Document:

Exhibit
10.9

 

SECURITY
AGREEMENT

 

Dated
March 12, 2004

 

From

 

OSIRIS
THERAPEUTICS, INC.

 

as Grantor

 

to

 

BOSTON
SCIENTIFIC CORPORATION

 

as Secured Party

 

 

TABLE
OF CONTENTS

 

	
  Section

  	
  Page

  
	
   

  	
   

  
	
  Section 1. Grant of
  Security

  	
  2

  
	
  Section 2. Security for
  Obligations

  	
  2

  
	
  Section 3. Grantor Remains
  Liable

  	
  2

  
	
  Section 4. Representations
  and Warranties

  	
  3

  
	
  Section 5. Further
  Assurances

  	
  4

  
	
  Section 6. As to Equipment

  	
  5

  
	
  Section 7. Insurance

  	
  5

  
	
  Section 8. Post-Closing
  Changes; Bailees

  	
  6

  
	
  Section 9. As to the
  Pledged Agreement

  	
  7

  
	
  Section 10. Transfers and
  Other Liens

  	
  7

  
	
  Section 11. Secured Party
  Appointed Attorney-in-Fact

  	
  7

  
	
  Section 12. Secured Party
  May Perform

  	
  8

  
	
  Section 13. The Secured
  Party’s Duties

  	
  8

  
	
  Section 14. Remedies

  	
  8

  
	
  Section 15. Indemnity and
  Expenses

  	
  10

  
	
  Section 16. Amendments;
  Waivers; Etc.

  	
  10

  
	
  Section 17. Notices, Etc.

  	
  10

  
	
  Section 18. Continuing
  Security Interest; Assignments under the Loan Agreement

  	
  10

  
	
  Section 19. Release;
  Termination

  	
  11

  
	
  Section 20. Execution in
  Counterparts

  	
  11

  
	
  Section 21. Governing Law

  	
  11

  

 

 

 

 

Schedules

 

	
  Schedule I

  	
  --

  	
  Location, Chief Executive
  Office, Place Where Agreements are Maintained, Type of Organization,
  Jurisdiction of Organization and Organizational Identification Number

  
	
  Schedule II

  	
  --

  	
  Location of Equipment

  
	
  Schedule III

  	
  --

  	
  Changes in Name, Location,
  Etc.

  

 

 

ii

 

EXECUTION COPY

 

SECURITY AGREEMENT

 

                SECURITY AGREEMENT
dated March 12, 2004, made by OSIRIS THERAPEUTICS, INC., a Delaware corporation
(the “Grantor”), to BOSTON
SCIENTIFIC CORPORATION, as Secured Party (the “Secured
Party”).

 

                PRELIMINARY
STATEMENTS.

 

                (1)           The Grantor has entered into a Loan
Agreement dated as of March 5, 2003 (said Agreement, as amended by Amendment
No. 1 the Loan Agreement dated as of the date hereof and as it may hereafter be
amended, amended and restated, supplemented or otherwise modified from time to
time, being the “Loan Agreement”) with the
Secured Party.

 

                (2)           Pursuant to the Loan Agreement, the
Grantor is entering into this Agreement in order to grant to the Secured Party
a security interest in the Collateral (as hereinafter defined).

 

                (3)           It is a condition precedent to the
making of the Initial Advance by the Secured Party under the Loan Agreement
that the Grantor shall have granted the assignment and security interest and
made the pledge and assignment contemplated by this Agreement.

 

                (4)           Terms defined in the Loan Agreement
and not otherwise defined in this Agreement are used in this Agreement as
defined in the Loan Agreement. Further, unless otherwise defined in this
Agreement or in the Loan Agreement, terms defined in Article 8 or 9 of the UCC
(as defined below) and/or in the Federal Book Entry Regulations (as defined
below) are used in this Agreement as such terms are defined in such Article 8 or
9 and/or the Federal Book Entry Regulations. “UCC”
means the Uniform Commercial Code as in effect, from time to time, in the State
of Delaware; provided that, if perfection or
the effect of perfection or non-perfection or the priority of any security interest
in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Delaware, “UCC”
means the Uniform Commercial Code as in effect from time to time in such other
jurisdiction for purposes of the provisions hereof relating to such perfection,
effect of perfection or non-perfection or priority. The term “Federal Book Entry Regulations”
means (a) the federal regulations contained in Subpart B (“Treasury/Reserve
Automated Debt Entry System (TRADES’’)) governing book-entry
securities consisting of U.S. Treasury bonds, notes and bills and Subpart D (“Additional Provisions”) of 31 C.F.R.
Part 357, 31 C.F.R. § 357.2, § 357.10 through § 357.14 and § 357.41 through §
357.44 and (b) to the extent substantially identical to the federal regulations
referred to in clause (a) above (as in effect from time to time), the federal
regulations governing other book-entry securities.

 

                NOW, THEREFORE, in
consideration of the premises and in order to induce the Secured Party to make
the Initial Advance under the Loan Agreement, the Grantor hereby agrees with
the Secured Party as follows:

 

Section 1. Grant of
Security. The Grantor hereby grants to the Secured Party a security
interest in the Grantor’s right, title and interest in and to the following, in
each case, as to each type of property described below, whether now owned or
hereafter acquired by the Grantor, wherever located, and whether now or
hereafter existing or arising (collectively, the “Collateral”):

 

(a) all equipment in all of its forms, including, without limitation,
all machinery, tools, motor vehicles, furniture and fixtures, and all parts
thereof and all accessions thereto and all software related thereto, including,
without limitation, software that is embedded in and is part of the equipment,
to the extent that such equipment pertains or relates to the manufacture of
Products, as defined in the Loan Agreement (any and all such property being the
“Equipment”);

 

(b) the License Agreement, as such agreement may be amended, amended
and restated, supplemented or otherwise modified from time to time (the “Pledged Agreement”), including, without limitation, (i)
all rights of such Grantor to receive moneys due and to become due under or
pursuant to the Pledged Agreement, (ii) all rights of such Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to the
Pledged Agreement, (iii) claims of such Grantor for damages arising out of or
for breach of or default under the Pledged Agreement and (iv) the right of such
Grantor to terminate the Pledged Agreement, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder (all such Collateral
being the “Agreement Collateral”);

 

(c)         all books and records
(including, without limitation, customer lists, credit files, printouts and
other computer output materials and records) of the Grantor pertaining to any
of the Collateral; and

 

(d)         all proceeds of,
collateral for, income, royalties and other payments now or hereafter due and
payable with respect to, and supporting obligations relating to, any and all of
the Collateral (including, without limitation, proceeds, collateral and
supporting obligations that constitute property of the types described in
clauses (a) through (c) of this Section 1 and this clause (d)) and, to the
extent not otherwise included, all (A) payments under insurance (whether or not
the Secured Party is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral, (B) tort claims, including, without
limitation, all commercial tort claims and (C) cash.

 

Section 2. Security for
Obligations. This Agreement secures the payment of all obligations of the
Grantor now or hereafter existing under the Loan Agreement and the Note
(collectively the “Loan Documents”), whether direct or indirect,
absolute or contingent, and whether for principal, reimbursement obligations,
interest, premiums, penalties, indemnifications, contract causes of action,
costs, expenses or otherwise (all such obligations being the “Secured Obligations”).

 

Section 3. Grantor
Remains Liable. Anything herein to the contrary notwithstanding, (a) the
Grantor shall remain liable under the contracts and agreements included 

 

 

2

 

in the Grantor’s Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of the rights hereunder shall not release the Grantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral and (c) the Secured Party shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement or any other Loan Document, nor shall the Secured
Party be obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

 

Section 4. Representations
and Warranties. The Grantor represents and warrants as follows:

 

(a)         The Grantor’s exact
legal name, as defined in Section 9-503(a) of the UCC, is correctly set forth
in Schedule I hereto. The Grantor has only the trade names, domain names and
marks listed on Schedule IV hereto. The Grantor is located (within the meaning
of Section 9-307 of the UCC) and has its chief executive office, in which it maintains
the original copies of the Pledged Agreement, in the state or jurisdiction set
forth in Schedule I hereto. The information set forth in Schedule I hereto with
respect to the Grantor is true and accurate in all respects. The Grantor has
not previously changed its name, location, chief executive office, place where
it maintains its agreements, type of organization, jurisdiction of organization
or organizational identification number from those set forth in Schedule I
hereto except as disclosed in Schedule III hereto.

