Document:

Exhibit 10.02

 

EXECUTION COPY

 

ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE
COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE
OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 12(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED
BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 7 OF THIS NOTE.

 

WPCS
International Incorporated

 

Promissory
Note

 

	Issuance Date:  ___________, 2014	Original Principal Amount: $        

 

FOR VALUE RECEIVED,
WPCS International Incorporated, a Delaware corporation (the “Company”), hereby promises to pay to the order
of ________________________ or registered assigns (“Holder”) the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption or otherwise, the “Principal”) when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms
hereof) and to pay interest (“Interest”) on any outstanding Principal at a rate equal to the applicable Interest
Rate (as defined below), from the date set out above as the Issuance Date (the “Issuance Date”) until
the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, redemption
or otherwise (in each case in accordance with the terms hereof). This Note (including any Note issued in exchange, transfer or
replacement hereof, this “Note”) is the Note issued pursuant to that certain Amendment, Waiver and Exchange
Agreement, dated as of ______________, 2014, by and between the Company and the Holder (the “Exchange Agreement”)
on the Closing Date (as defined in the Exchange Agreement). Certain capitalized terms used herein are defined in Section 24.

 

1.          MATURITY
DATE. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges on such Principal and Interest (collectively, the “Obligations
Amount”).

 

    	 

    	 

    

 

2.          INTEREST;
INTEREST RATE. Except as otherwise set forth herein, no Interest on this Note shall accrue prior to the Maturity Date. From
and after the occurrence and during the continuance of any Event of Default or from and after the Maturity Date, to the extent
this Note remains outstanding, as applicable, the interest on this Note shall commence accruing daily at an interest rate of twenty-five
percent (25%) (the “Interest Rate”) on the Obligations Amount from time to time, shall be computed on the basis
of a 360-day year comprised of twelve (12) thirty (30) day months and shall be payable in arrears on the first Trading Day (as
defined in the Second Securities Purchase Agreement) of each Quarter (each, an “Interest Date”) and shall compound
each calendar month and shall be payable in accordance with the terms of this Note.

 

3.          RIGHTS
UPON EVENT OF DEFAULT.

 

(a)          Event
of Default. Each of the following events shall constitute an “Event of Default”:

 

(i)          the
Company’s or any Subsidiary’s (as defined in the Second Securities Purchase Agreement) failure to pay to the Holder
any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note (including, without limitation,
the Company’s or any Subsidiary’s failure to pay any redemption payments or amounts hereunder), the Exchange Agreement
or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby
and thereby, except, in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure
remains uncured for a period of at least five (5) days;

 

(ii)         the
occurrence of any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in the Second
Securities Purchase Agreement) of the Company or any of its Subsidiaries, other than any amounts not in excess of an aggregate
of $25,000; (other than a Subsidiary in connection with the financing arrangement with Zurich American Insurance Company described
on Schedule 4(a)(viii) attached hereto (the “Zurich Matter”));

 

(iii)        bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or
against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed
within thirty (30) days of their initiation

 

(iv)        the
commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign law, or the
consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence
of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts
generally as they become due, the taking of corporate action by the Company or any Subsidiary in furtherance of any such action
or the taking of any action by any Person to commence a UCC foreclosure sale or any other similar action under federal, state or
foreign law;

 

    	2

    	 

    

 

(v)         the
entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary
or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree, order, judgment or other similar document adjudging the Company or any Subsidiary as bankrupt or
insolvent, or approving as properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law or (iii) a decree, order,
judgment or other similar document appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order,
judgment or other similar document unstayed and in effect for a period of thirty (30) consecutive days (other than the Zurich Matter);

 

(vi)        a
final judgment or judgments for the payment of money aggregating in excess of $100,000 are rendered against the Company and/or
any of its Subsidiaries and which judgments are not, within forty-five (45) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any
judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $100,000
amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within
forty-five (45) days of the issuance of such judgment;

 

(vii)       except
with respect to the Zurich Matter, the Company and/or any Subsidiary, individually or in the aggregate, either (i) fails to pay,
when due, or within any applicable grace period, any payment with respect to any Indebtedness in excess of $100,000 due to any
third party (other than, with respect to unsecured Indebtedness only, payments contested by the Company and/or such Subsidiary
(as the case may be) in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the
payment thereof in accordance with GAAP) or is otherwise in breach or violation of any agreement for monies owed or owing in an
amount in excess of $100,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate
amounts due thereunder, or (ii) suffer to exist any other circumstance or event that would, with or without the passage of time
or the giving of notice, result in a default or event of default under any agreement binding the Company or any Subsidiary, which
default or event of default would or is likely to have a material adverse effect on the business, assets, operations (including
results thereof), liabilities, properties, condition (including financial condition) or prospects of the Company or any of its
Subsidiaries, individually or in the aggregate;

 

    	3

    	 

    

 

(viii)      other
than as specifically set forth in another clause of this Section 3(a), the Company or any
Subsidiary breaches any representation, warranty, covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant or other term or condition that is curable, only if such breach remains uncured for a period of
three (3) consecutive Trading Days; or

 

(ix)         any
Material Adverse Effect (as defined in the Second Securities Purchase Agreement) occurs.

 

(b)          Notice
of an Event of Default; Redemption Right. Upon the occurrence of an Event of Default with respect to this Note or any Other
Note, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (with next
day delivery specified) (an “Event of Default Notice”) to the Holder. At any time after the earlier of the Holder’s
receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company
to redeem (regardless of whether such Event of Default has been cured) all or any portion of this Note by delivering written notice
thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to have the Company redeem. Each portion of this Note subject to
redemption by the Company pursuant to this Section 3(b) shall be redeemed by the Company at a price equal to the product of (A)
the aggregate portion of the Obligations Amount to be redeemed multiplied by (B) the Redemption Premium (the “Event of
Default Redemption Price”). Redemptions required by this Section 3(b) shall be made in accordance with the provisions
of Section 7. To the extent redemptions required by this Section 3(b) are deemed or determined by a court of competent jurisdiction
to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments. In the event of the
Company’s redemption of any portion of this Note under this Section 3(b), the Holder’s damages would be uncertain and
difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability
of a suitable substitute investment opportunity for the Holder. Accordingly, any redemption premium due under this Section 3(b)
is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

 

    	4

    	 

    

 

4.          RIGHTS
UPON FUNDAMENTAL TRANSACTION.

 

(a)          Assumption.
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 Note and the other Transaction Documents in accordance with the provisions of
this Section 4(a) 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 such Note a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to the Note, including, without limitation,
having a principal amount and interest rate equal to the principal amounts then outstanding and the interest rates of the Note
held by such holder and having similar ranking to the Note, and satisfactory to the Holder 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 occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from
and after the date of such Fundamental Transaction, the provisions of this Note 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 Note and the other Transaction Documents with the same effect as
if such Successor Entity had been named as the Company herein. Notwithstanding the foregoing, the Holder may elect, at its sole
option, by delivery of written notice to the Company to waive this Section 4(a) to permit the Fundamental Transaction without the
assumption of this Note. The provisions of this Section 4 shall apply similarly and equally to successive Fundamental Transactions.

