exv10w1



 





EXHIBIT 10.1




NORTHWEST BIOTHERAPEUTICS, INC.

LOAN AGREEMENT, SECURITY AGREEMENT and

10% CONVERTIBLE, SECURED PROMISSORY NOTE




	 	 	 
	$500,000.00

	 	June 11, 2004







SECTION 1. GENERAL.



For value received, Northwest Biotherapeutics, Inc., a Delaware corporation
(the “Maker” or the “Company”), hereby promises to pay to the order of Toucan
Capital Fund II, L.P. or its assigns (collectively, the “Holder”), the
principal amount of Five Hundred Thousand Dollars ($500,000) upon written
demand by Holder made at any time on or after the first anniversary of
execution of this Loan Agreement, Security Agreement and 10% Convertible,
Secured Promissory Note (this “Note” or this “Agreement”), or such earlier date
as may be applicable under Sections 3 and 4 hereof (the “Maturity Date”).
Maker shall pay interest on the unpaid principal amount of this Note, accruing
from and after the date hereof at the rate of ten percent (10%) per annum,
compounding annually (computed on the basis of a 365-day year and the actual
number of days elapsed) (the “Interest Rate”). Accrued interest shall be
payable upon the payment of the principal of this Note. The principal of, and
interest on, this Note shall be payable in lawful currency of the United States
of America by wire transfer in immediately available funds to the account of
Holder, as provided in writing to Maker by Holder. All payments shall be
applied first to fees, costs and charges relating to this Note (including,
without limitation, any costs of collection), then to accrued and unpaid
interest, and thereafter to principal. This loan is made by Holder to Maker in
anticipation of an equity financing. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Recapitalization
Agreement.




SECTION 2. PRE-PAYMENT.



This Note may be pre-paid in whole or in part prior to the Maturity Date;
provided Maker provides Holder with 30 days prior written notice thereof, and
provided further that Holder shall have the option to convert this note in
accordance with Section 12 hereof by notifying Maker of Holder’s election on or
before the expiration of such thirty (30) day notice period. In the event of
prepayment, Maker shall pay a penalty in the amount of 1% of the principal and
accrued interest then outstanding under this Note, unless a greater or lesser
penalty is established or approved by the U.S. Small Business Administration
(“SBA”). Conversion of this Note shall not be deemed a prepayment.




SECTION 3. DEFAULT INTEREST.



Upon the occurrence of an Event of Default (as hereinafter defined), the unpaid
principal amount and accrued and unpaid interest shall bear interest payable on
demand at the lesser of (i) fourteen percent (14%) per annum, (ii) the maximum
rate permitted under applicable rules and regulations of the SBA, or (iii) the
maximum rate allowed by law (the “Default Interest”). Such interest shall
accrue, commencing upon the occurrence of an Event of Default and continuing
until such Event of Default is cured or waived.




 









 








SECTION 4. DEFAULTS.




     4.1
Definitions. Each occurrence of any of the following events shall
constitute an “Event of Default”:



          (a) if a default occurs in the payment of any principal of, interest on,
or other obligation with respect to, this Note, whether at the due date thereof
or upon acceleration thereof, and such default remains uncured for five (5)
business days after written notice thereof from Holder;



          (b) if any representation or warranty of Maker made herein shall have been
false or misleading in any material respect, or shall have contained any
material omission, as of the date hereof;



          (c) if a default occurs in the due observance or performance of any
covenant or agreement on the part of Maker to be observed or performed pursuant
to the terms of this Note and such default remains uncured for five (5)
business days after written notice thereof from Holder;



          (d) if a default occurs in Maker’s performance of any of the terms and
conditions of that certain Recapitalization Agreement, dated as of April 26,
2004 (the “Recapitalization Agreement”) or any Related Recapitalization
Document;



          (e) if Maker shall (i) discontinue its business, (ii) apply for or consent
to the appointment of a receiver, trustee, custodian or liquidator of Maker or
any of its property, (iii) make a general assignment for the benefit of
creditors, or (iv) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors, or take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation laws or statutes, or file an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law, provided, however, that insolvency of Maker shall not constitute a
default, or the basis for a default, during the Bridge Period;



          (f) if there shall be filed against Maker an involuntary petition seeking
reorganization of Maker or the appointment of a receiver, trustee, custodian or
liquidator of Maker or a substantial part of its assets, or an involuntary
petition under any bankruptcy, reorganization or insolvency law of any
jurisdiction, whether now or hereafter in effect (any of the foregoing
petitions being hereinafter referred to as an “Involuntary Petition”) and such
Involuntary Petition shall not have been dismissed within ninety (90) days
after it was filed, provided, however, that insolvency of Maker shall not
constitute a default, or the basis for a default, during the Bridge Period;



          (g) if final judgment(s) for the payment of money in excess of an
aggregate of $25,000 (excluding any portion thereof that an insurance company
of nationally recognized



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standing and creditworthiness has agreed to pay) shall be rendered against
Maker and the same shall remain undischarged for a period of thirty (30) days;
or




          (h) if there occurs any event that may have a material adverse effect on
the business, affairs, prospects, operations, properties, assets, liabilities,
structure or condition, financial or otherwise, of the Company (as such
business is presently currently conducted and/or as it is proposed to be
conducted), or on any material assets or any Intellectual Property or other
Collateral developed, owned, controlled, licensed, possessed, or used by Maker,
or to which Maker has any right, option, entitlement or claim, provided,
however, that ongoing weakening of Maker’s financial condition due to ongoing
expenditures and Maker’s failure to obtain equity financing shall not
constitute a default, or the basis for a default, during the Bridge Period.



     4.2 Cross-Default: Maker acknowledges that the financing contemplated by
this Note is part of an integrated Recapitalization Plan, as set forth in the
Recapitalization Agreement and the Related Recapitalization Documents. Maker
further acknowledges and agrees that this Note is subject to all terms and
conditions set forth in the Recapitalization Agreement and the Related
Recapitalization Documents, and that the Recapitalization Agreement and the
Related Recapitalization Documents are subject to all of the terms and
conditions of this Note. Maker agrees that any default by Maker under any
provision of this Note, the Recapitalization Agreement or any of the Related
Recapitalization Documents will constitute a default under each other Related
Recapitalization Document and the Recapitalization Agreement.



     4.3 Remedies on Default.



          (a) Upon each and every such Event of Default and at any time thereafter
during the continuance of such Event of Default: (i) any and all indebtedness
of Maker to Holder under this Note or otherwise shall immediately become due
and payable, both as to principal and interest (including any deferred interest
and any accrued and unpaid interest and any Default Interest); and (ii) Holder
may exercise all the rights of a creditor under applicable state and/or federal
law.



     (b) In case any one or more Events of Default shall occur and be
continuing, and acceleration of this Note or any other indebtedness of Maker to
Holder shall have occurred, Holder may, inter alia, proceed to protect and
enforce its rights by an action at law, suit in equity and/or other appropriate
proceeding, whether for the specific performance of any agreement contained in
this Note, or for an injunction against a violation of any of the terms hereof
or thereof or in furtherance of the exercise of any power granted hereby or
thereby or by law. No right conferred upon Holder by this Note shall be
exclusive of any other right referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise.



SECTION 5. DEFENSES.




     5.1 No Offsets. The obligations of Maker under this Note shall not be
subject to reduction, limitation, impairment, termination, defense, set-off,
counterclaim or recoupment for any reason.



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     5.2 Usury Limitations. It is the intention of the parties hereto to
comply with all applicable usury laws; accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Note or any other
agreements or instruments between them, in no event shall such agreements or
instruments require the payment or permit the collection of interest (which
term, for purposes hereof, shall include any amount which, under applicable
law, is deemed to be interest, whether or not such amount is characterized by
the parties as interest) in excess of the maximum amount permitted by such
laws. If any excess of interest is unintentionally contracted for, charged or
received under the Note or under the terms of any other agreement or instrument
between the parties, the effective rate of interest shall be automatically
reduced to the maximum lawful rate of interest allowed under the applicable
usury laws as now or hereafter construed by the courts having jurisdiction
thereof.



SECTION 6. REPLACEMENT OF NOTE.




     Upon receipt by Maker of reasonable evidence of the loss, theft,
destruction, or mutilation of this Note, Maker will deliver a new Note
containing the same terms and conditions in lieu of this Note. Any Note
delivered in accordance with the provisions of this Section 6 shall be dated as
of the date of this Note.