 

(b)         All of the Equipment
of the Grantor is located at the places specified therefor in Schedule II
hereto, as such Schedule II may be amended from time to time pursuant to
Section 8(a). Within the 5 years preceding the execution of this Agreement, the
Grantor has not previously changed the location of its Equipment except as set
forth in Schedule III hereto.

 

(c)         The Grantor is the
legal and beneficial owner of the Collateral free and clear of any Lien, claim,
option or right of others, except for the security interest created under this
Agreement. No effective financing statement or other instrument similar in
effect covering all or any part of such Collateral or listing the Grantor or
any trade name of the Grantor as debtor is on file in any recording office,
except such as may have been filed in favor of the Secured Party relating to
the Loan Documents.

 

(d)         The Grantor has
exclusive possession and control of the Equipment. In the case of Equipment
located on leased premises or in warehouses, no lessor or warehouseman of any
premises or warehouse upon or in which such Equipment is located has (i) issued
any warehouse receipt or other receipt in the nature of a warehouse receipt in
respect of any Equipment, (ii) issued any document for any of the Grantor’s
Equipment, (iii) received notification of any secured party’s interest (other
than the security interest granted hereunder) in the Grantor’s Equipment or
(iv) any Lien, claim or charge (based on contract, statute or otherwise) on
such Equipment.

 

3

 

(e)         All filings and other
actions (including, without limitation, (A) actions necessary to obtain control
of Collateral as provided in Sections 9-104, 9-105, 9-106 and 9-107 of the UCC
and Section 16 of UETA and (B) actions necessary to perfect the Secured Party’s
security interest with respect to Collateral evidenced by a certificate of
ownership) necessary to perfect the security interest in the Collateral of the
Grantor created under this Agreement have been duly made or taken and are in
full force and effect, and this Agreement creates in favor of the Secured Party
a valid and, together with such filings and other actions, perfected first
priority security interest in the Collateral of the Grantor, securing the
payment of the Secured Obligations.

 

(f)          No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or any other third party is required for (i) the
grant by the Grantor of the security interest granted hereunder or for the
execution, delivery or performance of this Agreement by the Grantor, (ii) the
perfection or maintenance of the security interest created hereunder (including
the first priority nature of such security interest), except for the filing of
financing and continuation statements under the UCC, which financing statements
have been duly filed and are in full force and effect, or (iii) the exercise by
the Secured Party of its rights provided for in this Agreement or the remedies
in respect of the Collateral pursuant to this Agreement.

 

(g) The Pledged Agreement has been duly authorized, executed and
delivered by the Grantor, has not been amended, amended and restated,
supplemented or otherwise modified, is in full force and effect and is binding
upon and enforceable against the Grantor. There exists no default under the Pledged
Agreement by the Grantor.

 

Section 5. Further
Assurances. (a) The Grantor agrees that from time to time, at the expense
of the Grantor, the Grantor will promptly execute and deliver, or otherwise
authenticate, all further instruments and documents, and take all further
action that may be necessary or desirable, or that the Secured Party may
request, in order to perfect and protect any pledge or security interest
granted or purported to be granted by the Grantor hereunder or to enable the
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral of the Grantor. Without limiting the generality of the
foregoing, the Grantor will (i) mark conspicuously each Pledged Agreement
and, at the request of the Secured Party, each of its records pertaining to
such Collateral with a legend, in form and substance satisfactory to the
Secured Party, indicating that such Pledged Agreement or Collateral is subject
to the security interest granted hereby, (ii) execute or authenticate and file
such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as the
Secured Party may request, in order to perfect and preserve the security
interest granted or purported to be granted by the Grantor hereunder; (iii)
take all action to ensure that the Secured Party’s security interest is noted
on any certificate of ownership related to any Collateral evidenced by a
certificate of ownership; and (iv) deliver to the Secured Party evidence that
all other action that the Secured Party may deem reasonably necessary or
desirable in order to perfect and protect the security interest created by the
Grantor under this Agreement has been taken.

 

(b) The Grantor hereby
authorizes the Secured Party to file one or more financing or continuation
statements, and amendments thereto, including, without limitation, one or more 

 

4

 

financing statements indicating that such
financing statements cover all assets or all personal property (or words of
similar effect) of the Grantor, in each case without the signature of the
Grantor, and regardless of whether any particular asset described in such
financing statements falls within the scope of the UCC or the granting clause
of this Agreement. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law. The Grantor
ratifies its authorization for the Secured Party to have filed such financing
statements, continuation statements or amendments filed prior to the date
hereof.

 

(c) The Grantor will furnish
to the Secured Party from time to time statements and schedules further
identifying and describing the Collateral of the Grantor and such other reports
in connection with such Collateral as the Secured Party may reasonably request,
all in reasonable detail.

 

(d) The Grantor will furnish
to the Secured Party on or prior to the fifth anniversary of the date hereof
(but not more than six months prior thereto), an opinion of counsel, from
outside counsel reasonably satisfactory to the Secured Party, to the effect
that all financing or continuation statements have been filed, and all other
action has been taken (including, without limitation, action necessary to (i)
give the Secured Party control over the Collateral as provided in Sections
9-104, 9-105, 9-106 and 9-107 of the UCC and Section 16 of UETA and (ii) cause
the security interest in any Collateral evidenced by a certificate of ownership
to be noted on such certificate of ownership) to perfect continuously from the
date hereof the security interest granted hereunder.

 

Section 6. As to
Equipment. (a) The Grantor will keep the Equipment at the places therefor
specified in Section 4(b) or, upon 30 days’ prior written notice to the Secured
Party, at such other places designated by the Grantor in such notice. Upon the
giving of such notice, Schedule II shall be automatically amended to add
any new locations specified in the notice.

 

(b) The Grantor will cause
the Equipment of the Grantor to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer’s manual, and will forthwith,
or in the case of any loss or damage to any of such Equipment as soon as
practicable after the occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith that are necessary
or desirable to such end. The Grantor will promptly furnish to the Secured
Party a statement respecting any loss or damage to any of the Equipment of the
Grantor.

 

(c) The Grantor will pay
promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims (including, without limitation,
claims for labor, materials and supplies) against, the Equipment of the
Grantor.

 

Section 7. Insurance.
(a) The Grantor will, at its own expense, maintain insurance with respect to
the Equipment in such amounts, against such risks, in such form and with such
insurers, as shall be satisfactory to the Secured Party from time to time. Each
policy of 

 

5

 

the Grantor for liability insurance shall
provide for all losses to be paid on behalf of the Secured Party and the
Grantor as their interests may appear, and each policy for property damage
insurance shall provide for all losses (except for losses of less than $5,000
per occurrence) to be paid directly to the Secured Party. Each such policy
shall in addition (i) name the Grantor and the Secured Party as insured parties
thereunder (without any representation or warranty by or obligation upon the
Secured Party) as their interests may appear, (ii) contain the agreement by the
insurer that any loss thereunder shall be payable to the Secured Party
notwithstanding any action, inaction or breach of representation or warranty by
the Grantor, (iii) provide that there shall be no recourse against the Secured
Party for payment of premiums or other amounts with respect thereto and (iv)
provide that at least 10 days’ prior written notice of cancellation or of lapse
shall be given to the Secured Party by the insurer. The Grantor will, if so
requested by the Secured Party, deliver to the Secured Party original or
duplicate policies of such insurance and, as often as the Secured Party may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, the Grantor will, at the request of the Secured Party,
duly execute and deliver instruments of assignment of such insurance policies
to comply with the requirements of Section 6 and cause the insurers to
acknowledge notice of such assignment.

