Document:

SEC EDGAR Filing

EXHIBIT 10.16

HEAT BIOLOGICS, INC.

HEAT BIOLOGICS I, INC.

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT (the “Agreement”) is entered unto as of August 7, 2012, by and between Square 1 Bank (“Bank” and Heat Biologics Inc. and Heat Biologics I, Inc. (collectively known as “Borrower”).

RECITALS

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

AGREEMENT

The parties agree as follows:

1.

DEFINITIONS AND CONSTRUCTION.

1.1

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

1.2

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

2.

LOAN AND TERMS OF PAYMENT

2.1

Credit Extensions

(a)

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

(b)

Term Loan

(i)

Tranche A Term Loan.  Subject to and upon the terms and conditions of this Agreement, Bank agrees to make one (1) or more term loans to Borrower in an aggregate principal amount not to exceed One Million Dollars ($1,000,000) (each a “Tranche A Term Loan” and collectively the “Tranche A Term Loans”).  The amount of each Tranche A Term Loan shall be a multiple of $100,000.  Borrower may request Tranche A Term Loans at any time from the date hereof through the Tranche A Term Loan Availability End Date.  The proceeds of the Tranche A Term Loans shall be used for general working capital purposes and for capital expenditures.

(ii)

Immediate Availability Upon Grant Event.  Notwithstanding anything to the contrary in Section 2.1(b)(i) above, upon the occurrence of the Grant Event, the amount of Tranche A Term Loans that Borrower may request and Bank

			
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agrees to make will increase to an aggregate principal amount not to exceed Two Million Seven Hundred Seventy-Five Thousand Dollars ($2,775,000) , provided that, notwithstanding anything  to the contrary in Section 2.1(b)(iii) below, the aggregate principal amount of all Term Loans  shall not exceed $2,775,000.

(iii)

Tranche B Term Loan.  Subject to and upon the terms and conditions of this Agreement , Bank agrees to make one (1) term loan to Borrower in an aggregate principal amount not to exceed One Million Dollars ($1,000,000) (the “Tranche B Term Loan”, and together with the Tranche A Term Loans, the “Term Loans”).  The amount of the Tranche B Term Loan shall be a multiple of $100,000.  Borrower may request the Tranche B Term Loan on the day on which Borrower achieves the Tranche B Equity Trigger Event.  The proceeds of the Tranche B Term Loan shall be used for general working capital purposes and for capital expenditures.

(iv)

Interest and Principal Payments on Tranche A Term Loans.  Interest shall accrue from the date of each Tranche A Term Loan at the rate specified in Section 2.3(a), and prior to the Tranche A Term Loan Availability End Date for the applicable Tranche A Term Loan shall be payable monthly beginning on the 7th day of the month next following such Tranche A Term Loan, and continuing on the same day of each month thereafter.  Any Tranche A Term Loans that are outstanding on the Tranche A Term Loan Availability End Date shall be payable in 36 equal monthly installments of principal, plus all accrued interest, beginning on September 7, 2013, and continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which time all amounts due in connection with the Tranche A Term Loans and any other amounts due under this Agreement shall be immediately due and payable.  Tranche A Term Loans, once repaid, may not be borrowed.  Borrower may prepay any Tranche A Term Loan without penalty or premium.

(v)

Interest and Principal Payments on Tranche B Term Loan.  Interest shall accrue from the date of the Tranche B Term Loan at the rate specified in Section 2.3(a), and prior to the Tranche B Term Loan Interest-Only End Date shall be payable monthly beginning on the 7th day of the month next following the Tranche B Term Loan, and continuing on the same day of each month thereafter.  Any portion of the Tranche B Term Loan that is outstanding on the Tranche B Term Loan Interest-Only End Date shall be payable in equal monthly installments of principal, plus all accrued interest, beginning on the 7th day of the month immediately following the Tranche B Interest-Only End Date, and continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which time all amounts due in connection with the Tranche B Term Loan and any other amounts due under this Agreement shall be immediately due and payable.  The Tranche B Term Loan, once prepaid, may not be reborrowed.  Borrower may repay the Tranche B Term Loan without penalty or premium.

(vi)

When Borrower desires to obtain a Term Loan, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:30 p.m. Eastern time on the day on which the Term Loan is to be made.  Such notice shall be substantially in the form of Exhibit C.  The notice shall be signed by an Authorized Officer.

			
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(c)

Term Loan B

(i)

Subject to and upon the terms and conditions of this Agreement, Bank agrees to make one (1) term loan to Borrower in an aggregate principal amount not to exceed Two Hundred Twenty-Five Thousand Dollars ($225,000) (the “Term Loan B”).  The proceeds of the Term Loan B shall be used to repay in full Borrower’s existing term loan with the North Carolina Biotechnology Center.

(ii)

Interest shall accrue from the date of the Term Loan B at the rate specified in Section 2.3(a).  On each of the one-year and two-year anniversaries of the closing Date, Borrower shall pay to Bank an amount equal to five percent (5%) of the principal amount of the Term Loan B outstanding on such date, plus all interest accrued but unpaid as of such date.  On the Term Loan B Maturity Date all amounts due in connection with the Term Loan B and any other amounts due under this Agreement shall be immediately due and payable.  The Term Loan B, once repaid, may not be reborrowed.  Borrower may prepay the Term Loan B without penalty or premium.

(iii)

Notwithstanding the foregoing, all outstanding principal, any accrued but unpaid interest, and any other amounts due in connection the Term Loan B shall be due and payable immediately upon the occurrence of any of the following events:

(A)

Borrower sells, leases, transfers or otherwise disposes of all or substantially all of Borrower’s assets, whether now owned or hereafter acquired; or

(B)

Borrower takes any action that would result in a change in the direct or indirect control of 50% or more of the capital stock or equity interests of Borrower.

(iv)

Borrower hereby requests that the Term Loan B be made on or about the closing Date.  To document this request, Borrower shall deliver to Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:30 p.m. Eastern time on such date a notice substantially in the form of Exhibit C.  The notice shall be signed by an Authorized Officer.

2.2

Intentionally Left Blank.

2.3

Interest Rates, Payments, and Calculations.

(a)

Interest Rates.

(i)

Term Loans.  Except as set forth in Section 2.3(b), the Term Loans shall bear interest on the outstanding daily balance thereof, at a variable annual rate equal to the greater of: (A) 3.00% above the Prime Rate then in effect; or (B) 6.00%.

(ii)

Term Loan B.  Except as set forth in Section 2.3(b), the Term Loan B shall bear interest, on the outstanding daily balance thereof, at an annual rate equal to 4.25%.

			
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(b)

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

(c)

Payments.  Bank shall, at its option, charge any interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts.  Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

(d)

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

2.4

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

2.5

Fees.  Borrower shall pay to Bank the following:

(a)

Success Fee.  A fee equal to 2.5% of the aggregate principal amount of each Term Loan and Term Loan B advanced by Bank to Borrower, due on the day that such amount is advanced by Bank to Borrower.  This Section 2.5(a) shall survive the termination of this Agreement.

(b)

Bank Expenses.  On the closing Date, all Bank Expenses incurred through the Closing Date, and, after the Closing Date. All bank Expenses, as and when they become due.

			
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2.6

Major Grant Term Loan.  In the event that Borrower receives an additional major grant not currently contemplated by this Agreement, Borrower may request an increase in the total aggregate Term Loans available under this Agreement.  Bank shall be under no obligation whatsoever to consider or, if considered, approve any such request.  However, in the event that Borrower and Bank both desire to increase the  total aggregate Term Loans available under this Agreement, Borrower and Bank will work together to amend this Agreement to provide for such increase.

2.7

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

3.

CONDITIONS OF LOANS.S

3.1

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

(a)

This Agreement;

(b)

an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the executing and delivery of this Agreement;

(c)

a financial statement (Form UCC-1);

(d)

Borrower shall have opened and funded not less than $50,000 in deposit accounts held with Bank;

(e)

the certificate(s) for the Shares, together with Assignment(s) separate from Certificates, duly executed by the pledger in blank;

(f)

a payoff letter, in form and substance satisfactory to Bank, duly executed by the North Carolina Biotechnology Center;

(g)

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

(h)

current SOS Reports indicating that except for Permitted Liens, there are no other security interests of Liens of record in the collateral;

(i)

current financial statements, including audited statements (or such other level required by the Investment Agreement) for Borrower’s most recently ended fiscal year, together with an unqualified opinion (or an opinion qualified only for going concern so long as Borrower’s investors provide additional equity as needed), company prepared

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

(j)

current compliance Certificate in accordance with Section 6.2;

(k)

A Warrant in form and substance satisfactory to Bank;

(l)

A borrower Information Certificate;

(m)

notification to Bank, as described in Section 2.1(c) of the Agreement, requesting Bank to make the Term Loan B to Borrower; and

(n)

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

3.2

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

(a)

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

(b)

Borrower shall have transferred substantially all of its Cash assets into operating accounts held with Bank and otherwise be in compliance with Section 6.6 hereof; and

(c)

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

4.

