exv10w5



 






Exhibit 10.5




LOAN AND SECURITY AGREEMENT

(Equipment & Inventory)




Dated
as of September 26, 2003




between




VOLCANO THERAPEUTICS, INC.,

a Delaware corporation




as “Borrower”,




and




VENTURE LENDING & LEASING III, INC.,

a Maryland corporation




as “Lender”




 









 







LOAN AND SECURITY AGREEMENT

(Equipment & Inventory)




     The Borrower and Lender identified on the cover page of this document have entered or
anticipate entering into one or more transactions pursuant to which Lender agrees to make
available to Borrower a loan facility governed by the terms and conditions set forth in this
document and one or more Supplements executed by Borrower and Lender which incorporate this
document by reference. Each Supplement constitutes a supplement to and forms part of this
document, and will be read and construed as one with this document, so that this document and the
Supplement constitute a single agreement between the parties (collectively referred to as this
“Agreement”).



     Accordingly, the parties agree as follows:



ARTICLE 1 — INTERPRETATION




     1.1
Definitions. The terms defined in Article 10 and in the Supplement will have the
meanings therein specified for purposes of this Agreement.



     1.2
Inconsistency. In the event of any inconsistency between the
provisions of
any Supplement and this document, the provisions of the Supplement will be
controlling for the purpose of all relevant transactions.



ARTICLE 2 — THE COMMITMENT AND LOANS




     2.1
The Commitment. Subject to the terms and conditions of this Agreement, Lender agrees
to make term loans to Borrower from time to time from the Closing Date and to, but not including, the
Termination Date in an aggregate principal amount not exceeding the Commitment, for the purpose of
financing the acquisition or carrying of certain Equipment and Inventory. The Commitment is not a
revolving credit commitment, and Borrower does not have the right to repay and reborrow hereunder.
Each Loan requested by Borrower to be made on a single Business Day
shall be for a minimum principal
amount set forth in the Supplement, except to the extent the
remaining Commitment is a
lesser amount.



     2.2
Notes Evidencing Loans; Repayment. Each Loan shall be evidenced by a separate Note payable
to the order of Lender, in the total principal amount of the Loan. Principal and interest of each
Loan shall be payable at the times and in the manner set forth in the Note and payment shall be
effected by automatic debit of the appropriate funds from
Borrower’s Primary Operating Account as
specified in the Supplement hereto.



     2.3 Procedures for Borrowing.




     (a) Borrower shall give Lender, at least five (5) Business Days’ prior to a proposed
Borrowing Date, written notice of any request for borrowing hereunder (a “Borrowing Request”). Each
Borrowing Request shall be in substantially the form of Exhibit
“B” to the Supplement,
shall be executed by a responsible executive or financial officer of
Borrower, and shall state
how much is requested, and shall be accompanied by such other information and documentation
as Lender may reasonably request.



     (b) No
later than 1:00 p.m. Pacific Standard Time on the Borrowing Date, if Borrower has
satisfied the conditions precedent in Article 4, Lender shall
make the Loan available to
Borrower in immediately available funds.



     2.4
Interest. Basic Interest on the outstanding principal balance of each Loan shall accrue
daily at the Designated Rate from the Borrowing Date until the Maturity Date. If the outstanding
principal balance of such Loan is not paid on the Maturity Date,
interest shall accrue at the Default
Rate until paid in full, as further set forth herein.



     2.5
Terminal Payment. Borrower shall pay the Terminal Payment with respect to each Loan on
the Maturity Date of such Loan.



     2.6 Interest Rate Calculation. Basic Interest, along with charges and fees under this
Agreement and any Loan Document, shall be calculated for actual days elapsed on the basis of a
360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were
used. In no event shall Borrower be obligated to pay Lender interest,
charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in effect.



 









 





     2.7
Default Interest. Any unpaid payments of principal or interest or the Terminal
Payment with respect to any Loan shall bear interest from their respective maturities, whether
scheduled or accelerated, at the Designated Rate for such Loan
plus five percent (5.00%) per
annum, until paid in full, whether before or after judgment (the “Default Rate”). Borrower
shall
pay such interest on demand.



     2.8
Late Charges. If Borrower is late in making any payment of principal or interest or
Terminal Payment under this Agreement by more than five (5) days, Borrower agrees to pay a late
charge of five percent (5%) of the installment due, but not less than fifty dollars ($50.00) for any
one such delinquent payment. This late charge may be charged by
Lender for the purpose of defraying
the expenses incidental to the handling of such delinquent amounts.
Borrower acknowledges that
such late charge represents a reasonable sum considering all of the
circumstances existing on the
date of this Agreement and represents a fair and reasonable estimate of the costs that will
be sustained by Lender due to the failure of Borrower to make timely payments. Borrower further
agrees that proof of actual damages would be costly and inconvenient. Such late charge
shall be paid without prejudice to the right of Lender to collect any
other amounts provided to be
paid or to declare a default under this Agreement or any of the other
Loan Documents or from
exercising any other rights and remedies of Lender.



     2.9 Lender’s Records. Principal, Basic Interest,Terminal Payments and all other sums owed
under any Loan Document shall be evidenced by entries in records maintained by Lender for such
purpose. Each payment on and any other credits with respect to principal, Basic Interest, Terminal
Payments and all other sums outstanding under any Loan Document shall be evidenced by entries in such
records. Absent manifest error, Lender’s records shall be
conclusive evidence thereof.



     2.10
Grant of Security Interests; Filing of Financing Statements. To secure the timely
payment and performance of all of Borrower’s Obligations to Lender, Borrower hereby grants to Lender
continuing security interests in all of the Collateral. In connection with the foregoing, Borrower
authorizes Lender to prepare and file any financing statements
describing the Collateral without
otherwise obtaining the Borrower’s signature or consent with
respect to the filing of such financing
statements.



ARTICLE 3 — REPRESENTATIONS AND WARRANTIES




     Borrower represents and warrants that, except as set forth in the Supplement or any schedule
of exceptions executed by the parties, as of the Closing Date and each Borrowing Date:



     3.1
Due Organization. Borrower is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its incorporation, and is duly
qualified to conduct business and is in good standing in each other
jurisdiction in which its
business is conducted or its properties are located, except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect.



     3.2 Authorization, Validity and Enforceability.
The execution, delivery and performance of all Loan Documents executed by Borrower are within
Borrower’s powers, have been duly authorized, and are not in conflict with Borrower’s articles or
certificate of incorporation or by-laws, or the terms of any charter or other organizational
document of Borrower, as amended from time to time; and all such Loan Documents constitute valid
and binding obligations of Borrower, enforceable in accordance with their terms (except as may be
limited by bankruptcy, insolvency and similar laws affecting the enforcement of creditors’ rights
in general, and subject to general principles of equity).



     3.3 Compliance with Applicable Laws.
Borrower has complied with all licensing, permit and fictitious name requirements necessary to
lawfully conduct the business in which it is engaged, and to any sales, leases or the furnishing
of services by Borrower, including without limitation those requiring consumer or other
disclosures, the noncompliance with which would have a Material Adverse Effect.



