.  Upon Bank’s request, Borrower
shall deliver to Bank certified copies of the policies of insurance and evidence
of all premium payments.  Proceeds payable under any casualty policy will, at
Borrower’s option, be payable to Borrower to replace the property subject to the
claim, provided that any such replacement property shall be deemed Collateral in
which Bank has been granted a first priority security interest, provided that if
an Event of Default has occurred and is continuing, all proceeds payable under
any such policy shall, at Bank’s option, be payable to Bank to be applied on
account of the Obligations.

6.6Primary Depository.  At all times when the aggregate balance of Borrower’s
Cash at Bank and Bank’s affiliates is less than the Deposit Account Threshold,
Borrower shall maintain, and shall cause all of its Subsidiaries to maintain,
all depository and operating accounts with Bank and all investment accounts with
Bank or Bank’s affiliates. At all times when the aggregate balance of Borrower’s
Cash at Bank and Bank’s affiliates equals or exceeds the Deposit Account
Threshold, Borrower and its Subsidiaries may maintain Cash balances that exceed
the Deposit Account Threshold in depository, operating, and investments accounts
outside of Bank or Bank’s affiliates, so long as each such account outside of
Bank is subject to a duly-executed account control agreement in favor of Bank,
and in form and substance reasonably satisfactory to Bank. Prior to Borrower
maintaining any investment accounts with Bank’s affiliates, Borrower, Bank, and
any such affiliate shall have entered into a securities account control
agreement with respect to any such investment accounts, in form and substance
reasonably satisfactory to Bank.

6.7Financial Covenants. Borrower shall at all times maintain the following
financial ratios and covenants:

(a)Minimum Cash.  At all times, an aggregate balance of Cash at Bank and Bank’s
Affiliates (excluding any amounts held in Excluded Accounts) equal to or greater
than the aggregate outstanding amount of Obligations. Borrower acknowledges and
agrees that any request by Borrower or any other Person to pay or otherwise
transfer funds that would cause Borrower’s balance of Cash at Bank to be less
than the amount required pursuant to this Section 6.7(a) shall constitute an
Event of Default under this Agreement.  

6.8Intellectual Property.

(a)Borrower shall promptly give Bank written notice of any applications or
registrations of intellectual property rights filed with the United States
Patent and

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Trademark Office, including the date of such filing and the registration or
application numbers, if any.

(b)Borrower shall use commercially reasonably efforts to (i) protect, defend and
maintain the validity and enforceability of the trade secrets, Trademarks,
Patents and Copyrights, (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise Bank
in writing of material infringements detected, and (iii) not allow any material
Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the
public without the written consent of Bank, which shall not be unreasonably
withheld.

6.9Consent of Inbound Licensors.  Prior to entering into or becoming bound by
any material inbound license or agreement (other than non-customized,
“off-the-shelf” licenses), Borrower shall:  (i) provide written notice to Bank
of the material terms of such license or agreement with a description of its
likely impact on Borrower’s business or financial condition; and (ii) in good
faith use commercially reasonable efforts to obtain the consent of, or waiver
by, any person whose consent or waiver is necessary for Borrower’s interest in
such licenses or contract rights to be deemed Collateral and for Bank to have a
security interest in it that might otherwise be restricted by the terms of the
applicable license or agreement, whether now existing or entered into in the
future, provided, however, that the failure to obtain any such consent or waiver
shall not constitute a default under this Agreement.

6.10 Creation/Acquisition of Subsidiaries. In the event any Borrower or any
Subsidiary of any Borrower creates or acquires any Subsidiary, Borrower or such
Subsidiary shall promptly notify Bank of such creation or acquisition, and
Borrower or such Subsidiary shall take all actions reasonably requested by Bank
to achieve any of the following with respect to such “New Subsidiary” (defined
as a Subsidiary formed after the date hereof during the term of this
Agreement):  (i) to cause New Subsidiary to become either a co-Borrower or a
secured guarantor with respect to the Obligations hereunder, if such New
Subsidiary is organized under the laws of the United States; and (ii) to grant
and pledge to Bank a perfected security interest in 100% of the stock, units or
other evidence of ownership held by Borrower or its Subsidiaries of any such New
Subsidiary which is organized under the laws of the United States, and 65% of
the stock, units or other evidence of ownership held by Borrower or its
Subsidiaries of any such New Subsidiary which is not organized under the laws of
the United States.

6.11Further Assurances.  At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.

7.NEGATIVE COVENANTS.

Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until the outstanding Obligations are paid in full or for so long
as Bank may have any commitment to make any Credit Extensions, Borrower will not
do any of the following without Bank’s prior written consent, which shall not be
unreasonably withheld:

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7.1Dispositions.  Convey, sell, lease, license, transfer or otherwise dispose of
(collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, or move cash balances on deposit
with Bank to accounts opened at another financial institution, other than
Permitted Transfers.

7.2Change in Name, Location, Executive Office, or Executive Management; Change
in Business; Change in Fiscal Year; Change in Control.  Change its name or the
state of Borrower’s formation or relocate its chief executive office without 30
days prior written notification to Bank; replace or suffer the departure of its
chief executive officer or chief financial officer without delivering written
notification to Bank within 10 days; fail to appoint an interim replacement or
fill a vacancy in the position of chief executive officer or chief financial
officer for more than 30 consecutive days; suffer a change on Parent’s board of
directors which results in the failure of at least one partner of venBio (or its
Affiliates) to serve as a voting member without the prior written consent of
Bank, which may be withheld in Bank’s sole discretion; take action to liquidate,
wind up, or otherwise cease to conduct business in the ordinary course; engage
in any business, or permit any of its Subsidiaries to engage in any business,
other than or reasonably related or incidental to the businesses currently
engaged in by Borrower; change its fiscal year end; have a Change in Control.

