Document:

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Exhibit 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of December 18, 2017 (the “Effective Date”) among (A) SILICON VALLEY BANK, a California corporation with a loan production office located at 505 Howard Street, 3rd Floor, San Francisco, California, 94105 (“Bank”) and (B) XENON PHARMACEUTICALS INC., a corporation continued under the laws of Canada with the registered address 745 Thurlow Street, Suite 2400, Vancouver, British Columbia, V6E 0C5, Canada (the “Canadian Borrower”) and XENON PHARMACEUTICALS USA INC., a corporation organized under the laws of the State of Delaware (the “U.S. Borrower”, and together with the Canadian Borrower herein, jointly and severally, individually and collectively, “Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as follows:

1.      ACCOUNTING AND OTHER TERMS

Except as otherwise provided in this Agreement, (i) accounting terms and (ii) calculations and determinations must be made following U.S. GAAP, , except with respect to unaudited financial statements and for the absence of footnotes and subject to year-end audit adjustments; provided that if at any time any change in GAAP would affect the computation of any covenant or requirement set forth in any Loan Document, and either Borrower or Bank shall so request, Borrower and Bank shall negotiate in good faith to amend such covenant or requirement to preserve the original intent thereof in light of such change in GAAP; provided, further, that, until so amended (a) such covenant or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide Bank financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP, provided, further, that (x) any obligations or a Person under a lease (whether existing now or entered into in the future) that is not (or would not be) a capital lease obligation under GAAP as in effect on the Effective Date shall not be treated as a capital lease obligation solely as a result of the adopting of changes in GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. 

2.      LOAN AND TERMS OF PAYMENT

2.1    Promise to Pay.  Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.1.1 Term Loan Advances.

(a)Availability.  Subject to the terms and conditions of this Agreement, Bank agrees to make term loans to the Borrower in three tranches. During the Tranche 1 Draw Period, Borrower may request term loan advances up to an aggregate of Seven Million Dollars ($7,000,000) in minimum increments of One Million Dollars ($1,000,000) (all such advances shall be referred to in the aggregate herein as the “Tranche 1 Advance”). During the Tranche 2 Draw Period, Bank shall make an additional term loan advance available to Borrower of Five Million Dollars ($5,000,000) (the “Tranche 2 Advance”), but only after the occurrence of the Tranche 2 Event. During the Tranche 3 Draw Period, Bank shall make an additional term loan advance available to Borrower of Three Million Dollars ($3,000,000) (the “Tranche 3 Advance”), but only after the occurrence of the Tranche 3 Event. The Tranche 1 Advance, Tranche 2 Advance, and Tranche 3 Advance are each hereinafter referred to singly as a “Term Loan Advance” and collectively as the “Term Loan Advances”. The aggregate amount of Term Loan Advances available hereunder is Fifteen Million Dollars ($15,000,000). After repayment, no Term Loan Advance (or any portion thereof) may be reborrowed. 

 

 

(b)Interest Payments.  With respect to each Term Loan Advance, commencing on the first Payment Date following the Funding Date of such Term Loan Advance and continuing on the Payment Date of each month thereafter, Borrower shall make monthly payments of interest, in arrears, on the principal amount of such Term Loan Advance at the rate set forth in Section 2.2(a).

(c)Repayment.  The Tranche 1 Advance shall be “interest only” until September 30, 2018 (the “Tranche 1 Amortization Date”), provided that if Bank advances the Tranche 2 Advance, then the Tranche 1 Advance and the Tranche 2 Advance shall be “interest only” until March 31, 2019 (the “Tranches 1 And 2 Amortization Date”), with interest payable in accordance with Section 2.2(d) hereof. If Bank advances the Tranche 3 Advance, the Tranche 3 Advance shall be “interest only” until September 30, 2019 (the “Tranche 3 Amortization Date”). 

(i)Commencing on the first Payment Date following the Tranche 1 Amortization Date, the Tranche 1 Advance shall be payable (A) in thirty (30) equal monthly installments of principal plus (B) monthly payments of accrued interest at the rate set forth in Section 2.2(a), provided that if Bank advances the Tranche 2 Advance, then, commencing on the first Payment Date following the Tranches 1 And 2 Amortization Date, the Tranche 1 Advance and the Tranche 2 Advance shall be payable (C) in twenty-four (24) equal monthly installments of principal plus (D) monthly payments of accrued interest at the rate set forth in Section 2.2(a). All outstanding principal and accrued interest with respect to the Tranche 1 Advance and the Tranche 2 Advance, if any, as well as all other outstanding Obligations with respect to the Tranche 1 Advance and the Tranche 2 Advance, shall be immediately due and payable in full on the Tranches 1 And 2 Maturity Date. 

(ii)If Bank advances the Tranche 3 Advance, then, commencing on the first Payment Date following the Tranche 3 Amortization Date, the Tranche 3 Advance shall be payable (A) in twenty-four (24) equal monthly installments of principal plus (B) monthly payments of accrued interest at the rate set forth in Section 2.2(a) All outstanding principal and accrued interest with respect to the Tranche 3 Advance, as well as all other outstanding Obligations with respect to the Tranche 3 Advance, shall be immediately due and payable in full on the Tranche 3 Maturity Date.

(d)Mandatory Prepayment Upon an Acceleration.  If a Term Loan Advance is accelerated following the occurrence and during the continuation of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of: (i) all outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advances, (ii) the Final Payment with respect to the Term Loan Advances, plus (iii) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advances, including interest at the Default Rate with respect to any past due amounts.

(e)Permitted Prepayment.  Borrower shall have the option to prepay all, but not less than all, of the Term Loan Advances, provided Borrower (i) delivers written notice to Bank of its election to prepay the Term Loan Advances at least ten (10) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) the outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advances, (B) the Final Payment with respect to the Term Loan Advances, (C) the Prepayment Fee, and (D) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advances, including interest at the Default Rate with respect to any past due amounts.

2.2    Payment of Interest on the Credit Extensions.  

(a)Interest Rate.  Subject to Section 2.2(b), the principal amount outstanding for each Term Loan Advance shall accrue interest at a floating per annum rate equal to one-half percentage point (0.5%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.2(d) below.

 

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(b)Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate that is otherwise applicable thereto (the “Default Rate”). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank. 

(c)Adjustment to Interest Rate.  Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change. 

(d)Payment; Interest Computation.  Interest is payable monthly on the Payment Date of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed.  In computing interest, (i) all payments received after 12:00 noon Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.  For purposes of the Interest Act (Canada): (x) whenever any interest or fee under this Agreement is calculated on the basis of a period of time other than a calendar year, such rate used in such calculation, when expressed as an annual rate, is equivalent to (A) such rate, multiplied by (B) the actual number of days in the calendar year in which the period for which such interest or fee is calculated ends, and divided by (C) the number of days in such period of time; (y) the principle of deemed reinvestment of interest shall not apply to any interest calculation under this Agreement; and (z) the rates of interest stipulated in this Agreement are intended to be nominal rates and not effective rates or yields.

(e)Criminal Interest.  If any provision of this Agreement would oblige Borrower to make any payment of interest or other amount payable to Bank in an amount or calculated at a rate which would be prohibited by applicable law or would result in a receipt by Bank of “interest” at a “criminal rate” (as such terms are construed under the Criminal Code (Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by applicable law or so result in a receipt by Bank of “interest” at a “criminal rate”, such adjustment to be effected, to the extent necessary (but only to the extent necessary), first, by reducing the amount or rate of interest and thereafter, by reducing any fees, commissions, costs, expenses, premiums and other amounts required to be paid to Bank which would constitute “interest” for purposes of section 347 of the Criminal Code (Canada). 

2.3    Fees.  

(a)Borrower shall pay to Bank:

(i)  Final Payment.  The Final Payment with respect to the Term Loan Advances, when due hereunder; 

(ii) Prepayment Fee.  The Prepayment Fee, when due pursuant to the terms of Section 2.1.1(e); and

(iii)Bank Expenses.  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).

(b)Fees Fully Earned.  Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder.  Bank may deduct amounts owing by Borrower under the clauses of this Section 2.3 pursuant to the terms of Section 2.4(c).  Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.3.

 

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2.4    Payments; Application of Payments; Debit of Accounts. 

(a)All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 noon Pacific time on the date when due.  Payments of principal and/or interest received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.  

(b)Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

(c)Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.

2.5    Withholding.  Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto).  Specifically, however, if at any time any Governmental Authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority.  Borrower will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. In addition, Bank, or other relevant party, shall deliver such documentation prescribed by applicable law as reasonably requested by Borrower as will enable Borrower to determine whether Bank, or other relevant party, is subject to any withholding or information reporting requirements in connection with this Agreement. The agreements and obligations of Borrower contained in this Section 2.5 shall survive the termination of this Agreement.

2.6    Currency Indemnity.  If, for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any other Loan Document, it becomes necessary to convert into a particular currency (the “Judgment Currency”) any amount due under this Agreement or under any other Loan Document in any currency other than the Judgment Currency (the “Currency Due”), then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which judgment is given.  For this purpose “rate of exchange” means the rate at which the Bank is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in accordance with its normal practice through its bankers. In the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of receipt by the Bank of the amount due, the Canadian Borrower will, on the date of receipt by the Bank, pay such additional amounts, if any, or be entitled to receive reimbursement of such amount, if any, as may be necessary to ensure that the amount received by the Bank on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of receipt by the Bank is the amount then due under this Agreement or such other Loan Document in the Currency Due.  If the amount of the Currency Due which the Bank is so able to purchase is less than the amount of the Currency Due originally due under this Agreement or any other Loan Document, the Canadian Borrower shall indemnify and save the Bank harmless from and against all loss or damage arising as a result of such deficiency.

 

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3.      CONDITIONS OF LOANS

3.1    Conditions Precedent to Initial Credit Extension.  Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

(a)duly executed original signatures to the Loan Documents;

(b)duly executed original signatures to the Warrant; 

(c) the Operating Documents of each Borrower from such Borrower’s jurisdiction of organization, formation or continuance (as the case may be), and each jurisdiction in which such Borrower is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;

(d)for each Borrower, either (i) duly executed original signatures to an officer’s certificate with respect to Borrower’s articles, by-laws, incumbency, specimen signatures and board (and shareholder, if required) resolutions authorizing the execution and delivery of this Agreement and the other Loan Documents to which Borrower is a party or (ii) duly executed original signatures to completed Borrowing Resolutions;

(e)certified copies, dated as of a recent date, of financing statement searches, as Bank may reasonably request, accompanied by written evidence (including, without limitation, any UCC termination statements, PPSA termination statements or PPSA confirmations/estoppels, as applicable) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(f)the Perfection Certificate of each Borrower, together with the duly executed original signature thereto;

(g)a legal opinion of Borrowers’ Canadian legal counsel dated as of the Effective Date together with the duly executed original signature thereto in form and substance acceptable to Bank; 

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

(i) payment of all fees and Bank Expenses then due as specified in Section 2.3 hereof.