 

(b)          Notice
of a Fundamental Transaction; Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days
prior to the consummation of a Fundamental Transaction, but not prior to the public announcement of such Fundamental Transaction,
the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Fundamental Transaction
Notice”). At any time during the period beginning after the Holder’s receipt of a Fundamental Transaction Notice
or the Holder becoming aware of a Fundamental Transaction if a Fundamental Transaction Notice is not delivered to the Holder in
accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading Days after (A)
consummation of such Fundamental Transaction or (B) the date of receipt of such Fundamental Transaction Notice, the Holder may
require the Company to redeem all or any portion of this Note by delivering written notice thereof (“Fundamental Transaction
Redemption Notice”) to the Company, which Fundamental Transaction Redemption Notice shall indicate the aggregate portion
of the Obligations Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section
4 shall be redeemed by the Company in cash at a price equal to the product of (w) the Fundamental Transaction Redemption Premium
multiplied by (y) the aggregate portion of the Obligations Amount being redeemed (the “Fundamental Transaction Redemption
Price”). Redemptions required by this Section 4 shall be made in accordance with the provisions of Section 7 and shall
have priority to payments to stockholders in connection with such Fundamental Transaction. To the extent redemptions required by
this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. In the event of the Company’s redemption of any portion of
this Note under this Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any redemption premium due under this Section 4(b) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

 

    	5

    	 

    

 

5.          NONCIRCUMVENTION.
The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation (as defined
in the Second Securities Purchase Agreement), Bylaws (as defined in the Second Securities Purchase Agreement) or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue 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 Note, and will at all times in good faith
carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this
Note.

 

6.          OPTIONAL
AND MANDATORY REDEMPTIONS

 

(a)          Company
Optional Redemption. The Company shall have the right at any time to redeem all or any aggregate portion of the Obligations
Amount then remaining under this Note (an “Optional Redemption”). The portion of this Note subject to redemption
pursuant to this Section 6(a) shall be redeemed by the Company in cash at a price equal to the product of (i) the aggregate portion
of the Obligations Amount being redeemed to, but excluding, the applicable date of redemption and (ii) the Default Redemption Premium,
if any (the “Optional Redemption Price”). The Company may exercise its redemption right under this Section 6(a)
by delivering a written notice thereof by confirmed facsimile and overnight courier to all, but not less than all, of the record
holders of Note (the “Optional Redemption Notice” and the date such notice is delivered to all the record holders
is referred to as the “Optional Redemption Notice Date”). The Optional Redemption Notice shall be irrevocable.
The Optional Redemption Notice shall state (A) the date on which the Optional Redemption shall occur (the “Optional Redemption
Date”) which date shall be not less than three (3) Business Days after the Optional Redemption Notice Date and (B) the
aggregate portion of the Obligations Amount of the Note which the Company has elected to be subject to Optional Redemption from
the Holder pursuant to this Section on the Optional Redemption Date. Redemptions made pursuant to this Section 6(a) shall be made
in accordance with Section 7.

 

    	6

    	 

    

 

(b)          Subsequent
Placement Offerings. Following the consummation of an Subsequent Placement Offering, the Company shall redeem 17% of the Note
with the net proceeds of such Subsequent Placement Offering. Promptly after the consummation of an Subsequent Placement Offering,
but in no event later than three (3) Business Days thereafter, the Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (the “Subsequent Placement Offering Redemption Notice” and the date such notice
is delivered to all the record holders is referred to as the “Subsequent Placement Offering Redemption Notice Date”)
which notice shall (A) describe the terms of such Subsequent Placement Offering including (1) the date of consummation of such
sale, (2) the number of Common Shares sold in such Subsequent Placement Offering and (3) the sale price per Common Share (the “Sale
Price”), (B) state that the Company shall redeem (an “Subsequent Placement Offering Redemption”) all
or a portion of this Note in accordance with this Section 6(b), (C) state the date on which the Subsequent Placement Offering Redemption
shall occur (the “Subsequent Placement Offering Redemption Date”) which date shall not be less than two (2)
Business Days nor more than the earlier of (x) five (5) Business Days after the Subsequent Placement Offering Redemption Notice
Date and (y) three (3) Business Days after date of consummation of the Subsequent Placement Offering and (D) state the aggregate
portion of the Obligations Amount of the Note which the Company shall redeem pursuant to an Subsequent Placement Offering Redemption.
Each portion of this Note subject to redemption by the Company pursuant to this Section 6(b) shall be redeemed by the Company at
a price equal to the product of (i) aggregate portion of the Obligations Amount being redeemed to, but excluding, the date of redemption
and (ii) the applicable Default Redemption Premium, if any (the “Subsequent Placement Offering Redemption Price”).
Redemptions required by this Section 6(b) shall be made in accordance with the provisions of Section 7.

 

7.          REDEMPTIONS.

 

(a)          Mechanics.
The Company shall deliver the applicable Event of Default Redemption Price to the Holder in cash within five (5) Business Days
after the Company’s receipt of the Holder’s Event of Default Redemption Notice. If the Holder has submitted a Fundamental
Transaction Redemption Notice in accordance with Section 4(b), the Company shall deliver the applicable Fundamental Transaction
Redemption Price to the Holder in cash concurrently with the consummation of such Fundamental Transaction if such notice is received
prior to the consummation of such Fundamental Transaction and within five (5) Business Days after the Company’s receipt of
such notice otherwise. The Company shall deliver in cash (i) the applicable Optional Redemption Price to the Holder on the Optional
Redemption Date and (ii) the applicable Subsequent Placement Offering Redemption Price to the Holder on the Subsequent Placement
Offering Redemption Date. In the event of a redemption of less than all of the Obligations Amount of this Note, the Company shall
promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 12(d)) representing the aggregate
portion of the Obligations Amount which has not been redeemed. In the event that the Company does not pay the applicable Redemption
Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price
in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or
any portion of this Note representing the aggregate portion of the Obligations Amount that was submitted for redemption and for
which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company’s receipt
of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such aggregate portion of the Obligations
Amount, (y) the Company shall immediately return this Note, or issue a new Note (in accordance with Section 12(d)), to the Holder.
The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice
with respect to the aggregate portion of the Obligations Amount subject to such notice.

 

    	7

    	 

    

 

8.          VOTING
RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law (including, without limitation,
the Delaware General Corporation Law) and as expressly provided in this Note.

 

9.          [Intentionally
Omitted]

 

10.         AMENDING
THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be required for any change or amendment to this Note.

 

11.         TRANSFER.
This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions
of Section 2(g) of the Second Securities Purchase Agreement.

 

12.         REISSUANCE
OF THIS NOTE.

 

(a)          Transfer.
If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section 12(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 12(d)) to the Holder representing the outstanding Principal not being transferred. The Holder
and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 7 following redemption
of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face
of this Note.