7.3Mergers or Acquisitions.  Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization (other than mergers or consolidations of a Subsidiary into another
Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person except where (a) each of the following conditions is applicable:  (i) the
consideration paid in connection with such transactions (including assumption of
liabilities) does not in the aggregate exceed $500,000 during any fiscal year,
(ii) no Event of Default has occurred, is continuing or would exist after giving
effect to such transactions, (iii) such transactions do not result in a Change
in Control, and (iv) Borrower is the surviving entity; or (b) the Obligations
are repaid in full concurrently with the closing of any merger or consolidation
of Borrower in which Borrower is not the surviving entity; provided, however,
that Borrower shall not, without Bank’s prior written consent, enter into any
binding contractual arrangement with any Person to attempt to facilitate a
merger or acquisition of Borrower, unless (i) no Event of Default exists when
such agreement is entered into by Borrower, (ii) such agreement does not give
such Person the right to claim any fee, payment or damages from any parties,
other than from Borrower or Borrower’s investors, in connection with a sale of
Borrower’s stock or assets pursuant to or resulting from an assignment for the
benefit of creditors, an asset turnover to Borrower’s creditors (including,
without limitation, Bank), foreclosure, bankruptcy or similar liquidation, and
(iii) Borrower notifies Bank in advance of entering into such an agreement
(provided, the failure to give such notification shall not be deemed a material
breach of this Agreement).

7.4Indebtedness.  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 Indebtedness
to Bank.

7.5Encumbrances.  Create, incur, assume or allow any Lien with respect to its
property, or assign or otherwise convey any right to receive income, including
the sale of any

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Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens, or covenant to any other Person (other than (i) the licensors of
in-licensed property with respect to such property or (ii) the lessors of
specific equipment or lenders financing specific equipment with respect to such
leased or financed equipment) that Borrower in the future will refrain from
creating, incurring, assuming or allowing any Lien with respect to any of
Borrower’s property.

7.6Distributions.  Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock,
except that Borrower may (i) repurchase the stock of former employees or
directors pursuant to stock repurchase agreements in an aggregate amount not to
exceed $500,000 in any fiscal year, as long as an Event of Default does not
exist prior to such repurchase or would not exist after giving effect to such
repurchase, and (ii) repurchase the stock of former employees or directors
pursuant to stock repurchase agreements by the cancellation of indebtedness owed
by such former employees or directors to Borrower regardless of whether an Event
of Default exists.

7.7Investments.  Directly or indirectly acquire or own an Investment in, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments, or maintain or invest any of its investment
property with a Person other than Bank or permit any Subsidiary to do so unless
such Person has entered into a control agreement with Bank, in form and
substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party
to, or be bound by, an agreement that restricts such Subsidiary from paying
dividends or otherwise distributing property to Borrower.

7.8Capitalized Expenditures.  Make Capitalized Expenditures in excess of Forty
Million Dollars ($40,000,000) in the aggregate during each fiscal year of
Borrower.

7.9Transactions with Affiliates.  Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for (i)
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person, and (ii)
the sale of Borrower’s equity securities in bona fide transactions with
Borrower’s existing investors that do not result in a Change in Control.      

7.10Subordinated Debt.  Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision affecting
Bank’s rights contained in any documentation relating to the Subordinated Debt
without Bank’s prior written consent.

7.11Inventory and Equipment.  Store the Inventory or the Equipment of an
aggregate book value in excess of $500,000 with a bailee, warehouseman,
collocation facility or similar third party unless the third party has been
notified of Bank’s security interest and Bank (a) has received an acknowledgment
from the third party that it is holding or will hold the Inventory or Equipment
for Bank’s benefit or (b) is in possession of the warehouse receipt, where
negotiable, covering such Inventory or Equipment.  Except for Inventory sold in
the ordinary course of business and for movable items of personal property
having an aggregate book value not in excess of $200,000, and except for such
other locations as Bank may approve in writing, Borrower shall keep the
Inventory and Equipment only at the location set forth in Section 10 and such
other

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locations of which Borrower gives Bank prior written notice and as to which Bank
is able to take such actions as may be necessary to perfect its security
interest or to obtain a bailee’s acknowledgment of Bank’s rights in the
Collateral.

7.12No Investment Company; Margin Regulation.  Become or be controlled by an
“investment company,” within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose.

8.EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

8.1Payment Default.  If Borrower fails to pay any of the Obligations when due;

8.2Covenant Default.  

(a)If Borrower fails to perform any obligation under Sections 6.2 (financial
reporting), 6.4 (taxes), 6.5 (insurance), 6.6 (primary accounts), or 6.7
(financial covenants), or violates any of the covenants contained in Article 7
of this Agreement; or

(b)If Borrower fails or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition or covenant
that can be cured, has failed to cure such default within 15 days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
15 day period or cannot after diligent attempts by Borrower be cured within such
15 day period, and such default is likely to be cured within a reasonable time,
then Borrower shall have an additional reasonable period (which shall not in any
case exceed 30 days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default but no Credit Extensions will be made;

8.3Material Adverse Change.  If there occurs any circumstance or any
circumstances which would reasonably be expected to have a Material Adverse
Effect;

8.4Attachment.  If any material portion of Borrower’s assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within 10 days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any material portion of Borrower’s assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county,

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municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be made during such cure period);

8.5Insolvency.  If Borrower becomes insolvent, or if an Insolvency Proceeding is
commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within 45 days (provided that no Credit
Extensions will be made prior to the dismissal of such Insolvency Proceeding);

8.6Other Agreements.  If (a) there is a default or other failure to perform in
any agreement to which Borrower is a party with a third party or parties (i)
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount in excess of
$500,000, (ii) in connection with any lease of real property material to the
conduct of Borrower’s business, if such default or failure to perform gives
another party the right to terminate the lease, or (iii) that would reasonably
be expected to have a Material Adverse Effect, or (b) any default or event of
default (however designated) shall occur with respect to any Subordinated Debt
which is not cured within any applicable cure period;

8.7Judgments.  If a final, uninsured judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least $500,000 shall
be rendered against Borrower and shall remain unsatisfied and unstayed for a
period of 10 days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of the judgment); or

8.8Misrepresentations.  If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.