CREATION OF SECURITY INTEREST.

4.1

Grant of Security Interest.  Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents.  Except for Permitted Liens or Permitted Transfers or as disclosed in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing collateral, and will constitute a valid, first priority security interest in later-acquired Collateral.  Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property, except for

			
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Permitted Liens or Permitted Transfers.  Notwithstanding any termination of the Agreement or of any filings undertaken related to Bank’s rights under the Code, Bank’s Lien on the collateral shall remain in effect for so long as any Obligations are outstanding.

4.2

Perfection of Security Interest.  Borrower authorizes Bank to file any at time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable.  Borrower shall have possession of the collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement.  Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) subject to Section 7.10 below, obtain an acknowledgement, in form and substance satisfactory to Bank, of the bailee that the bailee holds such collateral for the benefit of Bank, and (ii) obtain “control” of  any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank.  Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable t Bank indicating that Bank has a security interest in the chattel paper.  Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations.  Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.  Borrower shall take such other actions as Bank requests to perfect its security interests granted under this Agreement.

4.3

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

			
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5.

REPRESENTATIONS AND WARRANTIES.

Borrower represents and warrants as follows:

5.1

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

5.2

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

5.3

Collateral.  Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Lines, adverse claims, and restrictions on transfer or pledge except for Permitted Liens.  Other than movable items of personal property such as laptop computers, all Collateral having an aggregate book value not in excess of $100,000 is located solely in the collateral States.  All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made.  Except as set forth in the Schedule, none of the Borrower’s Cash is maintained or invested with a Person other than the Bank or Bank’s affiliates.

5.4

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

5.5

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

5.6

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

			
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5.7

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

5.8

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

5.9

Compliance with Laws and Regulations.  Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA.  No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect.  Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment company Act of 1940.  Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of governors of the Federal Reserve System).  Borrower has not violated any statutes, laws, ordinances or rules applicable to is, the violation of which would reasonably be expected to have a Material Adverse Effect.  Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.

5.10

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

5.11

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

5.12

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

5.13

Shares.  Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligations exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement.  to Borrower’s knowledge, there are no

			
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subscriptions, warrants, rights of first refusal, or other restrictions on transfer relative to, or options exercisable with respect to the Shares.  The Shares have been and will remain duly authorized and validly issued, and are fully paid and non-assessable.  To Borrower’s knowledge, the Shares are not the subject of any present or threatened suite, action, arbitration, administrative or other proceedings, and Borrower knows of no reasonable grounds for the institution of any such proceedings.

5.14

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

6.

AFFIRMATIVE COVENANTS.

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

6.1

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

6.2

Financial Statements, Reports, Certificates.  Borrower shall deliver to Bank: (i) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet, income statement, and statement of cash flows covering Borrower’s operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer;  (ii) as soon as available, but in any event within 180 days after the end of Borrower’s fiscal year, audited (or such other level as is required by the Investment Agreement) consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which is either unqualified, qualified only for going concern so long as Borrower’s investors provide additional equity as needed or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to

			
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Bank; (iii) an annual budget and product timeline, each approved by Borrower’s Board of Directors, as soon as available but not later than 15 days after the beginning of each fiscal year of Borrower during the term of this Agreement; (iv) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K,and 10-Q filed with the Securities and Exchange Commission; (v) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could reasonably be expected to result in damages or costs to Borrower or any Subsidiary of $250,000 or more; (vi) promptly upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; and (vii) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time.

(a)

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

(b)

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

(c)

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

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

6.3

Inventory and Equipment; Returns.  Borrower shall keep all Inventory and Equipment in good and merchantable condition, free from all material defects except for Inventory and Equipment (i) sold in the ordinary course of business, and (ii) for which adequate reserves have been made, in all cases in the United States and such other locations as to which Borrower gives prior written notice.  Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date.  Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving inventory have a book value of more than $100,000.

			
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6.4

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

6.5

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

6.6

“Primary Depository”.  Subject to the provisions of Section 3.1(d) and 3.2(b), Borrower within 30 days of the Closing Date shall maintain all its depository and operating accounts with Bank and its primary investment accounts with Bank or Bank’s affiliates.

6.7

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

(a)

Cash Burn.  Measured monthly as of the last day of each month, and calculated on an average trailing-three-months basis, a Cash Burn of not more than $225,000.  Beginning with the 2013 fiscal year and continuing thereafter, monthly Cash Burn covenant levels shall be set by Bank based on Borrower’s Board-approved operating plan for the applicable year, which Borrower shall deliver to Bank on or before January 15 of the applicable year, and incorporated into this Agreement through a written amendment, which Bank and Borrower hereby agree to execute promptly.

(b)

Term Sheet Milestone.  Borrower shall have achieved the Term Sheet Milestone.

			
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(c)

Warrant Milestone.  Upon requesting the Tranche B Term Loan, Borrower shall deliver to Bank a fully executed warrant in substantially the form of Exhibit E attached hereto.  The initial exercise price of such warrant shall be the lowest price per share paid by investors in Borrower’s most recent issuance, prior to the date of such request, of Borrower’s preferred equity securities.

In addition to the foregoing covenants, Bank shall in the future set milestone covenants based upon Borrower’s Board-approved annual budget and product timeline, which shall be provided to Bank pursuant to Section 6.2(iii) herein, and incorporated into this Agreement through a written amendment, which Bank and Borrower hereby agree to execute promptly.

6.8

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

6.9

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

6.10

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

7.

NEGATIVE COVENANTS.

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

			
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7.1

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

7.2

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

7.3

Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire,, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) each of the following conditions is applicable: (i) the consideration paid in connection with such transactions (including assumption of liabilities) does not in the aggregate exceed $250,000 during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity; or (b) the Obligations are repaid in full concurrently with the closing of any merger or consolidation of Borrower in which Borrower is not the surviving entity; provided, however, that Borrower shall not, without Bank’s prior written consent, enter into any binding contractual arrangements with any Person to attempt to facilitate a merger or acquisition of Borrower; provided however, Borrower may enter into any such agreement without Bank’s prior written consent so long as (i) no Event of Default exists when such agreement is entered into by Borrower, (ii) such agreement does not give such Person the right to claim any fee, payment or damages from any parties, other than from Borrower or Borrower’s investors, in connection with a sale of Borrower’s stock or assets pursuant to or resulting from an assignment for the benefit of creditors, an asset turnover to Borrower’s creditors (including, without limitation, Bank), foreclosure, bankruptcy or similar liquidation, and (iii) Borrower notifies Bank in advance of entering into such an agreement (provided the failure to give such notification shall not be deemed a material breach of this Agreement).

7.4

Indebtedness.  Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted

			
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Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.

7.5

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

7.6

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

7.7

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

7.8

Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person; provided, however, that Borrower may enter  into exclusive licenses for the use of Borrower’s intellectual property by a Subsidiary, so long as such Subsidiary is a co-borrower under this Agreement.

7.9

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

7.10

Inventory and Equipment.  Store the Inventory of the Equipment of a book value in excess of $100,000 with a bailee, warehouseman, collocation facility or similar third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgement from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment.  Except for Inventory sold in the ordinary course of business and for movable items of person property having an aggregate book value not in

			
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excess of $100,000, and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank is able to take such actions as may be necessary to perfect its security interest or to obtain a bailee’s acknowledgment of Bank’s rights in the Collateral.

7.11

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

8.

EVENT OF DEFAULT.

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

8.1

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

8.2

Covenant Default.

(a)

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

(b)

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

8.3

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

8.4

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

			
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or assessment is filed of record with respect to any material portion of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, country, municipal, or governmental agency, and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period).