 

(b) Reimbursement under any
liability insurance maintained by Grantor pursuant to this Section 7 may be
paid directly to the Person who shall have incurred liability covered by such
insurance. In case of any loss involving damage to Equipment when subsection
(c) of this Section 7 is not applicable, the Grantor will make or cause to be
made the necessary repairs to or replacements of such Equipment, and any
proceeds of insurance properly received by or released to the Grantor shall be
used by the Grantor, except as otherwise required hereunder or by the Loan
Agreement, to pay or as reimbursement for the costs of such repairs or replacements.

 

(c) So long as no Default
shall have occurred and be continuing, all insurance payments received by the
Secured Party in connection with any loss, damage or destruction of any
Equipment will be released by the Secured Party to the Grantor for the repair,
replacement or restoration thereof, subject to such terms and conditions with
respect to the release thereof as the Secured Party may reasonably require. To
the extent that (i) the amount of any such insurance payments exceeds the cost
of any such repair, replacement or restoration, or (ii) such insurance payments
are not otherwise required by the Grantor to complete any such repair,
replacement or restoration required hereunder, the Secured Party will not be
required to release the amount thereof to the Grantor and may hold or continue
to hold such amount in the Other Deposits Account as additional security for
the Secured Obligations of the Grantor. Upon the occurrence and during the
continuance of any Default or the actual or constructive total loss (in excess
of $5,000 per occurrence) of any Equipment, all insurance payments in respect
of such Equipment shall be paid to the Secured Party and shall, in the Secured
Party’s sole discretion, (i) be released to the Grantor to be applied as set
forth in the first sentence of this subsection (c) or (ii) be held as
additional Collateral hereunder or applied as specified in Section 14(b).

 

Section 8. Post-Closing
Changes; Bailees. (a) The Grantor will not change its name, type of
organization, jurisdiction of organization, organizational identification
number or location from those set forth in Section 4(a) of this Agreement
without first giving at least 30 days’ prior written notice to the Secured
Party and taking all action required by the Secured Party for the purpose of
perfecting or protecting the security interest granted by this Agreement. The
Grantor will not change the location of the Equipment or the place where it
keeps the originals of 

 

6

 

the Pledged Agreement from the locations
therefor specified in Sections 4(a) and 4(b) without first giving the Secured
Party 30 days’ prior written notice of such change. The Grantor will not become
bound by a security agreement authenticated by another Person (determined as
provided in Section 9-203(d) of the UCC) without giving the Secured Party 30
days’ prior written notice thereof and taking all action required by the
Secured Party to ensure that the perfection and first priority nature of the
Secured Party’s security interest in the Collateral will be maintained. The
Grantor will hold and preserve its records relating to the Collateral,
including, without limitation, the Pledged Agreement, and will permit
representatives of the Secured Party at any time during normal business hours
to inspect and make abstracts from such records and other documents. If the
Grantor does not have an organizational identification number and later obtains
one, it will forthwith notify the Secured Party of such organizational
identification number.

 

(b) If any Collateral of the
Grantor is at any time in the possession or control of a warehouseman, bailee
or agent, or if the Secured Party so requests the Grantor will (i) notify such
warehouseman, bailee or agent of the security interest created hereunder, (ii)
instruct such warehouseman, bailee or agent to hold all such Collateral solely
for the Secured Party’s account subject only to the Secured Party’s
instructions (which shall permit such Collateral to be removed by the Grantor
in the ordinary course of business until the Secured Party notifies such
warehouseman, bailee or agent that an Event of Default has occurred and is
continuing), (iii) use best efforts, to cause such warehouseman, bailee or
agent to authenticate a record acknowledging that it holds possession of such
Collateral for the Secured Party’s benefit and shall act solely on the
instructions of the Secured Party without the further consent of the Grantor or
any other Person, and (iv) make such authenticated record available to the
Secured Party.

 

Section 9. As to the
Pledged Agreement. The Grantor will at its expense perform and observe all
terms and provisions of the Pledged Agreement to be performed or observed by
it, maintain the Pledged Agreement in full force and effect and take all such
action to such end as may be requested from time to time by the Secured Party.

 

Section 10. Transfers and
Other Liens. The Grantor agrees that it will not (i) sell, assign or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, other than sales, assignments and other dispositions of Collateral,
and options relating to Collateral, permitted under the terms of the Loan
Agreement, or (ii) create or suffer to exist any Lien upon or with respect to
any of the Collateral of the Grantor except for the pledge, assignment and
security interest created under this Agreement.

 

Section 11. Secured Party
Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the
Secured Party the Grantor’s attorney-in-fact, with full authority in the place
and stead of the Grantor and in the name of the Grantor or otherwise, from time
to time in the Secured Party’s discretion, to take any action and to execute
any instrument that the Secured Party may deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation:

 

(a)         to obtain and adjust
insurance required to be paid to the Secured Party pursuant to Section 7,

 

7

 

 

(b)         to ask for, demand,
collect, sue for, recover, compromise, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral,

 

(c)         to receive, indorse
and collect any drafts or other instruments, documents and chattel paper, in
connection with clause (a) or (b) above, and

 

(d)         to file any claims or
take any action or institute any proceedings that the Secured Party may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce compliance with the terms and conditions of the Pledged Agreement or
the rights of the Secured Party with respect to any of the Collateral.

 

Section 12. Secured Party
May. Perform. If the Grantor fails to perform any agreement
contained herein, the Secured Party may, but without any obligation to do so
and without notice, itself perform, or cause performance of, such agreement,
and the expenses of the Secured Party incurred in connection therewith shall be
payable by the Grantor under Section 15.

 

Section 13. The Secured Party’s
Duties. (a) The powers conferred on the Secured Party hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers, Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
the Secured Party shall have no duty as to any Collateral, as to ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Collateral, whether or not the Secured
Party has or is deemed to have knowledge of such matters, or as to the taking
of any necessary steps to preserve rights against any parties or any other
rights pertaining to any Collateral. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in
its possession if such Collateral is accorded treatment substantially equal to
that which it accords its own property.

 

(b) Anything contained
herein to the contrary notwithstanding, the Secured Party may from time to
time, when the Secured Party deems it to be necessary, appoint one or more
subagents (each a “Subagent”) for the Secured
Party hereunder with respect to all or any part of the Collateral. In the event
that the Secured Party so appoints any Subagent with respect to any Collateral,
(i) the assignment and pledge of such Collateral and the security interest
granted in such Collateral by the Grantor hereunder shall be deemed for
purposes of this Security Agreement to have been made to such Subagent, in
addition to the Secured Party, as security for the Secured Obligations of the
Grantor, (ii) such Subagent shall automatically be vested, in addition to the
Secured Party, with all rights, powers, privileges, interests and remedies of
the Secured Party hereunder with respect to such Collateral, and (iii) the term
“Secured Party,” when used herein in relation to any rights, powers,
privileges, interests and remedies of the Secured Party with respect to such Collateral,
shall include such Subagent; provided, however, that
no such Subagent shall be authorized to take any action with respect to any
such Collateral unless and except to the extent expressly authorized in writing
by the Secured Party.

 

Section
14. Remedies. If any Event of Default shall have occurred and be continuing:

 

 

8

 

(a)         The Secured Party may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies
of a secured party upon default under the UCC (whether or not the UCC applies
to the affected Collateral) and also may: (i) require the Grantor to, and the
Grantor hereby agrees that it will at its expense and upon request of the
Secured Party forthwith, assemble all or part of the Collateral as directed by
the Secured Party and make it available to the Secured Party at a place and
time to be designated by the Secured Party that is reasonably convenient to
both parties; (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Secured Party’s offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable; (iii) occupy any premises owned or leased by the
Grantor where the Collateral or any part thereof is assembled or located for a
reasonable period in order to effectuate its rights and remedies hereunder or
under law, without obligation to the Grantor in respect of such occupation; and
(iv) exercise any and all rights and remedies of the Grantor under or in
connection with the Pledged Agreement and the other Collateral, or otherwise in
respect of the Pledged Agreement and the other Collateral, including, without
limitation, any and all rights of the Grantor to exercise all other rights and
remedies with respect to the Pledged Agreement and the other Collateral,
including, without limitation, those set forth in Section 9-607 of the UCC. The
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten days’ notice to the Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.