SECTION 7. EXTENSION OF MATURITY.




     Should the principal of or interest on this Note become due and payable on
other than a business day, the due date thereof shall be extended to the next
succeeding business day, and, in the case of principal, interest shall be
payable thereon at the rate per annum herein specified during such extension.
For the purposes of the preceding sentence, a business day shall be any day
that is not a Saturday, Sunday, or legal holiday in the State of Delaware.



SECTION 8. ATTORNEYS’ FEES AND COLLECTION FEES.




     Should the indebtedness evidenced by this Note or any part hereof be
collected at law or in equity or in bankruptcy, receivership or other court
proceedings, arbitration or mediation, or any settlement of any of the
foregoing, Maker agrees to pay, in addition to principal and interest due and
payable hereon, all costs of collection, including, without limitation,
reasonable attorneys’ fees and expenses, incurred by Holder in collecting or
enforcing this Note.



SECTION 9. WAIVERS; CONSENT TO JURISDICTION.




     9.1 Waivers by Maker. Maker hereby waives presentment, demand for
payment, notice of dishonor, notice of protest and all other notices or demands
in connection with the delivery, acceptance, performance or default of this
Note.



     9.2 Actions of Holder not a Waiver. No delay by Holder in exercising any
power or right hereunder shall operate as a waiver of any power or right, nor
shall any single or partial exercise of any power or right preclude other or
further exercise thereof, or the exercise of any



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other power or right hereunder or otherwise; and no waiver or modification of
the terms hereof shall be valid unless set forth in writing by Holder and then
only to the extent set forth therein.




     9.3 Consent to Jurisdiction. Maker hereby irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of Delaware
over any suit, action, or proceeding arising out of or relating to this Note or
any other agreements or instruments with respect to Holder. Maker hereby
irrevocably waives, to the fullest extent permitted by law, any objection that
Maker may now or hereafter have to the laying of venue of any such suit,
action, or proceeding brought in any such court and any claim that any such
suit, action, or proceeding brought in any such court has been brought in an
inconvenient forum. Final judgment in any such suit, action, or proceeding
brought in any such court shall be conclusive and binding upon Maker and may be
enforced in any court in which Maker is subject to jurisdiction by a suit upon
such judgment, provided that service of process is effected upon Maker as
provided in this Note or as otherwise permitted by applicable law.



     9.4 Waiver of Jury Trial. MAKER WAIVES ITS RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN
MAKER AND HOLDER RELATING TO THE SUBJECT MATTER OF THIS NOTE. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS NOTE,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO
ANY OTHER DOCUMENT OR AGREEMENT RELATING TO THE LOAN.



     9.5 Service of Process. Maker hereby consents to process being served in
any suit, action, or proceeding instituted in connection with this Note by
delivery of a copy thereof by certified mail, postage prepaid, return receipt
requested, to Maker, and/or by delivery of a copy thereof to a registered agent
of Maker. Refusal to accept delivery, and/or avoidance of delivery, shall be
deemed to constitute delivery. Maker irrevocably agrees that service in
accordance with this Section 9.5 shall be deemed in every respect effective
service of process upon Maker in any such suit, action or proceeding, and
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon Maker. Nothing in this Section 9.5 shall affect the right
of Holder to serve process in any manner otherwise permitted by law or limit
the right of Holder otherwise to bring proceedings against Maker in the courts
of any jurisdiction or jurisdictions.



SECTION 10. COVENANTS.




     10.1 Affirmative Covenants. So long as this Note shall remain
outstanding:



          (a) Office. Maker shall maintain its principal office, and the majority
of its employees, assets and operations, in the United States.



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          (b) Use of Proceeds. Maker will use the proceeds from this Note only for
the following purposes:



	 	 
	

	(i) General operating expenses, expenses for the development and
protection of its intellectual property, and other usual and customary
commercial and business expenses incurred in pursuing its business plan
and strategy, on and after the effective date hereof;
	 
	 
	

	(ii) Audit expenses and regular and special SEC filing expenses, for
audits and filings occurring on or after the effective date hereof,
including, without limitation, SEC filings relating to solicitation of
any shareholder consents to the recapitalization of Maker; and
	 
	 
	

	(iii) Expenses of accountants, attorneys, consultants and other
professionals (including, without limitation, the expenses of Investor
described in Section 4.11 of the Recapitalization Agreement) relating to
the recapitalization of Maker.






Maker will not use the proceeds from this Note for any other purpose. Without
limiting the generality of the foregoing, none of the proceeds will be used,
without prior written agreement by the Holder, (i) to purchase or carry (or
refinance any borrowing, the proceeds of which were used to purchase or carry)
any “security” within the meaning of the Securities Act of 1933, as amended
(the “Securities Act”), (ii) to repay any indebtedness or discharge any
obligation to an person or entity, other than trade payables incurred in the
ordinary course of business on or after the effective date hereof, and
consistent with Maker’s operating plans and budgets fully disclosed to the
Holder prior to the Closing, or (iii) to engage in business activities which
would cause a violation of 13 CFR 107.720. This latter limitation prohibits,
without limitation, the use of proceeds: (i) directly or indirectly, for
providing funds to others; (ii) for the purchase or discounting of debt
obligations; (iii) for factoring or long-term leasing of equipment with no
provision for maintenance or repair; (iv) for engaging in real estate
transactions such that Maker could reasonably be classified under Major Group
65 (Real Estate) of the SIC Manual; (v) for business activities wherein the
assets of the business of Maker (the “Business”) will be reduced or consumed,
generally without replacement, as the life of the Business progresses, and the
nature of the Business does not require that a stream of cash payments be made
to the financing sources of the Business, on a basis associated with the
continuing sale of assets (examples of such businesses would include real
estate development projects, the financing and production of motion pictures,
and oil and gas well exploration, development and production); (vi) for a
foreign operation; (vii) to provide capital to a corporation licensed or
sub-licensed under the Small Business Investment Act, (viii) to acquire farm
land, (ix) to fund production of a single item or defined limited number of
items generally over a defined production period, such production to constitute
the majority, of the activities of Maker (examples include electric generating
plants), or (x) for any purpose contrary to the public interest (including, but
not limited to, activities which are in violation of law) or inconsistent with
free competitive enterprise, in each case, within the meaning of Section
107.720 of Title 13 of the Code of Federal Regulations.




          (c) Seniority. Except as otherwise expressly provided, and except for
security interests and liens described in items 2, 3 and 4 of Schedule 14.11 of
the Disclosure Schedule attached hereto as Exhibit B (the “Disclosure
Schedule”), the indebtedness evidenced by this Note: (i) shall be senior in
all respects to all other indebtedness or obligations of Maker of any



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kind, direct or indirect, contingent or otherwise, other than obligations of
Maker owed directly to the state or federal government, and other than any
other indebtedness or obligations of Maker to Holder; (ii) shall not be made
subordinate or subject in right of payment to the prior payment of any other
indebtedness or obligation of any kind, direct or indirect, contingent or
otherwise, other than obligations of Maker owed directly to the state or
federal government, and other than any other indebtedness or obligations of
Maker to Holder.




          (d) No Conflicting Agreements. Maker shall not enter into any agreement
that would materially impair, interfere or conflict with Maker’s obligations
hereunder. Without Holder’s prior written consent, Maker shall not permit the
inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way result in the creation of a security
interest in any assets of Maker, including without limitation any Collateral
(as defined in Exhibit A hereto).



          (e) Disclosure of Material Adverse Events. Within three (3) business days
of Maker obtaining knowledge thereof, Maker will notify Holder in writing of
any event that may have a material adverse effect on the business, affairs,
prospects, operations, properties, assets, liabilities, structure or condition,
financial or otherwise, of the Company (as such business is presently conducted
and/or as it is proposed to be conducted), or on any material assets or any
Intellectual Property or other Collateral developed, owned, controlled,
licensed, possessed, or used by Maker, or to which Maker has any right, option,
entitlement or claim. Operating expenditures in the ordinary course of
business and in accordance with operating budgets approved by Maker’s Board of
Directors and fully disclosed to Holder prior to the effective date hereof
shall not be deemed to be material adverse events solely because they weaken
Maker’s financial condition in the absence of new equity financing of Maker.