9.BANK’S RIGHTS AND REMEDIES.

9.1Rights and Remedies.  Upon the occurrence and during the continuance of an
Event of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:

(a)Declare all Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise, immediately due and payable (provided that
upon the occurrence of an Event of Default described in Section 8.5
(insolvency), all Obligations shall become immediately due and payable without
any action by Bank);

(b)Demand that Borrower  (i) deposit cash with Bank in an amount equal to the
amount of any Letters of Credit remaining undrawn, as collateral security for
the repayment of any future drawings under such Letters of Credit, and (ii) pay
in advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit, and Borrower shall promptly deposit and
pay such amounts;

(c)Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement or under any other agreement between Borrower and Bank;

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(d)Settle or adjust disputes and claims directly with account debtors for
amounts, upon terms and in whatever order that Bank reasonably considers
advisable;

(e)Make such payments and do such acts as Bank considers necessary or reasonable
to protect its security interest in the Collateral.  Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to Bank
as Bank may designate.  Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank’s determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection
therewith.  With respect to any of Borrower’s owned premises, Borrower hereby
grants Bank a license to enter into possession of such premises and to occupy
the same, without charge, in order to exercise any of Bank’s rights or remedies
provided herein, at law, in equity, or otherwise;

(f)place a “hold” on any account maintained with Bank and not honor any
presentment (including but not limited to checks, wires and ACH drafts) against
such account at Bank and/or deliver a notice of exclusive control, any
entitlement order, or other directions or instructions pursuant to any control
agreement or similar agreements providing control of any Collateral;

(g)Set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Bank, and (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank;

(h)Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the
Collateral.  Bank is hereby granted a license or other right, solely pursuant to
the provisions of this Section 9.1, to use, without charge, Borrower’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements shall inure to Bank’s benefit;

(i)Sell the Collateral at either a public or private sale, or both, by way of
one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever
manner or order Bank deems appropriate.  Bank may sell the Collateral without
giving any warranties as to the Collateral.  Bank may specifically disclaim any
warranties of title or the like.  This procedure will not be considered
adversely to affect the commercial reasonableness of any sale of the
Collateral.  If Bank sells any of the Collateral upon credit, Borrower will be
credited only with payments actually made by the purchaser, received by Bank,
and applied to the indebtedness of the purchaser.  If the purchaser fails to pay
for the Collateral, Bank may resell the Collateral and Borrower shall be
credited with the proceeds of the sale;

(j)Bank may credit bid and purchase at any public sale;

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(k)Apply for the appointment of a receiver, trustee, liquidator or conservator
of the Collateral, without notice and without regard to the adequacy of the
security for the Obligations and without regard to the solvency of Borrower, any
guarantor or any other Person liable for any of the Obligations; and

(l)Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower.

Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.

9.2Power of Attorney.  Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank’s designated officers, or employees) as Borrower’s true and
lawful attorney to:  (a) send requests for verification of Accounts or notify
account debtors of Bank’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower’s policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; and
(g) file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral; provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in clause (g) above, regardless of whether an Event of
Default has occurred.  The appointment of Bank as Borrower’s attorney in fact,
and each and every one of Bank’s rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank’s obligation to provide advances hereunder is terminated.

9.3Accounts Collection.  At any time after the occurrence and during the
continuation of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank’s security interest in such funds and verify the amount of such
Account.  Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank’s trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.

9.4Bank Expenses.  If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms
of this Agreement, then Bank may do any or all of the following after reasonable
notice to Borrower:  (a) make payment of the same or any part thereof; and/or
(b) set up such reserves under the Revolving Line as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.5 of this
Agreement, and take any action with respect to such policies as Bank deems
prudent.  Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the

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Collateral.  Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.

9.5Bank’s Liability for Collateral.  Bank has no obligation to clean up or
otherwise prepare the Collateral for sale.  All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.

9.6No Obligation to Pursue Others.  Bank has no obligation to attempt to satisfy
the Obligations by collecting them from any other person liable for them and
Bank may release, modify or waive any collateral provided by any other Person to
secure any of the Obligations, all without affecting Bank’s rights against
Borrower.  Borrower waives any right it may have to require Bank to pursue any
other Person for any of the Obligations.

9.7Remedies Cumulative.  Bank’s rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative.  Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity.  No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower’s
part shall be deemed a continuing waiver.  No delay by Bank shall constitute a
waiver, election, or acquiescence by it.  No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.  Borrower expressly agrees that this Section 9.7 may not be waived
or modified by Bank by course of performance, conduct, estoppel or otherwise.

9.8Demand; Protest.  Except as otherwise provided in this Agreement, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment and any other notices relating to the Obligations.

10.NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
reporting required pursuant to Section 6.2 of this Agreement, which shall be
sent as directed in the monthly reporting forms provided by Bank) shall be
personally delivered or sent by a recognized overnight delivery service,
certified mail, postage prepaid, return receipt requested, or by telefacsimile
or electronic mail to Borrower or to Bank, as the case may be, at its addresses
set forth below:

If to Borrower:Precision Biosciences, Inc.
ELO Life Systems, Inc.