 

(b)         Any cash held by or on
behalf of the Secured Party and all cash proceeds received by or on behalf of the
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral may, in the discretion of the Secured
Party, be held by the Secured Party as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to the Secured
Party pursuant to Section 17) in whole or in part by the Secured Party against,
all or any part of the Secured Obligations. Any surplus of such cash or cash
proceeds held by or on the behalf of the Secured Party and remaining after
payment in full of all the Secured Obligations shall be paid over to the
Grantor or to whomsoever may be lawfully entitled to receive such surplus.

 

(c)         All payments received
by the Grantor under or in connection with the Pledged Agreement or otherwise
in respect of the Collateral shall be received in trust for the benefit of the
Secured Party, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Secured Party in the same form as so received (with
any necessary indorsement).

 

(d)         Notwithstanding
anything to the contrary in this Section, the remedies of the Secured Party
hereunder shall be limited to the realization and application to the 

 

9

 

payment
of the Secured Obligations of amounts of cash not to exceed in the aggregate
$5,000,000 in principal amount of Advances plus interest, default interest,
penalties, fees or other amounts payable in respect of such Advances, or any
interest, default interest, penalties, fees or other amounts arising in
connection therewith.

 

Section 15. Indemnity and
Expenses. (a) The Grantor agrees to indemnify, defend and save and hold
harmless the Secured Party and each of its Affiliates and their respective officers,
directors, employees, agents and advisors (each, an “Indemnifed
Party”) from and
against, and shall pay on demand, any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party’s gross negligence or
willful misconduct.

 

(b) Except as otherwise
specified in this Agreement, all costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such costs
and expenses.

 

Section 16. Amendments,
Waivers, Etc. No amendment or waiver of any provision of this Agreement,
and no consent to any departure by any Grantor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Secured Party,
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part
of the Secured Party to exercise, and no delay in exercising any right hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right.

 

Section 17. Notices, Etc.
All notices and other communications provided for hereunder shall be either (i)
in writing (including telegraphic, telecopier or telex communication) and
mailed, telegraphed, telecopied, telexed or otherwise delivered or (ii) by
electronic mail (if electronic mail addresses are designated as provided below)
confirmed immediately in writing addressed the addresses specified in the Loan
Agreement; or, as to any party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and other
communications shall, when mailed, telegraphed, telecopied, telexed, sent by
electronic mail or otherwise, be effective when deposited in the mails,
delivered to the telegraph company, telecopied, confirmed by telex answerback,
sent by electronic mail and confirmed in writing, or otherwise delivered (or
confirmed by a signed receipt), respectively, addressed as aforesaid; except
that notices and other communications to the Secured Party shall not be
effective until received by the Secured Party. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or Schedule hereto shall be effective as delivery of an original
executed counterpart thereof.

 

Section 18. Continuing
Security Interest; Assignments under the Loan Agreement. This Agreement
shall create a continuing security interest in the Collateral and shall 

 

10

 

(a) subject to Section 19(b) below, remain in
full force and effect until payment in full in cash of the Secured Obligations,
(b) be binding upon the Grantor, its successors and assigns and (c) inure to
the benefit of the Secured Party and its respective successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), the Secured
Party may assign or otherwise transfer all or any portion of its rights and
obligations under the Loan Agreement (including, without limitation, all or any
portion of the Advances owing to it and the Note held by it) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to the Secured Party herein or otherwise.

 

Section 19. Release; Termination. (a) Upon any
sale, lease, transfer or other disposition of any item of Collateral of the
Grantor in accordance with the terms of the Loan Documents, the Secured Party
will, at the Grantor’s expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence the release of
such item of Collateral from the assignment and security interest granted
hereby; provided, however, that (i) at the time
of such request and such release no Default shall have occurred and be
continuing, and (ii) the Grantor shall have delivered to the Secured Party, at
least ten Business Days prior to the date of the proposed release, a written
request for release describing the item of Collateral and the terms of the
sale, lease, transfer or other disposition in reasonable detail, including,
without limitation, the price thereof and any expenses in connection therewith,
together with a form of release for execution by the Secured Party and a
certificate of the Grantor to the effect that the transaction is in compliance
with the Loan Documents and as to such other matters as the Secured Party may
request.

 

(b) Upon the earlier of (i)
payment in full in cash of the Secured Obligations, (ii) prepayment pursuant to
Section 2.06(a) or (b) of the Loan Agreement as amended in Amendment 1, of an
amount of Advances which, taken together with all such previous prepayments pursuant
to such Section, equals $5,000,000 (provided that
all amounts of accrued and unpaid interest required to be paid pursuant to such
Section are also paid in full), and (iii) realization and application to the
payment of the Secured Obligations of the amounts specified in Section 14(e),
the pledge and security interest granted hereby shall terminate and all rights
to the Collateral shall revert to the Grantor. Upon any such termination, the
Secured Party will, at the Grantor’s expense, execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence such
termination.

 

Section 20. Execution in
Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of
an executed counterpart of a signature page to this Agreement by telecopier
shall be effective as delivery of an original executed counterpart of this
Agreement.

 

Section 21. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of Delaware.

 

 

11

 

                IN
WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and
delivered by its officer thereunto duly authorized as of the date first above
written.

 

 

	
   

  	
  Osiris therapeutics, inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Peter Friedl

  
	
   

  	
   

  	
  Title: Chairman of the
  Board

  
	
   

  	
   

  	
   

  
	
  Address for Notices:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

 

 

Schedule
I to the

Security
Agreement

 

LOCATION,
CHIEF EXECUTIVE OFFICE, PLACE WHERE AGREEMENTS ARE MAINTAINED, TYPE OF
ORGANIZATION, JURISDICTION OF ORGANIZATION AND ORGANIZATIONAL IDENTIFICATION
NUMBER

 

	
  Location

  	
   

  	
  Chief

  Executive Office

  	
   

  	
  Place Where Agreements are Maintained

  	
   

  	
  Type of Organization

  	
   

  	
  Jurisdiction of Organization

  	
   

  	
  Organizational

  I.D. No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Schedule
II to the

Security Agreement

 

LOCATION
OF EQUIPMENT

 

 

Locations of Equipment:

 

 

Schedule
III to the

Security Agreement

 

CHANGES
IN NAME, LOCATION, ETC.

 

Changes in the Grantor’s Name
(including new grantor with a new name and names associated with all
predecessors in interest of the Grantor):

 

	
  December 1992 — February
  2001

  	
  Osiris Therapeutics, Inc.

  
	
   

  	
   

  
	
  February 2001 — February
  2003

  	
  MSC Regenos A.G. — Osiris was a wholly owned subsidiary of MSC during
  this time.

  
	
   

  	
   

  
	
  February 2003 — November
  2003

  	
  Osiris Acquisition II,
  Inc.

  
	
   

  	
   

  
	
  November 2003 — Present

  	
  Osiris Therapeutics, Inc.