          (f) Financial Information. So long as any principal and/or interest under
this Note shall remain outstanding:




          (i) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year) and at such other times as Holder may
reasonably request, Maker shall deliver to Holder a written assessment,
in form and substance satisfactory to Holder, of the economic impact of
such Holder’s financing hereunder, specifying the full-time equivalent
jobs created or retained in connection with such investment, and the
impact of the financing on Maker’s business in terms of revenues and
profits and on taxes paid by Maker and its employees.




          (ii) Maker shall provide on a timely basis to Holder all financial
information requested from time to time by Holder, including without
limitation its quarterly and annual balance sheet and income statement.
Such financial information shall be certified by a member of Maker’s
senior management. Financial information required shall also include
such information as is necessary for Holder to file form 468 with the
SBA.




          (iii) In addition to the information specified in Section 10.1(f)(i)
and (ii) above, upon request, Maker agrees promptly to provide Holder
with sufficient



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additional information to permit Holder to comply with (i) its
obligations under the Small Business Investment Act of 1958, as amended,
and the regulations promulgated thereunder and related thereto and (ii)
provide any other information reasonably requested or required by any
governmental agency asserting jurisdiction over Holder.



          (g) Access. So long as any principal and/or interest under this Note
shall remain outstanding, Maker shall permit Holder and its agents or
representatives to visit and inspect Maker’s properties, to examine its books
of account and records and to discuss Maker’s affairs, finances and accounts
with its officers, all at such times during normal business hours as reasonably
may be requested by Holder. Maker shall allow SBA Examiners access to its
books and records, as reasonably required by such Examiners in connection with
their annual audits of Holder or for any other legitimate purposes.



          (h) SBA Compliance. Maker acknowledges that Holder is a licensed Small
Business Investment Corporation and thereby a participant in the SBIC program
of the U. S. Small Business Administration (“SBA”), and as such is subject to
the rules, regulations, guidance and direction of the SBA on matters affecting
its business and investment practices, and that such rules and regulations
affect the business activities and practices of the companies in which Holder
makes investments. Maker shall promptly and fully cooperate with Holder to
facilitate both Maker’s and Holder’s compliance with all such SBA rules,
regulations, guidance and direction.



          (i) Business Activity. As long as this Note shall remain outstanding,
Maker shall make no change in its business activity that would make it or any
of its business activities non-compliant with SBA regulations and guidelines.



     10.2 Negative Covenants. So long as this Note shall remain outstanding:



          (a) Indebtedness. Maker shall not incur additional indebtedness, beyond
the indebtedness already existing as of the date hereof, for borrowed money in
excess of $10,000, in aggregate.



          (b) Liens. Maker shall not grant to any person or entity a security
interest, lien, license, or other encumbrance of any kind, direct or indirect,
contingent or otherwise, in, to or upon any assets of Maker, including, without
limitation, any intellectual property of any kind, as defined in Exhibit A
hereto (respectively, the “Intellectual Property” and the “Collateral”).



          (c) Sale or License of Assets. Maker shall not sell, lease, transfer,
assign or otherwise dispose of or encumber (including, without limitation
through licensing or partnering arrangements) or abandon, conceal, injure or
destroy any material assets (whether tangible or intangible) of Maker
(including, without limitation, any Collateral (as defined in Section 11),
other than with the prior written approval of Holder and in the ordinary course
of business.



          (d) Issuance of Capital Stock. Except for (a) any transaction pursuant to
an Unsolicited Proposal that Maker accepts in accordance with the fiduciary
exception provided in Section 3.2 of the Recapitalization Agreement or (b)
shares of capital stock issuable upon



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exercise or conversion of warrants or convertible securities outstanding prior
to February 1, 2004, Maker shall not without Holder’s prior written approval:
(i) issue any shares of capital stock or other securities, or any instruments
exercisable for or convertible into capital stock or other securities, or (ii)
make any promises, commitments, undertakings, agreements or letters of intent
for any of the issuances described in (i) hereof.





          (e) Distributions and Redemptions. Maker shall not declare or pay any
dividends or make any distributions of cash, property or securities of Maker
with respect to any shares of its common stock, preferred stock or any other
class or series of its stock, or, directly or indirectly (except for
repurchases of common stock by Maker in accordance with the terms of employee
benefit plans or written agreement between Maker and any of its employees
approved by the Board of Directors of Maker prior to February 1, 2004), redeem,
purchase, or otherwise acquire for any consideration any shares of its common
stock or any other class of its stock.



          (f) Hiring. Maker shall not hire, or agree to hire, any employee or
engage, or agree to engage, any consultant, independent contractor or any other
non-employee personnel, except in accordance with Maker’s budget that has been
approved by Maker’s board of directors and the Investor;



          (g) Severance. Maker shall not enter into, increase, expand, extend, or
renew any severance, separation, retention, change of control or similar
agreement with any employee, consultant, independent contractor or any other
non-employee personnel, or agree, promise or commit to do so, without the prior
written approval of Investor;



          (h) Facilities. Maker shall not purchase, lease, hire, rent or otherwise
acquire directly or indirectly any rights in or to any asset or facility
outside of the ordinary course of business in an amount in excess of $10,000,
in aggregate, or agree, promise or commit to do so, except in accordance with
the Maker’s budget that has been approved by the Maker’s board of directors and
the Investor.



          (i) Other Limitations.



               (i) Maker shall not change the nature of its business activity in a manner
that would cause a violation of 13 C.F.R. Section 107.720 and/or Section
107.760(b) (including, without limitation, by undertaking real estate, film
production or oil and gas exploration activities). In the event that Maker
changes the nature of its business activity such that such change would render
Maker ineligible for financing pursuant to applicable SBA rules and
regulations, Maker agrees to use its best efforts to facilitate a transfer or
redemption of any securities then held by Holder.



               (ii) Maker will at all times comply with the non-discrimination
requirements of 13 C.F.R. Parts 112, 113 and 117.



               (iii) For a period of at least one year after the date of this Note, Maker
will locate no more than 49 percent of the employees or tangible assets of
Maker outside the United States.



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     10.3 Additional Covenant. Immediately after the effective date of this
Note, Maker shall recall all units of Maker’s Tangential Flow Filtration
(“TFF”) devices, and all specifications, diagrams, description or other
information relating to such TFF devices, or any similar device, from all third
parties who may currently have any of the foregoing. Maker will take all
necessary steps to ensure that such recall is effective as quickly as possible,
and in no event later than fifteen (15) days after the effective date hereof.
Until the later of the expiration of the Standstill Period (as defined in
Section 13 below) or the date on which this Note has been discharged in full,
Maker shall not sell, license, loan or otherwise in any way transfer or
distribute Maker’s Tangential Flow Filtration (“TFF”) devices or any similar
device, or any specifications, diagrams, description or other information about
the TFF devices, to any third party, or commit or promise or enter into any
understanding of any kind, direct or indirect, contingent or otherwise, to do
any of the foregoing in regard to Maker’s TFF devices or any similar device,
without the prior written consent of Holder in each case.



SECTION 11. SECURITY INTEREST.




     11.1 First Priority in All Collateral. To secure its obligations under
this Note whether at stated maturity, by acceleration or otherwise, Maker
hereby grants and pledges to Holder a first priority senior security interest
in all of Maker’s right, title and interest in, to and under all of Maker’s
tangible and intangible property, whether now owned, licensed or held or
hereafter acquired, licensed, developed, held or arising, as described in
Exhibit A hereto (the “Collateral”), and all proceeds of any kind from any
disposition of any such Collateral. Such security interest shall be senior to
any security interest in the Collateral granted the holders of the Management
Notes pursuant to any subordination agreement between Holder, the holders of
the Management Notes and Maker, and shall be senior to any other security
interest of any kind, direct or indirect, contingent or otherwise, in the
Collateral except for the security interests and liens described in items 2, 3
and 4 of Schedule 14.11 of the Disclosure Schedule (only to the amounts set
forth on such schedule) and any other indebtedness or obligations of Maker to
Holder. If certificates of title are now, or hereafter become, issued or
outstanding with respect to any of the Collateral, Maker promptly shall cause
the senior security interest of Holder to be properly noted thereon. Maker
agrees that the security interest herein granted has attached and shall
continue until Maker’s obligations under this Note have been paid, performed
and indefeasibly discharged in full.