8.5

Insolvency.  If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within 30 days (providing that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

8.6

Other Agreements.  If there is a default or other failure to perform in nay agreement to which Borrower is a party with a third party of parties (a) resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any indebtedness in an amount in excess of $250,000 (b) in connection with any lease of real property or (c) that would reasonably be expected to have a material Adverse Effect;

8.7

Judgments.  If a final, uninsured judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $250,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of 10 days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or

8.8

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

9.

BANK’S RIGHTS AND REMEDIES.

9.1

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

(a)

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

(b)

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

(c)

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

			
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(d)

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

(e)

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

(f)

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

(g)

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

(h)

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

(i)

Bank may credit bid and purchase at any public sale;

(j)

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

			
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(k)

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

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

9.3

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

9.4

Bank Expenses.  If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; and/or (b) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent.  Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral.  Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

9.5

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

			
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9.6

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

9.7

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

9.8

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

10.

NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below. 

If to Borrower:

Heat Biologics, Inc.

100 Europa Drive, Suite 420

Chapel Hill, NC 27517

Attn:  Jeffrey Wolf, CEO

FAX:                                 

If to Co-Borrower:

Heat Biologics I, Inc.

100 Europa Drive, Suite 420

Chapel Hill, NC 25517

Attn:  Jeffrey Wolf, CEO

FAX:                                  

If to Bank:

Square 1 Bank

406 Blackwell Street, Suite 240

Durham, North Carolina 27701

Attn:  Loan Operations Manager

			
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FAX: (919) 314-3080

with a copy to:

Square 1 Bank

406 Blackwell Street, Suite 240

Durham, NC 27701

Attn:  Mara Huntington

FAX:  (919) 314-3110

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

11.

CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

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

			
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the payment of the arbitrator’s fees as and when billed by the arbitrator.

12.

GENERAL PROVISIONS.

12.1

Successors and Assigns.  This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion.  Bank shall have the right without the consent of or notice to Borrower to sell, assign, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.

12.2

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

12.3

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

12.4

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

12.5

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

12.6

Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.  Executed copies of the signature pages of this Agreement sent by facsimile or transmitted electronically in Portable Document Format (“PDF”), or any similar format, shall be treated as originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to object to such treatment.

12.7

Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower.  The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities

			
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described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

12.8

Confidentiality.  In handling any confidential information, Bank and Borrower and all employees and agents of such party shall exercise the same degree of care that such party exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) in the case of Bank, to the subsidiaries of Affiliates of Bank or Borrower in connection with their present or prospective business relations with Borrower, (ii) in the case of Bank, to prospective transferees or purchasers of any interest in the Credit Extensions, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) in the case of Bank, as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder.  Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of the receiving party when disclosed to such party, or becomes part of the public domain after disclosure to such receiving party through no fault of such receiving party; or (b) is disclosed to such receiving party by a third party, provided such receiving party does not have actual knowledge that such third party is prohibited from disclosing such information.

13.

CO-BORROWER PROVISION.

13.1

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

13.2

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

13.3

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

13.4

Subrogation and Similar Rights.  Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives all rights that

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

13.5

Waivers of Notice.  Except as otherwise provided in this Agreement, each Borrower waives notice of acceptance hereof; notice of the existence, creation or acquisition of any of the Obligations; notice of an Event of Default; notice of the amount of the Obligations outstanding at any time; notice of intent to accelerate; notice of acceleration; notice of any adverse change in the financial condition of any other Borrower or of any other fact that might increase the Borrower’s risk; presentment for payment; demand; protest and notice thereof as to any instrument; default; and all other notices and demands to which the Borrower would otherwise be entitled.  Each Borrower waives any defense arising from and defense of any other Borrower, or by reason of the cessation from any cause whatsoever of the liability of any other Borrower.  Bank’s failure at any time to require strict performance by any Borrower of any provision of the Loan documents shall not waive, alter or diminish any right of Bank thereafter to demand strict compliance and performance therewith.  Nothing contained herein shall prevent Bank from foreclosing on the Lien of any deed of trust, mortgage or other security instrument, or exercising any rights available thereunder, and the exercise of any such rights shall not constitute a legal or equitable discharge of any Borrower.  Each Borrower also waives any defense arising from any act or omission of Bank that changes the scope of the Borrower’s risks hereunder.

13.6

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

13.7

Right to Settle, Release.

(a)

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

(b)

Without affecting the liability of any Borrower hereunder, Bank may (i) compromise, settle, renew, extend the time for payment, change the manner of terms of payment, discharge the performance of, decline to enforce, or release all or any of the

			
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Obligations with respect to a Borrower, (ii) grant other indulgences to a Borrower in respect of the Obligations, (iii) modify in any manner any documents relating to the Obligations with respect to a Borrower, (iv) release, surrender or exchange any deposits or other property securing the Obligations, whether pledged by a Borrower or any other Person, or (v) compromise, settle, renew, or extend the time for payment, discharge the performance of, decline to enforce, or release all or any obligations of any guarantor, endorser or other Person who is now or may hereafter be liable with respect to any of the Obligations.

13.8

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

********

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

				
	 
	HEAT BIOLOGICS, INC.

	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	By:

	/s/ Jeffrey Wolf

	 

	 
	 
	 
	 

	 
	Name:

	Jeffrey  Wolf

	 

	 
	 
	 
	 

	 
	Title:

	CEO

	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	HEAT BIOLOGICS I, INC.

	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	By:

	/s/ Jeffrey Wolf

	 

	 
	 
	 
	 

	 
	Name:

	Jeffrey Wolf

	 

	 
	 
	 
	 

	 
	Title:

	CEO

	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	SQUARE 1 BANK

	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	By:

	 
	 

	 
	 
	 
	 

	 
	Name:

	 
	 

	 
	 
	 
	 

	 
	Title:

	 
	 

			
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EXHIBIT A

DEFINITIONS

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

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

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

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

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

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

“Cash” means unrestricted cash and cash equivalents.

“Cash Burn” means an amount equal to the prior period’s Cash minus the current period’s ending Cash that has been adjusted for any changes to Cash as a result of borrowings and repayments of borrowings, proceeds from the sale of equity and the exercise of stock options or warrants, and paid-in-capital and minority interest.

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

“Closing Date” means the date of this Agreement.

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

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

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

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by the Person, or in respect of which that Person is otherwise directly or indirectly liable; (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices:  provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith:  provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

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

“Credit Extension: means each Term Loan, the Term Loan B or any other extension of credit, by Bank to or for the benefit of Borrower hereunder.

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

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

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

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

“Grant Event” means Borrower’s receipt, after the Closing Date but on or before the Tranche A Term Loan Availability End Date, or a grant, with funds to be provided to Borrower in a series of disbursements but with an aggregate value of at least $16,000,000, for the purpose of funding product development.

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all contingent Obligations, including but not limited to any sublimit contained herein.

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

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

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

“Investment Agreement” means, collectively, Borrower’s stock purchase and other agreement(s) pursuant to which Borrower most recently issued its preferred stock.

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

“Letter of Credit” means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower’s request.

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

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

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

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

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

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

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

“Permitted Indebtedness” means:

(a)

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

(b)

Indebtedness existing on the Closing Date and disclosed in the Schedule;

(c)

Indebtedness not to exceed $250,000 in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market value of the property financed with such indebtedness;

(d)

Subordinated Debt;

(e)

Indebtedness to Lonza Walkersville, Inc. (“Lonza”) pursuant to (i) that certain Convertible Promissory Note issued by Borrower in favor of Lonza and (ii) that certain Manufacturing Services Agreement between Lonza and Borrower, each in substantially the form provided to Bank on or before the Closing Date (collectively, the “Lonza Agreements”); provided that Borrower shall provide advance notice to Bank of any material change to the Lonza Agreements;

(f)

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

(g)

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

“Permitted Investment” means:

(a)

Investments existing on the closing Date disclosed in the Schedule.

(b)

(i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation of Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than one year from the date of investment therein, (iv) Bank’s money market accounts, (v) Investments in regular deposit or checking accounts held with Bank or subject to a control agreement in favor of Bank, and (vi) Investments consistent with any investment policy adopted by the Borrower’s board of directors.