302 East Pettigrew Street

Dibrell Bldg., Suite A-100

Durham, NC 27701

Attn:  Abid Ansari, VP Finance

FAX: (____) _______________

E-Mail: abid.ansari@precisionbiosciences.com

If to Bank:Pacific Western Bank

20.

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406 Blackwell Street, Suite 240

Durham, North Carolina 27701

Attn: Loan Operations Manager

FAX: (919) 314-3080

E-Mail: loannotices@square1bank.com

with a copy to:Pacific Western Bank

406 Blackwell Street, Suite 240

Durham, North Carolina 27701

Attn:  Evan Travis

FAX: (919) 314-3090

The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

11.CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of North Carolina, without regard to principles of
conflicts of law.  Jurisdiction shall lie in the State of North Carolina.  All
disputes, controversies, claims, actions and similar proceedings arising with
respect to Borrower’s account or any related agreement or transaction shall be
brought in the General Court of Justice of North Carolina sitting in Durham
County, North Carolina or the United States District Court for the Middle
District of North Carolina, except as provided below with respect to arbitration
of such matters.  BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH OF THEM, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT
BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR
BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.  If the jury
waiver set forth in this Section 11 is not enforceable, then any dispute,
controversy, claim, action or similar proceeding arising out of or relating to
this Agreement, the Loan Documents or any of the transactions contemplated
therein shall be settled by final and binding arbitration held in Durham County,
North Carolina in accordance with the then current Commercial Arbitration Rules
of the American Arbitration Association by one arbitrator appointed in
accordance with those rules.  The arbitrator shall apply North Carolina law to
the resolution of any dispute, without reference to rules of conflicts of law or
rules of statutory arbitration. Judgment upon any award resulting from
arbitration may be entered into and enforced by any state or federal court
having jurisdiction thereof.  Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this Section.  The
costs and expenses of the arbitration, including without limitation, the
arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees,
incurred by the parties to

21.

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the arbitration may be awarded to the prevailing party, in the discretion of the
arbitrator, or may be apportioned between the parties in any manner deemed
appropriate by the arbitrator.  Unless and until the arbitrator decides that one
party is to pay for all (or a share) of such costs and expenses, both parties
shall share equally in the payment of the arbitrator’s fees as and when billed
by the arbitrator.

12.GENERAL PROVISIONS.

12.1Successors and Assigns.  This Agreement shall bind and inure to the benefit
of the respective successors and permitted assigns of each of the parties and
shall bind all persons who become bound as a debtor to this Agreement; provided,
however, that neither this Agreement nor any rights hereunder may be assigned by
Borrower without Bank’s prior written consent, which consent may be granted or
withheld in Bank’s sole discretion.  Bank shall have the right without the
consent of or notice to Borrower to sell, assign, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank’s obligations,
rights and benefits hereunder. Notwithstanding the preceding sentence, an
assignment or transfer by Bank of its obligations, rights, and benefits
hereunder shall require the consent of Borrower (not to be unreasonably
withheld, delayed, or conditioned) if ( a) no Event of Default has occurred at
any time during the term of this Agreement, and (b) such assignment or transfer
is not in connection with a merger or acquisition of the stock or assets of Bank
generally or to an Affiliate of Bank.

12.2Indemnification.  Borrower shall defend, indemnify and hold harmless Bank
and its officers, directors, employees, affiliates, advisors and agents
against:  (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other party in connection with the transactions contemplated by
this Agreement; and (b) all losses or Bank Expenses in any way suffered,
incurred, or paid by Bank, its officers, employees and agents as a result of or
in any way arising out of, following, or consequential to transactions between
Bank and Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses caused by
Bank’s gross negligence or willful misconduct as determined by a court of
competent jurisdiction by final and non-appealable order.

12.3Time of Essence.  Time is of the essence for the performance of all
obligations set forth in this Agreement.

12.4Severability of Provisions.  Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

12.5Amendments in Writing, Integration. All amendments to or terminations of
this Agreement or the other Loan Documents must be in writing.  All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement
and the other Loan Documents, if any, are merged into this Agreement and the
Loan Documents.

12.6Counterparts.  This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute

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but one and the same Agreement.  Executed copies of the signature pages of this
Agreement sent by facsimile or transmitted electronically in Portable Document
Format (“PDF”), or any similar format, shall be treated as originals, fully
binding and with full legal force and effect, and the parties waive any rights
they may have to object to such treatment.

12.7Survival.  All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding or Bank has any obligation to make any Credit Extension to
Borrower.  The obligations of Borrower to indemnify Bank with respect to the
expenses, damages, losses, costs and liabilities described in Section 12.2 shall
survive until all applicable statute of limitations periods with respect to
actions that may be brought against Bank have run.

12.8Confidentiality and Publicity.  

(a)Borrower shall not, and shall not permit any of its Affiliates to:  (i)
publish or disclose any materials containing Bank’s name, including in any press
release or otherwise in connection with any advertising or marketing, without
first obtaining Bank’s prior written consent, or (ii) use Bank’s name (or the
name of any of its Affiliates) in connection with its operations or
business.  Notwithstanding the foregoing, Bank acknowledges that Borrower may
disclose and make available to the public materials containing Bank’s name or
other information to the extent required by the Securities and Exchange
Commission or in connection with Borrower’s submission of reports or information
to the Securities and Exchange Commission.