 

(b)          Lost,
Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note (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 Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 12(d)) representing the outstanding Principal.

 

(c)          Note
Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section 12(d) and in principal amounts of at least $1,000) representing
in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.

 

(d)          Issuance
of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall
be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding
(or in the case of a new Note being issued pursuant to Section 12(a) or Section 12(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated
on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions
as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges on the Principal and Interest of this Note,
from the Issuance Date.

 

    	8

    	 

    

 

13.         REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and any of 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 Holder’s
right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. 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 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 shall be entitled, in addition to all other available remedies, to an
injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without
any bond or other security being required. 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 Note.

 

14.         PAYMENT
OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note 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
Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company
or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay
the reasonable 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. The Company expressly
acknowledges and agrees that no amounts due under this Note shall be affected, or limited, by the fact that the purchase price
paid for this Note was less than the original Principal amount hereof.

 

15.         CONSTRUCTION;
HEADINGS. This Note 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 Note are for convenience of reference and shall not form part of, or affect
the interpretation of, this Note. Terms used in this Note but defined in the other Transaction Documents shall have the meanings
ascribed to such terms on the Closing Date in such other Transaction Documents unless otherwise consented to in writing by the
Holder.

 

    	9

    	 

    

 

16.         FAILURE
OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and
signed by an authorized representative of the waiving party.

 

17.         DISPUTE
RESOLUTION. In the case of a dispute as to the arithmetic calculation of any Redemption Price, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within one (1) Business Day of receipt, or deemed receipt, of
the applicable Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and
the Company are unable to agree upon such calculation within one (1) Business Day of such disputed arithmetic calculation being
submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile the disputed arithmetic calculation
of such Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the
accountant to perform the determinations or calculations and notify the Company and the Holder of the results no later than five
(5) Business Days from the time it receives the disputed calculations. Such accountant's calculation shall be binding upon all
parties absent demonstrable error.

 

18.         NOTICES;
CURRENCY; PAYMENTS.

 

(a)          Notices.
Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Second Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice
of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written notice to the Holder at least twenty (20) days
prior to the date on which the Company closes its books or takes a record for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

 

(b)          Currency.
All dollar amounts referred to in this Note are in United States Dollars (“U.S. Dollars”), and all amounts owing
under this Note shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted in the U.S.
Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation (each, a “US Dollar Equivalent”).
“Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant
to this Note, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being
understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation
shall be the final date of such period of time).

 

    	10

    	 

    

 

(c)          Payments.
Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth
herein, such payment shall be made in lawful money of the United States of America by a certified check drawn on the account of
the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing
(which address, in the case of each of the Buyers, shall initially be as set forth on the Schedule of Buyers attached to the Second
Securities Purchase Agreement), provided that the Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out such request and the Holder’s wire transfer
instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day,
the same shall instead be due on the next succeeding day which is a Business Day. Any amount of Principal or other amounts due
under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company
in an amount equal to interest on such amount at the rate of fifteen percent (15%) per annum from the date such amount was due
until the same is paid in full (“Late Charge”).

 

19.         CANCELLATION.
After all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note have been paid in full, this
Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

20.         WAIVER
OF NOTICE. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all
other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement.

 

21.         GOVERNING
LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal laws of the State of Illinois, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of Illinois. The Company hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in Chicago, Illinois, 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. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule
of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified
to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note. 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 NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

    	11

    	 

    

 

22.         JUDGMENT
CURRENCY.

 

(a)          If
for the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to
convert into any other currency (such other currency being hereinafter in this Section 22 referred to as the “Judgment
Currency”) an amount due in U.S. dollars under this Note, the conversion shall be made at the Exchange Rate prevailing
on the Trading Day immediately preceding:

 

(i)          the
date actual payment of the amount due, in the case of any proceeding in the courts of Illinois or in the courts of any other jurisdiction
that will give effect to such conversion being made on such date: or

 

(ii)         the
date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as
of which such conversion is made pursuant to this Section 22(a)(ii) being hereinafter referred to as the “Judgment Conversion
Date”).

 

(b)          If
in the case of any proceeding in the court of any jurisdiction referred to in Section 22(a)(ii) above, there is a change in the
Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the applicable
party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with
the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion
Date.

 

(c)          Any
amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained
for any other amounts due under or in respect of this Note.

 

23.         MAXIMUM
PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges
in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed
by the Company to the Holder and thus refunded to the Company.

 

24.         CERTAIN
DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:

 

    	12

    	 

    

 

(a)          “Bankruptcy
Proceeding” means, with respect to any Person, (i) the occurrence of a voluntary case or proceeding under any applicable
federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in
respect of such Person in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of such Person or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence
of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts
generally as they become due, the taking of corporate action by such Person in furtherance of any such action or the taking of
any action by any Person to commence a UCC foreclosure sale or any other similar action under federal, state or foreign law or
(ii) the entry by a court of (A) a decree, order, judgment or other similar document in respect of such Person of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar
law or (B) a decree, order, judgment or other similar document adjudging such Person as bankrupt or insolvent, or approving as
properly filed a petition seeking liquidation, reorganization, arrangement, adjustment or composition of or in respect of such
Person under any applicable federal, state or foreign law or (C) a decree, order, judgment or other similar document appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of such Person or of any substantial
part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order,
judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for
a period of thirty (30) consecutive days.

 

(b)          “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.

 

(c)          “Default
Redemption Premium” means, as of any date of determination (i) if such date of determination occurs after October 5,
2015, 125% or (ii) if such date of determination occurs on or prior to October 5, 2015, 100%.

 

(d)          
“Fundamental Transaction” means that (i) the Company or any of its Subsidiaries shall, directly or indirectly,
in one or more related transactions, (1) consolidate or merge with or into (whether or not the Company or any of its Subsidiaries
is the surviving corporation) any other Person, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all
or substantially all of its respective properties or assets to any other Person, or (3) allow any other Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company
(not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement
or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement)
with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company
(not including any shares of Voting Stock of the Company held by the other Person or other Persons making or party to, or associated
or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination),
or (5) reorganize, recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is
or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50%
of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

 

    	13

    	 

    

 

(e)          “Fundamental
Transaction Redemption Premium” means 125%.

 

(f)          “GAAP”
means United States generally accepted accounting principles, consistently applied.

 

(g)          “Maturity
Date” shall mean September 30, 2015; provided, however, the Maturity Date may be extended at the option of the Holder
in the event that, and for so long as, an Event of Default shall have occurred and be continuing or any event shall have occurred
and be continuing that with the passage of time and the failure to cure would result in an Event of Default.

 

(h)          “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.

 

(i)          “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.

 

(j)          “Quarter”
means each of: (i) the period beginning on and including February 1 and ending on and including April 30; (ii) the period beginning
on and including May 1 and ending on and including July 31; (iii) the period beginning on and including August 1 and ending on
and including October 31; and (iv) the period beginning on and including November 1 and ending on and including January 31.