(c)

Repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed $150,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former

			
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employees to Borrower regardless of whether an Event of Default exists;

(d)

Investments accepted in connection with Permitted Transfers;

(e)

Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed $150,000 in the aggregate in any fiscal year;

(f)

Investments not to exceed $150,000 outstanding in the aggregate at any time consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;

(g)

Investments in unfinanced capital expenditures in any fiscal year, not to exceed $150,000;

(h)

Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;

(i)

Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (i) shall not apply to Investments of Borrower in any Subsidiary;

(j)

Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $150,000 in the aggregate in any fiscal year; and

(k)

Investments permitted under Section 7.3

“Permitted Liens” means the following:

(a)

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

(b)

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

(c)

Liens not to exceed $250,000 in the aggregate in any fiscal year of Borrower (i) upon or in any Equipment (other than Equipment financed by a Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment of indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, in each case provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

(d)

Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;

			
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(e)

Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.4 (attachment) or 8.7 (judgments); and

(f)

Liens securing Subordinated Debt.

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

(a)

Inventory in the ordinary course of business;

(b)

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

(c)

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

(d)

grants of security interests and other Liens that constitute Permitted Liens; and

(e)

Cash transferred to pay payroll and benefits, trade payables and other day-to-day operating expenses of Borrower in the ordinary course of business;

(f)

exclusive licenses for the use of Borrower’s intellectual property to a Subsidiary in the ordinary course of business, so long as such Subsidiary is a co-borrower under this Agreement;

(g)

other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $150,000 during any fiscal year.

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

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

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

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

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

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

“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any

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

“Term Loan Maturity Date” means August 7, 2016.

“Term Loan B Maturity Date” means December 14, 2014.

“Term Sheet Milestone” means the receipt by Borrower, after the closing Date but on or before November 1, 2012, of a signed and accepted term sheet from the investors acceptable to Bank for the sale or issuance of Borrower’s equity securities, with net Cash proceeds to be received by Borrower of at least $5,000,000, and with such term sheet providing for the funding of such $5,000,000 on or before December 15, 2012.

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

“Tranche A Term Loan Availability End Date” means August 7, 2013.

“Tranche B Equity Trigger Event” means the receipt by Borrower, after the closing Date but on or before December 15, 2012, of net Cash proceeds of at least $5,000,000 from the sale or issuance of Borrower’s equity securities to investors acceptable to Bank.

“Tranche B Term Loan Interest-Only End Date” means the day that is twelve months after the Tranche B Equity Trigger Event.

			
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DEBTOR:

HEAT BIOLOGICS, INC.

SECURED PARTY:

SQUARE 1 BANK

EXHIBIT B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

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

(a)

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

(b)

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

Notwithstanding the foregoing, the Collateral shall not include any of the intellectual property, in any medium of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds or hereafter acquires of receives any right or interest (collectively, the “Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).

Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of August 7, 2012, include the Intellectual Property to the extent and only to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment, and further provided, however, that Bank’s enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to Payment only, and bank shall have no recourse whatsoever with respect to the underlying Intellectual Property.

			
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DEBTOR

HEAT BIOLOGICS I, INC.

SECURED PARTY:

SQUARE 1 BANK

EXHIBIT B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

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

(a)

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

(b)

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

Notwithstanding the foregoing, the Collateral shall not include any of the intellectual property, in any medium of any kind or nature whatsoever, now or hereafter owned or acquired or received by Borrower, or in which Borrower now holds or hereafter acquires of receives any right or interest (collectively, the “Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”).

Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of August 7, 2012, include the Intellectual Property to the extent and only to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment, and further provided, however, that Bank’s enforcement rights with respect to any security interest in the Intellectual Property shall be absolutely limited to the Rights to Payment only, and Bank shall have no recourse whatsoever with respect to the underlying Intellectual Property.

			
	Heat Biologics, Inc. USA

	1

	 

EXHIBIT C

LOAN ADVANCEMENT/PAYDOWN REQUEST FORM

[Please refer to New Borrower Kit]

EXHIBIT D

COMPLIANCE CERTIFICATE

[Please refer to New Borrower Kit]

			
	Heat Biologics, Inc. USA

	1

	 

EXHIBIT E

FORM OF WARRANT

[Required by Section 6.7(c)]

			
	Heat Biologics, Inc. USA

	2

	 

SCHEDULE OF EXCEPTIONS

Permitted Indebtedness  (Exhibit A) – None

Permitted Investments  (Exhibit A) – None.

Permitted Liens  (Exhibit A) – None.

Prior Names  (Section 5.5) – None.

Litigation  (Section 5.6) – None.

Inbound Licenses  B(Section 5.12) – None.

			
	Heat Biologics, Inc. USA

	1

	 

CORPORATE RESOLUTION

The undersigned duly elected and qualified (Assistant) Secretary of Heat Biologics, Inc. (the “Company”) does hereby certify that the following is a true and correct copy of certain resolutions adopted at a meeting of the Company’s Board  of Directors held on July 25, 2012 in accordance with applicable law and the company’s bylaws, and that such resolutions are not unmodified and in full force and effect:

BE IT RESOLVED, that,

1)

Any one (1) of the following, duly elected officers of the Company (each, an “Authorized Officer”) whose genuine original signature appears next to his or her name is authorized to act for, on behalf of, and in the name of the company in connection with resolutions below:

					
	Title

	 
	Name

	 
	Authorized Signature

	 
	 
	 
	 
	 

	CEO

	 
	Jeffrey Wolf

	 
	/s/ Jeffrey Wolf

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

2)

Any Authorized Officer may:

   (a)

Borrow money from time to time from Square 1 Bank (“Bank”), and may negotiate and procure loans, letters of credit, foreign exchange contracts and other financial accommodations from Bank, including without limitation, that certain Loan and Security Agreement dated as of August 7, 2012, and also to execute and deliver to Bank one or more renewals, extensions, or modifications thereof.

   (b)

Give security for any liabilities of the Company to Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real of personal property, tangible or intangible of the company;

   (c)

Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the company, whether or not registered in the name of the Company;

   (d)

Discount with the Bank, commercial or other business paper belonging to the Company made or drawn by or upon third parties, without limit as to amount;

   (e)

Authorize and direct the Bank to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign;

   (f)

Issue a warrant or warrants to purchase the Company’s capital stock;

   (g)

Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry

			
	Heat Biologics, Inc. USA

	2

	 

out the purposes of these resolutions, any or all of which may relate to all or to substantially all of the Company’s property and assets;

3)

The Authorized Officer may designate additional or alternate individuals as being authorized to request loan advances, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as he or she may in his or her discretion deem reasonably necessary or proper in order to carry into effect the provisions of these resolutions.

4)

Any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions and hereby ratified and approved, and the authority conferred herein may be exercised singly by and such officer, and these resolutions shall continue in full force and effect until written notice of modification or revocation is received and accepted by Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these resolutions).  Bank may rely upon any form of notice, which it in good faith believes to be genuine or what it purports to be.

5)

The resolutions are in full force and effect as of the date of this Certificate and are intended to replace, as of this date, any resolutions previously given by the Company to Bank in connection with the matters described herein; these resolutions any borrowings or financial accommodations under these resolutions have been properly noted in the corporate books and records, and have not been rescinded, revoked or modified; neither the foregoing resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the articles of incorporation or bylaws of the Company or of any agreement, indenture or other instrument to which the Company is a party, or by which it is bound; and to the extent the articles of incorporation or bylaws of the Company or any agreement, indenture or other instrument to which the company is a party or by which it is bound require the vote or consent of shareholders of the Company to authorize any act, matter or thing described in the foregoing resolutions, such vote or consent has been obtained.

In Witness Whereof, I have affixed my name as [Assistant] Secretary and have caused the corporate seal (where available) of said Company to be affixed on Aug 8, 2012.

			
	 
	/s/Jeffrey Wolf

	 

	 
	[Assistant] Secretary*

	 

*If the certifying officer is designated as the only signer in these resolutions then another corporate officer must also sign.