  

 

Changes in the Grantor’s Location — No Change

 

Changes in the Grantor’s Chief
Executive Office — No Change

 

Changes in the Location of
Equipment — No Change

 

Changes in the Place Where
Agreements are Maintained — No Change

 

Changes in the Type of
Organization — No Change

 

Changes in the Jurisdiction of
Organization — No Change

 

Changes in the Organizational
Identification Number — ?QuickLinks
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Exhibit 4.14  

THIS SECURED CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (the "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN
COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE PAYEE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

 
 

SECURED CONVERTIBLE PROMISSORY NOTE    
    

	$10,000,000.00	 	April 14, 2005

Denver, Colorado

        FOR VALUE RECEIVED, APTAS, INC., a Delaware corporation
("Company"), hereby promises to pay to YP WEB PARTNERS, LLC, a Louisiana limited liability company
("Payee"), in lawful money of the United States of America and in immediately available funds, the principal sum of Ten Million Dollars ($10,000,000)
(the "Original Face Amount") together with accrued and unpaid interest thereon, each due and payable on the dates, in the manner, and subject to the
terms and conditions set forth below. The "Unconverted Face Amount" shall mean an amount equal to $10,000,000 less (i) all cash principal
payments to Payee pursuant to Section 1.2 of this Note, (ii) the portion of the principal amount of this Note that has been converted into Company common stock pursuant to
Section 1.2 of this Note and (iii) the portion of the principal amount of this Note that has been converted into Company common
stock pursuant to Section 8 of this Note. The "Outstanding Principal Amount" shall mean an amount equal to the Reduced Original Face Amount
calculated in accordance with Section 1.1 of this Note less (i) all cash payments to Payee pursuant to Section 1.2 of this Note, (ii) the portion of the principal amount of
this Note converted into Company common stock pursuant to Section 1.2 of this Note and (iii) the portion of the principal amount of this Note that has been converted into Company common
stock pursuant to Section 8 of this Note. 

        This
Promissory Note (the "Note") is the Note referred to in and is executed and delivered in connection with that certain Asset Purchase
Agreement dated as of even date herewith executed by Company, the Payee and the Members (as defined therein) (as the same may from time to time be amended, modified or supplemented or restated, the
"Purchase Agreement"). Additional rights and obligations of Payee are set forth in the Purchase Agreement. All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the Purchase Agreement. 

        1.    Reduction of Original Face Amount; Principal Repayment.    

        1.1    Reduction of Original Face Amount.    If the Payee Assets (as
defined in Exhibit A hereto) fail to generate in calendar year 2005 the Minimum Race specified in  Exhibit A hereto, the Original Face Amount
shall, retroactively as of the date of this Note, be reduced to an amount equal to the product of:
(x) $10,000,000 multiplied by (y) the Actual Race for calendar year 2005, calculated in accordance with Exhibit Aannexed hereto,
divided by the Target Race specified in Exhibit A hereto (the "Reduced Original Face Amount").
The date of such calculation, which shall occur on the third day after the date on which the calculation of Actual Race for calendar 2005 is final as provided in  Exhibit A hereto, is hereinafter
referred to as the "Principal Reduction Date." The calculation
of accrued interest hereon shall be correspondingly adjusted. If such calculation indicates that Company paid excess interest, Company shall be entitled to deduct the excess interest from the next
interest or principal payment due hereunder. Any reduction in the Original Face Amount pursuant to the foregoing shall be treated by the parties to the Purchase Agreement as a reduction to the
purchase price described in Section 1.2 of the Purchase Agreement. 

        1.2    Principal Repayment.    The Outstanding Principal Amount or the
Unconverted Face Amount, as applicable, shall be due and payable as provided in this Section 1.2. For purposes of 

 

this
Note, an Installment Date shall be (i) the earlier of (a) May 1, 2006 or (b) the one-year anniversary of the closing of an underwritten public offering
pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), covering the offer and sale of the Company's
common stock (an "IPO") and (ii) each of the first and second anniversaries of the date referred to in clause (i) above;  provided that, in
no event will the first Installment Date occur prior to the Principal Reduction Date. Notwithstanding the
foregoing, if, pursuant to the preceding sentence, the first Installment Date is to occur prior to the later of (A) the expiration of the
Lock-Up Period or (B) the earlier to occur of (i) the first date on which Conversion Shares (as defined below) to be issued to Payee on the applicable Installment Date may be
sold under Rule 144 under the Act or (ii) the S-3 Eligibility Date (as defined in Section 4 of this Note) (such date determined in accordance with clauses
(A) and (B) is referred to herein as the "Deferred Date"), the first Installment Date, at the election of the Payee, shall instead take
place on the latest of (i) May 1, 2006, (ii) the Principal Reduction Date, or (iii) that certain date which is fifteen days after the Deferred Date, and each subsequent
Installment Date shall occur on the first and second anniversaries of such date. The "Maturity Date" is the date of the last Installment Date. At least ten days prior to each Installment Date, Payee
shall deliver notice to the Company (an "Election") indicating whether it desires (i) to be paid the Applicable Cash Payment (as defined below)
(the "Cash Payment Option") or (ii) to receive the Conversion Shares (as defined below) (the "Share Conversion
Option"). If Payee elects the Cash Payment Option, Company shall pay the Applicable Cash Payment on the applicable Installment Date. If Payee elects the Share Conversion
Option, the Company shall deliver to Payee as soon as practicable following the applicable Installment Date, but in no event later than five business days thereafter, a certificate representing a
number of shares of Company common stock equal to the Conversion Shares. If Payee fails to timely notify Company of its election prior to each applicable Installment Date, Payee shall be deemed to
have elected the Share Conversion Option and the Company shall deliver to Payee a stock certificate representing a number of shares of Company common stock equal to the Conversion Shares. The
S-3 Availability Date with respect to the sale of any Conversion Shares issuable pursuant to this Section 1.2 shall not be later than thirty (30) days following the later of
the date of the Election or the Installment Date. 

        For
purposes of this Agreement, the "Conversion Shares" shall mean (i) on the first Installment Date, one-third of the
Unconverted Face Amount outstanding on the First Installment Date, together with accrued and unpaid interest on such Unconverted Face Amount, converted into Company's common stock pursuant to the
formula described in Section 8.1 (the "Conversion Formula"); (ii) on the second Installment Date, one-half of the Unconverted
Face Amount outstanding on the second Installment Date, together with accrued and unpaid interest on such Unconverted Face Amount, converted into Company's common stock in accordance with the
Conversion Formula; and (iii) on the third Installment Date, the Unconverted Face Amount outstanding on the third Installment Date, together with accrued and unpaid interest on such Unconverted
Face Amount, converted into Company's common stock in accordance with the Conversion Formula. 

        For
purposes of this Agreement, the "Applicable Cash Payment" shall mean (i) on the first Installment Date, one-third
of the Outstanding Principal Amount outstanding on the first Installment Date, together with accrued and unpaid interest on such Outstanding Principal Amount; (ii) on the second Installment
Date, one-half of the Outstanding Principal Amount outstanding on the second Installment Date, together with accrued and unpaid interest on such Outstanding Principal Amount; and
(iii) on the third Installment Date, the Outstanding Principal Amount outstanding on the third Installment Date, together with accrued and unpaid interest on such Outstanding Principal Amount. 

        Sections
8.3 through 8.7 shall apply to each conversion of this Note pursuant to the Share Conversion Option. 

2

 

        2.    Interest Rate.    Company further promises to pay interest on the Outstanding Principal Amount hereof from the
date hereof until payment in full, which interest shall be payable at the rate of eight percent (8%) per annum. Except as provided in Sections 1.2, 8.1 and 8.2, interest payments hereunder
shall be due and payable in cash quarterly in arrears within thirty (30) days following the end of each calendar quarter, commencing with the first calendar quarter of 2005, pro rated for
partial periods. Prior to the IPO, at Company's election, interest payments hereunder may be made in lieu of cash by issuing to Payee a number of shares of Company common stock as equals
(i) the amount of interest due and payable upon this Note divided (ii) by the fair market value of one share of Company common stock, as determined in good faith by the Board of
Directors of the Company, which, for purposes of this Note, shall equal the exercise price of incentive stock options granted by the Company most recently prior to the applicable interest payment.
Notwithstanding the foregoing, at all times prior to the closing of an IPO, so long as the Payee Assets are generating not less than fifty percent (50%) of the Target Race specified in  Exhibit A
hereto (pro rated over twelve months) for the calendar quarter to which the interest payment applies, the interest payments shall be
made only in cash. Interest shall be calculated on the basis of a 365-day year for the actual number of days elapsed. Upon the occurrence and during the continuance of an Event of Default,
Payee shall have the right by written notice to Company to prospectively increase the interest rate under this Note to be equal to fourteen (14%) percent per annum until such Event of Default is
cured, but in no event to exceed the maximum rate allowed by law on commercial loans. 