3.2    Conditions Precedent to all Credit Extensions.  Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a)timely receipt of an executed Payment/Advance Form as well as any materials and documents required by Section 3.4;

(b)in respect of the Tranche 2 Advance, evidence satisfactory to Bank, in it is sole discretion, that the Tranche 2 Event has occurred;

(c)in respect of the Tranche 3 Advance, evidence satisfactory to Bank, in it is sole discretion, that the Tranche 3 Event has occurred;

 

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(d)the representations and warranties in this Agreement shall be true and, accurate, and complete  in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date  or time period shall be true and, accurate and complete in all material respects as of such date or with respect to such time period, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true and, accurate , and complete in all material respects, taking into account updates thereof subsequent to the Effective Date to the extent that Borrower has provided written notice to Bank in accordance with the provisions of this Agreement; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date or time period shall be true and, accurate and complete in all material respects as of such date or with respect to such time period; and

(e)Bank determines to its satisfaction that there has not been a Material Adverse Change nor any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank.

If any event, condition, circumstances or other factor (collectively, “Circumstances”) exists or does not exist whose existence or non-existence serves as justification under Section 3.1 or this Section 3.2 for Bank’s refusal to make a requested Credit Extension, the existence or non-existence or such Circumstances shall not constitute an Event of Default under Section 8 unless it independently constitutes an Event of Default pursuant to another provision of this Agreement. 

3.3    Covenant to Deliver.  

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

(b)As soon as possible, but no later than March 31, 2018, Borrower shall deliver to Bank, each in form and substance satisfactory to Bank with duly executed original signatures, Control Agreements with respect to the following Borrower accounts:

(i)  RBC Dominion Securities Inc. account no. 360-80712-1-7;

(ii) TD Waterhouse Canada Inc. account no. 8APB91;

(iii)SVB Asset Management in respect of Borrower’s new account; and

(iv)RBC Bank (Georgia) N.A account no. 501529559.

 

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3.4    Procedures for Borrowing.  Subject to the prior satisfaction of all other applicable conditions to the making of a Term Loan Advance set forth in this Agreement, to obtain a Term Loan Advance, Borrower (via an individual duly authorized by an Administrator) shall notify Bank (which notice shall be irrevocable) by electronic mail by 12:00 noon Pacific time on the Funding Date of the Term Loan Advance.  Such notice shall be made by Borrower through Bank’s online banking program, provided, however, if Borrower is not utilizing Bank’s online banking program, then such notice shall be in a written format acceptable to Bank that is executed by an Authorized Signer.  Bank shall have received satisfactory evidence that the Board has approved that such Authorized Signer may provide such notices and request Term Loan Advances.  In connection with such notification, Borrower must promptly deliver to Bank by electronic mail or through Bank’s online banking program a completed Payment/Advance Form executed by an Authorized Signer together with such other reports and information, as Bank may request in its sole discretion.  Bank shall credit proceeds of any Term Loan Advance to the Designated Deposit Account.  Bank may make Term Loan Advances under this Agreement based on instructions from an Authorized Signer or without instructions if the Term Loan Advances are necessary to meet Obligations which have become due.  

4.      CREATION OF SECURITY INTEREST

4.1    Grant of Security Interest.  Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges, assigns and charges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.  

Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank.  Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority security interest in the Collateral granted herein, perfected where applicable (subject only to such Permitted Liens which are expressly permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien).

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash.  Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at the sole cost and expense of Borrower, release its Liens in the Collateral and all rights therein shall revert to Borrower.  In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall either (i) terminate the security interest granted herein, or (ii) authorize Borrower, without any further action on the part of Bank, to file any UCC termination statements and/or PPSA termination statements, as may be required, in either case upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its business judgment), to secure all of the Obligations relating  to such  Letters of Credit.

4.2    Priority of Security Interest.  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority security interest in the Collateral, perfected where applicable (subject only to such Permitted Liens which are expressly permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien). If Borrower shall acquire a commercial tort claim in excess of Five Hundred Thousand Dollars ($500,000), Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

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4.3    Authorization to File Financing Statements.  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.  Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

5.      REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows: 

5.1    Due Organization, Authorization; Power and Authority.  Borrower is duly existing and in good standing (including as a Registered Organization, if applicable) in its jurisdiction of incorporation or formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate” (the “Perfection Certificate”).  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s business identification number/corporation number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) except as disclosed in the Perfection Certificate, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of incorporation or formation, organizational type, or any business identification number/corporation number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.  

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s Operating Documents or organizational documents, as the case may be, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries may be bound or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect), other than (A) the filing of a Form 45-106F1 with the British Columbia Securities Commission, together with applicable filing fees, in connection with the issuance of the Warrant by Canadian Borrower to Bank and (B) filings, if any, to be made with U.S. federal or state authorities to comply with applicable securities laws in connection with the issuance of the Warrant to Bank or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

5.2    Collateral.  Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens.  Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank’s Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the terms of Section 6.6(b).  The Accounts are bona fide, existing obligations of the Account Debtors.   

 

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The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate or as otherwise permitted in accordance with Section 7.2. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.  

All Inventory is in all material respects of good and marketable quality, free from material defects.

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate.  Each Patent which it owns or purports to own and which is material to Borrower’s business is, to Borrower’s knowledge, valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.  To Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

Except as noted on the Perfection Certificate or to be disclosed as required pursuant to Section 6.7, Borrower is not a party to, nor is it bound by, any Restricted License.

5.3    Litigation.  Except as noted on the Perfection Certificate or to be disclosed as required pursuant to Section 6.2, there are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).

5.4    Financial Statements; Financial Condition.  All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations as of and for the dates indicated thereon. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.5    Solvency.  The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.6    Regulatory Compliance.  Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries 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 to continue their respective businesses as currently conducted unless such failure could not reasonably be expected to have a material adverse effect on Borrower’s business.

5.7    Subsidiaries; Investments.  Borrower does not own any stock, shares, partnership, or other ownership interest or other equity securities except for Permitted Investments.

 

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5.8    Tax Returns and Payments; Pension Contributions.  Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, provincial, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed One Hundred Thousand Dollars ($100,000).  

To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the Governmental Authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.”  Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could reasonably be expected to result in additional taxes becoming due and payable by Borrower in excess of One Hundred Thousand Dollars ($100,000).  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.9    Use of Proceeds.  Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

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

5.11  Definition of “Knowledge.”  For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

6.      AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1    Government Compliance.

(a)Except as permitted pursuant to Section 7.2 or Section 7.3, maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations.  Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject, non-compliance with which could reasonably be expected to have a material adverse effect on Borrower’s business.

(b)Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of the Collateral.  Upon Bank’s request, Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.

 

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6.2    Financial Statements, Reports, Certificates.  Provide Bank with the following:

(a)Monthly Financial Statements.  As soon as available, but no later than (i) thirty (30) days after the last day of each month other than January or (ii) forty-five (45) days after the end of each January, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “Monthly Financial Statements”); 

(b)Quarterly Financial Statements.  As soon as available, but no later than forty-five (45) days after the last day of each quarter end or in the case of Q4/FYE no later than ninety (90) days after the last day of Q4 quarter end, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such quarter and as filed with the SEC, certified by a Responsible Officer and in a form acceptable to Bank (the “Quarterly Financial Statements”);

(c)Monthly Compliance Certificate.  Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth such other information as Bank may reasonably request;

(d)Quarterly Compliance Certificate.  Within forty-five (45) days after the last day of each quarter end or in the case of Q4/FYE within ninety (90) days after the last day of Q4 end and together with the Quarterly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such quarter, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth such other information as Bank may reasonably request.

(e)Board-Approved Operating Budget and Projections.  As soon as available, but no later than thirty (30) days after the last day of Borrower’s fiscal year and contemporaneously with any material updates thereto, Board-approved operating budget and projections as to the then current fiscal year in a form reasonably acceptable to Bank; 

(f)Other Statements.  Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

(g)SEC Filings.  Within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be, under Section 13 or 15(d) of the Exchange Act.  Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address or with EDGAR; provided, however, Borrower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;

(h)Legal Action Notice.  A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or more; and  

(i)Other Financial Information.  Promptly, from time to time, such information regarding Borrower or compliance with the terms of any Loan Documents as reasonably requested by Bank.

6.3    Reserved.  

 

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6.4    Taxes; Pensions.  Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, provincial, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.8 hereof and taxes which do not exceed the threshold set forth in Section 5.8 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.5    Insurance.  

(a)Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are reasonably satisfactory to Bank.  All property policies shall have a lender’s loss payable endorsement showing Bank as the sole lender loss payee.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral. 

(b)Ensure that proceeds payable under any property policy are, at Bank’s option, payable to Bank on account of the Obligations, provided that if no Event of Default exists, Borrower may apply such proceeds to the repair or replacement of damaged, destroyed, or lost property, and/or Borrower may purchase other property useful in its business, provided that in each such case, such property shall be subject to the security interest granted herein.  

(c)At Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments.  Each provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank twenty (20) days prior written notice before any such policy or policies shall be materially altered or canceled.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent. 

6.6    Accounts.

(a)Maintain it and its Subsidiaries’ primary depository accounts, securities/investment accounts, and excess funds located in the United States or denominated in U.S. Dollars, which is estimated to be 50% of Borrower’s aggregate cash and securities, with Bank and Bank’s Affiliates. Subject to Section 6.6(b), Canadian Borrower may maintain its Canadian operating, depository and securities accounts with Royal Bank of Canada, RBC Dominion Securities Inc. and TD Waterhouse Canada Inc. (the “Canadian Accounts”), and U.S. Borrower may maintain its U.S. operating account with RBC (Georgia) N.A. (the “U.S. Account”), each as described in the Perfection Certificate. Notwithstanding the foregoing or the requirements of Section 6.6(b), Borrower may maintain the Canadian Accounts and the US Account to fund U.S. Dollar operating expenditures as required, provided that by December 31, 2017, Borrower shall maintain a minimum aggregate balance of accounts held by Bank and Bank’s Affiliates of at least Ten Million Dollars ($10,000,000) until March 31, 2018.

(b)In addition to, and without limiting the restrictions in 6.6(a), Borrower shall provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates.  For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to (i) deposit accounts held in Canada outside of Quebec exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such or (ii) the Canadian Accounts, provided that Bank has a perfected security interest in all such accounts under the foregoing headings (i) and (ii).

 

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6.7    Protection of Intellectual Property Rights.  