(b) In handling any confidential information, Bank shall exercise commercially
reasonable efforts to maintain in confidence, in accordance with its customary
procedures for handling confidential information, all written non-public
information furnished to Bank on a confidential basis clearly identified at the
time of delivery as such (“Confidential Information”) other than any such
Confidential Information that becomes generally available to the public or
becomes available to Bank from a source other than Borrower and that is not
known to Bank to be subject to confidentiality obligations; provided, that Bank
and its Affiliates shall have the right to disclose Confidential Information to:
(i) such Person’s Affiliates; (ii) such Person or such Person’s Affiliates’
lenders, funding sources, or financing sources; (iii) such Person’s or such
Person’s Affiliates’ directors, officers, trustees, partners, members, managers,
employees, agents, advisors, representatives, attorneys, equity owners,
professional consultants, portfolio management services and rating agencies;
(iv) any successor or assign of Bank; (v) any Person to whom Bank offers to
sell, assign or transfer any Credit Extension or any part thereof or any
interest or participation therein; (vi) any Person that provides statistical
analysis and/or information services to Bank or its Affiliates; and (vii) any
Person (A) to the extent required by it by law, (B) as may be required in
connection with the examination, audit, or similar investigation of Bank, (C) in
response to any subpoena or other legal process or informal investigative
demand, (D) in connection with any litigation, or (E) in connection with the
actual or potential exercise or enforcement of any right or remedy under any
Loan Document.  The obligations of Bank and its Affiliates under this Section
12.8 shall supersede and replace any other confidentiality obligations agreed to
by Bank or its Affiliates.

13.CO-BORROWER PROVISIONS.

23.

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13.1Primary Obligation.  This Agreement is a primary and original obligation of
each Borrower and shall remain in effect notwithstanding future changes in
conditions, including any change of law or any invalidity or irregularity in the
creation or acquisition of any Obligations or in the execution or delivery of
any agreement between Bank and any Borrower.  Each Borrower shall be liable for
existing and future Obligations as fully as if all of all Credit Extensions were
advanced to such Borrower.  Bank may rely on any certificate or representation
made by any Borrower as made on behalf of, and binding on, all Borrowers,
including without limitation Disbursement Request Forms and Compliance
Certificates.

13.2Enforcement of Rights.  Borrowers are jointly and severally liable for the
Obligations and Bank may proceed against one or more of the Borrowers to enforce
the Obligations without waiving its right to proceed against any of the other
Borrowers.

13.3Borrowers as Agents.  Each Borrower appoints the other Borrower as its agent
with all necessary power and authority to give and receive notices, certificates
or demands for and on behalf of both Borrowers, to act as disbursing agent for
receipt of any Credit Extensions on behalf of each Borrower and to apply to Bank
on behalf of each Borrower for Credit Extensions, any waivers and any
consents.  This authorization cannot be revoked, and Bank need not inquire as to
each Borrower’s authority to act for or on behalf of Borrower.

13.4Subrogation and Similar Rights.  Notwithstanding any other provision of this
Agreement or any other Loan Document, each Borrower irrevocably waives all
rights that it may have at law or in equity (including, without limitation, any
law subrogating Borrower to the rights of Bank under the Loan Documents) to seek
contribution, indemnification, or any other form of reimbursement from any other
Borrower, or any other Person now or hereafter primarily or secondarily liable
for any of the Obligations, for any payment made by Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise.  Any agreement
providing for indemnification, reimbursement or any other arrangement prohibited
under this Section 13.4 shall be null and void.  If any payment is made to a
Borrower in contravention of this Section 13.4, such Borrower shall hold such
payment in trust for Bank and such payment shall be promptly delivered to Bank
for application to the Obligations, whether matured or unmatured.

13.5Waivers of Notice.  Except as otherwise provided in this Agreement, each
Borrower waives notice of acceptance hereof; notice of the existence, creation
or acquisition of any of the Obligations; notice of an Event of Default; notice
of the amount of the Obligations outstanding at any time; notice of intent to
accelerate; notice of acceleration; notice of any adverse change in the
financial condition of any other Borrower or of any other fact that might
increase Borrower’s risk; presentment for payment; demand; protest and notice
thereof as to any instrument; default; and all other notices and demands to
which Borrower would otherwise be entitled.  Each Borrower waives any defense
arising from any defense of any other Borrower, or by reason of the cessation
from any cause whatsoever of the liability of any other Borrower.  Bank’s
failure at any time to require strict performance by any Borrower of any
provision of the Loan Documents shall not waive, alter or diminish any right of
Bank thereafter to demand strict compliance and performance therewith.  Nothing
contained herein shall prevent Bank from

24.

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foreclosing on the Lien of any deed of trust, mortgage or other security
instrument, or exercising any rights available thereunder, and the exercise of
any such rights shall not constitute a legal or equitable discharge of any
Borrower.  Each Borrower also waives any defense arising from any act or
omission of Bank that changes the scope of Borrower’s risks hereunder.

13.6Subrogation Defenses.  Each Borrower hereby waives any defense based on
impairment or destruction of its subrogation or other rights against any other
Borrower and waives all benefits which might otherwise be available to it under
any statutory or common law suretyship defenses or marshalling rights, now or
hereafter in effect.

13.7Right to Settle, Release.

(a)The liability of Borrowers hereunder shall not be diminished by (i) any
agreement, understanding or representation that any of the Obligations is or was
to be guaranteed by another Person or secured by other property, or (ii) any
release or unenforceability, whether partial or total, of rights, if any, which
Bank may now or hereafter have against any other Person, including another
Borrower, or property with respect to any of the Obligations.

(b)Without affecting the liability of any Borrower hereunder, Bank may (i)
compromise, settle, renew, extend the time for payment, change the manner or
terms of payment, discharge the performance of, decline to enforce, or release
all or any of the Obligations with respect to a Borrower, (ii) grant other
indulgences to a Borrower in respect of the Obligations, (iii) modify in any
manner any documents relating to the Obligations with respect to a Borrower,
(iv) release, surrender or exchange any deposits or other property securing the
Obligations, whether pledged by a Borrower or any other Person, or (v)
compromise, settle, renew, or extend the time for payment, discharge the
performance of, decline to enforce, or release all or any obligations of any
guarantor, endorser or other Person who is now or may hereafter be liable with
respect to any of the Obligations.