        3.    Place of Payment.    All amounts payable hereunder shall be payable at the office of Payee, 3445 North
Causeway Blvd., Metairie, LA, 70002, unless another place of payment shall be specified in writing by Payee. 

        4.    Registration Rights.    In case the Company shall receive from the Payee (or its assigns) a written request or
requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any
related qualification or compliance with respect to all or a part of the Company common stock issued or issuable upon conversion of this Note, the Company will as soon as practicable (and in any event
not later than the time period specified in the applicable section of this Note relating to the conversion), effect such registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all of the shares of Company common stock as are specified in such request; provided,
however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 4 if Form S-3
(or any successor or similar form) is not available for such offering by the Payee (or its assigns). The effective date of a registration statement referred to herein is referred to herein as the
"S-3 Availability Date." The date on which the Company is first eligible to file registration statements on Form S-3 is
referred to herein as the "S-3
Eligibility Date." The Payee's (and its assigns') registration rights pursuant to this Section 4 shall expire if (a) the Company has completed its IPO and is
subject to the provisions of the Exchange Act, (b) such Payee (together with its assigns and their respective affiliates, partners and former partners) holds less than 1% of the Company's
outstanding Company common stock and (c) all Shares of Company common stock held by and issuable to such Payee (and its affiliates, partners, former partners, members and former members) may be
sold under Rule 144 during any ninety (90) day period. 

        5.    Application of Payments.    Payment on this Note shall be applied first to accrued interest, and thereafter to
the outstanding principal balance hereof. 

        6.    Secured Note.    The full amount of this Note is secured by the collateral (the
"Collateral") identified and described as security therefor in the Security Agreement of even date herewith (the "Security
Agreement") executed by and delivered by Company to Payee. Company shall not, directly or indirectly, create, permit or suffer to exist, and shall defend the Collateral against
and take such other action as is necessary to remove, any Lien (as defined in the Security Agreement) on or in the Collateral, or in any portion thereof, except as permitted pursuant to the Security
Agreement. Payee 

3

 

shall
release its lien on the Collateral upon delivery by Company to a restricted account acceptable to Payee, in its reasonable discretion and over which Payee has a first lien and security interest,
of cash collateral in an amount equal to the then Outstanding Principal Amount and all accrued but unpaid interest on this Note. 

        7.    Set off.    All payments to be made under this Note shall be subject to setoff under the terms and conditions
set forth in Section 5 of the Purchase Agreement. Any such setoffs shall be applied first to accrued interest and thereafter to installments of unpaid principal in the order of their maturity
commencing with the earliest such installment. 

        8.    Conversion.    

        8.1    Optional Conversion (Payee).    At any time beginning on the
later of (x) the first anniversary of the date of this Note and (y) the Deferred Date, and ending on the Maturity Date, the Unconverted Face Amount, including all accrued and unpaid
interest thereon, shall be convertible, in whole or in part, at the option of the Payee into that number of shares of the Company's common stock equal to the number obtained by dividing the portion of
the Unconverted Face Amount that is to be converted into Company common stock, plus all accrued and unpaid interest thereon, by the initial price per share of the Company's common stock (prior to any
underwriter discount) (the "IPO Price") paid in the IPO as adjusted as provided in this Section 8 (the "Conversion
Price"); provided, however, that this Note may not be converted pursuant to this Section 8.1 at any time following notice
of any claim for indemnification pursuant to Section 5 of the Purchase Agreement unless Payee deposits with an escrow agent reasonably acceptable to Company a number of shares of Company common
stock having a fair market value
equal to one hundred ten percent (110%) of the amount of such claim in accordance with an escrow agreement reasonably acceptable to the Company and the Payee. The S-3 Availability Date
with respect to any conversion effected pursuant to this Section 8.1 shall not be later than thirty (30) days following the surrender of the Note pursuant to Section 8.3 below. 

        8.2    Optional Conversion (Company).    Provided this Note has not
earlier been converted pursuant to Section 8.1 above, if, at any time beginning on the later of (x) the first anniversary of the date of this Note and (y) the Deferred Date, and
ending on the Maturity Date, the Company shall complete an IPO and, for twenty (20) consecutive trading days following the last day of the Lock-Up Period, the closing price of the
Company's common stock, as quoted on the Nasdaq National Market, the New York Stock Exchange, the American Stock Exchange or any similar nationally recognized stock exchange or automated quotation
system and reported in The Wall Street Journal, equals not less than one hundred fifty percent (150%) of the IPO Price, then the entire Unconverted Face
Amount, plus all accrued and unpaid interest thereon, shall, at the election of the Company and upon written notice to the Payee, convert into Company common stock at the Conversion Price in
accordance with the Conversion Formula, without any further action on the part of the Payee; provided, however, that this Note may not be converted
pursuant to this Section 8.2 at any time following notice of any claim for indemnification pursuant to Section 5 of the Purchase Agreement unless Payee deposits with an escrow agent
reasonably acceptable to Company a number of shares of Company common stock having a fair market value equal to one hundred ten percent (110%) of the amount of such claim in accordance with an escrow
agreement reasonably acceptable to the Company and the Payee. The S-3 Availability Date with respect to any conversion effected pursuant to this Section 8.2 shall not be later than
the date of the surrender of the Note pursuant to Section 8.3 below. 

        8.3    Mechanics and Effect of Conversion.    No fractional shares of
Company's capital stock will be issued upon conversion of this Note. In lieu of any fractional share to which Payee would otherwise be entitled, Company will pay to Payee in cash at the Conversion
Price the amount of the unconverted principal and interest balance of this Note that would otherwise be converted into 

4

 

such
fractional share. Upon conversion of this Note pursuant to Sections 1.2, 8.1 or 8.2, Payee shall surrender this Note, duly endorsed, at the principal office of the Company or any transfer
agent of the Company. At its expense, the Company will no later than the third day after receipt of this Note, issue and deliver to Payee, at such principal office, a certificate or certificates for
the number of shares to which Payee is entitled upon such conversion, together with any other securities and property to which Payee is entitled upon such conversion under the terms of this Note,
including a check payable to Payee for any fractional share. 

        8.4    Adjustments to the Conversion Price.    Upon the occurrence of
any of the following events prior to the conversion of this Note, the Conversion Price shall be adjusted as provided below: 

        (a)    Adjustment for Stock Splits and
Combinations.    If Company shall at any time or from time to time after the date hereof effect a subdivision of the outstanding shares of Company's common stock,
then
the Conversion Price then in effect immediately before such subdivision shall be proportionately decreased; conversely, if Company shall at any time or from time to time after the date hereof reduce
the outstanding shares of Company's common stock by combination or otherwise, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment
under this Section 8.4(a) shall become effective at the close of business on the date such subdivision or combination becomes effective. 

        (b)    Adjustment for Certain Dividends and
Distributions.    In the event Company at any time or from time to time after the date hereof shall make or issue, or fix a record date for the determination of
holders of shares of Company's common stock entitled to receive, a dividend or other distribution payable in additional shares of Company's common stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction: 

	(1)
	The
numerator of which shall be the total number of shares of Company's common stock issued and outstanding immediately prior to the time of such issuance or the close of business on
such record date, and

	(2)
	The
denominator of which shall be the total number of shares of Company's common stock issued and outstanding immediately prior to the time of such issuance or the close of business
on such record date, plus the number of shares of Company's common stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this Section 8.4(b)(2) as of the time of actual payment of such dividends or distributions. 