 

(k)          “Redemption
Notices” means, collectively, Event of Default Redemption Notices, the Optional Redemption Notice, the Subsequent Placement
Offering Redemption Notice and the Fundamental Transaction Redemption Notices, and each of the foregoing, individually, a “Redemption
Notice.”

 

(l)          “Redemption
Premium” means (i) in the case of the Events of Default described in Section 3(a) (other than Sections 3(a)(iii) through
3(a)(v)), 125% or (ii) in the case of the Events of Default described in Sections 3(a)(iii) through 3(a)(v), 100%.

 

(m)          “Redemption
Prices” means, collectively, Event of Default Redemption Prices, the Fundamental Transaction Redemption Prices, the Optional
Redemption Prices and the Subsequent Placement Offering Redemption Prices, and each of the foregoing, individually, a “Redemption
Price.”

 

    	14

    	 

    

 

(n)          “Second
Securities Purchase Agreement” shall have the meaning as set forth in the Exchange Agreement.

 

(o)          “Subsequent
Placement Offering” means the sale, lease, conveyance or other disposition, directly or indirectly, by the Company of
any securities of the Company or any of its Subsidiaries in a Subsequent Placement (as defined in the Second Securities Purchase
Agreement) (other than (i) account receivables facilities and credit lines that, in either case, do not include the issuance of
any common equity, Convertible Securities (as defined in the Second Securities Purchase Agreement), Options (as defined in the
Second Securities Purchase Agreement) or are not otherwise equity-linked to any securities of the Company or any of its Subsidiaries
and (ii) Excluded Securities (as defined in the Second Securities Purchase Agreement).

 

(p)          “Subsidiaries”
shall have the meaning as set forth in the Second Securities Purchase Agreement.

 

(q)          “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.

 

(r)          
“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors,
managers, trustees or other similar governing body of such Person (irrespective of whether or not at the time capital stock of
any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

25.         DISCLOSURE.
Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good
faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company
or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose
such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that
a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate
to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company
or its Subsidiaries. Nothing contained in this Section 25 shall limit any obligations of the Company, or any rights of the Holder,
under Section 4(i) of the Second Securities Purchase Agreement.

 

[signature page follows]

 

    	15

    	 

    

 

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

 

	 	WPCS International Incorporated
	 	 
	 	By:	 
	 	 	Name: Sebastian Giordano
	 	 	Title:  Chief Executive Officer

 

    	 

    	 

    

 

SCHEDULE 4(A)(VIII)

 

Description of Zurich Matter

 

On
July 12, 2012, the Company executed the Surety Financing and Confession of Judgment Agreement (the Zurich Agreement) with Zurich
American Insurance Company (Zurich). The Company is not in compliance with the terms of the Zurich Agreement.
Zurich advanced the Company $793,927 for the payment of labor and
labor-related benefits to assist in completing the project contract with the Camden County Improvement Authority for work at the
Cooper Medical Center in New Jersey (the Owner or Cooper Project). The Cooper Project is a $15.1 million project that was completed
by WPCS International-Trenton, Inc. Zurich and its affiliate Fidelity and Deposit Company of Maryland (F&D), as surety, have
issued certain performance and payment bonds on behalf of the Owner in regard to the Company’s work on this project. The
Company was to repay Zurich the financial advances pursuant to the following repayment schedule: (1) $397,000 on or about August
3, 2012; and (2) the balance of $396,927 on or about September 7, 2012. As a condition precedent to the financial advance, the
Company executed two letters which are held by Zurich: (1) a letter to the Owner voluntarily terminating its contract for reason
of the Company’s default and assigning the contract to Zurich, and (2) a letter of direction to the Owner. The letters may
be forwarded to the Owner in an Event of Default. An Event of Default under the Zurich Agreement includes: (a) the Company’s
failure to make repayments to Zurich in accordance with the repayment schedule; (b) Zurich, at the Company’s request, advances
more than $888,000; (c) Zurich pays any of the Company’s vendors, subcontractors, suppliers or material men pursuant to Zurich’s
obligations under its payment bond or any other reason; or (d) the Company uses any of the funds advanced by Zurich for any reason
other than the payment of labor and labor benefits incurred in regard to the Cooper Project. The Company is in default under the
Zurich Agreement as it has not repaid Zurich the $793,927. As a result, a letter of direction was sent to the Owner, requesting
that all current and future amounts to be paid on the contract be assigned and paid to Zurich directly.Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

This LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into as of November 20, 2014, by and between EAST WEST BANK (“Bank”) and NEPHROGENEX, INC. (“Borrower”).

 

RECITALS

 

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

 

AGREEMENT

 

The parties agree as follows:

 

1.                                      DEFINITIONS AND CONSTRUCTION

 

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

 

1.2                               Accounting Terms.  Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP.  The term “financial statements” shall include the accompanying notes and schedules.

 

2.                                      LOAN AND TERMS OF PAYMENT

 

2.1                               Credit Extensions.

 

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

 

(b)                                 Loan; Draws.  Subject to and upon the terms and conditions of this Agreement, Bank shall make advances to Borrower in an aggregate amount not to exceed Twelve Million Dollars ($12,000,000.00), which shall be advanced to Borrower as follows:

 

(i)                                     On the Closing Date, Bank shall advance to Borrower an amount equal to Seven Million Dollars ($7,000,000.00) (“Draw A”); and

 

(ii)                                  During the Draw B Period, Bank shall, at the request of Borrower, advance to Borrower an amount equal to Five Million Dollars ($5,000,000.00) (“Draw B” and together with Draw A, each a “Draw” and collectively, the “Draws”).

 

(iii)                               Interest shall accrue from the date each Draw is made at the rate specified in Section 2.3 (a), and shall be payable in accordance with Section 2.3(c).  The Draws shall be repaid in (i) if the Amortization Date is November 1, 2015, thirty six (36), (ii) if the Amortization Date is May 1, 2016, thirty (30), or (iii) if the Amortization Date is November 1, 2016, twenty four (24), equal monthly installments of principal plus accrued but unpaid interest, commencing on the Amortization Date and continuing on the same day of each month thereafter through the Maturity Date, at which time all amounts owing under this Section 2.1(b) shall be immediately due and payable.  The Draws, once repaid, may not be reborrowed.  Borrower may prepay the Draws without penalty or premium.

 

1

 

(iv)                              Prepayment.

 

a)                                     Voluntary Prepayment.  So long as an Event of Default has not occurred and is not continuing, Borrower shall have the option to prepay all, but not less than all, of the Draws advanced by Bank under this Agreement, provided Borrower (i) delivers written notice to Bank of its election to prepay the Draws at least thirty (30) days prior to such prepayment and (ii) pays, on the date of such prepayment, (a) all outstanding principal with respect to the Draws, plus accrued but unpaid interest, (b) the Final Payment, plus (c) all other sums, including Bank Expenses, if any, that shall have become due and payable.