     3.4
No Conflict. The execution, delivery, and performance by Borrower of all Loan Documents
are not in conflict with any law, rule, regulation, order or directive, or any indenture, agreement,
or undertaking to which Borrower is a party or by which Borrower may be bound or affected.



     3.5 No Litigation, Claims or Proceedings.
There is no litigation, tax claim, proceeding or dispute pending, or, to the knowledge of
Borrower, threatened against or affecting Borrower or its property.



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     3.6 Correctness of Financial Statements.
Borrower’s financial statements which have been delivered to Lender fairly and accurately reflect
Borrower’s financial condition in accordance with GAAP as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change.



     3.7
No Subsidiaries. Borrower is not a majority owner of or in a control relationship with any
other business entity, except those identified in Schedule 1, attached to this Agreement.



     3.8
Environmental Matters. Borrower has reviewed, or caused to be reviewed on its
behalf, all Environmental Laws applicable to its business operations and materials handled
therein, and as a result thereof has reasonably concluded that
Borrower is in compliance with such
Environmental Laws, except to the extent a failure to be in such
compliance could not reasonably be
expected to have a Material Adverse Effect on Borrower’s operations, properties or
financial condition.



     3.9
No Event of Default. No Default or Event of Default has occurred and is continuing.



     3.10
Full Disclosure. None of the representations or warranties made by Borrower
in the Loan Documents as of the date such representations and warranties are made or deemed made, and
none of the statements contained in any exhibit, report, statement or certificate
furnished by or on behalf of Borrower in connection with the Loan
Documents (including disclosure
materials delivered by or on behalf of Borrower to Lender prior to
the Closing Date), contains any
untrue statement of a material fact or omits any material fact
required to be stated therein or
necessary to make the statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.



     3.11 Specific Representations Regarding Collateral.


     (a) Title. Except for the security interests created by this Agreement and Permitted Liens, (i)
Borrower is and will be the unconditional legal and beneficial owner of the Collateral, and (ii) the
Collateral is genuine and subject to no Liens, rights or defenses of others.



     (b) Location
of Collateral. Borrower’s chief executive office, Records, Equipment, Inventory
and any other offices or places of business are located at the address(es) shown on the Supplement.



     (c) Business Names. Other than its full corporate name, Borrower has not conducted business
using any trade names or fictitious business names except as shown on the Supplement.



     3.12 Copyrights, Patents, Trademarks and Licenses.



     (a) Borrower
owns or is licensed or otherwise has the right to use all of the patents,
trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and
other similar rights that are reasonably necessary for the operation of its business,without
conflict with the rights of any other Person.



     (b) To Borrower’s knowledge, no slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to be employed, by
Borrower infringes upon any rights held by any other Person.



     (c) No
claim or litigation regarding any of the foregoing is pending or, to Borrower’s
knowledge, threatened, and no patent, invention, device, application, principle or
any statute, law, rule, regulation, standard or code is pending or
proposed which, in either
case, could reasonably be expected to have a Material Adverse Effect.



     3.13
Survival. The representations and warranties of Borrower as set forth in this Agreement
survive the execution and delivery of this Agreement.



ARTICLE 4 — CONDITIONS PRECEDENT




     4.1 Conditions to First Loan. The obligation of Lender to make its first Loan hereunder is, in
addition to the conditions precedent specified in
Section 4.2, subject to the fulfillment
of the following conditions and to the receipt by Lender of the documents described below, duly
executed and in form and substance satisfactory to Lender and its counsel:



     (a) Resolutions.
A certified copy of the resolutions of the Board of Directors of
Borrower authorizing the execution, delivery and performance by Borrower of the Loan Documents.



     (b) Incumbency
and Signatures. A certificate of the secretary of Borrower certifying the
names of the officer or officers of Borrower authorized to sign the Loan Documents, together with a
sample of the true signature of each such officer.



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     (c) Legal
Opinion. The opinion of legal counsel for Borrower as to such matters as Lender
may reasonably request, including the matters covered by
Sections 3.1, 3.2, 3.4 and 3.5 hereof.



     (d) Articles
and By-Laws. Certified copies of the Certificate of Incorporation and By-Laws
of Borrower, as amended through the Closing Date.



     (e) This
Agreement. A counterpart of this Agreement and an initial Supplement,
with all schedules completed and attached thereto, and disclosing such information as is
acceptable to Lender.



     (f) Financing
Statements. Filing copies (or other evidence of filing satisfactory to Lender
and its counsel) of such Uniform Commercial Code financing statements, account control
agreements, collateral assignments and termination statements, with
respect to the Collateral as
Lender shall request.



     (g) Lien
Searches. Uniform Commercial Code lien, judgment, bankruptcy and tax lien searches
of Borrower from such jurisdictions or offices as Lender may reasonably request, all as of a date
reasonably satisfactory to Lender and its counsel.



     (h) Good Standing Certificate. A Certificate of status or good standing of Borrower as of a
date acceptable to Lender from the jurisdiction of Borrower’s organization and any foreign
jurisdictions where Borrower is or should be qualified to do business.



     (i) Warrant. A warrant issued by Borrower to Lender exercisable for such number, type and
class of shares of Borrower’s capital stock, and for an initial exercise price as is specified in
the Supplement.



     4.2
Conditions to All Loans. The obligation of Lender to make its
initial Loan and each subsequent Loan is subject to the following
further conditions precedent that:



     (a) No
Default. No Default or Event of Default has occurred and is continuing or will result
from the making of any such Loan, and the representations and warranties of Borrower contained in
Article 3 of this Agreement are true and correct as of the
Borrowing Date of such Loan.



     (b) No
Material Adverse Effect. No event that has had or could reasonably be expected to have
a Material Adverse Effect has occurred.



     (c) Borrowing
Request. Borrower shall have delivered to Lender a Borrowing Request for
such Loan.



     (d) Note.
Borrower shall have delivered an executed Note evidencing such Loan, substantially
in the form of Exhibit “A” attached to the Supplement.



     (e) Supplemental
Lien Filings. Borrower shall have executed and delivered such amendments
or supplements to this Agreement and such financing statements as Lender may reasonably request
in connection with the proposed Loan, in order to create or perfect or to maintain the perfection of
Lender’s Liens on the Collateral.



     (f) VCOC Limitation. Lender shall not be obligated to make any Loan under its Commitment if at
the time of or after giving effect to the proposed Loan Lender would no longer qualify as: (A) a
“venture capital operating company” under U.S. Department of Labor Regulations Section
2510.3-101(d), Title 29 of the Code of Federal Regulations, as amended; and (B) a “business
development company” under the provisions of federal Investment Company Act of 1940, as amended;
and (C) a “regulated investment company” under the provisions of the Internal Revenue Code of 1986,
as amended.



     (g) Financial Projections. Borrower shall have delivered to Lender Borrower’s financial
projections or business plan as most recently approved by Borrower’s Board of Directors.



ARTICLE 5 — AFFIRMATIVE COVENANTS




     During the term of this Agreement and until its performance of all obligations to Lender,
Borrower will:



     5.1 Notice to Lender. Promptly give written notice to Lender of:



     (a) Any
litigation or administrative or regulatory proceeding affecting Borrower where the
amount claimed against Borrower is at the Threshold Amount or more, or where the granting of the
relief requested could have a Material Adverse Effect.