        (c)    Adjustments for Other Dividends and
Distributions.    In the event Company at any time or from time to time after the date hereof shall make or issue, or fix a record date for the determination of
holders of shares of Company's common stock entitled to receive, a dividend or other distribution payable in securities of Company other than shares of Company's common stock, then and in each such
event provision shall be made so that the Payee shall receive upon conversion of this Note in addition to the number of shares of Company's common stock receivable thereupon, the amount of securities
of Company that the Payee would have received had this Note been converted into shares of Company's common stock on the date of such event and had thereafter, during the period from the date of such 

5

 

event
to and including the conversion date, retained such securities receivable by the Payee as aforesaid during such period giving application to all adjustments called for during such period under
this Section 8.4(c) with respect to the rights of the Payee. 

        (d)    Adjustment for Reclassification, Exchange or
Substitution.    If the shares of Company's common stock issuable upon the conversion of this Note shall be changed into the same or a different number of shares of
any class or classes of stock, whether by capital reorganization, reclassification, exchange, substitution or otherwise (other than a subdivision or combination of shares or stock dividend, or a
reorganization, merger, consolidation or sale of assets provided for in Section 8.4(e)), then and in each such event the Payee shall thereafter be entitled to receive, upon conversion of this
Note, the kind and amounts of shares of stock and other securities and property receivable upon such reorganization, reclassification, exchange, substitution, or other change, by a holder of the
number of shares of Company's common stock deliverable upon conversion of this Note immediately prior to such reorganization, reclassification, exchange, substitution or change, all subject to further
adjustment as provided herein. 

        (e)    Reorganizations, Mergers, Consolidations or Sales of
Assets.    If at any time or from time to time there shall be a capital reorganization of the shares of Company's common stock (other than a subdivision, combination,
reclassification, or exchange of shares provided for in Section 8.4(d)) or a merger or consolidation of Company with or into another corporation or other entity, or the sale of all or
substantially all of Company's assets to any other entity or person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the Payee shall thereafter
be entitled to receive upon conversion of this Note the number of shares of Company's common stock or other securities or property of Company, or the successor entity resulting from such merger or
consolidation or sale, to which a holder of that number of shares of Company's common stock deliverable upon conversion of this Note immediately prior to such capital reorganization, merger,
consolidation, or sale would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 8.4 with respect to the rights of the Payee after the capital reorganization, merger, consolidation or sale to the end that the provisions of this Section 8.4
(including adjustment of the Conversion Price then in effect and the number of shares deliverable upon conversion of this Note) shall be applicable after that event as nearly equivalent as may be
practicable. 

        (f)    Notice of Adjustment.    In each case
of adjustment or readjustment of the Conversion Price for the number of shares of Company's common stock or other securities issuable upon conversion of this Note, Company, within five days of each
such adjustment or readjustment, shall notify in writing Payee of such adjustment or readjustment and shall provide in such notice a calculation in reasonable detail of such adjustment or
readjustment. 

        (g)    Notices of Record Date.    In the event
of (i) any taking by Company of a record of the holders of any class or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other
distribution or (ii) any reclassification, recapitalization, exchange or substitution of the capital stock of Company, any merger or consolidation of Company, or any transfer of all or
substantially all of the assets of Company to any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the affairs of Company, Company shall mail to the
Payee at least 10 days prior to the record date specified therein, a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, exchange, substitution, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and (C) at the time, if any is to be fixed, as to when the holders 

6

 

of
record of shares of Company's common stock (or other securities) shall be entitled to exchange their shares of Company's common stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, exchange, substitution, transfer, consolidation, merger, dissolution, liquidation or winding up. 

        8.5    Reservation of Stock Issuable Upon Conversion.    Company shall
at all times reserve and keep available out of its authorized but unissued shares of Company's common stock, solely for the purpose of effecting the conversion of this Note, such number of its shares
of Company's common stock as shall from time to time be sufficient to effect the conversion of this Note. As a condition precedent to the taking of any action which would cause an adjustment to the
Conversion Price, Company will take such corporate action as may, after consulting with its counsel, be necessary to increase its authorized but unissued shares of Company's common stock to such
number of shares as shall be sufficient in order that it may validly and legally issue the shares of its Company's common stock issuable based upon such adjusted Conversion Price. 

        8.6    Payment of Taxes.    Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the Payee) that may be imposed in respect to the issue or delivery of shares of Company's common stock upon conversion of
this Note. 

        8.7    Hart-Scott-Rodino.    Notwithstanding any provision
to the contrary herein, this Note shall convert only (i) if no filing is required in connection with the conversion in order to comply with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (a "Required Filing"); or (ii) after a Required Filing has been filed and upon the expiration or termination of any
waiting period required in connection with such Required Filing. 

        9.    Default.    Each of the following events shall be an "Event of
Default" hereunder: 

        9.1    Company fails to pay timely any of the principal due under this Note within five (5) days of the date the same
becomes due and payable or any accrued interest or other amounts due under this Note within five (5) days of the date the same becomes due and payable; 

        9.2    Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any
other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the
foregoing; 

        9.3    An involuntary petition is filed against Company (unless such petition is dismissed or discharged within sixty
(60) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors or other similar official is appointed to take
possession, custody or control of any property of Company; 

        9.4    Company breaches any material representation, warranty or covenant in, or fails to perform any material obligations
under, this Note or the Security Agreement, and such breach or failure is not cured within thirty (30) days following written notice of such breach or failure delivered by Payee to Company; 

        9.5    Company defaults in the payment of any amounts or in the performance of any obligations contained in any credit
agreement, promissory note, lease or other agreement relating to any indebtedness of Company to any person (other than under this Note) in excess of $250,000, and any grace period applicable to such
default has elapsed; 

        9.6    Judgment for the payment of money in excess of $250,000 (which is not covered by insurance) is rendered by any court or
other governmental body against Company, and Company does not discharge the same or procure a stay of execution thereof within thirty (30) days from the date of entry thereof, and within such
30-day period (or such longer period during which execution of such judgment shall have been stayed) Company does not appeal therefrom and cause the 

7

 

execution
thereof to be stayed during such appeal while providing such reserve therefor as may be required under generally accepted accounting principles; or 

        9.7    Company breaches any material representation, warranty or covenant in, or fails to perform any material obligation under,
the Purchase Agreement, and such breach or failure is not cured within thirty (30) days following written notice of such breach or failure delivered by Payee to Company, and such uncured breach
or failure has, or will have, a material adverse effect on the Company and its subsidiaries taken as a whole. 

        Upon
the occurrence of an Event of Default hereunder, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Payee, and, in the case of an Event
of Default pursuant to 9.2 or 9.3 above, automatically, be immediately due, payable and collectible by Payee pursuant to applicable law. 

        10.    Market Stand-Off Agreement.    Payee shall not sell, dispose of, transfer, make any short sale of,
grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Company common stock (or other securities of the Company) held by
Payee, for a period of time specified by the managing underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company
filed under the Act in connection with the IPO (referred to herein as the "Lock-Up Period"). Payee agrees to execute and deliver such other
agreements as may be reasonably requested by the Company and/or the managing underwriter(s) which are consistent with the foregoing or which are necessary to give further effect thereto. In order to
enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to such Common Stock (or other securities) until the end of such period. The underwriters of
the Company's stock are intended third party beneficiaries of this Section 10 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 

        11.    Waiver.    Company waives presentment and demand for payment, notice of dishonor, protest and notice of protest
of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. 

        The
right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law. 

        Any
term, covenant, agreement or condition of this Note may, only with the written consent of the Company and Payee, be amended or compliance therewith may be waived (either generally or
in a particular instance and either retroactively or prospectively), altered, modified or amended. 