(a)(i) Protect, defend and maintain the validity and enforceability of its Intellectual Property that is material to its business; (ii) promptly advise Bank in writing of material infringements or any other event of which it becomes aware that could reasonably be expected to materially and adversely affect the value of its Intellectual Property that is material to its business; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

(b)Provide written notice to Bank within fifteen (15) days of entering into or becoming bound by any Restricted License (other than commercial off-the-shelf technology license agreements or other similar arrangements that are commercially available to the public). Borrower shall take such commercially reasonable steps as Bank reasonably requests to attempt to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

6.8    Litigation Cooperation.  From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

6.9    Access to Collateral; Books and Records.  At reasonable times, on three (3) Business Days’ notice, (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, the right to inspect the Collateral and the right to audit and copy Borrower’s Books.  The foregoing inspections and audits shall be conducted at Borrower’s expense and no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary.  The charge therefor shall be One Thousand Dollars ($1,000) per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses.  In the event Borrower and Bank schedule an audit more than ten (10) days in advance and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies) Borrower shall pay Bank a fee of One Thousand Dollars ($1,000) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

6.10  Formation or Acquisition of Subsidiaries. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.8 hereof, at the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to this Agreement to cause such Subsidiary to become a co-borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance reasonably satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance reasonably satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.10 shall be a Loan Document. 

 

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6.11  Further Assurances.  Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.  Deliver to Bank, within ten (10) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.

6.12  Online Banking.

(a)Utilize Bank’s online banking platform for all matters requested by Bank which shall include, without limitation (and without request by Bank for the following matters), requesting approval for exceptions, requesting Credit Extensions, and uploading financial statements and other reports required to be delivered by this Agreement (including, without limitation, those described in Section 6.2 of this Agreement).

(b)Comply with the terms of the “Banking Terms and Conditions” and ensure that all persons utilizing the online banking platform are duly authorized to do so by an Administrator. Bank shall be entitled to assume the authenticity, accuracy and completeness on any information, instruction or request for a Credit Extension submitted via the online banking platform and to further assume that any submissions or requests made via the online banking platform have been duly authorized by an Administrator.

7.      NEGATIVE COVENANTS

Borrower shall not do any of the following without Bank’s prior written consent:

7.1    Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out, surplus or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any shares of Borrower permitted under Section 7.8 of this Agreement; (e) consisting of Borrower’s use or transfer of money or Cash Equivalents in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; (f) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; and (g) licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive with respect to field of use or geographic area. For the avoidance of doubt, nothing in this Section 7.1 shall restrict the issuance and sale of equity securities of Borrower.

7.2    Changes in Business, Management, Control, or Business Locations.  (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto and reasonable extensions thereof; (b) liquidate or dissolve, except into a Borrower; (c) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by Borrower within five (5) days after such Key Person’s departure from Borrower; or (d) permit or suffer any Change in Control except where the Loan Documents (other than the Warrant) and Bank’s obligations to extend credit thereunder are terminated and all Obligations (other than inchoate indemnity obligations) are indefeasibly repaid in full prior to or simultaneously with the closing of the transaction which results in such Change in Control.

 

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Borrower shall not, without at least ten (10) Business Days days’ prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization or change the location of its chief executive office or registered office, (3) change its organizational type, (4) change its legal name, or (5) change any business identification number (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, use commercially reasonable efforts to cause such bailee to execute and deliver a bailee agreement in form and substance reasonably satisfactory to Bank.

7.3    Mergers, Amalgamations or Acquisitions.  Merge, amalgamate, or consolidate, or permit any of its Subsidiaries to merge, amalgamate, or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (including, without limitation, by the formation of any Subsidiary), except that a Subsidiary may merge, amalgamate, or consolidate into another Subsidiary or into Borrower.

7.4    Continuations. Continue, or permit any of its Subsidiaries to continue into another jurisdiction.

7.5    Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.6    Encumbrance.  Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens; subject to Permitted Liens expressly permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien, permit any Collateral not to be subject to the first priority security interest granted herein; or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property in favor of Bank, except (i) customary restrictions on assignment in any Restricted License; (ii) as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein; and (iii) covenants with such restrictions in merger or acquisition agreements (pursuant to which Borrower is to be acquired and the Obligations (excluded inchoate indemnity obligations) hereunder are to be fully repaid and terminated), provided that such covenants do not prohibit Borrower from granting a security interest in Borrower’s or any Subsidiary’s Intellectual Property in favor of Bank and provided further that the counter-parties to such covenants are not permitted to receive a security interest in Borrower’s or any Subsidiary’s Intellectual Property.

7.7    Maintenance of Collateral Accounts.  Maintain any Collateral Account except pursuant to the terms of Section 6.6 hereof.

7.8    Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock or membership interests, provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; (iii) make cash payments in lieu of fractional shares; and (iv) Borrower may repurchase its stock, so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided that the aggregate amount of all such repurchases does not exceed Two Hundred Fifty Thousand Dollars ($250,000) per fiscal year; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so. 

 

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7.9    Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except (i) transactions that are in the ordinary course of Borrower’s business upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person and (ii) transactions with Subsidiaries that are not otherwise prohibited by this Article 7.

7.10  Subordinated Debt.  (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.

7.11  Compliance.  Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction, as defined in ERISA, from occurring, or (c) comply with the Federal Fair Labor Standards Act, the failure of any of the conditions described in clauses (a) through (c) which could reasonably be expected to have a material adverse effect on Borrower’s business; or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 

8.      EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

8.1    Payment Default.  Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Tranches 1 And 2 Maturity Date or the Tranche 3 Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2    Covenant Default.  

(a)Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.6, 6.7 or 6.9, or violates any covenant in Section 7; or 

(b)Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period).  Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

8.3    Material Adverse Change.  A Material Adverse Change occurs;

 

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8.4    Attachment; Levy; Restraint on Business.  

(a)(i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary), unless in respect of de minimis amounts, or (ii) a notice of lien or levy is filed against any of Borrower’s assets (except assets of a de minimis nature) by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within thirty (30) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any thirty (30) day cure period; or 

(b)(i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business; 

8.5    Insolvency.  (a) Borrower or any of its Subsidiaries is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent (as defined in Section 5.5); (b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and is not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6    Other Agreements.  There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any breach or default by Borrower, the result of which could reasonably be expected to have a material adverse effect on Borrower’s business;

8.7    Judgments; Penalties.  One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Fifty Thousand Dollars ($150,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) Business Days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree); 

8.8    Misrepresentations.  Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; or

8.9    Subordinated Debt.  Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or any applicable subordination or intercreditor agreement.

8.10  Governmental Approvals.  Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could reasonably be expected to result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) causes, or could reasonably be expected to cause, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction.

 

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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, without notice or demand, do any or all of the following:

(a)declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b)stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c)demand that Borrower (i) deposit cash with Bank in an amount equal to at least (A) one hundred five percent (105.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit denominated in Dollars remaining undrawn, and (B) one hundred ten percent (110.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit denominated in a Foreign Currency remaining undrawn (plus, in each case, all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit; 

(d) terminate any FX Contracts;

(e) verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Bank’s security interest in such funds.  Borrower shall collect all payments in trust for Bank and if requested by Bank, immediately deliver the payments to Bank in the form received from the Account Debtor, with proper endorsements for deposit;

(f)make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral.  Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates.  Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(g)apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(h)seize, ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property 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 inure to Bank’s benefit;

(i)place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(j) demand and receive possession of Borrower’s Books; 

(k)obtain from any court of competent jurisdiction an order for the sale or foreclosure of any or all of the Collateral;

 

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(l) appoint in writing a receiver or receiver and manager (a “Receiver”) for all or any part of the Collateral who shall be vested with all of the Bank’s rights and remedies under this Agreement, at law or in equity. Any such Receiver, with respect to responsibility for its acts, shall, to the extent permitted by applicable law, be deemed to the agent of the Borrower and not the Bank;

(m)obtain from any court of competent jurisdiction an order for the appointment of a Receiver of the Borrower or of any or all of the Collateral; 

(n) realize on any or all of the Collateral and sell, lease, assign, give options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the above), in one or more parcels at any public or private sale, on such terms and conditions as the Bank may deem advisable and at such prices as it may deem best; and

(o)exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

9.2    Power of Attorney.  Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable following the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks, payment instruments, or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) demand, collect, sue, and give releases to any Account Debtor for monies due, settle and adjust disputes and claims about the Accounts directly with Account Debtors, and compromise, prosecute, or defend any action, claim, case, or proceeding about any Collateral (including filing a claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as Bank chooses); (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, or other claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (f) transfer the Collateral into the name of Bank or a third party as the Code permits; and (g) receive, open and dispose of mail addressed to Borrower. Regardless of whether an Event of Default has occurred, Bank may notify all Account Debtors to pay Bank directly. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank is under no further obligation to make Credit Extensions hereunder. 

9.3    Protective Payments.  If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.  Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.4    Application of Payments and Proceeds.  Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations.  Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

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9.5    Bank’s Liability for Collateral.  So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6    No Waiver; Remedies Cumulative.  Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Bank has all rights and remedies provided under the Code, by law, or in equity.  Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.  

9.7    Demand Waiver.  Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

9.8    Borrower Liability.  Any Borrower may, acting singly, request Credit Extensions hereunder.  Each Borrower hereby appoints each other as agent for the other for all purposes hereunder, including with respect to requesting Credit Extensions hereunder.  Each Borrower hereunder shall be jointly and severally obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives said Credit Extension, as if each Borrower hereunder directly received all Credit Extensions.  Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850, and 2899 and 3433,and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy.  Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability.  Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise.  Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 9.8 shall be null and void.  If any payment is made to a Borrower in contravention of this Section 9.8, 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.

10.    NOTICES

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

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If to Borrower:
	
 
	
Xenon Pharmaceuticals Inc.

	
 
	
 
	
3650 Gilmore Way

	
 
	
 
	
Burnaby, BC V5G 4W8, Canada

	
 
	
 
	
 

	
 
	
 
	
Attn: Chief Financial Officer and Chief Operating Officer

	
 
	
 
	
Email: imortimer@xenon-pharma.com

 

	
with a copy to:
	
 
	
Wilson Sonsini Goodrich & Rosati, P.C.

	
 
	
 
	
650 Page Mill Road

	
 
	
 
	
Palo Alto, CA 94304

	
 
	
 
	
Attn: John Mao

	
 
	
 
	
Email: jmao@wsgr.com

 

	
If to Bank:
	
 
	
Silicon Valley Bank 

	
 
	
 
	
505 Howard Street, 3rd Floor 

	
 
	
 
	
San Francisco, California, 94105

	
 
	
 
	
Attn: Jackie Spencer 

	
 
	
 
	
Email: jspencer@svb.com 

 

	
with a copy to:
	
 
	
Aird & Berlis LLP

	
 
	
 
	
181 Bay Street, Suite 1800

	
 
	
 
	
Toronto, Ontario  M5J 2T9, Canada 

	
 
	
 
	
Attn:Tony Gioia

	
 
	
 
	
Fax:(416) 863.1515

	
 
	
 
	
Email:tgioia@airdberlis.com

 

11.    CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

Except as otherwise expressly provided in any of the Loan Documents, California law governs the Loan Documents without regard to principles of conflicts of law.  Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank.  Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.  