13.8Subordination.  All indebtedness of a Borrower now or hereafter arising held
by another Borrower is subordinated to the Obligations and the Borrower holding
the indebtedness shall take all actions reasonably requested by Bank to effect,
to enforce and to give notice of such subordination.

25.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

Precision Biosciences, Inc.

 

 

By: /s/ Abid Ansari

 

Name: Abid Ansari

 

Title: Chief Financial Officer

 

 

ELO LIFE SYSTEMS, Inc.

 

 

By: /s/ Fayaz Khazi

 

Name: Fayaz Khazi

 

Title: Chief Executive Officer

 

 

PACIFIC WESTERN BANK

 

 

By: /s/ Zack Robbins

 

Name: Zack Robbins

 

Title: VP

 

 

 

26.

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EXHIBIT A

DEFINITIONS

“Accounts” means all presently existing and hereafter arising accounts, contract
rights, payment intangibles and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and
Borrower’s Books relating to any of the foregoing.

“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Line.

“Affiliate” means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person’s senior
executive officers, directors, and general partners.

“Authorized Officer” means someone designated as such in the corporate
resolution provided by Borrower to Bank in which this Agreement and the
transactions contemplated hereunder are authorized by Borrower’s board of
directors.  If Borrower provides subsequent corporate resolutions to Bank after
the Closing Date, the individual(s) designated as “Authorized Officer(s)” in the
most recently provided resolution shall be the only “Authorized Officers” for
purposes of this Agreement.

“Bank Expenses” means all reasonable costs or expenses (including reasonable
attorneys’ fees and expenses, whether generated by in-house or by outside
counsel) incurred in connection with the preparation, negotiation,
administration, and enforcement of the Loan Documents;  reasonable Collateral
audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether
generated in-house or by outside counsel) incurred in amending, enforcing or
defending the Loan Documents (including fees and expenses of appeal), incurred
before, during and after an Insolvency Proceeding, whether or not suit is
brought.

“Borrower’s Books” means all of Borrower’s books and records,
including:  ledgers; records concerning Borrower’s assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in the State of North Carolina are authorized or required to close.

“Capitalized Expenditures” means current period unfinanced cash expenditures
that are capitalized and amortized over a period of time in accordance with
GAAP, including but not limited to capitalized cash expenditures for capital
equipment, capitalized manufacturing and labor costs as they relate to
inventory, and capitalized cash expenditures for software development.

“Cash” means unrestricted cash and cash equivalents.

1.

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“Change in Control” shall mean (a) a transaction other than a bona fide equity
financing or series of financings on terms and from investors reasonably
acceptable to Bank in which any “person” or “group” (within the meaning of
Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of a sufficient number of shares of all
classes of stock then outstanding of Parent ordinarily entitled to vote in the
election of directors, empowering such “person” or “group” to elect a majority
of the Board of Directors of Parent, who did not have such power before such
transaction; or (b) Borrower shall cease to own and control 100% of the equity
interests in each of its Subsidiaries.

“Closing Date” means the date of this Agreement.

“Code” means the North Carolina Uniform Commercial Code as amended or
supplemented from time to time.

“Collateral” means the property described on Exhibit B attached hereto and all
Negotiable Collateral to the extent not described on Exhibit B, except to the
extent any such property (i) is non-assignable by its terms without the consent
of the licensor thereof or another party (but only to the extent such
prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections §25-9-406 and §25-9-408 of the Code), (ii) is property for
which the granting of a security interest therein is contrary to applicable law,
provided that upon the cessation of any such restriction or prohibition, such
property shall automatically become part of the Collateral, (iii) constitutes
the capital stock of a controlled foreign corporation (as defined in the IRC),
in excess of 65% of the voting power of all classes of capital stock of such
controlled foreign corporations entitled to vote, (iv) property (including any
attachments, accessions or replacements) that is subject to a Lien that is
permitted pursuant to clause (c) of the definition of Permitted Liens, if the
grant of a security interest with respect to such property pursuant to this
Agreement would be prohibited by the agreement creating such Permitted Lien or
would otherwise constitute a default thereunder, provided, that such property
will be deemed "Collateral" hereunder upon the termination and release of such
Permitted Lien, or (v) is an Excluded Account.

 

“Collateral State” means the state or states where the Collateral is located,
which is North Carolina.  

“Compliance Certificate” means a compliance certificate, in substantially the
form of Exhibit D attached hereto, executed by a Responsible Officer of
Borrower.

“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, without limitation, 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

2.

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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.

“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.

“Credit Card Line” means a Credit Extension of up to $75,000, to be used
exclusively for the provision of Credit Card Services.

“Credit Card Maturity Date” means the date that is 364 days after the Closing
Date.

“Credit Extension” means each Advance, the Credit Card Services provided under
the Credit Card Line, or any other extension of credit by Bank to or for the
benefit of Borrower hereunder.

“Deposit Account Threshold” means One Hundred Million Dollars ($100,000,000),
provided that the calculation of Borrower’s Cash held at Bank and Bank’s
affiliates shall exclude any amounts held in Excluded Accounts for purposes of
calculating whether Borrower meets the Deposit Account Threshold as of any date
of determination.

“Early Termination Fee” is defined in Section 2.5(c).

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

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

“Event of Default” has the meaning assigned in Article 8.