			
	 
	 
	 

	 
	 
	 

			
	Heat Biologics, Inc. USA

	3

	 

CORPORATE RESOLUTION

The undersigned duly elected and qualified [Assistant] Secretary of Heat Biologics, Inc. (the “Company”) does hereby certify that the following is a true and correct copy of certain resolutions adopted at a meeting of the Company’s Board of Directors held on July 25, 2012 in accordance with applicable law and the company’s bylaws, and that such resolutions are now unmodified and in full force and effect:

BE IT RESOLVED, that:

1)

Any one (1) of the following, duly elected officers of the Company (each, and “Authorized Officer”) whose genuine original signature appears next to this or her name is authorized to set for, on behalf of, and in the name of the Company in connection with the resolutions below:

					
	Title

	 
	Name

	 
	Authorized Signature

	 
	 
	 
	 
	 

	CEO

	 
	Jeffrey Wolf

	 
	/s/ Jeffrey Wolf

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

2)

Any Authorized Officer may:

   (a)

Borrow money from time to time from Square 1 Bank (“Bank”), and may negotiate and procure loans, letters of credit, foreign exchange contracts and other financial accommodations from Bank, including without limitation, that certain Loan and Security Agreement dated as of August 7, 2012, and also to execute and deliver to Bank one or more renewals, extensions, or modifications thereof;

   (b)

Give security for any liabilities of the Company to Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Company;

   (c)

Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the company, whether or not registered in the name of the Company;

   (d)

Discount with the Bank, commercial or other business paper belonging to the Company made or drawn by or upon third parties, without limit as to amount;

   (e)

Authorize and direct the Bank to pay the proceeds of any such loans or discounts as directed by the persons so authorized to sign;

   (f)

Issue a warrant or warrants to purchase the Company’s capital stock;

   (g)

Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents to carry

			
	Heat Biologics, Inc. USA

	2

	 

3)

The Authorized Officers may designate additional or alternate individuals as being authorized to request loan advances, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as he or she may at his or her discretion deem reasonably necessary or proper in order to carry into effect the provisions of these resolution.

4)

Any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, and the authority conferred herein may be exercised singly by any such officer, and these resolutions shall continue in full force and effect until written notice of modification or revocation is received and accepted by Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these resolutions).  Bank may rely upon any form of notice, which it in good faith believes to be genuine or what it is purports to be.

5)

The resolutions are in full force and effect as of the date of this Certificate and are intended to replace, as of this date, any resolutions previously given by the Company to Bank in connection with the matters described herein; these resolutions and any borrowing or financial accommodations under these resolutions have been properly noted in the corporate books and records, and have not be rescinded, revokes or modified, neither the foregoing resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the articles of incorporation or bylaws of the Company or of any agreement, indenture or other instrument to which the company is a party or by which it is bound; and to the extent the articles of incorporation or bylaws of the Company or any agreement, indenture or other instrument to which the Company is a party or by which it is bound require the vote or consent of shareholders of the Company to authorize any act, matter or thing described in the foregoing resolutions, such vote or consent has been obtained.

In Witness Whereof, I have affixed my name as [Assistant] Secretary and have caused the corporate seal (where available) of said Company to be affixed on Aug 8, 2012, 2012. 

			
	 
	/s/Jeffrey Wolf

	 

	 
	[Assistant] Secretary*

	 

*If the certifying officer is designated as the only signer in these resolutions then another corporate officer must also sign.

			
	 
	 
	 

	 
	 
	 

			
	Heat Biologics, Inc. USA

	2

	 

USA PATRIOT ACT

NOTICE

OF

CUSTOMER IDENTIFICATION

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

WHAT THIS MEANS FOR YOU:  when you open an account, we will ask your name, address, date of birth, and other information that will allow us to identify you.  We may also ask to see your driver’s license or other identifying documents.

			
	Heat Biologics, Inc. USA

	3

	 

SQUARE 1 BANK

AUTOMATIC DEBIT AUTHORIZATION

Member FDIC

To:  Square 1 Bank

Re:  Loan #__________________________________

You are hereby authorized and instructed to charge account No. ______________ in the name of Heat Biologics, Inc.

for facilities fees, principal interest and other payments due on above referenced loan as set forth below and credit the loan referenced above.

X

Debit the Facility Fee as it become due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

X

Debit each interest payment as it becomes due according to the terms of the Loan and Security 

Agreement and any renewals or amendments thereof.

X

Debit each principal payment as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

X

Debit each payment for Bank Expenses as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

This Authorization is to remain in full force and effect until revoked in writing.

				
	 
	Borrower Signature

	 
	Date

	 
	 
	 
	 

	 
	/s/ Jeffrey Wolf

	 
	Aug 8, 2012

			
	Heat Biologics, Inc. USA

	4

	 

SQUARE 1 BANK

AUTOMATIC DEBIT AUTHORIZATION

Member FDIC

To:  Square 1 Bank

Re:  Loan #__________________________________

You are hereby authorized and instructed to charge account No. _____________ in the name of Heat Biologics I, Inc.

for facility fees, principal, interest and other payments due on above referenced loan as set forth below and credit the loan referenced above.

 X

Debit the Facility Fee as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

X

Debit each interest payment as it becomes due according to the terms of the Loan and Security  Agreement and any renewals or amendments thereof.

X

Debit each principal payment as it becomes due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

X

Debit each payment for Bank Expenses as it become due according to the terms of the Loan and Security Agreement and any renewals or amendments thereof.

This Authorization is to remain in full force and effect until revoked in writing.

				
	 
	Borrower Signature

	 
	Date

	 
	 
	 
	 

	 
	/s/ Jeffrey Wolf

	 
	Aug 8, 2012

			
	Heat Biologics, Inc. USA

	5

	 

Phone ____________

SQUARE 1 BANK

Fax______________

CLIENT AUTHORIZATION

General Authorization

I hereby authorize Square 1 Bank to use my company name, logo, and information relating to our banking relationship in its marketing and advertising campaigns which is intended for Square 1 Bank’s customers, prospects and shareholder.

Square 1 Bank will forward any advertising or article including client for prior review and approval.

		
	/s/ Jeffrey Wolf

	 

	Signature

	 

	 
	 

	Jeffrey Wolf, CEO

	 

	Printed Name

	 

	 
	 

	Heat Biologics, Inc.

	 

	Company

	 

	 
	 

	100 Europa Drive, Suite 420

	 

	Mailing Address

	 

	 
	 

	Chapel Hill, NC 27517

	 

	City, State, Zip code

	 

	 
	 

	919-240-7133

	 

	Phone Number

	 

	 
	 

	919-240-7540

	 

	Fax Number

	 

	 
	 

	jwolf@heatbio.com

	 

	E-Mail

	 

	 
	 

	Aug 8 2012

	 

	Date

	 

			
	Heat Biologics, Inc. USA

	6

	 

Phone ____________

SQUARE 1 BANK

Fax______________

CLIENT AUTHORIZATION

General Authorization

I hereby authorize Square 1 Bank to use my company name, logo, and information relating to our banking relationship in its marketing and advertising campaigns which is intended for Square 1 Bank’s customers, prospects and shareholder.

Square 1 Bank will forward any advertising or article including client for prior review and approval.

		
	/s/ Jeffrey Wolf

	 

	Signature

	 

	 
	 

	Jeffrey Wolf, CEO

	 

	Printed Name

	 

	 
	 

	Heat Biologics I, Inc.

	 

	Company

	 

	 
	 

	100 Europa Drive, Suite 420

	 

	Mailing Address

	 

	 
	 

	Chapel Hill, NC 27517

	 

	City, State, Zip code

	 

	 
	 

	919-240-7133

	 

	Phone Number

	 

	 
	 

	919-240-7540

	 

	Fax Number

	 

	 
	 

	jwolf@heatbio.com

	 

	E-Mail

	 

	 
	 

	Aug 8 2012

	 

	Date

	 

			
	Heat Biologics, Inc. USA

	7

	 

			
	Heat Biologics, Inc. USA

	8CONVERTIBLE PROMISSORY NOTE

EXHIBIT 10.17

THIS CONVERTIBLE PROMISSORY NOTE (THIS “NOTE”) AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN JURISDICTION.  THIS NOTE AND SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.

HEAT BIOLOGICS, INC.

CONVERTIBLE PROMISSORY NOTE

		
	$950,000

	___________, _____2011

	 
	Research Triangle Park, North Carolina

Heat Biologics, Inc., a Delaware corporation (the “Company”) promises to pay to XXXX(the “Lender”), or its registered assigns, in lawful money of the United States of America the principal sum of $950,000, or such lesser amount actually advanced to the Company under this Note, together with simple interest on the principal balance of each advance from the date of such advance at a rate equal to 12.0% per annum, computed on the basis of the actual number of days elapsed and a year of 365 days.  Unless earlier converted into shares of Equity Securities (as defined below) pursuant to the terms of this Note, the principal and accrued interest shall be due and payable by Borrower on demand by Lender at any time after the earlier of: (i) the eighth anniversary of the Effective Date of that certain Manufacturing Services Agreement between the Lender and the Company dated October ___, 2011 (as amended, the “MSA”), or if the MSA is terminated prior to such date, the termination date of the MSA unless termination is a result of breach or nonperformance by Lender (or its affiliates or successors), in which case the due date shall be the second anniversary of termination and (ii) the closing of the Qualified Offering (as defined below) (such earlier date, the “Maturity Date”).  