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

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WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure Sections 638 through 645.1, inclusive.  The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers.  All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed.  If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief.  The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings.  The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings.  The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge.  The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure Section 644(a).  Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

This Section 11 shall survive the termination of this Agreement.

12.    GENERAL PROVISIONS

12.1  Termination Prior to Tranches 1 And 2 Maturity Date or the Tranche 3 Maturity Date; Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement).  So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, and any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), this Agreement may be terminated prior to the Tranches 1 And 2 Maturity Date (or, if Bank has advanced the Tranche 3 Advance, the Tranche 3 Maturity Date) by Borrower, effective three (3) Business Days after written notice of termination is given to Bank. Those obligations that are expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’s termination. 

12.2  Successors and Assigns.  This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion).  Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents (other than the Warrant, as to which assignment, transfer and other such actions are governed by the terms thereof).

 

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12.3  Indemnification.  Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against:  (i) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence, fraud or willful misconduct.

This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.

12.4  Time of Essence.  Time is of the essence for the performance of all Obligations in this Agreement.

12.5  Severability of Provisions.  Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.6  Correction of Loan Documents.  Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties, so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) Business Days to object to such correction.  In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrower.

12.7  Amendments in Writing; Waiver; Integration.  No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought.  Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

12.8  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, is an original, and all taken together, constitute one Agreement.

12.9  Confidentiality.  In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “Bank Entities”), which Bank Entities shall be bound by the foregoing confidentiality obligation; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein.  Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

 

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Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Borrower. The provisions of the immediately preceding sentence shall survive termination of this Agreement.

12.10Right of Set-off.  Borrower hereby grants to Bank, a Lien, security interest and right of set-off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them.  At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

12.11Attorneys’ Fees, Costs and Expenses.  In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

12.12Electronic Execution of Documents.  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act or equivalent legislation in another jurisdiction.

12.13Captions.  The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

12.14Construction of Agreement.  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement.  In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

12.15Relationship.  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

12.16Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

13.    DEFINITIONS

13.1  Definitions.  As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative.  As used in this Agreement, the following capitalized terms have the following meanings:

“Account” is as to any Person any “account” of such Person as “account” is defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to such Person.

 

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“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“Administrator” is an individual that is named (a) as an “Administrator” in the “SVB Online Services” form completed by Borrower with the authority to determine who will be authorized to use SVB Online Services (as defined in the “Banking Terms and Conditions”) on behalf of Borrower; and (b) as an Authorized Signer of Borrower in an approval by the Board. 

“Affiliate” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Agreement” is defined in the preamble hereof.

“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution who is authorized to execute the Loan Documents, including any Credit Extension request, on behalf of Borrower.

“Bank” is defined in the preamble hereof.

“Bank Entities” is defined in Section 12.9.

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

“Bank Services”  are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).

“Bank Services Agreement” is defined in the definition of Bank Services. 

“Board” is Borrower’s board of directors.

“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal, state and provincial tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s board of directors (and, if required under the terms of such Person’s Operating Documents, shareholders) and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary or other senior officer on behalf of such Person certifying (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that set forth as a part of or attached as an exhibit to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents, including any Credit Extension request, on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

 

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“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed, and if any determination of a “Business Day” shall relate to an FX Contract, the term “Business Day” shall mean a day on which dealings are carried on in the country of settlement of the Foreign Currency.

“Canadian Accounts” is defined in Section 6.6(a).

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or Canada or any agency or any State or Province thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition. 

“Change in Control” means (a) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d) 5 under the Exchange Act), directly or indirectly, of 35% or more of the ordinary voting power for the election of directors of Borrower (determined on a fully diluted basis) other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction; (b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors or other equivalent governing body of Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or (c) at any time, Borrower shall cease to own and control, of record and beneficially, directly or indirectly, one hundred percent (100.0%) of each class of outstanding capital stock of each Subsidiary of Borrower free and clear of all Liens (except Liens created by this Agreement).

“Claims” is defined in Section 12.3.

“Code” is (a) with respect to any assets located in the United States, the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions, and (b) with respect to any assets located in Canada, the PPSA as amended and as may be further amended and in effect from time to time; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Personal Property Security Act or equivalent legislation in effect in a provincial jurisdiction other than British Columbia, the term “Code” shall mean the Personal Property Security Act or equivalent legislation as enacted and in effect in such other province solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

 

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“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit B.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co‐made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

“Credit Extension” is any Term Loan Advance or any other extension of credit by Bank for Borrower’s benefit.

“Currency Due” is defined in Section 2.6. 

“Default Rate” is defined in Section 2.2(b).

“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“Designated Deposit Account” is the multicurrency account denominated in Dollars, with account number ending in (last three digits) 040, maintained by Borrower with Bank, provided that if no account is identified herein, the Designated Deposit Account shall be the one designated by Bank. 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

“EDGAR” is the Electronic Data Gathering, Analysis, and Retrieval system maintained by the SEC, or such successor or replacement system established by the SEC.

“Effective Date” is defined in the preamble hereof.

 

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“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations. 

“Event of Default” is defined in Section 8.

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

“Final Payment”, in respect of any Term Loan Advance, is a payment (in addition to and not a substitution for the regular monthly payments of principal plus accrued interest) due on the earliest to occur of (a) the Tranches 1 And 2 Maturity Date or the Tranche 3 Maturity Date, as applicable, or (b) the acceleration of the Term Loan Advances, or (c) the prepayment of the Term Loan Advances in full pursuant to Section 2.1.1(d) or 2.1.1(e), equal to the amount of Tranche 1 Advance, the Tranche 1 Advance and the Tranche 2 Advance, or the Tranche 3 Advance, as applicable, advanced as of the date of such payment multiplied by the Final Payment Percentage. 

“Final Payment Percentage” is six and one-half percent (6.5%).

“Foreign Currency” means lawful money of a country other than the United States.

“Funding Date” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

“FX Contract” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

“GAAP” or “U.S. GAAP” means U.S. generally accepted accounting principles.

“General Intangibles” is all “general intangibles” or “intangibles” as defined in the applicable Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“Governmental Authority” is any nation or government, any provincial, state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“Indemnified Person” is defined in Section 12.3.

 

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“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:

(a)its Copyrights, Trademarks and Patents; 

(b)any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how and operating manuals; 

(c)any and all software, source or object code;

(d)any and all design rights which may be available to such Person;

(e)any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

(f)all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including share, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“Judgment Currency” is defined in Section 2.6. 

“Key Person” is each of (a) Simon Pimstone, who is the Chief Executive Officer as of the Effective Date, and (b) Ian Mortimer, who is the Chief Financial Officer as of the Effective Date.  

“Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 “Loan Documents” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Warrant, the Perfection Certificate, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower, and any other present or future agreement by Borrower with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

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“Monthly Financial Statements” is defined in Section 6.2(a).

“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, fees, Bank Expenses, the Prepayment Premium, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents (other than the Warrant), or otherwise, including, without limitation, all obligations relating to Bank Services and any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents (other than the Warrant).

“Operating Documents” are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization or certificate of good standing, as the case may be, on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement or its memorandum and articles of association, as the case may be (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“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.

“Payment/Advance Form” is that certain form attached hereto as Exhibit C.

“Payment Date” is the first (1st) calendar day of each calendar month.  

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a)Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

(b)Indebtedness existing on the Effective Date which is shown on the Perfection Certificate;

(c)Subordinated Debt;

(d)unsecured Indebtedness to trade creditors incurred in the ordinary course of business; 

(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;

(g)Indebtedness in connection with credit cards or letters of credit in an aggregate principal amount outstanding not to exceed at any time Two Hundred Fifty Thousand Dollars ($250,000); 

(h)other Indebtedness in an aggregate principal amount outstanding not to exceed at any time Fifty Thousand Dollars ($50,000); and 

(i) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

 

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“Permitted Investments” are:

(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date which are shown on the Perfection Certificate; 

(b)Investments consisting of (i) Cash Equivalents and (ii) any Investments permitted by Borrower’s investment policy, as amended from time to time, provided that such investment policy and any subsequent amendments thereto have been approved in writing by Bank;

(c) Investments consisting of the creation of a Subsidiary for the purpose of consummating a merger transaction permitted by Section 7.3 of this Agreement;

(d)Investments by Borrower in the ordinary course of business in connection with Transfers permitted by Section 7.1 of this Agreement;

(e)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 business;

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

(g)Investments (i) by a Borrower in another Borrower and (ii) by a Subsidiary in a Borrower;

(h)Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances, and (ii) loans to employees relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Director, provided that each Investment under categories (i) and (ii) occurs in the ordinary course of business and the aggregate of all such Investments does not exceed One Hundred Thousand Dollars ($100,000) in any fiscal year; and

(i)other Investments, not to exceed an aggregate amount of Fifty Thousand Dollars ($50,000) in any fiscal year.

“Permitted Liens” are:

(a)Liens existing on the Effective Date which are shown on the Perfection Certificate or arising under this Agreement or the other Loan Documents;

(b)Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on Borrower’s Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

(c)purchase money Liens or capital leases (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; 

(d)Liens incurred in the extension, renewal or refinancing of the Indebtedness secured by Liens described in (a) through (c), provided that any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

 

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(e)leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;  

(f)non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive with respect to field of use or geographic area; 

(g)deposits to secure the performance of bids, tenders, trade contracts, leases (including office leases), government contracts, statutory obligations, surety, stay, customs and appeal bonds, performance and return money bonds, other security indebtedness and other obligations of a like nature, provided that any such Liens are incurred in the ordinary course of business;

(h)Liens securing Subordinated Debt, so long as such Lien is subordinated to Bank’s Lien pursuant to a subordination agreement in form and substance satisfactory to Bank;

(i)Liens consisting of cash collateral securing a corporate credit card facility or a letter of credit facility, provided that each such facility is subject of a confirmation or estoppel letter addressed to and in form and substance satisfactory to Bank; and

(j)Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7. 

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

“PPSA” means the Personal Property Security Act (British Columbia), as amended and as may be further amended and in effect from time to time.  

“Prepayment Fee” shall be an additional fee payable to Bank if the Term Loan Advances are prepaid in an amount equal to (i) three percent (3.00%) of the outstanding principal balance of the Term Loan Advances if such prepayment occurs prior to the first anniversary of the Effective Date; (ii) two percent (2.00%) of the outstanding principal balance of the Term Loans if such prepayment occurs on or after the first anniversary of the Effective Date but prior to the second anniversary of the Effective Date; or (iii) one percent (1.00%) of the outstanding principal balance of the Term Loans if such prepayment occurs on or after the second anniversary of the Effective Date and prior to (A) the Tranches 1 And 2 Maturity Date or (B) provided that Bank has advanced the Tranche 3 Advance, the Tranche 3 Maturity Date. 