 

b)                                     Mandatory Prepayment Upon an Acceleration.  If the Draws are accelerated in accordance with the terms hereof following the occurrence and continuance of an Event of Default or otherwise, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal with respect to the Draws, plus accrued but unpaid interest, (ii) the Final Payment, plus (iii) all other sums, including Bank Expenses, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts.

 

2.2                               Intentionally Omitted.

 

2.3                               Interest Rates, Payments, and Calculations.

 

(a)                                 Interest Rates.  Except as set forth in Section 2.3(b), the Draws advanced to Borrower by Bank shall bear interest, on the outstanding daily balance thereof, at a rate equal to two and one quarter percent (2.25%) above the Prime Rate per annum.

 

(b)                                 Late Fee; Default Rate.  If any payment is not made within ten (10) days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5.00%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law (the “Default Rate”).  All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

 

(c)                                  Payments.  Interest hereunder shall be due and payable on the first calendar day of each month during the term hereof.  Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts.  Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

 

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

 

2.4                               Crediting Payments.  Prior to the occurrence and continuation of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies.  After the occurrence and continuation of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 2:00 p.m. Pacific time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day.  Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

 

2

 

2.5                               Fees.  Borrower shall pay to Bank the following:

 

(a)                                 Facility Fee.  On the Closing Date, a fee equal to One Hundred Twenty Thousand Dollars ($120,000.00), which shall be nonrefundable;

 

(b)                                 Final Payment.  The Final Payment, when due hereunder; and

 

(c)                                  Bank Expenses.  On the Closing Date, all Bank Expenses incurred through the Closing Date, and, after the Closing Date, all Bank Expenses, as and when they become due.

 

2.6                               Term.  This Agreement shall become effective on the Closing Date and, subject to Section 12.8, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

 

3.                                      CONDITIONS OF LOANS

 

3.1                               Conditions Precedent to Initial Credit Extension.  The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:

 

(a)                                 this Agreement;

 

(b)                                 an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

 

(c)                                  UCC National Form Financing Statement;

 

(d)                                 an intellectual property security agreement;

 

(e)                                  evidence of insurance;

 

(f)                                   the certificate for the Shares, together with Assignments Separate from Certificate, duly executed in blank;

 

(g)                                  payment of the fees and Bank Expenses then due specified in Section 2.5;

 

(h)                                 current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;

 

(i)                                     current financial statements, including audited statements for Borrower’s most recently ended fiscal year, together with an unqualified opinion, company prepared consolidated balance sheets and income statements for the month ended September 30, 2014 in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;

 

(j)                                    current Compliance Certificate in accordance with Section 6.2 (in either original or electronic format);

 

(k)                                 a Warrant in form and substance satisfactory to Bank;

 

(l)                                     a Perfection Certificate;

 

(m)                             subject to Section 6.6, securities and/or deposit account control agreements with respect to any accounts permitted hereunder to be maintained outside Bank;

 

3

 

(n)                                 a Lessor’s Acknowledgment and Subordination with respect to each of Borrower’s leased locations other than 79 T.W. Alexander Drive, 4401 Research Commons Building, Suite 290, P.O. Box 14188, Research Triangle Park, NC 27709 and provided that the Lessor’s Acknowledgment and Subordination with respect to Borrower’s leased location at 3200 Beechleaf Court, Suite 900, Raleigh, NC 27604 shall be delivered to Bank within thirty (30) days of the Closing Date;

 

(o)                                 an Automatic Debit Authorization; and

 

(p)                                 such other documents or certificates, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

 

3.2                               Conditions Precedent to all Credit Extensions.  The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:

 

(a)                                 timely receipt by Bank of the Payment/Advance Form;

 

(b)                                 receipt by Bank of an executed Disbursement Letter in the form of Exhibit E attached hereto; and

 

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

 

4.                                      CREATION OF SECURITY INTEREST

 

4.1                               Grant of Security Interest.  Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents.  Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral.  Notwithstanding any termination of this Agreement, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding (other than contingent indemnification obligations not then due and payable).

 

4.2                               Perfection of Security Interest.  Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable.  Any such financing statements may be filed by Bank at any time in any appropriate jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction.  Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfection of Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents.  Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement.  Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, and (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form

 

4

 

and substance satisfactory to Bank.  Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper.  Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.

 

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

 

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

 

5.                                      REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

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

 

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

 

5.3                               Collateral.  Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens.  Except as disclosed in the Perfection Certificate, all Collateral is located solely in the Collateral States, other than movable items of personal property used and moved in the ordinary course of Borrower’s business having an aggregate book value not exceeding One Hundred Thousand Dollars ($100,000.00).  All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made.  Except as set forth in the Schedules hereto, none of the Collateral is maintained or invested with a Person other than Borrower and its Subsidiaries or Bank or Bank’s Affiliates, provided, however,

 

5

 

that Inventory, Equipment and supplies, including Pyridorin, may be stored by third parties solely to the extent necessary for ongoing use in clinical trials in the ordinary course of business.

 

5.4                               Intellectual Property Collateral.  Borrower is the sole owner or exclusive licensee of the Intellectual Property Collateral, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business or non-exclusive licenses granted by Borrower to its Subsidiaries constituting a Permitted IP Transfer.  To the best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property Collateral violates the rights of any third party except to the extent such claim could not reasonably be expected to cause a Material Adverse Effect.  Except as set forth in the Schedule, Borrower’s rights as a licensee of intellectual property do not give rise to more than five percent (5.00%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service.

 

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

 

5.6                               Actions, Suits, Litigation, or Proceedings.  Except as set forth in the Schedule, there are no actions, suits, litigation or proceedings, at law or in equity, pending by or against Borrower or any Subsidiary before any court, administrative agency, or arbitrator in which a likely adverse decision could reasonably be expected to have a Material Adverse Effect.

 

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

 

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

 

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

 

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

 

6

 

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

 

5.12                        Inbound Licenses.  Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any inbound license or other agreement, the failure, breach, or termination of which could reasonably be expected to cause a Material Adverse Effect, or that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property.

 

5.13                        Shares.  Borrower has full power and authority to create a first lien on the Shares and no disability or contractual obligation exists that would prohibit Borrower from pledging the Shares pursuant to this Agreement.  To Borrower’s knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions on transfer relative to, or options exercisable with respect to the Shares.  The Shares have been and will be duly authorized and validly issued, and are fully paid and non-assessable.  To Borrower’s knowledge, the Shares are not the subject of any present or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable likelihood for the institution of any such proceedings.