“Excluded Accounts” means deposit accounts exclusively used for payroll, payroll
taxes, and other employee wage and benefit payments to or for the benefit of
Borrower’s employees and identified to Bank by Borrower as such; provided that
the amount of funds in such accounts does not at any time exceeds in the
aggregate: the sum of (x) two (2) weeks of Borrower’s then-current payroll
expenses, plus (y) the amount held in trust for Borrower’s employees directly
from employee wage and benefit payments.

“Extension Milestone” means Borrower has delivered evidence acceptable to Bank
that Borrower has received, during the twelve-month period beginning on March 1,
2019, aggregate gross Cash proceeds of not less than $175,000,000 from the
issuance of Borrower’s equity securities on term and conditions, and from
investors, satisfactory to Bank.  Bank acknowledges that the Extension Milestone
has been achieved on or prior to the Closing Date.

3.

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

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
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, including but not limited to any sublimit contained herein.

“Insolvency Proceeding” means any proceeding commenced by or against any Person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

“Intellectual Property” means all of Borrower’s right, title, and interest in
and to the following:

(a)Copyrights, Trademarks and Patents;

(b)Any and all trade secrets, and any and all intellectual property rights in
computer software and computer software products now or hereafter existing,
created, acquired or held;

(c)Any and all design rights which may be available to Borrower now or hereafter
existing, created, acquired or held;

(d)Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;

(e)All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

(f)All amendments, renewals and extensions of any of the Copyrights, Trademarks
or Patents; and

(g)All proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.

“Inventory” means all present and future inventory in which Borrower has any
interest.

“Investment” means any beneficial ownership of (including stock, partnership or
limited liability company interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

“Letter of Credit” means a commercial or standby letter of credit or similar
undertaking issued by Bank (or any of its correspondent banks) at Borrower’s
request.

4.

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“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

“Loan Documents” means, collectively, this Agreement, any note or notes executed
by Borrower, and any other document, instrument or agreement entered into in
connection with this Agreement, all as amended or extended from time to time.

“Material Adverse Effect” means a material adverse effect on (i) the operations,
business or financial condition of Borrower and its Subsidiaries taken as a
whole, (ii) the ability of Borrower to repay the Obligations or otherwise
perform its obligations under the Loan Documents, or (iii) Borrower’s interest
in, or the value, perfection or priority of Bank’s security interest in the
Collateral.

“Negotiable Collateral” means all of Borrower’s present and future letters of
credit of which it is a beneficiary, drafts, instruments (including promissory
notes), securities, documents of title, and chattel paper, and Borrower’s Books
relating to any of the foregoing.

“Obligations” means all debt, principal, interest, Bank Expenses, obligations in
respect of Credit Card Services, and other amounts owed to Bank by Borrower
pursuant to this Agreement or any other agreement, whether absolute or
contingent, due or to become due, now existing or hereafter arising, including
any interest that accrues after the commencement of an Insolvency Proceeding and
including any debt, liability, or obligation owing from Borrower to others that
Bank may have obtained by assignment or otherwise.

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

“Periodic Payments” means all installments or similar recurring payments that
Borrower may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.

“Permitted Indebtedness” means:

(a)Indebtedness of Borrower in favor of Bank arising under this Agreement or any
other Loan Document;

(b)Indebtedness existing on the Closing Date and disclosed in the Schedule;

(c)Indebtedness not to exceed $500,000 in the aggregate at any time secured by a
lien described in clause (c) of the defined term “Permitted Liens,” provided
such Indebtedness does not exceed at the time it is incurred the lesser of the
cost or fair market value of the property financed with such Indebtedness;

(d)Subordinated Debt;

(e)Indebtedness from one Borrower to any other Borrower;

5.

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(f)Indebtedness to trade creditors incurred in the ordinary course of business;
and

(g)Extensions, refinancings and renewals of any items of Permitted Indebtedness,
provided that the principal amount is not increased or the terms modified to
impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.

“Permitted Investment” means:

(a)Investments existing on the Closing Date disclosed in the Schedule;

(b)(i) 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, (ii) commercial paper maturing no
more than one year from the date of creation thereof and currently having rating
of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s
Investors Service, (iii) Bank’s certificates of deposit maturing no more than
one year from the date of investment therein, and (iv) Bank’s money market
accounts; (v) Investments in regular deposit or checking accounts held with Bank
or as otherwise permitted by, and subject to the terms and conditions of,
Section 6.6 of this Agreement; and (vi) Investments consistent with any
investment policy adopted by Borrower’s board of directors;

(c)Investments accepted in connection with Permitted Transfers;

(d)Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries not to exceed $500,000 in the aggregate
in any fiscal year;

(e)Investments not to exceed $500,000 outstanding in the aggregate at any time
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plan agreements approved by Borrower’s Board of Directors;

(f)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;

(g)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 (g) shall not apply
to Investments of Borrower in any Subsidiary;

(h)Joint ventures or strategic alliances in the ordinary course of Borrower’s
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided that
any cash Investments by Borrower do not exceed $500,000 in the aggregate in any
fiscal year; and

(i)Investments permitted under Section 7.3.

“Permitted Liens” means the following:

6.

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(a)Any Liens existing on the Closing Date and disclosed in the Schedule
(excluding Liens to be satisfied with the proceeds of the Credit Extensions) or
arising under this Agreement, the other Loan Documents, or any other agreement
in favor of Bank;

(b)Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves;

(c)Liens not to exceed $500,000 in the aggregate at any time (i) upon or in any
Equipment (other than Equipment financed by a Credit Extension) acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such Equipment, or (ii) existing on such Equipment at
the time of its acquisition, in each case provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such Equipment;

(d)Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a) through
(c) 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 does not increase; and

(e)Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.4 (attachment) or8.8
(judgments).