“Prime Rate” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement; and provided further that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

“Receiver” is defined in Section 9.1(l).

“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made. 

 

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“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer” is any of the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. 

“Restricted License” is any material license or other agreement with respect to which Borrower is the licensee (other than any commercial off-the-shelf licenses or similar agreements that are commercially available to the public) (a) that validly prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property subject to such license, or (b) for which a default under or termination of could reasonably be expected to interfere with Bank’s right to sell any Collateral. 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower. 

“Term Loan Advance” and “Term Loan Advances” are each defined in Section 2.1.1(a) hereof.

“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 1 Advance” is defined in Section 2.1.1(a).

“Tranche 1 Draw Period” is the period of time commencing on the Effective Date and continuing through September 30, 2018. 

“Tranche 2 Advance” is defined in Section 2.1.1(a).

“Tranche 2 Draw Period” is the period of time commencing on the date of a Tranche 2 Event and continuing through March 31, 2019.

“Tranche 2 Event” means delivery by Borrower to Bank, after the Effective Date, evidence satisfactory to Bank in its sole and absolute discretion, that Borrower has, on or before March 31, 2019, (a) obtained net new capital of not less than Twelve Million Five Hundred Thousand ($12,500,000) and (b) has at least two programs in clinical development, at least one of which is in “Phase 2”, as such term is commonly used in Borrower’s business. 

“Tranche 3 Draw Period” is the period of time commencing on the date of a Tranche 2 Event and continuing through September 30, 2019.

 

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“Tranche 3 Event” means delivery by Borrower to Bank, after the Effective Date, evidence satisfactory to Bank in its sole and absolute discretion, that Borrower has, on or before September 30, 2019, achieved “positive Phase 2 data”, as such phrase is commonly used in Borrower’s business, on at least one program. 

“Tranches 1 And 2 Maturity Date” means March 31, 2021.

“Tranche 3 Maturity Date” means September 30, 2021. 

“Transfer” is defined in Section 7.1. 

“Transition Period” is defined in Section 6.6(a).

“U.S.” means the United States of America

“Warrant” is that certain Warrant to Purchase Shares dated as of the Effective Date executed by Canadian Borrower in favor of Bank, as amended, modified, supplemented and/or restated from time to time.

[Signature page follows.]

 

 

 

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IN WITNESS WHEREOF, this Agreement and all documents executed in connection therewith, or relating thereto, have been negotiated, prepared and deemed to be executed by Borrower in the United States of America.  

BORROWER:

XENON PHARMACEUTICALS INC.

 

	
By
	
 
	
 

	
Name:
	
 
	
 

	
Title:
	
 
	
 

 

	
By
	
 
	
 

	
Name:
	
 
	
 

	
Title:
	
 
	
 

 

XENON PHARMACEUTICALS USA INC.

 

	
By
	
 
	
 

	
Name:
	
 
	
 

	
Title:
	
 
	
 

 

	
By
	
 
	
 

	
Name:
	
 
	
 

	
Title:
	
 
	
 

 

BANK:

SILICON VALLEY BANK

 

	
By
	
 
	
 

	
Name:
	
 
	
 

	
Title:
	
 
	
 

 

 

 

Signature Page to Loan and Security Agreement

 

 

EXHIBIT A – COLLATERAL DESCRIPTION

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include (a) more than sixty-five percent (65%) of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by U.S. Borrower of any foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter, (b) property subject to a lien described in clauses (a) or (c) of Permitted Liens, in each case, to the extent that the security interest is prohibited by the terms of the agreement governing such financing, provided that instantly upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral without any further action by Borrower or Bank; (c) rights held under a license or other agreement that are not assignable by their terms without the consent of the licensor thereof (but only to the extent such restriction or assignment is enforceable under applicable law), provided that instantly upon the cessation of any such restriction at law or otherwise or the consent of the licensor thereof to such assignment, such property shall automatically become part of the Collateral without any further action by Borrower or Bank; (d) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications or a registration issuing from such intent-to-use trademark application under applicable federal law; and (e) any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property.  If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property. 

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent. 

 

 

EXHIBIT B

COMPLIANCE CERTIFICATE

 

	
TO:
	
 
	
SILICON VALLEY BANK
	
 
	
Date:
	
 
	
 

	
 

	
FROM: XENON PHARMACEUTICALS INC. and  XENON PHARMACEUTICALS USA INC. (collectively, the “Borrower”)

 

The undersigned authorized officer of Borrower certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):

(1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true and accurate in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, provincial, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.  

Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

	
Please indicate compliance status by circling Yes/No under “Complies” column.

	
 

	
Reporting Covenants
	
Required
	
Complies

	
 
	
 
	
 

	
Monthly financial statements with 
Compliance Certificate
	
Monthly within 30 days (45 days for January)
	
Yes   No

	
Quarterly financial statements with 
Compliance Certificate
	
Quarterly within 45 days (90 days for Q4)
	
Yes   No

	
10‐Q, 10‐K and 8-K (if applicable)
	
Within 5 days after filing with SEC
	
Yes   No

	
Board-approved operating budget and projections
	
FYE within 30 days
	
Yes   No

 

Other Matters

 

				
	
1) 
	
Have there been any amendments of or other changes to the Operating Documents of Borrower or any of its Subsidiaries?  If yes, provide copies of any such amendments or changes with this Compliance Certificate.
	
Yes
	
No

	
2)
	
Has the Tranche 2 Advance Event occurred?  If yes, please provide evidence of same to Bank (unless otherwise previously provided).
	
Yes
	
No

	
3)
	
Has the Tranche 3 Advance Event occurred?  If yes, please provide evidence of same to Bank (unless otherwise previously provided).
	
Yes
	
No

Certificate continues on following page

 

 

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

 

 

	
XENON PHARMACEUTICALS INC.
	
 
	
BANK USE ONLY

	
 
	
 
	
 
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 
	
Received by:
	
 
	
 

	
 
	
 
	
 
	
 
	
 
	
 
	
authorized signer

	
By:
	
 
	
 
	
 
	
 
	
 
	
 

	
Name:
	
 
	
 
	
 
	
Date:
	
 
	
 

	
Title:
	
 
	
 
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 
	
Verified:
	
 
	
 

	
 
	
 
	
 
	
 
	
 
	
 
	
authorized signer

	
 
	
 
	
 
	
 
	
Date:
	
 
	
 

	
 
	
 
	
 
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 
	
Compliance Status:
	
Yes
	
No

 

	
XENON PHARMACEUTICALS USA INC.
	
 

	
 
	
 
	
 
	
 

	
By:
	
 
	
 
	
 

	
Name:
	
 
	
 
	
 

	
Title:
	
 
	
 
	
 

 

 

 

EXHIBIT C – LOAN PAYMENT/ADVANCE REQUEST FORM

Deadline for same day processing is Noon Pacific Time

 

			
	
Fax To:
	
Date:
	
 

 

	
Loan Payment:
	
XENON PHARMACEUTICALS INC. and XENON PHARMACEUTICALS USA INC.

	
From Account #
	
 
	
 
	
To Account #
	
 

	
 
	
(Deposit Account #)
	
 
	
 
	
(Loan Account #)

	
Principal $
	
 
	
 
	
and/or Interest $
	
 

	
Authorized Signature:
	
 
	
 
	
Phone Number:
	
 

	
Print Name/Title:
	
 
	
 
	
 

	
 
	
 
	
 
	
 

 

	
LOAN ADVANCE:

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

	
From Account #
	
 
	
 
	
To Account #
	
 

	
 
	
(Loan Account #)
	
 
	
 
	
(Deposit Account #)

	
Amount of Advance $
	
 
	
 
	
 
	
 

	
All Borrower’s representations and warranties in the Loan and Security Agreement are true and correct in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true and accurate in all material respects as of such date:

	
 
	
 
	
 
	
 
	
 

	
Authorized Signature:
	
 
	
 
	
Phone Number:
	
 

	
Print Name/Title:
	
 
	
 
	
 

	
 
	
 
	
 
	
 

 

	
Outgoing Wire Request:

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, Pacific Time

	
 
	
 
	
 
	
 
	
 

	
Beneficiary Name:
	
 
	
 
	
Amount of Wire: $
	
 

	
Beneficiary Bank:
	
 
	
 
	
Account Number:
	
 

	
City and state:
	
 
	
 
	
 
	
 

	
Beneficiary Bank Transit (ABA) #:
	
 
	
 
	
Beneficiary Bank Code (Swift, Sort, Chip, etc.):
	
 

	
 
	
 
	
 
	
(For International Wire Only)
	
 

	
Intermediary Bank:
	
 
	
 
	
Transit (ABA) #:
	
 

	
For Further Credit to:
	
 

	
Special Instruction:
	
 

	
 
	
 
	
 
	
 
	
 

	
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

	
 
	
 
	
 
	
 
	
 

	
Authorized Signature:
	
 
	
 
	
2nd Signature (if required):
	
 

	
Print Name/Title:
	
 
	
 
	
Print Name/Title:
	
 

	
Telephone #:
	
 
	
 
	
Telephone #:
	
 

	
 
	
 
	
 
	
 

 

31123352.5Exhibit 4.2

 

[FORM OF PREPAID
WARRANT]

 

THE
NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 1(a) OF THIS WARRANT.

My Size, Inc.

Warrant To Purchase Common
Stock

Warrant No.:

Date of Issuance: [ ], 2017 (“Issuance
Date”)

My Size, Inc., a
Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, [BUYER], the registered holder
hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase
from the Company, at the Exercise Price (as defined below) then in effect, upon exercise of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”),
at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date (as defined
below), _________________[1] (subject
to adjustment as provided herein) fully paid and non-assessable shares of Common Stock (as defined below) (the “Warrant
Shares”, and such number of Warrant Shares, the “Warrant Number”). Except as otherwise defined herein,
capitalized terms in this Warrant shall have the meanings set forth in Section 17. This Warrant is one of the Warrants to
Purchase Common Stock (the “Registered Warrants”) issued pursuant to (i) Section 1 of that certain Securities
Purchase Agreement, dated as of December __, 2017 (the “Subscription Date”), by and among the Company and the
investors (the “Buyers”) referred to therein, as amended from time to time (the “Securities Purchase
Agreement”) and (ii) the Company’s Registration Statement on Form S-3 (File number 333- ) (the “Registration
Statement”).