 

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

 

6.                                      AFFIRMATIVE COVENANTS

 

Borrower covenants that, until payment in full of all outstanding Obligations (other than contingent indemnification obligations not then due and payable), and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:

 

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

 

6.2                               Financial Statements, Reports, Certificates.  Borrower shall deliver to Bank:  (i) as soon as available, but in any event within forty five (45) days after the end of each calendar month, a company prepared consolidated balance sheet and income statement covering Borrower’s operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iii) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000.00) or more; (iv) promptly but in any event within three (3) days upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; (v) as soon as available, but in any event not later than sixty (60) days after Borrower’s fiscal year end or

 

7

 

within seven (7) days of board approval, Borrower’s financial and business projections and budget for the immediately following year, detailed on a quarterly basis, with evidence of approval thereof by Borrower’s board of directors; provided that, any revisions of such projections approved by Borrower’s board of directors during any fiscal year shall be delivered to Bank no later than seven (7) days after such approval; (vi) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time; and (vii) within thirty (30) days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower’s Intellectual Property Collateral, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of any Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement.  Notwithstanding the foregoing, 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.

 

(a)                                 (i) If the end of the month is a Friday, by the second business day after the end of such month and (ii) otherwise, by the second business day after the first Friday of the following month, Borrower shall deliver to Bank, in form and substance reasonably satisfactory to Bank, the Phase 3 Pyridorin patient enrollment data for such month.

 

(b)                                 Beginning with the first month that trial date results are available, by the second business day of each month, or as soon as made available to Borrower and its board of directors, Borrower shall deliver to Bank, in form and substance reasonably satisfactory to Bank, the Phase 3 Pyridorin pivotal/trial data results for the previous month.

 

(c)                                  Within forty five (45) days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate (in either original or electronic format) certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto.

 

(d)                                 Immediately upon becoming aware of the occurrence or existence and continuation of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.

 

(e)                                  Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing.

 

Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer.  If Borrower delivers this information electronically, it shall also deliver to Bank, if reasonably requested by Bank, by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within five (5) Business Days of submission of the unsigned electronic copy the certification of monthly financial statements, the intellectual property report, and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.

 

6.3                               Inventory; Returns.  Borrower shall keep all Inventory in good and merchantable condition, free from all material defects except for Inventory for which adequate reserves have been made.  Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date.  Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving more than One Hundred Thousand Dollars ($100,000.00).

 

8

 

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

 

6.5                               Insurance.

 

(a)                                 Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof.  Borrower shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar to Borrower’s.

 

(b)                                 All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank.  All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason.  Upon Bank’s reasonable request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments.  Upon the occurrence and continuation of an Event of Default, or in respect of proceeds valued individually or in the aggregate in excess of Two Hundred Fifty Thousand Dollars ($250,000.00), all proceeds payable under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.

 

6.6                               Accounts.  Within ninety (90) days after the Closing Date and at all times thereafter, Borrower shall maintain its primary depository and operating accounts with Bank and its primary investment accounts with Bank or Bank’s Affiliates (covered by satisfactory control agreements).  Borrower may maintain (i) the Operating Account during such ninety (90) day period, (ii) the Wells Fargo CD Account, and (iii) the PNC Account.  Any accounts permitted hereunder to be maintained outside Bank shall be subject to control agreements in form and content reasonably acceptable to Bank.

 

6.7                               Milestone Covenants.  Borrower shall provide evidence of the following, in form and substance satisfactory to Bank:

 

(a)                                 Patient Trial Results.  The Phase 3 Pyridorin patient trial results shall be consistent with pivotal study endpoints/metrics as described and/or referenced in that certain Investigational New Drug Application (IND 058684) as supplemented by that certain Special Protocol Agreement dated April 10, 2013 from Norman Stockbridge of the Department of Health and Human Services to Bob Peterson, copies of which has been delivered by Borrower to Bank and is attached hereto as Annex I.

 

6.8                               Registration of Intellectual Property Rights.

 

(a)                                 Except with respect to intellectual property indicated by the Borrower, and agreed to by Bank, as being immaterial, as set forth on the Schedule, Borrower shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as the case may be, those registrable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.

 

(b)                                 Except with respect to intellectual property indicated by the Borrower, and agreed to by Bank, as being immaterial, as set forth on the Schedule, Borrower shall promptly give Bank written

 

9

 

notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.

 

(c)                                  Except with respect to intellectual property indicated by the Borrower, and agreed to by Bank, as being immaterial, as set forth on the Schedule, Borrower shall (i) give Bank not less than thirty (30) days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title is expected to appear on such applications or registrations, and the date such applications or registrations are expected be filed; (ii) prior to the filing of any such applications or registrations, execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrower; (iii) upon the request of Bank, either deliver to Bank or file such documents simultaneously with the filing of any such applications or registrations; (iv) upon filing any such applications or registrations, promptly provide Bank with a copy of such applications or registrations together with any exhibits, evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and the date of such filing.

 

(d)                                 Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect and maintain the perfection and priority of Bank’s security interest in the Intellectual Property Collateral.

 

(e)                                  Except with respect to intellectual property indicated by the Borrower, and agreed to by Bank, as being immaterial, as set forth on the Schedule, Borrower shall use commercially reasonably efforts to (i) protect, defend and maintain the validity and enforceability of the Trademarks, Patents, Copyrights, and trade secrets, (ii) detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.

 

(f)                                   Bank may audit Borrower’s Intellectual Property Collateral to confirm compliance with this Section 6.8, provided such audit may not occur more often than once per year, unless an Event of Default has occurred and is continuing.  Bank shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that Borrower is required under this Section 6.8 to take but which Borrower fails to take, after fifteen (15) days’ notice to Borrower.  Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.8.

 

6.9                               Consent of Inbound Licensors.  Prior to entering into or becoming bound by any inbound license or agreement (other than over-the-counter software that is commercially available to the public), the failure, breach, or termination of which could reasonably be expected to cause a Material Adverse Effect, Borrower shall:  (i) provide written notice, which such notice shall be subject to the confidentiality provisions of Section 12.9 hereof, to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower’s business or financial condition; and (ii) in good faith take such actions as Bank may reasonably request to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (A) Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, and (B) 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, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement.

 

6.10                        Creation/Acquisition of Subsidiaries.  In the event Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary shall promptly notify Bank of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required by Bank to cause each such domestic Subsidiary to guarantee the Obligations of Borrower under the Loan Documents and grant a continuing pledge and security interest in and to the collateral of such Subsidiary (substantially as described on Exhibit B hereto), and Borrower shall grant and pledge to Bank a perfected security interest in the Shares of each Subsidiary (whether foreign or domestic), unless otherwise agreed to in writing by Bank.

 

10

 

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

 

7.                                      NEGATIVE COVENANTS

 

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

 

7.1                               Dispositions.  Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or subject to Section 6.6 of the Agreement, move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.

 

7.2                               Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control.  Change its name or the Borrower State or relocate its chief executive office without thirty (30) days prior written notification to Bank; dismiss or replace its chief executive officer or chief financial officer without immediate notification to Bank or fail to have a chief executive officer or chief financial officer for longer than ninety (90) days; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; have a Change in Control.

 

7.3                               Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person, or enter into any agreement to do any of the same, except where (i) such transactions do not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000.00) during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity.

 

7.4                               Indebtedness.  Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.

 

7.5                               Encumbrances.  Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property.

 

7.6                               Distributions.  Pay any dividends (other than dividends made solely in Borrower’s capital stock) or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase.