     (b) Any
substantial dispute which may exist between Borrower or any governmental or
regulatory authority.



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     (c) The
occurrence of any Default or any Event of Default.



     (d) Any
change in the location of any of Borrower’s places of business or Collateral at
least thirty (30) days in advance of such change, or of the establishment of any new, or the
discontinuance of any existing, place of business.



     (e) Any
dispute or default by Borrower or any other party under any joint venture,
partnering, distribution, cross-licensing, strategic alliance, collaborative research or
manufacturing, license or similar agreement which could reasonably be
expected to have a Material
Adverse Effect.



     (f) Any
other matter which has resulted or might reasonably result in a Material Adverse
Change.



     5.2 Financial Statements. Deliver to Lender or cause to be delivered to Lender, in form and
detail satisfactory to Lender the following financial information, which Borrower warrants shall
be accurate and complete in all material respects:



     (a) Monthly
Financial Statements. As soon as available but no later than thirty (30) days after
the end of each month, Borrower’s balance sheet as of the end of such period, and Borrower’s income
statement for such period and for that portion of Borrower’s
financial reporting year ending with
such period, prepared and attested by a responsible financial officer
of Borrower as being complete
and correct and fairly presenting Borrower’s financial condition
and the results of Borrower’s
operations. After a Qualified Public Offering, the foregoing interim
financial statements shall
be delivered no later than 45 days after each fiscal quarter and for the quarter-annual fiscal
period then ended.



     (b) Year-End
Financial Statements. As soon as available but no later than one hundred twenty
(120) days after and as of the end of each financial reporting year, a complete copy of Borrower’s
audit report, which shall include balance sheet, income statement, statement of changes in
equity and statement of cash flows for such year, prepared and
certified by an independent certified
public accountant selected by Borrower and satisfactory to Lender
(the “Accountant”). The Accountant’s certification
shall not be qualified or limited due to a
restricted or limited examination by the Accountant of any material
portion of Borrower’s records or
otherwise.



     (c) Compliance
Certificates. Simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer
of Borrower substantially in the form of Exhibit “C” to the
Supplement (i) setting forth in
reasonable detail any calculations required to establish whether Borrower is in compliance with
any financial covenants or tests set forth in the Supplement, and (ii) stating whether any Default or
Event of Default exists on the date of such certificate, and if so,
setting forth the details thereof
and the action which Borrower is taking or proposes to take with respect thereto.



     (d) Government Required Reports; Press Releases. Promptly after sending, issuing,
making available, or filing, copies of all statements released to any news media for publication, all
reports, proxy statements, and financial statements that Borrower sends or makes available to its
stockholders, and, not later than five (5) days after actual
filing or the date such filing was first
due, all registration statements and reports that Borrower files or is required to file with
the Securities and Exchange Commission, or any other governmental or regulatory authority.



     (e) Other
Information. Such other statements, lists of property and accounts, budgets,
forecasts, reports, or other information as Lender may from time to time reasonably request.



     5.3 Managerial Assistance from Lender. Permit Lender to substantially participate in, and
substantially influence the conduct of management of Borrower through the exercise of “management
rights,” as that term is defined in 29 C.F.R. § 2510.3-101(d), including without limitation the
following rights:



     (a) Borrower agrees that (i) it will make its officers, directors, employees and affiliates
available at such times as Lender may reasonably request for Lender to consult with and advise as
to the conduct of Borrower’s business, its equipment and financing plans, and its financial
condition and prospects, (ii) Lender shall have the right to inspect Borrower’s books, records,
facilities and properties at reasonable times during normal business hours on reasonable advance
notice, and (iii) Lender shall be entitled to recommend prospective candidates for election or
nomination for election to Borrower’s Board of Directors and Borrower shall give due consideration
to (but shall not be bound by) such recommendations, it being the intention of the parties that
Lender shall be entitled through such rights, inter alia, to furnish “significant managerial
assistance”, as defined in



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Section 2(a)(47) of the Investment Company Act of 1940, to Borrower.




     (b) Without limiting the generality of (a) above, if Lender reasonably believes that financial
or other developments affecting Borrower have impaired or are likely to impair Borrower’s ability
to perform its obligations under this Agreement, permit Lender reasonable access to Borrower’s
management and/or Board of Directors and opportunity to present Lender’s views with respect to such
developments.



Lender shall cooperate with Borrower to ensure that the exercise of Lender’s rights shall not
disrupt the business of Borrower. Lender further agrees , and shall cause each of its
representatives to agree, to hold in confidence and trust and not use or disclose any confidential
information provided to or learned by it in connection with the exercise of Lender’s rights under
this provision. The rights enumerated above shall not be construed as giving Lender control over
Borrower’s management or policies.



The rights described herein shall terminate and be of no further force or effect upon the earlier
to occur of (I) the performance of all obligations to Lender under the Agreement and(ii) the date
of consummation of a firm commitment underwritten public offering of the Company’s Common Stock
registered under the Securities Act of 1933, as amended. The confidentiality provisions set forth
herein will survive any such termination.



     5.4
Existence. Maintain and preserve Borrower’s existence, present form of business, and all
rights and privileges necessary or desirable in the normal course of its business; and keep all
Borrower’s property in good working order and condition,
ordinary wear and tear excepted.



     5.5
Insurance. Obtain and keep in force insurance in such amounts and types as is
usual in the type of business conducted by Borrower, with insurance carriers having a
policyholder rating of not less than “A” and financial
category rating of Class VII in “Best’s
Insurance Guide,” unless otherwise approved by Lender. Such
insurance policies must be in form and
substance satisfactory to Lender, and shall list Lender as an additional insured or loss payee,
as applicable, on endorsement(s) in form reasonably acceptable to Lender. Borrower shall furnish
to Lender such endorsements, and upon Lender’s request, copies of any or all such policies.



     5.6
Accounting Records. Maintain adequate books, accounts and records, and prepare all
financial statements in accordance with GAAP, and in compliance with the regulations of
any governmental or regulatory authority having jurisdiction over
Borrower or Borrower’s business;
and permit employees or agents of Lender at such reasonable times as
Lender may request, at
Borrower’s expense, to inspect Borrower’s properties, and
to examine, and make copies and
memoranda of Borrower’s books, accounts and records.



     5.7
Compliance With Laws. Comply with all laws (including
Environmental Laws),
rules, regulations applicable to, and all orders and directives of any governmental or regulatory
authority having jurisdiction over, Borrower or Borrower’s
business, and with all material agreements
to which Borrower is a party, except where the failure to so comply
would not have a Material Adverse
Effect.



     5.8 Taxes and Other Liabilities. Pay all
Borrower’s Indebtedness when due; pay all taxes and other governmental or regulatory assessments
before delinquency or before any penalty attaches thereto, except as may be contested in good
faith by the appropriate procedures and for which Borrower shall maintain appropriate reserves;
and timely file all required tax returns.