From time to time, Lender shall issue to the Company invoices in respect of services rendered pursuant to the MSA.  Approval by the Company of any such invoice shall be deemed to be an advance hereunder by the Lender of the approved amount of such invoice, with such advance effective as of the date that payment under such invoice is due according to the terms of the MSA or that the Company approves the invoice, whichever is earlier.  Any such advances of principal shall, upon request by either Company or the Lender, be evidenced by an update to the Schedule of Advances attached to this Note as Schedule A.

1.

Interest.  Accrued interest on this Note shall be payable at maturity.

Portions herein identified by [XXXX] have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended. A complete copy of this document has been filed separately with the Securities and Exchange Commission

2.

Prepayment.  The Company may prepay principal, together with accrued interest, in whole or in part only with the written consent of Lender.  Prepayment shall be credited first to accrued interest and thereafter to principal.  

3.

Security.  This Note is a general unsecured obligation of the Company. 

4.

Full or Partial Acceleration.  

(a)

All outstanding principal and unpaid accrued interest due on such Note shall be due and payable upon consummation of any transaction defined as a “Deemed Liquidation Event” in the Company’s Second Amended and Restated Certificate of Incorporation on file with the Secretary of State of the State of Delaware. 

(b) 

If, at a time this Note is outstanding, the Company completes the sale of its Equity Securities for gross proceeds of at least $4,200,000 in a transaction or series of related transactions that does not constitute a Qualified Offering (as defined below), the Company shall notify the Lender of such sale.  Lender shall have the right to demand that the Company repay 50% of the outstanding principal balance of this Note in cash within thirty days of following the date of such sale.  For clarification, the conversion into preferred stock of those convertible promissory notes issued by the Company commencing on or about May 18, 2010 in a financing of the Company with aggregate proceeds through September 1, 2011 of approximately $2,623,709 (such notes, the “2010 Notes”) shall not constitute a sale of Equity Securities for purposes of this Section 4.  

5.

Conversion of the Note.  The Note shall be convertible according to the following terms:

(a)

The following terms shall have the meanings assigned below:

(i)

“Equity Securities” shall mean the Company’s Common Stock or Preferred Stock or any securities conferring the right to purchase the Company’s Common Stock or Preferred Stock or securities convertible into, or exchangeable for (with or without additional consideration), the Company’s Common Stock or Preferred Stock, except any security granted, issued and/or sold by the Company to any director, officer, employee or consultant of the Company in such capacity for the primary purpose of soliciting or retaining their services.

(ii)

“Qualified Offering” shall mean the next sale (or series of related sales) by the Company of its Equity Securities following the date of this Note from which the Company receives gross proceeds of not less than $7,500,000 (including the aggregate amount of debt securities converted into Equity Securities upon conversion or cancellation of promissory notes, including, without limitation, this Note).

2

(b)

Qualified Offering Conversion.  The principal and unpaid accrued interest of this Note will be automatically converted into the type of Equity Securities issued in the Qualified Offering upon the closing of the Qualified Offering.  The number of shares of such Equity Securities to be issued upon such conversion shall be equal to the quotient obtained by dividing the outstanding principal and unpaid accrued interest due on this Note on the date of conversion, by the weighted average price paid per share for Equity Securities by the investors in the Qualified Offering.  At least twenty (20) business days prior to the closing of the Qualified Offering, the Company shall notify the Lender in writing of the terms under which the Equity Securities of the Company will be sold in such financing.  The conversion of this Note into Equity Securities shall be on such terms and shall occur on the closing date of such Qualified Offering.   Without limiting the generality of the foregoing, the Lender shall be granted registration rights with respect to the Equity Securities issued upon conversion of this Note (and shares of Common Stock into which such Equity Securities may be converted or exercised) that are equivalent to those registration rights, if any, granted to investors in the Qualified Offering that invest a substantially similar amount and the Lender shall be granted Board observation rights with respect to the Equity Securities issued upon conversion of this Note (and shares of Common Stock into which such Equity Securities may be converted or exercised) that are equivalent to those observation rights, if any, granted to investors in the Qualified Offering that invest a substantially similar amount; provided, that Lender shall maintain its Board observation rights granted under Section 10(a) of this Note for a period of one (1) year following conversion hereunder. Notwithstanding the foregoing, the Company shall not be required to permit the Observer to attend any portion of a meeting, or to provide to the Observer information with respect to that portion of a meeting, to the extent that the Board determines in good faith that the Lender and the Company have conflicting interests relating to the matter to be discussed and such limitation shall be included in the applicable stockholder agreements. Such Board observation rights shall replace the rights set forth in Section 10(a) below.

(c)

Mechanics of Conversion. The Company shall not be required to issue or deliver the Equity Securities until the Lender has surrendered the Note to the Company.  Such conversion may be made contingent upon the closing of the Qualified Offering.

(d)

Fractional Shares; Interest; Effect of Conversion.  No fractional shares shall be issued upon conversion of this Note.  In lieu of the Company issuing any fractional shares to the Lender upon the conversion of this Note, the Company shall pay to the Lender an amount equal to the product obtained by multiplying the conversion price by the fraction of a share not issued pursuant to the previous sentence.  Upon conversion of this Note in full and the payment of any amounts specified in this Section 5(d), the Company shall be forever released from all its obligations and liabilities under this Note.

6.

Representations and Warranties of the Company.  The Company hereby represents and warrants to the Lender that, effective as of the date of this Note: 

(a)

Due Incorporation, Good Standing, Corporate Power and Qualification.  Each of the Company, Heat Biologics I, Inc. and Heat Biologics II, Inc. (each of Heat Biologics I and Heat Biologics II, a “Subsidiary” and together, the “Subsidiaries”) is a corporation duly incorporated, 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 as presently conducted and as proposed to be conducted.  Each of the Company and the Subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property or results of operations of the Company or the Subsidiaries.

3

(b)

Authorization.  Except for the authorization and issuance of the shares issuable in connection with the Qualified Offering, all corporate action has been taken on the part of the Company, the Subsidiaries, and each of their officers, directors and stockholders necessary for the authorization, execution and delivery of this Note.  Except as may be limited by applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights, the Company has taken all corporate action required to make all of the obligations of the Company reflected in the provisions of this Note, the valid and enforceable obligations they purport to be.

(c)

 Valid Issuance of Capital Stock.  The offer, issuance and sale of this Note and the Equity Securities to be issued, sold and delivered upon conversion of this Note will be duly and validly issued, fully paid and nonassessable and, assuming the accuracy of the representations and warranties of the Lenders in the Note, will be issued in compliance with all applicable federal and state securities laws.

(d)

Capitalization.  The authorized capital stock of the Company, immediately prior to the initial issuance of this Note, will consist of 50,000,000 shares of Common Stock, $0.0001 par value per share, and 2,112,500 shares of Preferred Stock, $0.0001 par value per share, of which 112,500 shares have been designated Series 1 Preferred Stock and of which 2,000,000 have been designated as Series A Preferred Stock.     The Company currently has the following securities outstanding: 4,149,781 shares of its Common Stock; 112,500 shares of its Series 1 Preferred Stock and 2,273,800 shares of its Series A Preferred Stock.  In addition, the Company has granted or reserved 1,350,219 options exercisable into shares of its Common Stock and warrants exercisable into 75,000 shares of Common Stock.  Other than the foregoing, the Company has no other debt or equity securities, or options or other derivatives exercisable into debt or equity securities, outstanding, nor any obligation to issue any such securities (or options, etc.) or any other right, agreement or commitment of any nature relating to the voting, issuance, sale, delivery or transfer (including any right of conversion or exchange under any outstanding security or other instruments) by the Company of any such securities or other capital or voting interests of the Company. The authorized capital stock of Heat Biologics I, Inc. (“Heat I”) consists of 100,000,000 shares of Common Stock, $0.0001 par value per share, 4,000,000 of which are issued and outstanding, with 3,700,000 owned by the Company and 300,000 owned by the University XXXX. The authorized capital stock of Heat Biologics II, Inc. (“Heat II”) consists 100,000,000 shares of Common Stock, $0.0001 par value per share, 4,000,000 of which are issued and outstanding, with 3,700,000 owned by the Company and 300,000 owned by the University XXXX. Other than the foregoing, Heat I and Heat II have no other debt or equity securities, or options or other derivatives exercisable into debt or equity securities, outstanding, nor any obligation to issue any such securities (or options, etc.) or any other right, agreement or commitment of any nature relating to the voting, issuance, sale, delivery or transfer (including any right of conversion or exchange under any outstanding security or other instruments) by the Company, Heat I or Heat II of any such securities or other capital or voting interests of Heat I or Heat II.