 

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

 

11

 

otherwise distributing property to Borrower. Further, Borrower shall not enter into any license or agreement with any Prohibited Territory or with any Person organized under or doing business in a Prohibited Territory.

 

7.8                               Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for (i) Permitted IP Transfers and (ii) 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.

 

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

 

7.10                        Inventory and Equipment.  Store the Inventory or the Equipment in an amount in excess of Three Hundred Thousand Dollars ($300,000.00) with a bailee, warehouseman, or similar third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment.  Except for Inventory sold in the ordinary course of business and any Inventory and Equipment with an aggregate value in excess of Three Hundred Thousand Dollars ($300,000.00) and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank files a financing statement where needed to perfect its security interest; provided, however, that Inventory, Equipment and supplies, including Pyridorin, may be stored by third parties solely to the extent necessary for ongoing use in clinical trials in the ordinary course of business.

 

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

 

7.12                        Subsidiaries Assets.  Permit the aggregate value of assets at Subsidiaries to exceed One Hundred Thousand Dollars ($100,000.00) at any time.

 

8.                                      EVENTS OF DEFAULT

 

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

 

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

 

8.2                               Covenant Default.

 

(a)                                 If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or

 

(b)                                 If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the 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 reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, so long as

 

12

 

Borrower continues to diligently attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;

 

8.3                               Material Adverse Change.  If there occurs any circumstance or circumstances that could reasonably be expected to have a Material Adverse Effect.

 

8.4                               Defective Perfection.  If Bank shall receive at any time following the Closing Date an SOS Report indicating that except for Permitted Liens, Bank’s security interest in the Collateral is not prior to all other security interests or Liens of record reflected in the report;

 

8.5                               Attachment.  If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within five (5) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within five (5) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period);

 

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

 

8.7                               Other Agreements.  If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) or that would reasonably be expected to have a Material Adverse Effect;

 

8.8                               Subordinated Debt.  If Borrower makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Bank;

 

8.9                               Judgments.  If one or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower or any Subsidiary and the same are not, within ten (10) days after the entry thereof, discharged or 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 discharge, stay, or bonding of such judgment, order, or decree).

 

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

 

8.11                        Trial Discontinued.  The Phase 3 Pyridorin trial is discontinued for any reason.

 

9.                                      BANK’S RIGHTS AND REMEDIES

 

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

 

13

 

(a)                                 Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.6 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);

 

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

 

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

 

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

 

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

 

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

 

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

 

(h)                                 Bank may credit bid and purchase at any public sale;

 

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

 

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

 

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

 

14

 

9.2                               Power of Attorney.  Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to:  (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) enter into a short-form intellectual property security agreement consistent with the terms of this Agreement for recording purposes only or modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower’s approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest; and (h) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clauses (g) and (h) above, regardless of whether an Event of Default has occurred.  The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is terminated.

 

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

 

9.4                               Bank Expenses.  If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower:  (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type discussed in Section 6.4 of this Agreement, and take any action with respect to such policies as Bank deems prudent.  Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral.  Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

 

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

 

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

 

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

 

15

 

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

 

10.                               NOTICES

 

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

 

	
If to Borrower:
    	
NephroGenex, Inc.
    
	
 
    	
3200 Beach Leaf Court
    
	
 
    	
Raleigh, NC 27604
    
	
 
    	
Attn: John Hamill,   Chief Financial Officer
    
	
 
    	
 
    
	
If to Bank:
    	
East West Bank
    
	
 
    	
2350 Mission College   Blvd., Suite 988
    
	
 
    	
Santa Clara, CA 95054
    
	
 
    	
Attn: Linda LeBeau,   Managing Director
    
	
 
    	
FAX: (408) 588-9688
    

 

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

 

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

 

New York 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 New York County, New York; 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.

 

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.

 

12.                               GENERAL PROVISIONS

 

12.1                        Successors and Assigns.  This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole

 

16

 

discretion.  Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.

 

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

 

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

 

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

 

12.5                        Correction of Loan Documents.  Bank may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.

 

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

 

12.7                        Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.

 

12.8                        Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower.  The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

 

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

 

[Balance of Page Intentionally Left Blank]

 

17

 

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

 

	
 
    	
NEPHROGENEX, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John P. Hamill
    
	
 
    	
Name:
    	
John   P. Hamill
    
	
 
    	
Title:
    	
Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
EAST   WEST BANK
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Linda LeBeau
    
	
 
    	
Name:
    	
Linda   LeBeau
    
	
 
    	
Title:
    	
Managing   Director
    

 

[Signature Page to Loan and Security Agreement]

 

 

EXHIBIT A

 

DEFINITIONS

 

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

 

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

 

“Amortization Date” means November 1, 2015, provided however, if Interest Only Extension Event I has occurred, such date shall be May 1, 2016, and provided further that if both Interest Only Extension Event I and Interest Only Extension Event II have occurred, such date shall be November 1, 2016.

 

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

 

“Borrower State” means Delaware, the state under whose laws Borrower is organized.

 

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

 

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

 

“Cash” means unrestricted cash and cash equivalents.

 

“Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.

 

“Chief Executive Office State” means North Carolina, where Borrower’s chief executive office is located.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the New York Uniform Commercial Code as amended or supplemented from time to time.

 

“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral and Intellectual Property Collateral to the extent (i) any such property is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, or (iii) any such property constitutes the capital

 

1

 

stock of a controlled foreign corporation (as defined in the IRC), in excess of sixty five percent (65%) of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote; provided that in no case shall the definition of “Collateral” exclude any Accounts, proceeds of the disposition of any property, or general intangibles consisting of rights to payment.

 

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

 

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

 

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

 

“Credit Extension” means each Draw or any other extension of credit by Bank to or for the benefit of Borrower hereunder.

 

“Draw” or “Draws” has the meaning sent forth in Section 2.1(b)(ii).

 

“Draw A” has the meaning set forth in Section 2.1(b)(i).

 

“Draw B” has the meaning set forth in Section 2.1(b)(ii).

 

“Draw B Period” is the period commencing on the date of Bank’s receipt of evidence, in form and substance reasonably satisfactory to Bank, of (i) enrollment recruitment of the first three hundred (300) Phase 3 Pyridorin trial patients and (ii) positive TQT cardiac safety study results and ending on May 29, 2015.

 

“Enrollment” means those that have been recruited, consented and screened with eligibility verified, and have entered the patient trial, are actively participating in the same, and through their participation in the trial, have been administered the drug or the placebo.

 

“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.

 

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

 

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

 

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

 

2

 

“FDA” means the United States Food and Drug Administration.

 

“Final Payment” 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 Maturity Date, or (b) the acceleration of the Draws, or (c) the prepayment of the Draws pursuant to Section 2.1(b)(iv), equal to Twelve Million Dollars ($12,000,000.00) multiplied by the Final Payment Percentage.