     5.9 Special Collateral Covenants.



     (a) Maintenance of Collateral; Inspection. Do
all things reasonably necessary to maintain, preserve, protect and keep all Collateral in good
working order and salable condition, ordinary wear and tear excepted, deal with the Collateral in
all ways as are considered good practice by owners of like property, and use the Collateral
lawfully and, to the extent applicable, only as permitted by Borrower’s insurance policies.
Maintain, or cause to be maintained, complete and accurate Records relating to the Collateral.
Upon reasonable prior notice at reasonable times during normal business hours, Borrower hereby
authorizes Lender’s officers, employees, representatives and agents to inspect the Collateral and
to discuss the Collateral and the Records relating thereto with Borrower’s officers and employees.



     (b) Financing Statements and Other Actions.
Execute and deliver to Lender all financing statements, notices and other documents from time to
time reasonably requested by Lender to maintain a first perfected security interest in the
Collateral in favor of Lender; perform such other acts, and execute and



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deliver to Lender such additional conveyances, assignments, agreements and instruments, as Lender
may at any time request in connection with the administration and enforcement of this Agreement or
Lender’s rights, powers and remedies hereunder.




     (c) Liens.
Not create, incur, assume or permit to exist any Lien or grant any other Person a
negative pledge on any Collateral, except Permitted Liens.



     (d) Documents
of Title. Not sign or authorize the signing of any financing statement or
other document naming Borrower as debtor or obligor, or acquiesce or cooperate in the issuance of any
bill of lading, warehouse receipt or other document or instrument of title with respect to
any Collateral, except those negotiated to Lender, or those naming
Lender as secured party.



     (e) Change
in Location or Name. Without at least 30 days’ prior written notice to Lender:
(a) not relocate any Collateral or Records, its chief executive office, or establish a place of
business at a location other than as specified in the Supplement; and
(b) not change its name,
mailing address, location of Collateral, jurisdiction of
incorporation or its legal structure.



     (f) Decals,
Markings. At the request of Lender, firmly affix a decal, stencil or other marking
to designated items of Equipment, indicating thereon the security interest of Lender.



     (g) Agreement
With Real Property Owner/Landlord. Obtain and maintain
such acknowledgments, consents, waivers and agreements from the owner, lienholder, mortgagee and
landlord with respect to any real property on which Equipment is located as Lender may require, all
in form and substance satisfactory to Lender.



     5.10 Authorization for Automated Clearinghouse Funds Transfer. (i) Authorize Lender to
initiate debit entries to Borrower’s Primary Operating Account, specified in the Supplement
hereto, through Automated Clearinghouse (“ACH”) transfers, in order to satisfy the Obligations;
(ii) provide Lender at least thirty (30) days notice of any change in Borrower’s Primary Operating
Account; and (iii) grant Lender any additional authorizations necessary to begin ACH debits from a
new account which becomes the Primary Operating Account.



ARTICLE 6 — NEGATIVE COVENANTS




     During the term of this Agreement and until the performance of all obligations to Lender,
Borrower will not (without Lender’s prior written consent):



     6.1
Dividends. Except after a Qualified Public Offering, pay any dividends or purchase,
redeem or otherwise acquire or make any other distribution with respect to any of Borrower’s capital
stock, except (a) dividends or other distributions solely of capital
stock of Borrower, and (b) so
long as no Event of Default has occurred and is continuing,
repurchases of stock from employees,
consultants, and advisors upon termination of employment or other relationship with the
Borrower under reverse vesting or similar repurchase plans.



     6.2
Changes/Mergers. Liquidate or dissolve; or enter into any consolidation, merger
or other combination in which the stockholders of the Borrower immediately prior to the first such
transaction own less than 50% of the voting stock of the Borrower immediately after giving
effect to such transaction or related series of such transactions,
except that Borrower may
consolidate or merge so long as: (A) the entity that results
from such merger or consolidation (the
“Surviving Entity”) shall have executed and delivered to Lender an agreement in form
and substance reasonably satisfactory to Lender, containing an assumption by the Surviving Entity of
the due and punctual payment and performance of all Obligations and performance and observance of
each covenant and condition of Borrower in the Loan Documents;
(B) all such obligations of the
Surviving Entity to Lender shall be guaranteed by any entity that
directly or indirectly owns or
controls more than 50% of the voting stock of the Surviving Entity; (C) immediately after
giving effect to such merger or consolidation, no Event of Default or, event which with the lapse of
time or giving of notice or both, would result in an Event of Default shall have occurred and be
continuing; and (D) the credit risk to Lender, in its sole
discretion, of the Surviving Entity shall
not be increased. In determining whether the proposed merger or
consolidation would result in an
increased credit risk, Lender may consider, among other things, changes in
Borrower’s management team, employee base, access to equity markets, venture capital support,
financial position and/or disposition of intellectual property rights
which may reasonably be
anticipated as a result of the transaction.



     6.3 Sales of Assets. Sell, transfer, lease, license or otherwise dispose of (a “Transfer”)
any of Borrower’s assets except (i) non-exclusive licenses of



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Intellectual Property in the ordinary course of business consistent with industry practice; (ii)
Transfers of worn-out, obsolete or surplus property (each as determined by the Borrower in its
reasonable judgment) not constituting Equipment as to which a Loan was made hereunder; (iii)
Transfers of Inventory not constituting Equipment or Inventory as to which a Loan was made
hereunder; (iv) Transfers constituting Permitted Liens; and (v) Transfers of Collateral (other than
Intellectual Property and Equipment as to which a Loan was made hereunder) for fair consideration
and in the ordinary course of its business.




     6.4
Loans/Investments. Make or suffer to exist any loans, guaranties, advances, or
investments, except:



     (a) Accounts
receivable in the ordinary course of Borrower’s business;



     (b) Investments
in domestic certificates of deposit issued by, and other domestic
investments with, financial institutions organized under the laws of
the United States or a state
thereof, having One Hundred Million Dollars ($100,000,000) in capital
and a rating of at least
“investment grade” or “A” by Moody’s or any successor rating agency;



     (c) Investments
in marketable obligations of the United States of America and in open
market commercial paper given the highest credit rating by a national credit agency and maturing
not more than one year from the creation thereof;



     (d) Temporary
advances to cover incidental expenses to be incurred in the ordinary
course of business;



     (e) Investments
in joint ventures, strategic alliances, licensing and similar
arrangements customary in Borrower’s industry and which do not
require Borrower to assume or
otherwise become liable for the obligations of any third party not
directly related to or arising out
of such arrangement or, without the prior written consent of Lender, require Borrower to
transfer ownership of non-cash assets to such joint venture or other entity; and



     (f) Investments
in wholly-owned subsidiaries of the Borrower.



     6.5 Transactions With Related Persons.
Directly or indirectly enter into any transaction with or for the benefit of a Related Person on
terms more
favorable to the Related Person than would have been obtainable in an “arms’ length” dealing.



     6.6
Other Business. Engage in any material line of business other than the business Borrower
conducts as of the Closing Date.



     6.7
Financial Covenants. Fail to comply with any financial covenants or tests set forth in
the Supplement.



     6.8
Compliance. Become an “investment company” or 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 Loan for such purpose. Fail to meet
the minimum funding requirements of ERISA, permit a Reportable Event
or Prohibited Transaction, as
defined in ERISA, to occur, fail to comply with the Federal Fair Labor
Standards Act or violate any
law or regulation, which violation could have a Material Adverse
Effect or a material adverse effect
on the Collateral or the priority of Lender’s Lien on the Collateral, or permit any of
its subsidiaries to do any of the foregoing.