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition
by Borrower or any Subsidiary of:  

(a)Inventory in the ordinary course of business;

(b)licenses and similar arrangements for the use of the property of Borrower or
its Subsidiaries in the ordinary course of business;

(c)worn-out, surplus or obsolete Equipment not financed with the proceeds of
Credit Extensions;

(d)grants of security interests and other Liens that constitute Permitted Liens;
and

(e)other assets of Borrower or its Subsidiaries that do not in the aggregate
exceed $250,000 during any fiscal year.

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

“Prime Rate” means the variable rate of interest, per annum, most recently
announced by Bank, as its “prime rate,” whether or not such announced rate is
the lowest rate available from Bank.

7.

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“Responsible Officer” means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer, Vice President of Finance and
the Controller of Borrower, as well as any other officer or employee identified
as an Authorized Officer in the corporate resolution delivered by Borrower to
Bank in connection with this Agreement.

“Revolving Line” means a Credit Extension of up to $50,000,000.

“Revolving Maturity Date” means May 15, 2020; provided, however, that if
Borrower achieves the “Extension Milestone”, then “Revolving Maturity Date”
shall instead mean May 15, 2022.

“Schedule” means the schedule of exceptions attached hereto and approved by
Bank, if any.

“Shares” means (i) sixty-five percent (65%) of the issued and outstanding
capital stock, membership units or other securities owned or held of record by
Borrower in any Subsidiary of Borrower which is not an entity organized under
the laws of the United States or territory thereof, and (ii) one hundred percent
(100%) of the issued and outstanding capital stock, membership units or other
securities owned or held of record by Borrower in any Subsidiary of Borrower
which is an entity organized under the laws of the United States or any
territory thereof.

“SOS Reports” means the official reports from the Secretaries of State of each
Collateral State, the state where Borrower’s chief executive office is located,
the state of Borrower’s formation and other applicable federal, state or local
government offices identifying all current security interests filed in the
Collateral and Liens of record as of the date of such report.

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in
writing to the debt owing by Borrower to Bank on terms reasonably acceptable to
Bank (and identified as being such by Borrower and Bank).

“Subsidiary” means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii) more than
50% of the stock, limited liability company interest or joint venture of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is owned by Borrower, either directly or through an Affiliate.

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

 

 

 

 

 

 

 

 

8.

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DEBTORPrecision Biosciences, Inc.

SECURED PARTY:PACIFIC WESTERN BANK

EXHIBIT B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

(a)all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents
(including negotiable documents), equipment (including all accessions and
additions thereto), financial assets, general intangibles (including patents,
trademarks, copyrights, goodwill, payment intangibles, domain names and
software), goods (including fixtures), instruments (including promissory notes),
inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of credit
rights, money, and all of Debtor’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;

(b)any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All terms
above have the meanings given to them in the North Carolina Uniform Commercial
Code, as amended or supplemented from time to time, including revised Division 9
of the Uniform Commercial Code-Secured Transactions.

Notwithstanding the foregoing, the Collateral shall not include any of the
intellectual property, in any medium, of any kind or nature whatsoever, now or
hereafter owned or acquired or received by Borrower, or in which Borrower now
holds or hereafter acquires or receives any right or interest (collectively, the
“Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and
proceeds from the sale, licensing or disposition of all or any part, or rights
in, the foregoing (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 May 15, 2019, include
the Intellectual Property to the extent and only to the extent necessary to
permit perfection of Bank’s security interest in the Rights to Payment, and
further provided, however, that Bank’s enforcement rights with respect to any
security interest in the Intellectual Property shall be absolutely limited to
the Rights to Payment only, and Bank shall have no recourse whatsoever with
respect to the underlying Intellectual Property.

 

 

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DEBTORELO Life Systems, Inc.

SECURED PARTY:PACIFIC WESTERN BANK

EXHIBIT B-1

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

(a)all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents
(including negotiable documents), equipment (including all accessions and
additions thereto), financial assets, general intangibles (including patents,
trademarks, copyrights, goodwill, payment intangibles, domain names and
software), goods (including fixtures), instruments (including promissory notes),
inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of credit
rights, money, and all of Debtor’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;

(b)any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All terms
above have the meanings given to them in the North Carolina Uniform Commercial
Code, as amended or supplemented from time to time, including revised Division 9
of the Uniform Commercial Code-Secured Transactions.

Notwithstanding the foregoing, the Collateral shall not include any of the
intellectual property, in any medium, of any kind or nature whatsoever, now or
hereafter owned or acquired or received by Borrower, or in which Borrower now
holds or hereafter acquires or receives any right or interest (collectively, the
“Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and
proceeds from the sale, licensing or disposition of all or any part, or rights
in, the foregoing (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 May 15, 2019, include
the Intellectual Property to the extent and only to the extent necessary to
permit perfection of Bank’s security interest in the Rights to Payment, and
further provided, however, that Bank’s enforcement rights with respect to any
security interest in the Intellectual Property shall be absolutely limited to
the Rights to Payment only, and Bank shall have no recourse whatsoever with
respect to the underlying Intellectual Property.

 

 

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EXHIBIT C

LOAN ADVANCE/PAYDOWN REQUEST FORM

[Please refer to New Borrower Kit]

 

EXHIBIT D

COMPLIANCE CERTIFICATE

[Please refer to New Borrower Kit]

 

 

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SCHEDULE OF EXCEPTIONS

 

(omitted pursuant to SEC regulations)

 

 

Permitted Indebtedness (Exhibit A)

Permitted Investments (Exhibit A)

Prior Names (Section 5.5)

Litigation (Section 5.6)

Inbound Licenses (Section 5.12)