        12.    Governing Law.    This Note shall be governed by, and construed and enforced in accordance with, the laws of
the State of Colorado, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 

        13.    Non-Negotiable; Transfer; Successors and Assigns.    THIS NOTE IS
NON-NEGOTIABLE. Payee may not assign or otherwise transfer this Note without the prior written consent of Company, which shall not be unreasonably withheld or
delayed, provided, however, that the Payee of this Note may assign or otherwise transfer this Note without the consent of Company to the Members in accordance with their respective membership
interests in the Payee. Subject to the foregoing, the 

8

 

provisions
of this Note shall inure to the benefit of and be binding on any successor to Company and shall extend to any holder hereof. 

	COMPANY	APTAS, INC.	 
	

 	

 	

 	

 
	 	By:	/s/ Perry Evans

	 	Printed Name:	Perry Evans

	 	Title:	CEO

[SIGNATURE PAGE TO CONSIDERATION NOTE]

9

 

ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:  

	YP WEB PARTNERS, LLC	 	 
	

 	

 	

 	
 	

 
	By:	/s/ Donald F. Jones
	 	 
	Printed Name:	Donald F. Jones
	 	 
	Title:	President
	 	 

[Signature Page Consideration Note] 

10

   EXHIBIT A  

REVENUE AFTER CERTAIN EXPENSES ("RACE") CALCULATION  

        All revenues and certain expenses (as detailed below), as identified in the Payee's historical financial statements attached hereto as  Exhibit A-1 (the "Historical Financials"), will be utilized as follows in arriving at
Revenue After Certain Expenses for calendar year 2005 ("Actual Race"). Sales booked in 2005 and collected on or prior to February 15, 2006 shall
be included in the calculation of Actual Race. On or prior to February 28, 2006, Company will prepare or cause to be prepared a statement setting forth in reasonable detail the method of
calculating Actual Race, which shall be in accordance with the methodology used in Payee's Historical Financials, and shall deliver or cause to be delivered to Payee such statement (the
"Actual Race Statement"). In the event that revenues are received in respect of products or services that include both the Assets (as defined in the
Purchase Agreement) and products or services of Aptas or ISx, the Payee shall calculate, in good faith, the amount of such revenues attributable to the Assets, and shall include such calculation as an
attachment to the Actual Race Statement. In the event that Payee objects to Company's calculation of the Actual Race, then, within 30 days after the delivery to Payee of the Actual Race
Statement, Payee shall deliver to Company a notice describing in reasonable detail Payee's objection to Company's calculation (an "Objection Notice"),
accompanied by a statement setting forth the dollar amount determined by Payee to represent the Actual Race or a request for additional information from Company that Payee may require in order to
determine the Actual Race. If Payee does not deliver an Objection Notice to Company within the 30-day period referred to in the preceding sentence, then the Company's calculation of Actual
Race shall be binding and conclusive on Company and Payee. If Payee delivers an Objection Notice to Company within the 30-day period referred to in this paragraph, and if Payee and Company
are unable to agree upon the calculation of the Actual Race within 60 days after an Objection Notice is delivered to Company, Payee and Company shall select a nationally recognized accounting
firm mutually acceptable to them (the "Neutral Accountant") to resolve any remaining objections, the cost of which shall be paid by the party whose
assertions regarding the amount of the Actual Race differ by the greater amount from the Actual Race determined by the Neutral Accountant. If Company and Payee are unable to select the Neutral
Accountant within 10 days after the commencement of such selection process, the Neutral Accountant shall be KPMG (or its successor) unless Company and Payee agree to another Neutral Accountant
within 15 days of the commencement of the selection process. Payee and Company shall jointly instruct the Neutral Accountant to resolve any unresolved objections within 30 days after
referral of the matter to them, and the determination by 

A-1

 

the
Neutral Accountant of the Actual Race, which shall be made in accordance with this Exhibit A, shall be conclusive and binding on the Company
and Payee absent fraud or manifest error. 

	Revenues From All Sources	 	$	XX
	
Less:	
 	
 	

 
	
Cost of Goods Sold	
 	
 	

 
	 	Hosting/Bandwidth / Portal Content	 	 	‹XX›
	 	Salary Expense Production	 	 	‹XX›
	 	Salary Expense Development	 	 	‹XX›
	 	Salary Expense Customer Service	 	 	‹XX›
	 	CD-ROM Expense	 	 	‹XX›
	 	Programming Expense	 	 	‹XX›
	 	Misc Expense	 	 	‹XX›
	 	Software Expense	 	 	‹XX›
	
Other Operating Expenses:	
 	
 	

 
	 	Equipment Rental	 	 	‹XX›
	 	Office Supplies	 	 	‹XX›
	 	Rent	 	 	‹XX›
	 	Repairs/Maintenance	 	 	‹XX›
	 	Salary—Selling	 	 	‹XX›
	 	Selling Expense	 	 	‹XX›
	 	Computer Software/Hardware	 	 	‹XX›
	 	 	

	
Revenue After Certain Expenses (Actual Race)	
 	
$	

XX
	 	 	

	

Target Race	
 	
$	

5,703,900
	

Minimum Race	
 	
$	

4,703,900

A-2

 
ALLONGE

TO

PROMISSORY NOTE  

        For good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, this Allonge to Promissory Note is entered into by
the undersigned with respect to that certain Promissory Note dated April 14, 2005 in the original principal amount of $10,000,000.00 (the "Note")
executed by Aptas, Inc., a Delaware corporation whose name subsequently was changed to Local Matters, Inc. (the "Company"), in favor of YP
Web Partners, LLC, a Louisiana limited liability company ("Payee"). 

RECITALS:  

        A. With respect to the first installment payment, Payee timely notified the Company of Payee's Election to receive the Applicable Cash Payment on the first
Installment Date, and the Company acknowledges timely receipt of Payee's Election to receive the Applicable Cash Payment on the first Installment Date. 

        B.
The Company and Payee agree that the Reduced Face Amount is $6,145,202.34, and that the amount of the Applicable Cash Payment payable to Payee on the first Installment Date is
$2,048,400.78, plus accrued and unpaid interest of $517,207.17. 

        C.
The Company desires to pay the Applicable Cash Payment with respect to the installment payment due on the first Installment Date in two payments as provided in this Allonge to
Promissory Note, and Payee agrees to accept the installment payment due on the first Installment Date in two payments as provided hereinbelow. 

        D.
Capitalized terms used herein shall have the meanings ascribed to them in the Note, unless otherwise defined herein. 

        NOW,
THEREFORE, the Company and Payee, intending to be legally bound hereby, agree as follows: 

        1.     The
installment payment with respect to the first Installment Date shall be paid as follows: 

        (a)   On
May 3, 2006, the Company shall pay to Payee the aggregate principal amount of $1,024,200.39, together with accrued and unpaid interest on 50% of the Reduced
Face Amount of $258,603.58,; and 

        (b)   On
the earlier to occur of (i) five days after the closing of the IPO or (ii) July 31, 2006, the Company shall pay to Payee the aggregate principal
amount of $1,024,200.39, together with accrued and unpaid interest, at the interest rate provided for in the Note, on 50% of the Reduced Face Amount from April 14, 2005 to and including the
date of payment of such principal amount. 

        2.     For
the avoidance of doubt, the second Installment Date is May 1, 2007 and the third Installment Date is May 1, 2008. 

        3.     Except
as provided above, all other provisions of the Note shall remain in full force and effect. Nothing in this Allonge to Promissory Note is intended to modify or
effect in any way the rights and obligations of the parties arising under the Note prior to the date hereof. 

A-3

 

        IN
WITNESS WHEREOF, the undersigned have caused this Allonge to Promissory Note to be executed on May 1, 2006. 

	

 	
 	

LOCAL MATTERS, INC.

(formerly known as Aptas, Inc.)
	

 	
 	

By:	
 	

/s/  PERRY EVANS      
 Perry Evans, President and Chief Executive Officer
	

 	
 	

YP WEB PARTNERS, LLC
	

 	
 	

By:	
 	

/s/  DONALD F. JONES      
 Donald F. Jones, President

A-4

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