PREPAYMENT
OF SUBSTANTIALLY ALL OF AGGREGATE EXERCISE PRICE (INCLUDING NOMINAL VALUE). Notwithstanding anything herein to the contrary,
the Company hereby acknowledges receipt of $[ ][2]
of the Exercise Price per Warrant Share, including the nominal value of $0.001 per Warrant Share (the “Prepayment”),
from the initial holder of this Warrant as of the initial Issuance Date, which was pre-funded to the Company on or prior to the
initial Issuance Date, and further acknowledges that only $0.001 per Warrant Share of the Exercise Price remains unpaid as of the
initial Issuance Date (as adjusted for stock splits, stock dividends, recapitalizations and similar events, the “Remaining
Per Share Amount”). Consequently, upon each exercise of this Warrant, only the applicable Remaining Per Share Amount
of the applicable Aggregate Exercise Price (as defined below) of this Warrant shall be the remaining unpaid amount that must be
satisfied by the Holder (whether in cash or by a Cashless Exercise (as defined below)) to effect an exercise of this Warrant. For
the avoidance of doubt, (a) after giving effect to the Prepayment, other than the applicable Remaining Per Share Amount, no additional
consideration shall be due and payable hereunder to effect any exercise of this Warrant and (b) the Prepayment is nonrefundable,
whether or not this Warrant is exercisable in full.

 

[1] [ ]% Warrant coverage

[2] Insert the difference of (x)
the price of one share of Common Stock less (y) $0.001.

 

    1 

     

    

1.                 
EXERCISE OF WARRANT.

(a)               
Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations
set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the Issuance Date (an “Exercise
Date”), in whole or in part, by delivery (whether via facsimile or otherwise) of a written notice, in the form attached
hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant. Within one (1) Trading Day following an exercise of this Warrant as aforesaid, the Holder shall deliver payment to the
Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares
as to which this Warrant was so exercised (the “Aggregate Exercise Price”) in cash or via wire transfer of
immediately available funds if the Holder did not notify the Company in such Exercise Notice that such exercise was made pursuant
to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original of this Warrant
in order to effect an exercise hereunder. Execution and delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then-remaining
Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares
in accordance with the terms hereof. On or before the first (1st) Trading Day following the date on which the Company
has received an Exercise Notice, the Company shall transmit by facsimile or electronic mail an acknowledgment of confirmation
of receipt of such Exercise Notice, in the form attached hereto as Exhibit B, to the Holder and the Company’s
transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent
to process such Exercise Notice in accordance with the terms herein. On or before the second (2nd) Trading Day following the date
on which the Company has received such Exercise Notice (or such earlier date as required pursuant to the 1934 Act or other applicable
law, rule or regulation for the settlement of a trade of such Warrant Shares initiated on the applicable Exercise Date), the Company
shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, upon the request of the Holder, issue and deliver (via reputable overnight courier) to the address as specified
in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common
Stock to which the Holder shall be entitled pursuant to such exercise. Upon delivery of an Exercise Notice, the Holder shall be
deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of
delivery of the certificates evidencing such Warrant Shares (as the case may be). If this Warrant is submitted in connection with
any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise and upon surrender of this Warrant to the Company
by the Holder, then, at the request of the Holder, the Company shall as soon as practicable and in no event later than two (2)
Business Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such
exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number. The Company shall pay any and all transfer, stamp, issuance and similar
taxes, costs and expenses (including, without limitation, fees and expenses of the Transfer Agent) that may be payable with respect
to the issuance and delivery of Warrant Shares upon exercise of this Warrant. Notwithstanding the foregoing, except in the case
where an exercise of this Warrant is validly made pursuant to a Cashless Exercise, the Company’s failure to deliver Warrant
Shares to the Holder on or prior to the later of (i) two (2) Trading Days after receipt of the applicable Exercise Notice (or
such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade
of such Warrant Shares initiated on the applicable Exercise Date) and (ii) one (1) Trading Day after the Company’s receipt
of the Aggregate Exercise Price (or valid notice of a Cashless Exercise) (such later date, the “Share Delivery Date”)
shall not be deemed to be a breach of this Warrant. From the Issuance Date through and including the Expiration Date, the Company
shall maintain a transfer agent that participates in the DTC’s Fast Automated Securities Transfer Program.

(b)              
Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.001, subject to adjustment
as provided herein.

    2 

     

    

(c)               
Company’s Failure to Timely Deliver Securities. If the Company shall fail, for any reason or for no reason,
on or prior to the Share Delivery Date, either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, to issue and deliver to the Holder (or its designee) a certificate for the number of Warrant Shares to which
the Holder is entitled and register such Warrant Shares on the Company’s share register or, if the Transfer Agent is participating
in the DTC Fast Automated Securities Transfer Program, to credit the balance account of the Holder or the Holder’s designee
with DTC for such number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise of this Warrant (as
the case may be) or (II) if the Registration Statement (or prospectus contained therein) covering the issuance of the Warrant Shares
that are the subject of the Exercise Notice (the “Unavailable Warrant Shares”) is not available for the issuance
of such Unavailable Warrant Shares and the Company fails to promptly (x) so notify the Holder and (y) deliver the Warrant Shares
electronically without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal
At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as a “Notice
Failure” and together with the event described in clause (I) above, a “Delivery Failure”), then, in
addition to all other remedies available to the Holder, (X) the Company shall pay in cash to the Holder on each day after the Share
Delivery Date and during such Delivery Failure an amount equal to 2% of the product of (A) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, multiplied by (B) any
trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the
applicable Exercise Date and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company,
may void its Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that
has not been exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise.
In addition to the foregoing, if on or prior to the Share Delivery Date either (I) the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver to the Holder (or its designee) a certificate
and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in the
DTC Fast Automated Securities Transfer Program, the Transfer Agent shall fail to credit the balance account of the Holder or the
Holder’s designee with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below or (II) a Notice Failure occurs,
and if on or after such Share Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common
Stock corresponding to all or any portion of the number of shares of Common Stock issuable upon such exercise that the Holder is
entitled to receive from the Company and has not received from the Company in connection with such Delivery Failure or Notice Failure,
as applicable (a “Buy-In”), then, in addition to all other remedies available to the Holder, the Company shall,
within two (2) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses,
if any) for the shares of Common Stock so purchased (including, without limitation, by any other Person in respect, or on behalf,
of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so issue and deliver such
certificate (and to issue such shares of Common Stock) or credit the balance account of such Holder or such Holder’s designee,
as applicable, with DTC for the number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise hereunder
(as the case may be) (and to issue such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to so issue and
deliver to the Holder a certificate or certificates representing such Warrant Shares or credit the balance account of such Holder
or such Holder’s designee, as applicable, with DTC for the number of Warrant Shares to which the Holder is entitled upon
the Holder’s exercise hereunder (as the case may be) and pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (A) such number of Warrant Shares multiplied by (B) the lowest Closing Sale Price of the
Common Stock on any Trading Day during the period commencing on the date of the applicable Exercise Notice and ending on the date
of such issuance and payment under this clause (ii) (the “Buy-In Payment Amount”). Nothing shall limit the Holder’s
right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares
of Common Stock (or to electronically deliver such shares of Common Stock) upon the exercise of this Warrant as required pursuant
to the terms hereof. While this Warrant is outstanding, the Company shall cause its transfer agent to participate in the DTC Fast
Automated Securities Transfer Program. In addition to the foregoing rights, (i) if the Company fails to deliver the applicable
number of Warrant Shares upon an exercise pursuant to Section 1 by the applicable Share Delivery Date, then the Holder shall have
the right to rescind such exercise in whole or in part and retain and/or have the Company return, as the case may be, any portion
of this Warrant that has not been exercised pursuant to such Exercise Notice; provided that the rescission of an exercise shall
not affect the Company’s obligation to make any payments that have accrued prior to the date of such notice pursuant to this
Section 1(c) or otherwise, and (ii) if a registration statement (which may be the Registration Statement) covering the issuance
or resale of the Warrant Shares that are subject to an Exercise Notice is not available for the issuance or resale, as applicable,
of such Warrant Shares and the Holder has submitted an Exercise Notice prior to receiving notice of the non-availability of such
registration statement and the Company has not already delivered the Warrant Shares underlying such Exercise Notice electronically
without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit / Withdrawal At Custodian
system, the Holder shall have the option, by delivery of notice to the Company, to (x) rescind such Exercise Notice in whole or
in part and retain or have returned, as the case may be, any portion of this Warrant that has not been exercised pursuant to such
Exercise Notice; provided that the rescission of an Exercise Notice shall not affect the Company’s obligation to make any
payments that have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise, and/or (y) switch some
or all of such Exercise Notice from a cash exercise to a Cashless Exercise.

 

(d)              
Cashless Exercise. Notwithstanding anything contained herein to the contrary (other than Section 1(f) below),
if at the time of exercise hereof the Registration Statement is not effective (or the prospectus contained therein is not available
for use) for the issuance of all of the Warrant Shares, then the Holder may, in its sole discretion, exercise this Warrant in whole
or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment
of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of Warrant Shares determined
according to the following formula (a “Cashless Exercise”):

Net Number = (A x B) - (A x C)

                                                                    D

    3 

     

    

For purposes of
the foregoing formula:

A= the total number of shares with
respect to which this Warrant is then being exercised.

B = the greater of (A) the Spot
Price and (B) the quotient of (x) the sum of the VWAP of the Common Stock of each of the twenty (20) Trading Days ending at the
close of business on the Principal Market immediately prior to the time of exercise as set forth in the applicable Exercise Notice,
divided by (y) twenty (20).

C = Remaining
Per Share Amount.

D = the Spot Price.

For purposes of Rule
144(d) promulgated under the 1933 Act, as in effect on the Subscription Date, it is intended that the Warrant Shares issued in
a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be
deemed to have commenced, on the date this Warrant was originally issued pursuant to the Securities Purchase Agreement.

(e)               
Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of
the number of Warrant Shares to be issued pursuant to the terms hereof, the Company shall promptly issue to the Holder the number
of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.

(f)               
Limitations on Exercises. The Company shall not effect the exercise of any portion of this Warrant, and the Holder
shall not have the right to exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any
such exercise shall be null and void and treated as if never made, to the extent that after giving effect to such exercise, the
Holder together with the other Attribution Parties collectively would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes
of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution
Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number
of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being
made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company (including, without limitation, any convertible notes
or convertible preferred stock or warrants, including other Registered Warrants) beneficially owned by the Holder or any other
Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 1(f).
For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. For
purposes of determining the number of outstanding shares of Common Stock the Holder may acquire upon the exercise of this Warrant
without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected
in (x) the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or
other public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other written
notice by the Company or the Transfer Agent, if any, setting forth the number of shares of Common Stock outstanding (the “Reported
Outstanding Share Number”). If the Company receives an Exercise Notice from the Holder at a time when the actual number
of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall (i) notify the Holder
in writing of the number of shares of Common Stock then outstanding and, to the extent that such Exercise Notice would otherwise
cause the Holder’s beneficial ownership, as determined pursuant to this Section 1(f), to exceed the Maximum Percentage, the
Holder must notify the Company of a reduced number of Warrant Shares to be acquired pursuant to such Exercise Notice (the number
of shares by which such purchase is reduced, the “Reduction Shares”) and (ii) as soon as reasonably practicable,
the Company shall return to the Holder any exercise price paid by the Holder for the Reduction Shares. For any reason at any time,
upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing or
by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including
this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was
reported. In the event that the issuance of shares of Common Stock to the Holder upon exercise of this Warrant results in the Holder
and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number
of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which
the Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the
“Excess Shares”) shall be deemed null and void and shall be cancelled ab initio, and the Holder shall not have
the power to vote or to transfer the Excess Shares. As soon as reasonably practicable after the issuance of the Excess Shares has
been deemed null and void, the Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares.
Upon delivery of a written notice to the Company, the Holder may from time to time increase (with such increase not effective until
the sixty-first (61st) day after delivery of such notice) or decrease the Maximum Percentage to any other percentage
not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective
until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such increase or decrease
will apply only to the Holder and the other Attribution Parties and not to any other holder of Registered Warrants that is not
an Attribution Party of the Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms of this
Warrant in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including
for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant pursuant to this
paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination
of exercisability. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity
with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any portion of this paragraph which may
be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f) or to make changes
or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may
not be waived and shall apply to a successor holder of this Warrant.