     11.2 Rights Cumulative. The rights and remedies of Holder with respect to
the senior security interest granted hereby are in addition to those which are
now or may hereafter be available to Holder as a matter of law or equity. Each
right, power and remedy of Holder provided for herein, or now or hereafter
existing at law or in equity, shall be cumulative and concurrent and shall be
in addition to every right, power and remedy provided for herein, and the
exercise by Holder of any one or more of the rights, powers and/or remedies
provided for in this Note, or now or hereafter existing at law or in equity,
shall not preclude the simultaneous or later exercise by any person, including
a grantee, of any or all other rights, powers and/or remedies.



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     11.3 Documentation of Security Interest. Maker shall execute, deliver,
file, amend, and re-file any financing statements, instruments (including
without limitation stock certificates), continuation statements, assignments,
or other security agreements that Holder may require from time to time to
confirm the liens arising out of this Note with respect to the Collateral.
Maker agrees to pay all reasonable costs associated with filing and/or
re-filing of any financing statements, continuation statements or other
security agreements required to perfect and to continue perfection of Holder’s
security interest in the Collateral and all reasonable costs required to
evidence the first priority of the security interest, including, without
limitation, reasonable attorneys’ fees. Maker authorizes Holder to file
financing statements under the UCC with respect to the security interest
granted hereby and agrees, upon request of Holder, to promptly and duly execute
and deliver any and all such further instruments and documents, and to take
such further action, as Holder may reasonably deem necessary or desirable to
obtain the full benefits of this grant of security interest.



     11.4 No Conflicting Agreements. Maker shall not enter into any agreement
on or after the effective date of this Note that would materially impair or
conflict with Maker’s obligations hereunder without Holder’s prior written
consent. Without Holder’s prior written consent, Maker shall not permit the
inclusion in any material contract to which it becomes a party on or after the
effective date of this Note, of any provisions that could or might in any way
prevent the creation, perfection and maintenance of a first priority security
interest in Maker’s rights and interest in any property included within the
definition of the Collateral acquired under such contracts. Maker represents
and warrants that, as of the effective date of this Note, there are no existing
agreements or undertakings that would materially impair or conflict with
Maker’s obligations hereunder or that could or might in any way prevent the
creation, perfection and maintenance of a first priority security interest in
Maker’s rights and interest in any property included within the definition of
the Collateral acquired under such contracts; except for existing equipment
leases described in item 2 of Schedule 14.11 and the statutory liens described
in items 3 and 4 of the Disclosure Schedule.



     11.5 Notification Requirements. Within two (2) business days of any
officer, director or employee of Maker obtaining knowledge thereof, Maker will
promptly notify Holder in writing of any event that materially adversely
affects the value of any material Collateral, the ability of Maker to dispose
of any material Collateral, or the rights and remedies of Holder in relation
thereto, including the levy of any legal process against any of the Collateral.



     11.6 Foreclosure Remedy. Notwithstanding anything to the contrary herein
or in the Recapitalization Agreement or any other agreement or document, in the
event that Maker is unable to pay and discharge this Note in full on the
Maturity Date, subject to the compliance with the requirements of the Delaware
Uniform Commercial Code, nothing herein or in the Recapitalization Agreement or
any other agreement or document shall be deemed to preclude, limit or restrict
Holder from requiring the delivery of some or all of the Collateral in full or
partial satisfaction of Maker’s obligation under the Note. Alternatively,
Holder may, in its sole discretion, elect to cause some or all of the
Collateral to be sold, and the sale proceeds to be used to pay and discharge
the Note in full.



11









 





SECTION 12. CONVERSION.




     12.1 Holder’s Election. Notwithstanding any other provision of this Note
or any applicable agreement or document, until, and/or in the absence of,
purchases for cash of a minimum of $15 million of Convertible Preferred Stock,
by Other Investors (as defined in the Recapitalization Agreement), on the terms
and conditions set forth herein and in the Recapitalization Agreement, Holder
may, in its sole discretion, elect to convert any or all of the principal
and/or interest due under the Note into any Equity Security and/or Debt
Security (each as defined below) and/or any combination thereof, in each case
that Holder shall designate in Holder’s sole discretion (the securities so
elected being the “Holder Designated Securities”). Holder may make such
determinations from time to time and at any time before this Note has been
discharged in full, and, as applicable, at any time on or before the expiration
of the thirty (30) day notice period required under this Note in the event the
Maker wishes to prepay this Note. For purposes hereof, (i) the term “Equity
Security” means any class or series of equity security, or any combination of
classes and/or series of equity securities, of the Maker that have been
authorized under the Maker’s certificate of incorporation, as amended and/or
restated, including by any certificate of designation (the “Charter”), or any
new class or series of equity security, or any combination of new and/or
existing classes and/or series of equity securities, of the Maker for which the
Maker has undertaken any agreement, obligation, promise, commitment or letter
of intent to obtain such authorization and (ii) the term “Debt Security” means
any evidence of indebtedness of the Maker that the Maker has authorized,
created or incurred, or that the Maker has undertaken any agreement,
obligation, promise, commitment or letter of intent to authorize, create or
incur.



     12.2 Automatic Conversion. The principal amount of, and accrued and
unpaid interest on, this Note shall automatically convert into Convertible
Preferred Stock, upon the terms and conditions set forth herein and in the
Recapitalization Agreement, only in the event, and upon the closing of, the
purchase in cash (and not by conversion of debt, exercise of warrants or
options, or conversion or exercise of other securities or instruments), on the
terms and conditions set forth in the Convertible Preferred Stock Term Sheet,
by Other Investors, as defined in the Convertible Preferred Stock Term Sheet,
of a minimum of $15 million of Convertible Preferred Stock.



     12.3 Information for Holder’s Election. Maker shall provide to Holder,
within two (2) business days after notice of each request by Holder, all
information reasonably requested by Holder in connection with any Equity
Securities and/or Debt Securities, to enable Holder to make decisions regarding
one or more conversions. In the event that Maker seeks to prepay this Note,
Maker shall deliver to Holder, simultaneously and together with the notice
required under Section 2 of this Note of Maker’s interest in prepaying the
Note, a summary of all material information, terms and conditions relating to
all Equity Securities and Debt Securities (including any “side” letters or
agreements or separate agreements).



     12.4 Conversion Price. The conversion price for any conversion pursuant
to Section 12.2 shall be the lowest nominal or effective price per share paid
by the Other Investors who purchase such Convertible Preferred Stock (with the
exception of shares issuable upon exercise of the Bridge Warrants). The
conversion price for any conversion into any equity or debt security pursuant
to Section 12.1 shall be the lowest of (i) the lowest nominal or effective
price



12









 




per share paid by any investor at any time on or after the date one year
prior to the Effective Date of the Recapitalization Agreement (with the
exception of (x) purchases of up to 35,000 shares of Common Stock pursuant to
certain options to purchase, at a purchase price of $0.0001, that were
outstanding on the Effective Date of the Recapitalization Agreement and held by
members of the Board of Directors, as set forth in Schedule 2.7(d) to the
Recapitalization Agreement, and (y) shares issuable upon the exercise of the
Bridge Warrants, each of which shall be excluded from consideration under this
section), (ii) the lowest nominal or effective price at which any investor is
entitled to acquire shares (including, without limitation, through purchase,
exchange, conversion or exercise) pursuant to any other security, instrument,
or promise, undertaking, commitment, agreement or letter of intent of the Maker
outstanding on or after the Effective Date of the Recapitalization Agreement or
granted, issued, extended or otherwise made available by the Maker at any time
on or after the date one year prior to the Effective Date of the
Recapitalization Agreement (regardless of whether currently exercisable or
convertible) (with the exception of (x) certain options to purchase up to
35,000 shares of Common Stock at a purchase price of $0.0001 that were
outstanding on the Effective Date of the Recapitalization Agreement and held by
members of the Board of Directors as set forth in Schedule 2.7(d) to the
Recapitalization Agreement, and (y) the Bridge Warrants, each of which shall be
excluded from consideration under this section); and (iii) the lesser of $0.10
per share or 35% discount to the average closing price per share of the Common
Stock during any twenty consecutive trading days (beginning with the twenty
consecutive trading days prior to the Effective Date of the Recapitalization
Agreement); provided, however, that in no event shall the price per share
calculated pursuant to this clause (iii) be less than $.04 per share. The
calculation required by clause (ii) hereof shall initially be based upon
Schedule 2.7(d) to the Recapitalization Agreement. All other rights,
preferences, privileges, terms and conditions received by Holder in connection
with any conversion and/or any securities issued by the Maker to Holder upon
conversion, shall be no less favorable to Holder than the rights, preferences,
privileges, terms and conditions any other investor in the Maker has received
or is entitled to receive with respect to the security into which Holder is
converting pursuant to any other security, instrument, promise, undertaking,
commitment, agreement or letter of intent of the Maker, whether or not such
rights, preferences, privileges, terms and conditions for any other investor
are incorporated into the agreements or documents relating to any conversion or
any issuance of the security or other instrument to that investor or are
provided separately, at any time on or after one year prior to the Effective
Date of the Recapitalization Agreement. In regard to each conversion
hereunder, the Maker hereby agrees to take and/or arrange for all necessary
corporate and related action to enable the execution of each such conversion
elected by Holder.