ARTICLE 7 — EVENTS OF DEFAULT




     7.1 Events of Default; Acceleration. Upon the occurrence and during the continuation of any
Default, the obligation of Lender to make any additional Loan shall be suspended. The occurrence of
any of the following (each, an “Event of Default”) shall terminate any obligation of Lender to make
any additional Loan; and shall, at the option of Lender (1) make all sums of Basic Interest and
principal, all Terminal Payments, and any Obligations and other amounts owing under any Loan
Documents immediately due and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands, and (2) give Lender
the right to exercise any other right or remedy provided by contract or applicable law:



     (a) Borrower shall fail to pay any principal, interest or Terminal Payment under this
Agreement or any Note, or fail to pay any fees or other charges when due under any Loan Document,
and such failure continues for three (3) Business Days or more after the same first becomes due;
or an Event of Default as defined in any other Loan Document shall have occurred.



8









 





     (b) Any
representation or warranty made, or financial statement, certificate or other
document provided, by Borrower under any Loan Document shall prove to have been false or misleading
in any material respect when made or deemed made herein.



     (c) Borrower
shall fail to pay its debts generally as they become due or shall commence any
Insolvency Proceeding with respect to itself; an involuntary Insolvency Proceeding shall be
filed against Borrower, or a custodian, receiver, trustee, assignee
for the benefit of creditors, or
other similar official, shall be appointed to take possession, custody or control of the
properties of Borrower, and such involuntary Insolvency Proceeding, petition or
appointment is acquiesced to by Borrower or is not dismissed within
sixty (60) days; or the
dissolution or termination of the business of Borrower.



     (d) Borrower
shall be in default beyond any applicable period of grace or cure under any
other agreement involving the borrowing of money, the purchase of property, the advance of credit or
any other monetary liability of any kind to Lender or to any Person which results in the acceleration
of payment of such obligation in an amount in excess of the Threshold Amount.



     (e) Any
governmental or regulatory authority shall take any judicial or administrative action,
or any defined benefit pension plan maintained by Borrower shall have any unfunded liabilities, any
of which, in the reasonable judgment of Lender, might have a
Material Adverse Effect.



     (f) Any
sale, transfer or other disposition of all or a substantial or material part of the
assets of Borrower, including without limitation to any trust or
similar entity, shall occur.



     (g) Any
judgment(s) singly or in the aggregate in excess of the Threshold Amount shall be
entered against Borrower which remain unsatisfied, unvacated or unstayed pending appeal for ten (10)
or more days after entry thereof.



     (h) Any Person or two or more Persons that are not existing stockholders of Borrower acting
in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission) of twenty-five percent (25%) or more of the outstanding shares
of voting stock of Borrower.



     (i) Borrower shall fail to perform or observe any covenant contained in Article 6 of this
Agreement.



     (j) Borrower shall fail to observe any covenant contained in Section 5.9 of this Agreement




     (k) Borrower shall fail to perform or observe any covenant contained in this Agreement or any
other Loan Document (other than a covenant which is dealt with specifically elsewhere in this
Article 7) and, if capable of being cured, the breach of such covenant is not cured within 30 days
after the sooner to occur of Borrower’s receipt of notice of such breach from Lender or the date on
which such breach first becomes known to any officer of Borrower;
provided, however that if
such breach is not capable of being cured within such 30-day period and Borrower timely notifies
Lender of such fact and Borrower diligently pursues such cure, then the cure period shall be
extended to the date requested in Borrower’s notice but in no event more than 90 days from the
initial breach; provided, further, that such additional 60-day opportunity to cure shall
not apply in the case of any failure to perform or observe any covenant which has been the subject
of a prior failure within the preceding 180 days or which is a willful and knowing breach by
Borrower.



     7.2
Remedies Upon Default. Upon the occurrence and during the continuance of an
Event of Default, Lender shall be entitled to, at its option, exercise any or all of the rights and
remedies available to a secured party under the Uniform Commercial
Code or any other applicable law,
and exercise any or all of its rights and remedies provided for in
this Agreement and in any other
Loan Document. The obligations of Borrower under this Agreement shall
continue to be effective or be
reinstated, as the case may be, if at any time any payment of any
Obligations is rescinded or must
otherwise be returned by Lender upon, on account of, or in connection with, the insolvency,
bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made.



     7.3
Sale of Collateral. Upon the occurrence and during the continuance of an Event of Default,
Lender may sell all or any part of the Collateral, at public or private sales, to itself, a
wholesaler, retailer or investor,for cash, upon credit or for future
delivery, and at such price or
prices as Lender may deem commercially reasonable. To the extent
permitted by law, Borrower hereby
specifically waives all rights of redemption and any rights of stay or appraisal which it has or may
have under any applicable law in effect from time to time. Any such public or private sales shall be
held at such times and at such place(s) as Lender may determine. In



9









 







case of the sale of all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Lender until the selling price is paid by the purchaser, but
Lender shall not incur any liability in case of the failure of such purchaser to pay for the
Collateral and, in case of any such failure, such Collateral may be resold. Lender may, instead of
exercising its power of sale, proceed to enforce its security interest in the Collateral by seeking
a judgment or decree of a court of competent jurisdiction.



     7.4
Borrower’s Obligations Upon Default.
Upon the request of Lender after the occurrence and during the continuance of an Event of Default,
Borrower will:




     (a) Assemble
and make available to Lender the Collateral at such place(s) as Lender shall
reasonably designate, segregating all Collateral so that each item is capable of identification; and



     (b) Subject
to the rights of any lessor, permit Lender, by Lender’s officers, employees, agents
and representatives, to enter any premises where any Collateral is located, to take
possession of the Collateral, to complete the processing, manufacture
or repair of any Collateral,
and to remove the Collateral,or to conduct any public or private sale
of the Collateral, all
without any liability of Lender for rent or other compensation for the use of Borrower’s premises.



ARTICLE 8 — SPECIAL COLLATERAL PROVISIONS




     8.1 Performance of Borrower’s Obligations.
Without having any obligation to do so, upon reasonable prior notice to Borrower, Lender may
perform or pay any obligation which Borrower has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied or placed on or
threatened against the Collateral. In so performing or paying, Lender shall determine the action
to be taken and the amount necessary to discharge such obligations. Borrower shall reimburse
Lender on demand for any amounts paid by Lender pursuant to this Section, which amounts shall
constitute Obligations secured by the Collateral and shall bear interest from the date of demand
at the Default Rate.



     8.2
Power of Attorney. For the purpose of protecting and preserving the Collateral and
Lender’s rights under this Agreement, Borrower hereby irrevocably appoints Lender,
with full power of substitution, as its attorney-in-fact with full power and
authority, after the occurrence and during the continuance of an Event of Default, to do any act
which Borrower is obligated to do hereunder; to exercise such rights with respect to the
Collateral as Borrower might exercise; to use such Equipment, Fixtures or other property as
Borrower might use; to enter Borrower’s premises; to give notice of Lender’s security interest in,
and to collect the Collateral; and to execute and file in Borrower’s name any financing
statements, amendments and continuation statements necessary or desirable to perfect or continue
the perfection of Lender’s security interests in the Collateral. Borrower hereby ratifies all that
Lender shall lawfully do or cause to be done by virtue of this appointment.