    4 

     

    

(g)              
Reservation of Shares.

(i)                
Required Reserve Amount. So long as this Warrant remains outstanding, the Company shall at all times keep reserved
for issuance under this Warrant a number of shares of Common Stock at least equal to 100% of the maximum number of shares of Common
Stock as shall be necessary to satisfy the Company’s obligation to issue shares of Common Stock under the Registered Warrants
then outstanding (without regard to any limitations on exercise) (the “Required Reserve Amount”); provided that
at no time shall the number of shares of Common Stock reserved pursuant to this Section 1(g)(i) be reduced other than proportionally
in connection with any exercise or redemption of Registered Warrants or such other event covered by Section 2(a) below. The Required
Reserve Amount (including, without limitation, each increase in the number of shares so reserved) shall be allocated pro rata among
the holders of the Registered Warrants based on number of shares of Common Stock issuable upon exercise of Registered Warrants
held by each holder on the Closing Date (as defined in the Securities Purchase Agreement) (without regard to any limitations on
exercise) or increase in the number of reserved shares, as the case may be (the “Authorized Share Allocation”).
In the event that a holder shall sell or otherwise transfer any of such holder’s Registered Warrants, each transferee shall
be allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Registered Warrants shall be allocated to the remaining holders of Registered Warrants,
pro rata based on the number of shares of Common Stock issuable upon exercise of the Registered Warrants then held by such holders
(without regard to any limitations on exercise).

(ii)              
Insufficient Authorized Shares. If, notwithstanding Section 1(g)(i) above, and not in limitation thereof, at any
time while any of the Registered Warrants remain outstanding, the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “Authorized Share
Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares
of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for all the Registered Warrants
then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence
of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure,
the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal. In the event that the Company is prohibited from
issuing shares of Common Stock upon an exercise of this Warrant due to the failure by the Company to have sufficient shares of
Common Stock available out of the authorized but unissued shares of Common Stock (such unavailable number of shares of Common
Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure Shares to the
Holder, the Company shall pay cash in exchange for the cancellation of such portion of this Warrant exercisable into such Authorization
Failure Shares at a price equal to the sum of (i) the product of (x) such number of Authorization Failure Shares and (y) the greatest
Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date the Holder delivers the applicable
Exercise Notice with respect to such Authorization Failure Shares to the Company and ending on the date of such issuance and payment
under this Section 1(g); and (ii) to the extent the Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of Authorization Failure Shares, any Buy-In Payment Amount, brokerage
commissions and other out-of-pocket expenses, if any, of the Holder incurred in connection therewith. Nothing contained in this
Section 1(g)(ii) shall limit any obligations of the Company under any provision of the Securities Purchase Agreement.

2.                 ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. So long as the Warrant remains outstanding, the Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 2.

(a)               
Stock Dividends and Splits. Without limiting any provision of Section 2(b), Section 3 or Section 4, if
the Company, at any time on or after the Subscription Date, (i) pays a stock dividend on one or more classes of its then outstanding
shares of Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock,
(ii) subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its then outstanding
shares of Common Stock into a larger number of shares or (iii) combines (by combination, reverse stock split or otherwise) one
or more classes of its then outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise
Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately
before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii)
or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any
event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then
the calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

    5 

     

    

(b)              
Intentionally Omitted.

(c)               
Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to Section 2(a),
the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately,
so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be
the same as the aggregate Exercise Price in effect immediately prior to such adjustment (without regard to any limitations on exercise
contained herein).

(d)              
Intentionally Omitted.

(e)               
Intentionally Omitted.

(f)               
Calculations. All calculations under this Section 2 shall be made by rounding to the nearest cent or the nearest
1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issuance
or sale of Common Stock.

(g)              
Intentionally Omitted.

3.                 
RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, if the Company shall
declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common
Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities,
property, options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this
Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the
Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation,
the Maximum Percentage) immediately before the date on which a record is taken for such Distribution, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution
(provided, however, that to the extent that the Holder’s right to participate in any such Distribution would result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate
in such Distribution to the extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares
of Common Stock as a result of such Distribution (and beneficial ownership) to the extent of any such excess) and the portion
of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto
would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the
Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent
Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).

4.                 
PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(a)               
Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately
before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of shares of Common Stock are to be determined for the grant, issuance or sale of such
Purchase Rights (provided, however, that to the extent that the Holder’s right to participate in any such Purchase
Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Purchase Right to the extent of the Maximum Percentage (and shall not be entitled to beneficial
ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to the extent of any such
excess) and such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder for a period of up to six
(6) months, until such time or times, if ever, as its right thereto would not result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase Right granted,
issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to the same extent
as if there had been no such limitation).

    6 

     

    

(b)              
Fundamental Transactions. The Company shall not enter into or be party to a Fundamental Transaction unless (i) 
the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents
(as defined in the Securities Purchase Agreement) in accordance with the provisions of this Section 4(b) pursuant to written
agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including
agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant
(without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise
price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of
the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments
to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this
Warrant immediately prior to the consummation of such Fundamental Transaction) and (ii) the Successor Entity (including its
Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon
the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of the applicable Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring
to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company
and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect
as if such Successor Entity had been named as the Company herein. Upon consummation of each Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets
or other property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable
thereafter)) issuable upon the exercise of this Warrant prior to the applicable Fundamental Transaction, such shares of publicly
traded common stock (or its equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been
entitled to receive upon the happening of the applicable Fundamental Transaction had this Warrant been exercised immediately prior
to the applicable Fundamental Transaction (without regard to any limitations on the exercise of this Warrant), as adjusted in accordance
with the provisions of this Warrant. Notwithstanding the foregoing, and without limiting Section 1(f) hereof, the Holder may elect,
at its sole option, by delivery of written notice to the Company to waive this Section 4(b) to permit the Fundamental Transaction
without the assumption of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation
of each Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive stock, securities,
cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) (the “Corporate
Event Consideration”) with respect to or in exchange for shares of Common Stock (a “Corporate Event”),
the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise
of this Warrant at any time after the consummation of the applicable Fundamental Transaction but prior to the Expiration Date,
in lieu of the shares of the Common Stock or Corporate Event Consideration (except such items still issuable under Sections 3
and 4(a) above, which shall continue to be receivable thereafter) issuable upon the exercise of the Warrant prior to such Fundamental
Transaction, such Corporate Event Consideration which the Holder would have been entitled to receive upon the happening of the
applicable Fundamental Transaction had this Warrant been exercised immediately prior to the applicable Fundamental Transaction
(without regard to any limitations on the exercise of this Warrant). Provision made pursuant to the preceding sentence shall be
in a form and substance reasonably satisfactory to the Holder.

(c)               
 Intentionally Omitted.

(d)              
Application. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions
and Corporate Events and shall be applied as if this Warrant (and any such subsequent warrants) were fully exercisable and without
regard to any limitations on the exercise of this Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital stock registered under the 1934 Act and thereafter
receivable upon exercise of this Warrant (or any such other warrant)).

    7 

     

    

 

5.                 
NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of
Incorporation (as defined in the Securities Purchase Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through
any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issuance or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will
at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights
of the Holder. Without limiting the generality of the foregoing, the Company (a) shall not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (b) shall take all such
actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable
shares of Common Stock upon the exercise of this Warrant. Notwithstanding anything herein to the contrary, if after the sixty (60)
calendar day anniversary of the Issuance Date, the Holder is not permitted to exercise this Warrant in full for any reason (other
than pursuant to restrictions set forth in Section 1(f) hereof), the Company shall use its best efforts to promptly remedy such
failure, including, without limitation, obtaining such consents or approvals as necessary to permit such exercise into shares of
Common Stock.

6.                 
WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in its capacity
as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the
Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in its capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent
to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance
or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the
Holder of the Warrant Shares which it is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors
of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other
information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

7.                 REISSUANCE
OF WARRANTS.

(a)               
Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)),
registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the
Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in
accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

    8 

     

    

(b)              
Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant (as to which a written certification and the indemnification contemplated
below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing
the right to purchase the Warrant Shares then underlying this Warrant.

(c)               
Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate
the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however,
no warrants for fractional shares of Common Stock shall be given.

(d)              
Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this
Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such
new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of
Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant
which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

8.                 
NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall
be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Warrant (other than the issuance of shares of Common Stock upon exercise in
accordance with the terms hereof), including in reasonable detail a description of such action and the reason therefor. Without
limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon each adjustment
of the Exercise Price and the number of Warrant Shares, setting forth in reasonable detail, and certifying, the calculation of
such adjustment(s), (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales
of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares
of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being
provided to the Holder, and (iii) at least ten (10) Trading Days prior to the consummation of any Fundamental Transaction. To the
extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any
of its Subsidiaries (as defined in the Securities Purchase Agreement), the Company shall simultaneously file such notice with the
SEC (as defined in the Securities Purchase Agreement) pursuant to a Current Report on Form 8-K. If the Company or any of its Subsidiaries
provides material non-public information to the Holder that is not simultaneously filed in a Current Report on Form 8-K and the
Holder has not agreed to receive such material non-public information, the Company hereby covenants and agrees that the Holder
shall not have any duty of confidentiality to the Company, any of its Subsidiaries or any of their respective officers, directors,
employees, affiliates or agents with respect to, or a duty to any of the foregoing not to trade on the basis of, such material
non-public information. It is expressly understood and agreed that the time of execution specified by the Holder in each Exercise
Notice shall be definitive and may not be disputed or challenged by the Company.

 

    9 

     

    

 

9.                 
AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant (other than Section 1(f))
may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the Holder. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party.

 

10.             
SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable
by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues
to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations
or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the
parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s)
with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

11.             GOVERNING
LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof to the Company at the address set forth in Section 9(f) of the Securities Purchase Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof. The Company hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action
or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.
THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

12.             
CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be
construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not
form part of, or affect the interpretation of, this Warrant. Terms used in this Warrant but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Closing Date (as defined in the Securities Purchase Agreement) in such other
Transaction Documents unless otherwise consented to in writing by the Holder.