     12.5 No Impairment. Maker shall not, by amendment of its Charter or
through a reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action,
omission or agreement, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed by Maker under and/or in
connection with this Note, but shall at all times in good faith use best
efforts to assist in carrying out of all the provisions of and/or relating to
this Note and in taking all such action as may be necessary or appropriate to
protect Holder’s rights, preferences and privileges under and/or in connection
with the Note against impairment. Holder’s rights, preferences and privileges
granted under and/or in connection with any Holder Designated Securities may
not be amended,



13









 




modified or waived without the Holder’s prior written consent, and the
documentation providing for such rights, preferences and privileges will
specifically provide as such.




SECTION 13. STANDSTILL, EXCLUSIVITY AND CONFIDENTIALITY.



During the Bridge Period and the Equity Financing Period, as defined in the
Recapitalization Agreement and in the Convertible Preferred Stock Term Sheet,
but excluding the periods from February 18, 2004 through February 29, 2004 and
from March 16, 2004 through the Effective Date of the Recapitalization
Agreement, (collectively the “Standstill Period”) the parties shall have worked
together, and shall continue to work together, in good faith with best efforts
to implement the terms of the Recapitalization Agreement, upon which the
parties shall have reached binding agreement and which the parties shall have
executed as a condition precedent to the execution and funding of this Note.
Except as provided in the fiduciary exception set forth in Section 3.2 of the
Recapitalization Agreement, during the Standstill Period, the Maker and its
officers, directors, employees, agents, advisers, consultants, partners and
collaborators shall work only with Holder and its agents, advisers and
consultants, and shall have had, and shall continue to have, no discussions,
negotiations and/or communications of any kind with any other parties,
regardless of which party initiates or attempts to initiate any such contact or
communication, in regard to any potential equity or debt financing of the Maker
by parties other than Holder, and/or any joint venture, license, co-development
or other business arrangement by or with parties other than Holder.
Notwithstanding the fiduciary exception set forth in Section 3.2 of the
Recapitalization Agreement, during the Standstill Period, the Maker and its
officers, directors, employees, agents, advisers, consultants, partners and
collaborators shall maintain confidentiality, and shall not have, and shall
continue not to provide copies, excerpts, summaries, descriptions, or
communicate in any way with any third parties, either directly or indirectly,
as to any aspects of the recapitalization of Maker and/or any financing by
Holder, including, without limitation, the identity of the parties involved,
any terms of the Recapitalization Agreement, this Note, the Related
Recapitalization Documents, the Convertible Preferred Stock or any other matter
relating to the recapitalization of Maker, or the progress or status of any
activities or processes relating to the recapitalization of Maker; provided,
however, nothing herein shall prohibit the Maker from filing this Note, the
Recapitalization Agreement and any Related Recapitalization Document with the
Securities and Exchange Commission (the “SEC”), if required by the regulations
of the SEC (subject to the covenant in Section 2.5(a) of the Recapitalization
Agreement). During the Standstill Period, the Maker shall not make any sales
of equipment or other assets of any kind, including, without limitation, any
non-essential laboratory equipment, and the Maker shall comply with Section
10.3 in regard to the TFF devices.




SECTION 14. REPRESENTATIONS AND WARRANTIES.



Except as expressly set forth (with reference to a section in this Note) in the
Disclosure Schedule attached hereto as Exhibit B, and only to the extent such
exceptions are acceptable to Holder in its sole discretion as of the date of
this Note, and independently as of the date upon which each additional Note is
issued to Holder, and as of the date of each closing, if any, of the
Anticipated Equity Financing, Maker represents and warrants to the following:


14









 








     14.1 Organization, Good Standing and Qualification. Maker is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business. Maker is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so
to qualify would have a material adverse effect on its business, properties,
operations, prospects or condition (financial or otherwise).



     14.2 Authorization of Note, Etc. The execution, delivery and performance
by Maker of this Note has been duly authorized by all requisite corporate
action by Maker in accordance with Delaware law. This Note is a valid and
binding obligation of Maker, enforceable against Maker in accordance with its
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application effecting enforcements of
creditors’ rights or general principles of equity.



     14.3 No Conflicts. The execution, delivery, performance, issuance, sale
and delivery of this Note and the Related Recapitalization Documents, and
compliance with the provisions hereof by Maker, will not (a) to the knowledge
of Maker, violate any provision of any law, statute, rule or regulation
applicable to Maker or any ruling, writ, injunction, order, judgment or decree
of any court, arbitrator, administrative agency or other governmental body
applicable to Maker or any of its properties or assets or (b) conflict with or
result in any material breach of any of the terms, conditions or provisions of,
or constitute (with notice or lapse of time or both) a material default (or
give rise to any right of termination, cancellation or acceleration) under, or
result in the creation of, any encumbrance upon any of the material assets of
Maker under, the Charter or Bylaws of Maker (as they may be amended to date) or
any agreement or instrument to which Maker is a party. As used herein,
“encumbrance” shall mean any liens, charges, encumbrances, equities, claims,
options, proxies, pledges, security interests, licenses or other similar rights
of any nature.



     14.4 Compliance with Other Instruments. Maker is not in violation of any
term of Maker’s Charter, as amended, including any certificate of designation
filed therewith, and/or Maker’s Bylaws. Maker is not, in any material respect,
in violation of any term of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which Maker
or any of such Collateral is subject. To the best of Maker’s knowledge, no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a breach or violation, in any material respect, under
any applicable judgments, orders, writs, decrees, federal, state and/or local
laws, rules or regulations which would have a material adverse affect on the
condition, financial or otherwise, or operations of Maker (as it is currently
conducted and as it is proposed to be conducted) or on any material assets or
any Intellectual Property or other Collateral owned, controlled, licensed,
possessed, and/or used by Maker. To the best of its knowledge, Maker has
avoided every condition, and has not performed any act, the occurrence of which
would result in Maker’s loss of any right granted under any license,
distribution agreement or other agreement or Maker’s loss of any rights in or
to any Collateral.



     14.5 Approvals. Maker has obtained all necessary permits, authorizations,
waivers, consents and approvals of or by, and made all necessary notifications
of and/or filings with, all applicable persons (governmental and private), in
connection with the execution, delivery, performance, issuance, sale and/or
delivery of this Note, the Recapitalization Agreement and the



15









 




Related Recapitalization Documents, and consummation by Maker of the
transactions contemplated hereby and thereby, except as listed in Schedule 14.5




     14.6 Capitalization. The authorized capital stock of Maker consists of
125,000,000 shares of Common Stock, par value $0.001 per share and 15,000,000
shares of Preferred Stock, par value of $0.001 per share. As of the date
hereof, 19,028,779 shares of Common Stock are issued and outstanding and no
shares of preferred stock of any kind are issued and outstanding. No other
shares of any class or series of Maker’s capital stock are authorized and/or
issued and outstanding. All issued and outstanding shares of capital stock of
Maker have been duly authorized and validly issued, and are fully paid and
non-assessable, and have been offered, sold and delivered by Maker in
compliance with all applicable federal and state securities laws. Except as
set forth in Schedule 14.6, no subscription, warrant, option, convertible
security, or other right (direct or indirect, contingent or otherwise) to
purchase or otherwise acquire any equity securities of Maker is authorized or
outstanding, and there is no agreement, promise, commitment, undertaking or
letter of intent of any kind (direct or indirect, contingent or otherwise) by
Maker to issue any shares, subscriptions, warrants, options, convertible
securities, or other such rights, or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset. Except as set forth
in Schedule 14.6, Maker has no obligation of any kind (direct or indirect,
contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Schedule 14.6 includes a true, accurate
and complete statement describing the total number of shares of Maker
outstanding as of the date of this Note (on a fully diluted basis, including,
without limitation, all warrants and options outstanding (whether or not
currently exercisable), all convertible instruments of any kind (whether or not
currently convertible), shares of all classes of stock, and any agreements,
promises, commitments, undertakings or letters of intent to issue any of the
foregoing.