Portions herein identified by [XXXX] have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended. A complete copy of this document has been filed separately with the Securities and Exchange Commission

4

(e)

Actions and Proceedings; Litigation. There is no action, proceeding, claim, litigation or investigation pending or, to the best of the Company's knowledge, currently threatened against the Company or the Subsidiaries. The foregoing includes, without limiting its generality, actions pending or threatened involving the Company's or the Subsidiaries’ Intellectual Property (defined below) as well as the prior employment of any of the Company's or the Subsidiaries’ employees or their use in connection with the Company's or the Subsidiaries’ business of any information or techniques allegedly proprietary to any of their former employers, nor, to the Company's knowledge, is there any basis for any such Intellectual Property or employee actions, claims, litigation, etc. There is no action, proceeding, claim, litigation or investigation by the Company or the Subsidiaries currently pending or that the Company or the Subsidiaries intend to initiate. None of the Company or the Subsidiaries is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.

(f)

Compliance with other Instruments.  A true, correct, current and complete copy of the Company’s Second Amended and Restated Certificate of Incorporation (the “Charter”) and Bylaws is attached hereto as Exhibits A and B, respectively.  None of the Company or the Subsidiaries is in violation or default of any term of its certificate of incorporation or bylaws, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ  The execution, delivery and performance of the MSA and the Note and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or a Subsidiary or the suspension, revocation, impairment, forfeiture, or nonrenewal of any permit, license, authorization or approval applicable to the Company or a Subsidiary, its business or operations or any of its assets or properties.  Without limiting the foregoing, the Company and the Subsidiaries have obtained all waivers reasonably necessary with respect to any preemptive rights, rights of first refusal or similar rights, including any notice or offering periods provided for as part of any such rights, anti-dilution waivers and the like, in order for the Company to consummate the transactions contemplated hereunder without any third party obtaining any rights to cause the Company or any Subsidiary to offer or issue any securities of the Company or a Subsidiary or alter the price at which any convertible securities of the Company or a Subsidiary may be converted in the future as a result of consummation of the transactions contemplated hereunder. 

(g)

Indebtedness. The Company currently has approximately $20,000 due to scientific consultants and external service providers (the "Debt"). Other than the Debt, the Company does not have indebtedness exceeding $25,000 (plus legal expenses) in the aggregate.  Neither of the Subsidiaries has any outstanding indebtedness.

5

(h)

Intellectual Property. To the knowledge of the Company, all (i) patents and patent applications; (ii) trademarks and service marks, together with all goodwill associated with each of the foregoing; (iii) copyrights; and (iv) registrations, applications and renewals for any of the foregoing (collectively, "Intellectual Property") owned by or licensed to the Company or a Subsidiary are valid and have not been adjudicated to be unenforceable. To the knowledge of the Company, no Intellectual Property owned by or licensed to the Company or a Subsidiary has been or is now involved in any cancellation or litigation proceedings and no such action has been threatened.  No patent owned by the Company or a Subsidiary, and, to the knowledge of the Company, no patent licensed to the Company or a Subsidiary, has been or is now involved in any interference, reissue, re-examination, cancellation or opposition proceeding. To the Company's knowledge, the conduct of the Company's and the Subsidiaries’ business as currently conducted or as currently proposed to be conducted does not infringe or otherwise impair or conflict with (collectively, "Infringe") any Intellectual Property rights of any third party or any confidentiality obligation owed to a third party, and, to the knowledge of the Company, the Intellectual Property of the Company and the Subsidiaries which is necessary for the conduct of Company's business as currently conducted or as currently proposed to be conducted is not being Infringed upon by any third party. To the knowledge of the Company, the Company or a Subsidiary owns or has valid licenses to all Intellectual Property necessary for the conduct of the Company's and the Subsidiaries’ business as currently contemplated.

(i)

Financial Statements. The Company has made available to the Lender copies of its most recent unaudited financial statements, and such financial statements present fairly, in all material respects, the consolidated financial condition of the Company as of the dates shown, and such statements have been prepared in conformity with GAAP (applied on a consistent basis).

(j)

No Anti-Dilution Rights. Other than the rights of the holders of Series A Preferred Stock and Series 1 Preferred Stock set forth in the Charter, the Company has not granted anti-dilution protection other than a preemptive right to purchase a ratable amount of any new securities.

7.

Representations and Warranties of the Lender.  In connection with the transactions provided for herein, the Lender hereby represents and warrants to the Company that: 

(a)

Authorization.  This Note constitutes the Lender’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to availability of specific performance, injunctive relief or other equitable remedies.

(b)

Purchase Entirely for Own Account.  The Lender acknowledges that this Note is issued to the Lender in reliance upon the Lender’s representation to the Company that the Note will be acquired for investment for the Lender’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Lender has no present intention of selling, granting any participation in, or otherwise distributing the same.  By executing this Note, the Lender further represents that the Lender does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to this Note.

6

(c)

Access to Information. The Lender acknowledges that the Company has given the Holder access to the corporate records and accounts of the Company and to information in its possession relating to the Company requested by the Lender, has made its officers and representatives available for interview by the Lender, and has furnished the Lender with documents and other information requested by the Lender for the Lender to make an informed decision with respect to the purchase of this Note. 

(d)

Investment Experience.  The Lender is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Note.  If other than an individual, the Lender also represents it has not been organized solely for the purpose of acquiring this Note.

(e)

Accredited Investor.  The Lender is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act.

(f)

Restricted Securities.  The Lender understands that this Note is characterized as a “restricted security” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances.  In this connection, the Lender represents that it is familiar with Rule 144 as promulgated by the SEC under the Securities Act, as presently in effect and understands the resale limitations imposed thereby and by the Securities Act.

(g)

Further Limitations on Disposition.  Without in any way limiting the representations and warranties set forth above, the Lender further acknowledges and agrees that this Note and the Equity Securities issuable upon conversion hereof are subject to the provisions of the Company’s Bylaws, including without limitation, all restrictions on transfer and rights of first refusal applicable to shares of the Company’s Common Stock described in the Bylaws.  The Lender may inspect the Bylaws at the Company’s principal office.

8.

Defaults and Remedies.

(a)

Events of Default.  The following events shall be considered Events of Default with respect to this Note:

(i)

The Company shall default in the payment of any part of the principal or unpaid accrued interest on the Note for more than five (5) days after the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise;

(ii)

The Company shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition for bankruptcy, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting the material allegations of a petition filed against the Company in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Company, or of all of any substantial part of the properties of the Company, or the Company or its respective directors or majority stockholders shall take any action looking to the dissolution or liquidation of the Company; 

7

(iii)

Within 30 days after the commencement of any proceeding against the Company seeking any bankruptcy reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed or, within 30 days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or

(iv)

The Company shall purchase or redeem or pay or declare any dividend or make any distribution on, any shares of its capital stock other than (A) dividends or other distributions payable solely in the form of additional shares of Common Stock or (B) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Company in connection with the cessation of such employment or service on such terms as may be approved by the Company’s Board of Directors 

(v)

Breach of Representations, Warranties or Covenants.  The Company shall have materially breached any of its representations, warranties or covenants set forth herein.

(b)

Remedies.  The Company shall provide the Lender with not less than ten (10) business days’ notice of its knowledge of, or its intention to allow or effect any of the circumstances listed above which would cause, or would reasonably be expected to cause, an Event of Default. Upon the occurrence of an Event of Default under Section 8(a) hereof, at the option and upon the declaration of the Lender, the entire unpaid principal and accrued and unpaid interest on this Note shall, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, and the Lender may, immediately and without expiration of any period of grace, enforce payment of all amounts due and owing under this Note and exercise any and all other remedies granted to it at law, in equity or otherwise.