     8.3 Authorization for Lender to Take Certain Action. The power of attorney created in Section
8.2 is a power coupled with an interest and shall be irrevocable. The powers conferred on Lender
hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon
Lender to exercise such powers. Lender shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and in no event shall Lender or any of its
directors, officers, employees, agents or representatives be responsible to Borrower for any act or
failure to act, except for gross negligence or willful misconduct. After the occurrence and during
the continuance of an Event of Default, Lender may exercise this power of attorney without notice
to or assent of Borrower, in the name of Borrower, or in Lender’s own name, from time to time in
Lender’s sole discretion and at Borrower’s expense. To further carry out the terms of this
Agreement, after the occurrence and during the continuance of an Event of Default, Lender may:



     (a) Execute
any statements or documents or take possession of, and endorse and collect and
receive delivery or payment of, any checks, drafts, notes, acceptances or other instruments
and documents constituting Collateral, or constituting the payment of amounts due and to become due
or any performance to be rendered with respect to the Collateral.



     (b) Sign
and endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts; drafts, certificates and statements under any commercial or standby letter of
credit relating to Collateral; or any other documents relating to the Collateral, including without
limitation the Records.



     (c) Use
or operate Collateral or any other property of Borrower for the purpose of
preserving or liquidating Collateral.



10









 





     (d) File
any claim or take any other action or proceeding in any court of law or equity or as
otherwise deemed appropriate by Lender for the purpose of collecting any and all monies due or
securing any performance to be rendered with respect to the Collateral.



     (e) Commence,
prosecute or defend any suits, actions or proceedings or as otherwise
deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral.



     (f) Prepare,
adjust, execute, deliver and receive payment under insurance claims, and collect
and receive payment of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and apply such amounts at Lender’s sole discretion, toward
repayment of the Obligations or replacement of the Collateral.



     8.4
Application of Proceeds. Any Proceeds and other monies or property received by Lender
pursuant to the terms of this Agreement or any Loan Document may be applied by Lender first to the
payment of expenses of collection, including without limitation reasonable attorneys’ fees, and then
to the payment of the Obligations in such order of application as
Lender may elect.



     8.5
Deficiency. If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the
payment in full of all the
Obligations, plus all other sums required to be expended or distributed by Lender, then Borrower
shall be liable for any such deficiency.



     8.6
Lender Transfer. Upon the transfer of all or any part of the Obligations, Lender may
transfer all or part of the Collateral and shall be fully discharged thereafter from all liability
and responsibility with respect to such Collateral so transferred,
and the transferee shall be vested
with all the rights and powers of Lender hereunder with respect to
such Collateral so transferred,
but with respect to any Collateral not so transferred, Lender shall retain all rights and
powers hereby given.



     8.7 Lender’s Duties.



     (a) Lender shall use reasonable care in the custody and preservation of any Collateral in its
possession. Without limitation on other conduct which may be considered the exercise of reasonable
care, Lender shall be deemed to have exercised reasonable
care in the custody and preservation of such Collateral if such Collateral is accorded treatment
substantially equal to that which Lender accords its own property, it being understood that Lender
shall not have any responsibility for ascertaining or taking action with respect to declining
value or other matters relative to any Collateral, regardless of whether Lender has or is deemed
to have knowledge of such matters; or taking any necessary steps to preserve any rights against
any Person with respect to any Collateral. Under no circumstances shall Lender be responsible for
any injury or loss to the Collateral, or any part thereof, arising from any cause beyond the
reasonable control of Lender.



     (b) Lender
may at any time deliver the Collateral or any part thereof to Borrower and the
receipt of Borrower shall be a complete and full acquittance for the Collateral so delivered, and
Lender shall thereafter be discharged from any liability or
responsibility therefor.



     (c) Neither
Lender, nor any of its directors, officers, employees, agents, attorneys or any
other person affiliated with or representing Lender shall be liable for any claims, demands, losses
or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other
party through the ordinary negligence of Lender, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender.



     8.8 Termination of Security Interests. Upon the payment in full of the Obligations and
satisfaction of all Borrower’s obligations under this Agreement and the other Loan Documents, and
if Lender has no further obligations under its Commitment, the security interest granted hereby
shall terminate and all rights to the Collateral shall revert to Borrower. Upon any such
termination, the Lender shall, at Borrower’s expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination.



ARTICLE 9 — GENERAL PROVISIONS




     9.1 Notices. Any notice given by any party under any Loan Document shall be in writing and
personally delivered, sent by overnight courier, or United States mail, postage prepaid, or sent
by facsimile, or other authenticated message, charges prepaid, to the other party’s or parties’
addresses shown on the Supplement. Each party may change the address or facsimile number to which
notices, requests and other communications



11









 







are to be sent by giving written notice of such change to each other party. Notice given by hand
delivery shall be deemed received on the date delivered; if sent by overnight courier, on the next
business day after delivery to the courier service; if by first class mail, on the third business
day after deposit in the U.S. Mail; and if by facsimile, on the date of transmission.



     9.2
Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns; provided, however, that Borrower may
not assign or transfer Borrower’s rights or obligations under
any Loan Document without Lender’s
prior written consent. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in, Lender’s rights and
obligations under the Loan Documents. In connection with any of the foregoing, Lender may disclose
all documents and information which Lender now or hereafter may have relating to the Loans,
Borrower, or its business; provided that any person who receives such information shall have
agreed in writing in advance to maintain the confidentiality of such
information on terms reasonably acceptable to Borrower.
It is the intention of the parties that as a “venture capital
operating company”, Venture Lending & Leasing III, LLC
(“LLC”), the parent and sole owner of Venture Lending
& Leasing III, Inc., shall have the benefit of and the power to independently
exercise, those management rights” provided in
Section 5.3. To that end the references to Lender in
Sections 4.2(f),
5.1, 5.2, 5.3, and 5.9(a) hereof shall include LLC and LLC shall have the
right to exercise the advisory inspection, information and other
rights given to lender under those Sections
independently of Lender. No amendment on modification of this
Agreement shall alter or diminish LLC’s rights under the preceding
sentence without the consent of LLC.



     9.3
No Waiver. Any waiver, consent or approval by Lender of any Event of Default or breach of
any provision, condition, or covenant of any Loan Document must be in writing and shall be
effective only to the extent set forth in writing. No waiver of any breach or default shall be deemed
a waiver of any later breach or default of the same or any other
provision of any Loan Document. No
failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan
Document shall operate as a waiver thereof, and no single or partial
exercise of any such power,
right, or privilege shall preclude any further exercise thereof or the exercise of any other
power, right or privilege. Lender has the right at its sole option to continue to accept interest
and/or principal payments
due under the Loan Documents after default, and such acceptance shall not constitute a waiver of
said default or an extension of the Maturity Date unless Lender agrees otherwise in writing.



     9.4
Rights Cumulative. All rights and remedies existing under the Loan Documents are cumulative
to, and not exclusive of, any other rights or remedies available under contract or applicable law.