     14.7 Authorization of the Shares. Maker has, or before the first closing
of the Anticipated Equity Financing hereunder will have, authorized the
issuance and sale of a sufficient number of shares of Convertible Preferred
Stock, par value $0.001 per share, and Common Stock of the Maker to fully
implement the Recapitalization Plan, while maintaining such additional
authorized but unissued shares as reasonably determined by Holder to be
appropriate. Of such authorized shares, a sufficient number of shares shall be
reserved for issuance upon any exercise of the Bridge Warrants and/or Preferred
Stock Warrants. If at any time the number of authorized but unissued shares of
Convertible Preferred Stock and/or of Common Stock is not sufficient to effect
the conversion of all then outstanding convertible Notes and other instruments,
and the exercise of all then outstanding warrants, options and similar
instruments, then, in addition to such other remedies as may be available to
Holder, Maker shall take such corporate action as may be necessary to increase
its authorized but unissued shares of Convertible Preferred Stock and/or Common
Stock to such number of shares as will be sufficient for such purposes. Such
corporate action shall include, without limitation, obtaining all requisite
regulatory approvals and any requisite shareholder approval of any necessary
amendment to Maker’s Charter.



     14.8 Litigation. There is no action, suit, proceeding or investigation
pending or, to the knowledge of Maker, currently threatened against Maker,
and/or its directors, officers, advisers, agents, properties, assets or
business, in each case relating to Maker and/or its business, assets,



16









 




operations or properties. Maker is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by Maker currently pending or which Maker intends to initiate.




     14.9 No Liens. Except for liens for the benefit of Holder, created by
this Note, the Recapitalization Agreement and/or any of the Related
Recapitalization Documents, and except as set forth in Schedule 14.9 of the
Disclosure Schedule, none of the material assets of Maker, including the
Collateral, are subject to any existing lien, pledge, security interest or
other encumbrance of any kind, direct or indirect, contingent or otherwise.



     14.10 Full Disclosure. Notwithstanding any other provision of this Note,
neither this Note, nor any exhibit hereto, nor any written report, certificate,
instrument or other information furnished to Holder in connection with the
transactions contemplated under and/or in connection with Note contain any
material misstatement (including, without limitation, any material omission),
or is misleading in any material respect.



     14.11 No Other Security Interests or Other Encumbrances. Except as set
forth in Schedule 14.11 (and only to the amounts set forth on such schedule),
there are no existing security interests, pledges, liens or other encumbrances
of any kind, direct or indirect, contingent or otherwise (including without
limitation any licensing or partnering arrangements or agreements), in or
relating to any assets of Maker, including, without limitation, any
Intellectual Property (as defined herein) or other Collateral. All existing
security interests, pledges, liens or other encumbrances of any kind, other
than those set forth in Schedule 14.11 hereto (and only to the amounts set
forth on such schedule), are subordinate to the security interest established
pursuant to Section 11 hereof, all necessary consents, subordination agreements
and waivers, if any, have been obtained, and all amended filings and/or
re-filings shall be made immediately upon execution of this Note.



     14.12 “Small Business”.



               (a) Small Business Status. Maker together with its “affiliates” (as that
term is defined in Section 121.103 of Title 13 of Code of Federal Regulations
(the “Federal Regulations”)) is a “small business concern” within the meaning
of the Small Business Investment Act of 1958, as amended (the “Small Business
Act” or “SBIA”), and the regulations promulgated thereunder, including Section
121.301(c) of Title 13, Code of Federal Regulations.



               (b) Information for SBA Reports. Maker has delivered and/or will deliver
to Holder certain information, set forth by and regarding the Maker and its
affiliates in connection with this Note, on SBA Forms 480, 652 and Part A and B
of Form 1031. This information delivered was true, accurate, complete and
correct, and any information yet to be delivered will be true, accurate,
complete and correct, and in form and substance acceptable to Holder.



               (c) Eligibility. Maker is eligible for financing by any Holder pursuant
to Section 107.720 of Title 13 of the Federal Regulations and any other SBA
regulations.



17









 





     14.13 Intellectual Property.



               (d) Definitions. “Intellectual Property” means all foreign and domestic
intangible property and rights, owned, licensed, sub-licensed or otherwise
obtained by Maker, including, without limitation, (i) inventions, discoveries
and ideas, whether patentable or not, and all patents, registrations and
applications therefor, including divisions, continuations,
continuations-in-part, requests for continued examination, and renewal
applications, and including renewals, extensions and reissues (collectively,
“Patents”); (ii) confidential and proprietary information, trade secrets and
know-how, including without limitation processes, schematics, formulae,
drawings, prototypes, models, designs and customer lists (collectively, “Trade
Secrets”); (iii) all data, slides, observations, and laboratory results,
produced by, for or on behalf of Maker, or which Maker has rights to obtain
(collectively, “Data”); (iv) all FDA applications, registrations, filings and
other rights (collectively, “FDA Rights”) and all data and documentation
supporting or relating thereto; (iv) published and unpublished works of
authorship, whether copyrightable or not (including, without limitation,
databases and other compilations of information), copyrights therein and
thereto, and registrations and applications therefor, and all renewals,
extensions, restorations and reversions thereof (collectively, “Copyrights”);
(v) trademarks, service marks, brand names, certification marks, collective
marks, d/b/a’s, Internet domain names, logos, symbols, data, trade dress,
assumed names, fictitious names, trade names, and other indicia of origin, all
applications and registrations for the foregoing, and all goodwill associated
therewith and symbolized thereby, including all extensions, modifications and
renewals of same (collectively, “Trademarks”); (vi) all other intellectual
property or proprietary rights, including, without limitation, all claims or
causes of action arising out of or related to any infringement,
misappropriation or other violation of any of the foregoing, including rights
to recover for past, present and future violations thereof (collectively,
“Other Proprietary Rights”).



     “Intellectual Property Contracts” means all agreements involving,
relating to or affecting the Intellectual Property, including, without
limitation, agreements granting rights to use the Licensed or Sub-Licensed
Intellectual Property, agreements granting rights to use Owned Intellectual
Property, confidentiality agreements, Trademark coexistence agreements,
Trademark consent agreements and non-assertion agreements.



     “Licensed or Sub-Licensed Intellectual Property” means the Intellectual
Property that Maker is licensed, sub-licensed or otherwise permitted by other
persons or entities to use.



     “Owned Intellectual Property” means the Intellectual Property owned by
Maker.



     “Registered” means issued, registered, renewed or the subject of a
pending application.



               (e) Schedule 14.13 (“Intellectual Property”) sets forth a true and
complete list and summary description of (A) all Registered or material Owned
Intellectual Property (each identified as a Patent, Trademark, Trade Secret,
Copyright or Other Proprietary Right, as the case may be); (B) all Licensed or
Sub Licensed Intellectual Property and (C) all Intellectual Property Contracts.



18









 





               (f) All Intellectual Property is valid, subsisting and enforceable. No
Owned Intellectual Property has been canceled, suspended, adjudicated invalid,
not maintained, expired or lapsed, or is subject to any outstanding order,
judgment or decree restricting its use or adversely affecting or reflecting
Maker’s rights thereto. No Licensed or Sub-Licensed Intellectual Property has
been canceled, suspended, not renewed or extended, adjudicated invalid, not
maintained, expired or lapsed, or is subject to any outstanding order, judgment
or decree restricting its use or adversely affecting or reflecting Maker’s
rights thereto.



               (g) The Owned Intellectual Property is owned exclusively by Maker and has
been used with all patent, trademark, copyright, confidential, proprietary and
other Intellectual Property notices and legends prescribed by law or otherwise
permitted.