 

    10 

     

    

 

13.             
DISPUTE RESOLUTION.

 

(a)               
Submission to Dispute Resolution.

(i)                
In the case of a dispute relating to the Exercise Price, the Closing Sale Price, the Bid Price or fair market value or the
arithmetic calculation of the number of Warrant Shares (as the case may be) (including, without limitation, a dispute relating
to the determination of any of the foregoing), the Company or the Holder (as the case may be) shall submit the dispute to the other
party via facsimile (A) if by the Company, within two (2) Business Days after the occurrence of the circumstances giving rise to
such dispute or (B) if by the Holder, at any time after the Holder learned of the circumstances giving rise to such dispute. If
the Holder and the Company are unable to promptly resolve such dispute relating to such Exercise Price, such Closing Sale Price,
such Bid Price or such fair market value or such arithmetic calculation of the number of Warrant Shares (as the case may be), at
any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case
may be) of such dispute to the Company or the Holder (as the case may be), then the Holder may, at its sole option, select an independent,
reputable investment bank to resolve such dispute.

(ii)              
The Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered
in accordance with the first sentence of this Section 13 and (B) written documentation supporting its position with respect to
such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (5th) Business Day immediately following
the date on which the Holder selected such investment bank (the “Dispute Submission Deadline”) (the documents
referred to in the immediately preceding clauses (A) and (B) are collectively referred to herein as the “Required Dispute
Documentation”) (it being understood and agreed that if either the Holder or the Company fails to so deliver all of the
Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute
Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other
support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on
the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless
otherwise agreed to in writing by both the Company and the Holder or otherwise requested by such investment bank, neither the Company
nor the Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection
with such dispute (other than the Required Dispute Documentation).

(iii)            
The Company and the Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company
and the Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The
fees and expenses of such investment bank shall be borne solely by the Company, and such investment bank’s resolution of
such dispute shall be final and binding upon all parties absent manifest error.

    11 

     

    

(b)              
Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 13 constitutes an agreement to
arbitrate between the Company and the Holder (and constitutes an arbitration agreement) under the rules then in effect under §
7501, et seq. of the New York Civil Practice Law and Rules (“CPLR”) and that the Holder is authorized to apply
for an order to compel arbitration pursuant to CPLR § 7503(a) in order to compel compliance with this Section 13, (ii) the
terms of this Warrant and each other applicable Transaction Document shall serve as the basis for the selected investment bank’s
resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all
findings, determinations and the like that such investment bank determines are required to be made by such investment bank in
connection with its resolution of such dispute and in resolving such dispute such investment bank shall apply such findings, determinations
and the like to the terms of this Warrant and any other applicable Transaction Documents, (iii) the Holder (and only the Holder),
in its sole discretion, shall have the right to submit any dispute described in this Section 13 to any state or federal court
sitting in The City of New York, Borough of Manhattan in lieu of utilizing the procedures set forth in this Section 13 and (iv)
nothing in this Section 13 shall limit the Holder from obtaining any injunctive relief or other equitable remedies (including,
without limitation, with respect to any matters described in this Section 13).

14.             
REMEDIES, CHARACTERIZATION, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall
be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or
in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right
of the Holder to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Warrant.
The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to payments, exercises and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to
all other available remedies, to specific performance and/or temporary, preliminary and permanent injunctive or other equitable
relief from any court of competent jurisdiction in any such case without the necessity of proving actual damages and without posting
a bond or other security. The Company shall provide all information and documentation to the Holder that is requested by the Holder
to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Warrant (including, without
limitation, compliance with Section 2 hereof). The issuance of shares and certificates for shares as contemplated hereby upon
the exercise of this Warrant shall be made without charge to the Holder or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than the Holder or its agent on its behalf.

 

15.             
PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant
is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or
the holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b)
there occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors’
rights and involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without
limitation, attorneys’ fees and disbursements. 

    12 

     

    

 

16.             
TRANSFER. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

17.             
CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)               
“1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

(b)              
“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

(c)               
Intentionally Omitted.

(d)              
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls,
is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control”
of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the
election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by
contract or otherwise.

(e)               
Intentionally Omitted.

(f)               
“Attribution Parties” means, collectively, the following Persons and entities: (i) any investment vehicle,
including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly
managed or advised by the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect
Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together
with the Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock
would or could be aggregated with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the 1934
Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum
Percentage.

(g)              
“Bid Price” means, for any security as of the particular time of determination, the bid price for such
security on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not
the principal securities exchange or trading market for such security, the bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or
if the foregoing does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security
by Bloomberg as of such time of determination, the average of the bid prices of any market makers for such security as reported
in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of such time of determination. If the
Bid Price cannot be calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid
Price of such security as of such time of determination shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall
be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during such period.

(h)              
Intentionally Omitted.

(i)                
“Bloomberg” means Bloomberg, L.P.

(j)                
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The
City of New York are authorized or required by law to remain closed.

    13 

     

    

(k)              
“Change of Control” means any Fundamental Transaction other than (i) any merger of the Company or any
of its, direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization
or reclassification of the shares of Common Stock in which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to
hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of the voting power of
the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification,
or (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company
or any of its Subsidiaries.

(l)                
 “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date,
the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price
or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior
to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange
or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively,
is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If the Closing
Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the
Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value
of such security, then such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations
shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions
during such period.

(m)            
 “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share,
and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification
of such common stock.

(n)              
“Convertible Securities” means any stock or other security (other than Options) that is at any time and
under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles
the holder thereof to acquire, any shares of Common Stock.

(o)              
“Eligible Market” means The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market,
the Nasdaq Global Market, the OTCQX, the OTCQB (or any successors to any of the foregoing) or the Principal Market.

(p)              
Intentionally Omitted.

(q)              
“Expiration Date” means the date that is the fifth (5th) anniversary of the Issuance Date
or, if such date falls on a day other than a Trading Day or on which trading does not take place on the Principal Market (a “Holiday”),
the next date that is not a Holiday.

    14 

     

    

(r)                
“Fundamental Transaction” means (A) that the Company shall, directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company or any of its “significant subsidiaries” (as defined
in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make,
or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a
purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities
making or party to, or Affiliated (as defined in the Note) with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party
to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the
beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities, individually
or in the aggregate, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated
with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or
(z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined
in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or
reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or
otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate
to be or become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether
through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common
Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization,
recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented
by issued and outstanding Common Stock not held by all such Subject Entities as of the date of this Warrant calculated as if any
shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting
power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow
such Subject Entities to effect a statutory short form merger or other transaction requiring other shareholders of the Company
to surrender their shares of Common Stock without approval of the shareholders of the Company or (C) directly or indirectly, including
through subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other
instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case
this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition
to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with
the intended treatment of such instrument or transaction.

(s)               
“Group” means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined
in Rule 13d-5 thereunder.

(t)                
 “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities.

(u)              
“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person
and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such
Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation
of the Fundamental Transaction.

    15 

     

    

(v)              
“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

(w)            
“Principal Market” means the Nasdaq Capital Market.

(x)              
 “SEC” means the United States Securities and Exchange Commission or the successor thereto.

(y)              
“Spot Price” means, as applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant
to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on
a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated
under the federal securities laws) on such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the Holder’s
execution of the applicable Exercise Notice if such Exercise Notice is executed during “regular trading hours” on a
Trading Day and is delivered within two (2) hours thereafter pursuant to Section 1(a) hereof, or (iii) the Closing Sale Price of
the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise
Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of “regular trading hours” on
such Trading Day.

(z)               
“Subject Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person,
Persons or Group.

(aa)           
“Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

(bb)          
“Trading Day” means, as applicable, (x) with respect to all price or trading volume determinations relating
to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common
Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time
of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise
designated as a Trading Day in writing by the Holder or (y) with respect to all determinations other than price or trading volume
determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for
trading of securities.

(cc)           
“VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security
on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal
securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New
York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted
average) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending
at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security
by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If
the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date
shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 13.
All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization
or other similar transaction during such period.

[signature page follows]

    16 

     

    

IN WITNESS WHEREOF,
the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

	 	MY SIZE, INC.
	 	 	 
	 	By:	
	 	 	Name:
	 	 	Title:    

 

 

    17

     

    

EXHIBIT
A

 

EXERCISE
NOTICE

TO BE
EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

MY
SIZE, INC. 

The undersigned
holder hereby elects to exercise the Warrant to Purchase Common Stock No. _______ (the “Warrant”) of My
Size, Inc., a Delaware corporation (the “Company”) as specified below. Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1.       Form
of Exercise Price. The Holder intends that payment of the Aggregate Exercise Price shall be made as:

		☐	a “Cash Exercise” with respect to _________________
Warrant Shares; and/or

		☐	a “Cashless Exercise” with respect to _______________
Warrant Shares.

In the event that
the Holder has elected a Cashless Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the
Holder hereby represents and warrants that (i) this Exercise Notice was executed by the Holder at __________ [a.m.][p.m.] on the
date set forth below and (ii) if applicable, the Bid Price as of such time of execution of this Exercise Notice was $________.

2.       Payment
of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares
to be issued pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum
of $___________________ to the Company in accordance with the terms of the Warrant.

3.       Variable
Price Securities. By checking the box in this Item 4, the holder elects to exercise the Warrant by substituting the Variable
Price for the Exercise Price pursuant to Section 2(d) of the Warrant, which Variable Price equals $ per share.☐ 

4.       Delivery
of Warrant Shares. The Company shall deliver to Holder, or its designee or agent as specified below, __________ shares of Common
Stock in accordance with the terms of the Warrant. Delivery shall be made to Holder, or for its benefit, as follows:

☐         Check
here if requesting delivery as a certificate to the following name and to the following address:

 

	Issue
    to:	 
	 	 
	 	 

 

		☐	Check
                                         here if requesting delivery by Deposit/Withdrawal at Custodian as follows: 

 

	DTC Participant: 	 
	DTC
    Number:	 
	Account Number:	 
	 	 	 

	Date:
        _____________ __,           

         

                                                                    

Name of Registered Holder

        

 

	By:	                                                       

                                         Name:

                                         Title:

                                         

         

        Tax
        ID:____________________________

         

        Facsimile:__________________________

         

        E-mail
        Address:_____________________

    A-1

     

    

 EXHIBIT B

 

ACKNOWLEDGMENT

The
Company hereby acknowledges this Exercise Notice and hereby directs ______________ to issue the above indicated number
of shares of Common Stock in accordance with the Transfer Agent Instructions dated _________, 201_, from the Company and acknowledged
and agreed to by _______________.

 

	 	MY SIZE, INC.
	 	 	 
	 	By:	
	 	 	Name:
	 	 	Title:    

 

    B-1

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