     9.5
Unenforceable Provisions. Any provision of any Loan Document executed by Borrower which
is prohibited or unenforceable in any jurisdiction, shall be so only as to such jurisdiction and only
to the extent of such prohibition or unenforceability, but all the remaining provisions of any
such Loan Document shall remain valid and enforceable.



     9.6
Accounting Terms. Except as otherwise provided in this Agreement, accounting terms
and financial covenants and information shall be determined and prepared in accordance
with GAAP.



     9.7
Indemnification; Exculpation. Borrower shall pay and protect, defend and indemnify
Lender and Lender’s employees, officers, directors,
shareholders, affiliates, correspondents, agents
and representatives (other than Lender, collectively
“Agents”) against, and hold Lender and each such
Agent harmless from, all claims, actions, proceedings, liabilities,
damages, losses,
expenses (including, without limitation, attorneys’ fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the matters contemplated by this Agreement
or any other Loan Documents or (ii) any contention that Borrower has failed to comply with any law,
rule, regulation, order or directive applicable to Borrower’s
business; provided, however, that this
indemnification shall not apply to any of the foregoing incurred
solely as the result of Lender’s or
any Agent’s gross negligence or willful misconduct. This
indemnification shall survive the payment
and satisfaction of all of Borrower’s Obligations to Lender.



     9.8
Reimbursement. Borrower shall reimburse Lender for all costs and expenses, including
without limitation reasonable attorneys’ fees and disbursements expended or incurred by Lender in any
arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, (b) the
amendment and enforcement of the Loan
Documents, including without limitation during any workout, attempted
workout, and/or in connection
with the rendering of legal advice as to Lender’s rights, remedies and obligations under



12









 







the Loan Documents, (c) collecting any sum which becomes due Lender under any Loan Document, (d)
any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (e)
the protection, preservation or enforcement of any rights of Lender. For the purposes of this
section, attorneys’ fees shall include, without limitation, fees incurred in connection with the
following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity
of any kind in connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and
third party examinations; and (5) postjudgment motions and proceedings of any kind, including
without limitation any activity taken to collect or enforce any judgment. All of the foregoing
costs and expenses shall be payable upon demand by Lender, and if not paid within forty-five (45)
days of presentation of invoices shall bear interest at the highest applicable Default Rate.



     9.9
Execution in Counterparts. This Agreement may be executed in any number
of counterparts which, when taken together, shall constitute but one agreement.



     9.10
Entire Agreement. The Loan Documents are intended by the parties as the
final expression of their agreement and therefore contain the entire agreement between the parties
and supersede all prior understandings or agreements concerning the subject matter hereof. This
Agreement may be amended only in a writing signed by Borrower and Lender.



     9.11 Governing Law and Jurisdiction.



     (a) THIS
AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.



     (b) ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED
STATES FOR THE
NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF
BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF BORROWER AND
LENDER IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY
DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.



     9.12 Waiver of Jury Trial. BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING
OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.



ARTICLE 10 — DEFINITIONS




     The definitions appearing in this Agreement or any Supplement shall be applicable to both the
singular and plural forms of the defined terms:



“Account” means any “account,” as such term is defined in the UCC, now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all accounts receivable,



13









 







book debts and other forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or
owing to Borrower (including, without limitation, under any trade name, style or division thereof)
whether arising out of goods sold or services rendered by Borrower or from any other transaction,
whether or not the same involves the sale of goods or services by Borrower (including, without
limitation, any such obligation that may be characterized as an account or contract right under the
UCC) and all of Borrower’s rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, and all of Borrower’s rights to any goods
represented by any of the foregoing (including, without limitation, unpaid seller’s rights of
rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or
repossessed goods), and all monies due or to become due to Borrower under all purchase orders and
contracts for the sale of goods or the performance of services or both by Borrower or in connection
with any other transaction (whether or not yet earned by performance on the part of Borrower), now
in existence or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and guarantees of any
kind given by any Person with respect to any of the foregoing.


“Affiliate” means any Person which directly or indirectly controls, is controlled by, or is under
common control with Borrower. “Control,” “controlled by” and “under common control with” mean
direct or indirect possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group directly or
indirectly owns five percent (5%) or more of the securities having ordinary voting power for the
election of directors of a corporation.



“Agreement” means this Loan and Security Agreement and each Supplement thereto, as each may be
amended or supplemented from time to time.



“Bankruptcy
Code” means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. §101, et seq.), as
amended.



“Basic Interest” means the fixed rate of interest payable on the outstanding balance of each Loan
at the applicable Designated Rate.



“Borrowing Date” means the Business Day on which the proceeds of a Loan are disbursed by Lender.



“Borrowing
Request” means a written request from Borrower in
substantially the form of Exhibit “B”
to the Supplement, requesting the funding of one or more Loans on a particular Borrowing Date.



“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks
in New York City or San Francisco are authorized or required by law to close.



“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Closing Date” means the date of this Agreement.



“Collateral” means all of Borrower’s right, title and interest in and to Equipment and Inventory,
whether now or hereafter owned or acquired by Borrower and wherever located; and whether held by
Borrower or in the possession of any third party, and all Proceeds of each of the foregoing and
all accessions to, substitutions and replacements for, and rents, profits and products of each of
the foregoing.



“Commitment” means the obligation of Lender to make Loans to Borrower up to the aggregate
principal amount set forth in the Supplement.



“Default” means an event which with the giving of notice, passage of time, or both would constitute
an Event of Default.



“Default Rate” is defined in Section 2.7.



“Designated Rate” means the rate of interest per annum described in the Supplement as being
applicable to an outstanding Loan from time to time.



“Environmental Laws” means all federal, state or local laws, statutes, common law duties, rules,
regulations, ordinances and codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, or safety matters.



“Equipment” means each item of “equipment” and “goods,” as such terms are defined in the UCC,





14









 





described on Schedule 1 attached to the Supplement and incorporated herein by this
reference (as such Schedule 1 may be amended or supplemented from time to time), now owned
or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest, and any and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto; and all proceeds of the foregoing arising from the sale,
lease, use of other disposition of all or any portion of such property, including all rights to
payments with respect to insurance or condemnation of the foregoing, and any cause of action
relating to any of the foregoing.



“Event of Default” means any event described in Section 7.1.



“GAAP”means generally accepted accounting principles and practices consistent with those
principles and practices promulgated or adopted by the Financial Accounting Standards Board and
the Board of the American Institute of Certified Public Accountants, their respective predecessors
and successors. Each accounting term used but not otherwise expressly defined herein shall have
the meaning given it by GAAP.



“Indebtedness” of any Person means at any date, without duplication and without regard to whether
matured or unmatured, absolute or contingent: (i) all obligations of such Person for borrowed
money; (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person to pay the deferred purchase price of property
or services, except trade accounts payable arising in the ordinary course of business; (iv) all
obligations of such Person as lessee under capital leases; (v) all obligations of such Person to
reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit,
banker’s acceptance, or similar instrument, whether drawn or undrawn; (vi) all obligations of such
Person to purchase securities which arise out of or in connection with the sale of the same or
substantially similar securities; (vii) all obligations of such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock, now or hereafter outstanding, except to the
extent that such obligations remain performable solely at the option of such Person; (viii) all
obligations to repurchase assets previously sold (including any
obligation to repurchase any accounts or chattel paper under any factoring, receivables purchase,
or similar arrangement); (ix) obligations of such Person under interest rate swap, cap, collar or
similar hedging arrangements; and (x) all obligations of others of any type described in clause
(i) through clause (ix) above guaranteed by such Person.