               (h) No suit, action, reissue, reexamination, public protest, interference,
opposition, cancellation or other proceeding (collectively, “Suit”) is pending
or threatened concerning any claim or position:



                    (i) that Maker, or another person or entity, has violated any Intellectual
Property rights. To Maker’s best knowledge, Maker is not violating and has not
violated any intellectual property rights of any other party.



                    (ii) that Maker, or another person or entity, has breached any
Intellectual Property Contract. There exists no event, condition or occurrence
which, with the giving of notice or lapse of time, or both, would constitute a
breach or default by Maker, or a breach or default by another person or entity,
under any Intellectual Property Contract. No party to any Intellectual
Property Contract has given Maker notice of its intention to cancel, terminate
or fail to renew any Intellectual Property Contract.



                    (iii) that the Intellectual Property has been violated or is invalid,
unenforceable, unpatentable, unregisterable, cancelable, not owned or not owned
exclusively by Maker. No such claim has been threatened or asserted. To
Maker’s best knowledge, no valid basis for any such Suits or claims exists.



               (i) To Maker’s best knowledge, no other person or entity is violating,
infringing upon or claiming rights incompatible with Maker’s rights to any
Intellectual Property. Maker has provided to Holder copies of all information
reasonably available to it relevant to intellectual property rights claimed by
third parties and possible infringement thereof including, without limitation,
any freedom to practice or freedom to operate opinions.



               (j) Except as set forth on Schedule 14.13(j), Maker owns or otherwise
holds valid rights to use all Intellectual Property used in its business.



               (k) Maker has timely made all filings and payments with the appropriate
foreign and domestic agencies and other parties required to maintain in full
force and effect all Intellectual Property. Except as set forth on Schedule
14.13, no due dates for filings or payments concerning the Intellectual
Property (including, without limitation, office action responses,



19









 




affidavits of use, affidavits of continuing use, renewals, requests for
extension of time, maintenance fees, application fees and foreign convention
priority filings) fall due within ninety (90) days prior to or after the
closing, whether or not such due dates are extendable. Maker is in compliance
with all applicable rules and regulations of such agencies and other parties
with respect to the Intellectual Property. All documentation necessary to
confirm and effect the Intellectual Property, if acquired from other persons or
entities, has been recorded in the United States Patent and Trademark Office,
the United States Copyright Office and other official offices.




               (l) Maker has undertaken and consistently implemented best efforts to
protect the secrecy, confidentiality and value of all non-public Intellectual
Property used in its business (including, without limitation, entering into
appropriate confidentiality agreements with all officers, directors, employees
and other persons or entities with access to such non-public Intellectual
Property). Maker management has not disclosed any such non-public Intellectual
Property to any persons or entities other than (i) Maker employees or Maker
contractors who had a need to know and use such non-public Intellectual
Property in the ordinary course of employment or contract performance, or (ii)
prospective customers, and in each case who executed appropriate
confidentiality agreements.



               (m) Maker has taken all reasonable measures to confirm that no current or
former Maker employee is or was a party to any confidentiality agreement or
agreement not to compete that restricts or forbids, or restricted or forbade at
any time during such employee’s employment by Maker, such employee’s
performance of Maker’s business, or any other activity that such employee was
hired to perform or otherwise performed on behalf of or in connection with such
employee’s employment by Maker.



     14.14 SEC Filings; Financial Statements.



     (a) Maker has delivered or made available to Holder accurate and complete
copies of all registration statements, proxy statements and other statements,
reports, schedules, forms and other documents filed by the Maker with the SEC
since January 1, 2003, and all amendments thereto (the “Maker SEC Documents”).
Except as set forth on Schedule 14.14(a), all statements, reports, schedules,
forms and other documents required to have been filed by Maker with the SEC
have been so filed on a timely basis. As of the time it was filed with the
SEC (or, if amended or superseded by a filing prior to the date of this Note,
then on the date of such filing): (i) each of the Maker SEC Documents complied
in all material respects with the applicable requirements of the Securities Act
or the Exchange Act (as the case may be); and (ii) none of the Maker SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.



     (b) The financial statements (including any related notes) contained in
the Maker SEC Documents: (i) complied as to form in all material respects with
the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial



20









 




statements may not contain footnotes and are subject to normal and
recurring year-end adjustments that will not, individually or in the aggregate,
be material in amount), and (iii) fairly present the consolidated financial
position of Maker and its consolidated subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows of Maker and
its consolidated subsidiaries for the periods covered thereby.




     14.15 Liabilities. Maker has no accrued, contingent or other liabilities
of any nature, either matured or unmatured, except for: (a) liabilities
identified as such in Maker’s audited balance sheet as of December 31, 2003, or
the notes thereto; (b) liabilities that have been incurred by Maker since
December 31, 2003 in the ordinary course of business and consistent with past
practices, and that do not exceed a maximum potential amount of $330,000; and
(c) expenses that have been incurred by the Maker (but not including any
expenses of Holder that Maker is obligated to reimburse in connection
therewith) in the preparation and review of the Recapitalization Agreement and
the Related Recapitalization Documents, and that do not exceed $72,000.



     14.16 Compliance with All Standstill Provisions. Maker has complied in
all respects with all standstill, exclusivity and confidentiality provisions of
(a) this Note, the Recapitalization Agreement and the Related Recapitalization
Documents, (b) Section 13 of that certain 10% Convertible, Secured Promissory
Note by and between Maker and Holder dated as of February 2, 2004 and (c)
Section 13 of that certain 10% Convertible, Secured Promissory Note by and
between Maker and Holder dated as of March 1, 2004.



SECTION 15. INDEMNIFICATION




     15.1 Indemnification Agreement.



            (a) In addition to all rights and remedies available to Holder at law or
in equity, Maker shall indemnify Holder and each subsequent holder of this
Note, and their respective affiliates, stockholders, limited partners, general
partners, officers, directors, managers, employees, agents, representatives,
successors and assigns (collectively, the “Indemnified Persons”) and save and
hold each of them harmless against and pay on behalf of or reimburse such party
as and when incurred for any loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, tax, penalty, fine or expense (other than any
demand, claim, action or cause of action instituted by Maker), including
interest, penalties, reasonable attorneys’ fees and expenses, and all amounts
paid in investigation, defense or settlement of any of the foregoing
(collectively, “Losses) which any such party may suffer, sustain or become
subject to, as a result of, in connection with, relating or incidental to or by
virtue of:




            (i) any material misrepresentation in, or material omission from, or
breach of any of the representations, warranties, statements, schedules
and/or exhibits hereto, certificates or other instruments or documents
furnished to Holder by Maker in connection with this Note; or




            (ii) any material nonfulfillment or material breach of any covenant
or agreement on the part of Maker under this Note.



21









 





            (b) Notwithstanding the foregoing, Maker shall not be liable for any
portion of Losses resulting from the gross negligence or willful misconduct of
Holder or a subsequent holder of this Note.



            (c) Within twenty (20) days after receipt of notice of commencement of any
action or the assertion of any claim by a third party, Holder shall give Maker
written notice thereof together with a copy of such claim, process or other
legal pleading of such claim. Maker shall have the right to assist in the
defense thereof by representation of its own choosing.



     15.2 Survival. All indemnification rights hereunder shall survive the
execution and delivery of this Note and the consummation of the transactions
contemplated hereby (i) for a period of two years with respect to
representations and warranties made by Maker, and (ii) until fully performed
with respect to covenants and agreements made by Maker, regardless of any
investigation, inquiry or examination made for or on behalf of, or any
knowledge of Holder and/or any of the Indemnified Persons, or the acceptance by
Holder of any certificate or opinion.



     15.3 Payment. Any indemnification of Holder or any other Indemnified
Person by Maker pursuant to this Section 15 shall be effected by wire transfer
of immediately available funds from Maker to an account designated by Holder or
such other Indemnified Person within fifteen (15) days after the determination
thereof.



SECTION 16. INTEGRATION WITH RECAPITALIZATION PLAN



Maker acknowledges and agrees that the funding provided by Holder pursuant to
this Note is only being provided as part of an integrated Recapitalization
Plan, as set forth in the Recapitalization Agreement. Maker further
acknowledges and agrees that this Note is subject to all terms and conditions
set forth in the Recapitalization Agreement.