 

“Final Payment Percentage” is one half percent (0.50%); provided however, if the Amortization Date moves to either May 1, 2016 or November 1, 2016, such percentage shall be one percent (1.00%).

 

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

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

 

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

 

“Intellectual Property Collateral” means all of Borrower’s right, title, and interest in and to the following:

 

(a)                                 Copyrights, Trademarks and Patents;

 

(b)                                 Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

 

(c)                                  Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

 

(d)                                 Any and all claims for damages by way of past, present and future infringement of any of the rights included above, 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;

 

(e)                                  All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

 

(f)                                   All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

 

(g)                                  All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

 

“Interest Only Extension Event I” means Bank’s receipt of evidence, in form and substance reasonably satisfactory to Bank, of Borrower’s Enrollment of six hundred (600) Phase 3 Pyridorin trial patients, by no later than October 31, 2015.

 

“Interest Only Extension Event II” means Bank’s receipt of evidence, in form and substance reasonably satisfactory to Bank, of Biostatistician’s recommendation that the Phase 3 Pyridorin Trial should continue based on positive interim review/results, by no later than March 31, 2016.

 

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

 

3

 

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

 

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

 

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

 

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

 

“Material Adverse Effect” means (a) 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; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with the milestone covenant in Section 6.7 during the next succeeding reporting period.

 

“Maturity Date” means October 1, 2018.

 

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

 

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

 

“Operating Account” means that certain account maintained by Borrower at Wells Fargo Bank as set forth on the Perfection Certificate used solely for operating expenses, provided that the aggregate amount in such accounts does not exceed at any time the amount necessary to cover Borrower’s operating expenses for the ninety (90) days following the Closing Date.

 

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

 

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

 

“Permitted Indebtedness” means:

 

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

 

(b)                                 Indebtedness existing on the Closing Date and disclosed in the Schedule;

 

(c)                                  Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;

 

(d)                                Subordinated Debt;

 

4

 

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

 

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

 

(g)                                  Indebtedness consisting of Contingent Obligations of the Borrower or any Subsidiary incurred in the ordinary course of business for the benefit of the Borrower or any Subsidiary, provided that the primary obligation being guaranteed is not prohibited by this Agreement;

 

(h)                                 Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate that may be deemed to exist pursuant to any performance bond, surety, statutory appeal or similar obligation entered into or incurred by the Borrower or any of its Subsidiaries in the ordinary course of business;

 

(i)                                     Deferred taxes, which are not otherwise in violation of any of the provisions of this Agreement;

 

(j)                                    Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate with respect to judgments or awards not constituting an Event of Default;

 

(k)                                 unsecured Indebtedness not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate owing to banks or other financial institutions under credit cards to officers and employees for, and constituting, business related expenses in the ordinary course of business;

 

(l)                                 Indebtedness owing to insurance carriers and to cover finance insurance premiums in the ordinary course of business in a principal amount not to exceed at any time the amount of such insurance premiums; and

 

(m)                             Indebtedness consisting of an Investment described in clause (e) of the definition of “Permitted Investment”.

 

“Permitted Investment” means:

 

(a)                                 Investments existing on the Closing Date disclosed in the Schedule;

 

(b)                                 (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than ten (10) years from the date of investment therein, and (iv) Bank’s money market accounts;

 

(c)                                  Repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000.00) in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists;

 

(d)                                 Investments accepted in connection with Permitted Transfers;

 

(e)                                  Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed One Hundred Thousand Dollars ($200,000.00) in the aggregate in any fiscal year;

 

(f)                                   Investments not to exceed One Hundred Thousand Dollars ($100,000.00) in the aggregate in any fiscal year consisting of (i) travel advances and employee relocation loans and other employee loans and advances in

 

5

 

the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;

 

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

 

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

 

(i)                                     Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed One Hundred Thousand Dollars ($100,000.00) in the aggregate in any fiscal year.

 

“Permitted IP Transfer” means the non-exclusive licenses and similar arrangements for the use of the property, including Intellectual Property Collateral, of Borrower or its Subsidiaries in the ordinary course of business provided, that, with respect to each such license, (i) no Event of Default has occurred or is continuing at the time of such license; (ii) the license constitutes an arms-length transaction, the terms of which, on their face, do not provide for a sale or assignment of any Intellectual Property Collateral and do not restrict the ability of Borrower or any of its Subsidiaries, as applicable, to pledge, grant a security interest in or lien on, or assign or otherwise Transfer any Intellectual Property Collateral; and (iii) Borrower delivers ten (10) days’ prior written notice and a brief summary of the terms of the proposed license to Bank and delivers to Bank copies of the final executed licensing documents in connection with such license promptly upon consummation thereof.

 

“Permitted Liens” means the following:

 

(a)                                 Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents;

 

(b)                                 Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves, provided the same have no priority over any of Bank’s security interests;

 

(c)                                  Liens not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate (i) upon or in any Equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

 

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

 

(e)                                  Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.5 (attachment) or 8.9 (judgments); and

 

(f)                                   Liens in favor of other financial institutions arising in connection with Borrower’s deposit accounts held at such institutions to secured standard fees for deposit services charged by, but not financing made available by such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit accounts.

 

6

 

(g)                                  Liens on insurance policies securing Indebtedness incurred by Borrower or its Subsidiaries permitted by this Agreement to secure the payment of insurance premiums.

 

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

 

(a)                                 Inventory and supplies in the ordinary course of business;

 

(b)                                 Permitted IP Transfers;

 

(c)                                  Worn-out or obsolete Equipment; or

 

(d)                                 Other assets of Borrower or its Subsidiaries that do not in the aggregate exceed Two Hundred Fifty Thousand Dollars ($250,000.00) during any fiscal year.

 

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

 

“PNC Account” means that certain account maintained by Borrower at PNC Bank as set forth on the Perfection Certificate so long as such account is closed within forty five (45) days after the Closing Date and the aggregate value in such account does not exceed Two Million Dollars ($2,000,000.00) at any time.

 

“Prime Rate” means the greater of three and one quarter percent (3.25%) per year, or the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.

 

“Prohibited Territory” means any person or country listed by the Office of Foreign Assets Control of the United States Department of Treasury as to which transactions between a United States Person and that territory are prohibited.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.

 

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

 

“Shares” means (i) sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by Borrower in any Subsidiary of Borrower which is not an entity organized under the laws of the United States or any territory thereof, and (ii) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned or held of record by Borrower in any Subsidiary of Borrower which is an entity organized under the laws of the United States or any territory thereof.

 

“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.

 

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

 

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

 

7

 

“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.

 

“Wells Fargo CD Account” means that certain certificates of deposit account number XXXX-X621 at Wells Fargo Bank, provided that the aggregate value of such account does not at any time exceed the aggregate value of such outstanding certificates of deposit up to their respective maturity dates in effect on the Effective Date, which such certificates of deposit may not be renewed, amended or otherwise modified on or after the date hereof.

 

8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00237-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00237-of-00352.parquet"}]]