“Insolvency Proceeding” means (a) any case, action or proceeding before any court or other
governmental authority relating to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of its creditors,
undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.



“Instruments” means any “instrument,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.



“Inventory” means any “inventory,” as such term is defined in the UCC, described on Schedule
1 attached to the Supplement and incorporated herein by this reference (as such Schedule
1 may be amended or supplemented from time to time), wherever located, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any
event, shall include, without limitation, all inventory, goods and other personal property that are
held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process or materials used or consumed
or to be used or consumed in Borrower’s business, or the processing, packaging, promotion, delivery
or shipping of the same, and all finished goods, whether or not the same is in transit or in the
constructive, actual or exclusive possession of Borrower or is held by others for Borrower’s
account, including, without limitation, all goods covered by purchase orders and contracts with
suppliers and all goods billed and held by suppliers and all such property first may be in the
possession or custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling
agents or other Persons.



“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security
interest, encumbrance, levy, lien or charge of any




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kind, whether voluntarily incurred or arising by operation of law or otherwise, against any
property, any conditional sale or other title retention agreement, any lease in the nature of a
security interest, and the filing of any financing statement (other than a precautionary financing
statement with respect to a lease that is not in the nature of a security interest) under the UCC
or comparable law of any jurisdiction.



“Loan” means an extension of credit by Lender under this Agreement.



“Loan Documents” means, individually and collectively, this Loan and Security Agreement, each
Supplement, each Note, and any other security or pledge agreement(s), any Warrants issued by
Borrower to Lender in connection with this Agreement, and all other contracts, instruments,
addenda and documents executed in connection with this Agreement or the extensions of credit which
are the subject of this Agreement.



“Material
Adverse Effect” or “Material Adverse Change” means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, or condition (financial or
otherwise) of Borrower; (b) a material impairment of the ability of Borrower to perform under any
Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.



“Maturity Date” means, with regard to a Loan, the earlier of (i) its maturity by reason of
acceleration, or (ii) its stated maturity date; and is the date on which payment of all
outstanding principal, accrued interest, and the Terminal Payment with respect to such Loan is
due.



“Note” means a promissory note substantially in the form attached
to the Supplement as Exhibit “A”, executed by Borrower evidencing each Loan.



“Obligations” means all debts, obligations and liabilities of Borrower to Lender currently
existing or now or hereafter made, incurred or created under, pursuant to or in connection with
this Agreement or any other Loan Document, whether voluntary or involuntary and however arising or
evidenced, whether direct or acquired by Lender by assignment or succession, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly, or whether recovery upon such debt may be or
become barred by any statute of
limitations or otherwise unenforceable; and all renewals, extensions and modifications thereof;
and all attorneys’ fees and costs incurred by Lender in connection with the collection and
enforcement thereof as provided for in any Loan Document.



“Permitted Lien” means




     (a) Involuntary Liens which, in the aggregate,would not have a Material Adverse Effect and
which in any event would not exceed, in the aggregate, the Threshold Amount;



     (b) Liens
for current taxes or other governmental or regulatory assessments which are not
delinquent, or which are contested in good faith by the appropriate procedures and for which
appropriate reserves are maintained;



     (c) security
interests on any property held or acquired by Borrower in the ordinary course
of business securing Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property; provided, that such Lien attaches solely to the property
acquired with such Indebtedness and that the principal amount of such Indebtedness does not exceed
one hundred percent (100%) of the cost of such property; and
further provided, that such
property is not equipment or inventory or other Collateral with
respect to which a Loan has been made
hereunder.



     (d) Liens in favor of Lender;



     (e) bankers’
liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business;



     (f) materialmen’s,
mechanics’, repairmen’s, employees’ or other like Liens arising in the
ordinary course of business and which are not delinquent for more than 45 days or are being contested
in good faith by appropriate proceedings;



     (g) any judgment, attachment or similar Lien,unless the judgment it secures has not been
discharged or execution thereof effectively stayed and bonded against pending appeal within 30 days
of the entry thereof;



     (h) nonexclusive licenses or sublicenses of patents, copyrights or trademarks in the order
course of Borrower’s business; and



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     (i) Liens which have been approved by Lender in writing prior to the Closing Date.


“Proceeds” means “proceeds,” as such term is defined in the UCC and, in any event, shall include,
without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of
money or currency or other proceeds payable to Borrower from time to time in respect of the
Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any
form whatsoever) made or due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral
by any governmental authority (or any Person acting under color of governmental authority), (d) any
claim of Borrower against third parties (i) for past, present or future infringement of any
copyright, patent or patent license or (ii) for past, present or future infringement or dilution of
any trademark or trademark license or for injury to the goodwill associated with any trademark,
trademark registration or trademark licensed under any trademark license and (e) any and all other
amounts from time to time paid or payable under or in connection with any of the Collateral



“Person” means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, institution,
public benefit corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or
department thereof).



“Qualified Public Offering” means the closing of a firmly underwritten public offering of
Borrower’s common stock with aggregate proceeds of not less than $20,000,000 (prior to
underwriting expenses and commissions).



“Records” means all Borrower’s computer programs,
software, hardware, source codes and data processing information, all written documents,
books, invoices, ledger sheets, financial information and statements, and all other writings
concerning Equipment, Inventory and other Collateral.



“Related Person” means any Affiliate of Borrower, or any officer, employee, director or equity
security holder of Borrower or any Affiliate.



“Terminal Payment” means, with respect to each Loan, an amount payable on the Maturity Date of
such Loan in an amount equal to that percentage of the original principal amount of such Loan
specified in the Supplement.



“Termination Date” has the meaning specified in the Supplement.



“Threshold Amount” has the meaning specified in the Supplement.



“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the
State of California; provided, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s
Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of California, the term “UCC” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority or remedies and for purposes of
definitions related to such provisions. Unless otherwise defined herein, terms that are defined in
the UCC and used herein shall have the meanings given to them in the UCC.




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



	 	 	 	 	 
	BORROWER:	 	 
	 
	 	 	 	 
	VOLCANO THERAPEUTICS INC	 	 
	 
	 	 	 	 
	By:

	 	/s/ John Dahldorf	 	 
	 

	 	 	 	 
	Name:

	 	John Dahldorf	 	 
	Title:

	 	CFO	 	 
	 
	 	 	 	 
	LENDER:	 	 
	 
	 	 	 	 
	VENTURE LENDING & LEASING III, INC.	 	 
	 
	 	 	 	 
	By:
	 	/s/ Ronald W. Swenson	 	 
	 

	 	 	 	 
	Name:
	 	Ronald W. Swenson	 	 
	 

	 	 	 	 
	Title:
	 	Chief Executive Officer	 	 
	 

	 	 	 	 





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SCHEDULE 1




The following are subsidiaries of Volcano:




Pacific Rim Medical Ventures Corporation




Volcano Therapeutics Europe SA/NV




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