SECTION 17. MISCELLANEOUS.




     17.1 Notices. All notices, demands and requests of any kind to be
delivered to any party in connection with this Note shall be in writing and
shall be deemed to be effective upon delivery if (i) personally delivered, (ii)
sent by confirmed facsimile with a copy sent by nationally recognized overnight
courier, (iii) sent by nationally recognized overnight courier, or (iv) sent by
registered or certified mail, return receipt requested and postage prepaid,
addressed as follows:



	 	 	 
	if to Maker:

	 	Northwest Biotherapeutics, Inc.
	

	 	22322 20th Ave SE, Suite 150
	

	 	Bothell, WA 98021
	

	 	Fax: (425) 608 3146
	

	 	Attn: Alton Boynton







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	if to Holder:

	 	Toucan Capital Fund II, LP
	

	 	7600 Wisconsin Avenue
	

	 	Suite 700
	

	 	Bethesda, MD 20814
	

	 	Fax: (240) 497-4060
	

	 	Attention: Linda F. Powers






or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance with the
provisions of this Section.




     17.2 Parties In Interest. This Note shall bind and inure to the benefit
of Holder, Maker and their respective successors and permitted assigns. Maker
shall not transfer or assign this Note without the prior written consent of
Holder. Holder may transfer and assign this note without the prior consent of
Maker.



     17.3 Entire Agreement. This Note together with the Disclosure Schedule
and the Recapitalization Agreement contains the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings among the parties with respect thereto.



     17.4 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware (without giving effect to
principles of conflicts of laws of the State of Delaware or any other state).



     17.5 Headings. The section and paragraph headings contained in this Note
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Note.



     17.6 Amendments. No provision of this Note may be amended or waived
without the express written consent of both Maker and Holder, provided,
however, that Holder may waive any provision hereof that inures to the benefit
of Holder without the prior written consent of Maker. Also notwithstanding
anything to the contrary, this Note shall be amended as and to the extent
necessary to comply with the Small Business Investment Act and all regulations,
advice, direction and guidance applicable to SBIC’s.



     17.7 Nature of Obligation. This Note is being made for business and
investment purposes, and not for household or other purposes.



     17.8 Expenses. Maker shall pay, reimburse or otherwise satisfy, upon
demand of Holder, all fees, costs and expenses incurred and/or undertaken, and
to be incurred and/or undertaken, by Holder relating to the preparation for,
development of and implementation of the Recapitalization Plan set forth in the
Recapitalization Agreement, including, without limitation, all due diligence
expenses and all expenses relating to the Bridge Funding, the Anticipated
Equity Financing and the transactions contemplated thereby and the
documentation of the foregoing (including, without limitation all legal fees
and expenses and costs incurred and to be incurred in connection with any SBA
filings), which shall be satisfied by Maker upon Holder’s



23









 




demand, including but without limitation upon each closing of the Bridge
Funding or Anticipated Equity Financing. This obligation shall apply
regardless of whether or not all of the transactions contemplated in the
Recapitalization Agreement close. At each closing of Bridge Funding or
Anticipated Equity Financing, at Holder’s sole discretion, and with respect to
any or all of such fees, costs and expenses accrued through such closing, Maker
shall (a) pay Holder in cash concurrently with such closing (or at Holder’s
sole discretion, Investor may withhold such amount from the wire of investment
proceeds), (b) issue a Note in the form hereof in principal amount equal to
such fees, costs and expenses (which at Holder’s option may instead be
evidenced as an increase in the principal amount of any Note issued in
connection with such closing); or (c) treat such fees, costs and expenses as an
unsecured payable. At any time following such closing, Holder may require any
amounts that it elected to have Maker treat as unsecured amounts payable to be
paid in cash or satisfied by issuance of a Note in the principal amount of some
or all of such unsecured obligation.




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     IN WITNESS WHEREOF, Maker has caused this Note to be duly executed by its
duly authorized person(s) as of the date first written above.



	 	 	 	 	 
	 	 	NORTHWEST BIOTHERAPEUTICS, INC.
	 
	 	 	 	 
	

	 	By
	 	/s/ Alton L. Boynton


	

	 	Name:
	 	/s/ Alton L. Boynton

	

	 	Title:	 	President








Consent and Agreement




     Toucan Capital Fund II, L.P. consents to the loan and security interest
granted by Maker in the foregoing Note.



	 	 	 	 	 
	 	 	TOUCAN CAPITAL FUND II, L.P.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Linda F. Powers
	

	 	 	 	
 
	

	 	Name:
	 	Linda F. Powers

	

	 	Title:
	 	Managing Director








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EXHIBIT A




DESCRIPTION OF COLLATERAL




     The “Collateral” consists of all of Maker’s right, title and interest (in
each case, whether now owned or hereafter acquired) in and to the following:



     (a) All intellectual property of any kind, whether owned, licensed or
otherwise permitted to be used, and whether now held or hereafter acquired or
developed (the “Intellectual Property”). Such Intellectual Property shall
include, without limitation, all foreign and domestic intangible property and
rights, owned, licensed or otherwise obtained by Maker, including, without
limitation, (i) trademarks, service marks, brand names, certification marks,
collective marks, d/b/a’s, Internet domain names, logos, symbols, trade dress,
assumed names, fictitious names, trade names, and other indicia of origin, all
applications and registration for the foregoing, and all goodwill associated
therewith and symbolized thereby, including all extensions, modifications and
renewals of same, including without limitation those items reference on
Appendix 1 hereto (collectively, “Trademarks”); (ii) inventions, discoveries
and ideas, whether patentable or not, and all patents, registrations and
applications therefor, including divisions, continuations,
continuations-in-part, requests for continued examination, and renewal
applications, and including renewals, extensions and reissues, including
without limitation those items reference on Appendix 2 hereto (collectively,
“Patents”); (iii) confidential and proprietary information, trade secrets and
know-how, including, without limitation, processes, schematics, formulae,
drawings, prototypes, models, designs and customer lists
(collectively, “Trade
Secrets”); (iv) published and unpublished works of authorship, whether
copyrightable or not (including, without limitation, databases and other
compilations of information), copyrights therein and thereto, and registrations
and applications therefor, and all renewals, extensions, restorations and
reversions thereof (collectively, “Copyrights”); (v) all FDA applications,
registrations, filings and other rights (collectively, “FDA Rights and
Materials”); (vi) all results, information and data arising from, or obtained
in connection with, research, development, pre-clinical work and/or clinical
trials (collectively, “Data”); and (vii) all other intellectual property or
proprietary rights and claims or causes of action arising out of or related to
any infringement, misappropriation or other violation of any of the foregoing,
including rights to recover for past, present and future violations thereof
(collectively, “Other Proprietary Rights”).



     (b) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located.



     (c) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Maker’s custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing an any documents of title representing any of the above.



26









 





     (d) All contract rights, general intangibles and intellectual property,
now owned or hereafter acquired, including, without limitation, goodwill,
trademarks, service marks, trade styles, trade names, patents, patent
applications, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, computer code, copyrights,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind.



     (e) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Maker
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Maker, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefore, as well as
all merchandise returned to or reclaimed by Maker.



     (f) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Maker’s books relating to the foregoing.



     (g) Each item of equipment, or personal property whether now owned or
hereafter acquired, together with all substitutions, renewals or replacements
of and additions, improvements, and accessions to any and all of the foregoing,
and all proceeds from sales, renewals, releases or other dispositions thereof.



     (h) All Maker’s books relating to the foregoing and any and all claims,
rights and interests in any of the above, whether now owned or hereafter
acquired, and all substitutions for, additions and accessions to and proceeds
thereof.


Notwithstanding the foregoing, to the extent any of Maker’s licensed
Intellectual Property prohibits the transfer or encumbrance of such licensed
Intellectual Property (the “Restricted Intellectual Property”) without prior
consent of the owner or licensor thereof, such Restricted Intellectual Property
is hereby conditionally included within the definition of Collateral, subject
to receipt, by or on behalf of Maker, of any required consents. If requested
by Holder, Maker shall use its best efforts to obtain the required consents
under any Restricted Intellectual Property within thirty (30) days of such
request.




27









 








Appendix 1

Trademarks




28









 








Appendix 2

Patents




29









 








EXHIBIT B




DISCLOSURE SCHEDULE





30