9.

[omitted].

10.

Additional Rights and Obligations.

(a)

Board Observer.  Upon the date of the issuance of the first advance hereunder and for so long as any amounts remain outstanding under this Note and for a period of one (1) year following conversion of this Note, the Lender shall be entitled to designate one (1) representative to attend all meetings of the Board (whether in person, telephonic or otherwise) in a non-voting observer capacity (the "Observer").  The Company shall provide to the Observer, concurrently with the members of the Board and in the same manner, notice of any and all Board meetings and, subject to the provisions hereof, a copy of all materials provided to such members.  Notwithstanding the foregoing, the Company shall not be required to permit the Observer to attend any portion of a meeting, or to provide to the Observer information with respect to that portion of a meeting, to the extent that the Board determines in good faith that the Lender and the Company have conflicting interests relating to the matter to be discussed.

8

(b)

Information Rights.  The Company acknowledges that the Lender and its affiliates will likely have, from time to time, information that may be of interest to the Company ("Information") regarding a wide variety of matters including, by way of example only, the Lender's technologies, plans, services, and strategies and developments relating thereto, current and future investments that the Lender may consider or make, and information related to the Lender's customers, vendors, suppliers and competitors.  The Company recognizes that a portion of such Information may be of interest to the Company.  Such Information may or may not be known to the Observer and other Lender personnel.  The Company, as a material part of the consideration relating to the Note, agrees that the Lender, its affiliates, and the Observer shall have no duty to disclose any Information to the Company or permit the Company to participate in any projects or investments based on any Information, or to otherwise take advantage of any opportunity that may be of interest to the Company if it were aware of such Information and hereby waives, to the extent permitted by law, any claim based on the corporate opportunity doctrine or otherwise that could limit the Lender's or its affiliates' ability to pursue opportunities based on such Information or that would require the Lender, its affiliates or the Observer to disclose any such Information to the Company or offer any opportunity relating thereto to the Company.

(c)

Stockholder Agreements.  The Lender understands and agrees that the conversion of this Note into Equity Securities may require the Lender’s execution of certain agreements in the form agreed to by investors in the Qualified Offering relating to the purchase and sale of such securities as well as restrictions on transfer, registration, co-sale, rights of first refusal, rights of first offer and voting rights, if any, relating to such securities.  Upon conversion of the Notes, the Lender shall be entitled to such registration rights and other stockholder rights (including any information rights, preemptive rights, or similar rights of first refusal and co-sale rights) as have been granted to the other purchasers of substantially similar amounts of the same class of the Company’s equity securities, provided that the Lender executes and becomes a party to the agreements evidencing such rights.

11.

Miscellaneous.

(a)

Amendments and Waivers.  Any provision of this Note may be amended or may be waived (either generally or in a particular instance, and either retroactively or prospectively) only by the agreement of the Company and the Lender.  Any waiver or amendment effected in accordance with this Section shall be binding upon each party to any Note and each future holder of a Note.

9

(b)

Successors and Assigns.  Except as otherwise provided herein, the terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Note, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Note, except as expressly provided in this Note.  If Lender assigns the MSA in accordance with its terms, Lender may, without the Company’s consent, transfer this Note to the assignee of the MSA.  Otherwise, the Lender may not assign, convey or transfer this Note or its duties and obligations hereunder without the prior, written consent of the Company, and any assignment, conveyance or transfer by the Lender in violation of this restriction shall be for all purposes null and void.  Any purported transfer of securities into which this Note may convert shall be governed by the terms of the applicable stockholder agreements.  Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.   The Company may not assign, convey or transfer this Note or its duties and obligations hereunder without the prior, written consent of the Lender, and any assignment, conveyance or transfer by the Company in violation of this restriction shall be for all purposes null and void. The rights and obligations of the Company and the Lender under this Note shall be binding upon and benefit their respective successors, permitted assigns, heirs, administrators and transferees.

(c)

Entire Agreement; Governing Law.  This Note and the other documents delivered pursuant hereto constitutes the entire agreement between the Company and the Lender with respect to the subject matter hereof and supersedes in their entirety all prior undertakings and agreements of the Company and the Lender with respect to the subject matter hereof.  This Note shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware, as to matters within the scope thereof, and the internal laws of the State of North Carolina (without reference to conflict of law provisions), as to all other matters.

(d)

Notices.  Unless otherwise provided herein, all notices required or permitted hereunder shall be in writing and deemed effectively given upon personal delivery or five days after deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to (i) in the case of the Company, at 15 TW Alexander Drive, Suite 119, Research Triangle Park, NC 27709 with a required copy to Hutchison Law Group, Attn: Fred D. Hutchison, 5410 Trinity Road, Suite 400, Raleigh, NC 27607 or (ii) in the case of the Lender, at the address set forth on the signature page hereto.  

(e)

Agreement in Connection with Public Offering.  The Lender agrees, in connection with the initial underwritten public offering of the Company’s securities pursuant to a registration statement under the Securities Act: (i) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any of the securities of the Company held by the Lender (other than those securities included in the offering) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company’s securities for a period of 180 days from the effective date of such registration statement, which period may be extended upon the request of the underwriters for an additional period of up to 15 days if the Company issues or proposes to issue an earnings or other public release within 15 days of the expiration of the 180-day lockup period, and (ii) to execute any agreement reflecting clause (i) above as may be requested by the Company or the managing underwriters at the time of such offering.

10

The Lender agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters of such offering which are consistent with the foregoing or which are necessary to give further effect thereto.  In addition, if requested, by the Company or the underwriters of such offering, the Lender shall provide, within 10 days of such request, such information as may be required by the Company or such underwriters in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act.  The obligations described in this Section 8(k) shall not apply to a registration relating solely to employee benefits plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future.  The Company may impose stop-transfer instructions with respect to the securities subject to the foregoing restriction until the end of the applicable period.  The Lender agrees that any transferee of the securities shall be bound by this Section 11(e).

(f)

No Rights or Liabilities as a Stockholder.  This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Company.  In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the Lender, shall cause the Lender to be a stockholder of the Company for any purpose.

(g)

Finder’s Fee.  Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction.  Lender agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which Lender or any of its officers, partners, employees or representatives is responsible.  The Company agrees to indemnify and hold harmless Lender from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

(h)

Officers and Directors not Liable.  In no event shall any officer or director of the Company be liable for any amounts due and payable pursuant to this Note.

(i)

Severability.  If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of the Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

(j)

Specific Enforcement. It is agreed and understood by the Company that monetary damages would not adequately compensate the Lender for any breach of this Note by the Company, and, accordingly, that this Note and, in particular, the terms relating to conversion of this Note into the equity securities of the· Company, shall be specifically enforceable, and that any breach or threatened breach of this Note shall be the proper subject of a temporary or permanent injunction or restraining order without a requirement of posting bond. Further, the Company hereby waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.

11

(k)

Usury.  In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.

(l)

Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Note.

(m)

Acknowledgement.  In order to avoid doubt, it is acknowledged that the Lender shall be entitled to the benefit of all adjustments in the number of shares of Common Stock of the Company issuable upon conversion of the Preferred Stock of the Company which occur prior to the conversion of the Note, including, without limitation, any increase in the number of shares of Common Stock issuable upon conversion as a result of a dilutive issuance of capital stock.  

[Remainder of Page Intentionally Left Blank]

12

The Company has caused this Convertible Promissory Note to be issued as of the date first written above.

				
	 
	HEAT BIOLOGICS, INC 

	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	 
	 
	 

	 
	By:

	 
	 

	 
	 
	Jeff Wolf, President & CEO

	 

	 
	 
	 
	 

ACKNOWLEDGED AND AGREED:

LENDER

XXXX

			
	By: 

	 
	 

	 
	 
	 

	Name: 

	 
	 

	 
	 
	 

	Title: 

	 
	 

Portions herein identified by [XXXX] have been omitted pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended. A complete copy of this document has been filed separately with the Securities and Exchange Commission

Schedule A

Schedule of Advances

			
	Date of Advance

	Advance Amount

	Signature of Company

	 
	 
	 

	 
	 
	

____________________

	 
	 
	

____________________

	 
	 
	

____________________

	 
	 
	

____________________

	 
	 
	

____________________

	 
	 
	

____________________

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